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Item No. 5 Meeting Date: October 2nd, 2000 Type of Business: WK WK: Work Session; PH: Public Hearing; CA: Consent Agenda; EDA: EDA Business City of Mounds View Staff Report To: Mounds View City Council From: Aaron Parrish, Economic Development Coordinator Item Title/Subject: Tax Abatement Finance Policy Date of Report: September 27, 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. Subsequently, the EDC has reviewed and is recommending the Tax Abatement Finance Policy contained in Attachment #1. The proceeding paragraphs provide an overview of tax abatement. Realizing the need for a 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 (6) finance or provide public infrastructure" (Minnesota Statutes §469.1813). The public purposes highlighted above are primarily oriented toward economic development objectives such redeveloping blighted areas, preserving the tax base, and providing employment opportunities.