Property-tax changes don’t threaten TIF

Published 12:00 am Wednesday, August 1, 2001

The city’s primary tool for economic development has undergone another series of small changes in the last legislative session.

Wednesday, August 01, 2001

The city’s primary tool for economic development has undergone another series of small changes in the last legislative session. But thanks to judicious use of the program, the changes should not result in a problem for the city, he said.

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According to consultant Ed Tschida, the statutes that govern tax-increment financing (TIF) were left fairly unchanged by lawmakers aside from small language clarifications. But changes to the state’s property-tax system will mean less TIF revenue. Tax-rate compression and tax cuts could make TIF projects less appealing to developers, he said.

&uot;I would say nothing has changed in the way cities use TIF. It’s the tax bill that will have an impact,&uot; Tschida said. &uot;Some cities will have to adjust their TIF strategies, but Albert Lea is in good shape.&uot;

TIF projects capture property taxes over a period of 10 or 15 years and apply the money to construction or renovation of businesses or apartments, helping offset the developer’s upfront expenses. In the last year, the city has established districts for a 50-unit apartment complex and an expansion at Mrs. Gerry’s Kitchen.

Tschida said Albert Lea traditionally prefers &uot;pay as you go&uot; TIF districts, which require installments from the developer. But other cities in the state have more districts with outstanding debt from TIF bonds. With less tax revenue captured from those districts, paying off the bonds will be more difficult.

Tschida said Albert Lea is fortunate not to be in that situation.

&uot;With the pay-as-you-go approach, it’s basically a wash. The TIF districts are producing less money, but the businesses and property owners are also paying a lot less in taxes,&uot; Tschida said.

The tax bill, passed in the final day of the special legislative session, lowered and compressed the property tax rates for all classes of property, Tschida said. Commercial and industrial property, along with apartments, will pay much less in taxes in 2002. Even apartments and residences will have smaller bills next year, he said.

Along with the compression of rates, the state’s takeover of the general education levy will also translate into lower property taxes, Tschida said, which removes the state from the TIF formula. The reforms signal a shift from an emphasis on TIF districts to an emphasis on lower taxes.

&uot;I think the state is trying to send a message that being competitive with other states is maybe more important right now than using tax-increment,&uot; Tschida said.

Though some cities will have to shift their economic development strategy to pay-as-you-go districts, Tschida said Albert Lea will likely continue to employ TIF as an incentive to developers.

&uot;I don’t see a huge change for Albert Lea. Even though TIF kind of took a hair cut, it’s still a good tool. The overall property tax cuts will probably help keep and attract business just as much,&uot; he said.