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MINNEAPOLIS-Local taxing districts that will be hardest hit by Minnesota’s property tax code changes are those that have obligated the highest percentage of their tax increment to pay for development costs, says Joel Michael, an analyst for the state’s House of Representativesresearch department.

In June, the Minnesota Legislature passed historic property tax reform that will have a big impact on cities that use tax increment financing to spur development. The reason: there are fewer property tax dollars to capture to help subsidize developments.

Minneapolis has by far the largest dollar investment in TIF. Last year, Minneapolis captured $67.5 million in net TIF taxes, the amount of tax revenue the districts are actually eligible to keep. Last month, the city’s community development agency characterized the impact of property tax reform on TIF as “damaging to devastating.”

But some metro area suburbs may also be struggling because they have a larger percentage of their tax base tied up in TIF. Chaska and Chanhassen in Carver County, two of the biggest users of TIF, both had more than 20% of their total net tax capacity set aside in TIF districts last year, compared to 14.5% in Minneapolis and 9% in St. Paul.

Several metro cities saw their TIF net tax capacity rise sharply between 1999 and 2000. Mendota Heights, Maple Grove, Richfield, Oakdale, and Roseville all saw growth of more than 25%. In fact, the metropolitan area saw TIF net tax capacity increase by 7.4% over the previous year compared with 2.4% outside the metro area.

In Richfield, three new TIF districts came on line, including the Lyndale Gateway I-West district where the new Best Buy headquarters is now underconstruction. Richfield finance manager Chris Regis says appreciating land values are also responsible for the increase.

The city of Roseville crept up the metro-area Top 20 list six places this year from No. 18 to No. 12. The city’s TIF net tax capacity grew by $2.32 million last year to $7.8 million. Ed Burrell, finance director for Roseville, says the increase was largely due to construction of a new manufacturing facility in the Center Point TIF district along I-35W. The tenant, California-based computer systems manufacturer Veritias Corp., builds information storage systems.

Burrell says he expects to see the city’s TIF net tax capacity fall off sharply next year. Roseville plans to retire three of its TIF districts early, in partbecause administering the district has become so complex. If the city plans other TIF districts in the future, Burrell says, it will be on an individualbasis and only as a pay-as-you-go district.

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