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Tax Reform Could Slice TIF Revenues 40%

MINNEAPOLIS-Lower property tax rates on commercial and industrial properties as well as shifting school funding from property taxes to the state is expected to reduce the $304.9 million funneled to TIF districts last year.

By Jim McCartney | Updated on August 11, 2001

MINNEAPOLIS-In the aftermath of property tax reform enacted earlier this summer by the Minnesota Legislature, net tax revenue for Tax Increment Financing districts, which totaled $304.9 million statewide last year, could drop by as much as 40% next year, according to a new report from the Citizens League, a Minneapolis-based public interest group. That means fewer dollars to work with on promoting development, and that will affect local decision-making, says Joel Michael, an analyst for the state’s House of Representatives research department.

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.

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