Focus on New Laws: Tax Increment Financing Changes

September 20, 2021

Several changes were made to tax increment financing laws in 2021 in response to the economic effects of COVID-19.

Several changes to laws governing tax increment financing (TIF) were included in article 9 of the 2021 omnibus tax bill (Chapter 14, First Special Session). Gov. Tim Walz signed the bill into law on July 1.

New uses of unobligated tax increment

Section 1 amends Minnesota Statutes, section 469.176 to allow two temporary new uses of unobligated tax increment. This change seeks to spur development activity in a response to the ongoing COVID-19 pandemic.

The change gives the development authority the option to elect, by resolution, to transfer unobligated increment for the following purposes:

  • To provide improvements, loans, interest rate subsidies, or assistance in any form to private development consisting of the construction or substantial rehabilitation of buildings and ancillary facilities, if doing so will create or retain jobs in the state, including construction jobs, and the construction commences before Dec. 31, 2025, and would not have commenced before that date without the assistance.
  • To make an equity investment that the authority determines is necessary to make construction of the development financially feasible.

Transfers may only be made after the authority adopts a written spending plan and the municipality approves the transfer after holding a public hearing. The authority to transfer increment expires on Dec. 31, 2022. All transferred increment must be spent by Dec. 31, 2025, or returned to the district.

The amount of increment transferred per calendar year is limited to the excess of increment that is required to make bond payments or other financial obligations within six months of the transfers. This change was effective on July 2, 2021, for current unobligated increment for any TIF district.

Expenditures outside district

Section 2 amends Minnesota Statutes, section 469.1763 to allow districts that have elected to increase pooling by 10% to use the pooled increment to fund owner-occupied housing that meets the definition of a housing TIF district, in addition to current authority to spend the pooled increment on low-income rental housing. This change was effective on July 2, 2021.

Five-year rule

Section 3 amends Minnesota Statutes, section 469.1763, subdivision 3 to extend the five-year rule by three years for a total of eight years for redevelopment districts that were certified after Dec. 31, 2017, and before June 30, 2020.

The five-year rule requires development activity for a TIF district to be finished within a five-year period that begins with certification of the district’s original tax capacity. This is effective for districts for which the request for certification was made after Dec. 31, 2017.

Six-year rule

Section 4 amends Minnesota Statutes, section 469.1763, subdivision 4 to make a corresponding change to the six-year rule for those districts whose five-year rule was extended under section 3.

Under the six-year rule, tax increment may only be spent in the sixth and subsequent years of a district to: (1) pay bonds issued during the first five years of the district, (2) pay contracts that financed improvements, or (3) reimburse the developer for costs it paid to make improvements in the district during the first five years to decertify the district. This change is effective July 2, 2021.

Transfer to affordable housing trust fund

Section 5 authorizes the cities of Minnetonka, Richfield, and St. Louis Park to transfer increment accumulated for housing development under normal pooling authorizations, or through the additional 10% allowance for housing purposes, to the city’s affordable housing trust fund. This change is effective upon local approval, under Minnesota Statutes, section 645.021, subdivisions 2 and 3.

Any increment transferred under this section may only be used to make grants, loans, and loan guarantees for the development, rehabilitation, or financing of housing, and to match other funds from federal, state, or private resources for housing projects.

Once transferred, increment is subject to the same annual reporting requirements as traditional TIF increment. However, once transferred, the increment is no longer subject to other statutory restrictions as traditional TIF increment and may be used as authorized in this section.

The authority to make transfers under this section expires Dec. 31, 2026, and in addition to annual reporting on TIF to the state auditor, each city is required to submit a report to the Legislature on the use of transferred increment. The reports are due by Feb. 1, 2024, and Feb. 1, 2026.

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