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Decade-old decision puts EDA in debt

Farmington's economic development authority learned Monday it is more or less broke because of tax increment financing decisions made more than a decade ago.

EDA members got a crash course this week in TIF issues. A popular funding tool to woo businesses to a community in the 1990s, TIF was designed to give tax breaks to businesses. Those businesses would pay back the taxes over the years. The goal was to attract businesses to communities, spur new development and create new jobs.

State rules require cities to use TIF funds only on the projects where those funds originated. But it appears that didn't always happen in Farmington. Somewhere along the line, the city created two accounts for its housing and redevelopment authority, the group that became the EDA. Some TIF funds were lumped into one of the HRA funds instead of in individual accounts for each of the outstanding TIF-financed projects.

And then, some of the TIF funds were used on outside HRA projects, including the Dakota County Library in Farmington. Farmington finance director Teresa Walters and independent auditor Shelly Eldridge of Ehlers and Associates traced back a payment of $253,892 that came out of one of the two HRA funds.

When the HRA became the EDA, one of the HRA's funds was used to create the fund that the EDA has been using for its projects. The second HRA fund, where the TIF funds had been allocated, was left alone. That is, until, in an effort to sort things all out, Walters found the overall HRA budget had a deficit of $533,732.

Good news, bad news

The good news is that each of the TIF funds still on file has a current, positive balance. One of those TIF districts is set to be decertified soon, which means any money left in that fund can either be sent back to the state or it can be used for local development that creates jobs within the community.

The bad news is, even if the EDA's fund balance of $293,810 is put against the outstanding HRA fund deficit, the HRA balance is still short. The EDA can further reduce the deficit by $100,000 if it sells the old liquor store building on Third and Elm streets, but the HRA balance will still be $139,922 in the hole.

Since the EDA is ultimately responsible to manage what's left of that HRA fund, that fund effectively places the EDA in an operating deficit, Walters said.

The EDA will have to consider options to close that deficit. One option is a special levy to collect more money from taxpayers beyond the city's regular levy.

"I think the issue is, we have a negative balance in (the HRA fund), and we have to take the TIF funds out and figure out how to deal with this deficit," she said. "That's where the EDA needs to decide if they want to have a special levy to reduce the deficit over time, and they need to decide how they're going to pay for future projects."

Notice of the outstanding deficit came as an unpleasant surprise during Monday's regular EDA meeting. Several of the members did not know a second HRA fund had been established years ago, and were not happy to hear the deficit had not been noted years ago.

The knowledge that the EDA is also now operating in a deficit also concerned the group.

"How do we function next year?" asked EDA chairperson Christy Jo Fogarty. "Every single thing we do, we're digging a hole. That's disconcerting to me."

Michelle Leonard

Michelle Leonard joined the Woodbury Bulletin staff in November, 2014, after 14 years covering news for the Bulletin's sister publication, the Farmington Rosemount Independent Town Pages.  Michelle earned her Bachelor of Science degree in Mass Communications: News-Editorial from Mankato State University in 1991. She is an active member of the American Legion Auxiliary Clifford Larson Unit 189 of Farmington, and served as the 2014-15 Third District President to the American Legion Auxiliary Department of Minnesota. Michelle is also the volunteer coordinator for the Minnesota Newspaper Museum which is open annually during the Minnesota State Fair. She has earned Minnesota Newspaper Association awards in Investigative Reporting, Local News Coverage, Feature Photography and Column Writing. 

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