TIF sells St. Paul short

On the first Saturday of this month, I got up early to clear my driveway of the 8 inches of wet snow that fell overnight.

A road crew or two had already been by, and the pile they had pushed to the end of my driveway was large and heavy. Initially, I was annoyed, but then I drove to an appointment in St. Paul.

That morning, the Wall Street Journal published a feature about our capital city’s potholes. But as I pulled off Interstate 94 onto Snelling Avenue, there were no potholes to be seen. That’s because the streets had not even been plowed.

As it happened, my meeting was with the person who knew why. John Mannillo, who leads the community group St. Paul STRONG, says the city’s tax base has been eroded by what he believes is the overuse of a tool called tax increment financing, or TIF, to spur development.

With TIF, the anticipated property-tax revenue from improving a site are used to pay for the improvements upfront. That diverts taxes from being used for general purposes such as plowing streets.

“We are paying to gut our tax base,” Mannillo said, drinking coffee and keeping an eye out for a snowplow that never came.

As St. Paul and some other cities and towns have gone to the Legislature this spring seeking increases in local sales taxes, there’s been a renewed debate in the Star Tribune’s op-ed pages and elsewhere about the effects of so-called TIF incentives and districts in Minnesota.

Not long after our chat, Mannillo and David Schultz, a political scientist at Hamline University in St. Paul, weighed in at MinnPost with a column examining the roots of St. Paul’s financing problem and declaring a higher sales tax is not the answer. A picture accompanying the column showed a pothole.

“St. Paul has a bad hand to start with,” Schultz told me later, referring to the numerous state offices, nonprofits and universities in the city that are exempt from its property tax base. “But it also hasn’t played its bad hand very well.”

Nationally, Minnesota is one of the most prodigious users of TIFs to encourage redevelopment. Within the state, St. Paul punches above its weight with more than 50 TIF districts.

Usually, a TIF ends after 15 years or 25 years, but sometimes they are extended.

That’s what has happened to 21 blocks in downtown St. Paul that include the Xcel Energy Center and nearby parking ramps. Earlier this month, the Pioneer Press reported on a conflict between St. Paul and Ramsey County officials over the proposal to extend that district, originally formed in 1978, another 10 years to 2033.

Instead of being used for general expenses the way most property taxes are, the extension will direct the future tax increments to make improvements to the RiverCenter, Xcel Energy Center, Roy Wilkins Auditorium and the parking ramps.

It’s not easy to wean off any financial incentive, especially after decades. California is the only state in the country to have sharply reduced its reliance on TIF incentives to spur development.

The state passed a law in 2010 to wipe them out, then another one in 2015 that brought the incentive back under tight restrictions. For instance, TIF districts can only be set up in high-crime or low-income neighborhoods, and taxes cannot be deferred from school districts.

When he was a Star Tribune reporter in the 1980s, R.T. Rybak wrote frequently about the use of TIF districts to spur redevelopment in Minneapolis. After becoming mayor in 2002, Rybak scaled back their use.

“I believed then that the dynamics had changed and we need to significantly decrease the amount of tax increment being used,” said Rybak, who now leads the Minneapolis Foundation. “I happen to now believe it’s important to use it more aggressively.”

TIF is a useful tool when a city or town needs to change, he said. And he now thinks big change is needed because remote work has gutted urban and suburban office centers.

“The ghost downtowns and communities across the state should be thinking hard about how to convert some office buildings to housing,” Rybak said. “Tax increment [financing] is one of the only tools that cities are left with now.”

He is not as critical of St. Paul as residents such as Mannillo, Schultz and others are. “St. Paul over the years has done a really good job of looking at what’s next,” Rybak said.

It’s too easy, he added, to just say TIFs aren’t needed and the free market will take care of development. “Minneapolis has historically been one of the strongest downtowns in the country because tax increment was used for strategic investments,” he said.

Today, he said, it should be used to tear down empty two- and three-story retail buildings and build high-rise residences instead.

Evan Ramstad is a Star Tribune business columnist.

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