05-0447R

REPLACEMENT 3

RESOLUTION REQUESTING THE CHARTER COMMISSION TO EXAMINE PROCEDURE FOR TAX INCREMENT FINANCING.

BY COUNCILOR STOVER:

     BE IT RESOLVED, that the city council requests that the Charter commission examine the Charter’s procedural requirements for use of tax increment financing, and then consider the following ordinance for submission to the voters under M.S.A. Sec. 410.12, subd. 5, or to the council under M.S.A. Sec. 410.12, subd. 7, and perform its duties of review and recommendation under both statutes:

AN ORDINANCE AMENDING THE CITY CHARTER, CREATING A REQUIREMENT THAT TAX INCREMENT FINANCING MUST BE APPROVED BY AT LEAST SIX VOTES.

 

BY COUNCILOR STOVER:

The city of Duluth does ordain:

     Section 1. That the City Charter be amended by adding a new Section 54(F) to read as follows:

     (F)  Tax increment financing.

     Should the city utilize tax increment financing of an improvement, development, or project, as authorized by M.S.A. Sec. 469.174 through Sec. 469.1799, or the successor of each, or otherwise by law, then such action, to take effect, must be implemented by ordinance approved by the affirmative vote of no less than six councilors qualified to vote thereon, and then duly passed as provided in this Charter.

     Section 2. That this amendment shall take effect at the time and through the procedure required by law.


STATEMENT OF PURPOSE:  The city is in a financial crisis. Because of revenue shortages in property tax and aid payments from the state government, the city is struggling to fund its operations. Traditionally, cities have used property tax as the primary revenue source. Duluth does not, and one of the reasons is a lack of tax base.


Of every property tax dollar paid by a taxpayer in the city of Duluth, 80¢ goes to other government units: 18.4¢ to the school district, 55.9¢ to the county, and 5.7¢ to others.


Tax increment financing is a method by which money that would normally go to the government as property tax payment instead goes to pay for all or part of the cost of a development project which is owned by a private person or business. It is a form of business subsidy.


The city can employ TIF without the consent of the county or the school district. However, because of the way the tax money is divided (see above), when the city gives up one dollar of tax money to a TIF subsidy, it forces the other taxing units to give up four dollars.


This year $1.3 million in possible property tax revenue to the city is, instead, given away to others as a TIF subsidy. Of course that means that over $5 million is kept from the county and school district.


TIF financing is controversial. There are alternatives to TIF.


It is a serious decision for the city to forego tax revenue and allow a business to use that money for its own economic gain. In our Charter, serious financial decisions often require more than a simple majority vote to pass. It takes seven votes to order an improvement that citizens did not petition for but that they will be assessed for. It takes seven votes to spend money out of the community investment trust (casino money). It takes seven votes to sell park property. It takes six votes to change zoning from residential to commercial. It takes seven votes to vacate a street. It takes six votes to accept a gift.


The decision to use TIF, and thereby give up revenue and transfer it to another entity’s use, is very serious, greatly affects the county and school district, and is usually for a long time. It should require the greater community commitment that a six vote requirement represents.

 

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