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TIF could spark downtown redevelopment in Rosemount

Rosemount City Council discussed a potential downtown redevelopment project for Rosemount Mall that could add a four-story, residential building. Kara Hildreth / Contributor

Rosemount City Council heard how tax increment financing could spur downtown redevelopment.

Rebecca Kurtz, a senior municipal advisor with Ehlers, a consulting financial advisor for development and redevelopment, offered a lesson about tax increment financing (TIF) during the last City Council work session in May.

"At its core, it (TIF) is really to encourage projects that would not happen without some type of public assistance when there is a gap in your financing end," Kurtz said.

Many times there is a gap in funding created through the loan and equity limit, and then a developer can finance extra project costs like with redevelopment. Some costs may include demolition and site cleanup.

Kurtz said with those expenses, market rents and property prices can be limiting when a city is looking to do affordable housing and there may be a gap to make sure rents are meeting the affordability of the housing project.

Details of TIF are outlined within pages of the Minnesota statute, Kurtz said.

"One of the key items with tax increment is that while the school district and the county are notified that a district is being considered and are invited to provide comment and documents are shared, ultimately it would be the vote by the city council that would set up the district and determine if the city, county and state taxes would go toward the tax increment project," she said.

When new development occurs and a building is added, the taxes that are specifically attributed to that development or the increase in property taxes from a new housing project would be the increment, she said.

"TIF is only generated after the development is done and there is a new value and you can set up a TIF district, but if there is not redevelopment or new development that occurs, then that TIF will not be used and generated," Kurtz said about a common TIF misconception.

Properties continue to pay taxes at the full value, so tax increment is not an exemption at taking taxes. It is just setting up a framework to redirect where a portion of taxes go, she explained.

Tax increment generated

"One discussion item that will be a part of a negotiation is after the project is complete and taxes are being paid, then a tax increment is generated and those taxes can go to paying the developer back or reimbursing them for some costs incurred to develop the project," Kurtz said.

A city can issue bonds and use the tax increment to pay debt service payments. "There are different ways to use that tax increment revenue — it can go back into assisting and getting the project done."

"Some of the larger properties in the TIF district — if you do not develop within a certain time period, then they get kicked out," said Kim Lindquist, Rosemount community development director.

Some older parcels of land were kicked out in Rosemount in the past because there was not any economic activity under the old district, Lindquist explained.

Three key items

"To qualify for redevelopment, there are three key items to remember," Kurtz said.

The first is that there must be something on site.

"Parcels consist of 70% of the area must go improved and the point being is that the Legislature wants to make sure if you are going to redevelop something, you have some kind of development like a building or a street or sidewalk, etc," Kurtz said.

The second key item is that more than 60% of buildings need to be substandard to qualify for TIF blight.

"That does not necessarily mean blight as the same way as you think of blight as a falling down building," Kurtz said. "The TIF law really focuses on a lot on code issues so it may be things that if you drive by a building it may look great, but ultimately if there are ADA compliance issues, HVAC issues or other code deficiencies, that can contribute a lot to creating that substandard building as it relates to tax increment law."

The third item is that 90% of the tax increment needs to be used to remediate blight.

"This is making sure the TIF is being used to help clean up a blighted site," Kurtz said.

The remaining 10% of funds are used to pay for administration that the city will occur during the term of the TIF district.