By Cook County Assessor Robert Thompson from Cook County Connections - Cook County MN - November 22, 2019

In a recent letter to the editor, Grand Marais resident Arvis Thompson asked, “Do you know about fiscal disparity?” This is a great question about a very complex topic – and one that arises periodically.

In 1971, the state of Minnesota instituted a program of commercial/industrial tax-base sharing within the Twin Cities metropolitan area via the Charles R. Weaver Metropolitan Revenue Distribution Act. In 1996, the state established a parallel program for the Iron Range via the 1996 Iron Range Fiscal Disparities Act. 

The purpose of the program is to aid Taconite Tax Relief cities with a small commercial/industrial tax base by giving them a share of property taxes from other communities with more property wealth. It affects all commercially/industrially classified property in Cook County by generating a substitute tax, which is generally higher than the county-imposed levy. The program utilizes a base tax year (1971 in the Twin Cities and 1995 on the Iron Range) in its calculations. Under the program, forty percent of any new commercial tax capacity established since the base year is subject to the program. New tax capacity is created via new development/construction or changes in property use, as well as by increased market values/market appreciation.

The distribution of Fiscal Disparities monies is far more complex than the contribution. Population of a jurisdiction, the jurisdiction’s calculated fiscal capacity and the regional average fiscal capacity all factor into the distribution index. Essentially, declining populations, lack of new commercial development and lack of market appreciation are more likely to result in a distribution of funds to a jurisdiction.

In 2020, almost $5.8 million will be distributed to St. Louis County, while just over $4.4 million and $800,000 will be contributed by Itasca and Cook Counties, respectively. (Itasca and Cook Counties are the two biggest contributors to the Iron Range program.)

Residents may ask how this is possible with all the commercial growth in Duluth and Hermantown. Unlike the metropolitan program, which has four described tiers – the central cities (Minneapolis/St. Paul), the inner ring, the developing ring and the outlying area – the Iron Range program excludes the urban area of Duluth/Hermantown. Additionally, there is no purpose section in the law governing the Iron Range program, nor was there a “blue ribbon commission” that spelled out a need for the program. Thus, there is no integrated regional economic sphere or a governing development agency like the metropolitan council.

In 2000, the mayor of Cohasset, Minnesota, challenged the validity of the 1996 Iron Range Fiscal Disparities Act in district court. The district court found the act unconstitutional, but the victory was short-lived: in 2001 the Minnesota Court of Appeals overturned the district court ruling and, in May of 2002, the court of appeals case was affirmed by the Minnesota Supreme Court.

 So, does fiscal disparities work on the Iron Range? One’s view depends on one’s location and perspective. Say, for example, a business in Cook County decides to close its doors. Jobs are lost, and residents consider the vacant structure a blight to the area. Even so, that vacant commercial property remains in the fiscal disparities pool because that’s how it is classified for property taxes. Factor in that many Cook County residents commute to Duluth/Hermantown to patronize commercial businesses that are not available locally, and one could question if a second program for sales-tax disparity should be implemented to account for these revenue losses to Cook County businesses. 

Conversely, a new hospital opens in another Iron Range county, generating hundreds of jobs., This property is exempt from property taxation and does not contribute to the fiscal disparities program.

Or, consider the possible rerouting of the Enbridge pipeline through Aitkin County, which it currently does not traverse. Such a reroute would generate millions of taxable, new commercial/industrial development in Aitkin County.

These situations suggest that modifications to the program could be made. Setting a new base year periodically, for example, would more closely follow recent trends in commercial growth/decline. Considering exempt properties like hospitals, college campuses and city-owned businesses in the formula might be appropriate given their economic impacts. Exempting a shuttered business that has been sitting vacant for years could be appropriate given that it is not contributing to regional commercial growth. Whatever one’s opinion, it is clear that this is a complex issue and one that we will be addressing for years to come.

For more information on this and other tax issues, visit the assessor’s page at https://co.cook.mn.us or call (218) 387-3650.

County Connections is a column on timely topics and service information from your Cook County government. Cook County – Supporting Community Through Quality Public Service