Regional Tax Sharing: An Old Idea to Benefit Ohio’s Future?

The Cleveland Plain Dealer recently ran a week-long series of articles as part of their Cleveland 2030, A Way Forward series of civic dialogues. The series reviewed the nearly 50-year property tax redistribution agreement in place in the Minneapolis-St. Paul metropolitan area. Since 1971, 180 cities and townships in the seven-county region surrounding the Twin Cities metro area have pooled a portion of their property tax base, then re-apportioned that tax base in the pool according to the needs of each community.

The portion of the tax base that each community contributes to the pool amounts to 40 percent of the growth in the assessed value of all of the community’s commercial and industrial property since 1971, the year that the Minnesota state legislature created the tax sharing system. This pooling system, known as an areawide tax base, generated a total of $447 million in 2019. A formula then distributes the pooled funds that each city in the tax sharing pool receives, with most cities getting back more than what they contribute. Under this revenue-sharing arrangement, a city with a large commercial property tax base, such as Bloomington (home of the Mall of America), contributes a large share of the areawide tax base, and surrounding cities that do not have the same large tax base still benefit from the presence of the commercial asset.

This arrangement, has had the benefit of limiting urban sprawl, helping to preserve open spaces and farmland throughout the area, and ensuring that communities act in a more collaborative manner, and do not actively seek to “poach” other communities employers, a common practice in Ohio as communities seek to expand their tax base, often at the expense of neighboring or adjoining communities.

Last year, the state of Ohio created the Regional Economic Development Alliance Study Committee with the aim of studying the features, benefits, and challenges involved in establishing metropolitan economic development alliances that would incentivize cooperation, enhance success, and provide for greater efficiency in economic development among participating municipal corporations, namely in metropolitan areas.

The committee is wrapping-up its work, after holding a series of regional meetings around the state, but already members of the committee are looking at possible legislation that would permit regional tax sharing similar to what has been in place in Minnesota since 1971. While some cities in Ohio have entered into agreements similar to the idea of a tax sharing system (for example 29 of 31 cities and townships in Summit County have signed an agreement that requires income-tax sharing in some instances where a business relocated from one municipality to another), other efforts have fallen short of the goal.

Such a change could be transformative for some communities in Ohio and their residents who have not benefited from the same growth and progress and others in the region. That was the goal of the sponsor of the Minnesota system – sponsored by a Republican lawmaker who was concerned that his district would be ignored as development spread to other areas. Today, that district (Anoka County) has been able to preserve its open spaces to the benefit of the entire region while still having the revenue to provide basic public services.

Photo by Nicole Geri on Unsplash