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The law permits increments to be collected for eight years after the receipt of the first increment. Minn. Stat. § 469.176, subd. 1b(4). Thus, counting the first year of increment, nine years of increment may be collected. Waiver or declining to accept increments has no effect on the duration limit; the waived increments are treated as received for purposes of the duration limit.
The legislature has changed the duration limit for economic development districts twice since the Tax Increment Financing Act was passed in 1979. The current duration limit was enacted by the 2000 legislature and applies to certification request for districts received after June 30, 2000. 2000 Minn. Laws 2159-60, ch. 490, art. 11, § 25, codified at Minn. Stat. § 469.176, subd. 1b.
Prior law generally provided shorter duration limits.
There are no general geographic restrictions limiting where economic development districts may be created. No “blight” or similar test must be met, as is the case with redevelopment TIF districts. Instead, the law restricts the purposes for which economic development districts may be used and the types of businesses that can receive assistance. In general, economic development districts are to be used to expand employment or tax base in the state. Subsidies from economic development districts may only be used for specific types of businesses or industries.
The law limits tourism projects to sites that meet three requirements:
Minn. Stat. § 469.174, subd. 22.
Economic development districts generally may not be used for retail, office, or similar commercial developments. Exceptions are allowed for commercial developments of 15,000 square feet or less in small cities and for qualified border retail facilities.
Before a development authority establishes an economic development district, it must make a finding that one of three purposes is satisfied:
The required findings do not appear to permit this, except in the limited circumstances of “discouraging” a business from moving from the municipality to another Minnesota site. Minn. Stat. § 469.174, subd. 12(1). Thus, if ABC Inc. is located in Minneapolis and plans to move to Bloomington, Minneapolis could create an economic development district to keep ABC Inc. in Minneapolis. However, Bloomington could not create an economic development district to attract ABC Inc. This limit can be avoided and Bloomington can offer the incentive, if ABC Inc. is also considering a possible location in another state.
The legislature imposed these requirements to minimize the extent to which economic development districts are used to move businesses from one Minnesota location to another. This is sometimes referred to as “raiding” another city’s businesses. It provides little or no advantage to state taxpayers. Before 1990, economic development districts could be used to increase employment or tax base in the municipality. See 1990 Minn. Laws 2582-83, ch. 604, art. 7, § 8 for the prior language and the text of the 1990 changes.
Private legal actions may be brought to enforce the requirements of the TIF act. However, the prohibition on “raiding” Minnesota businesses derives from a required “finding” by the development authority. Minn. Stat. § 469.174, subd. 12. It is not clear under what circumstances a court would conclude a development authority had acted contrary to the law, if it made the required findings but the actual facts were demonstrably to the contrary. Recent decisions, such as Walser v. Richfield, 635 N.W.2d 391 (Minn. App. 2001), suggest a court may be willing to review these findings to determine whether they are supported by substantive evidence or are arbitrary and capricious.
The law allows tax increments from economic development districts to be used only for six types of businesses:
This means that economic development districts, in general, may not be used for retail or general office developments. Nor may they be used for housing developments. Before the 1988 amendments, economic development districts were routinely used for these purposes (retail, office, and housing). 1988 Minn. Laws 1989, ch. 719, art. 12, § 16, codified at Minn. Stat. § 469.176, subd 4c (1989 Suppl.), first imposed restrictions on the permitted types of developments that could receive economic development assistance. Note that two special exceptions apply to allow general use of increments from economic development for commercial developments:
The law permits up to 15 percent of the assisted buildings and facilities (measured by square footage) to be used for nonqualifying uses. Thus, a development could contain a small amount of retail or housing development, if it met the 15 percent test. Furthermore, the law allows “space necessary for and related to the activities” of qualifying types of businesses. For example, an office in which administrative and personnel functions are carried on for a manufacturing plant would qualify under this provision. This related space would not count against the 15 percent limit.
The law permits the following types of developments to be assisted:
Although the general rule does not permit it, small cities may use economic development districts for retail and office developments. Minn. Stat. § 469.176, subd. 4c(c). This assistance is limited to no more than 15,000 square feet of a “separately owned commercial facility.” The 15,000 square foot limit appears to apply to the facility and is not a cumulative limit for the city. Thus, a city could assist several commercial facilities, each of which has 15,000 square feet. The same individual or entity may not own more than one of these facilities in the city. Assistance must be provided directly to the development. Land write-downs, grants, sewer and water connections to the property would qualify. By contrast, general infrastructure improvements that benefit a broader area (e.g., street improvements) would not. The district may not “pool” increments – spend increments on activities outside of the district.
A small city is a city with a population of 5,000 or less. The city may not be located within 10 miles of another city with a population of 10,000 or more. Minn. Stat. § 469.174, subd. 27. This is intended to disqualify suburbs of larger cities. Qualification is determined based on the year of certification. Minn. Stat. § 469.176, subd. 4c(e). Qualifiying small cities.
According to the January 2009 Report of the State Auditor there were 492 active economic development districts at the end of calendar year 2001. This is a decrease of 185 districts over calendar year 2001 or a 27.3 percent decrease.
Economic development districts make up about 27 percent of all TIF districts, according the State Auditor’s data for calendar year 2008.
October 2010