05.01 - Presentation of Project Financing Options

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Pequot Lakes Memo - Financing of Street Improvements May 31, 2011 Page 3 To use tax abatement, it must be determined that the benefit being gained is equal to or more than the cost to the political subdivision and that the project will do one of the following: (i) increase or preserve tax base; (ii) provide employment opportunities in the political subdivision; (iii) provide or help acquire or construct public facilities; (iv) help redevelop or renew blighted areas; (v) help provide access to services for residents of the political subdivision; (vi) finance or provide public infrastructure; (vii) phase in a property tax increase on the parcel resulting from an increase of 50 percent or more in one year on the estimated market value of the parcel, other than increases attributable to improvement of the parcel; or (viii) stabilize the tax base through equalization of property tax revenues for a specified period of time with respect to a taxpayer whose real and personal property is subject to valuation under Minnesota Rules, chapter 8100. The abatement approval process consists of calling for a public hearing, publishing a notice of hearing, conducting the hearing, and passing an abatement resolution. Abatement, like tax increment, has the effect of removing part of the tax base from general purpose uses. If done where no new development is occurring, it will have the effect of increasing taxes throughout the city. In any given year, the aggregate amount of tax abatement collected cannot exceed the greater of 10% of the current net tax capacity or $200,000. The tax abatement can be pledged to the repayment of bonds which can be sold without an election and backed by a general obligation pledge in a principal amount not to exceed the amount of tax abatement expected to be collected over the years authorized.