For instance, it will make it more difficult for cities to fundredevelopment projects and cleanup contaminated brownfields, saysCraig Waldron, chairman of the League of Minnesota Cities TIF taskforce. The tax code changes are also likely to reduce the number ofnew TIF districts created -- a downward trend mayhave alreadybegun, Waldron says.

The Legislature's actions included two major changes to thestate tax code, the compression of tax rates -- particularly forcommercial and industrial property -- and the state takeover ofK-12 general education funding. They are expected to sharply reducethe amount of net tax revenue captured by tax increment districts.As part of its tax package, the Legislature reduced property taxrates for commercial and industrial lands, which make up thelargest percentage of property and TIF districts, from 2.4% and3.4% to 1.5% and 2% respectively.

TIF is a somewhat controversial development tool used by citiesand counties to finance certain types of development costs, such asacquiring land or buildings, demolishing substandard buildings,installing utilities or road improvements or building low- ormoderate-income housing. The program, created by the Legislature in1979, allows a city or county to create a tax increment financingdistrict and "capture" the increase in net tax capacity thatresults from new development within the district, in essence takingthat tax revenue off of the tax base and paying it directly to theTIF district. The TIF authority uses increased tax revenue,referred to as the tax increment, to pay for certain approveddevelopment costs.