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Economic Development TIF Districts

Duration Limit

How long can increments be collected from an economic development district?

The law permits increments to be collected for eight years after the receipt of the first increment.  Minn. Stat. § 469.176, subd. 1b(4).  Thus, counting the first year of increment, nine years of increment may be collected. Waiver or declining to accept increments has no effect on the duration limit; the waived increments are treated as received for purposes of the duration limit.

What is the history of changes in the duration limit for economic development districts?

The legislature has changed the duration limit for economic development districts twice since the Tax Increment Financing Act was passed in 1979. The current duration limit was enacted by the 2000 legislature and applies to certification request for districts received after June 30, 2000.  2000 Minn. Laws 2159-60, ch. 490, art. 11, § 25, codified at Minn. Stat. § 469.176, subd. 1b.

Prior law generally provided shorter duration limits.

  • The original 1979 TIF act limited the duration of economic development districts to the lesser of (1) 10 years from the approval of the TIF plan or (2) eight years after the receipt of the first increment. 1979 Minn. Laws 844, ch. 322 § 5, codified at Minn. Stat. § 273.75, subd. 1 (1979 Suppl.). In most instances, the ten-year limit, measured from plan approval, was shorter than the permitted eight years of increment.
  • In 1993, the legislature increased these limits by one year each, to the lesser of (1) 11 years after plan approval or (2) nine years after receipt of the first increment.  1993 Minn. Laws 2966, ch. 375, art. 14, § 10, codified at Minn. Stat. § 469.176, subd. 1b (1993 Suppl.). These changes applied to districts where the request for certification was made after May 31, 1993. 1993 Minn. Laws 2981, ch. 375, art. 14, § 24.

Geographic Areas That Qualify

Where may an economic development TIF district be created?

There are no general geographic restrictions limiting where economic development districts may be created. No "blight" or similar test must be met, as is the case with redevelopment TIF districts. Instead, the law restricts the purposes for which economic development districts may be used and the types of businesses that can receive assistance. In general, economic development districts are to be used to expand employment or tax base in the state. Subsidies from economic development districts may only be used for specific types of businesses or industries.

Where may tourism projects be assisted with economic development TIF?

The law limits tourism projects to sites that meet three requirements:

  1. The site must be in a county located in development regions 1, 2, 3, 4, 5, or 7E
  2. The site must be a county whose median income is 85 percent or less of the state median income.  This list will vary from year to year, as incomes change.  Map and list of counties that meet both criteria 1 and 2. These are based on U.S. Census Bureau estimates for 2010.
  3. The site may not be located in a city with a population of 20,000 or more. This disqualifies projects in two cities that are in the qualifying development regions: Duluth and Moorhead.

Minn. Stat. § 469.174, subd. 22.

Where in the state may economic development districts be used for retail and other commercial developments?

Economic development districts generally may not be used for retail, office, or similar commercial developments. Exceptions are allowed for commercial developments of 15,000 square feet or less in small cities.

Permitted Uses of Increment

What purposes allow creation of an economic development district?

Before a development authority establishes an economic development district, it must make a finding that one of four purposes is satisfied:

  1. The district will "discourage" a business from moving out of the municipality or state.
  2. The district will increase employment in the state.
  3. The district will preserve or enhance the tax base of the state.
  4. The district will finance a workforce housing project.
  5. Minn. Stat. § 469.174, subd. 12.

May an economic development district be used to provide assistance to a business that otherwise would locate in another Minnesota city?

The required findings do not appear to permit this, except in the limited circumstances of "discouraging" a business from moving from the municipality to another Minnesota site.  Minn. Stat. § 469.174, subd. 12(1).  Thus, if ABC Inc. is located in Minneapolis and plans to move to Bloomington, Minneapolis could create an economic development district to keep ABC Inc. in Minneapolis.  However, Bloomington could not create an economic development district to attract ABC Inc. This limit can be avoided and Bloomington can offer the incentive, if ABC Inc. is also considering a possible location in another state.

The legislature imposed these requirements to minimize the extent to which economic development districts are used to move businesses from one Minnesota location to another.  This is sometimes referred to as "raiding" another city’s businesses. It provides little or no advantage to state taxpayers. Before 1990, economic development districts could be used to increase employment or tax base in the municipality. See 1990 Minn. Laws 2582-83, ch. 604, art. 7, § 8 for the prior language and the text of the 1990 changes.

Is the prohibition on "raiding" Minnesota businesses enforceable by a court?

Private legal actions may be brought to enforce the requirements of the TIF act. However, the prohibition on "raiding" Minnesota businesses derives from a required "finding" by the development authority. Minn. Stat. § 469.174, subd. 12. It is not clear under what circumstances a court would conclude a development authority had acted contrary to the law, if it made the required findings but the actual facts were demonstrably to the contrary. Recent decisions, such as Walser v. Richfield, 635 N.W.2d 391 (Minn. App. 2001), suggest a court may be willing to review these findings to determine whether they are supported by substantive evidence or are arbitrary and capricious.

What types of businesses or developments may be assisted with economic development TIF?

The law allows tax increments from economic development districts to be used only for six types of businesses:

  1. Manufacturing
  2. Warehousing
  3. Research and development
  4. Telemarketing
  5. Tourism in qualifying counties
  6. Workforce housing projects.  Minn. Stat. § 469.176, subd. 4c.

This means that economic development districts, in general, may not be used for retail or general office developments.  Nor may they be used for housing developments.  Before the 1988 amendments, economic development districts were routinely used for these purposes (retail, office, and housing). 1988 Minn. Laws 1989, ch. 719, art. 12, § 16, codified at Minn. Stat. § 469.176, subd 4c (1989 Suppl.), first imposed restrictions on the permitted types of developments that could receive economic development assistance. Note that two special exceptions apply to allow general use of increments from economic development for commercial developments:

  1. As noted below, certain small cities may use these increments for commercial developments. This is a permanent feature of the TIF law.
  2. A temporary provision allows use of these increments for any type of project, if (1) construction begins by July 1, 2012, and (2) the municipality finds the project will create new jobs in the state, including construction jobs. This provision was enacted by the 2010 Legislature as part of a bill intended to create jobs in response to the recession that began in 2007. It was modified by the 2011 Legislature, extending the construction deadline by a year (to July 1, 2012).

May a portion of economic development district projects be used for retail, office, housing, or other nonqualifying uses?

The law permits up to 15 percent of the assisted buildings and facilities (measured by square footage) to be used for nonqualifying uses. Thus, a development could contain a small amount of retail or housing development, if it met the 15 percent test. Furthermore, the law allows "space necessary for and related to the activities" of qualifying types of businesses. For example, an office in which administrative and personnel functions are carried on for a manufacturing plant would qualify under this provision.  This related space would not count against the 15 percent limit.

What types of facilities may be assisted in connection with economic development tourism projects?

The law permits the following types of developments to be assisted:

  • Privately owned convention and meeting facilities
  • Marinas
  • Hotel, motel, or lodging facilities
  • Nonhomestead dwelling units (such as a condominium or townhouse development used by their owners for seasonal purposes).  Minn. Stat. § 496.174, subd. 22 (4).

May small cities use economic development TIF for retail and office space?

Although the general rule does not permit it, small cities may use economic development districts for retail and office developments.  Minn. Stat. § 469.176, subd. 4c(c). This assistance is limited to no more than 15,000 square feet of a "separately owned commercial facility." The 15,000 square foot limit appears to apply to the facility and is not a cumulative limit for the city.  Thus, a city could assist several commercial facilities, each of which has 15,000 square feet.  The same individual or entity may not own more than one of these facilities in the city. Assistance must be provided directly to the development. Land write-downs, grants, sewer and water connections to the property would qualify. By contrast, general infrastructure improvements that benefit a broader area (e.g., street improvements) would not. The district may not "pool" increments – spend increments on activities outside of the district.

What is a small city?

A small city is a city with a population of 5,000 or less. The city may not be located within 10 miles of another city with a population of 10,000 or more. Minn. Stat. § 469.174, subd.  27. This is intended to disqualify suburbs of larger cities.  Qualification is determined based on the year of certification.  Minn. Stat. § 469.176, subd. 4c(e). Qualifiying small cities.

What is a workforce housing project?

The 2017 Legislature authorized cities outside of the seven-county metropolitan area to use economic development districts to fund workforce housing projects---that is, to use TIF to help finance market-rate, rental housing. (TIF housing districts are limited to projects that serve lower income tenants.) In order to qualify, the city must find that:

  • The rental housing vacancy rate in the city and any other city within 15 miles of the city was 3 percent or less during the immediately preceding two-year period.
  • One or more businesses who employ at least 20 full-time equivalent employees in the city provide a written statement to the city that the lack of rental housing has created a barrier to the business hiring employees.

What special rules apply to workforce housing projects

The workforce housing project law, unlike any other type of TIF district, requires approval of the TIF plan by the county and school district, as well as the city. In addition, the authority to certify new workforce housing districts expires or sunsets on June 30, 2027.

Data on Use of Economic Development Districts

How many economic development districts are active?

According to data proved by the State Auditor there were 308 active economic development districts at the end of calendar year 2015.

What share do economic development districts make up of all TIF districts?

Economic development districts make up about 18 percent of all TIF districts, according the State Auditor’s data for calendar year 2015.

July 2017