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

Local Governments’ Roles in TIF

Which local governments have a formal role in TIF?

Four types of governmental units have some role under the TIF law:

  1. Development authorities. These entities (e.g., a housing and redevelopment authority (HRA) or an economic development authority (EDA)) make nearly all the important decisions, such as deciding whether to use TIF, determining how it will be used, adopting TIF plans, and so forth. They also implement TIF decisions – enter development agreements, contract for TIF work, and so forth.
  2. Municipalities. The municipality, usually a city, must approve some of the TIF decisions made initially by the development authority. In a few instances, the municipality is charged with making direct TIF findings or decisions. In many cases, the municipality controls the development authority or, in fact, is the development authority.
  3. Counties. The county is responsible for administering much of the TIF law that relates to the collection and distribution of increments. Otherwise the county's role is limited to making advisory comments on major TIF decisions of the development authority.
  4. School districts. Schools' role in TIF is largely limited to making advisory comments on major TIF decisions of the development authority.

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Which local governments qualify as development authorities that may exercise TIF powers?

A development authority or authority is a government entity authorized by the TIF law to exercise tax increment financing powers. Minn. Stat. § 469.174, subd. 2.  Authorities include the following entities:

  • Economic development authorities or EDAs
  • Housing and redevelopment authorities or HRAs
  • Port authorities
  • Cities
  • Rural development finance authorities

Municipalities (cities and sometimes counties and towns) may act as authorities by exercising the powers of an HRA, EDA, or a port authority under a general or special law that gives them these powers.  In some cases, the members of a city council serve on the governing body of separate development authorities (e.g., an HRA or EDA). In still other cases, the governing bodies of the city and the development authority may be the same (e.g., the city council is also the HRA or EDA governing body).

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Which development authorities use TIF most often?

Although precise statistics are not gathered on the types of authorities exercising TIF, conventional wisdom is that most TIF is done by EDAs, HRAs, and cities themselves acting under the municipal development district law.

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What TIF functions does the authority carry out?

Development authorities make almost all of the TIF decisions, at least initially. Their powers to do so are determined by both the TIF Act and by the separate laws that authorize and grant powers to the authority. The authority approves the TIF plan. The municipality must also approve the plan.  The plan sets out the important parameters for the use of TIF including:

  • The boundaries of the district and the project area – where tax increments will be collected and spent
  • The type of district
  • The purpose for the TIF district
  • A budget specifying what increments will be spent on
  • Financing plans (use of bonds versus pay as you go financing and so forth)

Perhaps, even more importantly, the authority carries out this plan. The authority makes the day-to-day decisions about spending increments under the plan.  Thus, the authority negotiates development agreements with developers. It may contract for construction of public improvements or other costs.  It typically hires the consultants, lawyers, and other advisors that shape many of the plans and decisions.

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How is the municipality for a TIF district identified?

Under the TIF law, a municipality must approve some of the authority’s decisions. Thus, it is important to be able to identify the municipality.  In most circumstances, the law provides that the city in which the TIF district is located is the municipality. For districts located outside of a city, the municipality may be either an urban town or a county.

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What TIF functions does the municipality carry out?

The principal responsibility of the municipality is to approve the TIF plan and substantial amendments or changes to the plan. Minn. Stat. § 469.175, subd. 3.  These approval requirements also apply to major amendments to TIF plans.  Minn. Stat. § 469.175, subd. 4. However, municipal approval and findings are not required for hazardous substance subdistricts. The development authority carries out these responsibilities. Minn. Stat. § 469.175, subd. 7(a).

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What procedures and findings must the municipality make in approving TIF plans?

The law sets out specific requirements for municipal approval of TIF plans.  Minn. Stat. § 469.175, subd. 3. The major requirements include:

  • Publishing notice in a newspaper of general circulation
  • Holding a public hearing on the TIF plan
  • For a redevelopment district or a renewal and renovation district, making the necessary blight findings
  • Making the necessary "but-for" findings
  • For districts in the metropolitan area or in the taconite tax relief area, electing how the fiscal disparities contribution will be made

The findings and the factual basis for the findings must be documented in writing.

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Which plan amendments are subject to municipal approval?

The municipality also must meet these requirements (publication, public hearing, and findings) for major amendments to the TIF plan.  Minn. Stat. § 469.175, subd. 4. These include:

  • Changing the project area or district area (Reductions in area are not subject to approval, if they do not increase captured tax capacity.)
  • Increasing the amount of debt or the amount of capitalized interest
  • Increasing total estimated cost of the project to be paid with increment
  • Increasing the share of increment to be retained
  • Designating more property to be acquired

Other TIF responsibilities and powers of the municipality include:

  • Issuing general obligation bonds, Minn. Stat. § 469.178, subd. 2.
  • Approving district extensions to cover clean-up costs, Minn. Stat. § 469.176, subd. 1g.
  • Certifying that clean-up plans are completed for hazardous substance subdistricts, Minn. Stat. § 469.174, subd. 7(c).
  • Approving modifications of assessment agreements, Minn. Stat. § 469.177, subd. 8.
  • Transferring increments from one district to another to make up shortfalls caused by property tax class rate compression enacted in 1997, 1998, 1999, and 2001.  Minn. Stat. § 469.176, subd. 6.

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What is the role of the county in TIF decisions?

Counties have fairly limited roles in making TIF decisions, although county officials are responsible for administering the collection and distribution of increments for TIF districts. The counties’ powers and responsibilities consist of three components:

  1. Making comments on proposed TIF plans and major amendments
  2. Charging for county road costs that are stimulated by the TIF development
  3. Administering the collection and distribution of TIF revenues for the authority.

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What notice and comment authority applies to counties?

Before approving a TIF district, the development authority must notify the county and provide a copy of the proposed TIF plan and an estimate of the impact on the county. Minn. Stat. § 469.175, subd. 2. This must be done at least 30 days before the public hearing is scheduled.  For housing or redevelopment districts, separate notices must also be given to individual county commissioners who represent the area of the district. Minn. Stat. § 469.175, subd. 2a.  If the county disagrees with the TIF proposal, its only power is to persuade the authority to abandon or modify its plans. It cannot veto or delay adoption of the plan.

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For which projects can the county charge road costs to the authority?

The county may charge the TIF authority for county road costs, if:

  • The TIF development will (in the county’s judgment) "substantially increase the use of county roads requiring construction" of improvements or other costs and
  • A formal county plan had not scheduled the improvements for construction within five years.  Minn. Stat. § 469.175, subd. 1a.

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What are the procedures for including the county road costs in the TIF plan?

After receiving the TIF plan, the county has 45 days to submit the road costs to the development authority.  Minn. Stat. § 469.175, subd. 1(b).  The authority is required to add the improvements to the TIF plan. Since the TIF plan can be approved within 30 days and road costs may be submitted after 45 days, this may require a plan amendment. If the costs "break the budget" in the TIF plan, the authority and county are to negotiate an agreement to permit the financing.  If they cannot agree, the dispute must be submitted to binding arbitration. Minn. Stat. § 469.1762.

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What is the county’s role in administering TIF?

Although counties have a very limited decision-making role in TIF, county officials have a substantial role in administering TIF.  Specifically, county officials:

  • Certify and maintain an ongoing record of the original tax capacity of the TIF district, Minn. Stat. § 469.177, subd. 1 (auditor).
  • Calculate the captured tax capacity, Minn. Stat. § 469.177, subd. 2 (auditor).
  • Certify assessment agreements as reasonable, Minn. Stat. § 469.177, subd. 8 (assessor). A city assessor performs this function, if a city assessor is responsible for assessing the property.
  • Determine and collect the increment for the district, Minn. Stat. § 469.177, subd. 3 (treasurer).
  • Distribute increment to the development authority, Minn Stat. Ch. 276 (treasurer).
  • Distribute excess increments and excess taxes to the taxing jurisdictions, Minn. Stat. §§ 469.176, subd. 2; 469.177, subd. 9 (treasurer).
  • Notifying the Department of Education of distributions to school districts of excess increments and taxes, Minn. Stat. §§ 469.176, subd. 2;  469.177, subd. 9(a) (auditor).
  • Enforce the four-year knock-down rule, Minn. Stat. § 469.176, subd. 6 (auditor).
  • Decertify districts at the end of their legal duration limits, Minn. Stat. § 469.177, subd. 12 (auditor).

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Are counties compensated for these administrative costs?

Yes, the county may require the development authority to pay these costs. Increments from the district are generally used for this purpose. Minn. Stat. § 469.176, subd. 4h.

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What is the school district’s role in TIF decisions?

Schools are provided notice of the TIF plan and its estimated fiscal impact. The school district may make comments and provide advice to the authority.  As is the case with the county, a school district’s only power is to persuade the authority to abandon or modify its plans.

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November 2009

House Research Department  ♦  600 State Office Building, Saint Paul, MN  55155  ♦  House.Research@house.mn  ♦  651-296-6753