Columbus takes fiscal disparities issue to the Legislature

Proposed bill would alleviate what officials say is an unfair tax burden

As the 2024 legislative session nears its ending, Columbus made its pitch on Thursday, April 25, to receive some financial credit to provide relief from the burden caused by the seven-county metro area Fiscal Disparities program, a metro-area tax and credit system for which Columbus feels it is unfairly putting in more money considering the city’s small size.

Working with Sen. Michael Kreun (R-Blaine), Columbus had a bill on the table for certain small cities in the metro to receive an annual tax credit by way of getting some money back from the state levy. The bill isn’t meant to redo the current formula for the Fiscal Disparities program. Rather, the bill aims to offer aid to cities smaller than 5,000 people which contribute more than they receive, and don’t receive other government aid by way of the gas tax refunds or other aid.

“It’s not meant to totally make every community whole but to reimburse up to a certain amount,” Columbus council member Janet Hegland said.

While Hegland thought the hearing went well and Taxes Committee Chair Ann Rest (DFL-New Hope) seemed sympathetic to the cause, she isn’t sure this will pass this year.

“Our goal this year was to kind of set a platform for next year, which is … a budget year next year, so we were trying to get this done, or at least educate people in a non-budget year,” Hegland said.

Under the current program, all municipalities within the seven-county metro must contribute 40% of their commercial/industrial revenue into a pool. Then money is given back to municipalities using a formula that allots money based on the number of residents and businesses a city has.

For example, in 2016, Columbus contributed around $522,000 into the fiscal disparity pool, but only received around $374,000, resulting in a net loss of around $148,000.

A way for a municipality to remedy losing money to this program and become a net winner is to expand residentially alongside commercial expansion or slow commercial expansion.

However, slowing commercial expansion is not on this council’s mind, since it has prioritized adding larger and more businesses in the city in order to offer tax relief for residents.

“It is going to continue to get worse every year, because every year we will be increasing our C/I (commercial/industrial) district value, because that’s what we do. We purposely have been trying to attract high-value businesses to Columbus to help pay for the services that the residents use,” Hegland explained.

Columbus has another unique problem: It cannot expand much more residentially due to Met Council regulations and the amount of wetland area in the city.

“Most of the other communities have a way to grow out of this. They can grow out of it by increasing their population, or these other things – we can’t. And that was really the point that I was making in my testimony,” Hegland said of speaking to the committee in late April.

The financial loss due to this program is projected to continue widening, as it has since around 2008, with the loss in 2024 projected to be more than $200,000.

“We have a $5 million budget, we levy about $4.2 million, and $0.25 million out of that is a big percentage versus [other cities who may fit this criteria],” Hegland said.

According to Hegland, there were more than a dozen cities that qualified under the criteria in this bill, which identified Columbus as one of the largest losers. She speculates that as time goes on, the list will continue to shrink as other cities are able to grow residentially to become net winners in the program.

Even though Columbus’ proposal isn’t entirely dead in the water, the assumption at the end of April is that other bills would take precedence.

“We really didn’t expect that we were going to hit a home run this year, and we likely will not. But we will have educated people and set the table well for next year when it is a budget year,” Hegland said.