BISMARCK - A bill preventing cities from granting more than one kind of tax break to businesses has passed in the House, causing Fargo's mayor to worry about how it will affect the city's ability to continue to develop downtown.
Some construction projects are so complex and risky that more than one tax incentive is needed, said Mayor Tim Mahoney. The $98 million Block 9 high-rise expected to start construction this spring wouldn't have been possible without multiple incentives, he said.
Block 9 is being built in part by Kilbourne Group, the downtown development firm founded by North Dakota Gov. Doug Burgum, who could veto the bill if it's approved.
Senate Bill 2166, as passed by the House 75-17 on Tuesday, March 28, would prevent cities from creating tax-increment financing districts in Renaissance Zones. It also requires cities to get buy-in of counties and school districts for tax breaks of more than five years, since the tax breaks would come out of these other local governments' coffers also.
Fargo officials have said they already consult with other local governments and have no problem with this requirement.
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SB 2166 passed the Senate 38-8 in February. The Senate will now have to concur with amendments added in the House or move the bill to a conference committee.
Burgum, a longtime supporter of incentives to encourage downtown growth, could still veto the bill. But if the Senate still favors the SB 2166 as it did before House amendments, that could make the bill veto-proof.
The original Senate bill prevented the stacking of TIF and renaissance zone incentives but, by the time it went to senators for a vote that language had been stripped from the bill. A Senate committee had added the requirement for buy-in from the counties and school districts.
A House committee restored the language preventing incentive stacking.
The bill forbids cities from creating TIF districts in existing renaissance zones and forbids the state Department of Commerce from authorizing renaissance zones in existing TIF districts after July 31.
TIFs are a way to pay for infrastructure in a blighted area by using additional property taxes generated by new construction. The business receiving the incentive pays full property taxes, but instead of going to local governments for general use it is dedicated toward repaying the cost of streets and sewers the project required. TIFs can last for decades, and there are no specific limits.
Renaissance Zones grant five-year property and/or income tax breaks. Typically, a developer gets a property tax break, but tenants and homeowners get income tax breaks.
Earlier this session, Mahoney and other city officials objected to a change to Renaissance Zone policy that would have stripped out the provisions exempting income tax. That proposal has already been shot down.
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The Block 9 project actually used not just TIF and Renaissance Zone incentives but also payments in lieu of taxes, a kind of property-tax break where a developer pays less than it would otherwise owe. Though critics have complained the city has been too generous by allowing stacked incentives, the developers have noted that each kind of incentive is applied to a part of the building.
Mahoney said multiple incentives are needed because the income tax exemption would only go to condo buyers, and the developers needed some property tax breaks to make their margins work. The margin for most projects is 10 to 15 percent, he said, and even with incentives Block 9 would have margins of just 5 to 9 percent.
The mayor warned that as the state economy cools, cities will need incentives to encourage growth. He said the state has a stake in this because as cities grow they generate sales and income tax for state coffers.
