7.0. EDSR 02-14-2000 1,0
CAPITOL WATCH UPDATE:
997 LEGISLATURE APPROVES TAX ABATEMENT PROGRAM
Ilipr Coyle
Buried amidst the hundreds In order to take advantage of the Abatement county,although such entities can agree to partici-
of pages of the 1997 Program,a governmental entity must adopt a pate in the Abatement Program at their discretion.
.. Omnibus Tax Bill is an resolution incorporating findings satisfying a
..,004:2„, - important new Tax two-part statutory test: The only apparent limitations on the Abatement
Abatement Program which Program are that it may not be used to(1)abate
can be used by private 1. Benefits to the governmental entity must equal taxes on raw land or to offset fiscal disparities con-
developers and public economic development or exceed the costs of providing abatement tributions;and(2)abate projects within an existing
specialists to help support new real estate develop- assistance to the proposed development;and Tax increment Financing(TIF)District.
ment projects. In comparison to the attention paid
to property tax reform,this significant new tax 2. The public interest must be served through A governmental entity may issue bonds to fund an
assistance program clearly reigns as the'sleeper'of the availability of abatement assistance,as 'up front'abatement,similar to what is done for TIF
the 1997 Legislature. indicated below: projects. Bonds can be underwritten to reflect taxes
•increase/preserve tax base; otherwise allocable to counties and school districts,if
New Tax •Provide jobs; such governmental entities agree in advance.
Abatement Opportunity •Provide or help construct public facilities;
The Abatement Program has remarkably few limits- •Redevelop or renew blighted areas;and The Tax Abatement Program is a potentially signifi-
tions on its use by a governmental entity in the •Provide access to services for residents. cant development tool,without the restrictions
course of considering a development proposal. In typically found in a TIF transaction. We encourage
general,the Abatement Program can be used to spur In addition,the resolution must place a limit on the all development clients to investigate the availability
development through the refund of taxes attribut- duration of abatement assistance(10 years or less)to of abatements in connection with developments
able to such development. The abatement proceeds the specific development,along with a cap on the you may be considering. Please call me at
can be used by the developer as equity for financing amount of such assistance. The total annual abate- (612)896-3214 if you have any questions.
abatement
cover development costs ment available for use by a governmental entity is
limited to the greater of 5 percent(5%)of the
Program can be used by the entity's current levy,or$100,000. Finally,the res Peter Coyle is a member of
olution must include specific provision for capturing *der. the Governmental Relations
following governmental entities: anyincreases in taxes attributable to theproposed
• and Land Use practice groups
Cities; development to cover the cost of the Abatement
•Towns; ! ' at Larkin Hoffman. Peter
•School Districts;and Program. In this regard,one important distinction 1, �» A specializes in representation
between the Abatement Program and Tax Increment t" �A of private developers and
•Counties. Financing(TIF)is that the governmental entity may ! landowners before State
not unilaterally obligate the taxes allocable to agencies,the Metropolitan
another governmental entity,e.g.school district, Council,County Boards and City Councils.
FROM THE DESK OF J01IN LUNDQUISI.
CONTINUED FROM COVER
such as the Minnesota VIC Program and private financial devices such as environ- able to attract traditional buyers and lenders. Often these parties are given addi-
mental insurance,developers and lenders are becoming increasingly more willing to tional security in the form of environmental insurance.
participate in environmental redevelopment projects. There is good economic
sense to this because the low land prices and the sophistication necessary to con- This issue of RE:VIEW focuses on the redevelopment of contaminated land,or
duct a successful redevelopment offer the opportunity for high rates of return. Brownfields. This is a topic which has gained recent public and legislative
awareness. If you have any questions concerning Brownfield development,
Several development and investment groups around the country have been please feel free to contact me at(612)835-3800. We hope you enjoy
formed to take advantage of these redevelopment opportunities. Typically they this issue!
have the technical ability to evaluate the costs and risks in cleaning up and rede-
veloping contaminated lands together with a pool of equity funds sufficient to John Lundquist is a shareholder,practicing in the area of commercial real
IRand redevelop environmental properties with low or very low requirements estate and finance law, with significant emphasis on environmental law and
t financing. Some operate by partnering with local owners or developersinsurance. John regularly negotiates environmental risk allocation provisions
in acquisition,financing,and leasing documentation. He has been exten-
When the redevelopment project is up and running these groups are much more
sively involved in the evaluation and development of environmental
insurance coverages now available to protect real estate owners, tenants,
and lenders.
2 • Larkin, Hoffman, Daly a Lindgren, Ltd.
\2K F
85 E.SEVENTH PLACE,SUITE 100
SAINT PAUL,MN 55101-2887
651-223-3000 FAX:651-223-3002
• SPRINGSTED
Public Finance Advisors
TAX ABATEMENT IN MINNESOTA
Requirements and Provisions
General Requirements
In 1997 the State Legislature enacted Minnesota Statutes, section 469.1812 to
469.1815 (the "Tax Abatement Law") as amended in 1999, which authorizes certain
political subdivisions (statutory cities, home rule charter cities, towns, counties and
school districts) to abate property taxes on selected parcels of property, if:
(a) it expects the benefits from the proposed abatement to be at least equal to the
costs to the political subdivision, and
(b) it finds that the tax abatement is in the public interest, because it will:
• (1) increase or preserve tax base;
(2) provide jobs;
(3) provide or help acquire or construct public facilities;
(4) redevelopment or renew blighted areas;
(5) provide access to services for residents; or
(6) finance or provide for public infrastructure.
The 1999 amendments provided, among other things, that taxes can be deferred without
penalty or interest under the abatement provisions.
Duration and Other Restrictions
Tax abatement on a parcer of property may be granted for up to 10 years for each
taxing entity (8 year maximum if no initial duration is specified). Taxes may be abated
on the entire NTC of a parcel including land or any area wide fiscal disparities tax.
Property in a TIF district is not subject to abatement.
Limitations on Amount
In any given year, the total amount of property taxes abated by a political subdivision
for all parcels may not exceed the greater of (1) five percent of the subdivision's
current levy, or (2) $100,000. The State will not reimburse the school for lost taxes
resulting from tax abatement.
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SAINT PAUL,MN • MINNEAPOLIS,MN • MILWAUKEE,WI • OVERLAND PARK,KS • WASHINGTON,DC • DES MOINES,IA
Tax Abatement in Minnesota
Requirements and Provisions
Page 2
• Bonding and Levy Limits
General obligation bonds supported by tax abatements can be issued without a
referendum, and such debt does not count against the statutory debt limit of the
political subdivision. Tax abatements are also not subject to levy limitations.
Process
A political subdivision may grant an abatement only after a public hearing has been
held. Notice of the hearing must be published in a newspaper of general circulation
not less than 10 days nor more than 30 days prior to the hearing. The notice must
identify the property for which abatement is under consideration and specify the total
estimated amount of property taxes to be abated.
The governing body must adopt a resolution specifying the terms of the abatement.
The resolution must also contain a statement as to the nature and extent of the public
benefits that are expected to be received.
•
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F' A1&uwPv&
• Tax fge &*ie4t Füaieüig Avadab&?
Tax Abatement (MS. §§ 469.1812 to 469.1815, as amended)
The 1997 Legislature enacted the Tax Abatement To grant a property tax abatement,a political
Law authorizing local political subdivisions, i.e., subdivision is required to hold a public hearing
statutory or home rule charter cities, towns, on an abatement after a ten to thirty day
counties or, in limited circumstances, school published notice in the official newspaper.The
districts, to abate property taxes for notice must indicate that the governing body will
(re)development purposes for a period of up to consider granting a property tax abatement,
ten years, as an economic development identify the property or properties for which an
alternative to tax increment financing. abatement is under consideration, and state the
total estimated amount of the abatement.
Property tax abatement cannot be applied to land
but only to the constructed improvements on the After the hearing,the governing body of a
land. Property that is located within a tax political subdivision,other than a school district,
increment financing district cannot be abated nor may grant a property tax abatement by adopting
can the areawide fiscal disparities tax be abated. a resolution in which it may limit the abatement
to the following terms:
Before a political subdivision can abate taxes on 1. Duration of the abatement for a period no
• a property, it must first(i)enter into an longer than ten years(If the resolution does
abatement agreement and(ii)determine that the
not specify a period of time,the abatement is
benefits to the political subdivision from the for eight years.);
proposed abatement agreement are at least equal
to the costs incurred by the political subdivision. 2. The specific dollar amount per year or in total;
3. The increase in property taxes resulting from
Property tax abatement can be used only when it improvement of the property;
is found to be in the public interest.Property tax
abatement is in the public interest only if the 4. The increase in property taxes resulting from
governing body of a political subdivision can increases in the market value or tax capacity
find that the proposed constructed of the property; or
,improvement(s) will result in at least one of the 5. Other limitations that the governing body of
following: the political subdivision determines are
1 . Increase or preserve the property tax base; appropriate. For example, the governing
body could provide that the abatement may
2. Provide employment opportunities in the not be modified or changed during its term.
political subdivision; If the abatement resolution does not provide
3. Provide or help acquire or construct public that the abatement may not be modified or
facilities; changed, the governing body of the political
4. Help redevelop or renew blighted areas; or subdivision may review and modify the
abatement every second year after it is
5. Help provide access to services for residents. approved.
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As mentioned above,for a municipality and In any given year, the total amount of property
• county, the abatement may be granted for up to a taxes that can be abated by a political
10-year period without modification, or the terms subdivision under the Tax Abatement Law may
may be modified every second year. However, not exceed(i)five percent of the current levy,or
the school district must initially approve the (ii)$100,000, whichever is greater.
abatement, but can only grant abatements one
year at a time. A school district cannot abate its Bonds issued and secured by tax abatements are
entire levy, but can abate a portion of its levy not subject to the referendum requirement under
determined by formula. Chapter 475 of Minnesota Statutes.
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HENNEPIN COUNTY POLICY ON TAX ABATEMENTS °a
• for REDEVELPMENT or DEVELOPMENT PURPOSES 4
RESOLUTION 99-2-101 Approved 02-09-99
Background. Subject to certain restrictions and limitations, the Hennepin County Board is au .'zed
by Minnesota Statutes Sections 469. 1812 to 469.1815 to grant abatement of the county t •
-
attributable to new construction. The county board must find that the expected benefits to the co
equal or exceed the amount of county taxes subject to the abatement agreement. The board must . -.
find that the abatement action is in the public interest because the abatement will meet at least one of
the following criteria:
1. increase or preserve tax base
2. provide employment opportunities in the county
3. provide or help acquire or construct public facilities
4. help redevelop or renew blighted areas, or
5. help provide access to services for county residents
Restrictive Abatement. Although the abatement authority granted by the Legislature is very broad,
the county board will approve abatements only on a restrictive basis per this policy. Accordingly, the
county board will limit tax abatement to the following types of projects:
1. Brownfields remediation and environmental cleanup. For this purpose, the term
"Brownfield's" is defined as abandoned, idled or under-used industrial or commercial
facilities where expansion or redevelopment is complicated by real or perceived
environmental contamination.
2. Affordable rental housing for persons and families of low income. To be considered for tax
. abatement, the rental housing project must meet all of the requirements for a low-income
housing credit under section 142(d) of the Internal Revenue Code, regardless of whether
the project actually receives a housing credit.
3. County community works within boundaries designated by the County Board.
4. Underdeveloped Hennepin County owned properties.
5. Transit oriented development along transit corridors.
6. Properties with Historic Preservation designation.
Criteria for Abatement. In considering whether or not the county board should approve tax abatement
for a specific project for economic development purposes, the following will be considered:
1. The extent to which the public interest is served by providing benefits as listed above.
2. The extent to which the new employment opportunities provide benefits and livable wages
for employees.
3. The extent to which the project increases county costs for road construction, traffic control,
law enforcement, human services and other budgetary items.
4. The extent that other local governments support the project, including but not limited to
tax abatement on the subject property.
5. The extent to which other public assistance is provided to the project. State law prohibits
tax abatement under the authority if the property is located in a tax increment-financing
district. The county also strongly opposes a tax increment subsidy from other sources.
6. The nature and type of the new development.
7. The extent to which the project will increase or preserve the county tax base, and why.
8. The extent to which the affected city has utilized tax increment financing for previous
redevelopment and development projects.
9. The applicant must demonstrate that the project is not financially feasible "but for" the
• tax abatement subsidy requested.
Application. A written application tot the county board should be made to request approval of tax
• abatement of the county levy. The application shall include the following:
1. General description of the project, including size and type of building, business type and
expected use.
2. A map or site plan showing the boundary of the project and the property identification
number(s)of the parcels subject to abatement.
3. Statements identifying the public benefits of the proposal, in, including estimated increase
in property value and tax capacity attributable to new construction and the nature and
extent of new jobs to be created.
4. Statement relating to new traffic generated, including parking capacity, projected vehicle
counts, traffic flow and pedestrian safety.
5. Statement and documentation that the subject parcel(s)will not be redeveloped unless the
county tax abatement is provided for the parcel(s).
6. The total amount of tax abatement requested and the amount and duration of the annual
abatement payments.
Limitation on abatement. Statutory abatement authority limits total Hennepin County tax
abatements to five percent of its current tax levy. The Hennepin County Board hereby imposes a more
restrictive limitation so that the total amount pf approved tax abatements in any year shall not exceed
one percent of the county tax levy for that year. In addition, the county board will limit the total tax
abatement for a
specific parcel or associated parcels to a maximum of$3,000,000 for the full term of the abatement. This
per parcel limitation shall not be applicable to county-owned properties. No abatement will be paid if the
property tax on the parcel is not timely paid.
Bonds Although the county may issue bonds to fund the approved abatement, the
• county declines to issue bonds for this purpose unless the bonds relate to county
initiated projects.
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