Potential apartment site

An artist rendering shows the site of a proposed 49-unit apartment building in southeast Little Falls.

The Little Falls City Council approved a non-binding letter of understanding with the Community Asset Development Group (CADG) that will allow the latter to move forward with preliminary work on a proposed 49-unit apartment building in Little Falls.

A motion to approve the letter of understanding passed Tuesday, on a 4-2 vote. Council Members Wayne Liljegren, Jerry Knafla, Brad Hircock and James Storlie voted in favor of the letter, with Leif Hanson and Frank Gosiak opposed. Council Member Raquel Lundberg and Mayor Greg Zylka were not present.

A second issue — a resolution to set a public hearing for the purpose of creating a Tax Increment Financing (TIF) District for the project was postponed until the Council’s March 1 meeting. This was done to allow Lundberg and Zylka a chance to vote on what has been a contentious portion of the proposal for some members of the Council.

According to city code, voting members of the Council not present for a vote on a resolution or ordinance are counted as votes “not in favor” of the issue on the floor. Approving a letter of understanding takes only a majority vote by present members to move forward.

“This grants them site control,” said City Administrator Jon Radermacher, referring to the letter of understanding with CADG. “This does not, in any way, shape or form, bind us to selling them that property under the exact terms. We still have to develop the TIF District. That still has to go through the public hearing process. We will establish and work through the terms in that development agreement during this timeframe. There’s a lot of other very important details that are going to be worked out before this happens.”

He added that, in order for CADG to move forward with trying to secure USDA financing and conduct a housing study, a letter of understanding would be needed. Rather than binding them to the proposed agreement, Radermacher likened the letter of understanding to setting the ground rules from which the city can negotiate on any possible develop agreements.

The issue was first explored at the Council’s Feb. 1 meeting, when CADG representatives Bob Roepke and David Pokorney brought forth their proposal for discussion. The proposed agreement would allow CADG to purchase 3.5 acres of land in southeast Little Falls from the city for $1 to build a 49-unit apartment complex that would include one- and two-bedroom units. Pending a market study, early estimates indicate a two-bedroom unit would rent for $1,100 per month.

CADG is also asking for a 25-year TIF District that would rebate 90% of its annual tax increment. That rebate would be in place until all eligible costs — ground level or below — incurred by the project’s investors were paid off, or for a maximum of 25 years. This is necessary, according to CADG, to make up for a $2 million discrepancy between the $8 million estimated cost of construction and projected $6 million valuation based on expected rent rates.

Radermacher said the city has done six 25-year housing TIF Districts in the past. He said most were “closed out well before that 25 years.”

CADG and proponents of the issue said it will help alleviate a housing shortage in Little Falls. A housing study has not been conducted in the city since 2011, which is why CADG plans to conduct one as part of its preliminary work on the project.

“We visited Little Falls a few times — we visited, we had a couple meetings,” Roepke said during Tuesday’s meeting. “We’re really impressed, and left convinced that a need exists; housing was a priority even though there wasn’t a recent housing study to support that. We felt, in terms of talking to people, that the demand was there.”

Hanson, who expressed his opposition to the project during the Feb. 1 meeting, asked specifically how establishing a TIF District was going to “make the numbers work,” referring to the difference in projected cost and appraisal. He added that he did receive a letter from a constituent who was not in favor of the proposal.

Roepke said the cost to build in Little Falls is the same as it would be in the metro area, where developers can charge a higher rent to recoup the costs of construction. The TIF gives the developers and/or investors time to make their money back while keeping rent at market rate.

“It’s a unique situation from all standpoints,” said CADG representative Mike Melton. “We’re not looking to create a windfall. We’re just looking for ways we can cooperate and work together to make it work out for this investment group, that will be putting down cash to make this work, with the TIF money and the other incentives that make this thing work. We can keep the rents where we can actually get them rented out.”

While the TIF aspect of the proposed agreement remained a sticking point for those opposed, Radermacher said no property taxes would go up if the district was established. He also warned that, without a TIF agreement, the project probably won’t get done.

“This parcel is on city-owned property right now, so it generates no tax revenue whatsoever,” he said. “A TIF district is designed to capture the taxes paid and then give them back to the developer of that property for eligible expenses. Whatever those eligible expenses are, whatever is captured in that, they’re paid back through the actual taxes that are paid on that parcel.”

Hircock said that, in part, was why he supported the plan.

“It’s not taking any tax money away from the city because it’s already owned by the city,” he said. “It helps to support our school district because I would imagine it will primarily be families that will be living there. It would be more students in the district and families shopping and supporting businesses in our town.”

Radermacher said if, for example, a developer were to build on the property without a TIF District, the taxes paid would go into the overall tax capacity. That would create a small decrease in property taxes for Little Falls residents. Establishing the district is, essentially, postponing the benefit of that decrease until the investors recoup their costs on eligible portions of the project.

After the city voted in favor of the letter of understanding, Hanson suggested the Council wait until its next meeting to vote on setting a public hearing regarding a potential TIF District. He did so because, with Lundberg and Zylka absent, if the vote went the same as on the previous motion, it would be turned down with what would be considered a 4-4 vote.

Radermacher said the timing would still work to vote on and potentially set a public hearing date of April 19 if it was decided at the March 1 Council meeting.

“We have two colleagues that aren’t here on a resolution that are automatic ‘No’ votes,” Hanson said. “I want to be mindful of the process here. My motion would be to postpone this until our next scheduled meeting.

“I’m not going to use that maneuver to torpedo this without my colleagues having a say,” he added.

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