Overview and requirements
Tax increment financing (TIF) is a development/redevelopment tool that is available to various authorities within the State of Minnesota. These authorities include housing and redevelopment authorities (HRAs), economic development authorities (EDAs), port authorities, and cities. Use of this tool is authorized under Minnesota Statutes Sections 469.174-469.1799, which is commonly referred to as the "TIF Act." The provisions of the TIF Act are rather complicated, and developers are advised to contact City staff early in their development process when considering whether or not to apply for TIF assistance from the City of Minneapolis.
The Minneapolis Tax Increment Policy provides a list of objectives and guidelines for the use of TIF in the City of Minneapolis. One of the basic provisions of this policy is that any development receiving TIF assistance must satisfy the "but-for" test contained in the TIF Act. This test can only be satisfied if the City Council adopts findings that (1) the proposed development would not occur without TIF assistance, and (2) no other significant development is expected on the site, in the reasonably foreseeable future if TIF assistance is not provided. Based on these requirements, the Minneapolis City Council views TIF as a "tool of last resort". Developers are therefore required to seek financial assistance for their proposed developments from all other available private and public sources before applying for TIF assistance from the City. The City's use of this tool is at the discretion of the Minneapolis City Council.
TIF application and application fee
A developer planning to apply for TIF assistance should first consider whether their proposed project can meet the "but-for" test. It is recommended that a developer meet with staff from the City's Department of Community Planning and Economic Development (CPED) to fully discuss a proposed project before submitting a formal written application for TIF assistance. CPED staff may involve other staff from the City's Finance & Property Services Department and the City Attorney's Office in these early discussions.
The actual process of applying for TIF assistance begins with the developer completing a TIF application (entitled "Application for Public Financial Assistance"). The completed application is submitted to an assigned CPED staff member (usually a project coordinator), and must be accompanied by a $3,000 check payable to the "City of Minneapolis." This application fee is nonrefundable and helps pay for City staff time necessary to review the application and provide an analysis of project feasibility and the appropriateness of utilizing TIF. Applications will not be accepted if they are in draft form, are incomplete, or are submitted without the required $3,000 application fee. Payment and acceptance of this application fee does not signify a commitment on the part of the City to undertake any specific actions or to grant approval of the requested TIF assistance.
Review and analysis
City staff will conduct a review and analysis of the TIF application, addressing a number of items and issues including, but not limited to, the following:
- Does the proposed project meet the "but-for" test?
- What public purpose would be served?
- Is the project consistent with City goals, priorities and applicable plans?
- Does the project appear to be financially feasible?
- Have significant efforts been made to obtain other financing/funding?
- Can the project and/or site qualify for TIF assistance under the TIF Act?
- Are there sufficient TIF-eligible costs in the project?
- Is the proposed TIF financing mechanism (bonds, pay-as-you-go, etc.) appropriate?
- Does the developer have adequate financial capacity and experience?
This review and analysis may be completed in as little as two or three weeks, but often takes considerably longer depending on the information provided in the TIF application, the complexity of the project, the status of other funding sources, and many other factors. Upon completion of the analysis, CPED staff will determine whether or not to proceed to the next step, which is to prepare a memorandum to the CPED Director and City Finance Officer describing the proposed development and the results of the financial analysis, and seeking their authorization to request City Council approval of the TIF assistance.
Approval or denial of TIF assistance
If the CPED Director and City Finance Officer authorize requesting City Council approval, CPED and Finance & Property Services staff will begin the process of preparing a TIF Plan and establishing a new TIF district. This process takes approximately 80 days to complete and includes all the actions required by the TIF Act and various City policies. Actions include, but are not limited to, notifying Hennepin County and the Minneapolis School District, notifying affected neighborhood groups, obtaining the City Planning Commission's opinion regarding the TIF Plan's conformance with the City's comprehensive plan, conducting a public hearing, and review by the applicable City Council committee. Ultimately, the City Council approves or denies the request for TIF assistance at the end of this process.
Origination fee
Prior to the transmittal of the proposed TIF Plan for public review, the developer must pay a $15,000 origination fee to cover a portion of the costs incurred by the City to analyze the application and prepare the TIF Plan and related documents. Such costs may include, but are not limited to, staff activities in the areas of project coordination, financial analysis, legal review, document preparation, engineering, real estate and administration, and other expenses such as appraisals, market studies and consulting fees. This non-refundable origination fee can be included in the calculation of the project’s financing gap. Payment and acceptance of the origination fee does not signify a commitment on the part of the City to undertake any specific actions or to grant approval of the requested TIF assistance.