Loon reviewing fiscal disparities program

Eden Prairie News
By Patty Dexter

42B Rep. Jennifer Loon is continuing work she began in her first term to look at the fiscal disparities tax program for the metro area.

Loon, along with 42A Rep. Kirk Stensrud and Sen. David Hann met jointly with the Eden Prairie News on April 11 to discuss their thoughts on various legislative topics.

According to Loon, fiscal disparities is a special tax program that exists only in the metro area. It was enacted and took effect in the 1970s. The program measured the industrial and commercial tax base for each municipality starting at a certain time period. If a community was found to have an above-average commercial and industrial tax base, it had to donate some of those taxes to a pool, which was then redistributed to cities that didn’t have as much commercial and industrial tax base.

Loon said during her first term she worked on authoring a bill to mandate a study of the program. The study was released this year in February and the House Taxes Committee had a hearing on it in mid February.

Since then she has been poring over the study and meeting with nonpartisan tax experts to discuss how to craft legislation to address it. Because a number of cities in the metro area are recipients of the fiscal disparities, she doesn’t believe a repeal would prevail, she added.

There are issues with the program such as no distinction being made between manufacturing and retail operations. Cities such as Bloomington, that donate to the pool, are almost penalized because of having more retail operations, Loon said.

“Well the studies show very clearly that … the cost to local government for having a retail store is higher. They don’t pay for themselves because you’ve got additional policing,” she said.

Reviewing the program also affects Eden Prairie because it’s the No. 2 donor city for fiscal disparities, Loon said.

Stensrud said oftentimes legislators may have good intentions when they pass a bill to create a program, but they never get around to measuring the outcomes. He believes lawmakers need to legislate for outcomes.

Hann said throwing money at something and good intentions aren’t enough. Building in requirements to measure program outcomes is needed.

“I think in this case it’s a really good thing to try to get the Legislature to go back and look at this program, and ask some questions about it,” he said.

Rick Getschow, Eden Prairie city manager, said the city has been working closely with Loon on the review and has discussed the study and possible legislation with her.

“The city’s position has been, as the No. 2 contributor to the program, that we felt it was very important to study how the program is doing — if it’s meeting its goals because Eden Prairie as a city is affected by the program in terms of providing our tax capacity to other cities in the metropolitan area,” he said.

Effects on taxpayers

Sue Kotchevar, Eden Prairie chief financial officer, said the city contributed $15 million of its tax capacity to fiscal disparities for 2012. Just a small portion of that comes back to the city and most of it goes to other communities.

If that tax capacity wasn’t taken away there would be a larger tax base for the city to tax upon. Eden Prairie taxpayers then would have to pay less, because there would be more business property tax base to levy, Kotchevar said. According to Getschow, the city tax on a median valued home would be 9 percent less if the city didn’t contribute to fiscal disparities.

Keeping the dollars local

The Eden Prairie Chamber of Commerce doesn’t have an official position on fiscal disparities but it has sought a level playing field for businesses to fairly compete. With fiscal disparities, more dollars seem to leave Eden Prairie than stay, said Pat MulQueeny, chamber president.

The economy and the communities have changed, but the program itself hasn’t seen any dynamic changes, MulQueeny said.

“Ultimately it’s taken dollars away … to be put into other communities to help them. In that case that would be seen as a negative to the businesses in Eden Prairie. Again if you’re going to collect those tax dollars, the preference would be to spend those locally rather than give them to other communities,” he said.

MulQueeny said the chamber is supportive of reviewing the program to see if there are ways to accomplish what lawmakers want to do without penalizing communities like Eden Prairie that have a stronger businesses front.