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S.F. No. 3377 - Duluth Regional Exchange District (First Engrossment)
Author: Senator Erik Simonson
Prepared By: Eric S. Silvia, Senate Counsel (651/296-1771)
Nora Pollock, Senate Counsel (651/297-8066)
Date: April 24, 2018


This bill establishes a regional exchange district in Duluth, based around two hospitals. The bill provides for state funding of development of the district, contingent on certain criteria met by the city and hospitals.

Section 1. Construction materials. Provides an upfront sales tax exemption for materials and supplies used in and equipment incorporated into construction projects in the Duluth regional exchange district. Effective for sales and purchases after June 30, 2018, and before July 1, 2035.

Section 2. Definitions. Defines terms used in the bill. The “medical business entity west” is Essentia and the “medical business entity east” is St. Luke’s.

Effective the day after the city of Duluth files its approval with the secretary of state.

Section 3. Regional exchange district; regional exchange district advisory board. 

Subd. 1. Creation; boundaries. Defines the borders of the regional exchange district (also referred to as the medical district).

Subd. 2. Purpose; findings. States that the purpose of creating the district is to repurpose and redevelop vacant and underutilized public and private land, to increase private investment and job growth, grow the tax base, and help with community needs such as housing. Another purpose is to encourage development by health care organizations and higher education to help the economy and attract and retain the regional workforce.

Subd. 3. Advisory board. Establishes REDAB, the advisory board that will prepare a proposed development plan for the district and advise the city council on how public infrastructure projects fit into the overall plan. The board consists of eight appointed members: the mayor or mayor’s designee who cannot be an employee or affiliate of the medical business entities; a city council member; a county board member; three members appointed by Essentia; one member appointed by St. Luke’s; and one member appointed by the Duluth Greater Downtown Council, who cannot be affiliated with any entity having other representation on the board.

Subd. 4. Development plan. States that REDAB must propose a development plan to the city by January 1, 2019, and outlines what must be included in the plan. The plan must be approved by six members of the board. The plan and any modifications are subject to city council approval. The city may not spend any money from the state for the projects in the district until a plan is approved.

Subd. 5. Project approval, notice; hearing. Limits the city to undertaking only public infrastructure projects listed in the development plan or recommended to the city by REDAB as meeting development criteria listed in the development plan. Requires the city council to hold a public hearing before approving a project and provides notification requirements for the hearing.

Effective the day after the city of Duluth files its approval with the secretary of state.

Section 4. City powers; duties; authority to issue bonds.

Subd. 1. Port authority powers. Allows the city to excise the powers of a port authority to implement the development in the district.

Subd. 2. City may issue debt. Allows the city to issue debt to pay for public infrastructure projects within the regional exchange district without being subject to statutory debt limits or voter approval. Allows the city to pledge revenue from the special abatement and TIF rules under section 5, the state appropriation support payments under section 6, or any city unrestricted revenues to secure the bonds.

Subd. 3. Steel products. Requires that a reasonable effort be made to use steel products made from iron ore mined from the taconite assistance area.

Subd. 4. City contracts; construction contracts. Requires that a reasonable effort be made to hire women and minorities on the public infrastructure construction projects in the district.

Subd. 5. Public bidding exemption. Provides an exemption to the competitive bidding process for certain joint public-private development projects.

Subd. 6. Parking structure revenue. Requires parking facilities or structures constructed pursuant to the development plan to charge market rate parking fees.

Effective the day after the city of Duluth files is approval with the secretary of state.

Section 5. Local value capture authority. Exempts a county or city from certain limitations on the use of economic development abatements and tax increment financing.

Subd. 1. Special abatement rules. Exempts economic development abatements used by the city or county for public infrastructure projects from the 15- or 20-year duration limit and the limit on the total amount abated.

Subd. 2. Special tax increment financing rules. Exempts TIF districts established in the regional exchange district to fund public infrastructure projects from a number of provisions regulating TIF districts, including: definitional requirements for redevelopment districts; definitional requirements for increment (sale proceeds from property purchased with increment are excluded); requirements for expenditures to correct conditions giving rise to a redevelopment district; the prohibition on the use of increment to fund public facilities; percentage ownership requirements for property purchased with bond proceeds; the pooling and five-year rules; and decertification requirements.

Effective the day after the city of Duluth files its approval with the secretary of state.

Section 6. State value capture.

Subd. 1. Definitions. Defines terms relevant to the timing and calculation of state support payments to the city for financing public infrastructure projects in the regional exchange district. A key term is “qualified expenditures,” which means the total amount of expenditures for projects in the district since June 30, 2018, that have been certified under subdivision 2.

Subd. 2. Certification of expenditures. Requires the city to certify to the commissioner of DEED by March 1 the amount of qualified expenditures made through the end of the preceding year. The commissioner must confirm or revise the qualified expenditures by July 1.

Subd. 3. Appropriation support payments. Requires that no state support payments may be made until qualified expenditures equal at least $360 million. Provides a formula for the annual amount of state payments once the threshold is reached. No more than $15 million in state payments may be made in a year. The total amount of appropriation support payments that may be made is $184 million. Requires the city to use appropriation support payments to finance the 6th Ave E extension primary street improvements and related structural and safety improvements, and construction of parking structures for both medical business entities. To the extent practicable, the city must also use appropriation support payments for subgrade structures and design and completion of the structural frame cap over Highway 35.

Subd. 4. Appropriation support payments; parking revenue reduction. Requires the city to certify to the commissioner of DEED the total revenue from parking facilities and structures constructed in the district and the amount necessary for operation and maintenance expenses for the facilities and calculate and certify the difference between those amounts. The commissioner must then reduce the amount of appropriation support payments in a given year by one-half of this amount.

Subd. 5. Prevailing wage requirement. Requires prevailing wages to be paid for laborers and mechanics on all public infrastructure projects funded by the appropriation support payments.

Subds. 6 and 7. Termination; appropriation. Requires that payments may not be made after fiscal year 2054 and appropriates the amount necessary to make the support payments from the general fund.

Effective the day after the city of Duluth files its approval with the secretary of state.

Section 7. Duluth local sales and use tax authorization. Authorizes the city to impose an additional 0.5% sales and use tax for capital and administrative costs of street, curb, gutter, sidewalk, and bridge improvements including related lighting and signals, as outlined in the Duluth Street Improvement Program 2017, and any subsequent amendments to that plan approved by the city. The voters approved the tax at the November 2017 election. At least $20 million of the revenues from the tax must be used to pay for the improvements specified above located within the district. The $20 million set-aside expires seven years after the tax is first imposed. The taxing authority terminates 25 years after the initial imposition of the tax or when the city council determines sufficient funds have been raised to finance the projects.

Effective the day after the city of Duluth files its approval with the secretary of state.

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