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A Discuss TIF District 2-1SEN ,o. Mayor and City Council:--' 690 Ci~ Qn,r Dri. FROM:- Todd Gerhgdt,Acting City M~ager POBox147 DATE: July 18, 2001 C~n~.se. Minneso. 55317 ' Pho= S~J: Executive Session of the Ci~ Council, Discussion 952.93Z1900 TW District 2-1 Genera/Fax 952.937.5739 Engineering Department Fax 952.937.9152 Building Department Fax 952.934.2524 ~b Site Attached is a copy of Carver County's Summons and Complaint against the City of Chanhassen for allegedly receiving an overpayment of tax increment in 1998. This information is being provided to you as background of the issues in the case. Both co-counsels on this case, Ron Batty, Kennedy & Graven-and Tom Scott, Campbell, Knutson, will be present at Monday's meeting to update the City Council regarding this action. ATTACHMENT u,ww. ci. chanhassen, mn. tts 1. Summons and Complaint dated May 2, 2001. OFFICE OF DAKOTA cOUNTY ATTORNEY JAMES C. BACKSTROM COUNTY ATTORNEY Dakota County Judicial Center 1560 Hi. way 55 - Hastings, Mlnne. sota 55033-2392 Phllllp D. Prokopowlcz, Chief Deputy Karen A. Schaffer, First Assistant Monlca Jensen, Community Relations Director May 2, 2001 LINDA JANS~, ~YO~ STEVE LABATT, COUNCIL MEMBER CRAIG PETERSON, COUNCIL MEMBER BOB AYOTTE, COUNCIL MEMBER MA~ K~OSK~, COUNCIL MEMBEa 690 CITY CENTER DR CHANHASSEN MN $5317 Telephone (651 ) 438-4438 FAX: (651 ) 438-4479 (Civil DiViSion) FAX: (651) 438-4,~0 (Criminal Division) ' FAX: (651) 4384.499 (Juvenll~Admln Division) E.-rnall: attomey@co.dakota.mn.us : Direct Dial: (651)438-4564 £mail: Sa¥.Stas~n@co.dakota. mn.us ~.. In the Matter of the County of Carver, a Minnesota Political Subdivision, vs. The City of Chanhassen et al. our File No. C-00-337 Dear Sirs and Madam: Enclosed and served upon you by U.S. Mail is a Summons and COmplaint with regard to the above- referenced case. Please date and sign the original Notice and Acknowledgment of Service by Mail and returffit in the enclosed envelope. An extra copy is enclosed for your records. If you have any questions, please feel free to contact this office. Yours Very truly, Assistant County Attorney Enclosures c: Michael Fahey, Carver County Attorney LIT/Service Dx Criminal Divlston Scott A. Hersey, Head Victim/Witness Coordinator Patricia Ronken Juvenile and Protective Services Division Donald E. Bruce, Head Office Manager Norma J. Zabel Civil Division Jay R. Stassen, Head Child Support Enforcement Division ~andra M. Tor~er.qc~n. He.ad STATE OF MINNESOTA COUNTY OF CARVER DISTRICT COURT FIRST JUDICIAL DISTRICT CASE TYPE: OTHER CIVIL In the Matter of the County of Carver, a Minnesota Political Subdivision, Plaintiff, VS. The City of Chanhassen, The Chanhassen Economic Development Authority, Linda Jansen, in her capacity as Mayor, Steve Labatt, in his capacity as Council Member, Craig Peterson, in his capacity as Council Member, Bob Ayotte, in his capacity as Council Member, and Mark Kroskin, in his capacity as Council Member, Defendants. SUMMONS Court File No. COUNTY OF CARVER TO THE ABOVE-NAMED DEFENDANTS: YOU .ARE HEREBY SUMMONED AND REQUIRED to ser~e upon Plaintiff's attomey an answer to the compIaint which is herewith served upon you within twenty (20) days after the service of this summons upon you, exclusive of the day of service. If you fail to do so, judgment by default will be taken against you for the relief demanded in the complaint. In compliance with Minnesota Statutes § 543.22, we are hereby directing you to the Altemative Dispute Resolution processes as set forth in Rule 114 of the Minnesota General Rules of Practice. The court administrator will provide notice of ADR processes in the future, if applicable. Dated:/~:~'7 '~, '/O~J'O'/ · JAMES C. BACKSTROM i/ / DAKOTA COUNTY ATTORNEY Y:ja Assistant County Attorney Attorney Registration No. 152158 Dakota County Judicial Center 1560 Highway 55 Hastings, Minnesota 55033 Telephone: (651) 438-4438 LITICarverCo TIF S & Complaint ATTORNEYS FOR PLAINTIFF STATE OF MINNESOTA COUNTY OF CARVER DISTRICT COURT FIRST JUDICIAL DISTRICT CASE TYPE: OTHER CIVIL' In the Matter of the County of Carver, a Minnesota Political Subdivision, Plaintiff, VS. The City of Chanhassen, The Chanhassen Economic Development Authority, Linda Jansen, in her capacity as Mayor, Steve Labatt, in his capacity as Council Member, Craig Peterson, in his capacity as Council Member, Bob Ayotte, in his capacity as Council Member, and Mark Kroskin, in his capacity as Council Member, Defendants. COMPLAINT Court File No. PlJintiff, County of Carver, brings this action pursuant to Minn. Stat. § 469.1771 (2000) for review of the action of the Defendants, the City of Chanhassen, its City Council and true Chanhassen Economic Development Authoi'ity, in failing to comply with the tax increment financing laws of Minnesota, and to obtain a judgment and writ of mandamus from this court. For its complaint against the Defendants, the County of Carver states and alleges as follows: 1. Plaintiff County of Carver ("Carver County") is a political subdivision of the State of Minnesota, acting under and pursuant to the laws of the State of Minnesota. 2. Defendant City of Chanhassen ("Chanhassen") now is, and at all times pertinent to this complaint was, a municipal corporation organized and existing as a statutory city under the laws of the State of Minnesota, and located in the County of Carver, Minnesota. Defendant City of Chanhassen is empowered to sue and be sued pursuant to Minn. Stat. § 412.211 (2000). 3. Defendants Linda Jansen, Steve Labatt, Craig Peterson, Bob Ayotte, and Mark Kroskin are respectively the mayor and members of the city council of Chanhassen, and together constitute the city council of Chanhassen. 4. Defendant Chanhassen Economic Development Authority (collectively with the city "Chanhassen") now is, and at all times pertinent to this complaint was, a municipal corporation organized by the City of Chanhass~n and existing pursuant to Minn. Stat. § 469.091 (2000). Defendant Chanhassen Economic Development Authority is empowered to sue and be sued pursuant to Minn. Stat. § 469.091, subd. 2 (2000). 5. Under to the authority vested in it by Minn. Stat. § § 469.174-1791, Chanhassen created Tax Increment Financing District 2-1 and approved the plan for this district on May 23, 1988. The maximum duration of tax increment financing districts is established by statute, Minn. Stat. § 469.176, subds. 1-1 (f), and limits the period during which a city may receive increment payments. 6. Pursuant to the authority vested in it by Minn. Stat. § 469.175 and 469.1771, the state auditor requires cities to annually report the amount of tax increments received and expended and monitors tax increment payments for compliance with tax increment laws. 7. The state auditor performed an audit of the tax increments received by Chanhassen for Tax Increment District 2-1 and thereafter notified Chanhassen that it was not in compliance with tax increment laws, that it had received increments in the amount of $711,167.96 after the expiration of the maximum duration for this tax increment district, and requested that Chanhassen return the excess ihcrements to Carver County. The state audito'r provided this notice by letter, a copy of which is attached and fully incorporated into this complaint as Exhibit A. 8. By a letter from the City Manager of Chanhassen, Defendants assert that Chanhassen did not receive excessive tax increments and refused to return the overpayments to Carver County. A copy of this letter is attached and fully incorporated into this complaint as Exhibit B. The failure of the Defendants to return the tax increment overpayments to Carver County constitutes a violation ~f the tax increment financing laws of this state. 9. On or about June 20, 2000, the state auditor sent a Final Notice of Noncompliance to the Defendants stating that Chanhassen has received tax increment overpayments in the amount of $711,167.96, and notifying the Defendants that this matter would be referred to the Carver County Attorney for appropriate enforcement action. A copy of this letter is attached and fully incorporated into this complaint as Exhibit C. 10. On or about June 30, 2000, the state auditor referred the Defendants' violation oft ax increment laws to the Carver County Attorney. A copy of this letter is attached and fully incorporated into this complaint as Exhibit D. 11. Plaintiff's administrative remedies under the laws of this state have been exhausted, and Plaintiff is entitled to a judgment and a writ of mandamus directing Defendants to refund the overpayments of tax increments. 12. Due to potential conflicts of interest within the Carver County Attorney's Office in prosecuting this claim against Chanhassen, the Carver County Attorney has appointed the undersigned as a Special Assistant Carver County Attorney for this matter. A copy of this appointment is attached to this Complaint as Exhibit E. WHEREFORE, Plaintiffprays the Court as follows: 1. for judgment against Defendants in the amount of $711,167.96, with interest at the statutory rate from May 24, 1998; 2. for issuance of a writ of mandamus directing Defendants to pay to Plaintiff the amount of the judgment, with inte.re, st, as ordered by this Court; 3. for judgment against Defendants for all costs and disbursements incurred in this action, including attorneys fees; and 4. for such other additional relief as may be deemed just and equitable by the Court. Dated: JAMES C. BACKSTROM DAKOTA COUNTY ATTORNEY By: LIT/CarverCo TIF S & Complaint Jay R. Stassen Assistant County Attorney Attorney Registration No. 152158 Dakota County Judicial Center 1560 Highway 55 Hastings, Minnesota 55033 Telephone: (651) 438-4438 ATTORNEYS FOR PLAINTIFF ACKNOWLEDGEMENT This acknowledgement is required by Minn. Stat. § 549.211, Subd. 1. The undersigned hereby acknowledges that pursuant to Minn. Stat. § 549.211, costs, disbursements and reasonable attorney's fees and witness fees may be awarded to the opposing party or parties in this litigation if the court should find that the undersigned acted in bad faith, asserted a claim or defense that is frivolous and that is costly to the other party, asserted an unfounded position solely to delay the ordinary course of the proceedings or to harass or commit a fraud upon the court. Dated: JAMES C. BACKSTROM Jay R. Stassen Assistant County Attorney Attorney Registration No. 152158 · Dakota County Judicial Center 1560 Highway 55 Hastings, Minnesota 55033 Telephone: (651) 438-4438 ATTORNEYS FOR PLAINTIFF LIT/CarverCo TIF S & Complaint JUDITH H. DUTCHER STATE AUDITOR STATE OF MINNESOTA OFnCE OF THE STA AUmTO , SLrlTE 400 525 PARK STREET SAINT PAUL, MN .55103-2139 Plea~¢ respond to: Tax Increment Financing Division 505 Spruce Tree Centre 1600 Univcmity Ave, W, ,, St. Paul, MN 55104 .. · March 21, 2000 EXHIBIT (651) 296-2551 (Voice (651) 2964755 (Fax stateaudito/'~ osa.state.mn.us (E-Mail 1-800-627-3529 (Relay Service TIF Division Phone: (65 I) 642.0767 TIF Division Fa.x: (65 I) 642-0769 Direct Dial: (651) 642-0837 The Honorable Nancy Mancino, Mayor The Honorable Mark Engel, Council Member The Honorable Mark Senn, Council Member The Honorable Steve Labatt, Council Member The Honorable Linda Jansen, Council Member City of Chanhassen 690 City Center Dr. Chanhassen, M2q 55317 Notice of Noncompliance Pursuant to Minn. Stat. § 469.I771, subd. 1 (c) Chanhassen Economic Development Au~ority's..Tax Increment Financing District 2-1 Dear Mayor Mancino and Council Members: The Office of the State Au/:titor (OSA) received the 1998 tax increment financing (TIP) reports for the Chanhassen Economic Development Authority's (EDA) TLF District 2-1 on August 3, 1999. After reviewing the 1998 TI1e reports, the TIP plan, and TIP-plan modifications for TIP District 2-1, as well as additional information provided by city staff, the OSA finds that the city is not in compliance with state TIP laws, codified at Minn. Stat. §§ 469.174 to 469.179. Pursuant to Minn. Stat. § 469.1771, subd. l(c), the OSA is required to notify the governing body of the municipality, in this case the Chanhassen City Council, of its f'mding: . Pursuant to Minn. Stat. § 469.1771, sUbd. l(c), the governing body ofthe municipality must respond in writing to the OSA within 60 days after receipt ofthis notice ofnoncompliance. The municipality. must state whether it accepts, in whole or in part, the OSA's finding of noncompliance. If the municipality does not accept the finding of noncompliance detailed in this letter, the written response must indicate the basis for its disagreement with the finding. The OSA is required to summarize the response it receives from the municipality, and to send the surm'n~ and a copy of the response to the chairs of the legislative committees with jurisdiction over tax increment financing. If the issues of noncompliance are not voluntarily resolved, the OSA also is required to submit all information regarding violations of state TIP laws to the Carver County Attorney for review'. See Mitre. Stat. § 469.1771, sub& l(b). -.'-" Recycled paper with a minimum or' · _ ._ ~ :.~.' _ .. OFFICE OF THE STATE ..UDITOR Mayor Mancino and City Council Members, City of Chanhassen March 21, 2000 Page 2 If a TIF authority improperly retains a parcel of property in a TIF district that does not qualify for retention, the TIF authority must pay an mount equal to the increment collected from the property to the county auditor. If an authority includes or retains a parcel of properf/'in a taS,,~ increment financing district that does not qualify for inclusion or retention within the district, the authority must pay to the county auditor an amount ofm0ney equal to the increment collected from the property for the year or years. The property must be' eliminated from the original and captured tax capacity of the district effective for the current property tax assessment year. This subdivision does not apply to a failure to decertify a district at the end of the duration limit specified in the tax increment financing plan. Minn. Stat. § 469.1771, subd. 2. This statute applies to violations occurring after December 31, 1990. See Laws 1990, ch. 604, art.7, sec. 31 (a). If the TIF authority does not have sufficient tax increment or other money available to make the payments required by Minn. Stat. § 469.1771, subd. 2, the municipality that approved the TIF district must use any money available, including money from levying additional property taxes, to make the required payments. Any amount paid bythe EDA orthe city under Minn. Stat. § 459.1771, subd. 2 will be redistributed as provided in Minn. Stat. § 469.1771, subd. 5. Please be advised that in 1998, the Legislature amended Minn. Stat. § 469.1771, subd. 5 to provide that the city' may receive a sh~re of the r~distribution of money paid under Minn. Stat. § 469.1771, subd. 2 only if the city makes the payment within 60 days after the city received the notice of noncompliance from the OSA. See Laws 1998, ch. 389, art. 11, sec. 9. Pursuant to Minn. Stat. § 6.715, all data relating to the OSA'$ finding of noncompliance, including this letter, are not public until the 60 days for the municipality to respond pursuant to statute has passed and the OSA has issued its final notice of noncompliance letter. FINDING OF NONCOMPLL~N'CE A TIP authority, may not receive tax increment from an economic development district after ei~t years from the date of the first receipt of increment, or ten years from approval of the TIF plan, whichever is less, if the district's certification request date was on or before May 31, 1993) TIP District 2-1 is an economic development district Mt& a certification request date of October 10, 1988. The city. approved the TIF plan for TIP District 2-1 on May 23, 1988. The FDA first received tax increment from this district in 1991. Eight years from the first receipt of tax increment, Mth the Minn. Stat. § 469.176, subd. l(e) (1988); see also Laws 1993, ch. 375, art. 14, sec. 10 and 24. OFFI CE OF THE STATE ,-~UDITOR Mayor Mancino and City Council Members, City of Chanhassen March 21, 2000 Page 3 duration provided in Minn. Stat. § 469.176, subd. lb(b), was December 31, 1999. Ten years from approval of the TIF plan was May 23, 1998. Therefore, the EDA was not entitled to receive tax increment after May 23, 1998. The' Carver Count3' Audit6r's office confirmed that the City of Chanhassen received $711,167.96 of tax increment from TIF District2-1 after May 23; 1998. The OSA requested that the city return the $711,157.96 of tax increment in a December 21., 1999, letter to Don Ashworth, EDA Director. A response letter from City Manager Scott Botcher, dated January 11, 2000, stated that the city believed the EDA was entitled to retain the tax increment received aker May 23, 1998, because no repayment is required under Minn. Stat. § 469.1771, subd. 2. The city noted the last sentence ofthis subdivision provides that, "this subdivision does not apply to a failure to decertif7 a district at the end of the duration limit specified in the tax increment financing plan." When TIF District 2-1 was created in 1988, the applicable statute provided that the maximum duration limit was eight years from the first receipt of increment or ten years from approval of the TIF plan, whichever is earlier.'- The city did not .dispute that the statutory maximum duration limit for TIF District 2-1 was May 23, 1998, which was ten years from approval of the TIF plan. The last sentence of Mirm. Stat. § 469.1771, subd. 2 is worded'as an exception to a general rule. The general rule is that section 469.1771, subd. 2 applies to any receipt of tax increment after the maximum duration limit of the TIF district. It is the OSA's position that the exception for exceeding the duration limit "specified in the tax increment financing plan" applies only to situations where the TIF authority or municipality chose to include in the TIF plan a maximum duration limit that was earlier than the otherwise applicable statutory limit: The municipality may, at the time of approval of the initial tax increment financing plan, provide for a shorter maximum duration limit than specified in subdivisions la to I f. The specified limit applies in place of the otherwise applicable limit. Mitre. Stat. § 469.176, subd. l(a) (emphasis added). The exception applies only to the mount of tax increment received after the maximum duration limit specified in the TIF plan, but before the otherwise applicable statutory maximum duration limit. · The OSA finds that the EDA improperly received 5711,167.96 of tax increment from TIF District 2-l after the statutory, maximum duration limit for the district. The EDA received these payments after December 3 I, 1990, and therefore, they are subject to the provisions of Minn. Stat. § 469.1771, subd. 2. 2 Mitre. Stat. § 469.176, subd. l(e) (1988). -,. OFFICE OF THE STATE ~-'LrDITOR Mayor Mancino and City Council Members, City of Chanhassen March 21, 2000 Page 4 As noted above, the municipality's respqnse to the finding comained in this notice of noncompliance must be submitted in writing to the OSA within 60 days after receipt ofthis notice. Our TIF division staff is available to review and discuss the findings and conclusions he~:ein at any time during th.e preparation of your response. After reviewing your response, the (iSA will prepare its final TIF findings. If you have any questions, please call me at (651) 642-0837. We look forward to receiving your response. Sincerely, William E. Connors, Director Tax Increment Financing Division cc: Scott A. Botcher, City Manager Roger Knutson, City Attorney CITYOF 6.~0 GF Center D~ive, PO Box 147 ~anhassen, ginntrota 55317 Phone 61293Z I900 Gen era l £ax 612, 93 Z 5 73 9 £agiaeeing F= 612937.9152 .Public Safeg Fax 612,934.2524 ~o wunv. ct. chanhassen, mn. us May 19, 2000 .. MAY 19 2 00 O ='rHE sTM TIF DIVISION Mr. William E. Cormors, Director Tax Increment Financing Division Office of the State Auditor 505 Spruce Tree Centre 1600 University Avenue West St. Paul ~ 55104 RE: Chanhassen TIF District No. 2-t Dear Mr. Connors' This is in response to your letter dated March 21,2000 to Mayor Mancino and members of the Chanhassen Ci.r7 Council regarding the captioned matter. Your letter was received by the city on'March 23, 2000. The city views the ;circumstances surrounding TiT District No. 2-1 as.a case of failure to decertify a tpx increment district after the duration specified in the tax increment financing 1~. The ofi~nal 1988 TIF plan established the duration of TIF District Nol 2-1 as "ei~t 7eaz. s after receipt of the first increment or 10 years after approval of the TIF plan, v,'kichever occurs first." Minnesota Statutes, section 459.1771, sub& 2, wkich generally addresses repayment of increment, specifically concludes, "Tliis subdivision.does not apply to a failure to decertif7 a district at the end of the duration limit specified in .the tax increment financing plan." Therefore, Chanhassen believes that no repayment is required. The city further believes that the..OSA is v, dthout authority to refer the matter to the Carver County Attorney because this does not involve a violation of"a provision of the law for whick a remedy is provided under this section." Minnesota Statutes, section 469.1771, sub& 1 (b). . ' .The underlying policy issue involved in this instance is that the le~slature has determined to make counties responsible'for enforcement of the duration limits of tax increment financing districts. It is not the intent of the legislature to penalize authorities if the durational limits of TIF districts are exceeded through no fault of their ov,'n. It is also important to note that Chanhassen did not receive more increment from TIF District No. 2-1 than was intended by the &rational limits established for economic development districts. No increment may be received from TIF District No. 2-1 after eight .,,'ears after receipt of the first increment. This language allows collection of nine .,,'ears of increment. Chanhassen first received increment from" TIF District No. 2-1 in 1991. Eight years after receipt of the first increment would Mr. William E. Conners, Director May 19, 2000 Page 2 be 1999. With the e~ension allowed under Minnesota Statutes section 469.176, subd. lb(b), Chanhassen would otherwise have been allowed to retain all' increment payable through the end of 1999. Instead, the city received increment in 1998 but none in 1999. Denying the city increment in 1998 ~vould result in the receipt of only seven years, two years less than intended by the le~slature.. For these reasons, the City of Chanhassen respectfully disa~ees with the Office of State Auditor and declines to return any increment to Carver Cotmty regarding TIF District No. 2-1. ' Sincerely, · . scott A. Botcher City Manager SAB:k g:\use~cottb\conners auditor, doc o I STATE OF ~/II~SOTA OFFICE OF .THE STATE AUDITOR SUITE 400 525 PARK STREET SAhNT PAUL, MN 55103-2139 Please respond to: Tax Increment Financing Division 505 SpNce Tree Centre 1600 University Ave. W. St. Paul, MN 55104 June 20, 2000 I EXHIBI' (651) 296-255 I' (Voice (651) 296-4755 (Fax stateauditor@ ma. state.rrm.us (E-Mail 1-800-627-3529 (Relay Service TIF Division Phone: (651) 642-0767 TIF Division Fax: (65l) 642-0769 Direct Dial: (65 I) 642-0837 The Honorable Nancy Mancino, Mayor The Honorable Mark Engel, Council Member The Honorable Mark Senn, Council Member The Honorable Steve Labatt, Council Member The Honorable Linda Jansen, Council Member ' City of Chanhassen -690 City Center Dr. Chanhassen, MN 55317 · .-- Re: Final Notice of Noncompliance · Chanhassen Economic Development Authority's Tax Increment Financing District 2-1 Dear Mayor Mancino and Council Members: On March 21,2000, the Of-fi'ce of the State Auditor (OSA) sent the Chanhassen City Council a notice of noncompliance regarding the Chanhassen Economic Development Authority's (EDA) Tax Increment Financing (TIF) District 2-1. Pursuant to Minn. Stat. § 469.1771, sub& 1 (c), the city was required to respond in writing to the OSA within 60 days of the receipt of the notice of noncompliance. On May 19, 2000, the OSA received the city's response, a letter from City Manager Scott Botcher. " The following is the OSA's final notice.of noncompliance. Where appropriate, the £mding in the initial notice of noncompliance has been modified to reflect the city's response. FINDhNG OF NONCOI'vLPLL, kNCE The OSA found that the EDA improperly received 5711,I 67.96 of tax increment from TIF District 2-1 after the statutory maximum duration limit for the district. TIF District 2-I is an economic devetopment district. According to the applicable statute, this district reached its maximum duration limit on May 23, 1998, which was ten years after approval of the TIF plan. The OSA determined that the EDA received $711,167.96 of tax increment from this district after May 23, 1998. The city. did not dispute that the maximum statutory, duration limit of this district was reached on May 23, 1998, nor did the city. dispute that the EDA received $711,167.96 oftax increment from this -.~' Recycled oaoer with OFFICE OF THE STAT'~- AUDITOR Mayor Mancino and City Council Iv/embers, City of Chanhassen June 20, 2000 Page 2 district after May 23; t 998. Instead, the city's response reiterated its previously stated position that Minn. Stat. § 469.177 I, subd. 2 did not require the EDA to pay back the increment received after the maximum statutory ~turation limit. The OSA addressed this issue in its initial'.notice of noncompliance. The city also responded that the application of the maximum statutory, duration limit would deprive the city of the full amount of tax increment intended by the Legislature. ;l'he city stated' that the Legislature intended to permit the EDA to receive tax increment from this economic development district through the end of the ei~th year after the year in which the EDA first received tax increment from this district. The_applicabl~ statute, however, provided that the EDA was not entitled to receive ~,( increment from this economic development district "after eight years from the date of the receipt' or ten years ~om approval of the tax increment financing plan, whichever is less." Minn. Stat. § 469.176, sulJd. 1 (e) (1988) (emphasis added). The city approved the TIF plan for TIF District 2-1 on May 23, 1988. Ei~t years from the first receipt of tax increment, with the duration extension provided in Minn. Stat. § 469.176, subd. lb(b), ',,,'as December 31, 1999. Ten years from approval ofthe TIF pl.an:..-~as May 23, 1998, which is less than December 31, 1999. Therefoi'e, according to the terms of the applicable statute, the maximum duration limit is May 23, 1"998. The intent of the Legislature to limit the maximum duration limit to the earlier of the two dates is clear and explicit in the text of the §tatute. ' The OSA reiterates its fmdi'ng that the EDA improperly received $7I 1,167.96 of tax increment from Tn: District 2-1 after the statutory maximum duration limit for the district. The EDA received these pa.vments after December 31, 1990, and therefore they are subject to the provisions of Minn. Stat. § 46911771, subd. 2. The OSA appreciates the time and attention the ~hanhassen City Council devoted responding to the notice of noncompliance. The OSA will refer the finding of noncompliance to the county attorney pursuant to Minn. Stat. § 469.1771, subd. 1 Co). In addition, the OSA recommends that the city bring the OSA's finding to the attention of the accountants who will perform the city's next annual audit. If you have any questions or comments, please call me at (651) 642-0837. Sincerely, William E. Connors, Director Tax Increment Financir~g Division cc: Scott A. Botcher, Ci.ty Manager Roo_er Knutson. City A rrc~m~v JUDITH H. DUTCHER STATE AUDITOR STATE OF MINNESOTA OFFICE OF THE STATE AUDITOR SUITE 400 525 PARK STREET SAINT PAUL, MN 55103-2139 Please respond to: Tax Increment Financing Division 505 Spruce Tree Centre 1600 University Ave. W. St. Paul, MN 55104 June 30, 2000 (651) 296-2551 (Voice (65 I) 2964755 (Fax) s£ateauditor@osa.state.mn.us (E-Mail) 1-800-627-3529 (Relay Semite) TIF Division Phone: (651) 642-0767 TIF Division Fax: (651) 642-0769 Direct Dial: (651) 642-0837 Michael Fahey, Esq. Carver County Attorney 600 E 4th St Chaska, MN 55318-2158 Re; Referral Pursuant to Minn. Stat. § 469.1771, subd. 1 (b) Chanhassen Economic Development Authority's TIF District 2-1 Dear Mr. Fahey: The Office of the State Auditor (OSA) refers to you the matter of the Chanhassen Economic Authority's violation of the state's tax increment financing (TIF) laws'as they apply to the EDA's TPF District 2-1. This referral is made pursuant to Minn. Stat. § 469.1771, subd. l(b). On March 21,2000, the OSA sent the Chanhassen City Council a notice of noncompliance regarding the EDA's TIF District 2-1. Pursuant to Minn. Stat. § 469.1771, subd. l(c), the city was required to respond in writing to the OSA within 60 days of the receipt of the notice of noncompliance. On May 19, 2000, the OSA received the city's response, a letter from City Manager Scott Botcher. The OSA sent the city a final notice of noncompliance on June 20, 2000. I have enclosed copies of the OSA's initial notice of noncompliance, the city's responses, and the OSA's final notice of noncompliance. The OSA's finding of noncompliance is set forth in the initial and final notices of noncompliance. The city council approved the TIF plan for TIF District 2-1, an economic development district, on May 23, 1988, and the EDA requested certification ofthe district on October 10, 1988. The EDA first received tax increment from the district in 1991. Therefore, the statutory maximum duration limit for TIF District 2-1 was May 23, 1998, which was ten years after approval ofthe TIF plan. See Minn. Stat. § 469.176, subd. 1 (e) (1988). The OSA found that the EDA received $711,167.96 oftax increment from TIF District 2-1 after May 23, 1998. The city's response did not dispute any of these facts or conclusions. Instead, the city argued that the EDA is not required to make a payment to the county auditor for this violation under Minn. Stat. § 469.1771 subd. 9. It is tb.e OSA's position that this statute applies to the $711A67.96 of tax ' - RECEIVED OFFICE OF THE STATE AUDITOR Michael Fahey, Esq. June 30, 2000 Page 2 increment the EDA received from TIF District 2-1 after the statutory maximum duration limit for the district. Attached is a list of correspondence enclosed with this letter. If you would like any assistance with this matter from the OSA, please contact me at (651) 642-0837. I would appreciate it ifyod would inform me when you have decided how you will proceed with this matter. Sincerely, William E. Connors, Director Tax Increment Financing Division Enclosures OFFICE OF THE STATE AUDITOR Michael Fahey, Esq. June 30, 2000 Page.3 Copies of correspondence enclosed with this letter: 1. OSA's initial notice of compliance to the Ch .an.hassen City Council, dated March 21, 2000 2. Letter to OSA from Scott A. Botcher, City Manager, dated May 19, 2000 3. OSA's final notice of noncompliance to the Chanhassen City Council, dated June 20, 2000 STATE OF MINNESOTA COUNTY OF CARVER DISTRICT COURT FIRST JUDICIAL DISTRICT In the Matter of County of Carver, a Minnesota Political Subdivision, Plaintiff, VS. The Chanhassen'Economic Development Authority and the City of Chanhassen Defendant. . NOTICE OF APPOINTME~ OF SPECIAL ASSISTANT CARVER COUNTY ATTORNEY The undersigned, Michael A. Fahey, as Carver County Attorney, hereby appoints Jay R. Stassen, Assistant Dakota County Attorney, as a Special Assistant Carver County Attorney on behalf of Carver County, Minnesota. Dated this ~q ~- day of ~u~{- ,~ 2000. Michael A. Fahey, "28071 Carver. County Attorney Government Center Justice Center 600 East Fourth Street Chaska, MN 55318 (952) 361-1400 DRAFTED BY: Carver. County Attorney's Office STATE OF MINNESOTA) COUNTY OF CARVER ) OATH OF ASSISTANT COUNTY ATTORNEY I, Jay R. Stassen, do swear that I shall, upon entering my duties as Special Assistant .County Attorney in and for the County of Carver, State of Minnesota, support the Constitution of the United States and the State of Minnesota and that I will faithfully discharge the duties of this office to the best of my ability and judgment. IN WITNESS WHEREOF, I hereby set my hand this ~~ day of 2000. STATE OF MINNESOTA) ) SS. COUNTY OF CARVER ) The foregoing in~strument was acknowledged before me this day of ~b~~, 2000. Notary Public C3'1y TO: NOTICE AND ACKNOWLEDGMENT OF SERVICE BY MAIL NOTICE Steve Labatt, Council Member 690 City Center Drive Chanhassen, MN 55317 In the Matter of the County of Carver, a Minnesota Political Subdivision, vs. The City of Chanhassen et al. Our File No. C-00-337 The enclosed Summons and Complaint is served pursuant to Rule 4.05 of the Minnesota Rules of Civil Procedure. You must complete the acknowledgment part of this form and return one copy of the completed form to the sender within 20 days. SIGNING THIS ACKNOWLEDGMENT OF RECEIPT IS ONLY AN ADMISSION THAT YOU HAVE RECEIVED THE SUMMONS AND COMPLAINT, AND DOES NOT WAIVE ANY OTHER DEFENSES. You must sign and date the acknowledgment. If you .are served on behalf of a corporation, unincorporated association (including a partnership), or other entity, you must indicate under your signature your relationship to. that entity. If you are served on behalf of another person and you are authorized to receive process, you must indicate under your signature your authority. IF YOU DO NOT COMPLETE AND RETURN THE FORM TO THE SENDER WITHIN 20 DAYS, YOU (OR THE PARTY ON WHOSE BEHALF YOU ARE BEING SERVED) MAY BE REQUIRED TO PAY ANY EXPENSES INCURRED IN SERVING A SUMMONS AND COMPLAINT IN ANY OTHER MANNER PERMITTED BY LAW. If you do complete and return this form, you (or the party-on whose behalf you are being served) must answer the Complaint within 20 days. If you fail to do so, judgment by default will be taken against you for the relief demanded in the Complaint. I declare, under penalty of perjury, that this Notice and Acknowledgment of Receipt of Summons and Complaint was mailed on --fv[o,~ 2. ,2001. Date of Sig'hamre ACKNOWLEDGMENT OF RECEIPT OF SUMMONS AND COMPLAINT I declare, under penalty of perjury, that I received a copy of the Summons and Complaint in the aBove-captioned matter at 690 City Center Drive, Chanhassen, MN 55317. Signature Relationship of Entity/Authority to Receive Service of Process Date of Signature Lit, Cqoticc and Acknowledgementof Service by Mail TO: NOTICE AND ACKNOWLEDGMENT OF SERVICE BY MAIL NOTICE Steve Labatt, Council Member 690 City Center Drive Chanhassen, MN 55317 In the Matter of the County of Carver, a Minnesota Political Subdivision, vs. The City of Chanhassen et al. Our File No. C-00-337 The enclosed Summons and Complaint is served pursuant to Rule 4.05 of the Minnesota Rules of Civil Procedure. You must complete the acknowledgment part of this form and return one copy of the completed form to the sender within 20 days. SIGNING THIS ACKNOWLEDGMENT OF RECEIPT IS ONLY AN ADMISSION THAT YOU HAVE RECEIVED THE SUMMONS AND COMPLAINT, AND DOES NOT WAIVE ANY OTHER DEFENSES. You must sign and date the acknowledgment. If you are served on behalf of a corporation, unincorporated association (including a partnership), or other '~ntity, you must indicate under your signature your relationship to that entity. If you are served on behalf of another person and you are authorized to receive process, you must indicate under your signature your authority. IF YOU DO NOT COMPLETE AND RETURN THE FORM TO THE SENDER WITHIN 20 DAYS, YOU (OR THE PARTY ON WHOSE BEHALF YOU ARE BEING SERVED) MAY BE REQUIRED TO PAY ANY EXPENSES INCURRED IN SERVING A SUMMONS AND COMPLAINT IN ANY OTHER MANNER PERMITTED BY LAW. If you do complete and retum this form, you (or the party on whose behalf you are being served) must answer the Complaint within 20 days. If you fail to do so, judgment by default will be taken against you for the relief demanded in the Complaint. I declare, under penalty of perjury, that this Notice and Acknowledgment of Receipt of Summons and Complaint was mailed on '-fvt0~ 2- ,2001. Date of Sig'hamre ACKNOWLEDGMENT OF RECEIPT OF SUMMONS AND COMPLAINT I declare, under penalty of perjury, that I received a copy of the Summons and Complaint in the above-captioned matter at 690 City Center Drive, Chanhassen, MN 55317. Signature Relationship of Entity/Authority to Receive Service of Process Date of Signature Lit/Notice and Acknowledgementof Service by Mail STATE OF MINNESOTA OFFICE OF THE STATE AUDITOR TIF MEMORANDUM #3 TO: County Auditors FROM: Tax Increment Financing Department DATE: Spring 1997 Redistribution of Excess Tax Increment In any year in which tax increment revenues remain after a tax increment financing (TIF) district has paid all debt obligations and other financial commitments authorized by the TIF plan for the life of the district, the authority must return the excess tax increment to the county auditor. This may occur at any time throughout the life of the TIF district, or when the district expires or is decertified with all obligations satisfied and excess tax increment remaining. The county auditor is responsible for distributing the excess tax increment amounts to the municipality, county, and school district in which the TIF district is located.~ The redistribution of the tax increment is to be based on the current year local tax rate proportions2 of the municipality, county, and school district. Special taxing districts are not included in the redistribution. In addition, the county auditor must report the amount of any excess tax increment distributed to a school district to the Commissioner of Children, Families, and Learning within 30 days of the distribution. This statutory section specifically applies to all tax increment financing districts established before, on, or after August 1, 1979. If you have any questions regarding the information contained in this memorandum, please contact the Office of the State Auditor TIF Department at (612) 296-9255. Minn. Stat. § 469.176, subd. 2. "Current year local tax rate" means the tax rate used in the year in which the excess increment is redistributed. STATE OF MINNESOTA OFFICE OF THE STATE AUDITOR TIF MEMORANDUM #8 TO: County Auditors FROM: Tax Increment Financing Division DATE: Summer 1998 RE: Distribution of Tax Increment After Duration Limit of TIF District Has Expired The Office of the State Auditor (OSA) has received calls from a number of county auditors asking how they should handle situations where the duration limit of a tax increment £mancing (TIF) district is measured from approval of the TIF plan and the decertification limit falls on a date such as September 15, between the lb:st- and second-half property tax settlements.~ Some county auditors have advised the OSA of the difficulty they have in calculating tax increment for the first-half settlement, but not for the second-half settlement, using the computer software packages they have to calculate property taxes and settlements. County auditors faced with this situation have asked the OSA whether they may distribute tax increment in the second-half settlement, even though the settlement is after the statutory maximum duration limit, and then expect the TIF authority to return all of the second-half payment for distribution as excess tax increment. See Minn. Stat. § 469.176, subd. 2. In addition to the problems created by mid-year decertifications, some county auditors have mistakenly calculated the year's settlements to include tax increment from a TIF district that already should have been decertified, but have discovered the mistake before making the first-half settlement. County auditors faced with this situation have asked the OSA if they may distribute tax increment in the first-half settlement, expect the TIF authority to return it, and fix the problem before the second- half settlement. A county auditor should not distribute tax increment from a TIF district after the district has or should have been &certified, even if preventing the distribution is difficult and time-consuming due to computer software limitations or because the county auditor discovers just before the settlement date that no tax increment should be distributed. This situation will arise only if the TIF district is a soils condition district with a certification request date before July 1, 1997 or an economic development district. It is only these two types of districts that have a statutory duration limit calculated from the date of approval of the TIF plan. For TIF districts whose duration limits are based upon the first receipt of increment, any increment from taxes payable in the year in which the district terminates must be paid to the TIF authority. See Minn. Stat. § 469.176, subd. lb, para. (b). For further information regarding calculation of TIF district duration limits, see TIF Memorandums #2 and #6. Page 2 TIF MEMORANDUM #8 Summer 1998 Making a distribution of tax increment after a TIF district has or should have been decertified is problematic for a number of reasons. First, if the TIF district should have been decertified because it reached its statutory maximum duration limit, Minnesota law clearly states that "[n]o tax increment shall in any event be paid to the authority" after the duration limit has been reached. See, e.g., Minn. Stat. § 469.176, subd. lb, para. (a). Second, during the 1998 session, the Legislature passed a new law which makes clear that county: auditors have the authority and duty to decertify TIF districts when the statutory maximum duration .': is reached, or sooner if the TIF plan provides an earlier decertification date or the TIF authority requests an earlier decertification. See Laws 1998, ch. 389, art. 11, sec. 7 (enacting Minn. Stat. § 469.177, subd. 12). Decertification of a TIF district means that the district has been terminated because the county auditor has removed all remaining parcels from the district, which in turn means that there will be no more tax increment to distribute. See Laws 1998, ch. 389, art. 11, sec. 1 (enacting Minn. Stat. § 469.174, subd. 28). Third, the TIF laws provide that a'TIF authority that "includes or retains a parcel of property in a tax increment financing district that does not qualify for inclusion or retention within the district,.., must pay to the county auditor an amount of money equal to the increment collected from the property for the year or years." Minn. Stat. § 469.1771, subd. 2. Thus, the.TIF authority will be in violation of the law if it continues to receive tax increment from a TIF district after it should have been decertified, and any money that the TIF authority ultimately returns to the county is most appropriately considered a penalty payment under Minn. Stat. § 469.1771, subd. 2. If a TIF authority receives a notice of noncompliance for receiving increment beyond the statutory maximum duration of a district and delays making this penalty payment to the county auditor beyond 60 days after receipt of the noncompliance notice, the municipality which approved the TIF plan will lose its share of the county auditor's redistribution of the payment. See Laws 1998, ch. 389, art. 11, sec. 9 (amending Minn. Stat. § 469.1771, subd. 5). Finally, the potential for error, delay, and disagreement increases if increment is paid to a TIF authority only to have the TIF authority pay an equal amount of money back to the county. A county auditor should only distribute tax increment from a TIF district that has or should have been decerfified if 1) after decertification, the county collects property taxes that were delinquent when the TIF district was decertified from a parcel that was in the TIF district when the district was decertified and 2) certain statutory conditions are met. A TIF authority is entitled to receive tax increment from delinquent property taxes collected after a TIF district has reached its duration limit or been decertified only to the extent that the TIF district's bonds or contractual obligations went unpaid or were paid from a source other than tax increment because the property taxes were not paid when due. See Minn. Stat. § 469.176, subd. l f. A county auditor should require a TIF authority to provide documentation that these statutory conditions have occurred before distributing any post- decertification, delinquent tax increment to the TIF authority. If you have questions regarding TIF Memorandum #8 or any other TIF issue, please contact the OSA's TIF Division at (651) 296-9255.