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<br />
<br />What's an Abatement and Why Does Everybody Want One?
<br />
<br />Local governments in Minnesota have had to deal with
<br />abatements for many years. Under the traditional meaning
<br />of this term, an abatement occurs when a property owner
<br />successfully appeals for a reduction in the estimated market
<br />value used for tax purposes on their property. This leads to a
<br />reduction in the taxes due on the property, often for several
<br />years, On>r the past three years, a new meaning of abatement
<br />has emerged. State law now allows local governments to
<br />voluntarily grant "abatements" as an economic development
<br />incentive,
<br />
<br />A New Concept
<br />The law authorizing this new form of abatements (Minnesota
<br />Statutes. Sections 469.1812 to 469.1815) was first adopted in
<br />1997 and has been amended each year since. This law grew out
<br />of concerns by legislators about some aspects of Tax Increment
<br />Financing (TIF) , the most commonly used economic
<br />development tool in Minnesota. Concerns included: the lack of
<br />control that counties and school districts had over TIF, the cost
<br />to the state (through additional school aids) ofTIF, and the
<br />complexities of and restrictions associated with TIE
<br />
<br />e term '\lbatement" is somewhat of a misnomer in terms of
<br />how the ne\I' law works. Taxes are not reduced, as in the
<br />traditional meaning ot abatements. For the typical abatement,
<br />the owner of the property pays property taxes in the same
<br />
<br />all or a pan of the property taxes collected on the property may
<br />be paid bcKk to the owner or diverted for another use, as
<br />determineJ by the abatement agreement(s). The abatement
<br />statutes ,1:", allow for the deferral of taxes.
<br />
<br />TIF VS. Abatement
<br />
<br />Abcltemc::,) an: urten presented as an alternative to 111- as;]
<br />tool for el.:' 'nomic development. There are several key
<br />dltferencc"
<br />
<br />. Approdng Entities. TIF districts may be created by cities
<br />and v:nious forms of development authorities or agencies.
<br />Sch,), ,I districts and counties (\I'ithout an HRA. or EDA),
<br />howe\'er, have no authority to create TIF districts or to
<br />prevent their creation, even though creation of a TIF
<br />Jistri(' will affect school district and county taxes. With
<br />abatements, e,leh taxing jurisdiction (school district,
<br />COUll;>, (ity or township) must individually approve the
<br /><Ih,lte:nent of their ponion of property taxes.
<br />
<br />Requirc.J Findings. Before creating a TIF district, a
<br />munk:;' 'Ility must recognize a variety of "findings" including
<br />the f.m:, 'us "but for" test (that the development would not
<br />
<br />occur but for tax inctement assistance). The findings
<br />required to grant an abatement are generally less complex
<br />and testrictive. In some cases, an abatement may fall
<br />within the definition of a "business subsidy" under state law.
<br />In these cases, the use of tax abatement may also require
<br />the adoption of "criteria" for granting business subsidies and
<br />the adoption of a business subsidy agteement with the
<br />recipient of the assistance.
<br />
<br />. Approval Process. The process of documenting and
<br />approving an abatement agreement is generally less
<br />cumbersome and detailed than the process for a TIF
<br />district. The catch is that, in order to receive an abatement
<br />of substantially all property taxes, three government entities
<br />must approve separate abatemem agreements. A public
<br />hearing must be held prior to approving the abatement.
<br />
<br />. Uses of Proceeds. While tax increment proceeds are
<br />subject to numerous restrictions on use, there are no
<br />restrictions on how or where abatement proceeds are used.
<br />
<br />. Time Limits. The time limit- on rhe lIse ofTlF Vell'V
<br />according to the type of TIF district. If one of the political
<br />subdivisions declines to abate taxes, then the abatement
<br />llW) un:ur I~)r u~' tu i5 YCM', ,-'t;;c'l'lli,e, rllc' 111:lximul1l
<br />time limit is 10 years.
<br />
<br />. Amount of Abatement. The re\'enue from abatement
<br />differs from TIF in two important ways. (1) Tax increment
<br />comes from the value of new development, while Tax
<br />abatement may apply to both ne\\' and existing value.
<br />(2)There is no financial limit on a city's total tax
<br />increment. On ~he other hand, the total amount of
<br />::~-";ltcn1l'!~r ~~1 ~::::: YC:lf r,,;- '_~:~~~~~ }....;,~~!':t-;(\~: ~< I:::~'l"'ll-"-~ .-.,.- rl~ ,
<br />greater of 5% of the current levy l't $100,000.
<br />
<br />. Bonds. Bl1th TIF and abatement statutes authorize the
<br />issuance of general obligation bonds without an election
<br />and which are not subject to the debt limit. The maximum
<br />principal for abatement bonds cannot exceed the estimated
<br />sum of the abatements. For TIF bl1l1ds, not less than 20%
<br />of the debt service must be p.lid by tax increments,
<br />
<br />. Reporting Requirements. For TIF districts, the granting
<br />authority must submit detailed annual reports to the Office
<br />of the State Auditor, There are no required annual reports
<br />on abatements.
<br />
<br />.
<br />
<br />School District Taxes. Neither TIF nor an ahatement will
<br />affect a school district's total revenue. However, most of
<br />the tax rewnue that a school district "loses" to a TIF
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