Board hears potential cost of city's tax break plan for 'tornado lots'
Wadena commissioners received a document prepared by County Assessor Lee Brekke detailing the potential costs to the county of the city of Wadena's tornado lot property tax abatement plan at their June 3 meeting.
The city proposes to offer 10-year property tax abatement incentives to owners of 29 city lots where the June 2010 tornado demolished homes. The tax abatement would go to owners who build homes worth at least $75,000 between now and the end of 2016. The owners would receive 10-year property tax abatements on the value of the homes. They would still have to pay the property tax on the land on which the homes stand.
A public hearing on the plan was held Tuesday at Wadena City Hall. For full coverage, see the June 19 Pioneer Journal.
The Wadena City Council, the Wadena-Deer Creek School Board, and Wadena County commissioners have to vote on whether to agree to the plan. The city is hoping that the school district and the county will agree to go forward with the tax abatement, but either one could vote against it. If one or both of the municipalities vote against the plan, the city can still approve it, but the tax abatement would then be much smaller for the owners of the tornado lots.
The county's portion of the total tax abatement would be 57.7%, the school district's would be 13.9 percent, and the city's would be 28.4 percent, based on the tax capacity of the county.
Brekke's report included estimates of the effects of the tax abatement on Wadena County's property tax revenues. He used figures created for $75,000 homes, $150,000 homes, and $250,000 homes as examples. Four-plex apartment buildings are also eligible for the tax abatements.
Brekke's report calculated that if the owners of all 29 lots built $75,000 buildings, then the county would lose between $115,371 and $240,357 over the 10-year period of the abatement. If the owners of all 29 lots built $150,000 buildings, the county would lose between $323,808 and $480,713. If the owners of all 29 lots built $250,000 buildings, then the county would be giving up between $603,263 and $801,188 over the 10-year period.
One official commented, "That's real money we're talking about."
However, Brekke said in an interview Wednesday that it is unlikely all 29 owners would build homes within the next three years to qualify for the tax abatement. In fact, he expects that a maximum of 15 owners would build homes in the next three years.
And, Brekke suggested, even if 15 owners build something on their lots, it is unlikely that the properties would be all single-family homes, or all four-plex apartments buildings. Instead, there is more likely to be a mix of structures. Not all of the lots are suitable for four-plex apartments.
If only half the owners — let's say 15 — build something worth between $150,000 and $250,000, and half the buildings are four-plex apartment buildings, then the county's tax loss would be about $363,000 over the 10-year period, or approximately $36,000 per year. Of course, the exact figures would depend on what was built, and how it was appraised by the County Assessor's Office.
Minnesota law requires municipalities to add any abated amount of property taxes to their annual levies. This means that all property taxpayers in Wadena County would help pay for the tax abatements for the tornado lots. The amount for each property owners would be so small (probably less than $1 each) that it would not be noticeable. But the county would get back its lost tax revenue that way.
It is expected that the county commissioners will vote whether to join in the property tax abatement at either the June 10 or the June 24 board meeting.