The Socialist Fiscal Trap: Why Minneapolis Progressives Should Be Alarmed by the Collapse of the Commercial Tax Base

There is an old tension at the heart of progressive urban governance: the programs you want to fund require revenue, and revenue requires a tax base willing and able to pay. It is a tension that the left has often tried to dissolve through wishful thinking, imagining that good intentions alone can sustain good programs, or that resistance to taxation is simply the selfishness of the wealthy rather than a structural feature of how capital moves in a competitive landscape. The data coming out of Minneapolis should put that fantasy to rest.

Between 2016 and 2026, the commercial and industrial estimated market value (EMV) of property in Minneapolis, the assessed value of office buildings, retail centers, hotels, and industrial facilities that anchors a large share of the city’s tax base, fell in inflation-adjusted terms from $13.1 billion to an estimated $9.4 billion. That is a real-dollar decline of roughly 28 percent over a decade. In nominal terms, which flatter the picture, values that peaked at $13.2 billion in 2023 have now fallen back to $9.6 billion. The commercial sector’s share of the city’s total net tax capacity has dropped from 34.7 percent in 2016 to just 24.9 percent in 2026: a loss of nearly ten percentage points of the city’s tax base in a single decade. Someone has to make up the difference. As it turns out, homeowners are being asked to do so, and the consequences of that dynamic are far-reaching, compounding, and not easily reversed.

The Mitterrand Lesson

In 1981, François Mitterrand was elected president of France on a Socialist Party platform that promised sweeping nationalization of industry and an expansion of the French welfare state. When asked early in his tenure whether he planned to nationalize Renault, the storied French automaker that was at the time hemorrhaging money, Mitterrand gave an answer that was at once surprising and instructive. Why, he said, would he want to nationalize a company losing money, only to subsidize it with public funds? If he were going to nationalize anything, he would nationalize businesses that were profitable, so that their revenue could fund the social programs he wanted to build.

The remark was a sharp reminder that the classic socialist tradition, at its most clear-eyed, never confused redistribution with the destruction of value. You cannot redistribute what does not exist. Mitterrand understood this, whatever his government’s subsequent difficulties: a viable progressive agenda requires a productive economic base. The same logic underwrites the Norwegian sovereign wealth fund, one of the most successful instruments of social democracy in modern history, which was built not on taxation of poverty but on the managed wealth generated by North Sea oil. Even the Soviet Union, whatever its failures, grasped in its early years that the revenues of state enterprises had to cover the cost of the programs those enterprises were supposed to support. Producing nothing, distributing nothing became the defining contradiction of actually existing socialism.

Minneapolis is not, of course, a nation-state attempting to manage an oil fund or nationalize its auto industry. But the underlying principle applies with equal force at the municipal level. The city’s ability to operate libraries, fund public schools, subsidize transit, maintain parks, and, yes, explore ambitious ideas like municipally supported grocery stores in food deserts depends on having a tax base that generates the revenue to pay for those things. When that tax base erodes, the city faces a stark choice: cut services, raise taxes on what remains, or both. None of those options is painless, and several of them are self-defeating.

The Numbers: A Decade of Decline

Table 1 and Figure 1 below present the data in full.

Table 1

Minneapolis Commercial/Industrial Property Values, 2016–2026

Figure 1

Minneapolis Commercial/Industrial Estimated Market Value, 2016–2026

A few features of this data deserve emphasis. First, the decline is not simply a pandemic story. Commercial values in Minneapolis were already under pressure before 2020, and the NTC share had been falling steadily since 2017. The pandemic accelerated existing trends, particularly the hollowing out of downtown office demand, but it did not create them. Second, 2023’s apparent nominal recovery to $13.2 billion proved illusory; by 2024 values had fallen sharply again, and the 2026 preliminary assessment shows the city’s commercial EMV at its lowest nominal level since 2019 and its lowest inflation-adjusted level in the entire ten-year series. Third, and most importantly, the decline has been concentrated in the downtown core. City Assessor Rebecca Malmquist reported in 2025 that urban core office buildings had lost roughly 22 percent of their assessed value in a single year, and that downtown commercial values overall had fallen 9.5 percent.

This Is Not What Is Happening in Edina

To understand how much of this decline is specific to Minneapolis, its policy environment, its downtown composition, its political culture, it is useful to compare it with Edina, a first-ring suburb of roughly 52,000 people that sits directly to the southwest of the city and shares a regional labor market, highway network, and retail catchment area. Edina has a substantial commercial base anchored by the Southdale district (home to one of the nation’s first enclosed shopping malls), the France Avenue corridor, Pentagon Park, and Centennial Lakes. It is, in short, a genuine comparator: a competitive, well-off suburban city that faces the same post-pandemic economy as Minneapolis but has made different policy choices.

Table 2 and Figure 2 present the comparison.

Table 2

Minneapolis vs. Edina: Commercial/Industrial EMV Compared, 2016–2026

Figure 2

Commercial/Industrial EMV: Minneapolis vs. Edina, 2016–2026 (Index: 2016 = 100)

The divergence is dramatic. In nominal terms, Edina’s commercial property values grew from $1.82 billion in 2016 to a peak of $2.74 billion in 2023, a gain of approximately 50 percent before modest softening. Minneapolis’s nominal values rose from $9.8 billion to a 2023 peak of $13.2 billion, also an apparent gain, but when inflation is factored in, that nominal growth represents essentially flat real performance through 2020 and a steady real decline thereafter. By 2026, on an inflation-adjusted basis, Minneapolis commercial values are estimated at roughly 77 percent of their 2016 level. Edina’s, even after recent softening, remain around 102 percent of their 2016 real level, essentially holding their ground.

The contrast matters because the causes of the Minneapolis decline are not solely or even primarily regional economic conditions. Office demand has softened in both cities, but Edina’s more diverse commercial mix, less dependent on large downtown office towers and more anchored by medical, retail, and mixed-use development, has proven more resilient. More broadly, Edina has remained a destination for investment and development in a way that Minneapolis has not consistently been in recent years. Businesses and developers face a choice in the Twin Cities metro, and they are making it.

The Cascade Effect

The decline in commercial property values does not stay within the ledger lines of commercial assessment. It triggers a cascading series of consequences that reach deeply into the city’s fiscal capacity and social fabric.

The most immediate effect is a shift of the tax burden to homeowners. As the commercial share of Minneapolis’s net tax capacity has fallen from 34.7 to 24.9 percent over the past decade, the residential homestead share has risen correspondingly, from roughly 49 percent in 2016 to more than 55 percent by 2026. The median Minneapolis homeowner’s city property tax bill has increased even in years when the city’s levy grew only modestly, simply because each homeowner is now carrying a larger share of the total. The City Council approved an 8 percent levy increase for 2026, citing inflation, the end of federal pandemic aid, and mandated police reforms. But even before that increase, the structural shift in the tax base was already doing its damage.

Rising property taxes on homeowners exacerbate housing affordability in a city that has made affordability a defining priority. Activists and planners who celebrated the Minneapolis 2040 Comprehensive Plan’s elimination of single-family-only zoning as a solution to the housing cost problem rarely focus on this dynamic. The 2040 Plan expanded the legal entitlement to build duplexes, triplexes, and small apartment buildings across the city. But land use reform cannot by itself reduce housing costs when carrying costs, including property taxes, are rising. A developer building a small apartment building in Minneapolis must factor in those tax costs, which get passed on to renters. A homeowner contemplating a renovation or deciding whether to stay in the city versus relocate to a lower-tax suburb faces the same arithmetic. Densification cannot compensate for a deteriorating fiscal environment. It may even be partially self-defeating: if higher-density residential development is taxed at rising rates to make up for the loss of commercial revenue, the incentive to build gets weaker, not stronger. Capital can and will flow to the suburbs.

The effect on schools is equally serious and often underappreciated. Minneapolis Public Schools draws a significant share of its local revenue from the property tax base. A shrinking commercial tax base means either higher rates on what remains or reduced revenue available for schools, or both. School funding in Minnesota has a complex state-aid equalization formula that partially compensates districts with weaker tax bases, but that formula does not make affected communities whole, and state aid has its own political vulnerabilities. A city that cannot maintain a healthy commercial tax base is a city whose schools will face persistent fiscal pressure regardless of how much the city council or the school board wants to invest in them.

There is also the question of capital flight and the feedback loop it creates. When property taxes on the remaining commercial properties rise to compensate for those that have lost value or been vacated, the surviving commercial tenants face higher costs. Some will relocate or decline to expand. Downtown Minneapolis already has a vacancy problem; taxing its surviving office tenants at higher rates to offset the assessed decline of other buildings will not make them more likely to stay. Nor will it encourage new retail, restaurant, or entertainment investment in the urban core. The city risks a dynamic in which each round of commercial decline triggers a tax increase that triggers further commercial decline, a downward spiral that is very difficult to arrest once it has momentum.

A Progressive Case for Commercial Health

None of this argues for abandoning progressive goals. It argues for being serious about how to achieve them. The cities that have been most successful at building robust public services, affordable housing, quality schools, and functioning transit systems have generally been cities that also maintained competitive, healthy commercial economies. That is not a coincidence. It is a fiscal identity.

Mitterrand’s instinct was sound: if you want to fund a social democratic agenda, you need an economy generating surplus that can be redistributed. Norway’s sovereign wealth fund, now worth well over a trillion dollars, exists because the Norwegian state captured the rents from a productive asset and invested them wisely. What it did not do was allow the productive capacity of the oil sector to erode while expanding the programs that depended on it. Minneapolis is not Norway, and it has no oil. What it once had is a commercial tax base that reliably generated over a third of its net tax capacity. Getting that back to health is not a right-wing priority. It is a precondition for left-wing governance.

A smart progressive agenda for Minneapolis would pursue several things simultaneously. It would work to fill downtown vacancies through adaptive reuse incentives, support for arts and entertainment anchors, and creative public-private partnerships, rather than simply taxing vacant buildings at punitive rates that accelerate abandonment. It would take business climate seriously, not as a favor to corporations but because a city where it is difficult to open, operate, or expand a business is a city whose commercial tax base will continue to shrink. It would be honest with residents about the relationship between the services they want and the commercial vitality required to pay for them. And it would resist the temptation to treat commercial development and progressive values as inherently opposed, a false binary that has cost the city dearly.

Minneapolis is not an island. The businesses, developers, hospitals, universities, and employers that anchor its tax base can, and do, make location decisions. Every year, some of them choose Edina, Eden Prairie, Plymouth, or Maple Grove instead. Every year, some of its homeowners, facing rising taxes on stagnant or declining real housing values, weigh the same choice. The city’s borders do not insulate it from competition; they only define the jurisdiction within which its fiscal decisions play out.

There is still time to reverse course. The 2026 preliminary assessment is sobering, but it is not a verdict. Commercial real estate in Minneapolis retains genuine assets: a world-class park system, a talented and diverse workforce, strong anchor institutions in healthcare and higher education, and a compact urban core that is walkable and transit-accessible in ways most suburban competitors are not. These are real advantages. But they will not overcome a fiscal and policy environment that treats commercial investment as a problem to be managed rather than as the source of revenue that progressive government requires.

The left should understand this better than anyone. The question is not whether Minneapolis can afford to pursue progressive goals. The question is whether it can afford not to pursue the economic conditions that make progressive goals fiscally sustainable. The data presented here suggest the answer is urgent.

Related: A decade of decline: Downtown Minneapolis commercial property values drop 28%. Minneapolis Times Editor-In-Chief interview with KSTP 5 Eyewitness News regarding this article.