LGA – The Lifeblood of Morris City Funding

Every Citizen in Morris should be concerned about LGA. It will be our number one priority in the upcoming legislative session and possibly the fall election.  Without an increase, the City of Morris will be faced with some important decisions about taxes and/or service cuts in the next few years.  You need to contact our legislators.

LGA is an acronym for Local Government Aid. Its history goes back to 1971 and newly elected Governor Wendell Anderson’s vision to implement a new system of funding to help schools and cities with low tax bases and high tax bills.  In some respects, it was an attempt to level the playing field between the haves and the have nots.  There were cities and schools in Minnesota that could do whatever they wanted and others that could barely provide basic services.  An aid system was created to provide needs-based revenue to cities and schools.  The new city aid was called Local Government Aid or LGA.  The new aid program was dubbed the “Minnesota Miracle”.

In 2001, the aid system was updated and the result was a major increase in the LGA the City of Morris received. The City took the additional LGA and reduced the tax levy.  The City’s 2001 tax levy was $1,241,827 and the next year it dropped to $843,159.  This is what was supposed to happen with LGA and Morris has been a very good steward of it.  Fifteen years later, our tax levy is $1,374,733, or just slightly over the 2001 tax levy.

I say LGA is the lifeblood of the City of Morris, but how important is it to us. In 2016, we will receive $2,283,161.  The money is used in our General Fund and Library Fund.  These two funds are considered general expenses of the city.  The General Fund pays for administration, finance, elections, police, fire, public works, engineering, economic development, parks, airport, and transit, as well as, capital equipment.  The Library Fund pays for the operation and maintenance of the public library.  We have other funds for other purposes too, but they are funded by fees and sales.  The Public Utility Fund is paid for by utility fees and the Liquor Store Fund is paid for by liquor sales.

In 2016, our General Fund and Library Fund expenditures will be $4,182,665. This means 55% of our budgeted expenses are paid for by LGA.  In comparison, local property taxes provide 17% of the budgets or $697,642.  In order to shift from LGA to taxes, we would need to increase our taxes 328%.  Obviously, we can’t do this, so we would need to make sever cuts in services.

Out of fairness to the legislature, they are not proposing to cut LGA, at this time, for us. They have in the past, but for right now they are proposing a freeze.  This does us no good.  Last year we got a very small increase of $3,688 and the year before $15,703.  We cannot keep pace with increasing costs at this rate.

This legislative session we are asking the legislature increase the LGA funding by $45 million. We would get a proportional share of this new funding.  It is critical Citizens contact their state representatives to let them know we need this increase.  It is our number one priority.  Number two is the funding for the new $14 million water treatment plant I mentioned in my last blog.  I’m very worried and you should be too.

The fastest way in Morris to help tax payers is to fight for proper funding for LGA and the much needed bonding money for the unfunded mandate for the water treatment plant. If not, then any possible tax relief in other areas will be offset by tax or fee increases for the basic services and the new plant.  Or even worse, cuts in those basic services Governor Anderson had in mind with the “Minnesota Miracle” in 1971.

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Morris Water Treatment Plant Needs Legislative Support

The Morris water treatment plant needs legislative support. This means Citizens need to get involved with the process.  We need you to contact House Representative Backer, Senator Westrom and Governor Dayton to ask them to support the needed funding for our project.

As a point of clarification so everyone is on the same sheet of music, the City of Morris does not need a new water treatment plant. That’s right; we don’t need a new water treatment plant.  The one we have is old, but is fine and just needs to be maintained.  It could last us 10 years, it could last us 20 years.  It depends on our maintenance program and how well everything holds up.  The question then is why are we building a new one?

The answer is a mandate from the Minnesota Pollution Control Agency to reduce the City’s chloride levels (salty discharge) in the Pomme de Terre River by 2020. The mandate is part of our wastewater discharge permit that allows us to discharge into the Pomme de Terre River.  In order to meet this mandate, we looked at building a new sanitary sewer wastewater treatment plant, but the technology isn’t there for this issue, and if it was, the cost would be too expensive.  A lime softening water treatment plant was identified as the most cost effective solution.

Minnesota has a mandate from the Federal Government under the Federal Clean Water Act and needs to start cleaning up impaired waters. The Pomme de Terre River is an impaired water system.  The chloride is coming from the salt that is used in the water softening process that takes place in almost every home, business and public building in Morris. Since we have some of the worst ground water in Minnesota, it has to be softened to use.  If we soften at a new water plant with a lime softening process, we eliminate the salt in our wastewater and meet the chloride restriction.

The surprising part about this mandate is that we are ok with it. Fighting it isn’t the answer.  We are environmentally conscious here and want to see the river cleaned up too.  We recently met with John Stine, Commissioner of the MPCA, in Morris to discuss the poor water quality here, the fact that we didn’t have a water plant on our capital projects list, the MPCA mandate and our solution to meet it.  We told him we just can’t afford it.  We need help from the State with funding.  He asked that we share our story at one of the listening sessions the MPCA was conducting around the state.

I attended a listen session in Willmar. Representatives from the Governor’s Office, the MPCA and the Public Facilities Authority were there to hear our concerns.  I again shared our story and stated we needed help with funding.  There were many cities there sharing the same story.  It is an issue that is affecting many cities in Minnesota, more prominently in western and southern Minnesota where the water quality is bad.

Last legislative session a bill was entered to provide $7 million of funding each for Morris and Breckenridge water treatment plants. Both are in Representative Backer and Senator Westrom’s districts.  However, Breckenridge was already in the process of building a plant and doesn’t have the MPCA mandates that we have driving their project.  This is because they already have a lime softening plant.

The bill was laid over until the 2016 legislative session. We have since learned that the estimate for our project increased to $14 million from the original $11.495 million.  We met on Tuesday with Representative Backer and agreed we needed to write a new bill for Morris that asks for $9 million.  This recognizes the increase in the estimate.

On Thursday an announcement was made that the Governor released his Water Quality & Infrastructure Plan for Minnesota that asks for $219.7 million to modernize Minnesota’s aging water infrastructure. In that plan, the Governor lists specific projects to be funded and one of them is the Morris project with a cost of $11.495 million.  John Stine went on television that night to say that they heard the issues from local government and understand that the State needs to provide funding to help pay for the fixes.  Governor Dayton was on the Almanac program Friday night on Public Television saying the same thing.  Even the Almanac panel suggested there was worth in looking at funding some of these projects, but that there are a lot of big discussions that need to take place in the legislative session.  Education, transportation, jobs, tax relief and many more.

This project affects every water rate payer in Morris. Without additional funding, we will need to borrow money to meet a State mandate and rates will go up considerably.  In addition to Morris users, the City of Alberta is also on our system.  They would be required to pay the increased rates.  Also, the DENCO II ethanol plant has a mandate from the MPCA on their wastewater discharge permit.  Their mandate includes a directive from the State to quit using ground water and to start buying treated water from the City of Morris.  In order to facilitate the sale of water to DENCO II, a new water plant has to be built that is sized large enough for their usage.  The current plant couldn’t handle the capacity.  There is added cost to build and run the plant.

We were successful in the last legislative session to change the language dealing with funding under the Point Source Implementation Grant program to allow wastewater funding to build a water treatment plant. This meant that we were now eligible to receive up to $3 million in grant funding.  We subsequently learned that we made the priority list for funding and basically locked in at least $3 million.  This is partly the reason we only asked for $7 million in legislation.  The funding for any decision on our water plant will be worked out by the State of Minnesota.

In conclusion, we need help from Citizens asking State Representative Jeff Backer, State Senator Torrey Westrom and Governor Mark Dayton for support for the Morris water treatment plant. Tell them the project is a good investment in Minnesota’s future.  It solves an environmental problem with the Pomme de Terre River without overburdening the Citizens of Morris and Alberta in the process.

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Oregon Avenue Pre-construction Surface Maintenance

You probably noticed that city crews have turned Oregon Avenue, from East 4th Street to South Street, back to gravel. We did this for two reasons. First, the road surface was getting so bad that we couldn’t keep it patched. Second, the road will be worked on as part of the Oregon Avenue storm sewer project that will start next May, so it didn’t matter if we ground it up.

The process we used was similar to the “reclaim” work we have been doing on some of our roads that are in poor condition. Right now we are working on Nevada, Idaho and Washington Avenues. We added this type of maintenance in the last few years. The city hires a company to come in with a milling machine to mill the road surface. Reclaiming involves leaving the millings and mixing them with gravel to form a new base. This base is then graded and prepped for the new surface. Oregon Avenue will not be resurfaced at this time.

Next year we will do the underground work on Oregon Avenue from East 4th to Elm Street. Places that don’t have curb and gutter will get them added. Places that have curb and gutter may get them replaced depending on condition, or they may be realigned and then left in place. Once all the work is done, we will resurface Oregon Avenue with 3” of new blacktop.

We will need to do a little extra maintenance on the gravel/millings surface to include watering it down from time to time to keep dust down. In the winter, we should be able to plow snow. There may be some of the surface put up on the boulevards when the plow goes by, but they will be reconditioned as part of the road project.

There is a small section of road on East 3rd Street from California Avenue to Oregon Avenue and Oregon Avenue to Atlantic Avenue that we may reclaim in the next two months. This area will not have underground work, so we will resurface it before winter.

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Getting Cars off the Streets to Plow Snow

 

We struggle at the City Staff level trying to figure out the best way to get cars off the street to plow snow.  We have an ordinance that allows us to call a snow emergency and requires all the cars to be off the street, but implementing this system gets to be quite the ordeal.   

This year is a unique one in that there isn’t a tremendous amount of snow falling, but the severe cold and wind seem to be causing problems.  Last year it was cold, then snow, then rain, then cold, then snow and so on.  It is very hard to continuously call for snow emergencies and process them through each time. 

The plan for a snow emergency is to call it and then tow any cars left on the street prior to the plows coming out.  The cars are towed to an impound area and the owners aren’t allowed to get their cars back until they pay for the tow, the ticket and an administrative fee.  It isn’t a money maker for the City and because it needs to be done in such a short period of time it winds up being a very difficult thing to do.  Ask anyone who participates in the system.  They don’t like doing it.  This includes the tow truck drivers. 

The easier thing to do is to use common sense and realize that when it snows you need to move your car off the street so the plows can do their job.  I drove around this morning and found areas with cars parked on both sides of the street.  I’m not sure how the plows got through.  It was obvious that a number of them were still there from when the plows went out yesterday.  We probably should have called a snow emergency and towed.  The next time we probably will.

I realize that many properties don’t have enough off street parking for the people living in the houses or apartments, but they should.  If not on the specific properties, maybe they could find designated areas for parking. 

The Police Department will probably be issuing citations for vehicles that haven’t been moved once the plow has gone around them.  The City Code allows for the snow emergency to be called, but it also restricts parking on City streets for more than 24 hours.  Usually it is hard to enforce the Code since you need to prove the vehicle hasn’t moved, but that isn’t hard when there is a snow ridge around the vehicle. 

We all have to use common sense to make this system work.  If it snows, move your vehicle off the road…somewhere.  At least until the plows go by and the road is clear.

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Governor and Legislators Questioning Where the Money Went

All indications are that the Governor and Legislators are questioning where the additional funding for local governments went and why property taxes are going up instead of down.  Our support organizations like the Coalition of Greater Minnesota Cities and the League of Minnesota Cities are telling us to contact our legislators to tell them our stories so they can understand, but I suspect that the issues are too diverse and complicated from city to city for anyone to understand.

You have to take into consideration where we came from and where we are going to even begin to understand.  Major cuts in the largest funding source for many cities in Minnesota resulted in cuts in services, unfunded mandates and the inability to keep up with inflation.  In short, there wasn’t enough money to do what we needed to do.  Many cities chose to ignore basic needs like maintaining their public infrastructure let alone the other things that the public wants like parks, recreation and libraries.

In Morris it is no different.  The additional money we received from the 2013 Legislature comes in the form of Local Government Aid (LGA) and we have taken massive hits in this funding source since the State started having budget problems.  A major step backwards took place at the end of 2008 and the level of funding has been flat ever since then.  As the major funding source for City expenditures, the loss of aid, and subsequent freezing of the aid level, forced the City to relook its priorities.  Part of that relook was the recent decision to ask property owners to pay for a part of the cost of rebuilding roads in front of their properties.

Where did our money go then and what will I tell the Governor and our Legislators?  The answer is two parted.  First, we are holding taxes down.  Second, we are being cautious about making cuts in revenue sources because what the State gives, the State can take away.  We don’t want to take any steps backwards that we can’t get back.  The skeptic in me makes me think that some legislators had this in mind when they voted to give us more aid.

Holding down taxes is accomplished by freezing the tax levy.  This is what we did for 2014 tax collections.  The amount of money we will collect in 2014 for taxes will be exactly the same as 2013.  However, this levy includes the addition of a bond issue levy for the West 9th, 10th and 11th Street project.  The total amount of that levy is $65,000, but we absorbed it into the levy for collection next year.  Otherwise, taxes would have gone up by about 5%.  To make the adjustment, we used some of the additional money we got to reduce the City’s General Fund and Library Fund tax levies.  They will both use LGA to help balance their budgets.

The State gave us an additional $153,526 for 2014 and we didn’t use all of it to balance our budgets and freeze the levy.  Approximately $60,000 was left over and in the final budget proposal to the City Council I will recommend that it goes to the City’s Capital Outlay Fund for equipment…more specifically a new snow blower for clearing streets.  This is a one-time purchase that does not need to be funded each year and for me it is the best way to use additional money that doesn’t commit us long term.  In 2014, that extra $60,000 will be used to balance the following year’s budget and hopefully we can freeze taxes for one more year.  Keep in mind costs go up to include costs for wages and benefits for our employees.  This is the largest part of our operating budget.

When I opened my mail a couple of days ago, I received my notice of proposed property taxes for 2014 from the county auditor.  I was surprised to see the numbers.  I have a modest house valued at $109,600 and will receive a market value reduction of $27,400 lowering the taxable market value of my house to $82,200.  My total tax bill for 2013 is $1,477.  The proposed tax bill for 2014 is $1,340.  This is a reduction of 9.2%.  The County, City and School District taxes are all going down.  I suspect that some of this is due to a slight reduction in the value of my house from last year, an increase in the valuation of farmland for taxes and the addition of new properties in the city.

Our greatest challenge is the costly process to maintain our infrastructure and the City Council will need to continue the discussion on this issue.  There is a major debate going on in Minnesota on how to fund things like roads, water, sewer and other things our citizens need to live, work and play in our cities.

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City roads take a beating and more money is needed for maintenance.

Recently I asked the City Council to authorize additional funding for more road maintenance in the form of reclaiming.  The request was for approximately $150,000.  This request was made because of the bad spring we had and the resulting damage to our roads.  Reclaiming is one of several different methods of road maintenance we do in an effort to extend the life of our roads.

Road maintenance methods include reconstruction, reclaiming (new), milling and overlays, seal coating, and patching.  The life of a road can be viewed in terms of these various maintenance types.  All of these maintenance types have a specific purpose and take place at the appropriate point in the road’s life cycle.

Reconstruction is the process of tearing out the old road and building a brand new one.  In the old days, the base built under a road was not good.  In some cases, gravel was put right on top of slough bottom.  When we rebuild a road today, we dig down deeper and put in a good gravel base.  In some cases, we put down a fabric liner to protect the road from moisture.  This base helps increase the life of the road through the ability to do a better job of maintenance.

Reclaiming is a new method of maintenance we added.  This is done when the road can’t be fixed with any other maintenance methods.  During the reclaiming process, we have a milling machine come in and mill the entire three inch blacktop surface.  The milling process extends down into the gravel base and there is a mixing of the two material types.  Once the milling is done, City crews then remove all the millings to a three inch depth.  After the final packing and grading, we put back a new three inch blacktop surface.  This is usually done in two separate one and one half inch steps or “lifts”.  We let one lift set for a period time to check for settling of the base.

Milling and overlaying is the process taking off the top one and one-half inches of blacktop and putting on a new surface.  This can’t be done if there isn’t a good base.  A milling machine is used to remove this top layer.  Imperfections in the road are corrected prior to the resurfacing process.  We also can’t do a mill and overlay if the road is cracked up really bad.  The cracks tend to reflect back through the surface during the freeze/thaw cycles over the winter.  This past spring was particularly hard on the roads with lots of cracks.

Seal coating is probably the most questioned type of maintenance.  I’ve been asked a number of times why we cover a perfectly good road with sand or gravel.  The answer is we are putting a cover on the road.  This new cover of oil and “pea rock” will now serve as the wear surface for the road.  The cover wears out and not the blacktop surface underneath.  The goal is to get about seven years out of this process.  Then we would do another seal coat.  Once we have done it twice, then we will probably do a mill and overlay if the base is good.

The last method is patching.  This is very time consuming and depends or our ability to get patching material.  In the winter and spring we use what is called a winter mix.  In the late spring and summer we wait for the blacktop plant to open to get the summer mix.  Right now we are waiting for enough patch mix to get caught up.  The goal is to limit the amount of road patching and focus on the other methods of maintenance.  During the recent long spring, the freeze thaw cycles were especially bad.

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What Happens to the Elementary School Property?

I’ve had a number of people ask me what will happen with the old elementary school property and my answer is that the City will sell the property.  The City is not a developer in the sense that we have money to invest in different ventures and we always look to those that are developers.

Recently the City Council took action to advertise the old elementary school for sale through a “Request for Proposals” process.  What this means is individuals and firms interested in the property can submit proposals to the City for consideration.  The proposals will include what the individuals or firms want to do with the property and what they will pay for it.  There are a couple of twists and quirks to this process that need to be clarified to fully understand what will happen.

First, the City is in this case is actually the City Economic Development Authority (EDA).  Cities exist to provide specific services to their Citizens and in cases where development is concerned, the State and Federal Governments ask that a different authority is established to handle this development.  In some cases, the EDA could act as the developer buying and developing property, but in most cases the EDA acts as a conduit to provide State and Federal funds for private developers.  The City has two loan pools that were set up with this type of activity in mind.  The Morris EDA is governed by the same individuals as the City Council, but they follow different rules, regulations and requirements.

Second, the 17.75 acres of the old elementary school land has been placed in a Tax Increment Financing District (TIF).  This is an economic development tool that is allowed by the State of Minnesota to capture the new taxes generated by new development in the District to help with the costs of the new development.  Things like buying the land, clearing it of buildings, putting in things that will be used for the new building like water, sewer, drainage, roads and parking spaces.  Also, in the case of the old elementary school, we took action to capture new taxes on two other TIF Districts in Morris that will help pay for almost all of the cost of removing the old elementary school building.

Finally, the process of receiving and reviewing proposals is slightly different than the normal City Council process.  When looking at potential building development projects, there may be a need to negotiate and discuss agreements, assistance, prices, and other aspects of the project.  The EDA is not required to take the highest bidder for the land sale.  There may be other things that are more important like the value of the building project.  This process of reviewing and possibly negotiating is even more important when looking at a TIF District.

From time to time the question is asked about public input into the development of the old elementary school property.  There will be a time to present potential development proposals, but this property has been studied for a number of years now.  The property is zoned RM – Multiple Family Residence which will guide the uses of the property.  Single and two-family homes, townhouses, duplexes, apartment buildings and assisted living facilities will all be allowable uses, as long as the current rules are followed.

The EDA will receive and review proposals.  They will then bring them forward to the public for a hearing to review them publicly.  Then the EDA will make a decision what to do with the property.

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A Tale of Two Cities and Local Government Aid

I can say I was somewhat excited as a City Manager when control of the House and Senate went to the Democrats.  Not for political reasons, but simply because I figured Local Government Aid would get a fairer shake in the upcoming legislative session.  The Governor said that he favored more LGA and we depend on it for our existence out here on the prairie.  What I didn’t realize was that a major change is being proposed that could pose a very big problem for us.

The question at hand always seemed to be how much money would be given to communities that needed help providing basic services.  Yes, there were those that didn’t understand LGA and why some cities got it and others didn’t, and there were underlying debates about what it should be used for, but it always seemed to come back to money.  The compromise position over the last four years was to freeze the amount of money we received.  We have been frozen at the 2009 level ever since.

Now, for the first time that I can remember, it appears the end result of both sides being proposed is a loss of aid for the City of Morris.  Current law that froze LGA for us for 2013 included language that allowed the LGA formula to kick back in.  The formula is what determines how much aid we get.  Not only was the aid level frozen since 2009, but apparently the formula was frozen too.  If the formula kicks back in, the City of Morris will lose approximately $53,000 in LGA next year.

The Governor’s proposal includes approximately $80 million more for LGA, but it also proposes a new formula.  A formula based upon a few basic services like public safety and roads.  Everyone thought it would mean more money for cities like Morris, and in 2014 it does, a lot more, almost $160,000.  However, the extra money is short-lived and over the course of the next four years, the new formula will transfer most of the additional aid to the metro cities.  In the end, we will be at the same level—$53,000 less—that we would see under current law.  The only difference is that the cut would be put off until 2018.  It appears the extra money is used to ease the pain of what is really being proposed.

Any good City Manager knows you can’t spend that new money for on-going service increases.  It is basically one-time money, even though it is over the course of four years.  It starts shrinking immediately in 2015.  It won’t do anything to stabilize our budget and help us to provide basic services now and into the future.

There will be a very big debate over aid to cities and we need to make sure everyone understands what we are doing out here on the prairie.  Our property taxes are low because City leaders used the Local Government Aid to pay for the basic services we provide.  Losing it will result in either higher property taxes or fewer basic services.  Either one of those will be bad for our future.

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Rumor Has It

Recently there were several Letters to the Editor questioning the actions of the City of Morris.  While nobody has talked with me personally about these issues, I was encouraged by several people to respond.  This is not typically the philosophy I have with regards to rumors and other pieces of information that seem to be fact-based and aren’t, but I see this as opportunity to provide some insight into economic development and the City.

The good news is that the City is very interested in economic development and does everything it can to make it happen.  The bad news is that we have very little power or influence in the outcome, either way, businesses coming or businesses leaving.  The writers suggest that the City of Morris kept business from coming here, to include Walmart.  I can tell you personally that is not the truth.  Walmart is a $trillion company and they will go where they want.  They operate on a business model that establishes stores near their customer bases in strategic areas.  Their whole model assumes people will travel to their stores from various distances.  All you have to do is look at where they are located.

When Walmart decided to locate in the Wahpeton-Breckenridge area, one of the driving forces, no pun intended, was the number of people traveling to Fergus Falls to shop.  Yes, they track where you come from to include license plate surveys in parking lots and written check addresses.  They saw a tremendous number of people from the west heading to and through Wahpeton-Breckenridge and then on to Fergus Falls.  They decided that a store located in the Wahpeton-Breckenridge area would be a good fit for them and draw even more people west.  They also decided to build a new smaller, scaled-down store.  The only issue in Wahpeton was North Dakota’s rule that pharmacies have to be at least 51% owned by a Pharmacist.

The next step for them, and the first time we had any indication of their desire to locate in the area (I was the City Clerk-Treasurer in Breckenridge at the time), was when a land acquisition company came out to survey potential store sites for Walmart.  The primary site in Breckenridge was big enough, but had a major gas line running right through it.  A secondary site next to it could work in conjunction with the primary site, but the owner of the secondary site also owned a much bigger primary site in Wahpeton.  The store is located there today.  We never talked to Walmart officials because they didn’t get involved until the right site was found.

There were no incentives to offer, and quite frankly, they tend not to ask for anything anyway.  They certainly don’t need money and receiving incentives to bring them in tends to make the local business owners angry.  You can imagine if the City of Morris offered incentives to bring in Walmart and local businesses were forced to close their doors.  It would be a public relations nightmare for Walmart.  However, there are cities that do pursue that route, but again you have to be in an area picked by them.

If Walmart wants to come here, they will.  There is nothing we can do to stop them.  There is no decision for the City Council to make.  Our Zoning Ordinances don’t prohibit businesses like Walmart.  There is also nothing to do to “lure” them in in my mind.  It is a corporate business decision that they make.  Maybe someday they will expand out into smaller cities.  Right now they don’t have to because people will drive to them.

It was a corporate decision that resulted in Coborn’s packing up and leaving too.  No, we didn’t own the building they were in or tell them they couldn’t build their own.  They actually purchased land to build on, but decided not to and sold it.  We didn’t deny them a liquor license because they never requested one.

Holiday owns the building and when Coborn’s lease came up, they didn’t want to stay in the same building.  The building sits empty now and Holiday still wants a considerable amount for it.  Potential new purchasers will look at the building and realize why Coborn’s left it.  It needs updating.  Coborn’s wanted to be the one stop shop for groceries and other things in Morris, but could not make that happen and decided to pull out.  They were making money at the time they left.

As for Morris being too far gone to save, last time I checked we still have UMM, Superior, the USDA Soils Lab, and a U of M Research farm.  We also have a wonder school system, all kinds of other jobs, and a lot more things we can be proud of in this economy.  We have a great way of life and I think too many times we look at what is wrong and not at what is right.  I’m still amazed that I can find almost everything I need here in Morris.  You just have to look for it or ask for it.  If you can’t find it, then maybe the question is whether or not you need it.

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What is TIF?

What is TIF? Recently I presented information to the City Council about using TIF for the old elementary school demolition project and the follow on development.  The acronym TIF stands for Tax Increment Financing.  TIF is an economic development tool that was put in place by the State to give local governments assistance in developing business and housing.

The concept is pretty simple.  You use the taxes off the new businesses and houses to help pay for the things needed to build the new businesses and houses.  Without doing this, they wouldn’t be built.  This can be done in two ways.  The City can borrow the money and repay the debt when the new taxes come in, or the owner of the new business or house can pay the costs and then is reimbursed by the City from the money they pay in taxes.  This leads to the first misconception.  The property owners do pay taxes.  The taxes get paid in to the County and then get passed back to the City and then the City reimburses the business owner for eligible expenses.  But not all of it goes back to them, in some cases.  That is where the term Increment comes in.

The value of the increment is actually determined by the amount of taxes that are levied by the City, County and School District.  Their tax rates are used to calculate the overall taxes on the property and the original amount of taxes prior to the new development is subtracted to get the Increment.

In some cases, properties are expanded.  In some cases, the property is cleared of the old things and then room is made for the new things.  A good example would be the property that Willie’s Supervalu sits on.  Anyone who grew up in Morris knows there used to be some old businesses on that property.  They were purchased, cleared and then the new building was put up.  The value and taxes generated by the old property is then compared to the value and taxes on the new property and an Increment is determined.  The owner gets to use the Increment to pay for things needed to make the new project possible.  Typically, they are reimbursed for those eligible costs.

Types of things that are eligible for reimbursement include things like land/property acquisition, site clearing, site preparation, new utilities, parking lots, and sidewalks.  The new building itself is not an eligible use of Increment.  The old school property needs over $1 million to clear the site.  However, any new developments on the property may want to use their own Increment to pay for the things mentioned above.  Where will the Increment come to pay for the school demolition then?

Well, the Minnesota Legislature has determined that the use of Increment from projects outside the current project area may be a very good use as a tool to help cities grow.  They have authorized this use in State Statute.  In the case of Morris, we have several projects that have reimbursed the required costs, but are still generating Increments.  Why, because the life of a TIF District is about 15-25 years depending upon the rules and regulations that are set up locally and not all of that time is needed to meet the reimbursement requirements.  We are going to ask that these Increments get shifted to the elementary school project for the rest of the District’s life.

The City has taken the position to reimburse the property owner for their investment instead of borrowing the money for them.  This is much cleaner and does not put us at risk in case something happens to the Increment.  A few years back the State took over funding for the schools and all the Increments generated by the School tax rate were lost.  That money was paid to the State instead of being returned to the City.  A number of cities had to use taxpayer money to pay back the bonds that were now under funded.

Once the Increment isn’t needed any more, then the City, County and School District will get them for their use.  The split is based upon the tax rate for each entity because that is how the Increment was generated in the first place.

Again, keep in mind, the basis for use of TIF is that the development won’t take place without TIF, so nobody is losing something they were already getting

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