The Miracle of Minneapolis

Derek Thompson, writing for CityLab - The Atlantic:

Matthew Paulson

Matthew Paulson

How has the city stayed so affordable despite its wealth and success? The answers appear to involve a highly unusual approach to regional governance, one that encourages high-income communities to share not only their tax revenues but also their real estate with the lower and middle classes.

In the 1960s, local districts and towns in the Twin Cities region offered competing tax breaks to lure in new businesses, diminishing their revenues and depleting their social services in an effort to steal jobs from elsewhere within the area. In 1971, the region came up with an ingenious plan that would help halt this race to the bottom, and also address widening inequality. The Minnesota state legislature passed a law requiring all of the region’s local governments—in Minneapolis and St. Paul and throughout their ring of suburbs—to contribute almost half of the growth in their commercial tax revenues to a regional pool, from which the money would be distributed to tax-poor areas. Today, business taxes are used to enrich some of the region’s poorest communities.

Never before had such a plan—known as “fiscal equalization”—been tried at the metropolitan level. “In a typical U.S. metro, the disparities between the poor and rich areas are dramatic, because well-off suburbs don’t share the wealth they build,” says Bruce Katz, the director of the Metropolitan Policy Program at the Brookings Institution. But for generations now, the Twin Cities’ downtown area, inner-ring neighborhoods, and tony suburbs have shared in the metro’s commercial success. By spreading the wealth to its poorest neighborhoods, the metro area provides more-equal services in low-income places, and keeps quality of life high just about everywhere.

For decades, Minneapolis was also unusually successful at preventing ghettos from congealing. While many large American cities concentrated their low-income housing in certain districts or neighborhoods during the 20th century, sometimes blocking poor residents from the best available jobs, Minnesota passed a law in 1976 requiring all local governments to plan for their fair share of affordable housing. The Twin Cities enforced this rule vigorously, compelling the construction of low-income housing throughout the fastest-growing suburbs. “In the 1970s and early ’80s, we built 70 percent of our subsidized units in the wealthiest white districts,” Myron Orfield said. “The metro’s affordable-housing plan was one of the best in the country.”