1.1                          A bill for an act 
  1.2             relating to taxation; modifying restrictions on 
  1.3             certain redevelopment tax increment financing 
  1.4             districts; appropriating money for grants to certain 
  1.5             districts; amending Minnesota Statutes 1996, sections 
  1.6             273.1399, subdivision 6; and 469.1763, subdivisions 2 
  1.7             and 3. 
  1.8   BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MINNESOTA: 
  1.9      Section 1.  Minnesota Statutes 1996, section 273.1399, 
  1.10  subdivision 6, is amended to read: 
  1.11     Subd. 6.  [EXEMPT DISTRICTS.] (a) The provisions of this 
  1.12  section do not apply to exempt tax increment financing districts 
  1.13  as specified by this subdivision. 
  1.14     (b) A tax increment financing district for an ethanol 
  1.15  production facility that satisfies all of the following 
  1.16  requirements is exempt: 
  1.17     (1) The district is an economic development district, that 
  1.18  qualifies under section 469.176, subdivision 4c, paragraph (a), 
  1.19  clause (1). 
  1.20     (2) The facility is certified by the commissioner of 
  1.21  agriculture to qualify for state payments for ethanol 
  1.22  development under section 41A.09 to the extent funds are 
  1.23  available. 
  1.24     (3) Increments from the district are used only to finance 
  1.25  the qualifying ethanol development project located in the 
  1.26  district or to pay for administrative costs of the district. 
  2.1      (4) The district is located outside of the seven-county 
  2.2   metropolitan area, as defined in section 473.121. 
  2.3      (5) The tax increment financing plan was approved by a 
  2.4   resolution of the county board. 
  2.5      (6) The exemption provided by this paragraph applies until 
  2.6   the first year after the total amount of increment for the 
  2.7   district exceeds $1,500,000.  The county auditor shall notify 
  2.8   the commissioner of revenue of the expiration of the exemption 
  2.9   by June 1 of the year in which the auditor projects the revenues 
  2.10  from increments will exceed $1,500,000.  On or before the 
  2.11  expiration of the exemption, the municipality may elect to make 
  2.12  a qualifying local contribution under paragraph (d) in lieu of 
  2.13  the state aid reduction. 
  2.14     (c) A qualified housing district is exempt. 
  2.15     (d)(1) A district is exempt if the municipality elects at 
  2.16  the time of approving the tax increment financing plan for the 
  2.17  district to make a qualifying local contribution.  To qualify 
  2.18  for the exemption in each year, the authority or the 
  2.19  municipality must make a qualifying local contribution equal to 
  2.20  the listed percentages of increment from the district or 
  2.21  subdistrict: 
  2.22     (A) for an economic development district, a housing 
  2.23  district, or a renewal and renovation district, ten percent; 
  2.24     (B) for a redevelopment district other than a district 
  2.25  described in paragraph (e), a mined underground space district, 
  2.26  a hazardous substance subdistrict, or a soils condition 
  2.27  district, five percent. 
  2.28     (2) If the municipality elects to make a qualifying 
  2.29  contribution and fails to make the required contribution for a 
  2.30  year, the state aid reduction applies for the year.  The state 
  2.31  aid reduction equals the greater of (A) the required local 
  2.32  contribution or (B) the amount of the aid reduction that applies 
  2.33  under subdivision 3.  For a district exempt under paragraph (b), 
  2.34  no qualifying local contribution is required for years in which 
  2.35  the district is exempt. 
  2.36     (3)(A) If the sum of required local contributions for all 
  3.1   districts in the municipality exceeds two percent of city net 
  3.2   tax capacity as defined in section 477A.011, subdivision 20, for 
  3.3   a year, the municipality's total required local contribution for 
  3.4   that year is limited to two percent of net tax capacity to 
  3.5   qualify for the exemption under this subdivision.  The 
  3.6   municipality may allocate the contribution among the districts 
  3.7   on which it has made elections as it determines appropriate. 
  3.8      (B) If a municipality makes an election under this 
  3.9   subdivision for a district in a year in which item (A) applies, 
  3.10  a minimum annual qualifying contribution must be made for the 
  3.11  district equal to the lesser of 0.25 percent of city net tax 
  3.12  capacity or three percent of increment revenues.  This minimum 
  3.13  contribution applies for the life of the district for each year 
  3.14  that the restriction in item (A) applies and is in addition to 
  3.15  the contribution required by item (A). 
  3.16     (4) The amount of the local contribution must be made out 
  3.17  of unrestricted money of the authority or municipality, such as 
  3.18  the general fund, a property tax levy, or a federal or a state 
  3.19  grant-in-aid which may be spent for general government 
  3.20  purposes.  The local contribution may not be made, directly or 
  3.21  indirectly, with tax increments or developer payments as defined 
  3.22  under section 469.1766.  The local contribution must be used to 
  3.23  pay project costs and cannot be used for general government 
  3.24  purposes or for improvements or costs that the authority or 
  3.25  municipality planned to incur absent the project.  The authority 
  3.26  or municipality may request contributions from other local 
  3.27  government entities that will benefit from the district's 
  3.28  activities.  These contributions reduce the local contribution 
  3.29  required of the municipality or authority by this paragraph.  
  3.30  Cities, counties, towns, and schools may contribute to paying 
  3.31  these costs, notwithstanding any other law to the contrary. 
  3.32     (5) The municipality may make a local contribution in 
  3.33  excess of the required contribution for a year.  If it does so, 
  3.34  the municipality may credit the excess to a local contribution 
  3.35  account for the district.  The balance in the account may be 
  3.36  used to meet the requirements for qualifying local contributions 
  4.1   for later years.  No interest or investment earnings may be 
  4.2   credited or imputed to the account, except those (A) actually 
  4.3   paid by the municipality out of its unrestricted funds or by 
  4.4   another person or entity, other than a developer as used in 
  4.5   section 469.1766, and (B) used as required for a qualifying 
  4.6   local contribution. 
  4.7      (6) If the state contributes to the project costs through a 
  4.8   direct grant or similar incentive, the required local 
  4.9   contribution is reduced by one-half of the dollar amount of the 
  4.10  state grant or other similar incentive. 
  4.11     (e) A redevelopment district is exempt if the plan for the 
  4.12  district requires that parcels included in the district that 
  4.13  will be sold by the authority must be sold at fair market value. 
  4.14     Sec. 2.  Minnesota Statutes 1996, section 469.1763, 
  4.15  subdivision 2, is amended to read: 
  4.16     Subd. 2.  [EXPENDITURES OUTSIDE DISTRICT.] (a) For each tax 
  4.17  increment financing district, an amount equal to at least 75 
  4.18  percent of the revenue derived from tax increments paid by 
  4.19  properties in the district must be expended on activities in the 
  4.20  district or to pay bonds, to the extent that the proceeds of the 
  4.21  bonds were used to finance activities in the district or to pay, 
  4.22  or secure payment of, debt service on credit enhanced bonds.  
  4.23  For districts, other than redevelopment districts for which the 
  4.24  request for certification was made after June 30, 1995, the 
  4.25  in-district percentage for purposes of the preceding sentence is 
  4.26  80 percent.  Not more than 25 percent of the revenue derived 
  4.27  from tax increments paid by properties in the district may be 
  4.28  expended, through a development fund or otherwise, on activities 
  4.29  outside of the district but within the defined geographic area 
  4.30  of the project except to pay, or secure payment of, debt service 
  4.31  on credit enhanced bonds.  For districts, other than 
  4.32  redevelopment districts for which the request for certification 
  4.33  was made after June 30, 1995, the pooling percentage for 
  4.34  purposes of the preceding sentence is 20 percent.  The revenue 
  4.35  derived from tax increments for the district that are expended 
  4.36  on costs under section 469.176, subdivision 4h, paragraph (b), 
  5.1   may be deducted first before calculating the percentages that 
  5.2   must be expended within and without the district.  
  5.3      (b) In the case of a housing district, a housing project, 
  5.4   as defined in section 469.174, subdivision 11, is an activity in 
  5.5   the district.  
  5.6      (c) All administrative expenses are for activities outside 
  5.7   of the district, except in the case of redevelopment districts 
  5.8   that have plans that require that parcels included in the 
  5.9   district that will be sold by the authority must be sold at fair 
  5.10  market value. 
  5.11     Sec. 3.  Minnesota Statutes 1996, section 469.1763, 
  5.12  subdivision 3, is amended to read: 
  5.13     Subd. 3.  [FIVE-YEAR RULE.] (a) Revenues derived from tax 
  5.14  increments are considered to have been expended on an activity 
  5.15  within the district under subdivision 2 only if one of the 
  5.16  following occurs: 
  5.17     (1) before or within five years after certification of the 
  5.18  district, the revenues are actually paid to a third party with 
  5.19  respect to the activity; 
  5.20     (2) bonds, the proceeds of which must be used to finance 
  5.21  the activity, are issued and sold to a third party before or 
  5.22  within five years after certification, the revenues are spent to 
  5.23  repay the bonds, and the proceeds of the bonds either are, on 
  5.24  the date of issuance, reasonably expected to be spent before the 
  5.25  end of the later of (i) the five-year period, or (ii) a 
  5.26  reasonable temporary period within the meaning of the use of 
  5.27  that term under section 148(c)(1) of the Internal Revenue Code, 
  5.28  or are deposited in a reasonably required reserve or replacement 
  5.29  fund; 
  5.30     (3) binding contracts with a third party are entered into 
  5.31  for performance of the activity before or within five years 
  5.32  after certification of the district and the revenues are spent 
  5.33  under the contractual obligation; or 
  5.34     (4) costs with respect to the activity are paid before or 
  5.35  within five years after certification of the district and the 
  5.36  revenues are spent to reimburse a party for payment of the 
  6.1   costs, including interest on unreimbursed costs. 
  6.2      (b) For purposes of this subdivision, bonds include 
  6.3   subsequent refunding bonds if the original refunded bonds meet 
  6.4   the requirements of paragraph (a), clause (2). 
  6.5      (c) In the case of a redevelopment district for which the 
  6.6   plan requires that parcels in the district that are sold by the 
  6.7   authority must be sold at fair market value, the five-year 
  6.8   limitation in this subdivision is extended to a ten-year period. 
  6.9      Sec. 4.  [APPROPRIATION.] 
  6.10     $....... is appropriated to the commissioner of revenue to 
  6.11  make additional grants to cities for deficits in tax increment 
  6.12  financing districts as provided in Laws 1997, chapter 231, 
  6.13  article 1, section 19.  The money appropriated under this 
  6.14  section is available until expended. 
  6.15     Sec. 5.  [EFFECTIVE DATE.] 
  6.16     Sections 1 to 3 are effective the day following final 
  6.17  enactment and apply to eligible districts regardless of the date 
  6.18  of certification.