Purpose

This bill amends Minnesota law to change how excess tax increments from tax increment financing (TIF) districts are calculated, managed, and returned. It aims to clarify when excess increments must be returned, when districts can be decertified, how and when deferrals apply if plan modifications increase authorized costs, and how excess funds are distributed or used. It also tightens reporting requirements and clarifies the roles of local and state entities in overseeing excess increments.

Key changes at a glance

• Requires the authority to annually determine excess increments for each district based on the TIF plan in effect and the district’s reported increments and other revenues as of year-end.
• Requires excess increments to be spent or returned within nine months after each year-end.
• If excess increments exist, the district can be decertified unless there is an outstanding qualifying pay-as-you-go contract and note.
• Deferral of decertification is allowed if a timely modification to the TIF plan increases total costs payable from increments by more than the excess amount.
• Defines what counts as excess increments and how they are calculated, including adjustments for prior year payments, other funding sources, bond obligations, and transfers to reduce deficits in other districts.
• Stipulates permitted uses of excess increments (prepay bonds, discharge the tax increment pledge, pay into a bond escrow, or return to the county auditor for distribution to local entities).
• Requires the county auditor to distribute returned increments proportionally to the city/town/county and school district based on local tax rates.
• Establishes reporting requirements to the commissioner of education and a potential exemption from certain reporting by the state auditor under a 20% threshold condition.

How excess increments are calculated

• Excess increments equal the difference between total increments collected since district certification and the current surplus paid or returned in prior years, minus the total costs the TIF plan authorizes to be paid with increments.
• Adjustments reduce this surplus by:
  • Amounts of those authorized costs already paid from sources other than increments.
  • Revenues other than district tax increments dedicated to those costs.
  • Principal and interest due on outstanding bonds after December 31 and not prepaid.
  • Increases from transfers of increments to reduce deficits in other districts (made by December 31 of the year).
• If the calculation yields a negative number, the excess increments are treated as zero for purposes of the statute.

How excess increments can be used

A district may use excess increments for one or more of the following: - Prepay any outstanding bonds. - Discharge the pledge of tax increment for any outstanding bonds. - Pay into an escrow account dedicated to bond payments. - Return the excess amount to the county auditor for distribution to local recipients.

Certification, decertification, and deferral rules

• If excess increments exist within nine months after December 31, the authority must return them to the county auditor and decertify the district unless an outstanding qualifying pay-as-you-go contract and note exist.
• A deferral of decertification is allowed if, within nine months after December 31, a modification to the TIF plan is approved that increases total costs payable from the district’s increments by more than the excess amount.
• The deferral expires nine months after the next year in which excess increments exist if there are no further approved modifications that increase total costs beyond the excess, and if there is no outstanding qualifying pay-as-you-go contract and note.

Reporting and exemptions

• The county auditor must report, by February 1 each year, to the commissioner of education the amount of any excess tax increment distributed to a school district for the preceding year.
• The term “outstanding bonds” refers to bonds secured by increments from the district.
• The state auditor may exempt an authority from reporting the amounts calculated under this subdivision for a calendar year if the authority certifies that the total amount authorized by the TIF plan to be paid with increments from the district exceeds the total increments collected for all years by 20 percent.

Additional notes

• The provisions reference specific cross-referenced sections (for example, sections involving modifications to TIF plans and transfers of increments) to guide how changes interact with the excess increments framework.

Relevant Terms - Excess increments - Tax increment financing (TIF) - Tax increment financing plan - Decertify / decertification - Pay-as-you-go contract and note - County auditor - City / town / county / school district - Outstanding bonds - Pledge of tax increment - Escrow account - Modifications to the tax increment financing plan - Section references: 469.175, 469.1763 (subdivisions 4, 6) - Commissioner of education - Reporting requirements - Exemption thresholds (state auditor)