Tax abatement to be considered as path to pay for new infrastructure
As costs as have risen, so must funds to pay for infrastructure in this new development area.
WADENA — Since costs have now doubled to add infrastructure at the Folkestad’s East Addition for interested developers of that area, the city needs to find a way to double its money to pay for it all.
Early estimates put the project at $1.2 million to add sewer and water to the site and more recent projections put it at $2.4 million. Neither is a solid bid from a contractor, so the actual price remains a bit elusive in these volatile times. Even so, it does not appear prices are coming down. City council members recognized that the extreme need for housing still exists, too. That's why they gave the nod to move towards new funding options.
Wadena Economic Development Director Dean Uselman is proposing to introduce tax abatement bonds that would be used to pay off the infrastructure as there is an anticipated boost of tax revenue with this property that at least two developers are interested in building on. The Minnesota Legislature allows cities to abate all or a portion of property taxes levied by the city for a given purpose, such as public infrastructure improvements, economic incentives or redevelopment.
Here’s how that looks if all the pieces fall into place.
Infrastructure is added in spring 2023 while new construction from the developers comes right alongside it. As that new taxable property comes up for tax payments, likely in 2024, Uselman suggests that somewhere around 75% of the taxable amount would be abated, or rather funneled toward the cost of the infrastructure. That percentage is yet to be finalized, though Uselman suggests it should not be over 85% abatement. The other remaining amount would still go to the taxing entities like the school district and county.
Performing such an action takes approval from the taxing districts affected, much like how Tri-County Health Care is currently attempting to have taxes abated on their new development, which has still not been approved by the city of Wadena.
The infrastructure does have some headway as the city and county have allocated ARPA funds towards it. Lot sales would also go towards paying off the purchase of the property.
“I think if we move forward on this and keep the project rolling, we’re going to see some pretty good success,” Uselman said. He considered the tax abatement option a “win-win” plan.
Uselman also expressed that they could instead use a TIF, tax increment financing to pay for this project, which acts in a similar way to capture the increased tax capacity. When a TIF district is created, the county auditor certifies the current tax capacity of the properties in the district as the TIF district's "original tax capacity." As the property in the district increases in value, these increases above the original tax capacity are "captured," according to the Minnesota House Research Department.
The Wadena Development Authority would capture the abatement funds to pay for the project, according to Uselman.
“This is probably the most likely path,” Uselman said. He noted that he had made a request with Congressman Pete Stauber and Mayor Deiss mentioned the need to Senator Amy Klobuchar in recent weeks in case there are funds available for such a project from other sources.
No one from the council shared any opposition to the tax abatement, though no official action was taken. With that consensus, Uselman plans to take the plan back to the Wadena Development Authority to continue towards a complete plan.
Uselman added that if this plan goes smoothly, it may also be a path towards developing the old airport property.
Concerning tax abatement for Tri-County Health Care's project, a tax abatement committee created for this topic plans to meet at 10 a.m., March 15, and to present their decision during the April council meeting.