Tax-break proposals advance


(9/18/2017)

by CHRIS ROGERS

Two developers’ requests for tax breaks cleared initial hurdles last week when the Winona Planning Commission gave the projects its blessing. More details about the multi-million-dollar projects and up to $2 million in local tax breaks were released last week, while others remain to be determined. The City Council will hold a public hearing before deciding whether to grant the tax breaks on Monday, October 2.

In August, Winonan Mike Rivers of Rivers Hotel asked the city to give his company a form of tax break called tax increment financing (TIF) for a $8.8 million project to build a Fairfield by Marriott hotel at the site of the former Quality Inn at 956 Mankato Avenue. “It will be the preferred hotel in town,” Rivers told the city’s Port Authority Commission. Winona Peter Shortridge of Latsch Development also asked the city for TIF for his $7.6 million project to remodel the InTech building at 102 Walnut Street into a mixed-use, commercial and residential facility.

Both Rivers’ and Shortridge’s developments are projected to increase the taxable value of their respective properties by around $2.5 million each. If the TIF proposals are approved, the additional taxes generated by those properties each year — $40,000-$54,000 each in the first year — will not go toward funding local government services. Instead, those taxes will be given back to developers to pay off construction loans. The city could also use the money to fund other improvements in the area such as utilities or parking. Once the loans are paid off, things go back to normal, and the increased property taxes help fund local government and reduce the burden on other local taxpayers.

Both developers said that their projects would not be possible without TIF funding. “In the case of 102 Walnut Street, we’re asking for this TIF because it’s a really difficult project,” Shortridge stated. The city hired consultants to inspect the building’s condition and determine whether it met state criteria for TIF. They reported that because of non-compliance with the Americans with Disabilities Act (ADA), HVAC and electrical systems in need of upgrades, egresses that are not up to fire code, signs of water intrusion from the roof, mold, and structural walls in need of repair, it would likely cost $616,000 to bring the building up to code. “It would not be economically viable if we didn’t get that additional support,” Shortridge said of his project.

Consultants reported that there were similar building-code problems at the Perkins Restaurant building that would require $606,000 to fix, but Rivers and city staff said the main reason he was seeking city assistance was because of problems with mucky soil and asbestos that did cost and will cost hundreds of thousands of dollars more to fix than he anticipated. “They certainly ran into some extraordinary costs and circumstances,” Winona Economic Development Director Lucy McMartin told the Planning Commission. Rivers Hotel demolished the former Quality Inn in 2016, and McMartin said that the fact that nothing has been built there since then helps demonstrate that, without city support, the site may not be improved. If nothing is built there, local governments will not benefit from the increased taxes from the property in future years, Rivers said.

Last Monday, Rivers and Shortridge got the first of a series of approvals they need when the city’s Planning Commission voted to approve a resolution stating that the TIFs and the projects would fit in with the city’s long-term goals. Shortridge sits on the Planning Commission and recused himself from the vote on his own project. He answered questions from his colleagues across the table before they voted unanimously for his project.

When they discussed Rivers’ project, Planning Commission members Craig Porter and Brian Buelow noted that the problems with mucky soil at 956 Mankato Avenue are not unique, but widespread throughout the surrounding business park. “There has been a lot of development out there and all of a sudden this particular spot has unacceptable soil,” Porter said. Buelow added of Rivers’ decision to purchase the property, “So we didn’t know that going in here?” However, Buelow and Porter said those issues were outside the Planning Commission’s purview. They voted for the resolution. Planning Commission member Todd Paddock cast the lone dissenting vote in a 6-1 decision. He said he wanted more information on why a TIF was needed. “Otherwise I’d feel like a rubber stamp,” he stated.

Historically, Winona has been conservative in its use of TIF, but Shortridge argued that it makes sense to use TIF to help spur on development and business activity. “Every city in the U.S. does it. I think it’s a good thing that the city is using these tools more proactively,” he stated.
At another meeting last week, City Council member Al Thurley said that TIF is a good thing for Winona, and while other cities in Minnesota may have abused the program, “I think this community has used this TIF tool the way it was meant to be when the legislature set it up.”

How big are the tax breaks?

TIF plans released by the city last week include the maximum possible TIF funding available to each project: $1.3 million for 102 Walnut Street and $1.2 million for 956 Mankato Avenue. The city takes 10 percent off the top of that to cover the cost of preparing annual reports and administering the TIFs, leaving Shortridge and Rivers with a maximum of $1.2 million and $1.1 million, respectively.

However, both city officials and the developers say that the actual amount of TIF funding the projects will use will be much smaller. The exact amounts had not yet been agreed to, but Rivers said it might be around $300,000-$500,000, while Shortridge said he was hoping for $800,000. To collect the maximum amounts listed in the TIF plans, the hotel would remain under the TIF plan for 15 years, while the downtown building would be a TIF district for 25 years. Winona Economic Development Director Lucy McMartin said that the actual amount of TIF funding used by the developers will be less than the maximum amounts listed in the TIF plan, and the TIF districts will not need to be continued for the full 15- and 25-year time frames. The exact amounts and time frames have yet to be determined, McMartin said.

Do the TIFs include county and school district taxes?

According to the TIF plans, they do. Rivers said that only the city’s portion of local property taxes will be included in the TIF. McMartin stated that city, county, and school district taxes are part of the TIFs. According to the Minnesota Department of Revenue’s property tax manual for local governments, “TIF captures the taxes imposed by all of the levels of government, including city/township, county, school district, and special taxing districts.”


More projects on the horizon?

Also last week, the city’s Port Authority Commission voted to expand the Riverbend Industrial Development District. Industrial development districts are zones where the Port Authority Commission — the city appointed economic development board — can use its powers to borrow, buy land, or create TIF districts to help businesses and promote development.

The Port Authority expanded the development district to include 956 Mankato Avenue, as well as several neighboring properties along the east side of Mankato Avenue, from Highway 61 to Frontenac Drive, including a vacant lot south of Sugar Loaf Senior Living. McMartin said that adding Rivers’ hotel site to the district was necessary to enable the creation of a TIF district, and that adding the other properties would enable the Port Authority to support other projects that might come up in the future.

Riverbend Industrial Park includes a lot of large retailers, and under a state law passed in the late 1980s that only applies to Winona, when it comes to the Winona Port Authority, “industrial” means any kind of economic development, whether industrial or commercial.

 

The October 2 City Council meeting will be held at 6:30 p.m. at city hall.


Correction: an earlier version of this story misquoted McMartin as saying that school and county taxes were not included in the TIFs.

 

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