In Minnesota, tax increment financing districts are established under the provisions of Minnesota Statutes, Section 469.174 through 469.179 (the "Act"). This statute allows an authority such as an HRA or EDA, among others, or municipality to assist economic and housing development activities within its jurisdiction by capturing the tax increase resulting from a new development and utilizing these monies to pay costs which are eligible under the Act. In order to set up a tax increment financing district, an authority or municipality must first create a project as described in Minnesota Statutes, Section 469.142 relating to rural development financing authorities: Section 469.058, Subdivision 1, relating to port authorities; Section 469.101, Subdivision 1, relating to economic development authorities; Section 469.002, Subdivision 12, relating to housing and redevelopment authorities; Section 469.125, Subdivision 9, relating to city development districts; Section 469.153, Subdivision 2, paragraph (a), (b) or (c), relating to municipal industrial development. Once a project has been defined, the authority or municipality must determine what type of tax increment financing district can be created. The types of tax increment financing districts allowed by the Act include redevelopment districts, renewal and renovation districts, housing districts, economic development districts, mined underground space development districts, and soils condition districts.

For each district, the Act specifies the characteristics which must exist in the district in order for the district to be created. In addition, the authority or municipality must be able to make the finding that the proposed development would not occur without tax increment financing (the "but for" test). The life of a district is finite and varies with the type of district created. Once the eligibility for and type of district has been determined, a tax increment financing plan must be prepared. A tax increment financing plan is required to contain objectives: a development program; description of development activities; type of development reasonably expected to take place; estimates of project costs, bonded indebtedness and sources of revenue to finance or otherwise pay public costs; the most recent net tax capacity of taxable real property in the tax increment financing district; the estimated captured and net tax capacity of the tax increment financing district; the duration of the tax increment financing district's existence; an estimate of the impact of the new district on the net tax capacities of all taxing jurisdictions in which the district is located; identification of all parcels to be included in the district; and identification and description of studies and analyses used to make the determination that the proposed development or redevelopment would not be reasonably expected to occur solely through private investment and that tax increment financing is necessary.

Once the plan has been prepared, it must be transmitted to both the county board of commissioners in the county or counties in which the district is located and the school board of the school district or districts in which the district is located. The Act provides that the county and school district have at least thirty days to review the tax increment financing plan. This time period can be waived by the county or school board if they are so inclined. In addition, the Act now requires that a written notice for a proposed housing or redevelopment district must be delivered to each county commissioner who represents part of the area proposed to be included in the district.

In addition, the municipality in which the tax increment financing district is located must approve the tax increment financing plan after a public hearing held after published notice in a newspaperpublished at least once, not less than ten or more than thirty days prior to the date of the hearing. The municipality must also adopt a resolution designating the district finding that but for the use of tax increment, development would not occur; that the plan conforms to the general plan for thedevelopment or redevelopment of the municipality as a whole; that the plan is consistent with the needs of the municipality and necessary for the development by private enterprise.

Once the project and plan have been approved, the plan is transmitted to the county auditor and a copy of the plan must be filed with the commissioner of revenue. The county auditor certifies the base value in the district and the tax increment project can begin.

It is important to realize that the tax increment financing act is a very complicated statute and this brief article can only describe the highlights. If the provisions of the Act are not followed, there can be adverse consequences to the municipality. For example, if a parcel is included in a district and not developed within a certain amount of time, the property may have to be removed from the district. In addition, establishment of certain types of districts result in a loss of LGA/HACA to the municipality in varying amounts. It is important to remember when embarking on these kinds of economic development activities that it is essential to work closely with your consultants to be sure that the municipality and authority are in full compliance with applicable statutory authority.