Tax Increment Financing (TIF) Decertification

TIF is an economic development tool. When TIF districts are decertified, it can affect a city's tax base and LGA distribution.

About TIF

TIF in Minnesota

TIF decertification and tax base increases

TIF decertification and local government aid (LGA)
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About TIF

  • TIF is an economic development and redevelopment tool.
  • Cities and authorities (e.g., housing and redevelopment authorities) are authorized to create TIF districts.
  • The authority to create a TIF district is granted by the state Legislature.
  • TIF helps cities preserve and grow their local economies, which contributes to the economic health and vitality of the state.

—View the Handbook for Minnesota Cities, Chapter 15, for more on TIF (pdf)

—Access the House Research TIF Primer to learn more about what
TIF is and how it’s used

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TIF in Minnesota

  • In 2013, the most recent year for which data is available, 417 municipalities and development authorities had active TIF districts; statewide, there were 1,732 TIF districts.
  • 74 new TIF districts were certified during 2013 while 99 districts were decertified.
  • Redevelopment districts account for 49 percent of all districts and 81 percent of the tax increment revenue generated in 2013.

—Acess the 2013 TIF Report on the OSA website

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TIF decertification and tax base increases

  • All city TIF districts statewide contain more than $164 million in captured net tax capacity (NTC), according to the most recent data
  • Although 64 percent of all city-authorized TIF districts are located in Greater Minnesota, 81 percent of the total captured NTC is in the 7-county metro area.
  • The share of total city taxable NTC contained within city-authorized TIF districts in the 7-county metro area is larger than in Greater Minnesota (4.5 percent vs. 3 percent).

TIF Table 1

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TIF decertification and local government aid (LGA)

  • The current LGA distribution formula uses a city’s net tax capacity to measure ability to pay.
  • The increase in tax capacity resulting from decertification can affect a city’s LGA distribution.
  • A city’s ability to pay is compared to its calculated expenditure need to determine the amount of LGA received.
  • A city that has enough revenue-raising capacity to meet its spending needs according to the formula does not receive LGA.

Cities with large proportions of their net tax capacity in TIF districts will likely see a decrease in their LGA distribution when the districts are decertified, as the difference between calculated need and capacity narrows.

Example: Minneapolis would have received 9 percent less certified LGA in 2008 if all tax capacity in TIF districts at the time was included in the ability-to-pay measure.

Table 2 shows the statewide total amount of 2013 NTC that will be included in city tax rolls (by estimated year of decertification).

TIF Table 2

Source: Tax capacity and decertification data from the Minnesota Department of Revenue.

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