The rail switch yard dated back to the 1880s and hosted some 50 jobs on a 25-acre plot of land — little more than two workers per acre, all told, occupying a handful of underutilized industrial buildings. Where others saw blight, officials with the St. Paul Port Authority saw opportunity.
They worked with private partners a generation ago to launch the Westminster Junction Business Center, cleaning the area to developable standards, selling the land to developers and employers and filling in the space east of Interstate 35E along Phalen Boulevard and Cayuga Street with what is now 15 companies and 913 jobs.
The site, which previously generated $138,000 in annual property taxes, is now responsible for $2.6 million in property tax revenues, paid by users like a multi-story HealthPartners Specialty Center, a Gillette Children’s Hospital clinic, Evolution Pet Food and the administrative offices of Blaze Credit Union.
Port Authority officials see the Westminster Junction Business Center as a resounding success story — even though it’s taken more than 20 years to get the acreage fully on the tax rolls.
On Monday, the board of the Port Authority voted to decertify the 26-year “tax increment financing redevelopment district” supporting the business center five years earlier than initially scheduled. With the district performing better than expected, the early pay-off has been cause for celebration in the eyes of Port Authority President Todd Hurley, even as critics continue to sound an alarm over the city’s heavy reliance on “TIF” as a real estate development incentive.
St. Paul Port Authority President Todd Hurley. (Courtesy of the City of St. Paul)
“Returning this kind of tax base to the city, it actually reduces the property tax levy,” said Hurley, in a recent interview. “This is the tool that allowed the St. Paul Port Authority to do the land acquisition and remediation.”
Tax increment financing: how it works
Tax increment financing — or TIF — remains a hotly debated form of tax incentive used by municipalities to lure private developers. TIF districts and terms can take various forms, but the most common format in St. Paul gives developers 26 years to pay back TIF dollars using funds that would otherwise be directed toward their property taxes.
The funding, which can be upfront through bond proceeds or incremental and structured as a pay-as-you-go financial note, is put toward land acquisition, soil remediation, basic utility infrastructure like water mains, sewer and roads, and other environmental and public-facing improvements. The goal is to improve upon blighted land and ultimately generate more tax revenue in areas the private sector would otherwise largely avoid.
The rail yard “was contaminated, and (virtually) no jobs on site,” Hurley said. “Would this development have happened but for the creation of a TIF district?”
Critics of TIF funding have called it a pricey give-away to private developers, noting that it keeps new real estate largely off the tax rolls for 25 years after the first tax increment is received, and they’ve raised concern that developers are too quick to ask for TIF dollars and St. Paul is too quick to indulge them.
A recent analysis by fiscal watchdogs Insight St. Paul found that the capital city captures some $36 million in TIF dollars annually — the largest capture of any city in Minnesota — generated by $2.6 billion in real estate. That’s equivalent to setting aside 7.9% of the city’s taxable property and effectively allowing it to pay for itself with its own property taxes, rather than sharing those revenues with the city, county and school district. The city aims to keep that number below 10%.
Some suburbs have also increased their use of TIF, while Minneapolis uses it less and less. During the life of a TIF district, large properties within the district generate police and fire calls and draw wear and tear on roads and other public services, just like any other businesses citywide, but they contribute relatively little to cover the cost of those services.
Within a TIF district, “property owners don’t pay for the government services they receive until all the outstanding debt issues are paid off,” reads the Insight Report. “To cover the cost of government services inside a TIF district, the rest of the tax base then must pay more taxes.”
John Mannillo, a member of the Insight group, said he is happy the Port Authority’s TIF districts performing well and getting paid off in a timely fashion, but that hasn’t always been the case with districts created by the city’s Housing and Redevelopment Authority.
“That’s good news, no question about it,” Mannillo said. “The Port Authority is probably a better place (to handle this), if we’re going to use TIF. The HRA has about 10 districts that have paid off their debts, but haven’t been decertified. They’re using the extra money to put them in a TIF pool and pay off the debts for the districts that aren’t performing.”
Mannillo said he worries that TIF districts are essentially stealing commercial tenants from taxpaying areas.
“There’s a new request for a TIF district along Grand Avenue,” Mannillo added. “That’s the best location in the city. If we have to TIF that, how will we ever attract development?”
Jobs now, taxes later
The Insight Report raises other questions, such as whether TIF districts compete with other non-subsidized developable areas in the city and make it harder to attract private investment elsewhere. Not every TIF district has been able to pay back its financial obligations after a real estate venture fails or underperforms, and some districts have been extended for years past their scheduled expiration date.
Hurley noted that several other TIF districts, like Westminster Junction, a former Koch Mobil site in the Victoria Park area off West Seventh Street and in the Shepard-Davern area of Highland Park, have paid off their obligations early. Other benefits to the surrounding area arrive even faster. “It takes 20 years to see the paybacks around the property taxes, but it doesn’t take 20 years to see the jobs come to the site,” he said.
The Port Authority has developed some two dozen business centers across the city, with many of them relying on TIF dollars to get started. Next door to Westminster Junction, the 27-acre Williams Hill business center was a former dump site before a TIF district helped remediate the land and draw eight companies and more than 450 jobs, including a multi-story HealthPartners neuroscience center.
“This was complete blight,” Hurley said. “It was an eyesore.”
Williams Hill now generates some $2.4 million in property taxes annually. Combined with Westminster Junction, the two business centers host nearly 1,500 jobs between them.
Kmart site
Rather than avoid the use of TIF, Hurley said the Port Authority is optimistic the same tool can be used to draw private sector investment for the redevelopment of the long-shuttered Kmart department store on St. Paul’s East Side.
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“We are really hopeful that we can carry this model over to the Kmart site,” Hurley said. “We are really optimistic.”
The city maintains 58 TIF districts, with about $31 million attributable to districts established by the city’s Housing and Redevelopment Authority and $5.6 million attributable to the Port Authority.
On Grand Avenue, a developer has requested $3.5 million in TIF funding for new housing and retail to replace the Victoria Crossing East Mall and the former site of the Billy’s on Grand restaurant. Elsewhere, TIF is designed to support affordable housing at Highland Bridge and downtown Mary Hall, the Farwell Yards development at Plato Boulevard and Water Street, and the recent conversion of downtown Landmark Tower on St. Peter Street from offices to market-rate apartments.
