On local talk radio, the topic of tax increment financing recently came up. I listened; then I talked to a developer in Duluth who told me that what I heard was not correct. He challenged me to get the facts. So I wrote to our mayor, and she set up a meeting between me, her, and city Senior Economic Developer Jason Hale. I learned a lot that may be useful to the average Duluthian.
How many TIF districts are currently operating in Duluth? There are 13, all but one of which are DEDA (Duluth Economic Development Authority) projects. The other is a city project, the Technology Village.
How many years can a TIF district run? It depends on the project. Some run as few as eight years; others go as long as 25 years. The important takeaway is that the process to create a TIF district involves the city, the developer, DEDA, an outside accounting firm, and the state. The outside accounting firm runs the contractors' numbers and verifies that without the TIF district the project would not be viable. The state audits all TIF districts on a yearly basis.
When do TIF districts end? They "sunset" after reaching the end of their set timeframe or once the maximum amount of "increment" has been collected. The latter is identified in the TIF plan approved by the City Council.
Here is where TIF gets a bit involved. A developer or property owner involved with a TIF pays property taxes, but instead of paying the county, school district and city, payments go back to the project. This money, or "increment," is used very specifically and is regulated by state statute.
One interesting possibility could happen. The property value within a TIF district could increase at a rate higher than the rate projected when the district was established. The amount of tax increment collected each year could be more than anticipated. This would result in the early termination of a district. Kenwood Village, for example, is currently valued above the originally projected amount; if this continues and the local tax rate stays the same, the district should close early.
I asked the mayor if any TIF districts exist past their sunset dates. She said it isn't allowed by state law.
There is one district, the Technology Village, that allowed the city, not the developer, to collect the increment beyond the time the increment was needed. This was spelled out in the original agreement, however, agreed to so the city could build a skywalk and do other infrastructure projects. This district will sunset in 2026.
Why would the city want to collect the increment once the Technology Village obligation is met? Although it is true the county would collect the property tax and then distribute the collected tax to the city and school district, let's remember the city's portion of all property tax collected is about 25 percent. The school district receives about 35 percent, and the county gets about 45 percent. Collecting the increment allowed the city to build the skywalk and upgrade infrastructure without an additional burden on taxpayers.
I asked if there is a saturation point of too many TIF districts for a city of about 80,000. Hale said the city is currently in discussions to figure that out.
Currently, about 4 percent of Duluth's total property tax capacity is under TIF agreements. Other cities in Minnesota are as high as 11 percent.
One final note: A nonprofit such as Essentia Health does not pay property taxes, so is not able to participate in TIF. Its upcoming expansion does not include a TIF district.
These are facts - even if they're not what you might have heard on local talk radio.
Jim Booth of Duluth was a candidate for St. Louis County Board last fall.