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

Redevelopment TIF Districts

Duration Limit

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.


Geographic Areas that Qualify

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:

  1. Areas that meet the statutory blight test
  2. Vacant or underused rail facilities
  3. Vacant or underused tank farms
  4. Qualified disaster areas (Minn. Stat. § 469.174, subd. 10)

What areas qualify under the blight test?

To qualify under the blight test:

  • 70 percent of the area of the district must be occupied by buildings, streets, utilities, or other similar structures, and
  • More than 50 percent of the buildings must be structurally substandard

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:

defects in structural elements or a combination of deficiencies in essential utilities and facilities, light and ventilation, fire protection including adequate egress, layout and condition of interior partitions, or similar factors, which defects or deficiencies are of sufficient total significance to justify substantial renovation or clearance. Minn. Stat. § 469.174, subd. 10(b).

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 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:

  • Have or had a capacity of more than 1,000,000 gallons.
  • Be located adjacent to rail facilities.
  • Be unused, underused, inappropriately used, or infrequently used.
  • Minn. Stat. § 469.174, subd. 10(a)(3).

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:

  • 70 percent of area of the district must be occupied by buildings, streets, or other similar structures, immediately before the disaster. This is the same as the occupancy or first part of the blight test.
  • The area was subject to a governmentally declared disaster within 18 months before certification of the district is requested. Four types of disasters qualify:
    1. A major disaster declared by the president of the United States
    2. A natural disaster determined by the U.S. Secretary of Agriculture
    3. A disaster determined by the administrator of the Small Business Administration
    4. A local disaster (tornado, flood, etc.) declared by the city or county
  • At least 50 percent of the buildings or structures suffered "substantial damage" as a result of the disaster. This parallels the blight test, which requires 50 percent of the buildings to be structurally substandard.

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.

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Permitted Uses of Increments

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:

  • Site acquisition of blighted sites or sites requiring pollution cleanup
  • Acquisition of an adjacent parcel or parcels to assemble a site large enough to redevelop
  • Cleanup of hazardous substances, pollution, or contaminants
  • Site preparation, such as clearing the land and installation of utilities, roads, sidewalks
  • Providing parking facilities for the site.  Minn. Stat. § 469.176, subd. 4j.

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.

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Data on Use of Districts

How many redevelopment districts are active?

Redevelopment districts are the most common type of district, accounting for almost one-half (48 percent) of TIF districts in 2015. See TIF Districts by Type for a breakdown on TIF districts.

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July 2017

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