Tax Increment Financing (TIF) Decertification

TIF is an economic development tool. When TIF districts are decertified, it can affect a city's tax base and LGA distribution.

About TIF

TIF in Minnesota

TIF decertification and tax base increases

TIF decertification and local government aid (LGA)

About TIF

  • TIF is an economic development and redevelopment tool.
  • Cities and authorities (e.g., housing and redevelopment authorities) are authorized to create TIF districts.
  • The authority to create a TIF district is granted by the state Legislature.
  • TIF helps cities preserve and grow their local economies, which contributes to the economic health and vitality of the state.

—View the Handbook for Minnesota Cities chapter on Community Development and Redevelopment for more on TIF (pdf)

—Access the House Research TIF Primer to learn more about what
TIF is and how it’s used

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TIF in Minnesota

  • In 2016, the most recent year for which data is available, 316 cities had active TIF districts; statewide, there were 1,465 TIF districts within cities (61 percent of these are in Greater Minnesota).
  • A total of 57 city TIF districts were decertified in 2016.
  • There were 702 redevelopment districts and 497 housing districts.

—Acess the 2015 TIF Report on the OSA website

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TIF decertification and tax base increases

  • All city TIF districts statewide contain more than $230 million in captured net tax capacity (NTC), according to the most recent data.
  • Although 61 percent of all city-authorized TIF districts are located in Greater Minnesota, 85 percent of the total captured NTC is in the seven-county metro area.
  • The share of total city taxable NTC contained within city-authorized TIF districts in the seven-county metro area is larger than in Greater Minnesota (5.4 percent vs. 2.7 percent).

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TIF decertification and local government aid (LGA)

  • The current LGA distribution formula uses a city’s net tax capacity to measure ability to pay.
  • The increase in tax capacity resulting from decertification can affect a city’s LGA distribution.
  • A city’s ability to pay is compared to its calculated expenditure need to determine the amount of LGA received.
  • A city that has enough revenue-raising capacity to meet its spending needs according to the formula does not receive LGA.

Cities with large proportions of their net tax capacity in TIF districts will likely see a decrease in their LGA distribution when the districts are decertified, as the difference between calculated need and capacity narrows.

Example: Minneapolis would have received 9 percent less certified LGA in 2008 if all tax capacity in TIF districts at the time was included in the ability-to-pay measure.

Table 1 shows the statewide total amount of 2016 NTC that will be included in city tax rolls (by estimated year of decertification).

Table showing amount of next tax capacity that will return to tax rolls by estimated year of TIF decertification

Source: Tax capacity and decertification data from the Minnesota Department of Revenue.

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