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Appendix 3 - <br /> <br />Additional Local Revenue Tools Available to Minnesota Cities <br /> <br />Cities have only a few tools at their disposal for financing street construction and maintenance. In <br />addition to local general funds, property taxes, and special assessments, which were discussed in <br />Section 2 of the report, cities can also utilize the following tools. For the most part, these tools are <br />used rarely by the vast majority of Minnesota cites and represent a very small portion of total road and <br />bridge funding. <br /> <br />payments in lieu of special assessments <br />This option allows a developer to pay for the costs of a specifically-defined set of improvements. This <br />payment option does not require the city to prove financial benefits resulting from the improvements. <br />Cities and developers have not been inclined to engage in these agreements. This tool may be limited <br />to high-cost, nontraditional projects, and is not an option for reconstruction projects. <br /> <br />Local bonding <br />Cities obtain funds for most public improvement projects from bond issues. The city pays off the <br />bonds as the funds become available through collection of special assessments and any taxes the city <br />levied for that purpose. There are three kinds of bonds: <br /> · Improvement bonds allow a city to borrow dollars and repay them through special <br /> assessments and general taxing authority. <br /> · Improvement warrants do not have general taxing power and city fund backing, but are <br /> payable only from the assessments against the affected property owners. Few cities use <br /> improvement warrants because the bonds are more readily marketable at a lower rate of <br /> interest than improvement warrants. <br /> Temporary bonds allow a city to issue and sell temporary bonds at any time before <br /> completion of a public improvement project. These bonds mUst mature within three years. <br /> They are payable with improvement bonds the city must issue by the maturity of the <br /> temporary bonds. Temporary bonds allow cities to consolidate several improvement <br /> projects into a single bond issue. Also, the city reduces the chance of excessive borrowing <br /> by delaying the long-term bond issue until it knows the total project cost. <br /> <br />Property tax abatements. <br />Under MS § 469.18, cities may create a dedicated fund for improvements to specific properties. The <br />abatement process is similar to the tax increment financing process (TIF) in that the city may place <br />abated taxes into a special fund for the purpose of paying the costs for specified improvements which <br />benefit the area for which the taxes are abated. This tool has limited applications; however, it can be a <br />valuable mechanism for large projects associated with economic development initiatives. <br /> <br />Enterprise funds. Certain city enterprises, such as municipal liquor profits, may provide additional <br />income into the city's general fund. Under MS § 412.27, 412.141,426.20, 447.045 and 412.371, a city <br />council can use these profits to fund infrastructure projects provided a public hearing is held to discuss <br />the transfer of funds from the city's general fund. Not all cities operate enterprises, and in cases where <br />a city does operate an enterprise, the enterprise may not generate significant profits. <br /> <br />Infrastructure replacement reserve fund. Under MS § 471.572, a city council may create a fund by a <br />two-thirds vote of all its members through ordinance or resolution, and may levy an annual property <br />tax to support the fund. <br /> <br />49 <br /> <br /> <br />