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Item No: AS-2B Meeting Date: July 7, 2004 Type of Business: Staff Reports City of Mounds View Staff Report To: Mounds View Planning Commission From: James Ericson, Community Development Director Item Title/Subject: Review Tax Increment Financing (TIF) Program Introduction: It was brought to my attention that the Planning Commission could benefit from a brief and general overview of Tax Increment Financing (TIF)—how it works and the intent of the laws associated with TIF. While TIF is not ordinarily an issue the Commission would discuss or debate, having a general understanding of Minnesota’s laws in this area may be beneficial. Unfortunately, the TIF experts will be the first to tell you that TIF laws are difficult to understand and with each passing legislative session, it becomes even more confusing. Because of this and the need for legal compliance, most cities with TIF districts utilize the services of a TIF advisor and/or TIF attorney; someone particularly specialized in this field. Mounds View is no different in this regard. General Overview: As federal funds for urban renewal projects became more restrictive in the 1970s, tax increment financing (TIF) became a popular redevelopment financing tool nationally. Minnesota enacted TIF enabling legislation in 1969 and was one of the first states to do so. Since then, the scope of TIF has gone beyond redevelopment and encompasses general development activities — from affordable housing development to contaminated soil remediation. The most common type of district is a “redevelopment” district. Mounds View’s three TIF districts are redevelopment districts. Tax increment financing is a tool used by local development authorities — usually cities — to fund certain types of development. A city can use or “capture” additional property taxes generated by a new development to pay for certain development costs. As a result, the captured property taxes are not distributed to other taxing jurisdictions, such as the county, city or school district, as would be the case in absence of TIF. The captured property taxes are based upon the difference between the tax capacity following development and the original tax capacity of the property. If the original tax capacity of the property was $10,000, for example, and the tax capacity following improvements to the property was $50,000, the captured net tax capacity would be $40,000. In this example, the property taxes paid on $40,000 could be used to finance improvements to the properties within a TIF district. The TIF statutes impose limits on activities for which tax increments can be spent. Permissible costs covered by TIF include but are not limited to acquisition or demolition of blighted property; street and public parking lot or ramp construction; relocation benefits for occupants of acquired properties; construction or rehabilitation of housing for low- and moderate-income households; planning, engineering and legal services; and construction of agricultural processing projects. TIF Report