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Launched in 2014 by journalist Sean Baker, Med City Beat is an independent news source covering government, business and culture in Rochester, Minnesota.

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Policy may slow Rochester's TIF spending

Policy may slow Rochester's TIF spending

The Rochester City Council has approved changes to the city’s policy regarding tax increment financing, commonly referred to as “TIF.”

The revised language, adopted Monday by the council, aims to reign in the speculative investment that has led to soaring land values, specifically downtown, by placing limits on how and when TIF can be used.

The policy revisions, which were first introduced by Ward 3 Council Member Nick Campion, also set new standards for transparency and sustainability.

Full document: View the city’s revised TIF policy

“I brought forward the changes because I want to make it clear that the City of Rochester wants value for its public support,” said Campion. “The policy document makes that clear to developers evaluating projects in Rochester so they know our expectations before starting the process.”

Perhaps the most notable change is Provision “C” of the policy, which limits the city’s reimbursement timeline to 10 years. It also puts a 75 percent ceiling on the amount of tax increments that can be provided to the developer annually. City administration estimates the provision could reduce the amount of TIF going to projects by up to 35-40 percent.

“This change will get new projects paying property taxes immediately, reduce the amount of total subsidy a project receives and put projects fully on the tax rolls in half the time,” said Campion. “It’s a significant change.”

Terry Spaeth, the assistant city administrator, cautioned that the new policy will not necessarily limit the total amount of TIF any given project can receive in the future. What it will do, he said, is require that a developer provides additional tangible public benefits that warrant the assistance.

That raising of the bar also means the city will likely be more stringent about how it awards TIF assistance. The city has used the funding mechanism generously since the implementation of Destination Medical Center to incentivize redevelopment in downtown Rochester.

But now, with a market analysis showing the supply of hotel rooms and market-rate apartments catching up with demand, Spaeth said there may not be a need to provide funding for those types of projects. Instead, the new policy instructs the city to support projects that fulfill a public need.

“One of the big things we looked at was prioritization,” said Spaeth. “If there is a DMC-type project [up for public funding] it would have to be consistent with a market need based on the analysis provided in the DMC studies.”

Spaeth said it is too early to know how the revisions will impact the sale prices of land — though overall, he expects the policy to have a “positive effect.” In recent years, downtown properties have been selling for many times over their land values as developers scoop up real estate with the intentions of eventually going to the city to request TIF for a new project.

As a result of all the redevelopment activity, Spaeth estimates that 4.38 percent of the city's property tax capacity will be locked up in TIF by 2023. That’s nearly three times the current reimbursement level — though still nowhere near the likes of Minneapolis, St. Paul or Bloomington.

Related: New city policy requires portion of TIF to be used for affordable housing (also includes a quick explanation of how TIF works)

Moving ahead, the city will look to use TIF to support projects that align with its top priorities, including the development of more affordable housing.

“I think that our reliance on TIF must ebb and flow with the progress we are making as a community,” said Campion. “Used thoughtfully, TIF can help us accomplish our goals, such as affordable housing.”

In addition to the rules regarding reimbursement, the policy also requires developers to inform the city about their intentions to apply for TIF assistance in the early stages of the project. There are also new standards for sustainability, which Campion said will ensure that public dollars are not being used for buildings “that will be obsolete in 15 years.”

“The best part about using a policy like this,” he said, “is that it communicates our guidelines upfront so it saves everyone in the process a significant amount of time.”

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Cover photo by Landon Miller

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