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How long can increments be collected from a district?
The law permits increments from a redevelopment district to be collected for 25 years after the receipt of the first increment. Minn. Stat. § 469.176, subd. 1b(5). Since the first year of increment is not counted, 26 years of increment may be collected in total. The authority may in the TIF plan, elect to waive up to the first four years of increment. Minn. Stat. § 469.175, subd. 1b. This allows the authority to avoid using the duration limit for the early years of the district in which only a small amount of increment may be received.
Where may a redevelopment district be created?
Traditionally, redevelopment districts have been considered mechanisms to aid the development of “blighted areas”–sites occupied by dilapidated or rundown buildings or obsolete uses. The classic examples were inner city slums. Minnesota law provides four types of sites that qualify as redevelopment districts:
What areas qualify under the blight test?
To qualify under the blight test:
What determines whether a parcel is “occupied” by buildings or other improvements?
The law requires that 15 percent of the area of the district contain buildings, streets, utilities, paved or gravel parking lots, or similar structures. Minn. Stat. § 469.174, subd. 10(e).
How are “structurally substandard” buildings defined?
The meaning of “structurally substandard” is crucial, since it is the litmus test of blight. The statute defines “structurally substandard” in two ways. First, it contains a positive, but very general, definition. Secondly, it excludes some buildings that meet some more specific or quantifiable standards.
The positive definition provides improvements are structurally substandard if they contain:
The bottom line is whether the relevant factors justify substantial renovation or clearance. Aside from being convoluted, this definition obviously involves a number of fairly subjective elements. Since the definition is applied by the development authority, it initially (and probably ultimately in most cases) becomes a matter of judgment for the authority as to whether a particular building’s condition “justifies” renovation or clearance. Because of this subjectivity and the perception that the definition was being applied expansively, the legislature imposed a number of specific exclusions.
What buildings are specifically excluded from being structurally substandard?
A building is not structurally substandard, if it is in compliance with the building code for new buildings or could be brought into compliance for less than 15 percent of the cost of building a new building of the same type. Minn. Stat. § 469.174, subd. 10(c). The Walser case confirmed that satisfying this 15 percent test is not itself sufficient to deem a property to be substandard. Walser Auto Sales v. City of Richfield, 635 N.W.2d 391, 402 (Minn. App. 2001). The 2003 Legislature confirmed this by specifying that it was a necessary, but not a sufficient, condition to determine that a building was substandard. Laws 2003, ch. 127, art. 10, § 3, codified at Minn. Stat. § 469.174, subd. 10(c).
Must the authority conduct an interior inspection of a building before determining it is a structurally substandard?
Yes, an interior inspection must be conducted, unless the authority cannot gain access. The legislature added this requirement after a program evaluation by the Legislative Auditor that found that some development authorities based blight findings on “windshield surveys.” Office of the Legislative Auditor, Tax Increment Financing 55 (Jan. 1986). In other words, the staff of the authority simply drove by the site and concluded, based on this “drive-by,” that the buildings were structurally substandard.
The statute requires the authority to undertake its "best efforts" to gain access. The Walser court held that sending two letters requesting access without follow-up personal contact, such as phone calls, was not sufficient. Walser Auto Sales v. City of Richfield, 635 N.W.2d 391, 400-401 (Minn. App. 2001).
If a developed area does not meet the blight test, are there other options for using TIF for redevelopment?
Yes, the law allows use of renewal and renovation districts for developed areas with lesser levels of deterioration and blight. These districts are similar to redevelopment districts, except that they have a 15-year, rather than 25-year, duration limit. Click here for information on the differences between the blight tests for the two types of districts.
What rail facilities qualify?
Rail facilities include rail yards, storage facilities, and vacated rights-of-way. To qualify facilities must be vacant, unused, underused, inappropriately used, or infrequently used. Minn. Stat. § 469.174, subd. 10(a)(2).
What tank facilities qualify? To qualify, a tank farm or similar facility must:
May an area qualify as a redevelopment district if parts qualify under the separate tests?
Yes, a district may qualify by having one part satisfy the blight test, while another area qualifies as a rail facility or tank facility.
How are the qualifying tests applied to noncontiguous redevelopment districts?
The law allows TIF districts to consist of noncontiguous areas. Minn. Stat. § 469.174, subd. 9. If a redevelopment district contains noncontiguous areas, each area of the district must independently satisfy one of the standards (blight, rail facility, or tank facility). Minn. Stat. § 469.174, subd. 10(f).
How are noncontiguous areas defined?
The statute does not explicitly define what constitutes a noncontinguous area. It is generally thought that to be contiguous, parcels must touch one another or abut each other. The Minnesota Court of Appeals has held that parcels separated by a public highway are contiguous for purposes of the statutory requirement. Reiling v. City of Eagan, 664 N.W.2d 403 (2003). Similar issues may arise with regard to parts of districts divided by streams and rivers. The courts may look at whether such barriers (highways and other public rights of way) divide the area of the district into two areas with separate characteristics as to their ease of development. Properties separated by a large freeway without easy access to the separate parts of the district could support treating the areas as noncontiguous, despite the court's ruling in Reiling.
Are there restrictions on where blight or other conditions are located in the district?
The statute requires that the qualifying "conditions" (substandard buildings, rail facilities, or tank farms) be "reasonably distributed throughout the district[.]" Minn. Stat. § 469.174, subd. 10(a). The legislature imposed this requirement to prevent authorities from "gerrymandering" districts to use redevelopment district powers for an area that is not blighted. In the Walser case, the Court of Appeals held that the substandard buildings (i.e., the blight) were not reasonably distributed throughout the district. It found that they were concentrated in the northern portion of the district that was largely residential and not in the southern, commercial portion of the district. The court concluded that the city's determination was "quasi-judicial" and, thus, subject to review for not being supported by "substantial evidence" or being "arbitrary and capricious." Walser Auto Sales v. City of Richfield, 635 N.W.2d 391, 401 (Minn. App. 2001).
What are "qualified disaster areas"?
A qualified disaster area must meet a three-part test that closely parallels the blight test. Minn. Stat. § 469.174, subd. 10(b). In essence, the law allows areas to be treated as blighted, if many of the buildings in the area were substantially damaged by the disaster. The three requirements are:
What special rules apply to qualified disaster area districts?
The law provides that the original tax capacity for a qualified disaster area district is the land value, not the current tax capacity for the district. This feature is intended to allow these districts to generate increment to cover part of the reconstruction costs. The most recent assessment will generally include the full value of the buildings (i.e., it would not reflect the damage caused by the disaster). Absent a "write-down" of the original value, reconstruction following a disaster would not generate much or any increment, since it would largely restore the pre-existing value.
What are the permitted uses of redevelopment district increments?
90 percent of the increments from a redevelopment district must be spent for blight correction – i.e., fixing the conditions that allowed designation of the district. The statute contains a list of qualifying expenditures:
The law explicitly provides that this is not an exhaustive list. Administrative expenses of the authority that are allocated to these activities also meet the 90 percent test.
How does the blight correction requirement apply to rail and tank facilities?
It is not clear how this requirement applies to redevelopment districts that qualify because of rail or tank facilities. The best guess is that expenditures may be used to convert the property to another land use pattern – e.g., site acquisition, removal of the rail or tank facilities, installation of utilities and other infrastructure to permit the new use.
How many redevelopment districts are active?
According to the February 2010 Report of the State Auditor, there were 950 redevelopment districts at the end of calendar year 2008. This is 47 percent of all active districts, the largest single category of TIF district. It represents a decrease of 14 districts or 1.5 percent over the number reported at the end of 2007.
October 2010