Tax Aids and Credits

Aids - Disparity Reduction Aid

Statewide Outcome(s):

Disparity Reduction Aid supports the following statewide outcome(s).

Efficient and accountable government services.

Context:

Disparity Reduction Aid (DRA) is a legacy aid that was created by the 1988 Legislature to provide relief for high tax rate areas as part of the conversion from mill rates and assessed values to net tax capacities. While initially paid to all qualifying local jurisdictions, the city amounts were cancelled (and shifted to Local Government Aid) beginning with aids paid in 1994. In addition, the amounts originally computed for special taxing districts were rolled into county DRA beginning with aids paid in 1995.

Funding Source: State General Fund.

Strategies:

Provide property tax relief for areas with high tax rates in 1988.

The underlying formula for distributing DRA each year is still based on tax base calculations originating in 1988, whether or not the unique taxing areas (UTA) continue to have high tax rates, or tax rates higher than other jurisdictions.

Results:

Unique taxing areas (UTA’s) with high tax rates in 1988 receive state assistance to help reduce property tax rates.

Performance Measures Notes:

A unique taxing area (UTA) is a geographic area subject to the same set of local tax rates levied by the same taxing districts. There are over 6,000 UTAs in Minnesota.

Currently 32 percent of UTA’s with a local tax rate above 90 percent of net tax capacity receive DRA. This is due to aid distributions being based on the original 1988 calculations. UTA’s with a local tax rate below the 90% threshold are not eligible to receive DRA in the current year. If a UTA’s tax rate increases to above 90% but was not originally certified to receive DRA, the UTA will not receive DRA.

21 percent of all UTA’s received DRA in 2002 compared to 17 percent in 2012. The change is due to fluctuations in local tax rates and eligibility for DRA.

Percentage of UTA’s receiving DRA compares payable year 2002 (previous) to 2012 (current).

For additional information, visit the Revenue Department (http://www.revenue.state.mn.us/Pages/default.aspx) website and search ‘DRA’.