HF5118

Purpose

This bill would impose a financial penalty on counties or cities that deny approval for local development projects that would increase a jurisdiction’s property tax base. If a jurisdiction denies such a project, its aid payments under Minnesota Local Government Aid (LGA) and related programs could be reduced. The reductions are designed to discourage denials that block tax base growth.

Main Provisions

• Scope of penalty

  • A county or city that denies approval for a local development project that would have increased the jurisdiction’s property tax base would have its aid under sections 477A.011 to 477A.03 reduced by a calculated amount.
  • The reductions apply to county program aid and local government aid payments.

• How reductions are calculated

  • The reduction amount is determined by multiplying two certified figures (as described in the certification section): (a) the jurisdiction’s net tax capacity tax rate for the current taxes payable year, and (b) the growth in net tax capacity the jurisdiction would have experienced if the local development had not been denied. In short, the reduction is the product of the tax rate and the potential growth in net tax capacity.

• Certification of reductions

  • On July 1 each year, the governing body of any county or city that denied a qualifying local development project must notify the commissioner of revenue of: 1) the jurisdiction’s taxable net tax capacity for the current year, 2) the jurisdiction’s net tax capacity tax rate for the current year, and 3) the amount of growth in net tax capacity the jurisdiction would have experienced if the development had not been denied.
  • The commissioner of revenue must certify the aid reductions for any jurisdiction that provides this notification.

• Timing of reductions

  • The aid reductions take effect in the aids payable year following certification of the reduction amount.
  • Reductions continue until certification that the conditions prompting the reductions have ended (see reinstatement section). If an aid payment would otherwise be reduced below zero, the reduction is capped at zero for that payment, and remaining reductions are carried forward to future payments until the total amount is deducted.

• Reinstatement of aid

  • A county or city subject to reductions can end the reductions if its taxable net tax capacity exceeds the sum of: 1) the amount from the notification (growth that would have occurred), 2) the amount related to the current year’s tax rate and taxable capacity.
  • When reinstated, the commissioner verifies the change and reports that the jurisdiction is no longer subject to reductions.
  • Beginning with aids payable in the year after reinstatement, the commissioner must stop making reductions unless the jurisdiction provides a new notice under the certification provision.

Significant Changes to Existing Law

• Creates a new penalty mechanism within Minnesota Statutes chapter 477A to reduce Local Government Aid and County Program Aid for jurisdictions that deny tax-base–expanding development projects.
• Adds a formal certification and notification process (July 1 every year) tied to net tax capacity, tax rate, and potential growth in net tax capacity.
• Establishes a clear reinstitution path: reductions end when net tax capacity exceeds a specified threshold and reinstatement requires new notices if denials occur again.
• Introduces a carry-forward rule for reductions that cannot be fully paid in a single aid cycle, ensuring the full amount is eventually collected.

Practical Overview

• Who is affected: Counties and cities that deny approvals for local development projects that would increase property tax base.
• What changes: A predictable reduction in specific state aid (LGA and related aids) tied to the potential tax base growth that would have occurred with the project.
• How it’s tracked: Annual calculations and certifications by the commissioner of revenue, based on reported net tax capacity, tax rate, and growth figures.
• When it applies: Reductions apply in the aids payable year after certification; reinstatement occurs when net tax capacity grows beyond the specified threshold.

Relevant Terms aid reductions local government aid (LGA) county program aid tax base expansions local development project property tax base taxable net tax capacity net tax capacity net tax capacity tax rate growth in net tax capacity certification commissioner of revenue aids payable year reinstatement denial of development project Minnesota Statutes chapter 477A