Pierz to recoup some losses from Schoenes Haus TIF

By Terry Lehrke, News Editor

A tax increment financing (TIF) district established in 1991 for the Schoenes Haus development in Pierz, was created to bring housing to the city.

TIF districts are set up as an incentive to bring business and/or housing to a city. The city benefits through increased property taxes because of the development. The strategy is that developed piece of property generates more tax revenue than an empty lot.

The details of each TIF district are negotiated through a developer’s agreement between the city and the developer, said Morrison County Auditor Russ Nygren.

“The agreement is a safety net for investments in a public entity,” said Nygren. “Every TIF district is different. Some are pay as you go; each development agreement is and negotiated.”

If a discrepancy exists between what taxes actually are and what has been agreed upon, property owners pay the difference to the city.

“We want to make sure TIF districts pay their way and are a positive for the community and I believe they’ve been very successful in Morrison County,” said Nygren.

“We’ve had a very good success ratio on projects, adding to tax base, creating jobs and  fulfilling a need that may not have happened otherwise,” he said.

What should have happened, didn’t, in the case of the Schoenes Haus TIF — the first TIF ever established in the city of Pierz.

The city bonded $163,000 in 1991 for the original TIF district for the housing project, with expected payback based on the property value and tax structure at the time.

Calculations were that  $22,750 in tax revenue would be generated each year.

However, legislative changes in the property tax system a few years later, changed the amount and how the tax was calculated.

“All of a sudden, TIF revenue decreased due to legislative changes in the tax system,” said Nygren.

Instead of receiving the $22,000-plus, over the next three years following the changes, that amount decreased to $8,000, said Nygren.

Over the course of time, as the property changed hands and city staff and council members changed as well, the annual shortfall was not caught.

It wasn’t until about 18 months ago, when the city hired Anna Gruber as the city administrator, that the issue came to the forefront.

Tuesday night, during a community meeting, the issue was explained.

As the new administrator, she said she started investigating the bonds and TIF plans in place, to make sure they were all on track.

“I noticed that we were negative in the TIF 1-1 Schoenes Haus and we were negative by quite a bit,” she said.

Since that time, the Council has been working with its city attorney and has been involved in closed mediation to come up with the best settlement possible for the city.

The statute of limitations on a TIF district runs out after six years and the end of that six years for the latest property owner comes in December, when the TIF district was set to be decertified.

Once a TIF district is decertified, there is no coming back, said Gruber.

Up until 2011, Gruber said a shortfall of $179,281 existed, which does not include 2012 figures.

Gruber said the final settlement will recover $95,000 and the TIF agreement has been extended an additional six years for another $48,000.

“If we hadn’t caught this,” said Mayor Toby Egan, “we wouldn’t have been able to get anything after December.”

Gruber said TIFs are now structured in a different way, most often so a city doesn’t have to bond for the funds.

“Without these TIFs small communities couldn’t survive,” said Egan.

“We need to move forward and settle it,” said Gruber.

“We probably found it because this Council was looking so hard at the budget over the last two years,” said Council Member Mike Menden.

“And we had Anna here to look at it,” said Council Member Stephanie Fyten.

“When you switch staff every couple of years it leaves things wide open for errors,” said Egan.

To prevent the same issue in the future, David Drown, the city’s financial adviser, has agreed to review the city’s TIF districts.

Pierz City Council Briefs

In other business during the Council’s regular Monday meeting and Tuesday community meeting, the Council:

• Decided to continue discussions on raising the city’s electrical rates;

• Tabled a decision on how much the city would pay for tree replacement during the 2013 Robert Street and Park Avenue project until more research had been done as to the value of trees;

• Tabled a decision regarding the city’s agreement for its cable access channel;

• Approved the revocation of a liquor license for Ed Pollock for the Brickyard Bar and Grill as it has been returned to Don Peine. The Council approved the liquor license for Peine for the Brickyard, without charging him additional license fees from the city, since they had been paid until July 2013. However, Peine must pay any state fees associated with the licensing and must also provide proof of insurance;

• Approved the use of the city shop by the Pierz Business Professionals of America (BPA) high school group for its toy drive; and

The next meeting for the Pierz City Council will be held Monday, Dec. 10, at 7 p.m. This will most likely be the only meeting held in December, due to the Christmas holiday.