To generate funds for cleaning up the abandoned Farmland plant, the City of Albert Lea will apply for tax-increment financing (TIF) during the state legislative session, which started Tuesday.

Wednesday, January 30, 2002

To generate funds for cleaning up the abandoned Farmland plant, the City of Albert Lea will apply for tax-increment financing (TIF) during the state legislative session, which started Tuesday.

The proposal might invite some arguments. The bill combines two separate parcels of land – the old Farmland site near downtown and the proposed new site on Highway 65 on the southern edge of the city, together as one TIF district, which is quite unprecedented. Because of the state budget shortfall and criticism of the TIF development method, the legislature will likely scrutinize the application more closely.

The TIF bill will be discussed in the tax committee in both the House and Senate. Rep. Dan Dorman, R-Albert Lea, forecasts the actual deliberation will start in mid-February after the committee finishes the budget-balancing issue.

TIF is an economic-development tool that is widely used in many local governments across the state.

It allows a city or county to designate a certain area that needs new development or gentrification as a TIF district. The local government can capture all the revenue from increased property taxes as a result of the development within the district. Without the TIF designation, the increased tax base would be shared with other tax authorities.

Backed by the projected tax-revenue stream, the government can finance the development cost for the district, typically through bonding or loans. The future tax increment money pays for the upfront cost for public infrastructure that is necessary for boosting the development.

The city wants a 10-year TIF district on a 56-acre parcel that covers the old Farmland plant and a 32-acre spot in the industrial park where Farmland is expected to build a new plant, if it decides to rebuild at all.

The plan is to apply the would-be increment in tax revenue from the new site to the cleanup of the old plant, which is estimated to cost about $5 million.

&uot;There are state and federal grants for the demolition. But they don’t cover all the cost. The TIF is crucial if Farmland comes back and the city needs to take over the cleanup,&uot; Dorman said.

City Planner Bob Graham explained the TIF money can also help the city to facilitate roads, sewage and water systems in the district, and it can provide a site that is ready for immediate development.

The county and school district would not gain their portion of increased property tax as a result of the development. &uot;But it will be paid off after 10 years,&uot; Graham said. If the TIF did not exist, the development might not occur, and neither would the increased tax base. He also pointed out the development in the district would result in higher property value in adjacent areas, from which all the tax authorities would gain more tax revenue.

The tax revenue from the TIF district needs to be set aside from other city revenues and has to be designated for the development project in the district.

Whether the legislature will accept the tax increment in one parcel to be spent on the demolition project in the other parcel is also a question.

&uot;This is an unprecedented case,&uot; Dorman, a member of House Tax Committee, admits. &uot;But it is rather a matter of a technicality. And I expect the fellow legislators will understand.&uot;

TIF critics argue this development method has been overused and needs to be scrutinized.

According to the Citizens League in a Twin Cities survey, there are 1,673 TIF districts in Minnesota that constitute 6.2 percent of the total net tax capacity in the state.

The organization claims that each district should pass a &uot;but for&uot; test, which determinse whether the development would take place if no tax subsidy through the TIF were available.

The group contends that the tax revenue could be used for other important projects without any designation if the land would not be assigned as the TIF district. A current law mandates the state to subsidize the school district’s lost revenue out of the TIF development with increased state aid. It means the TIF indirectly spreads out the development cost to all taxpayers in the state.

Since 1986, when the Citizens League started the survey, the number of TIFs had been constantly increasing until 1998. Since then the figure has almost stayed constant.

A reduced property tax rate and stagnated economy have rapidly taken away the attractiveness of TIF as a dependable financing source for the development. The current $2 billion state budget deficit would also keep the legislature from endorsing TIF applications blindly.

&uot;The city’s proposal is not like some cases criticized in the past,&uot; Dorman emphasized. &uot;The TIF is still an important and effective development tool in rural Minnesota.&uot;