WASHINGTON -- Property tax base sharing programs, which redistribute tax funds from rich to poor areas, may help cash-strapped municipalities, according to the May 25 edition of Standard & Poor's Corp.'s Credit Week Municipal.
"As costs continue to escalate and federal and state support dwindles, tax base sharing has untapped potential to provide revenue to financially strapped municipal governments," the article says.
Standard & Poor's "expects to see increased emphasis on regional solutions to problems in the areas of education, housing, and the environment and expects tax base sharing to have a role," the article, written by Robert F. Durante, says. Mr. Durante is an assistant vice president at Standard & Poor's.
Property tax base sharing plans, which are in place in five states, attempt to funnel tax monies from affluent localities and school districts to less financially secure areas.
Despite increasing interest in such arrangements, Mr. Durante notes in the article that the growth of tax base sharing plans has been "hindered" by litigation, particularly over concerns about equity and control over planning and development.
Michigan and Texas recently tried to establish statewide tax base programs to equilize school funding between affluent and poor school districts. The Texas program was declared unconstitutional, and the validity of the Michigan program is being challenged.
"Because municipalities view themselves as either winners or losers under this type of program, it is difficult to develop an equitable and workable formula," Mr. Durante writes.
However, such programs have worked elsewhere.
Minnesota's Fiscal Disparities Program, for example, has been on the books since 1971. The program is designed to reduce differences in the per capita tax base among the seven-county Minneapolis-St. Paul area that result from uneven growth trends.
Localities there contribute 40% of all new commercial and industrial development revenues into a pool, for which they receive a distribution based on population and per capita real property value measured against the area average. Below average communities receive more than they input, while more well-to-do localities receive less.
In fiscal 1991, 157 localities were net recipients of funds, while 31 were net contributors. Mr. Durante writes that the wide disparity between the number of recipients and receivers demonstrates how commercial development tends to be concentrated in growth corridors.
"However, strong growth trends, as were seen in the Twin Cities area during the 1980s, are generally due to regional infrastructure improvements, such as airports and highway interchanges, for which all local communities provide support," Mr. Durante says.
Consequently, the fiscal disparities program allows all municipalities to benefit from the tax base growth that results from regional improvements. Mr. Durante says the ratio between the highest commercial/industrial tax base per capita and the lowest in the Twin Cities area is 4-to-1. Without the program, the ratio would be 22-to-1.
In New Jersey, the Hackensack Meadowlands Development Commission was set up in 1969 "to plan and oversee the orderly development" of the Meadowlands area. The commission was charged with ensuring the 14 municipalities in the area would share equitably in the benefits and costs of development.
Mr. Durante says the commission over the last 20 years has chalked up some impressive accomplishments, including $1.7 billion in private-sector investment, the creation of 66,000 jobs, and construction of Giants Stadium, the Brendan Byrne Arena, and the Meadowlands Racetrack.
In addition, the commission has succeeded in stemming the expansion of landfills in wetlands and establishing 1,400 acres of wildlife sanctuary.
Mr. Durante writes in a sidebar that tax base sharing plans can prove to be a positive rating factor when localities receive extra money without increasing the local tax burden.
Conversely, Standard & Poor's generally considers it a negative rating factor when a locality is a net contributor in tax base sharing plans.
"In cases, though, these governments have sufficient financial flexibility to mitigate these reductions," Mr. Durante writes.