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When you received your 2022 property tax statements for your commercial properties, many of you noticed enormous increases in the fiscal disparities assessment. These increases resulted from a flaw in the regional fiscal disparities program, and we are working hard to see if the 2022 impacts can be reversed and possible future anomalies like this can be avoided.
The Iron Range Fiscal Disparities Program (FD) applies to the area of Northeast Minnesota that is in the Taconite Aid area, which includes Cook County. The aim of the FD program is to share commercial tax base across the region to ensure that all taxing jurisdictions (counties, cities, townships, school districts, etc.) have approximately the same amount of commercial tax base to fund local necessities like schools, roads, fire protection, and law enforcement.
Our program is patterned after one that has existed for decades in the Twin Cities. It ensures, for example, that Bloomington shares the property taxes generated by the Mall of America with communities like Richfield that have little commercial property.
The cause of the significant increases in Cook County FD tax assessments began in 2019 with an edict from the Minnesota Department of Revenue (DOR) that all short-term rental properties be reclassified as commercial properties – tripling their tax bills overnight. At the Chamber, we took strong exception to this decision as a grossly unfair change that would significantly hinder our tourism economy.
To reverse the DOR edict, the Chamber, with the support of others, undertook its most aggressive lobbying campaign ever. And we were successful, against all odds. The result was a new classification for short-term rental properties statewide. We saved a lot of people a lot of money and a lot of problems with our new classification: It raised taxes 15-20 percent, reflecting these properties’ mix of residential and commercial uses.
Unfortunately, the Legislature enacted our proposal too late to avoid implementing the DOR directive for commercial classification for one year before the properties fall back into our more reasonable rate.
The problem is that reclassifying all these properties as commercial, even for one year, created the impression that the Cook County commercial tax base had grown enormously. And in the FD framework, that meant a significant increase in the contribution our commercial property owners would be required to make to the regional FD program.
While that impact should disappear next year, that is little consolation to the property owners whose tax bills went up by large amounts for 2022.
This is not the way the fiscal disparities program is supposed to work. It should measure REAL increases in commercial property value, not misguided and temporary reclassifications.
Unfortunately, the 2022 impacts have now been baked into county tax collection efforts and undoing those impacts may be impossible. We will push as hard as we can to achieve that, however.
You also may have noticed that the fiscal disparities increases vary widely across Cook County. That’s because the county is divided into many “unique taxing areas” or UTAs. If a UTA has a great many short-term rental units in it, then all the commercial property in that UTA gets hit with a big FD increase; more short-term rentals equates to a larger increase
We have consulted extensively with Cook County officials on this issue, and we will be talking to Sen. Tom Bakk and Rep. Rob Ecklund next week about ways to possibly undo the unreasonable 2022 tax impacts. Lake County authorities also are pushing for action.
We will keep you posted on the progress of our efforts.
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