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AGENDA RECOMMENDATION |
Public Hearings 7.A.
City Council Regular Meeting
- Meeting Date:
- 04/14/2025
Agenda Item:
Resolutions Establishing Development District No. 48 and Tax Increment District No. 48-1 – MAH BKS LLC (830 North Broad Street).
Recommendation/Action(s):
Adoption of the attached resolutions.
Summary:
On February 10, 2025, the Economic Development Authority (EDA) preliminarily reviewed a development proposal from MAH BKS, LLC (the “Developer”) and adopted a motion directing staff to prepare tax increment documents and to set a date for a public hearing. The proposal involves demolishing the existing substandard building and constructing a new, two-story commercial office building comprised of 6,784 square feet.
The estimated total project cost is $2,346,220 and construction is anticipated to occur in 2025 and 2026. It is anticipated there will be up to 25 full-time equivalent jobs created that will be associated with the new building.
The Council approved a certificate of design compliance and a variance to reduce the front yard building setback for the redevelopment project at their February 24, 2025 meeting.
Summary of Financial Assistance Request
The Developer is requesting pay-as-you-go tax increment financing (TIF) from the City through the creation of a redevelopment TIF district. The table below illustrates the proposed uses of TIF assistance for the project.
The Developer would be eligible to receive an increment annually on a pay-as-you-go basis, from the remaining increment that is not retained for the City’s 5% admin retainage. The anticipated principal value of this pay-as-you-go note for the Developer project costs is $161,072, plus 5% carrying interest costs. The TIF projections assume the Developer will receive TIF reimbursement in the amount of $16,294 annually in the years 2028-2042.
The City would not upfront the funds as that would require either internal City debt financing or bond issuance. Instead, the Developer would receive two payments per year after the property taxes are paid for a term of 15 years or less, depending on if the reimbursable costs are repaid earlier. This is referred to as pay-as-you-go reimbursement. During the term of the reimbursement, the local taxing jurisdictions will still collect and retain the taxes associated with the original tax capacity as part of ad valorem taxes.
The Developer is documenting extraordinary costs that may be eligible for assistance under the City of Mankato’s Economic Development Guidelines. The table below illustrates the proposed Developer TIF reimbursable budget based on available tax increments:
The extraordinary costs listed above would make this project unfeasible without some level of assistance. The proposal seeks to maximize the development potential, but doing so comes with higher costs. This includes building demolition, environmental remediation and site improvements. These are added costs to developing a site that was previously developed compared to developing a greenfield site.
Background on Tax Increment Financing
TIF is an economic development tool authorized by the State of Minnesota. TIF works by capturing the increment generated by a new development and allowing it to be used to offset specified eligible costs. Any project utilizing TIF must pass a “but for” test, which is to say that “but for” TIF, the project would not be feasible, or in other words, the project will not happen without TIF. Due to the higher cost associated with redevelopment of an existing site, such as the redevelopment of 830 N. Broad Street, the project will not move forward without TIF.
If the project doesn’t proceed, then property taxes will likely remain around $2,744 per year for the site (based on 2024 property taxes). If the TIF district is approved, the base property tax will remain as is and be collected and distributed to the taxing jurisdictions (state, county, city, and school district) throughout the duration of the TIF district (in this case, 15 years) and the increment generated by the new building, which is projected to be $26,000 per year, will be captured and reimbursed to the City and Developer for eligible costs and up to a maximum amount as approved by the City Council. The City would receive a 5% fee to cover the administrative costs of the district. At the end of the 15-year term, the full property taxes go onto the ad valorem tax rolls and become part of the City’s general fund.
The City’s TIF policy discusses the use of TIF for redevelopment activities. The use of TIF has been crucial for a number of redevelopment projects. The economic development policy states eligible projects include infrastructure improvements and demolition of underutilized industrial and commercial sites to reuse previously developed land/buildings. Finally, the proposal is associated with the capacity to add full-time employment to the community, which is one of the central goals of the policy. Of the 10 guiding principles of the Economic Development Policy, the 830 N. Broad Street project aligns with principle “3.09 Fostering the successful redevelopment of vacant and underutilized commercial and industrial properties.”
Development Agreement
The attached development agreement contemplates pay-as-you-go reimbursement. Article III contains the majority of the mechanisms for reimbursement, including the following:
The amount of the increment to the Developer is capped at $161,072 of principal to be repaid. Additionally, the Developer would be reimbursed through a portion the City’s admin retainage for the TIF District Creation Fee in the amount of $4,400. The amount of increment to the Developer is noted within the internal tax increment note contained in Exhibit B of the development agreement. The Developer tax increment note is at 5%. This schedule contemplates a pay-as-you-go repayment and the Developer will be eligible to receive an increment annually on a pay-as-you-go basis from the remaining increment that is not retained for the City’s 5% admin retainage. The remaining increment will reimburse the Developer for Developer project costs incurred with the redevelopment of the site.
The repayment of the tax increment is contingent on the available tax increment generated by the project. This means that if there is a “shortfall” or tax increment is not generated as contemplated, the City is not financially responsible for the difference or the “shortfall.”
There is an internal tax increment note for the Developer project costs. It is not a general obligation and solely payable from tax increment. Essentially, the “note” is a payment schedule for disbursing the tax increment to the Developer. Payment of tax increments is contingent that the project is not in default. Default provisions are contained in Section 4.1 and require conformance with the terms of the agreement. The tax increment payments may be assigned to the lender of the project, under the same terms of the agreement.
Planning Commission Action
The Planning Commission reviewed the development district to determine compliance with the Comprehensive Plan at their March 26, 2025, meeting, which was approved.
Requested Actions
The requested actions of the Council are adoption of the resolutions approving the development district and tax increment district. The resolutions also authorize the City Manager to enter into a development agreement with the Developer.
The estimated total project cost is $2,346,220 and construction is anticipated to occur in 2025 and 2026. It is anticipated there will be up to 25 full-time equivalent jobs created that will be associated with the new building.
The Council approved a certificate of design compliance and a variance to reduce the front yard building setback for the redevelopment project at their February 24, 2025 meeting.
Summary of Financial Assistance Request
The Developer is requesting pay-as-you-go tax increment financing (TIF) from the City through the creation of a redevelopment TIF district. The table below illustrates the proposed uses of TIF assistance for the project.
| Estimated Tax Increment Available (15 years) | Amount |
| Annual Tax Increment (2028-2042) | $16,294 |
| Annual City Admin Retainage (5%) (2028-2042) | $858 |
| Net Total Principal TIF Available for Project Costs – 15 years | $161,072 |
| Interest on Developer Pay-Go Note (5%) | $83,338 |
| Gross Total Proposed TIF Available | $244,410 |
The Developer would be eligible to receive an increment annually on a pay-as-you-go basis, from the remaining increment that is not retained for the City’s 5% admin retainage. The anticipated principal value of this pay-as-you-go note for the Developer project costs is $161,072, plus 5% carrying interest costs. The TIF projections assume the Developer will receive TIF reimbursement in the amount of $16,294 annually in the years 2028-2042.
The City would not upfront the funds as that would require either internal City debt financing or bond issuance. Instead, the Developer would receive two payments per year after the property taxes are paid for a term of 15 years or less, depending on if the reimbursable costs are repaid earlier. This is referred to as pay-as-you-go reimbursement. During the term of the reimbursement, the local taxing jurisdictions will still collect and retain the taxes associated with the original tax capacity as part of ad valorem taxes.
The Developer is documenting extraordinary costs that may be eligible for assistance under the City of Mankato’s Economic Development Guidelines. The table below illustrates the proposed Developer TIF reimbursable budget based on available tax increments:
| Developer – Requested TIF Eligible Expenditures | Amount |
Developer Project Costs - Developer Pay-Go Assistance (Principal Amount)
|
$161,072 |
| Developer TIF Reimbursable Project Costs | $161,072 |
| Interest Expense | $83,338 |
| Total Developer TIF Reimbursable Budget | $244,410 |
Background on Tax Increment Financing
TIF is an economic development tool authorized by the State of Minnesota. TIF works by capturing the increment generated by a new development and allowing it to be used to offset specified eligible costs. Any project utilizing TIF must pass a “but for” test, which is to say that “but for” TIF, the project would not be feasible, or in other words, the project will not happen without TIF. Due to the higher cost associated with redevelopment of an existing site, such as the redevelopment of 830 N. Broad Street, the project will not move forward without TIF.
If the project doesn’t proceed, then property taxes will likely remain around $2,744 per year for the site (based on 2024 property taxes). If the TIF district is approved, the base property tax will remain as is and be collected and distributed to the taxing jurisdictions (state, county, city, and school district) throughout the duration of the TIF district (in this case, 15 years) and the increment generated by the new building, which is projected to be $26,000 per year, will be captured and reimbursed to the City and Developer for eligible costs and up to a maximum amount as approved by the City Council. The City would receive a 5% fee to cover the administrative costs of the district. At the end of the 15-year term, the full property taxes go onto the ad valorem tax rolls and become part of the City’s general fund.
The City’s TIF policy discusses the use of TIF for redevelopment activities. The use of TIF has been crucial for a number of redevelopment projects. The economic development policy states eligible projects include infrastructure improvements and demolition of underutilized industrial and commercial sites to reuse previously developed land/buildings. Finally, the proposal is associated with the capacity to add full-time employment to the community, which is one of the central goals of the policy. Of the 10 guiding principles of the Economic Development Policy, the 830 N. Broad Street project aligns with principle “3.09 Fostering the successful redevelopment of vacant and underutilized commercial and industrial properties.”
Development Agreement
The attached development agreement contemplates pay-as-you-go reimbursement. Article III contains the majority of the mechanisms for reimbursement, including the following:
The amount of the increment to the Developer is capped at $161,072 of principal to be repaid. Additionally, the Developer would be reimbursed through a portion the City’s admin retainage for the TIF District Creation Fee in the amount of $4,400. The amount of increment to the Developer is noted within the internal tax increment note contained in Exhibit B of the development agreement. The Developer tax increment note is at 5%. This schedule contemplates a pay-as-you-go repayment and the Developer will be eligible to receive an increment annually on a pay-as-you-go basis from the remaining increment that is not retained for the City’s 5% admin retainage. The remaining increment will reimburse the Developer for Developer project costs incurred with the redevelopment of the site.
The repayment of the tax increment is contingent on the available tax increment generated by the project. This means that if there is a “shortfall” or tax increment is not generated as contemplated, the City is not financially responsible for the difference or the “shortfall.”
There is an internal tax increment note for the Developer project costs. It is not a general obligation and solely payable from tax increment. Essentially, the “note” is a payment schedule for disbursing the tax increment to the Developer. Payment of tax increments is contingent that the project is not in default. Default provisions are contained in Section 4.1 and require conformance with the terms of the agreement. The tax increment payments may be assigned to the lender of the project, under the same terms of the agreement.
Planning Commission Action
The Planning Commission reviewed the development district to determine compliance with the Comprehensive Plan at their March 26, 2025, meeting, which was approved.
Requested Actions
The requested actions of the Council are adoption of the resolutions approving the development district and tax increment district. The resolutions also authorize the City Manager to enter into a development agreement with the Developer.
Attachments
- Resolution Approving Development District No. 48
- Resolution Approving TIF District No. 48-1
- General Location Map
- Development District No. 48 Plan
- TIF District No. 48-1 Plan
- Development Agreement
- Site Plan
- Floor Plans and Building Plans