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Tools What's an Abatement and Why Does Everybody Want One? ocal governments in Minnesota have had [o deal with occur but for tax increment assistance). The findings abatements for many years. Under the traditional meaning required to grant an abatement are generally less complex of this term, an abatement occurs when a property owner and restrictive. In some cases, an abatement may fall successfully appeals for a reduction in the estimated market within the definition of a "business subsidy" under state law. value used for tax purposes on their property. This leads to a In these cases, the use of tax abatement may also require reduction in the taxes due on the property, often for several the adoption of "criteria" for granting business subsidies and years. Over the past three years, a new meaning of abatement the adoption of a business subsidy agreement with the has emerged. State law now allows local governments to recipient of the assistance. voluntarily grant "abatements" as an economic development incentive. • Approval Process. The process of documenting and approving an abatement agreement is generally less A New Concept cumbersome and detailed than the process for a TIF The law authorizing this new form of abatements (Minnesota district. The catch is that, in order to receive an abatement Statutes, Sections 469.1812 to 469.1815) was first adopted in of substantially all property taxes, three government entities 1997 and has been amended each year since. This law grew out must approve separate abatement agreements. A public of concerns by legislators about some aspects of Tax Increment hearing must be held prior to approving the abatement. Financing (TIF), the most commonly used economic development tool in Minnesota. Concerns included: the lack of • Uses of Proceeds. While tax increment proceeds are control that counties and school districts had over TIF, the cost subject to numerous restrictions on use, there are no to the state (through additional school aids) of TIF, and the restrictions on how or where abatement proceeds are used. complexities of and restrictions associated with TIF • Time Limits. The time limits on the use of TIF vary e term "abatement" is somewhat of a misnomer in terms of according to the type of TIF district. If one of the political how the new law works. Taxes are not reduced, as in the subdivisions declines to abate taxes, then the abatement traditional meaning of abatements. For the typical abatement, m.0. occur (sir up Co 15 wins. Othcra ise, ciic maximum the owner of the property pays property taxes in the same time limit is 10 years. all or a part of the property taxes collected on the property may • Amount of Abatement. The revenue from abatement be paid back to the owner or diverted for another use, as differs from TIF in two important ways. (1) Tax increment determined by the abatement agreement(s). The abatement comes from the value of new development, while Tax statutes also allow for the deferral of taxes. abatement may apply to both new and existing value. (2)There is no financial Limit on a city's total tax . TIF vs. Abatement increment. On the other hand, the total amount of aha[cmc _ i any year for .c a,1-1 Yiyis.iictian car c _ . .,, .L . Abatements are or presented as an alternative to 11F as a greater of 5% of the current levy Cr $ 100,000. tool for economic development. There are several key • differences: • Bonds. Both TIF and abatement statutes authorize the • Approving Entities. TIF districts may be created by cities issuance of general obligation bonds without an election and various forms of development authorities or agencies. and which are not subject to the debt limit. The maximum School districts and counties (without an HRA or EDA), principal for abasement bonds cannot exceed the estimated however, have no authority to create TIF districts or to sum of the abatements. For TIF bonds, not less than 20% prevent their creation, even though creation of a TIF of the debt service must he paid by tax increments. district will affect school district and county taxes. With abatements, each taxing jurisdiction (school district, • Reporting Requirements. For TIF districts, the granting county, city o r township) must i approve the authority must submit detailed annual reports to the Office of the State Auditor. There are no required annual reports abatement of their portion of property taxes. on abatements. Required Findings. Before creating a TIF district, a municipality must recognize a variety of "findings" including ▪ School District Taxes. Neither TIF nor an abatement will affect a school district the famous "hut for" test (that the development would not district's total revenue. However, most of the tax revenue that a school district "loses" to a TIF 2