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As development projects grow, cities ask House lawmakers to help bend the rules

Fear of commitment is something spoken of in budding relationships, and the same is often true in the relationships between real estate developers and local governments.

Developers can sing the praises of a project and say that it will produce tremendous economic benefit, but many a municipality has had its metaphorical heart broken by promises that didn’t pan out.

But tax increment financing can make the risk feel not so large for a city.

With TIF, the cost of a development project is paid for with the increased property taxes that it’s expected to create. While the upfront cost of a development can be covered by bonds, loans or pay-as-you-go financing, if the city declares the development area to be a TIF district, property taxes for that area are funneled exclusively to the repayment of those upfront costs.

Under the state’s TIF rules, a city has to start knocking down buildings within four years and start spending money on development activity within five. The idea is that the property can’t be off the tax rolls for too long. It also has to be property that’s been determined to be “blighted.”

So what happens if a development needs more time or a project grows in scope? That’s where the House Property and Local Tax Division comes in.

Representatives of seven cities went before the division over the course of two meetings Monday to seek approval for extensions and variances related to TIF districts. All of their bills were laid over for possible inclusion in the division report to the House Taxes Committee, as were seven voter-approved plans for adding local sales taxes.

Under the bills that were laid over, new TIF districts would be created in Burnsville, Duluth, Edina and Minneapolis. Existing projects asking for extensions are in Bloomington and Champlin. And Roseville seeks to alter a TIF plan to allow for more environmental remediation.

According to a 2018 report of the Office of the State Auditor, there were 1,665 active TIF districts in the state in 2016. A member of the nonpartisan House Research Department estimated that eight to 10 TIF projects ask for special changes each year.

The division chair, Rep. Diane Loeffler (DFL-Mpls), spoke of TIF as both valuable and problematic.

“I have heard concerns from some of the other taxing jurisdictions about, when communities get too much into TIF, how much that takes away from the operating budgets of the schools and counties,” Loeffler said. “And that’s why we have some guard rails around how long they can take the property off the tax rolls. … But it’s a tool that’s been useful for a long time to create a lot of new, exciting things in a lot of communities.”

The seven cities that had their voter-approved plans to increase local sales taxes laid over for inclusion in the division report were Blue Earth, Cambridge, Glenwood, Scanlon, Two Harbors, Willmar and Worthington.

Each of the 14 bills has a Senate companion that’s awaiting action by the Senate Taxes Committee.


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