In 2018, Tax Increment Financing Districts across Minnesota provided a crucial boost to development and produced about $230 million in revenue, according to a new report released by State Auditor Julie Blaha.

The state auditor’s office helps to oversee the TIF program, which is authorized by the state legislature but utilized by local authorities. Overall revenue produced by those districts reached its highest levels since 2012, when there were a significantly greater number of TIF districts.

TIF doesn’t technically count as a tax reduction, even though fewer taxes are paid on properties in a TIF district than otherwise would be. That’s because the taxable value of the property prior to development is used to determine the property owner’s property taxes for the duration of the TIF district, which often last up to 20 yeat=rs. The new value added by development is “captured” and used to cover development costs, in the form of “tax increments.”

Once the TIF district sunsets, all property taxes go to the taxing authorities.

The number of TIF districts peaked in the mid-2000s, at over 2,200, but has fallen in recent years. However, TIF is utilized more commonly in Greater Minnesota, where 63% of current TIF Districts are located. While Twin Cities TIF districts are largely focused on redevelopment, in Greater Minnesota, they are commonly used to increase the stock of affordable housing. In Northfield and Faribault, TIF Districts have been paired with tax credits to bring new housing projects to town.

Even though Rice County is enjoying a strong economy, it’s still struggling with a shortage of housing, especially affordable housing. In part, that’s because property values are higher in the south Twin Cities metro, but building costs are essentially the same.

In Faribault, the new Lofts at Evergreen Knoll is moving ahead thanks to support from the Minnesota Housing Finance Agency, which last fall included the project on its list of those eligible for a pool of nearly $250 million in tax credits.

In addition to those tax credits, the developer is seeking to establish a TIF District to help keep costs down. Thanks to those funding sources, Faribault will soon have an additional 82 apartments, all rent controlled to less than 60% of the median area income.

TIF Districts are used for market rate housing opportunities too. Last year, Northfield’s City Council approved a 25-year TIF District for a 79-unit market rate apartment complex set to be built in downtown Northfield.

That project was facing a projected funding gap of nearly $2 million, before the TIF District was implemented. In cases like those, Northfield Community Development Coordinator Nate Carlson said that TIF proven invaluable.

According to Northfield Finance Director Brenda Angelstad and Faribault Finance Director Jeanne Day, there were six active TIF districts in Northfield and five in Faribault in 2019. However, those Northfield districts brought in nearly $400,000 in revenue, more than twice as much as those in Faribault did.

Reach Reporter Andrew Deziel at 507-333-3129 or follow him on Twitter @FDNandrew. © Copyright 2020 APG Media of Southern Minnesota. All rights reserved.

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