05/09/2005 Council Packet - Laserfiche WebLink

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1 Available Funding Sources i7 General Obligation Tax Increment Financing (TIF) Bonds And Other Associated Obligations (Minnesota Statutes Chapter 469.174 — 469.1791) Springsted Tax Increment Financing (TIF) uses the increased property taxes generated by new real estate development within a defined geographic area to pay for certain eligible costs associated with the new development. The value that is "captured" (i.e. the increase in value over the year the TIF district was established) generates incremental property taxes. These incremental taxes are collected by the authority and then appropriated to the project. The incremental taxes are used to subsidize eligible project costs such as land acquisition, demolition, public and site improvements, and related consulting and administrative costs. The value of the property prior to development (i.e., the "non- captured" portion) continues to generate property taxes and is distributed to all appropriate taxing jurisdictions. The defined geographic area is referred to as a tax increment financing (TIF) district and is the area from which 111-,' funds are generated. A TIF District is located in a Project Area or a Development District, which is the area in which TIF funds may be spent (with certain restrictions). A Project Area or Development District may be the same size as the TIF District or they may be larger than the TIF District. Also, a Project Area or Development District may contain more than one TIF District. The formation of a TIF district is subject to stringent statutory requirements. The premise for all TIF districts is the "But For" test. In order for the City to create a TIF district it must make a finding that the new development would not occur "But For" the use of tax increment financing. The term (life in years) of a TIF district varies depending upon the type of district created. Project costs can be financed with general obligation tax increment bonds, non - general obligation revenue bonds, or pay -as- you -go notes. Tax increment revenues may be spent outside of the TIF district but within the boundaries of the Project Area, subject to certain restrictions. For redevelopment districts (certified after June 30, 1995), the maximum pooling percentage is 25 %. For all other TIF districts (certified after June 30, 1995), the maximum pooling percentage is 20 %. Pooled revenue must still be spent on TIF eligible project costs. TIF funds spent outside their districts may also be .subject to other restrictions. Legislative changes in the past have generally had an adverse affect on most cities tax increment districts, as a result it can be difficult for tax increment financing to serve as a viable financing tool for the PMR. The past changes in legislation compressed property classification rates, reduced tax rates on certaii classes of properties, and increased state aids to schools resulting in less tax increment being generated from a given development. However, there may be certain reconstruction projects within the PMR that could be financed with tax increments. - 1 8 6 - City of Lino Lakes - Pavement Management Plan Financing Re