The Minnesota Approach

October 23rd, 2000 by Tim Evans

The drawbacks of new business development — from heavier traffic to lost open space — are often shared by surrounding communities. Minnesota requires its communities to also share the tax benefits.
When a business moves to a new community in Minnesota, law requires that the other communities in the region share 40 percent of the tax money generated.
This tax-sharing system means that suburbs, small towns and cities in the St. Paul-Minneapolis region all share the financial benefits of the world’s second largest mall, the Mall of America, which is located in the small city of Bloomington and has a total annual economic impact of $1.5 billion. New Jersey has a similar tax-sharing program, but only in the Meadowlands.

New Jersey’s local governments get more of their operating money from property taxes than do their counterparts anywhere else in the country.

No wonder then that New Jersey has the nation’s highest local property taxes per capita; or that local communities often compete for new development, even when it’s undesirable, adds to traffic woes and eliminates local open space.

Minnesota stepped out of this roulette game in 1971. Deciding its communities should share both the responsibilities and benefits of new development, Minnesota adopted the nation’s most aggressive and progressive system for sharing the tax revenues brought into a region by new business. The results: more revenues for local communities to spend as they wish, without the need to accept inappropriate or undesirable new development; and greater tax equity. Tax sharing typically means sharing revenues and resources that would have remained with a quarter of a region’s population with the other three-quarters. Minnesota estimates its own tax-sharing plan has reduced the economic disparity of its richest and poorest communities from 50-to-one to 12-to-one, and so increased the choice of desirable communities in which to live.

New Jersey would benefit from a tax-base sharing system. New Jersey Future is developing a policy guide offering additional detail.

Next: Part 3 – Smarter Growth through Better Affordable Housing

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Facts Contact:
B. Tim Evans, NJF Research Director,
timevansnjfutureorg (timevansnjfutureorg)