The Free Press, Mankato, MN

November 12, 2013

Higher than expected growth boosts tax district

City could have $1.6 million in surplus

By Mark Fischenich
The Mankato Free Press

---- — The Mankato City Council is going to be facing another decision in the next two or three years about what to do with excess money generated in a special tax district: Give it back to the taxpayers or reduce future borrowing costs.

A tax abatement district on the city’s northeast side, set up more than a decade ago to finance road projects on both sides of Highway 14 in the River Hills Mall area, has thrived. That’s led to higher than expected growth in tax valuations of properties in the district, more money flowing into the abatement fund and the projected early payoff of the road work.

That work includes the North Victory Drive extension, Raintree Road, the interchange at Victory and Highway 14 and other related projects.

Once the projects are paid off, the abatement district must expire unless the council chooses to amend the original redevelopment project to allow other infrastructure projects to be funded, said City Manager Pat Hentges. Allowing the abatement to expire early would send nearly $600,000 annually back to the city, county and school district and reduce the need to collect those dollars from other taxpayers for about three years.

If the abatement district is amended to fund other projects and continues through its original ending date of 2019, it would generate a projected total of $1.6 million in surplus funds.

“It’s a judgment call on the part of the council,” Hentges said.

The council already has decided to help newly annexed residents on Mankato’s north side cover some of the costs of hooking up to city sewer and water. City staff is recommending the council tap the abatement district surplus to cover that subsidy of up to $5,000 for the 61 residences previously in Lime Township, which would cost a maximum of $305,000.

Even with that shift, the abatement district can disappear 2 1/2 years sooner than originally anticipated — which is what staff is currently recommending.

“Ending that district earlier, we all share in the benefit ... ,” Hentges said.

But like the decision to shift excess tax-increment financing funds into a new downtown parking ramp, diverting the extra abatement revenue could reduce future borrowing costs and the associated interest payments.

“I can never say never if it comes up,” Hentges said of amending the abatement district to fund some future road or infrastructure project on the northeast side.

Another northeast side rural subdivision is set to be annexed, so some of the excess could be used for that. The eastward extension of Adams Street to County Road 12 is another option mentioned at recent council meetings, although Hentges said that potential project wouldn’t happen unless landowners were ready to develop that area and were sharing in the cost of extending roads and utilities.

Councilor Karen Foreman said the city might want to keep that option available for another year or two, considering how rapidly the city is growing eastward.

“It’s something that could really take off at some point in time,” Foreman said of the development of vacant land east of Hilltop Hy-Vee.

The council could make the decision to capture all or part of the $1.6 million in excess abatement revenue anytime before the original road projects are paid off — something that isn’t expected to happen before 2016.