TIF Projects Move Out of Limbo

ST. PAUL, MN-The West Side Flats and Upper Landing–two “urbanvillages” that are also among the largest commercial development projects to come to St. Paul in years–are no longer in limbo awaiting the Minnesota Legislature to pass a tax bill that includes major property tax reform.

Due to a late compromise, those and other projects in the pipeline should be able to move forward without major reworking of their financing.

St. Paul wasn’t the only one waiting breathlessly. At least two pending Minneapolis projects also were awaiting the TIF deal–the redevelopment of the Sears building on Chicago Avenue and the refurbishment of the Washburn-Crosby Mill, part of the historic millarea on the Mississippi.

Tax increment bonds–a public tool to help cities finance development by issuing bonds repaid through higher property taxes on the development–are very popular in Minnesota, given the state’s historically high property taxes. But if you slash property taxes, all of a sudden there isn’t enough “increment” coming in to pay off those bonds, says Brian Sweeney, director of the planning and economic development department for the city of St. Paul.

The Minnesota Legislature had initially developed a “superfund” to take care of the existing tax increment financing districts, but neither of these bills had provisions to handle deals in the pipeline. Without the taxes coming in to pay off the bonds, the deals would likely have had to undergo major reworking if they were to survive.

As part of the tax reform bill passed during a special session of the Legislature late last month and signed by Gov. Jesse Ventura, the legislation passed by the House creates a pool of money to fillthe gap between what tax increment financing district’s can collect now and the reduced property taxes. Now this will also be available to projects “in the pipeline”–those with signed agreements and requests for TIF certification made by Aug. 1.

In St. Paul, that’s good news for the West Side Flats project–a 350,000-sf office building for the US Bancorp project being developed by Opus Corp., in which the city recently approved $15-million taxincrement financing for the $80-million office portion of the project. There is also a multifamily housing component. Likewise, the Upper Landing, a $160-million-plus multi-use project on the north bank ofMississippi River under development by Dallas-based Centex, should also be able to proceed.

But the state tax bill makes two changes that will decrease the money available to pay for TIFs–lower business tax rates and higher state payments for school operating costs. Both decrease local taxes and therefore result in less money available to pay for TIF projects. As a result, Minnesota cities will find TIFs to be a far less lucrative tool in spawning redevelopment going forward.