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Minn. Stat. § 272.67. <br />Minn. Stat. §§ 469.1812 - 1815. <br />"Property Tax Abatements for <br />Economic Development," House <br />Research Short Subjects, June 2012. <br />Handbook, Chapter 15. <br />Minn. Stat. § 469.1813. <br />HANDBOOK FOR MINNESOTA CITIES <br />CHAPTER 25 <br />D. Urban and rural service districts <br />State law allows cities to divide their area into an urban service district and <br />a rural service district. Cities in a metropolitan county with a first class city <br />cannot use this statutory tool. <br />1. Urban service district <br />The urban service district must include all lands within the boundaries of <br />the city, which are not included in the rural service district, discussed <br />below. The ordinance determines the approximate ratio that exists between <br />the benefits resulting from tax- supported municipal service to parcels of <br />land of similar market value and in the urban service district. The council <br />may amend the ordinance to change this benefit ratio. <br />2. Rural service district <br />The rural service district includes only such unplatted lands, or parcels, that <br />the city council determines are rural in character, and are not developed for <br />commercial, industrial, or urban residential purposes. For these reasons, <br />land in the rural service district does not benefit from city services to the <br />same degree as other lands. The rural service district may include parcels of <br />land that are not contiguous to one another. The ordinance may also <br />designate lands outside the city, which, if annexed, will be included within <br />the rural service district. Parcels may be added to or removed from the rural <br />service district, but the ordinance may not require an amendment to remove <br />lands from a rural district. <br />The county auditor then allocates levies (other than those for payment of <br />bonds and judgments) between the areas in amounts proportionate to <br />benefits ratios determined for the separate districts. In theory, this division <br />into urban and rural service districts generates additional tax dollars from <br />developed properties in the city, which can be used to pay for municipal <br />services and fund local improvements that benefit those properties. <br />E. Tax abatement <br />This financing tool authorizes the issuance of bonds to be paid back with <br />the funds collected by tax abatements. The term "abatement" is misleading, <br />as the tax is not forgiven or abated. The taxis paid normally, but the <br />amount of property tax levied by the city is used to pay for the bonds. For <br />example, a city may "abate" all or a portion of city property tax on one or <br />more parcels of real or personal property, including machinery, for <br />economic development purposes. And cities may issue general obligation <br />or revenue bonds to construct public improvements. As the property <br />owners pay the abated taxes, rather than the local property taxes, the <br />payments go directly to paying off the bonds. <br />This chapter last revised 12/1/2012 <br />25:7 <br />