Talking Points for use in OSA Feedback Submissions

In late July, the Office of the State Auditor (OSA) introduced a beta version of its proposed new TIF reporting form, requesting that municipalities and professional services providers review overall form design and content, then provide feedback via online survey or email by September 20, 2024. After this review and comment period, the OSA will continue to refine the form and republish it for another round of testing and feedback during the summer of 2025. The intent is to implement the new form for 2025 reporting due by August 1, 2026.

Review the OSA’s proposed TIF reporting redesign and introductory video.

The OSA’s stated goals for the proposed revisions are to improve an authority’s ability to track information to better comply with the state’s TIF Act, and enhance the form’s accessibility, function, and style. Yet, after a thorough review of the new form, we believe it will not only fail to achieve the OSA’s goals but are also concerned it will create undue administrative burden for reporting municipalities.

Ehlers intends to submit formal feedback to the OSA, and we urge Minnesota communities to do so, as well. To assist in that process, we’ve developed the following talking points for your use.

  1. Minnesota Statute 469.175 Subd.6(a) calls for the OSA to “develop a uniform system of accounting and financial reporting for tax increment financing districts.” Instead, the proposed form purports to be a tool that will “help” authorities comply with all facets of the TIF law. It asks for far more information than required by statute to serve this purpose and will be overly time-consuming and cost prohibitive for reporting authorities to achieve compliance. We recommend that the OSA use its authority to audit any TIF district about which it has concerns, rather than rely on all jurisdictions to essentially prepare their own audit papers as part of the annual reporting process.

 

  1. The number of Excel worksheets from the current form to the proposed nearly doubled (12 to 21, at least). Knowing this, we estimate the average time it will take a city to complete an annual TIF report to nearly double, as well, and be even higher in the first year of implementation. For smaller TIF districts, the cost of compliance will likely exceed the 10% of increment allowed to pay for administrative expenses. Put simply, the proposed form will make it exceedingly difficult for TIF authorities to complete reporting internally and too cost prohibitive to engage a consultant to do the work for them.

 

  1. The catalyst for certain proposed reporting redesigns is the updated “6-Year Rule” enacted in 2023. The revised language requires authorities to decertify parcels from a TIF district after six years if the increment from that parcel is not pledged to an existing obligation. One of the changes to the new reporting form designed to help districts comply with the updated rule requires the separation of TIF expenditures by obligation (i.e., PAYGO, bond, Interfund Loan). Yet, Minnesota Statute 469.175 Subd.6 (4) calls for the OSA to “be consistent with Generally Accepted Accounting Principles,” commonly known as GAAP. This new requirement does not conform to GAAP and, as such, cities haven’t historically tracked cost allocation in their audited financial statements. Retroactive cost accounting will prove both time-consuming and unreliable. There will be no historical financial records compliant with GAAP to reconcile against, and records may not be readily available to produce this information, especially for older districts. Furthermore, cost allocation will not serve a discernible compliance purpose. Because this exercise was never required in the past, we don’t understand why the OSA is asking for it now.

Another proposed reporting form relative to the 6-Year Rule will require authorities to track all parcels by obligation, including parcel splits and replatting, beginning in the fifth year. Yet, the statute does not require cities to report parcel removal to the OSA; it only states that they must notify the county auditor of parcels to be removed. Rather than tasking districts with another time-consuming, expensive, and unnecessary responsibility, we believe the OSA could simply ask, “Is increment received from all parcels in the district currently pledged to an outstanding obligation?”, and then only require additional detail if a district’s answer is “No.”   

Finally, the fact that at least 75% to 80% of the increment must be spent on qualifying expenditures or be used to pay off existing obligations still remains. Because cities generally provide 90% of the TIF to developers, the 6-Year Rule is a non-issue for most districts and a non-issue for ALL housing districts.

 

  1. We understand one of the primary reasons for redesigning the reporting form is to make them more accessible for all users. The proposed formatting is visually confusing and the multiplication of tabs with similar information makes the report difficult to navigate. We believe improved accessibility will be better achieved by transitioning from Microsoft Excel to a database or on-line entry platform.

 

  1. In general, the timeline for implementation of the new TIF reporting requirements is too compressed. Given that the OSA won’t release its next iteration of the proposed form until Summer of 2025, followed by another review and comment period prior to final publication, cities may have less than six months to familiarize themselves with the new requirements and collect the data necessary to fulfill them. We recommend implementation take effect for 2026 reporting due on August 1, 2027.

 

To provide your community’s feedback to the OSA we recommend leveraging all of the following communication channels:

 

 

If you have questions or would like to discuss the proposed form further, please contact your Municipal Advisor. In the meantime, please make sure your voices are heard!