EDSR INFORMATION (1)01-10-2011 ECity lk
River
MEMORANDUM
TO: Housing & Redevelopment Authority
Economic Development Authority
FROM: Catherine Mehelich, Director of Economic Development
DATE: January 3, 2011
SUBJECT: INFORMATION — Community Development & Redevelopment
Attachment
• Handbook for Minnesota Cities, Chapter 15: Community Development&
Redevelopment.
The League of MN Cities recently distributed a revised "Handbook for Minnesota Cities"
publication. Attached is the chapter that is most applicable to the HRA and EDA
development and redevelopment powers. The full publication is available at the LMC
website-,vw v.lmnc.org
CHAPTER 15
Part IV
REGULATORY AND DEVELOPMENT FUNCTIONS OF CITIES
CHAPTER 15: COMMUNITY DEVELOPMENT AND
REDEVELOPMENT
I. Business subsidies or financial assistance..................................................................................................3
A. Business subsidies..................................................................................................................................... 3
B. Financial assistance...................................................................................................................................4
II. City development tools...............................................................................................................................4
A. General city development powers.............................................................................................................4
B. Housing and redevelopment authorities.................................................................................................... 5
C. Economic development authorities........................................................................................................... 9
D. Port authorities......................................................................................................................................... 10
E. Municipal or area redevelopment agencies............................................................................................. 11
F. City development districts....................................................................................................................... 11
G. City industrial development..................................................................................................................... 12
III. Other development strategies...................................................................................................................13
A. Housing bonds......................................................................................................................................... 13
B. Industrial parks........................................................................................................................................ 13
C. Industrial revenue bonds.......................................................................................................................... 14
D. Commercial rehabilitation....................................................................................................................... 14
E. Tax increment financing(TIF)................................................................................................................ 14
F. Property tax abatement............................................................................................................................ 17
IV. State-sponsored development tools..........................................................................................................18
A. Minnesota Housing Finance Agency.. .................................................................................................... 18
B. Department of Employment and Economic Development(DEED)........................................................ 18
C. Enterprise Minnesota...............................................................................................................................20
D. E-commerce ready cities......................................................................................................................... 20
E. Corporations............................................................................................................................................ 20
V. Federal development tools........................................................................................................................20
A. Community development block grants....................................................................................................20
B. Rural development grants........................................................................................................................20
VI. How this chapter applies to home rule charter cities................................................................................21
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Chapter 15
Community development and
redevelopment
This chapter describes the requirements for a city to establish criteria for
awarding business subsidies, addresses the various development agencies
cities may create,and provides a brief overview of state and federally
sponsored programs for encouraging development and redevelopment. Most
economic development tools can be applied to any size city.These tools are
interrelated, and a city may use several for one project.
I. Business subsidies or financial
assistance
A. Business subsidies
Minn.`tat.;; 116J.993 to State law defines"business subsidy"or"subsidy"as a state or local
1 16J.995. g overnment agency grant,contribution of personal property, real property,
Minn.Stat. 1167.993,svbd.3.
infrastructure,the principal amount of a loan at rates below those
commercially available to the recipient, any reduction or deferral of any tax
or any fee,any guarantee of any payment under any loan, lease, or other
obligation,or any preferential use of government facilities given to a
business in an amount greater than$150,000.
Minn.`tat.§t 16J.9K s ubds.5, Prior to awarding a business subsidy of more than$150,000 (and as defined
11. by law)to any business,a city and any Housing and Redevelopment
Minnesota Deparmient of Authority(HRA),Economic Development Authority(EDA), port authority,
Emplopilent and Economic
Development(DEED). and nonprofit created by a local government must hold a public hearing and
adopt criteria for awarding business subsidies.The public hearing notice
must include a statement that either a resident or a city property owner may
file a written complaint with the city if the city does not follow the business
subsidy law. Written complaints must be filed within specified timelines.
The criteria must include a policy regarding the wages to be paid for any
jobs created. Copies of the criteria adopted by cities are found on the
Minnesota Department of Employment and Economic Development
(DEED)web site
Minn.stat.s 1167.994,subd.3. Once the criteria are established,the grantor and the recipient must enter
into subsidy agreements that meet the statutory requirements. The agreement
must include an obligation to repay part or the entire subsidy if the recipient
does not meet its obligations.
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Minn. ,tat.4 116.1.993,SUbd.I. Types of assistance meeting the definition of a business subsidy include:
Minn.stat.. 469.185. grants; contributions of real or personal property or infrastructure;the
principal amount of a loan at rates below those cominercially available to
the recipient; any reduction or deferral of any tax or any fee; any guarantee
of any payment under any loan,lease or other obligation; or any preferential
use of government facilities given to a business.
Minn.stat.4 116.1.994,sn bd.1 1. The law imposes a 180-day statute of limitations on actions to challenge a
city after approval of a business subsidy agreement. Citizens or owners of
taxable property in a city may bring a civil action against the city for failure
to comply with the business subsidy laws. Cities should therefore consult
closely with the city attorney before awarding a business subsidy.
Minn.5tat.4 116..993,SUN.3. There are several exceptions to this definition,including a subsidy of less
than$150,000; subsidies for redevelopment,pollution control and land clean
up,housing,industrial revenue bonds,utility property tax abatements and
other similar programs.
Minn.stat.4 1163.994,S«bds.4. Recipients must provide grantors with infonnation on their progress toward
a. the goals outlined in the agreement. The goals for increasing jobs or
retaining jobs must result in local job creation and job retention. Grantors
must submit the annual Minnesota Business Assistance Form(MBAF)to the
Department of Employment and Economic Development(DEED)by April 1
each year for each business subsidy agreement. Local government agencies
in cities with a population of 2,500 or more must submit an MBAF,
regardless of whether they have awarded business subsidies. Local
government agencies in cities with a population of 2,500 or less are exempt
from filing the MBAF if they have not awarded a subsidy in the past five
years.
B. Financial assistance
Minn.stat.Y t 16.1.994,Snbd.2. Cities may offer"financial assistance"in the form of a business loan of
Minn.stst.§ 116J.994,Snbd.s. more than$25,000 or a guarantee of$75,000 or more,but less than
$150,000 required to constitute a business subsidy. If a city offers such
financial assistance it must develop criteria and set minimum wage floor
levels as prescribed in business subsidy law. Cities granting such financial
assistance must submit business assistance reports to the Department of
Employment and Economic Development(DEED)within one year of
granting the assistance.
II. City development tools
A. General city development powers
Minn.scat.§469.041. Cities have authority to aid and cooperate in the planning,construction,or
operation of economic development,and housing and redevelopment
projects.The following is a partial list of actions cities may take,with or
without compensation:
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• Dedicate, sell,convey,or lease any of its interests in any property or
grant easements,licenses, or any other rights or privileges to an
HRA.
• Furnish parks,playgrounds,recreational, community education,
water,sewer,and drainage facilities or other works adjacent to or in
connection with housing and redevelopment projects.
Minn.stat.§41:;9.043,subd.2. . Grant a partial tax exemption of up to 50 percent of all local taxes
for housing projects in a redevelopment district.
Min,,.Stat.§469.192. A statutory city,home rule charter city, economic development authority,
housing and redevelopment authority,or port authority may make a loan to a
business,a for-profit or nonprofit organization,or an individual for any
purpose the entity is otherwise authorized to carry out under any of the laws
cited.
Juda'Suppip%o.V.Arerchants& private development projects that receive public financial or other assistance
t''.Co,,448 N— `d 995
(Minn.Ct.App, 1389). will not necessarily become public projects that tri gg er competitive bidding
or other state laws applicable to public works.
B. Housing and redevelopment authorities
The predominant method of delivering and administering housing and
redevelopment programs in Minnesota is through a legal public agency,
accountable to city government. A city may establish this public agency,
which is often the HRA.There are more than 230 HRAs in Minnesota.
1. Elements of an HRA
Minn.slat.§§469.001 to An HRA is a public corporation with power to undertake certain types of
469.047.Minn.Stat_§469.003. housing and redevelopment or renewal activities. While state legislation
conveys authority for housing and redevelopment in each city, it is up to the
city council to formally establish an HRA before it can do business and use
its powers. Once a council legally establishes an HRA, it may undertake
certain types of planning and community development activities on its own
with council approval.
Minn.slat.§469.003,subd.1. To create a housing and redevelopment authority,the city council must,by
resolution,snake the following findings required by law:
• Substandard,slum or blighted areas that cannot be redeveloped without
governmental assistance; or,
• A shortage of affordable,decent, safe,and sanitary dwelling
accommodations available to low-income individuals and families.
Minn.Stat_§469.003,subds.2, The council must pass this resolution after a public hearing. A copy of this
4. resolution imust go to the commissioner of DEED.
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2. Area of operation for an HRA
blind.Stat.§469.004,SLNIS. 1, The area of operation of a city HRA is the corporate limits of the city.
. County and multi-county HRAs operate in areas that include all the political
subdivisions within the county or counties, except they may not undertake
any project within the boundaries of a city that has not adopted a resolution
authorizing the county or multi-county HRA to exercise powers within that
City.
Minn.Stat.§469.004.sabd.5. Establishment of a county or multi-county HRA precludes the formation of
city HRAs,unless the county or multi-county HRA and the commissioner of
DEED agree to let the city form one.
3. HRA membership
Minn.Stat.Y 469,003,SUbd.6. An HRA consists of five commissioners who are residents of the city. The
mayor appoints and the council approves the members who serve five-year,
staggered terms. City councilmembers often serve on the HRA. The entire
membership of an HRA may consist of councilmembers.
24 C.F.R.464.415. Federal regulations require that at least one eligible resident be a member of
a public housing agency board,which may be the HRA,an EDA or other
public housing authority(PHA). This rule applies to any public housing
agency that holds a public housing annual contributions contract with HUD
or that administers Section 8 tenant-based rental assistance.The rule does
not apply to state-financed public housing projects or Section 8 project-
based assistance. A"shall PHA exception" also exists.
Minn.Stat.Y 464.001,Sifbd.?. The city clerk must file a certificate of appointment for each commissioner
of a city HRA and send a certified copy to the commissioner of DEED.
Minn.Stat.i 469.011,subd.2. State law allows the HRA to adopt bylaws. Connnissioners may accept
Minn.Stat.4 469.011,Subd.4. compensation of up to $75 for each meeting they attend. Commissioners
who are elected officials may receive daily payment for a particular day only
if they do not receive any other daily payment for public service on that day.
Commissioners who are public employees may not receive daily payment,
but may not suffer loss in compensation or benefits as a result of their
service.
4. HRA powers
Minn.Stat.§469.012,Subd.1. An HRA is primarily responsible for the planning and implementation of
redevelopment and/or low-rent housing assistance programs within its area
of operation.An HRA has all the powers necessary to carry out the state
HRA Act, including but not limited to the following powers:
• To sue and be sued.
• To employ staff and an executive director.
• To undertake projects within its area of operation and to provide for the
construction,reconstruction,improvement, extension, alteration, or
repair of any project or part of a project.
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• To sell,buy, own, and lease property by any means necessary,including
the power of eminent domain.
• To cooperate with and use state and federal financial assistance
programs.
• To develop rehabilitation and code enforcement techniques.
• To issue bonds for any of its corporate purposes backed by the pledge of
revenues,grants or other contributions.
• To implement renewal or redevelopment programs using tax increment
financing.
• To own,hold,improve,lease, sell or dispose of real or personal
property.
• To designate substandard, slum or deteriorating areas needing
redevelopment,and unsafe,unsanitary, and overcrowded housing.
• To make necessary expenditures to carry out the purposes of the HRA
law.
• To develop and administer an interest reduction program to assist the
financing of the construction,rehabilitation, or purchase of low-or
moderate-income housing.
5. HRA special assessment and levy authority
HRA power to levy and collect taxes or special assessments is limited to the
Minn,Stat.z 469.001-460.047. power provided in state law. Subject to a resolution of consent from the city
Minn.Stat_§469.033,s«ha.6. council an HRA may levy a tax upon all taxable property within the city.
(The council may give a consent that covers a series of years if they so
Minn.Stat. 275.70 to 27 5.74. choose or council may pass a resolution authorizing an HRA levy for a set
amount of time,for example,the entire term of the bonds secured in part by
Minn.Stat.§275.066. an HRA levy and in part by a city levy.) State law recognizes the distinct
nature of HRAs and designates them as"special taxing districts."The
maximum general allowable operational levy of HRAs is 0.0185 percent of
the previous year's taxable market value of all property in the city. The
city's total taxable market value is available from the county assessor. An
HRA raises its own levy because it is a separate political subdivision and not
a"local governmental unit."Therefore,an HRA levy is not subject to levy
limits but is subject to the 0.0185 percent market value limit. Levies
collected by an HRA must be used only for purposes listed in the HRA Act.
There is crossover between HRA and EDA levies that can be confusing.
Typically,EDAs are not authorized to levy taxes under state law. However,
Minn.Scat,§469.107. many city EDA-enabling resolutions adopt all the powers of an HRA, and
Minn.Stat.4 275.066. then the EDA functions as a special taxing district under state law. If the
enabling resolution so allows,the EDA levies a separate tax or"HRA levy"
not subject to levy limits or city debt limits—but again subject to the 0.0185
percent of total city market value limit in state law. The city attorney may
verify the structure and levy authority of each city's HRA and/or EDA.
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Minn.Stat.§469 012,subd.4. While HRAs have the legal authority to"do whatever is necessary and
€4'llllll.�t34.4 409i 028.
convenient"to implement redevelopment,they are subject to the ordinances
and laws of the city. The city council must approve HRA plans before the
housing and redevelopment authority may begin implementation.
6. HRA contracting
Minn.Stat.§464.0 15.Minn. All HRA construction work and purchases of equipment, supplies or
Stat.4 469.01.5 subd.I a. materials that involve expenditure of more than$100,000 must be
competitively bid. An HRA(and a city)may also use the"best value
alternative."There are limited exceptions to these requirements for
emergencies and certain projects,such as parking ramps and certain public
transit facilities.
7. HRA financing
Minn.Stat.§§469.033 and Operating funds, capital improvements, and debt retirement expenses for
464.04. HRA projects may be financed by any one, or combination of,the following
methods:
• Federal grants.
• Revenue bonds the HRA or local governing body sells.
• General obligation bonds the local governing body sells.
• Tax increments from redevelopment projects.
• A hinted mill levy for redevelopment projects and planning activities.
• A limited mill levy for informational and relocation services.
Minn.Stat. A29.034,subd. 1. When an HRA issues bonds,the revenue generated must be used for the
projects financed,or bond costs must be paid from income generated by
designated projects. The law states that the principal and interest on bonds
are payable exclusively from the income and revenues of the project
financed with the proceeds of the bonds, or exclusively from the income and
revenues of certain designated projects,whether or not they are financed in
whole or in part with the proceeds of the bonds.
8. HRA certifications to state
The following documents relating to the establishment and activities of local
HRAs must go to the DEED commissioner:
Minn.Stat.4 469.003,subds.4, • Resolution of need.
6.
Minn.Stat.4 469.003.subd.7 . Certificates of appointment or reappointment of HRA corrnnissioners.
• Project reports.
• Applications for federal assistance.
• Contracts with federal agencies.
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• Redevelopment plans.
• Low rent public housing project and management plans.
Minn.Stat.§?69.o1z. In addition,annual financial reports must go to the state auditor.
9. HRA federal certification
In order for a local HRA to use federal Department of Housing and Urban
Development(HUD) assistance programs,it must submit a transcript of
organizational documents to the HUD area office.
C. Economic development authorities
4699.star.§§Y69.o9c,to All cities and townships have authority from the state Legislature to create
2010 economic development authorities. The city may consolidate the economic
20 10 Minn.in g Mi ch.z8-,art.1: development authority EDA with an existing RA or the city may ant
25 ainendingvlinn.Star.�� p y( ) g y y �
469.1082,�ub L 5. the authority HRA powers. The city council may create an EDA by passing
The Economic Development an enabling resolution. Before adopting the enabling resolution,the city
Authorities Handbook.For a copy must first conduct a public hearing. The enabling resolution establishes a
of this book,and for sample
resolutions and by laws for an board of commissioners for the EDA.The city council can choose to serve
EDA,contact the League's as the EDA board of commissioners or create a board composed of
Resew li Depart:ne°tat(651) connnunity members. The mayor,with approval of the council, appoints the
281-1220 or(800)928-1122.
commissioners. The board may consist of three,five or seven members who
serve six-year terms. The board is subject to the open meeting law.
1. EDA levies
Minn.star.§2-5.70. The typical EDA levy is different than the HRA levy discussed above. It is
not a levy raised by the EDA—it is a levy set by a city at the request of the
EDA. Basically,the city simply appropriates part of the money the city
collects in the general city levy to the EDA. Because the EDA levy is part of
Minn.Stat.§2-5.066. the city levy, it is not a"special levy"under state law and thus the EDA levy
is subject to the city's overall levy limit. However,as noted above,many
EDA-enabling resolutions adopt all the powers of an HRA. If so,the EDA
may levy a separate tax or"HRA levy,"and then the EDA functions as a
special taxing district as if it were an HRA and that levy is not subject to
levy limits or to city debt limits. An EDA using the levy powers of an HRA
is still limited to a levy no more than 0.0185 percent of the total taxable
market value in the city.
2. EDA loans
Minn.stat.§469.192. An EDA is authorized to make a loan to a business,a for-profit or nonprofit
Minn.Stat.§§469«90 to organization, or an individual. Before taking an action or making a decision
=;69.1082. which could substantially affect an EDA commissioner's or an employee's
Minn.Stat.§469.098. financial interests or those of an organization with which the commissioner
or an employee is associated, a commissioner or employee of an authority
must comply with specific requirements to disclose the conflict and obtain
prior approval. Failure to do so may result in criminal charges.
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Loans must be for a purpose the EDA is authorized to carry out under the
law. An authorized purpose must deal with or contribute to economic or
industrial development. EDAs have the ability to use pooled bond reserving.
In most development programs, each bond issue is independent of any other
bond issue with a separate service or sinking fund account. EDAs,however,
may create a single connnon bond reserve fund.Under this arrangement,
each project's revenues go into a common fund,which in turn pays the
bondholders on all projects.
Through this pooling mechanism,the security of each project's bond
increases and borrowing costs decrease as long as the pool has the necessary
volume and diversity of cash flow.
3. Other EDA powers
Minn.Stat.§469.1n1.sabds 17 EDAs can acquire property and facilities but cannot issue debt without an
2. election. The city must authorize the issuance of debt in the resolution
2010 Minn.Laws ch.389,art.z creating the EDA.Also,EDAs can create economic development districts
§5 amending N1 inn.Stat.§
469,101,subd.1. but the districts must be contiguous. Current law eliminates the requirements
"Bill Sumn,arr 111.3?29"House that economic development districts established by EDAs meet the"blight
Research Department(May 16, test"under tax increment financing law for redevelopment districts. EDAs
2010). may exercise powers under the housing and redevelopment authority(HRA)
Min,,.scat.§469.102. law (if a particular EDA enabling resolution includes HRA power)to create
a redevelopment project,housing development, or housing project under
which a restrictive blight test does not apply. These projects can be used for
similar purposes to those of an economic development district under the
EDA law.
D. Port authorities
Minn.Stat.§§469.048-469.068. The state Legislature authorizes city creation of port authorities. A port
N-linn.Stat.§469.053. authority is a separate political entity with the right to sue and be sued in its
own name and is generally organized to increase commerce in a city. Unlike
EDAs and HRAs,a port authority may issue general obligation bonds
without holding an election.
Minn.Stat.§469.050.Minn. Cities establish a port authority by passing an enabling resolution. It may
Stat.§469.051. have from three to seven commissioners (two of whom must be on the city
council)appointed by the mayor and approved by the city council,unless a
different number or procedure is set out in the enabling law. State law
governs comnussioner pay,vacancies, duties,and port authority by-laws.
Minn.Stat.§469.051,sabd.2. A port authority shall annually elect a president or chair,vice-president or
vice-chair,treasurer,secretary,and assistant treasurer. A colnlnissioner may
not serve as president or chair and vice-president or vice-chair at the same
time. The other offices may be held by one commissioner. The offices of
secretary and assistant treasurer need not be held by a commissioner.
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The treasurer of a port authority must be bonded to faithfully perform these
duties:
• Receive and be responsible for port authority money.
• Be responsible for the acts of the assistant treasurer,if appointed.
• Disburse port authority honey by check or electronic procedures.
• Keep an account of the source of all receipts,and the nature,
purpose, and authority of all disbursements.
• File the authority's detailed financial statement with its secretary at
least once a year at times set by the authority.
Minn.Stat.§469.051, Uh:_.9. The port authority's annual detailed financial statement must show all
receipts and disbursements,their nature,the money on hand,the purposes to
which the money on hand is to be applied,the authority's credits and assets,
and its outstanding liabilities. The authority must examine the statement
together with the treasurer's vouchers. If the authority finds the statement
and vouchers correct, it shall approve them by resolution and record the
resolution.
Minn.Star.44 469.048 469.068,. State law governs many other aspects of port authorities, including but not
limited to use of city property by a port authority, employees, contracts, and
audits. The city attorney also acts as the port authority's attorney.
E. Municipal or area redevelopment
agencies
Minn..1123'Stat. 469,109 to
4669 Any rural municipality or group of municipalities may establish a public
body,known as a municipal or area redevelopment agency,in and for the
area the municipality covers. This law defines municipalities as home rule
charter or statutory cities, counties,towns or school districts.
Minn.Stat. .469.110,`,bd. 11. The law includes only rural areas,which generally means all areas that are
NI inn-Stat.`469.111. not within the boundary of any city having a population of 50,000 or more,
and not immediately adjacent to urbanized and urbanizing areas with a
population density of more than 100 persons per square mile—or areas with
an unemployment rate of 6 percent or more. The restrictions limit
applicability of the law to rural areas and to the Iron Range.
Flinn.slat.§469.111. The establislunent of the municipal or area redevelopment agency is similar
Minn.Stat.4 469.115. to the establishment of an HRA. A municipal or area redevelopment agency
has similar powers to an HRA.
F. City development districts
Minn.Stat. §469.124 to Any home rule charter or statutory city may designate development districts
469.134. within the boundaries of the city. Within these districts, cities may:
• Adopt a development program to acquire,construct,reconstruct,
improve,alter,extend,operate,maintain or promote developments
aimed at improving the physical facilities, quality of life, and quality of
transportation.
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• Promote pedestrian skyway systems.
• Install special lighting systems, street signs and street furniture,
landscaping of streets and public property, and snow removal systems.
_Minn.Stat.4 4169.12?. The law encourages pedestrian skyway systems,underground pedestrian
concourses,people-mover systems, and publicly-owned parking structures.
It exempts these structures from taxation even when they are attached to
privately-owned buildings.
G. City industrial development
Minn.Stat. 469.152 to For the purpose of attracting industrial and commercial development and
-G9',651. encouraging local governments to prevent economic deterioration,any home
Minn.Stat.§469.152' rule charter or statutory city or its redevelopment agency has the power to
promote industrial development by:
• Acquiring, constructing,and holding lands,buildings,easements,
improvements to lands and buildings, capital equipment, and inventory
for industrial projects.
• Issuing revenue bonds and entering into revenue agreements to finance
these activities to promote industrial projects.
Minn.Stat.4 469.155,subd.4. . Refinancing health care and other facilities.
Under the legislation,cities assist industries in starting operations and use
generated revenues to repay the costs. This law is the basis for issuing most
industrial revenue bonds.
2010 Minn.Laws,ch.216,§24 Industrial projects eligible for assistance include any revenue-producing
amending Minn.Stat.S 464.153,
.«hd , enterprises engaged in assembling,fabricating,manufacturing,mixing,
processing, storing,warehousing, or distributing any products of agriculture,
forestry,mining, or manufacturing; or in research and development activity
in these fields; or in the manufacturing, creation,or production of intangible
20;0 Minn.Laws,en.216,g 26 to property,including any patent,copyright,formula,process,design,know
be codified as Minn.Stat. how, format, or other similar item. "Project" also includes any properties
469 1615. designated as a qualified green building and sustainable design project under
state law. Eligible projects may include costs related to dewatering
activities.
-Minn.Stat. 164.155..4«hd. 14. The law prohibits a city from operating any of these projects as a business or
in any other manner.
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III. Other development strategies
A. Housing bonds
Minn.stat.ch.A62C. Cities may use revenue bonds for financing single-and multi-family
housing,primarily for the benefit of low-and moderate-income families.
The law contains single-and multi-family housing criteria and the specific
actions cities must take to comply with the law. Federal law limits the
issuance of housing revenue bonds. Bonding authority is allocated by a state
formula.
B. Industrial parks
An industrial park is a tract of land suitable for industrial use because of
location,topography,proper zoning,availability to utilities,and accessibility
to transportation. A single body has administrative control of the tract. In
some cities,an industrial park may be little more than a tract of unimproved
land,while in other cities it may be totally served by city services and have
restrictive building requirements. An industrial park's purpose is to attract
industrial development.
Property a city holds for later sale for economic development purposes
remains tax exempt for a period of eight years, or until buildings or other
improvements that are constructed after acquisition reach one-half
occupancy.
Currently,private enterprise creates most new industrial park development
by establishing a for-profit community development corporation. A city can
cooperate with that corporation through its land-use controls and methods of
financing public improvements. Many cities have also established industrial
parks complete with streets,water, and sewer, in spite of the possible tax
ramifications. The city then sells or leases a portion of the park to a business
needing a location for its building.
Minn.Suit.§469.185. The law authorizes any city owning lands that are not restricted by deed to
Minn.Stat.§465.0 15. convey the lands for nominal consideration,to encourage and promote
A.c .Op.476-13-21(Mar.2,1 61>. industry,and to provide employment for citizens. In finding that a
City olPipes one v.:ladsen.,2s7 conveyance of.'land for an indoor arena was not within the statute,the
Minn.35_7, 178 N.t .2a 594 attorney general concluded the conveyance must encourage and promote
industry and provide employment for citizens. A more direct promotion of
industry is necessary,beyond the fact that more potential customers might
be in town as a result of athletic contests. However,the courts have upheld
the municipal industrial development revenue bond law,discussed
subsequently,against the salve objection. The city's attorney can best advise
the city concerning the legality of a purchase of land for resale.
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CHAPTER 15
C. Industrial revenue bonds
Minn.Stat.§g 469.152 to The municipal industrial development laws help cities attract new
41,9.1651.
commercial and industrial development, and keep existing businesses in the
city. The law authorizes the council to issue revenue bonds, and use the
proceeds to acquire and construct industrial sites and facilities. The city then
leases these facilities to private industry and uses the rental fee proceeds to
retire the bonds.
A city may issue industrial revenue bonds,also known as;;municipal revenue
bonds,without public referendum. It cannot pledge the full faith and credit
of a community as security for these bonds. Thus,the city may not tax
property owners to pay principal and interest on the bonds.
For more information,contact If a city decides to investigate the use of industrial bond financing,it should
800.65 .3858 or 888. contact the Department of Employment and Economic Development. The
800.657.3858 or 888.438.5627. h p
Main Office: 1st National Bank department provides the city with information, advice,and technical
Building 332 Minnesota Street, assistance.This assistance is important, due to the adoption of federal and
Suite E200 Saint Paul,MN
55101-1351. state laws allocating issuance authority among the states and their political
subdivisions. The commissioner of Securities must approve the project.
D. Commercial rehabilitation
Minn.Stat.3 469.184. Cities have authority to carry out programs for the rehabilitation of small-
and medium-sized commercial buildings.The city must adopt a program
ordinance that provides for the adoption of program regulations,including a
definition of small-and medium-sized commercial buildings. Loans under
the program may be for amounts up to$200,000. The city may finance the
program through the sale of revenue bonds.
E. Tax increment financing (TIF)
.Minn.Stat.§§469.174 to Tax increment financing authority is available to most cities. Cities with
69.1?99.
housing and redevelopment authorities, economic development authorities,
port authorities,redevelopment agencies,those cities administering
development districts or development projects,or cities exercising port
authority powers under a general or special law may use tax increment
financing. Amendments to the law,however,may make the use of this
development tool more complicated.
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CHAPTER 15
Tax increment financing is a funding technique that takes advantage of the
increases in tax capacity and property taxes from development or
redevelopment to pay upfront public development or redevelopment costs.
The difference in the tax capacity and the tax revenues the property
generates after new construction has occurred,compared with the tax
capacity and tax revenues it generated before the construction,is the
captured value.The taxes paid on the captured value are called
"increments."Unlike property taxes,increments are not used to pay for the
general costs of cities,counties,and schools. Instead,increments go to the
development authority and are used to repay public indebtedness or current
costs the city incurred in acquiring the property,removing existing
structures or installing public services.
Thus,the property owner in a TIF district continues to pay the full amount
of property taxes. TIF involves only the increased property taxes generated
within the district. It does not change the amount of property taxes currently
derived from the redevelopment area,nor does it directly affect the amount
or rate of general ad valorem taxes the city levies.The result of a TIF project
is an increased tax base that will benefit all local taxing jurisdictions.
Additionally,TIF districts usually spur economic development and
redevelopment through creating job,removing blight, and providing more
affordable housing.
State. ti', 1l t 999),ssy N.ti�'.2ti TIF is used to encourage four general types of private development:
?93(ti2inn.;'� ). redevelopment,renovation and renewal, growth in low-to moderate-income
housing, and economic development. Public financing using TIF funding for
a privately owned facility does not make public space in the facility a public
forum for free speech purposes.
A new TIF district involves compact development. Two major conditions
nio Minn.1:..aws ch.216,§26 must be satisfied:
amending Minn.Stat.§469.174;
2010 Minn.Laws ch.216.§28 . Parcels consisting of 70 percent of the area of the district are occupied
amending Minn.Slat'§469.175 b buildings or similar structures that are classified as class 3a property
adding subd.2a;2010 Minn.
inn. y g p p y
Laws ch.210,§29 amending under state law. and
Minn.Stat.§469.176,subd.lb;
2o1n a:Iiz,,,.La.s ch.216; 30 • The planned redevelopment or development of the district,when
amending Minn.Stat.§469.176 completed,will increase the total square footage of buildings,classified
adding subd.1 is 2010 Minn. as class 3a under state law,occupying the district by three times or more
Laws eb.216,§31 amending
N4inn.Stat.§469.176,subd.4c. relative to the square footage of similar buildings occupying the district
Minn.Stat§273.1:3;subs.24. when the resolution is approved.
The authority to establish or approve a compact development district expires
on June 30,2012.
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CHAPTER 15 y
2010 Minn.Law3 ch.216,;.12 Cities have temporary authority to spend TIF funds to stimulate construction
amending M inn..Stat.§469.176;
adding suba.Yn,. using economic development districts for any type of project,if three
conditions are met:
• The municipality funds projects that will create new jobs in the state,
including construction jobs,and the project otherwise would not have
begun before July 1, 2011,without assistance.
• Construction of the project begins no later than July 1,2011.
• The request for certification is made by June 30,2011.
This temporary authority to spend the tax increment expires Dec. 31, 2011.
Minn.star.§469.17�,subd.5. The city using TIF must report annually to the county board,the county
auditor,the school board, and the state auditor as to the status of the TIF
district or districts and publish the report.The state auditor has established a
uniform system of accounting and financial reporting for TIF districts. The
city must annually submit to the state auditor a financial report in
compliance with these standards.
Minn.Stat.§469.1771,subds.1, The state auditor may audit TIF districts. If the state auditor notifies a TIF
`b authority of an alleged violation,a copy of the notice is also forwarded to
the county attorney. If no corrective action is brought within one year,the
county attorney must notify the state auditor,who then notifies the attorney
general. If the attorney general finds a substantial violation,the attorney
general will petition the state tax court to suspend the authority's power to
use TIF for a period of up to five years.
Minn.scat.§469.177,`ubd.S. The TIF agreement with the developer is a complex document. Assistance
Lane SuperiorPaper btdur.v.
Stare,624 N.W.2d 254(Minn. from a financial advisor and the city attorney is necessary in order to
2001). Brooljield Trade Center, anticipate the many potential problems. An agreement can establish a
Jnc.v.Councv of/�amset,600 minimum market value for tax increment assessment purposes, as well as
N.W.2d 868 i
CHAPTER 15
t3 u/Ser-4 ufo s.«es,:"c- V.ctt,;Of Cities should use extreme care in establishing a TIF district and should
Ri-ch,6eld".0 `N.���.2d Ni
N nn.(t.pp.2001),aff d,644 follow all procedural requirements; otherwise a court may find the district
'1.W.2d'I25,Minn. was not properly established.In one case, a TIF district was not properly
established where minimal effort was made to ensure the thorough
inspection of the properties,inaccurate and unprecedented methodology was
used to establish the condition of the buildings, and the buildings found
structurally substandard were not reasonably distributed throughout the
district.
chenos,eth b,.city QfNO,, In another case, a cause of action for inverse condemnation does not arise
Bri_,hton: 655:N.W,2d 811
(Minn.Ct.App.20-031 where a city's involvement with an adjacent property owner's development
consists of establishing a TIF district,entering into a contract with a private
developer specifying the size and value of structures to be built, and
providing for substantial city assistance to facilitate development.
Given the complexity of the laws governing the use of TIF, cities or HRAs
should not undertake this method of financing community development
projects without the advice of an attorney and professional consultants.
F. Property tax abatement
Minn.Stat.§§469.18 12 to A city may use this development tool to segregate some or all of the taxes
469.1 e 1.5. (or the increase in taxes) it imposes on a parcel of property if the city
expects the benefits of the proposed abatement agreement to at least equal
the costs of the proposed development. The terns"abatement" is somewhat
misleading, as in most cases the tax is not forgiven; it is paid normally,but
the amount of property tax levied by the city is used to pay for the bonds.
The city must determine that the agreement is in the public interest because
it will increase or preserve tax base,provide employment opportunities,
provide or help acquire or construct public facilities,help redevelop or
renew blighted areas,or help provide access to services for residents of the
city. Property taxes in a TIF district cannot be abated unless the period of the
abatement will not occur until after the district is decertified.
A resolution must be adopted after notice and public hearing, specifying the
terms of the abatement. A city may issue bonds or other obligations to
provide an amount equal to the sum of the abatements granted for a specific
property.The maximum principal amount of these bonds may not exceed
the estimated sum of the abatements for the property for the years
authorized. The bonds may be general obligations of the city if the city
council chooses to pledge the full faith and credit of the city in the resolution
issuing the bonds.The law limits property tax abatements to 15 years.
School districts and counties have similar abatement powers. A city, county,
and school district can agree to abate their taxes on the same property.
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CHAPTER 15
IV. State-sponsored development
tools
A. Minnesota Housing Finance Agency
Minn.Stat.ch.402A.For more The goals of the Minnesota Housing Finance Agency(MHFA) are to
information about MHFA
programs,contact MHFA at 400 provide decent, affordable housing to low-and moderate-income people;
Sibley Street Suite 300,St.Paul, preserve the existing housing stock in Minnesota;preserve existing
MN 55101-1998(651)296-7608 neighborhoods and prevent them from deteriorating; and prevent mortgage
or(800)657-3769.
foreclosures while promoting energy conservation in residential housing.
The Minnesota Legislature created the MHFA in response to a shortage of
affordable housing for low-and moderate-income people. Private enterprise
and private investment were unable,without public assistance,to provide an
adequate supply of safe,sanitary, and decent housing at affordable prices
and rents.
Minn.Stat. .462A.073 etseq. The sale of state tax-exempt bonds is the primary financing for MFHA
MHFA:Minnesota City programs. Through the Minnesota City Participation Program,Minnesota
Participation Program. Housing sells mortgage revenue bonds on behalf of cities to meet locally
identified housing needs.The proceeds of these bonds provide below-market
interest rate home mortgage loans for low-and moderate-income, first-time
homebuyers, or for the construction or rehabilitation of single-and multi-
family housing.Appropriations from the Legislature provide additional
funding for programs,including the promotion of energy conservation; an
increase in home ownership opportunities for first time homebuyers; home
improvement grants to very low-income homeowners; and programs to
improve the housing available to Native Americans, large families, and
people with disabilities.
B. Department of Employment and
Economic Development (DEED)
Minn.Stat.ch. 116J. The Minnesota Department of Employment and Economic Development is
Minnesota Department of the primary development agency for Minnesota. DEED staff is responsible
Employment and Economic
Development. for a wide range of grant and loan programs, as well as for providing
technical assistance to businesses and communities.
Minn.Stat.§4 116 .411 to DEED also provides grants for contamination cleanup and redevelopment;
116.1.424. administers the rural development program;makes challenge grants to
The USDA Development.
regional organizations to encourage private investment in rural areas; and
administers a revolving loan fund to provide loans to new and expanding
business in rural Minnesota. Local government units,including cities,may
receive these loans if the community has established a local revolving loan
fund and can provide at least an equal match to the loan received.
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Minn.Stat.§1161.431. Cities outside the seven-county metropolitan area may receive grants from
G-eater\-tinnesota Business DEED for up to 50 percent of the capital costs of public infrastructure
Development 1n+ra5a-«<tLire,Gran_ necessary for certain specified economic development projects, excluding
}rouann.
retail and office space. For this program,"public infrastructure"means
publicly owned physical infrastructure necessary to support economic
development projects,including but not limited to sewers,water supply
systems,utility extensions, streets,wastewater treatment systems,
stormwater management systems, and facilities for pretreatment of
wastewater to remove phosphorus.
M1„n.`tat.§ 11WA_331>`tbd.2. Under this law,an"economic development project”for which a county or
city may be eligible to receive a grant under this section includes
manufacturing;technology;warehousing and distribution;research and
development; agricultural processing or industrial park development that
would be used by any one of these businesses.
2010 Min,,.taws ch. 18%§39 DEED runs the Innovative Business Development Public Infrastructure
amending Minn.Stat.§ 1 J 6J.435,
as amended by 2009 Minn.Laws (BDPI)program that provides grants to local governmental units on a
eh.35,§§1 and 2,and 2009 competitive basis statewide for up to 50 percent of the capital cost of the
Mn Laws e".78,an.I§ 12. public infrastructure necessary to expand or retain jobs.
Innovative Business "Innovative business"means a business that is engaged in, or is committed
Development Program:
Department of Ernployment and to engage in,innovation in Minnesota in one of the following:
Economic Development. • Using proprietary technology to add value to a product,process,or
service in a high technology field;
2010 Minn.Laws ch. 189,§39
a,ending N-linn.Stat.§ 1 16J.4-15, • Researching or developing a proprietary product,process, or service in a
as amended by 2009 Minn.Lai„ high technology field;
ch.35,§§ 1 and 2,and 2009
Minn.Laws ch.8,ail.2, 12. . Researching,developing, or producing a new proprietary technology for
use in the fields of tourism, forestry,mining,transportation, or green
manufacturing.
"Proprietary technology" means the technical innovations that are unique
and legally owned or licensed by a business and includes,without limitation,
those innovations that are patented,patent pending, a subject of trade
secrets,or copyrighted. 'Eligible project" means a bioscience an innovative
business development capital improvement project in this state,including:
• Manufacturing;technology; warehousing and distribution;research and
development;
• Bioscience innovative business incubator;
• Agricultural bio-processing processing; or industrial, office, or
• Research park development that would be used by a bioscience-based an
innovative business.
Minn.Stat.§272.02,s«bd.64. DEED administers"tax-free"job opportunity building zones (JOBZ). In
each of these zones,businesses will be eligible for a broad range of tax
incentives for a period of 12 years. Under the program,local units of
government,including cities,must submit applications to DEED and follow
all statutory requirements related to JOBZ.
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}
CHAPTER 15
C. Enterprise Minnesota
Minn.Stat.ch.1160. Enterprise Minnesota is a nonprofit business consulting organization,set up
by the Legislature that helps small and medium-sized manufacturing
companies,education services,and government entities in Minnesota.
Enterprise Minnesota operates as a fee-for-services 501(c) (3)nonprofit.
Lnterprse Minnesota 612-373- Enterprise Minnesota focuses on applied research and technology transfer
2900 or 800-325-3073.
and early stage funding. It may provide financial assistance,including loan
Minn.Stat.§ l 160.061.
guarantees, direct loans,interest subsidies, or equity investments, to sole
proprietorships,corporations, other entities,nonprofit organizations, or joint
ventures. Financial assistance includes but is not limited to assisting a
qualified company or organization with business services and products that
will enhance the operations of the entity.
D. E-commerce ready cities
Minn.Stat.§116J.037. As a tangential aid to encouraging development,the Department of
DEEI?(651)297-1291 or(800) Employment and Economic Development may designate cities that meet
657-3858.
certain criteria as e-commerce ready.
E. Corporations
Minn.`tat-4 465.717. Cities must not create nonprofit corporations unless authorized to do so by
Minn.Stat.§471.59. special legislation. The law allows incorporation of a joint powers entity,but
LMCIT risk information memo, these must comply with all applicable public sector laws(open meeting,gift
Liah Hi r Covercoe;or.7oint
/�orr.�r,_1,�,-per„�n;.r. law, conflicts of interest, competitive bidding, etc.) and must be separately
insured.
V. Federal development tools
A. Community development block grants
More information is available on The Community Development Block Grant(CDBG)program,under the
the HUD Web site. U.S. Department of Housing and Urban Development(HUD),provides
cities with federal funding to initiate and continue a diverse array of housing
and community development projects.
B. Rural development grants
For more information,contact A variety of grants and loans to encourage economic development are
Rural Development State Office
410 Farm Credit Service Building available to cities from the U. S. Department of Agriculture,rural
375 Jackson Street St.Paul,MN development program. Sewer,water,rural enterprise,housing, and other
55101-1853,(651)602-7800.See types of grants and loans are available.
also,Handbook,Chapter 25.
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CHAPTER 15
VI. How this chapter applies to
home rule charter cities
All of the tools this chapter lists are available to charter cities. The general
discussions also apply to all cities.
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