Five years too tight for TIF? How about 10?

The clock is ticking on 1,648 development projects in Minnesota. They’re the ones working within the constraints of the state’s tax increment financing laws, which require that development activity within a designated district — from teardown to construction to ribbon-cutting — must be completed within five years.

But is that enough time? For many, it’s not, so local leaders end up going before the House Property Tax Division to ask for extensions. While there, many have said the tight timetable is especially taxing for rural communities, which can have a harder time getting on a developer’s radar.

Rep. Paul Torkelson (R-Hanska) is sponsoring HF1587, which would stretch that five-year window to 10 years for tax increment financing districts outside the seven-county metro area. But Rep. Jerry Hertaus (R-Greenfield) successfully suggested an amendment that would make this new “10-year rule” applicable to all TIF districts within the state.

Rep. Paul Torkelson

The bill was laid over for possible inclusion in the division report. It has no Senate companion.

With TIF, the cost of a development project is paid for with 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.

After the five-year period expires, increments may only be spent to pay off debt obligations incurred to fund the development. The issue of an extension has gained extra urgency because of the pandemic, which has set development projects behind throughout the state.

In proposing his amendment, Hertaus cited a precedent set in the “Great Recession.”

“In 2009, we did a blanket extension,” he said. “There seems to be general support to do this. Fortunately, interest rates are low, but risk taking is still a big deal. Time is always an issue. You never know what the absorption rate will be, meaning how much of the property will be developed and occupied.”

“Development often takes time,” said Dan Dorman, executive director of the Greater Minnesota Partnership. “As soon as you tear down, the five-year clock starts. But you may not be able to acquire all the property within five years. When you tear down and it sits there, that creates blight.”