Before Sen. Michael Kreun was elected to represent Blaine, Columbus, Ham Lake and Lexington, Columbus Mayor Jesse Preiner gave him a tour of the city. During that tour, Kreun learned about the city itself, projects and financial burdens – one of which is the Metropolitan Fiscal Disparities program.
“My overall thought was, how do we kind of help these small cities that are being impacted by the inequities in the formulas through no fault of their own? And that’s how I saw Columbus’ situation,” Kreun said.
Columbus gives more money into the seven-county pool than it annually receives. The program uses a formula to share a percentage of commercial/industrial tax revenue that taxing authorities in Anoka, Carver, Dakota, Hennepin, Ramsey, Scott and Washington counties receive. Annually, each entity puts 40% of its commercial/industrial revenue into a pool that then gets divvied out to participating entities based on population and tax capacity.
Columbus has been aiming for more commercial and industrial development to help lower the residential taxpayer’s burden, and has seen that effort pay off, this year lowering the city’s tax rate by about 16%. But for small cities like Columbus that have grown commercially, not residentially, the amount it annually receives from this pool is less than it contributes.
“From a fiscal standpoint, they’re run well. They’re fiscally conservative, they’re doing the right things. They are developing their commercial and industrial property, but they get hurt with fiscal disparities,” Kreun said.
Program history
The Minnesota Fiscal Disparities Program has been a little-known tax-base distribution mechanism in the seven-county metro since 1971. The program was started in an effort to curb commercial competition between cities, incentivise growth, preserve greenspace and distribute wealth to help developing communities to grow. It was challenged in court twice before it was passed in the Charles R. Weaver Metropolitan Revenue Distribution Act of 1971.
“At least for some communities, Columbus for certain, there’s been some unintended consequences that now we’re trying to fix. But it’s hard to fix because there’s such entrenched winners and losers in this game,” Columbus council member Janet Hegland said.
Hegland understands that the program was created in an effort to help municipalities throughout the seven counties, but views Columbus’ financial situation as a negative result that could be lessened if the Legislature reviews how to financially help cities like Columbus.
In the creation of the program, it was understood that there would be monetary winners and losers. Columbus used to receive more than it gave annually prior to becoming a city in 2006, but that shifted in 2008 when it became an annual contributor. Based on recent calculations, the amount of money Columbus is losing on this program continues to grow.
Columbus has lost anywhere from $182,000 to a $252,000 in a single year due to the program.
“Certainly as the years have gone by the [amount] is getting bigger,” Hegland said.
Despite Columbus’ efforts to grow its tax base significantly in recent years, it cannot expand as much residentially because of the amount of wetlands, protected areas and a 5-acre minimum, resulting in the financial gap increasing.
“If you’re unable to really address the residential aspect of growth to keep up with your commercial and industrial development, then you really get hurt,” Kreun explained.
However, even for a city like Columbus that contributes to the program, there are unseen benefits that the program set out to do when it was created decades ago.
An assessment of the efficacy of the program was conducted in 2012 by TischlerBise for the Minnesota Department of Revenue, and reported that both winners and losers would see increased taxes if the program were eliminated.
Anoka County’s taxes would have increased overall by 5.6% based on taxes payable in 2011, the time the study was conducted, and tax rates would have increased by 10.26% if the program was eliminated. Washington County projections were less harsh with only a .5% increase in taxes and a 3.6% increase in tax rate if the program had been eliminated.
Additionally, a trickier metric to calculate is the amount of preserved greenspace in municipalities across the metro that may have otherwise been used for commercial development to expand a city’s tax base.
Regardless of behind-the-scene benefits, Columbus is a net contributor and continues to lose money due to the program annually.
During this legislative session, Kreun thinks the best chance Columbus has at receiving financial relief from this program won’t be through changing the formula on how this pool is divvied out across the seven countries.
“In any kind of program like this, inherently there’s going to be winners and losers, and to get the political will to help these relatively few small cities that are in this situation, [messing] with the formula is counterproductive,” he said.
Rather, he hopes to pass legislation that will offer Columbus financial relief through a new mechanism by partnering with other small cities who are net contributors and have populations under 5,000 because they don’t qualify for other programs that could make up the financial shortfall Fiscal Disparities causes.
“It’s really a targeted way to help a unique group of small cities that are impacted the most by this without changing the overall formula,” Kreun said.
Columbus has lobbied for the past two years trying to receive some financial relief because the Columbus Council has viewed its large contribution as a punishment for its commercial expansion efforts. Council member Janet Hegland hopes this year is different from previous years based on Kreun’s interest in the project.
“In the past, we have had to find somebody who’d be willing to champion this for us. … The difference for us is that when you have someone who comes to you and says, ‘Hey, I want to help you with this,’ the amount of time and energy that they’re willing to put into it is different,” Hegland said.
She also added that the money spent on lobbying for the past few years has brought some state funding to the city in other ways like roads or infrastructure.
“I really believe in my heart we will get this fixed, and if it’s not this year, we’ll try it again next year because I’m just not going to let it go and nobody else wants to either,” Hegland said.
Kreun has said he is committed to helping Columbus.
“All I can really do is keep pressing forward and making the case for Columbus, and whether that results in the bill passing this year or just laying the groundwork for future years, I think it’s still productive either way,” he said.
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