Other older Minnesota cities, including Minneapolis and its Minneapolis Community Development Agency, are finding there's a downside to slashing commercial-industrial real estate taxes: specifically, what happens to tax increment financing?
Tax increment bonds -- a public tool to help cities finance development by issuing bonds that are repaid through higher property taxes on the development -- are a very popular tool in Minnesota, given the state's historically high property taxes. If you slash property taxes, all of a sudden there isn't enough "increment" coming in to pay off those bonds, says Brian Sweeney, director of the planning and economic development department for the city of St. Paul.
"This could be the end of Tax Increment Financing as we know it," Sweeney says.
Now the Minnesota Legislature is developing a "superfund" to take care of the existing tax increment financing districts -- $200 million in the governor's bill and $206 million in the House. But even this may not be enough to make up the shortfall. And what'sworse, there are no provisions as yet to handle deals in the pipeline. Without the taxes coming in to pay off the bonds, the pending deals may have to undergo major reworking if they are to survive.
In St. Paul, the city recently approved $15 million in tax increment financing for the $80-million office portion of the West Side Flats project -- a 350,000-sf office building for US Bancorp. The project is being developed by Opus Corp. There is an equally significant multifamily housing project that would be developed by George Sherman and Jerry Trooien.
Likewise, TIF was an important tool in the Upper Landing, a $160-million-plus multi-use project on the north bank of Mississippi River under development by Dallas-based Centex.
"We're in limbo -- but I'm quietly hopeful we have made our case to the legislators and the governor," Sweeney says. The problem is, it's unclear when the state will pass the property tax reform -- or any other major legislation, for that matter.
After apparently breaking the deadlock late last month, the Democrat-controlled Senate and Republican-controlled House of Representatives are back to squabbling over tax and spending legislation.
To encourage them to reach a deal, Minnesota Gov. Jesse Ventura ordered a special session of the Minnesota Legislature for today.
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