Tax Increment Financing is a method local governments use to pay for the costs of qualifying improvements necessary to create new development, redevelopment, or public assisted housing. The financing of the qualifying improvements is paid from the increased property taxes generated from new development, redevelopment or housing development that would not have occurred without such assistance.
Tax Abatement is a municipal financing program that uses the increase in property taxes generated from new development and redevelopment to pay for qualifying improvements. To qualify for Tax Abatement, a project must meet a number of public interest benefits established by Minnesota State Statutes. Each local unit of government, i.e. city, town, county, and school district can grant a tax abatement for economic development purposes. The abatement for a parcel may be for any one of the following, but not a mixture of two or more of these types of abatements:
- A rebate of property taxes to the property owner;
- A reallocation of taxes to pay bondholders;
- A reallocation of taxes to pay for public infrastructure costs; OR
- A deferment of property taxes.
The City of Alexandria can use its bonding authority to help companies raise revenue for a project, and the money is passed through to a business which is responsible for repayment. Industrial revenue bonds are tax-exempt, and therefore, provide the borrower with the money at a lower interest rate. This type of financing is generally for larger projects because the up-front expenses incurred with this financing process require a bonding amount large enough to make the reduced interest rate and other benefits attractive.
The City of Alexandria has three types of revolving loan funding:
- Commercial: Eligibility – Acquisition for demolition, building rehabilitation improvements, demolition of non-functional buildings and public facilities.
- Industrial: Eligibility – Land, building, machinery, equipment, working capital, relocation, demolition and public facilities.
- Equipment: Eligibility – Projects must be located within city limits and open to businesses located in zoning districts I-1 (Light Industrial), I-2 (Heavy Industrial), or I-B (Industrial Business).