The smaller fiscal disparities distribution pool will generally translate into smaller tax base distributions, on average, for cities.
Fiscal Disparities is a revenue-sharing program that applies to cities in the Twin Cities metropolitan area and on the Iron Range. The program’s administrative auditors provide data that can be used in setting a city’s preliminary levy.
As cities prepare to certify their proposed levies for the 2023 tax year by the Sept. 30 deadline, changes to property valuations will impact the allocation of the proposed tax levy among property taxpayers when individual tax estimates are prepared for this fall’s truth-in-taxation notices.
Trends in preliminary metro data
Based on initial information collected by the League from the counties of Anoka, Carver, Dakota, Hennepin, Ramsey, Scott, and Washington, the metropolitan fiscal disparities tax base sharing pool will decline by roughly 2% for taxes payable in 2023. In comparison, for payable 2022, the metro-wide tax base sharing pool increased by 8.6%. The decline is related, in part, to the economic impacts of the pandemic and the resulting residual and delayed property tax effects.
The smaller fiscal disparities distribution pool will generally translate into smaller tax base distributions, on average, for cities. As a result, for most cities, less of the 2023 certified property tax levy will be generated through the fiscal disparities distribution levy (the city’s prior year tax rate times its distribution value) and more will be generated though the city’s local tax rate.
The League has not yet received complete preliminary information on the Iron Range fiscal disparities program.
Changes to population and property values affect distribution amounts
On an individual city level, the impacts of the decrease in the area-wide distribution pool could be accentuated by population changes as well as rapid increases in the value for some types of property, both of which can impact the distribution formula for fiscal disparities.
Generally, a city with faster-than-average population growth will benefit via the fiscal disparities formula, while cites with slower-than-average or declining population will generally experience declines in distribution. On the other hand, cities with faster-than-average tax base growth will generally experience lower distributions from the pool, while cities with lower tax base growth will experience greater distributions.
Impact of property valuation changes
In addition to the impacts of value changes in the Fiscal Disparities program, overall property valuation changes will impact the distribution of property taxes in 2023 among taxpayers. The Minnesota Department of Revenue presented a preliminary analysis of the trends in property values in Minnesota to the League’s Fiscal Futures Policy Committee in August, which included information on the statewide changes market value for major property types for taxes payable in 2023, however value changes in individual cities will differ from the statewide trends:
- Residential homestead — +17.1 percent
- Apartments — +9.3 percent
- Agricultural Homestead (land) — + 12.3 percent
- Seasonal/recreational (cabins) — +25.4 percent
- Commercial — +2.7 percent
- Industrial — +11.5 percent
The increases for residential homesteads and cabins are well above the annual average and in general, properties in those classes will experience shifts in taxes from other, slower-growing property types, even absent a levy increase by the city, county, or school district. Parcel-specific truth-in-taxation notices based on proposed levies and new property market values will be mailed by counties to taxpayers in late November.