The Fiscal Disparities Program was established in 1968 by a Citizen’s League study group and was enacted in 1971 by Minnesota Legislature (M.S. 473F). Due to a court challenge that resulted in a decision by Minnesota District Court and later reversed by the Supreme Court, the fiscal disparities program was not put into place until 1975. The fiscal disparities law provides for 40 percent of the seven-county metropolitan area’s growth in commercial and industrial property value since 1971 to be contributed to a metropolitan area property value pool.

The pool of property value contributions is then distributed among all communities in the seven-county area, which includes Carver County. The distribution is based on a community’s population and how its per-capita market value of all taxable property (“fiscal capacity”) compares with the average for the seven-county area. A community with a below average fiscal capacity receives a somewhat larger distribution from the pool while a community with an above average fiscal capacity receives somewhat less. A community’s property tax base excludes its property value contribution to the area pool but includes its property value distribution from the area pool.  A percentage of the property tax on each commercial/industrial parcel is based on the seven-county area-wide rate, which is computed annually.

 

Tax Increment Financing is not an additional tax. TIF does not affect the calculation of the tax amount. It affects the distribution of the tax. The tax due is calculated the same as a property that is not located in a TIF district, however a portion of the money that would normally go to the county, city, school, and special taxing districts is instead sent to the TIF district.

Tax Increment Financing (TIF) is a method of financing real estate development costs to promote development, redevelopment, and housing in areas where it would otherwise not occur. TIF authorities such as cities, city or county HRAs, Port Authorities, EDAs, and Rural Development Financing Authorities use TIF revenues to encourage developers to invest in new projects.

 

TIF in Minnesota is generally used to:

• Redevelop areas occupied with substandard buildings
• Build housing for low-income and moderate income families
• Clean up pollution
• Provide general economic development incentives
• Finance public infrastructure, such as streets, sewer, water, sidewalks, and similar improvements

TIF Districts capture the additional property taxes paid, as a result of new development in the district, to pay part of the development costs. The tax revenue that is generated and collected on the new development is not distributed as provided in general law to the County, School District, City/Township and Special Taxing Districts, but instead is distributed to the TIF Authority that created the district.

When the TIF district is created, the County Auditor certifies the current tax capacity of the properties in the district as the district’s “original net tax capacity.” As the property in the district increases in value, these increases above the original net tax capacity are “captured.” The law refers to this amount as the district’s “captured net tax capacity.”

The “tax increment” for the district is determined by multiplying the original tax rate by the captured retained net tax capacity. This roughly equals the taxes paid by the captured tax capacity or the increase in taxes that occur as a result of the development.