Tax breaks, developments move ahead at city hall


(11/1/2017)

by CHRIS ROGERS

The city of Winona cleared the way for Rivers Hotel to begin construction of a new 96-room hotel at Highway 61 and Highway 43 last month. The City Council approved separate tax breaks for that project and for Latsch Development’s proposal to renovate a downtown historic building into an office-apartment complex. The Winona Port Authority Commission finalized the city’s deal with Rivers Hotel last month, but some details of the downtown project are still being negotiated.

TIF for hotel approved

The tax breaks are called tax increment financing (TIF), and essentially they use future taxes to help finance the projects. Right now, the Rivers Hotel property at 956 Mankato Avenue and the Latsch Development site at 102 Walnut Street are worth a mere $1.3 million and $313,000, respectively, and they pay just $40,000 and $8,500 in annual property taxes. After construction, the hotel is projected to be worth $3.8 million, the downtown building’s value is expected to jump to $2.7 million, and they would both — normally — pay a lot more in property taxes.

However, the TIF districts approved last month will divert the increased taxes the owners would normally pay to the city, county, and school district. Instead, each year, tens of thousands of dollars in increased taxes will be given back to the property owners to help repay the cost of development.

Under an agreement signed by the city’s Port Authority Commission last month, Rivers Hotel will receive tax rebates worth a total of $480,000 over the next decade. On top of that, the city government will hold on to 10 percent of each year’s tax increment, totaling around $53,000 from the hotel property. City staff explained that is to cover the cost of administering the TIF district and making financial reports to the state.

The rationale for TIF is that some development projects would never happen without this sort of assistance. If that’s the case, when the city finally decertifiew the TIF district, stops capturing the increased taxes, and those taxes start going toward school, county, and city services like normal, all three local governments benefit from a bump in the tax base that would not have otherwise been possible.

The City Council unanimously approved the TIF plan for the hotel project last month, and the city’s Port Authority Commission unanimously approved a development agreement for the project. According to the project’s development agreement, construction is expected to wrap up by fall 2019.

Final deal for downtown project pending

In a rare split vote last month, the Port Authority Commission held off on approving a deal that would finalize Latsch Development’s TIF project. The proposed development agreement would have, over the next two decades, given Latsch Development $450,000 in tax rebates to help fund renovation of the InTech building at 102 Walnut Street. Like the hotel project, the city would retain 10 percent of each year’s tax increment, totaling roughly $50,000.

However, unlike the hotel project, the deal did not include any funding for site improvements. During the meeting, Peter Shortridge, the managing partner for Latsch Development and an appointed member of the city’s Planning Commission and Heritage Preservation Commission, questioned why the city wouldn’t use revenue from the TIF district to help fund the upgrading of city-owned infrastructure on the block such as underground utilities and the alleyway. He suggested the city retain 25 percent of each year’s tax increment — totaling roughly $150,000 — to fund those improvements. Shortridge said those upgrades would benefit the entire block and are needed.

Winona City Manager Steve Sarvi explained that the city felt those improvements were not urgent and could be funded from other sources in the future when the city determined they were necessary. “Those things are public right of way,” Sarvi said of the utilities and alley. “We will typically fix and repair [them] on an as-needed basis. What the developer is asking us to do is maybe accelerate that in this case to make it more of a done project around his building.” Shortridge’s proposal would have required that the TIF district continue for several years longer than otherwise necessary, and Sarvi said that was the tradeoff the city had to weigh. “Usually, this city has chosen to go shorter and get them paid off rather than go longer,” Sarvi stated.

At the meeting, Port Authority Commission member Dana Johnson argued for sticking by the proposed deal. “I think we’ve discussed this,” Johnson told Shortridge. Johnson pressed Shortridge on whether he was prepared to accept the deal in front of him or whether he was formally requesting something different. Shortridge responded by saying he was not asking for more tax rebates for the Latsch Development property itself, but that funding those infrastructure improvements with the TIF would make good sense for the city.

Al Thurley, one of two City Council members who sits on the Port Authority Commission, said he appreciated Shortridge’s point and said the city should delay action on the deal until the issue could be ironed out. Thurley and Port Authority Commission members Laurie Lucas and George Borzyskowski voted to table the deal until the group’s November meeting. Johnson and Port Authority Commission member Mike Hansen dissented.

Winona Economic Development Director Lucy McMartin said that changes were being made to the proposed deal ahead of the Port Authority’s November 9 meeting, but she declined to say whether funding for the requested infrastructure improvements would be included.

The City Council already approved the TIF plan for Latsch Development’s project. “I think it’s a great project personally,” Mayor Mark Peterson said. “If you did as good of a job as you did on the Latsch Building, it’s going to be a great asset for our downtown,” he told Shortridge.

When the TIFs will end is unclear

Separate from the alley-repair issue, exactly when the city will decertify the two TIF districts and how much money the city will retain from them is unclear. The TIF plans approved by the council allow for the TIF districts to exist for the maximum length of time allowed by state law: until 2035 for the hotel and until 2045 for the downtown building. That is many years longer than needed to pay for the proposed $480,000 and $450,000 in assistance to the developers. The sooner the city decertifies the districts, the sooner the extra taxes help fund county, school, and government services and help reduce the tax burden on other properties. However, if the city keeps the districts around the maximum amount of time allowable, the city could reap an extra $1.3 million, approximately.

Asked whether the city will decertify TIF districts as soon as possible or keep capturing their increased taxes, McMartin stated that will be up to the Port Authority Commission and the City Council to decide. Years from now, the council would need to take action to decertify the TIFs. “The plans are created for maximum flexibility,” McMartin stated.

If the city does not decertify the TIFs early, what the extra $1.3 million would be used for is unclear.

The Port Authority Commission will meet on Thursday, November 9, at 4 p.m. in the council chambers on the third floor of city hall, 207 Lafayette Street. This meeting is open to the public.

 

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