Requirements modification for return of excess tax increments

A bill for an act

relating to taxation; modifying requirements for return of excess tax increments;

amending Minnesota Statutes 2024, section 469.176, subdivision 2.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MINNESOTA:

Section 1.

Minnesota Statutes 2024, section 469.176, subdivision 2, is amended to read:

Subd. 2.

Excess increments.

(a) The authority
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shall
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must
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annually determine the amount

of excess increments for a district, if any. This determination must be based on the tax

increment financing plan in effect on December 31 of the year
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being reviewed
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and the

increments
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and other revenues
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received as of December 31 of the year.
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The authority must

spend or return the excess increments under paragraph (c) within nine months after the end

of the year.
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If the authority determines there are excess increments for a district, within nine

months after December 31, the authority must:

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(1) return the excess increments to the county auditor; and

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(2) absent an outstanding qualifying pay-as-you-go contract and note, as defined under

section 469.1763, subdivision 4, paragraph (e), decertify the district.

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(b) The requirement to decertify under paragraph (a) is deferred if:

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(1) within nine months after December 31, a modification of the tax increment financing

plan is approved under section 469.175, subdivision 4; and

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(2) the modification increases the total costs authorized to be paid with increments from

the district by an amount greater than the excess increment determined under paragraph (a).

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(c) The deferral permitted under paragraph (b) expires nine months following the next

year for which:

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(1) the authority determines an amount of excess increments exists;

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(2) there are no further approved modifications to the tax increment financing plan that

increase the total costs authorized to be paid with increments from the district by an amount

greater than the excess increment; and

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(3) the district has no outstanding qualifying pay-as-you-go contract and note.

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(b)
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(d)
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For purposes of this subdivision, "excess increments" equals the excess of:

(1) total increments collected from the district since its certification, reduced by any

excess increments
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paid
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returned
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under paragraph
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(c), clause (4),
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(e)
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for a prior year, over

(2) the total costs authorized by the tax increment financing plan to be paid with

increments from the district,
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reduced, but not below zero, by the sum of:
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(i) the amounts of those authorized costs that have been paid from sources other than

tax increments from the district;

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(ii) revenues, other than tax increments from the district, that are dedicated for or

otherwise required to be used to pay those authorized costs and that the authority has received

and that are not included in item (i);

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(iii) the amount of principal and interest obligations due on outstanding bonds after

December 31 of the year and not prepaid under paragraph (c) in a prior year; and

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(iv)
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increased by the sum of the transfers of increments made under section
469.1763,

subdivision 6
, to reduce deficits in other districts made by December 31 of the year.

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(c) The authority shall use excess increment only to do one or more of the following:

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(1) prepay any outstanding bonds;

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(2) discharge the pledge of tax increment for any outstanding bonds;

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(3) pay into an escrow account dedicated to the payment of any outstanding bonds; or

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(4) return the excess amount to
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(e)
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The county auditor
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who shall
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must
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distribute the

excess
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amount
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increments returned under paragraph (a)
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to the city or town, county, and

school district in which the tax increment financing district is located in direct proportion

to their respective local tax rates.

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(d) For purposes of a district for which the request for certification was made prior to

August 1, 1979, excess increments equal the amount of increments on hand on December

31, less the principal and interest obligations due on outstanding bonds or advances,

qualifying under subdivision 1c, clauses (1), (2), (4), and (5), after December 31 of the year

and not prepaid under paragraph (c).

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(e)
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The county auditor must, prior to February 1 of each year, report to the commissioner

of education the amount of any excess tax increment distributed to a school district for the

preceding taxable year.

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(f) For purposes of this subdivision, "outstanding bonds" means bonds which are secured

by increments from the district.

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(g) The state auditor may exempt an authority from reporting the amounts calculated

under this subdivision for a calendar year, if the authority certifies to the auditor in its report

that the total amount authorized by the tax increment plan to be paid with increments from

the district exceeds the sum of the total increments collected for the district for all years by

20 percent.

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EFFECTIVE DATE.

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This section applies to all districts and is effective for excess

increment determinations for calendar year 2026 and thereafter.

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