Resolutions establishing Development District No. 51 and Tax Increment Financing District No. 51-1 (Quarry View).

Adoption of the attached resolutions.

On August 10, 2026, the Mankato Economic Development Authority (EDA) reviewed a development proposal from Skillbred Development, LLC (the “Developer”) and adopted a motion directing staff to prepare tax increment documents and to set the date of public hearing.

The proposal is to develop property located at 2004-2134 8th Avenue by completing the horizontal infrastructure, public improvements, and pad preparation to deliver 16 pad-ready residential lots intended to support for-sale townhomes. The Developer would serve as the project sponsor and land developer, and would partner with a new entity to build and sell the housing units.

The Developer is requesting pay-as-you-go tax increment financing (TIF) through the creation of a Housing TIF district. The TIF assistance would reimburse eligible horizontal development costs associated with 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% administrative retainage. The anticipated principal value of this pay-as-you-go note for the Developer project costs is $485,000, plus 5% carrying interest costs. The TIF projections assume the Developer will receive TIF reimbursement in years 2029 through 2044.

The City contracted with Baker Tilly to review this TIF application. Baker Tilly’s analysis that was presented at the August 10, 2026, EDA meeting contemplated a higher interest rate of 7.5% which resulted in a lower principal value of $380,512. The $485,000 principal value was an indicative-proposed structure at a lower percentage to mirror rates that Baker Tilly generally assumes in TIF notes (5%). Baker Tilly updated their analysis memo reflecting $485,000 principal at 5%, which is attached.

The City would not provide upfront financing 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 continue to receive the property taxes associated with the original tax capacity. Only the incremental taxes generated by the new development would be captured for TIF purposes.

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.

Housing TIF districts have additional requirements related to housing affordability. Under State Statute, at least 95% of the housing units must initially be purchased and occupied by individuals or families whose household income is 115% of the area median income (AMI) or less. Accordingly, all 16 units proposed for the project would need to be occupied by households meeting the applicable income requirements.

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 housing units will be captured and reimbursed to the 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 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.
 
City Economic Development Policies and Strategic Plan
The City’s Economic Development Policy supports the use of TIF for housing projects that develop owner-occupied housing affordable for individuals and families with household incomes between 80% and 115% AMI.

The City’s recent Housing Study update identified challenges for renters seeking to transition to homeownership, including high for-sale housing prices. The housing study also identified a potential demand for approximately 6,515 new housing units in Mankato through 2035, while noting that new housing construction has been limited in Mankato.
The proposed project would create additional affordable homeownership opportunities, consistent with a central goal of the City’s Economic Development Policy. Of the Policy’s 10 guiding principles, the project aligns with principle 3.10, “Addressing identified housing needs of the community.”

The project also aligns with the City’s Strategic Plan, specifically the housing goal of creating diverse housing opportunities by expanding partnerships with developers and using development incentives to stimulate housing development. The Quarry View project will advance the goals of the Strategic Plan by creating affordable homeownership opportunities for 16 households earning up to 115% of the area's median income.

Development Agreement
The attached development agreement provides pay-as-you-go TIF reimbursement. Article III contains the majority of the mechanisms for reimbursement, including the following:
 

• TIF reimbursement to the Developer is capped at $485,000 in principle, to be repaid according to the internal tax increment note contained in Exhibit D of the development agreement. The Developer tax increment note is at 5%.
• Payments will be made on a pay-as-you-go basis from available tax increment after the City’s 5% administrative retainage. The remaining increment will be used to reimburse eligible Developer project costs associated with the housing development.

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.”
 
The tax increment note is an internal financing instrument and is not a general obligation of the City. It is payable solely from available tax increment generated by the project. Essentially, the note establishes the schedule for distributing available tax increment to the Developer.

TIF payments are also contingent on the Developer remaining in compliance with the development agreement. Default provisions are established in Section 8.1 and require conformance with the terms of the agreement.

Housing TIF districts are not required to satisfy the “but-for” test generally applicable to other types of TIF districts. However, Baker Tilly evaluated the project to assess its financial feasibility and determine whether TIF assistance is necessary. Baker Tilly concluded that the project is not overly incentivized and is unlikely to proceed without TIF assistance.
  Planning Commission Action
The Planning Commission reviewed the development district to determine compliance with the Comprehensive Plan at their September 23, 2026, 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.