For instance, it will make it more difficult for cities to fund redevelopment projects and cleanup contaminated brownfields, says Craig Waldron, chairman of the League of Minnesota Cities TIF task force. The tax code changes are also likely to reduce the number of new TIF districts created -- a downward trend mayhave already begun, Waldron says.

The Legislature's actions included two major changes to the state tax code, the compression of tax rates -- particularly for commercial and industrial property -- and the state takeover of K-12 general education funding. They are expected to sharply reduce the amount of net tax revenue captured by tax increment districts. As part of its tax package, the Legislature reduced property tax rates for commercial and industrial lands, which make up the largest percentage of property and TIF districts, from 2.4% and 3.4% to 1.5% and 2% respectively.

TIF is a somewhat controversial development tool used by cities and counties to finance certain types of development costs, such as acquiring land or buildings, demolishing substandard buildings, installing utilities or road improvements or building low- or moderate-income housing. The program, created by the Legislature in 1979, allows a city or county to create a tax increment financing district and "capture" the increase in net tax capacity that results from new development within the district, in essence taking that tax revenue off of the tax base and paying it directly to the TIF district. The TIF authority uses increased tax revenue, referred to as the tax increment, to pay for certain approved development costs.