Question of the day
Thursday, Jan 31, 2019 - Posted by Rich Miller
* Washington Monthly takes a look at why the Minneapolis/St. Paul region does so well. Here’s one big reason: The Fiscal Disparities Act.…
In the 1960s, local districts and towns in the Twin Cities region offered competing tax breaks to lure in new businesses, diminishing their revenues and depleting their social services in an effort to steal jobs from elsewhere within the area. In 1971, the region came up with an ingenious plan that would help halt this race to the bottom, and also address widening inequality. The Minnesota state legislature passed a law requiring all of the region’s local governments—in Minneapolis and St. Paul and throughout their ring of suburbs—to contribute almost half of the growth in their commercial tax revenues to a regional pool, from which the money would be distributed to tax-poor areas. Today, business taxes are used to enrich some of the region’s poorest communities.
No other metro region in the country has ever replicated that strategy, but in 2015 Chicago’s Metropolitan Planning Council wanted to know why Minneapolis was growing at almost five times the rate of their city. They came up with three reasons:
The Fiscal Disparities Act
Education
Quality of life
Notice that both education and quality of life are largely dependent on the funding formula in the Fiscal Disparities Act.
Remember, this is growth in commercial taxes, not residential.
* The Question: What do you think of this idea?
- Da Big Bad Wolf - Thursday, Jan 31, 19 @ 2:04 pm:
Like a TIF but not anchored to its own region. And it had success. Anything that is a success deserves a second look.
- Dome Gnome - Thursday, Jan 31, 19 @ 2:06 pm:
I think yes, where do I sign up?
- Steve - Thursday, Jan 31, 19 @ 2:07 pm:
It’s very difficult in a state with a lot of taxing authorities, like Illinois. Plus , you’ve got TIF districts. So, I doubt it would be easy to pull off in Illinois. Some things in politics become path dependent …
- Bill Edley - Thursday, Jan 31, 19 @ 2:07 pm:
I proposed a similar idea 25 years ago to reform the school aid formula with a statewide sharing of commercial and industrial property taxes. Chicago has a C&I property multiplier, which makes the politics difficult in Illinois. But the concept is valid.
- Perrid - Thursday, Jan 31, 19 @ 2:09 pm:
Devils always in the details. Like Da Big Bad wolf said, it sounds similar to a TIF, which lots of people complain about because it takes money AWAY from schools, or can at least. But in general I think pooling resources and averaging things out is almost always a good thing.
- Chicago 20 - Thursday, Jan 31, 19 @ 2:09 pm:
It’s a common sense solution to the uninformed TIF retail raiding laws that Illinois currently has.
- Chicago 20 - Thursday, Jan 31, 19 @ 2:10 pm:
S/b Uninforced not uninformed.
- Blue Dog Dem - Thursday, Jan 31, 19 @ 2:11 pm:
Since we allow TIFs and other tax abatement, this is a good approach. Or, a statewide ban on ending TIF.
- Norseman - Thursday, Jan 31, 19 @ 2:13 pm:
Looks like something Illinois should look at.
Got to hand it to those Scandinavians.
- Skeptic - Thursday, Jan 31, 19 @ 2:19 pm:
If I had a pipe dream of being Governor, I would take that idea and try to extend it to the entire Great Lakes region.
- Lt Guv - Thursday, Jan 31, 19 @ 2:21 pm:
Bill Edley always had a lot of good ideas.
- City Guy - Thursday, Jan 31, 19 @ 2:22 pm:
I generally like the idea. I always found it a bit absurd that a major facility like a shopping mall or factory could be built across the street from a municipal boundary, but all the tax benefits stayed within the boundary.
The other issue that needs to be considered is the shifts in sales tax. Local governments have historically sought the shopping mall, car dealership, etc to subsidize the city. But the Internet is leading to a dramatic decline in local retail. I don’t know how the Internet sales taxes are being distributed, but they should be examined as a way to improve equity.
- Josh - Thursday, Jan 31, 19 @ 2:27 pm:
Illinois already does this. It’s why Chicago gets $0.90 back from the state for every $1.00 it pays in.
It’s why downstate take $1.50 for every $1.00 of taxes.
This would only exacerbate this redistribution.
- FormerIllinoisan - Thursday, Jan 31, 19 @ 2:32 pm:
Just some two cents from a former Illinoisan that works on tax policy in Minnesota now.
Fiscal Disparities is just one piece of what is known as the “Minnesota Miracle” that transformed the relationship the state has with local units of government. The other was state funding of education and creation of the Local Government Aid Program.
Minnesota kicks in a much higher percentage of school aid than Illinois, roughly 80%, which is down from pre-Pawlenty school aid cuts the state hasn’t fully recovered from.
LGA is somewhat similar to the local’s share of the income tax in Illinois, but it is distributed through a formula that takes into account drivers of city spending and a city’s property tax wealth, so it’s much more targeted to the cities that really need it. Politically it plays out as benefiting Minneapolis, St. Paul, some inner ring suburbs and Greater MN (everything outside of the TC metro).
I’m not sure there is a region in IL similar to this, but there are actually two fiscal disparity regions in MN. There is the one in the Twin Cities metro, but also one on the Iron Range in northern MN where taconite mining takes place.
- wondering - Thursday, Jan 31, 19 @ 2:39 pm:
Try it, you might like it.
- Downstater - Thursday, Jan 31, 19 @ 2:40 pm:
Easier done in 1971 than 2019. In Illinois, most of the “commercial tax” would likely be sales tax. In the 70s the future of place-based retail was bright. Now, it’s all internet sales and nearly every community is tax starved.
- City Zen - Thursday, Jan 31, 19 @ 2:42 pm:
Education? Minnesota spends $1,800 less per pupil on education than Illinois. What’s their secret?
I’m sure Chicago’s south suburbs would like this idea. I’d be curious to see the domino effect. Would suburbs that have grown substantially over the past few decades had the same growth if they couldn’t reinvest a sizable chunk of their home-grown revenue?
- TheInvisibleMan - Thursday, Jan 31, 19 @ 2:47 pm:
“Like a TIF”
Like as in exactly the opposite of a TIF.
A TIF takes funds away from every governing body, except the creator of a TIF.
This act takes the growth in the commercial base, and distributes it equally to all other agencies.
This would be a great plan.
As far as the ‘redistributing’ argument that Chicago already supports the rest of the state. That’s the entire point, to help the less well off areas based on the growth in the better off areas.
Not everyone thinks taxes are theft. Many of us feel our wealth can and should be used to give everyone an equal opportunity, no matter where they live in the state. None of our names rhyme with “Pillicorn” though.
- Northsider - Thursday, Jan 31, 19 @ 2:56 pm:
Seems worth a close look, and devising a plan for how it could be adopted here.
- Grandson of Man - Thursday, Jan 31, 19 @ 2:58 pm:
A great idea that works, apparently. Investment in low-income communities should be among our top priorities. It’s much more humane and smart to invest in this way rather than spend too much on incarceration and other related costs.
- Taxman - Thursday, Jan 31, 19 @ 3:00 pm:
The Invisible Man is flat wrong in stating categorically that a TIF takes funds away from every governing body. Government taxing districts pass a levy each year indicating how much money they need to derive from property taxes assessed against properties within their district. The tax rate applied to each individual property ensures that each taxing district will receive the total amount of their levy. The effect of a TIF is that the tax rate will be higher than it would otherwise be in the absence of the TIF. Thus, TIF’s ensure that the property taxes are higher than they would otherwise be. However, TIF’s do not generally deprive taxing districts of tax revenue, unless a taxing district is running up against a cap imposed by state law.
- Louis G. Atsaves - Thursday, Jan 31, 19 @ 3:16 pm:
85% of middle and upper management up North sends their kids to public schools, including the major metropolitan area?
Wow.
- JJJJJJJJJJJ - Thursday, Jan 31, 19 @ 3:24 pm:
There’s some questions about logistics and politically it seems impossible. But, overall it’s a good idea and we can look to the Twin Cities and Minnesota for a lot of good ideas.
- Prince Crossing - Thursday, Jan 31, 19 @ 3:31 pm:
Brilliant. I have been advocating this privately for years after seeing first hand the cannibalism that neighboring municipalities have exhibited to court commerce. Neighbors will offer up the heavens in rebates and incentives to get a large retailer or car dealer. As an elected official, I loved hearing the ultimatums from car dealers - look no further than Grand Ave in Elmhurst/Bensenville or Ogden Ave in Westmont/Downers Grove.
- WH Mess - Thursday, Jan 31, 19 @ 3:43 pm:
JB’s team would be smart to look at this as part of an overall sales tax broadening, property tax and education funding reform package. The reality is that our GDP can support more investment in education and infrastructure, but our revenue capture system is closer to the 19th century than the 21st. Get the progressive tax constitutional amendment ratified first though.
- City Zen - Thursday, Jan 31, 19 @ 3:45 pm:
==As an elected official, I loved hearing the ultimatums from car dealers==
Let me guess, the dealers want to keep 1/2 the sales tax generated from auto sales, right?
- TheInvisibleMan - Thursday, Jan 31, 19 @ 3:45 pm:
Taxman, if monies are not being removed from other taxing bodies, why is the rate being increased? What is it that is being made up for in raising the rate?
In absence of a TIF, the tax rate would be lower - by your own admission. In the presence of a TIF, the rate has to be increased to make up for the ‘missing’ funds that would exist without the TIF taking it.
That’s how TIFs work now, and how they have always worked. There’s nothing wrong about what I’ve said. You have just decided to use semantics to defend the implementation of TIF.
- Boone's is Back - Thursday, Jan 31, 19 @ 4:05 pm:
I’d like to know more about the mechanics of how it works but it could be great for the south and southwest suburbs, some of whom have tax rates above 30%, and for rural counties.
- Bogey Golfer - Thursday, Jan 31, 19 @ 4:26 pm:
Municipalities that are bedroom communities would get commercial tax revenue without the negatives that typically go with commercial development (traffic, noise, exterior lighting). Fair or not?
- lake county democrat - Thursday, Jan 31, 19 @ 4:30 pm:
A lot more efficient than a commuter tax.
- FormerILLobster - Thursday, Jan 31, 19 @ 4:56 pm:
Actually, St. Louis County does this “pool” with sales tax revenue from the various municipalities within St. Louis County.Therefore, for the article to say that no other metro region in the country replicates this strategy is not completely accurate. However, the St. Louis County “pool” is limited to some sales tax revenue, and not other commercial taxes.
- 37B - Thursday, Jan 31, 19 @ 5:03 pm:
Apply this across the entire Chicago Metropolitan Area and you’ve got something. Oh wait…
- JS Mill - Thursday, Jan 31, 19 @ 6:07 pm:
=The Invisible Man is flat wrong in stating categorically that a TIF takes funds away from every governing body.=
Nope, he is right on the mark.
TIF’s allow a municipality to deprive other taxing bodies like schools and counties from access revenue AND raise the costs for others within their taxing districts.
TIF’s function by capping the taxable value of property of the land in an area for everyone but the municipality that implements the TIF.
The property owners pay the municipality based on 33 1/3% of the fair market value. The municipality is supposed to use that money for infrastructure improvements within the TIF and for rebates. The other taxing bodies are totally shut out of the increased value for taxation (revenue) purposes. Since they are dependent on property tax revenue they are in fact cut out of the revenue.
TIF’s are generally a boondoggle and most small towns have one of more and that really hurts schools in particular.
- wordslinger - Thursday, Jan 31, 19 @ 9:10 pm:
Josh makes a good point in that there is already a de facto redistribution formula in the state, with the city being about a push and the Collars subsidizing Downstate, especially Southern Illinois.
- Bill k - Friday, Feb 1, 19 @ 5:27 am:
Illinois is to late. Like a man dying of Heart disease having a salad for lunch.
- Da Big Bad Wolf - Friday, Feb 1, 19 @ 6:49 am:
==1971, the region came up with an ingenious plan that would help halt this race to the bottom, and also address widening inequality.==
The bottom line is all the communities worked together.
- Question More - Friday, Feb 1, 19 @ 7:42 am:
Forget the “naysayers.” It’s worth a try, OR we keep doing the same thing and expect different results.
INSANITY.
- Cook County Commoner - Friday, Feb 1, 19 @ 9:04 am:
As mention above, MN has a lot fewer taxing bodies than IL. 2700 or so in MN vs 6900 or so in IL. Too many nibbling on the cheese here to tolerate this sort of change.
- Anonymous - Friday, Feb 1, 19 @ 9:17 am:
Minnesota also has a heritage of good, progressive government that Illinois can only dream of. This is a fantastic idea that will never fly in Illinois’ “Where’s mine?” culture. If the power brokers can’t get their cut, it won’t happen here.
- City Zen - Friday, Feb 1, 19 @ 9:24 am:
Homogeneity helps with consensus.
- VerySmallRocks - Friday, Feb 1, 19 @ 10:19 am:
The idea has merit, though my greatest fear is we’ll be compelled to say “you betcha” as a standard phrase.