Experts say financing for retail construction projects flawed

Patrick Hayes

Tax increment financing, a major source of financing for retail construction projects, is systematically flawed, a panel of experts said during a Monday night forum at Macalester College.
Lyle Wray, executive director of the Citizens League, Ramsey County Commissioner Susan Haigh, University Humphrey Institute Professor Kenneth Kriz and former Woodbury legislator Pam Neary spoke at the forum.
In 1999, $222.8 million was used statewide for development projects, according to figures released the forum.
Minneapolis currently receives $43.7 million in tax increment financing — the most in the state — to fund downtown projects and development on the city’s north side.
Bloomington ranks second with $15.7 million, while Brooklyn Park receives $7.2 million and Duluth receives $6.3 million.
Key projects in downtown include the $134 million Block E redevelopment and the new Target on Nicollet Mall.
Tax increment financing originally gained wide use in 1977, when federal funds for redevelopment were reduced, Wray said.
The purpose of the financing system was to help develop blighted property while enhancing community development.
Critics argue the state uses vague guidelines to determine if a developer can be funded.
According to Minnesota statutes, a development project must be considered “blighted.” To be considered blighted, the property must need no less than 70 percent development and 50 percent of it must be considered substandard.
Neary said some developers have exploited the vague guidelines to finance projects in some of the Twin Cities wealthier suburbs including Woodbury.
Wray said the state spends about a $100 million annually to offset the impact of tax increment financing that drains money away from the schools.
In addition, state officials don’t allow for enough public input in funding decision, Kriz said.
The hearings that developers must attend to receive tax increment financing are poorly publicized. Most of the time, only the developers attend the hearings, Kriz added.
Kriz also said the goals are unattainable.
“There is very little way to measure how well off the community is as a whole because of a specific tax increment financing project,” he said. “Has it really developed a community, or has it just developed one particular piece of property?”
Wray plans to push for the state Legislature to play a bigger role in the delivery of tax increment financing, as well as redefining the standards developers need to qualify for financing.
Patrick Hayes welcomes comments at [email protected]