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Legislature > House of Representatives > House Research > Property Taxes > Tax Increment Financing

Housing TIF Districts

Duration Limit

How long can increments be collected from a housing district?

The law permits increments from a housing district to be collected for 25 years after the receipt of the first increment. Minn. Stat. § 469.176, subd. 1b(5). 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 a year in which only a small amount of increment is received.

What is the duration limit for interest reduction programs?

A special duration limit applies to interest reduction programs. These programs are most commonly, if not exclusively, funded with housing district tax increments. Increments may be collected for an interest reduction program for 15 years after the first interest reduction payment is made. Minn. Stat. § 469.176, subd. 4f. This limit does not, however, limit the duration of the actual housing TIF district. The district may collect increments for the full 25-year duration, if the increments are used for other qualifying purposes (i.e., noninterest costs of the project or another project).

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Geographic Areas that Qualify

Do geographic restrictions apply to housing TIF districts?

In general, no geographic restrictions apply to housing districts. A housing district may be created anywhere, but its increments must be used for qualifying purposes. However, the law does contain one geographic-based provision: the income limits on qualifying housing do not apply in targeted areas.

Do pooling rules limit where housing district increments may be spent?

Unlike other types of TIF districts, housing districts are largely exempt from the pooling rules. The pooling rules limit the portion of increments that may be spent outside of the TIF district (but within the project area). For a housing district, though, these rules consider amounts spent on housing projects to be within the district, regardless of where the developments are physically located. Minn. Stat. § 469.1763, subd. 2(b).

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Permitted Uses of Increments

What are the permitted uses of housing district increments?

Increments from a housing district may only be used to finance a "housing project" or public improvements that are directly related to the project, as well as the authority's administrative expenses. Minn. Stat. § 469.176, subd. 4d. The cost of a project includes items such as acquisition, construction, or rehabilitation of the housing, planning, engineering, and architectural services, and related financing costs. Public improvement or infrastructure costs must be directly related to the project. For example, sewer and water connections for or a public access road to the housing could be financed. However, an adjacent road that serves the general public likely could not be.

What is a "housing project" that qualifies for funding?

A housing project is a development that is intended for occupancy, in part, by low- and moderate-income individuals, as defined under a federal, state, or municipal law.

May an incidental amount of commercial development be assisted as part of a housing project?

Yes, the law allows up to 20 percent of the total square footage of improvements to be used for purposes other than low- and moderate-income housing. Minn. Stat. § 469.174, subd. 11. This 20 percent share could be used for commercial developments, such as office or retail space. (It also could be used for housing for occupancy by individuals who do not meet the definition of low- and moderate-income housing under the federal, state, or municipal law.) In applying the 20 percent test, only developments that received assistance count.

What income limits apply to projects financed with housing district increments?

Two separate sets of income limits apply:

  1. The income limits under the federal, state, or municipal law that the authority uses as the legal authority for the housing project
  2. The specific income limits under the TIF law that apply regardless of the housing law used

Both of these income limits must be satisfied. The first income limit will vary depending upon the federal, state, or municipal law selected by the authority. The law requires that 80 percent of the fair market value of the project meet the first of these income limits. This will mean that units to be occupied by individuals meeting the income test under the selected law must comprise 80 percent or more of the market value of the property constructed in the district.

What income limit does the TIF act specify?

Separate income limits are established for rental and owner-occupied developments.

Rental developments must meet one of two tests:

  1. 20-50 test: 20 percent of the units are occupied by individuals whose incomes are 50 percent or less of the area median income.
  2. 40-60 test: 40 percent of the units are occupied by individuals whose incomes are 60 percent or less of the area median income.

These tests are taken from federal law.

Special rules with higher income limits apply if the project receives a grant from the Minnesota Housing Finance Agency Challenge Program. For those projects, the income limits under the Challenge Program apply (generally 80 percent of the applicable median).

Owner-occupied developments have considerably higher income limits than the rental developments. The general limit is 115 percent of the greater of (1) the area median income or (2) the statewide median income.

Are the income limits adjusted for family size?

Yes, the income limits are adjusted based on family size. Higher limits apply for units designed to serve larger families and lower limits for units for smaller families.

Projects qualifying for MHFA Challenge Program grants are not subject to family size adjustments.

What are the dollar amounts of the income limits for the Twin Cities metropolitan area and rural counties?

The income limits vary by family size and county or metropolitan area. The limits displayed in the table below apply to a family of four in the seven-county metropolitan area (and in Chisago, Isanti, Sherburne, and Wright counties) and in 42 rural counties. These are the highest and lowest area limits in the state.

TIF Housing District Income Limits
Twin Cities 38 Rural Counties

Rental Housing Developments
50% of area median (20% required) $45,200 $32,650
60% of area median (40% required) 54,240 39,180

Owner-Occupied Housing
115% of the > of area or statewide median 103,960 75,095

Notes

For family of four, effective April 14, 2017

How long do the income limits apply?

The rental limits apply for the duration of the TIF district, while the owner-occupied limits apply only to the first purchaser of the housing.

Do exceptions apply to the TIF income limits?

Yes, the income limits do not apply in "targeted areas." Minn. Stat. § 469.1761, subd. 1. Targeted areas are defined as census tracts in which 70 percent or more of families have incomes that are 80 percent or less of the statewide median family income. Minn. Stat. § 462C.02, subd. 9(e).

What special rules apply to housing districts?

Housing districts are exempt from three requirements or rules that apply to other types of TIF districts:

  1. The municipality is not required to make the increase in market value finding under the but-for test before approving a housing district. Minn. Stat. § 469.175, subd. 3(b)(2)(ii). The legislature provided this exemption because low-income housing will rarely generate the largest increase in market value for a site and often may generate a lower market value than the use of the site that would be provided solely by the private market. The public benefit of housing districts is thought to be the expansion of the supply housing for low-income families, not the expansion of the property tax base, which lies at the heart of the market value component of the but-for test.
  2. Housing districts may be created on parcels, whose property tax values were limited under the Green Acres, Minnesota Open Space Property Law, or the Metropolitan Agricultural Preserves Act. Minn. Stat. § 469.176, subd. 7. In general, parcels in these programs may not be included in TIF districts. The rationale for this prohibition is that these programs are intended to encourage continued use of the property in less intensive uses (e.g., as farms or golf courses) by providing reduced taxes. Given this, the legislature considered it inappropriate to allow public subsidies to encourage development of these properties, shortly after they had received subsidies in return for not doing so. The exemption for housing districts was provided, apparently because the public benefits of expanding the supply of low-income housing was thought to outweigh these concerns.

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Data on Use of Housing Districts

How many housing districts are active?

According to the March 2017 Report of the State Auditor, there were 541 active housing districts at the end of calendar year 2015.

What share do housing districts comprise of all TIF districts?

Housing districts comprise about 31.5 percent of all TIF districts, according the State Auditor's data for calendar year 2011.

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July 2017

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