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This arrangement may be structured as a revenue note or bond issued to the developer, with an interest component to compensate the developer' for costs of financing the improvements up front. IV. LOCAL GOVERNMENT AID PENALTY A. Generally. The penalty, set out in Minnesota Statutes, Section 273.1399, applies only to districts requested for certification after April 30, 1990. The penalty is tied to the state school aid formula. When an authority creates a TIF District, the state calculates how much less the school aids would have been had the captured property value been available to the school district. That amount is then deducted from the municipality's local government aid (LGA) and if necessary from the homestead and agricultural credit aid (HACA). B. Amount. The LGA/HACA loss varies, but is usually about 30% of the tax increment collected annually when the maximum penalty applies. Note that the penalty does not change the amount of increment collected; it changes the amount of state aid the municipality receives. The amount of aid loss depends on the type of TIF District: • 1. Redevelopment and Housing Districts and Hazardous Substance Subdistricts: the aid loss is phased in over time. For the first six years after the original assessment year of the district, there is no aid loss. Beginning in year seven, the loss is only 6.25% of the maximum possible loss. Each year thereafter, the loss increases in 6.25% increments, until the full penalty applies in year 21. 2. Renewal and Renovation District: the same 6-year grace period applies, but in year seven the loss is 12.5 percent of the maximum loss, followed by an additional 12.5% annually until the full penalty applies in year 12. 3. Soils Condition and Economic Development Districts: the maximum penalty begins in the first year in which increment is collected. C. Penalty Recapture. 1. For districts created between May 1, 1990 and July 31, 1993, the municipality may obtain reimbursement from the developer for lost aid. However, tax increment may not be directly expended to reimburse the general fund for such aid loss. 2. For districts requested for certification after July 31, 1993, new restrictions apply. • If any agreement or "arrangement" provides for the developer to repay any part of the tax increment assistance provided, such developer payments are subject to restrictions imposed by law on tax increment itself. Thus, a municipality may not deposit such payments in the general fund, but rather must maintain them in the s.313100 909 g FIRM-2