Under state law, the city of St. Paul must spend a pool of $6 million in uncommitted tax increment finance dollars on real estate development by December of 2025.
In the 2021 omnibus tax bill, the state Legislature allowed the city to take excess, or unobligated, tax increment balances and pool them in a holding account. While St. Paul’s Housing and Redevelopment authority put together a plan for some $21 million of the $27.55 million in excess TIF funds, $6 million remains.
What is TIF?
When developers seek to remove blighted properties and build affordable housing or commercial real estate, they often ask Minnesota cities for a type of tax incentive dubbed tax increment financing.
TIF allows them to capture the increased property tax resulting from the new construction and use it instead for certain types of on-site improvements, such as cleaning up pollution or adding public amenities like streets, sidewalks, sewer and water connections. After as many as 26 years, the TIF district expires, and the city and other taxing jurisdictions benefit from the higher tax revenues.
St. Paul currently captures 7.9% of its tax capacity — or 7.9% of the city’s cumulative potential property taxes — and redirects it to private development.
That adds up to $41 million in tax incentives drawn from 59 TIF districts across the city. Instead of fueling city, county and school district general funds, that $41 million in potential property tax backs new real estate that officials contend might not otherwise exist without such tax incentives.
Over the years, some critics have labeled TIF an unnecessary tax give-away to developers, who have grown accustomed to asking for it. In parts of the city where redevelopment has stalled, others see it differently. “We won’t use TIF unless the development wouldn’t happen without it,” said Nicolle Goodman, director of St. Paul Planning and Economic Development, during a recent meeting of the city’s Housing and Redevelopment Authority. “It’s not increment that would have existed otherwise.”
TIF districts
Developers and city officials, including St. Paul Mayor Melvin Carter, Councilwoman Rebecca Noecker, Director of Planning and Economic Development Nicolle Goodman and Developer Pete Deanovic, break ground on the new Farwell-on-Water district June 23, 2023. (Molly Wilson / Pioneer Press)
New TIF districts are supporting affordable housing at Buhl Investors’ Farwell Yards project on Plato Boulevard, CommonBond’s Lumin project at Highland Bridge and Johnny Opara’s The Hollows project on Payne Avenue, as well as the conversion of downtown Landmark Towers from an office tower to 187 units of market-rate housing.
Farwell Yards is situated in part on a new public street whose construction is supported by TIF, Bidwell Street, and will span a new 221-unit market-rate housing development that is not in the TIF district.
In addition, Snelling Midway Redevelopment LLC is relying on a TIF district to boost a planned hotel, restaurants and office space at United Village, by Allianz Field and Snelling and University avenues, replacing a previously-established “Renewal and Renovation” TIF district there. Three new TIF districts will soon roll out at The Heights, the redevelopment of the former Hillcrest Country Club and golf course, to support housing projects from Sherman Associates, Habitat for Humanity and the JO Companies.
St. Paul doesn’t contribute upfront
Rebecca Noecker (Courtesy photo)
In St. Paul, developers pay upfront for TIF-supported site improvements and are reimbursed over time through a pay-as-you-go financial note, meaning the developer absorbs all the financial risk in case the project fails.
“The city is not upfront contributing any cash to the project,” said St. Paul City Council Member Rebecca Noecker, during an April 10 meeting of the St. Paul HRA, whose board she chairs. “What we’re sending them back is their tax dollars that they’ve paid us. … We’re really not out anything, except the additional value of the land and the additional value of the development.”
Project areas can be larger than TIF districts, allowing cities to pool TIF dollars generated by a development and spend the money in the larger area around it, or even for affordable housing far off-site.
“It can happen anywhere in our city, if it’s a qualifying affordable housing project,” said Jenny Wolfe, debt manager for the city’s Housing and Redevelopment Authority, during an April 10 presentation to the council.
An extra $6 million must be spent by 2025
Landmark Towers in downtown St. Paul. (Courtesy of CBRE Group Inc.)
TIF districts sometimes generate more cash than they need to pay off their scheduled financial obligations. That’s largely because they’re usually structured with 10% of wiggle room to cover costs such as administrative expenses, Wolfe said.
St. Paul’s $27.55 million in pooled TIF must be spent on private development — including new construction or building renovations — underway by Dec. 31, 2025. The St. Paul HRA crafted a spending plan in June 2022, bolstering eight planned projects with some $21 million of the $27.55 million.
The eight projects include the renovation of an apartment building at 652 Sherburne Ave., the first phase of Habitat for Humanity homes at The Heights, the Landmark Towers conversion, Listening House, Little Africa Plaza, the Mali Center, the United Village redevelopment and a sanitary sewer project along Water Street.
That still leaves more than $6 million uncommitted, on the table for future development, with a deadline of December 2025 by which to spend it.
The city, the St. Paul HRA and the St. Paul Port Authority are authorized to establish TIF districts. The county and school board may comment on them, but they don’t have final authority over them, even though some of the revenues being generated would have otherwise flowed to their coffers.
There are currently 47 St. Paul HRA TIF districts, including 26 affordable housing districts, and 12 Port Authority TIF districts.
10% goal
Cheniqua Johnson (Courtesy photo)
The city maintains a general goal of keeping its TIF revenues below 10% of St. Paul’s tax overall capacity. That number is currently 7.87%, a bit below the five-year average of 8.1%, Wolfe said.
“We are comfortably below that 10% goal,” she told the council. “I feel comfortable that TIF is still a tool in our tool box for us to use judiciously as we seek development in our city.”
Still, the city’s TIF capture is expected to go up over the next few years, rising to be as high as 9.23% of St. Paul’s overall tax capacity by the year 2028, according to HRA projections. If the city’s tax base grows, that number is also projected to go down with time.
Council Member Cheniqua Johnson on April 10 asked city staff for a map or listing of where the TIF districts are located, delineating them by political ward.
Under state law, TIF cannot be used to build government buildings, parks or recreational buildings.
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