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Item No. 6B Meeting Date: June 22"d, 2000 Type of Business: EB • EB: EDC Business • IN: Informational Item City of Mounds View Staff Report To: Economic Development Commission From: Aaron Parrish, Economic Development Coordinator Item Title/Subject: Tax Abatement Finance Policy Date of Report: June 14, 2000 Background: At the March 13th meeting of the Economic Development Authority, the Authority gave direction to the EDC to examine the potential use of tax abatement in Mounds View, and to develop a tax abatement policy. The proceeding paragraphs provide a detailed overview of what is commonly referred to as tax abatement. Realizing the need fora viable alternative to tax increment finance, the 1997 Minnesota Legislature and Governor adopted tax abatement legislation into law. "The laws goal was to give each taxing jurisdiction a voice in economic and redevelopment efforts, limit the state's financial liability through the school finance system, and enable new business retention efforts" (Bubul et al 3). While tax abatements have not been widely adopted at this point, it is anticipated the use of this development finance tool will increase in the future as TIF becomes more restrictive. • Operational Considerations • It must be noted that"Abatement, in the context of Minnesota's abatement law, is not an abatement in the literal sense of the word. In reality, what Minnesota law contemplates is a tax rebate rather than an exemption from paying taxes. When a jurisdiction enters into an abatement agreement, the taxpayer pays taxes on the abated property to the county in the same manner it would if the taxes were not being abated. The county then pays the abatement to the general fund of the political subdivision" (Bubul et al 3). Accordingly, the term tax abatement is somewhat misleading. Tax increment finance allows municipalities and local economic development authorities to capture the tax base from the three primary taxing jurisdictions. As previously indicated, tax abatements are granted by particular political subdivisions. A political subdivision may grant an abatement if: " (a) it expects the benefits to the political subdivision of the proposed abatement agreement to at least equal the costs to the political subdivision of the proposed agreement; and (b) it finds that doing so is in the public interest because it will: (1) increase or preserve tax base; (2) provide employment opportunities in the political subdivision; (3) provide or help acquire or construct public facilities; • (4) help redevelop or renew blighted areas; (5) help provide access to services for residents of the political subdivision; or