7.0. EDSR 01-14-2002 - Laserfiche WebLink

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Page 8 • Minnesota Rea, 4�re Journal Decembe�0, 2001 REPORTS TIS still viable tool, decision , ,but court is warning to cities g A CASE STUDY ONt A, that Walser could not challenge the inclu- ' t�' WALSER, BEST BUY sign of its property in the district. Never- t theless, the Court found that a May 15, �, 2000, amendment to the statute created a by Eric Galatz and Kathryn Hahne right to sue a municipality for wrongly f including or retaining a property in a TIF � district. Because the Walser property con- Last month, the Minnesota Court of �y ---:-.-,1",,I',... tinned to be retained in the Interchange Appeals issued a decision that jeopar1 , . i* West TIF district after May 15, 2000, the dizes the availability of public assistance f '.0,1.r.-'.., Court held that Walser could challenge the for the Best Buy Corp. headquarters now . : retention of its property in the district. Guest under con- struction in the notice that for districts created before or COILIMSSS city of Richj _ after May 15, 2000, theyare at risk of a field. In very , lawsuit for retaining in a district any prop- strong language, the Court of Appeals erty that should not have been included in r ,. found that Richfield violated the statute .� mit,- the first place. that gives municipalities authority to use , .. _ ' >:IV - ;r , Public purpose. The TIF act requires a tax increment financing (TIF) to encour- PHOTOS COURTESY OE LEONARD,STREET AND DEINARD municipality to find the TIF assistance tri- age development: Eric Galatz madly serves a public purpose. In the Exhibiting a particular municipal mean- Kathryn Hahne Walser case, the Court of Appeals found ness, [Richfield] completely ignored the that the district court had only considered statutory prerequisites for exercise of this has specific requirements for creating the The Court found that,even if Richfield's whether the TIF assistance served some financing tool. The provisions of Minn. district and restrictions on the use of TIF reasoning was correct, Richfield was public purpose, without determining Stat. § 469.1771 (2000) are intended to funds. wrong to use nonstructural defects, inflat- whether the primary purpose was public. provide a means to ensure that such a bla- ed cost factors and unsupported assump- The Court of Appeals remanded the ques- taut disregard for limits on municipal How not to create a tions about the condition of the buildings tion to the district court for further consid- authority will be answerable. TIE redevelopment district to reach its conclusion that 91 percent of eration. It may be some time before the case is The Court of Appeals found that several the buildings that could not"by any means Critics of TIF often complain that TIF finally resolved. Whatever the final out- aspects of Richfield's TIF district creation be regarded as `rundown"'were neverthe- provides more of a direct benefit to a spe- come, the case will affect the way munici- were"fundamentally flawed." less structurally substandard. cific developer than to the taxpayers. palities provide public assistance to private To qualify as a redevelopment district, The Court found that Richfield failed to Future municipal findings about TIF dis- development throughout the state. more than 50 percent of the existing build- follow the statutory requirement to use tricts will almost certainly contain very ings in Best Buy's path had to be "struc- "best efforts to obtain permission" from specific findings about the relative weight Walser and the Best Buy project turally substandard. Richfield retained property owners to do interior inspections of public and private purposes. Richfield's Housing and Redevelopment consultants to evaluate the 74 residential to determine whether the buildings were Authority contracted to provide$48 mil- and 16 commercial properties in the dis- structurally substandard. Richfield sent TIF will go on lion in direct subsidy and another$7 mil- trict.In their proposal to Richfield,the con- property owners two letters requesting a Tax increment has become a significant- lion for construction of a new bridge at sultants noted that the residential proper- "voluntary inspection,"allowing one week ly less valuable development tool in recent Penn Avenue and Interstate 494 to assist ties in the proposed district were generally to respond to each letter.There were no fol- years for reasons unrelated to the Walser development of a$160 million corporate in good condition and could not "by any low-up telephone calls.No door knocking. litigation.The Minnesota Legislature has headquarters for Best Buy. The project is means be regarded as `rundown."' The The Court found that failure to use other placed substantial restrictions on TIF in the northeast quadrant of I-494 and Penn, consultants recommended using an "alter- methods that.were readily available and throughout the last decade to address real Avenue,in the Interchange West redevel- native approach" to reach the "desired often used in other TIF districts,along with and perceived abuses of the financing tool. opinent area in Richfield. result. the fact that the city obtained access to only The 2002 property tax reform significantly Interchange West is an approximately 20 percent of the buildings,Was"powerful reduces the source of revenues for TIF by 40-acre parcel that included 7 acres owned oil The Court's holdings evidence that `best' efforts were not uti- reducing everyone's property taxes. In by members of the Walser family. The g lized." most districts, the reform will result in Walsers leased their property to two auto- The TIP statute requires that the struc- approximately 40 percent less in TiF rev- mobile dealerships, which are also owned Richfield's use of TIF for Best turally substandard buildings be "reason- ernes. by members of the family. Richfield took ably distributed" throughout the district. The Court's holdings on Richfield's use the Walser property by condemnation,dis The Court found Richfield failed this test of TIF for Best Buy are instructive for placing both Walser dealerships for the Buy are instructive for cities because all of the allegedly substandard cities undertaking similar projects and a Best Buy project. buildings were in the northern 60 percent warning to those who would by-pass statu- The Walsers challenged the condemna- undertaking similar protects of the proposed district, almost all were tory requirements to achieve a "desired tion,TIF subsidy,adequacy of the environ- residential properties and"the city conve- result." mental review, municipal zoning and land- niently drew the TIF district lines to But the decision should not alarm use approvals, Minnesota Pollution Con and a Warning for those include the valuable property with I-494 municipalities that have diligently followed trol Agency(MPCA) indirect source per- frontage,even though none of the alleged- the statute.The decision does not place any nits and the failure of the Metropolitan who would by-pass ly substandard buildings were found with- new restrictions on a city's use of TIF. Council to conduct a Metropolitan Signifi- in this region." Indeed,TIF is alive and well, and remains cance Review.This article addresses only statutory requirements t0 The Court found that "even a cursory a viable tool for development. However, the TIF lawsuit. review of the exhibits submitted reveals the Walser decision should make everyone that the allegedly substandard properties involved in publicly assisted real estate TIF in a nutshell achieve a "desired result." were not `reasonably distributed'through- projects more aware and respectful of the TIF is one of the few tools a municipal- out the district at all." rules that govern this valuable development in ity can use to provide financial assistance tool. to a private development. TIF allows a Standing and public purpose municipality to divert the increase in prop- The consultants determined that almost The Court's holdings with respect to Eric Galatz is an attorney in the real erty tax revenues generated by a project all of the residential structures were"struc- - standing and public purpose may have a estate, construction and public law groups from the general fund to pay for specified turally substandard,"almost entirely on the broader effect on existing and future TIF of Leonard,Street and Deinard PA.He rep- project costs. assumption that the buildings built in the projects than its holdings on creation of this resents developers of publicly assisted pro- The TIF statute imposes strict limits on 1960s and 1970s were not insulated up to particular TIF district. feels and has lectured on TIF,smart growth the standards for new construction in the Standing. Standing is the right to sue. and new urbanism. how a municipality can use TIF.A munici- pality must find the subsidy primarily current energy code.The Court of Appeals The TIF act specifically grants "owners of serves a public purpose and that, "but for" rejected the alternative approach, in part, taxable property located in the city" the Kathryn Hahne, also an attorney at the the subsidy, the developer would not pro- because substandard insulation is not a right to bring suit against a municipality for firm,practices in the areas of government ceed with the project. The municipality structural defect. failure to comply with the TIF act, with relations, real estate and public law. She must also establish a TIF district, defining The Court criticized Richfield for"flip- limits on what the property owner can represents developers and public agencies the geographic arca in which the project ping" a statutory guideline. The statute recover from the municipality. in the on tat ineren est and other 7pes of(level- will be located and from which the music- says that a building that can be brought into Walser case, the Court found that before opnrent proje ts. ipality willtake the TIF funds for the pro- compliance with the building code for 15 May 15,2000,a property owner could sue ject. percent of its replacement cost is not struc- a municipality for wrongly including or Leonard, S reet and Deinard and Malk- The TIF statute creates different types of turally substandard. Richfield took the retaining a property in a TIF district. erson Gillila id &Martin LLP represent TIF districts for different purposes,includ- view that a building that cannot be brought Because Richfield included the Walser Walser in its several actions against the ing housing,redevelopment and hazardous in compliance for that cost is then struc- property in the Interchange West TIF dis- city of Richfie d. waste cleanup. Each type of TIF district turally substandard. trict before May 15, 2000, the Court held ;,.