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Revenue tool proves beneficial to East Grand Forks, other Minnesota cities

Tax increment financing districts can be tough to explain to someone outside City Hall, but Economic Development Authority Director Paul Gorte can just point across the street to the benefits.

Tax increment financing districts can be tough to explain to someone outside City Hall, but Economic Development Authority Director Paul Gorte can just point across the street to the benefits.

Just north of East Grand Forks City Hall is an area that was once home to a railyard. The creation of a TIF district made it possible to convert the land into the neighborhood it is today.

"It was used to clean up this land and make it available, so instead of railroad tracks, it's the buildings you see across the street," Gorte said.

The city has two TIF districts that have been active since 1988. Both are located in the downtown area and played a role in rebuilding it following the 1997 flood, Gorte said.

East Grand Forks isn't the only city to use these types of districts. In 2014, TIF districts statewide generated $214 million in revenue for their creators, according to a report released last month by the Office of the State Auditor. That total is up from the year prior, marking the first increase in TIF annual revenues in the state since 2008.

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To understand the complex nature of TIFs, it helps to have a starting point, which in this case is a property value.

Improvements to property increase its value and in turn increase the amount of property tax paid on it. In a TIF district, the difference in property taxes paid before and after improvement is the called the tax increment.

Development is necessary in order to generate the increment, which is captured by a city and the revenues used to fund a future project or reimburse costs of another completed in the district.

"It's a case of do you want all of nothing for improvements or do you want a part of something in the future," Gorte said.

In East Grand Forks, it takes taxes that would normally go to East Grand Forks Public Schools, Polk County and any other taxing jurisdictions and transfers it to pay for public improvements, Gorte said.

Statewide use

East Grand Forks' two TIF districts are part of more than 1,700 districts in Minnesota.

A large majority are located in counties outside the Twin Cities metro area, but most of the revenue generated from them for the year was recorded in the metro counties.

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Like any revenue tool, Gorte said it can be used properly or abused.

"Some places have used it to fund football or baseball stadiums or things like that," he said. "Some places have used it to wipe out housing."

Money generated by TIFs is most commonly used for redevelopment, housing development and economic development, according to the 2014 state report.

Redevelopment TIFs seek to remove blight, and projected funded can include clearing land, demolishing and removing substandard structures and installing public infrastructure such as sidewalks, utilities and parking lots.

This type of TIF district can be active for 25 years and accounts for 48 percent of all districts in the state. In total, this type of district raised $173 million in 2014.

The next most popular district is housing, which aims to encourage the development construction of homes and apartments for people with low to moderate incomes. This district also is certified for 25 years.

Other types include economic development districts, renewal and renovation districts, and soil condition districts.

Ups and downs

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Overall, the number of TIFs in the state has fluctuated over the past two decades.

The state auditor's office began overseeing tax increment financing in 1996. Its annual report on the topic shows the number of districts that year came in at 1,850, swelled eight years later to about 2,225 and has since dropped to about 1,700.

At their peak in 2004, the amount of revenue generated from the districts hit $300 million.

Each year, new districts become active while others sunset. Both of the East Grand Forks districts decertify at the end of this year, meaning the city will no longer keep its TIF revenue and that money will be passed on to the school district and county.

At the time of the district decertification, the small amount of money left over would be used for projects in the district, Gorte said.

The city could create a new district but would need a reason to do so. It's likely a future district would be created for a large project such as the development of an industrial park, Gorte said.

In that example, TIF revenues could be used for installing water, sewer and stormwater infrastructure.

The work already done in East Grand Forks using TIFs is a great example of how the program can benefit a city, Gorte said.

"What you see over there shows it can be done very well," Gorte said motioning across DeMers Avenue to the former railyard. "Other places have not been as careful to use it well as this community has."

Tax Increment Financing Districts pdf

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