Proposed 2007 TIF Legislative Changes
1. It is proposed that Minnesota Statues, section 469.174, subd. 10 (d) be amended to provide as follows:
(d) A parcel is deemed to be occupied by a structurally substandard building or by the improvements described in paragraph (e) for purposes of the finding under paragraph (a) if all of the following conditions are met:
(1) the parcel was occupied by a substandard building or met the requirements of paragraph (e), as the case may be, within three years of the filing of the request for certification of the parcel as part of the district with the county auditor;
(2) the substandard building or improvements described in paragraph (e) was were demolished or removed by the authority or the demolition or removal was financed by the authority or was done by a developer under a development agreement with the authority;
(3) the authority found by resolution before the demolition or removal that the parcel was occupied by a structurally substandard building or met the requirements of paragraph (e) and that after demolition and clearance the authority intended to include the parcel within a district; and
(4) upon filing the request for certification of the tax capacity of the parcel as part of a district, the authority notifies the county auditor that the original tax capacity of the parcel must be adjusted as provided by section 469.177, subdivision 1, paragraph (f).
(e) For purposes of this subdivision, a parcel is not occupied by buildings, streets, utilities, paved or gravel parking lots, or other similar structures unless 15 percent of the area of the parcel contains buildings, streets, utilities, paved or gravel parking lots, or other similar structures.
If the above provision was changed, Minnesota Statutes, section 469.177, subd. 1, paragraph (f) would need to be modified as follows:
(f) If a parcel of property contained a substandard building or improvements described in section 469.174, subdivision 10, paragraph (e) that were demolished or removed and if the authority elects to treat the parcel as occupied by a substandard building under section 469.174, subdivision 10, paragraph (b) or by improvements under section 469.174, subdivision 10, paragraph (e), the auditor shall certify the original net tax capacity of the parcel using the greater of (1) the current net tax capacity of the parcel, or (2) the estimated market value of the parcel for the year in which the building or other improvements was were demolished or removed, but applying the class rates for the current year.
Need for amendment: If an authority acquires several parcels and wishes to clear the entire area, a substandard building can be demolished within 3 years of filing for certification but the removal of other improvements at the same time does not permit a parcel to meet the section 469.174, subdivisions 10 (a) (1) coverage test. From law firm.
2. Minnesota Statutes, section 469.174, subdivision 10a (b) provides as follows:
(b) For purposes of determining whether a building is structurally substandard, whether parcels are occupied by buildings, streets, utilities, paved or gravel parking lots, or other similar structures, or whether noncontiguous areas qualify, the provisions of subdivision 10, paragraphs (c), (e), and (f) apply. [Emphasis added.]
Need for amendment: This provision was amended in 2001 [Sp.5, Art. 15, §§4 and 5] deleting paragraphs (b) and (d) and adding (e) and (f). A careful review of subdivision 10a (b) indicates that the provisions of subdivision 10, paragraphs (b) and (d) are still applicable. The provision is recommended to read as follows: “subdivision 10, paragraphs (b) through (f) apply.” From inquiry to the TIF Division.
3. Minnesota Statutes, section 469.174, subdivision 25 defines “tax increment” to include a number of revenue sources, including the proceeds from the sale of property or the lease of property, to the extent the property was purchased by the authority with tax increments. Example. An authority will be receiving lease payments on a building owned by the authority and purchased with TIF revenues for the foreseeable future. The TIF district has been decertified. When do the lease payments cease to be tax increment? Twenty-five years? Fifty years? From financial advisor. A second question with respect to section 469.174, subdivision 25 comes from a TIF Division auditor. What is considered property and who receives the proceeds under subdivision 25 (2)?
Need for amendment: The TIF Division monitors section 469.174, subdivision 25 revenues derived from tax increment until the TIF district is decertified and all TIF revenues are expended. Once the revenues are expended, the TIF Division no longer provides oversight. In the financial advisor’s example, the authority would be submitting annual TIF reports to the TIF Division forever because the lease payments continue into the foreseeable future. In the auditor’s example, the TIF district is decertified and all TIF revenues expended. Some years later the property derived from TIF financing is sold. There is no monitoring nor direction as to what is to be done with the proceeds.
4. Minnesota Statutes, section 469.174, subdivision 29 provides that a “qualified housing district” means either a residential rental project or projects or a single-family homeownership project or projects. It does not allow for the possibility that a qualified housing TIF district could include both residential rental housing and single-family homeownership. It was recommended that the statute permit both rental and owner-occupied housing to be in the same TIF district. From law firm.
Need for amendment: An authority wishes to have a qualified housing district that includes residential rental housing and single-family homeownership. The language of section 469.174, subdivision 29 made the attorney question whether both could be included in one TIF district.
5. Last year we discussed whether the formula in Minnesota Statutes, section 469.176, subdivision 2 [Excess Increment] is necessary. The formula seems to have everyone confused. Perhaps a definition of “excess increment” or a listing of the procedural steps for determining excess increment could accomplish the same objective. From authority representatives.
Need for amendment. The TIF Division receives numerous inquiries about the excess increment formula. The division is insecure when applying it to an authority’s facts and questions whether the formula isn’t too complex for authorities to comfortably implement. It also has the effect of requiring authority representatives to be responsible for economic development activities beyond tax increment financing.
6. Minnesota Statutes, section 469.176, subdivision 2 [Excess Increments] provides at (d) as follows:
(d) For purposes of a district for which the request for certification was made prior to August 1, 1979, excess increments equal the amount of increments on hand on December 31, less the principal and interest obligations due on outstanding bonds or advances, qualifying under subdivision 1c, clauses (1), (2)and (5), after December 31 of the year and not prepaid under paragraph (c). [Emphasis added.]
Need for amendment: The underlined cite should read as follows: “under subdivision 1c, clauses (1), (2), (4), and (5).” The failure to include clause (4) in the statutory cite with respect to pre-1979 districts has the effect of not permitting transfers of increment permitted under section 469.1763, subdivision 6 from being paid from excess increment. Section 469.176, subdivision 1c clearly has a contrary intent. From inquiry to the TIF Division.
7. Minnesota Statutes, section 469.1761, subdivision 3 [Income Requirements; Housing Projects] provides as follows:
Subd. 3. Rental property. For residential rental property, the property must satisfy the income requirements for a qualified residential rental project as defined in section 142(d) of the Internal Revenue Code. The requirements of this subdivision apply for the duration of the tax increment financing district.
Need for amendment: On-going records are required to assure that rental properties continue to satisfy the above income requirements for a qualified residential rental project. This requirement is often disregarded for TIF housing rental projects. Neither the facility owner nor municipality/authority assumes responsibility. (The Minnesota Housing Finance Agency (MHFA) requires the owners of qualified residential rental housing projects to annually file such documentation.) [Contact person: Renee Dickinson, Senior Housing Dev. Officer, MHFA (651) 296-9491.] The facility owner complies without incident to the MHFA request.
It would be helpful to expressly state in the TIF Act that a compliance report be filed with the municipality at the same time it is filed with MHFA or, at a minimum, to spell out the need for the documentation and to determine who is responsible for record-keeping. This is not a problem with owner-occupied low-income housing, as annual documentation of compliance is not necessary. From auditor in TIF Division.
8. Minnesota Statutes, section 469.177, subdivision 1 [Original Net Tax Capacity] provides as follows:
Subdivision 1. Original net tax capacity. (a) Upon or after adoption of a tax increment financing plan, the auditor of any county in which the district is situated shall, upon request of the authority, certify the original net tax capacity of the tax increment financing district and that the portion of the district overlying any subdistrict as described in the tax increment financing plan and shall certify in each year thereafter the amount by which the original net tax capacity has increased or decreased as a result of a change in tax exempt status of the property within the district and any subdistrict, reduction or enlargement of the district or changes pursuant to subdivision 4. [Emphasis added.]
Need for amendment: There is not a given date by which a county auditor must certify the original net tax capacity of a TIF district. The TIF Division does not have jurisdiction over counties. One county frequently certifies TIF districts after the first tax increment is received. Since the certification date is used as the tolling date for purposes of the four-year and five-year rules, this has the effect of permitting authorities in that county to have a longer time frame to meet these requirements. From county association.
9. Minnesota Statutes, section 469.178, subdivision 7 [Interfund Loans] states as follows:
The maximum rate of interest permitted to be charged is limited to the greater of the rates specified under section 270.75 or 549.09 as of the date or advance is made, unless the written agreement states that the maximum interest rate will fluctuate as the interest rates specified under section 270.75 or 549.09 are from time to time adjusted. [Emphasis added.]
Need for amendment: There appears to be a drafting omission. The underlined language should provide “as of the date the loan or advance is made”. Additionally, the calculation of interest under section 549.09 above is based on the one-year Treasury bill on the secondary market. The 52-week T-bill was discontinued as of February 2001. Is the index on the one-year T-bill different from the discontinued 52-week T-bill. From inquiry to TIF Division.
10. Clarification of Minnesota Statutes, sections 469.1792, subdivision 3 and 469.1794, subdivision 3, the pooling-for-deficits and special deficit authority provisions. If the statutes are read in order, it would appear that an authority must use available increment from other districts to eliminate a deficit as indicated in section 469.176e, subdivision 6 (d) before unfreezing the local tax rate and changing the fiscal disparities option, as indicated in section 469.1792, subdivision 3. However, when reading Minnesota Statutes, section 469.1794, subdivision 3, it appears that an authority must first unfreeze the local tax rate, change the fiscal disparities option and then pool the available increments from other districts to eliminate the deficit. What is the appropriate order of action to eliminate a deficit caused by the 2001 Property Tax Reform Act? From counties’ inquiries and the TIF Division.
Need for amendment: Counties have been inquiring whether authorities must unfreeze the local tax rate, change the fiscal disparities option, etc. before the county extends the term of a district subject to pooling-for-deficits. The TIF Division is unclear which provision comes first.
11. Minnesota Statutes, section 138.17 outlines the procedure that must be followed to dispose of municipal records. Many cities are under the impression they only have to retain TIF documents for seven years. Should the term of years for retention of TIF documents be included in the TIF Act or cross-referenced to the General Records Retention Schedule for cities and authorities? (See page 25, section Finance, title Tax Increment Finance (TIF) District Records of General Records Retention Schedule.) From TIF Division workshops.
12. Minnesota Statutes, section 469.176, subdivision 4l [Prohibited Facilities] at (b) provides that “[t]his subdivision does not apply to a privately owned facility for conference purposes or a parking structure.” There is confusion as to whether “parking structure” applies to both private and public parking structures. There is also a question with respect to whether a public parking facility adjacent to a social, recreational, or conference facility constitutes a qualifying purpose. or not. From a city finance analyst.