05-23-1990 Council Agenda - Laserfiche WebLink

Home Browse Search

Tax committee severely curtails TIF The Tax Conference Committee enacted sweeping reforms in tax increment fi- nancing. Proponents of refomt cited an increase in accountability and a reduc- tion in state costs as justification for refomt. Those opposing the changes argue that the state should not micro- manage city affairs. As the tax conference negotiations wore on, tempers frayed. Conferees appeared to compromise at about 5:00 a.m. April 23, but they did not mach final agree- ment until after 10:00 p.m. that evening. As negotiations ended, Sen. Larry Po- gemillcr (DFL- Minneapolis), TIF's strongest ally on the conference com- mittee, suggested that cities may be able to convince the Legislature to loosen some of the restrictions in 1991 if they prove to he unworkable. Restrictive as the bill is, it would have been worse without the help and persis- tence of Senators Larry Pogemiller, Steve Novak (DFL -New Brighton), and John Bemhagen (IR- Hutchinson). Sen. Linda Berglin (DFL- Minneapolis) and Sen. Bemhagen spoke against the TIF provi- sions of the compromise tax bill on the Senate floor, and both voted against final passage of the bill. Some good news Difficult as the changes in TIF will be, the good news is that they could have been worse. The conference committee eliminated some of the most restrictive provisions of the original bill. These restrictions included elimination of land writedown, volume limits, redefined project area, reverse referendum, time limits on city administrative expenses, and restricting use of developer repay- ments. The new rules the committee enacted are effective for districts certified after April 30, 1990. A special one -year knock- out rule will apply to districts that were certified between April 1, and April 30, 1990. Those districts will be subject to the rules in the tax bill unless the city issues bonds before June 1, 1991, the authority enters into a development agreement. or the authority acquires property after April 1, 1990. LGA/HACA cuts for new districts Cities will face cuts in their local gov- enuttent aid (LGA) or homestead and agricultural credit aid (HACA) payments equal to approximately one -third of the captured tax capacity of new districts (those certified after April 30, 1990). The full aid cuts are effective with the first increment the economic develop- ment and soils conditions districts col- lect, and they phase in beginning in the sixth year of the district for all other districts. There is a reduction in LGA/ I-ACA cuts when the captured tax ca- pacity of a district exceeds five percent of the city's tax capacity. The aid cuts are supposed to compensate the state for school aid costs associated with TIF. The League believes that the only justification for aid cuts is if a district fails to meet the but for test. Redevelopment criteria Reform of redevelopment districts took two directions. First was to remove obsolescence and non - conforming use as criteria for blight, and second was to tighten the definition of blight. The obsolescence and non - conforming use blight criteria were incorporated into a newly created renewal and renovation district with a 15 -year life. Under the bill, a building is not substan- dard for purposes of the blight test if it complies with the building code for new buildings or if it can be brought into compliance for less than 15 percent of the cost of constructing a new building of the same type and size. The city can determine that the building meets the 15 percent test on the basis of reasonable evidence, such as the size, type, and age of the building and the average cost of repairs and improvements. The city need not conduct an interior inspection or have an independent appraisal, if other reliable evidence supports a judgment that it meets the 15 percent test. Housing and redevelopment districts Housing and redevelopment districts will continue to have a 25 -year life. The new renewal and renovation districts have a 15 -year life. No more than one -fifth of the market value of housing districts may be commercial value. Road and administrative costs The county board may require the au- thority to pay all or a portion of county road costs if the county finds that the development will substantially increase the use of county roads and the road improvements are not in the county's five -year capital improvement plan. Pooling The bill severely restricts pooling. Bind- ing legal commitments for spending in TlFdrstncts must occur within five years after certification of the district No more than 25 percent of the increment may go to activities that are outside the district but within the project area. The purpose of this provision is to encourage cities to decertify districts as quickly as possible. Economic development districts The bill limits economic development districts to manufacturing, warehousing, research and development, and tele- to 0 PAGE 48 T 1 gr !v•,.. _ A it • ..