Assessments for 2nd Street non-profits

This is a tough situation where pandering would be easy, but fiscal stewardship hard.Properties on 2nd street were hit with some fairly large assessments to pay for road maintenance.  The city followed its policies as always, but the assessments were large to several non-profits because quite frankly they chose to build or locate on some of the priciest real estate in Rochester.  There are some that feel the non-profits should pay nothing in assessments, however that would mean that everyone else would pay far more.  While this may seem reasonable I would point out that something like 40% of all commercial property in Rochester is owned by non-profits.  In other words, this would result in HUGE property tax increases for everyone else.  The city of course already provides police, fire, building safety, most public works, and amenities for employees and visitors completely free of charge (since non-profits pay nothing in property taxes).

Many like myself believe that non-profits should only contribute for needed repairs on the roadways that they rely on .  This actually was our policy on 2nd street.  Non-profits were assessed their fair share for the roadway and sidewalks.  However their share was alot because many are on really big important roadways.  Typically assessment amounts depend on zoning and along 2nd street it is recognized that this area is premium location.  Most non-profits (with 1 exception that I am aware of) realize that they have a responsibility to help pay for that which they require.  One director actually went on statewide TV and ranted about being forced to pay for beatification which would be really, really bad… If it were even close to being true…  I would never stand for that.  I found that the policy for KSTP5 must be,  “We check our facts and we check them, nah , screw it,  just run the story and call it journalism…”

The question is, “Is there a way that we can better reflect the fair responsibility of a property owner to pay for infrastructure they rely on?”  I think staff came up with a good solution.

Here is the legalese…

To:       Stevan Kvenold

From:   Richard W. Freese

CC:      David Goslee and Mark Baker

Date:    3/29/2012

Re:        Second Street SW Project J-7265 Special Assessments

The City Council heard testimony on January 18, 2012 from property owners and others during the Special Assessment Hearing on 2nd Street SW Phase 2, Project J7265.  Subsequently, you convened various staff members from the offices of the City Attorney, City Clerk, Planning and Public Works Department to examine the basis for the 2nd Street assessments and to explore alternatives to the methodology used in calculating those assessments.

The assessments, as presented to the property owners and as discussed at the Public Hearing, were based on the routinely used City methodology involving land use and property frontage.  All but one property being assessed is zoned Central District Corridor – Medical (CDC-Med).  There is one property zoned PUD.  Within the CDC-Med there exists an overlay zoning district referred to as Medical-Institutional Special District (MISD).  The Medical-Institutional Special District (MISD) is an overlay zone permitting a higher intensity of development (Floor Area Ratio) when developed as part of a medical or institutional campus (MISD Campus).

The staff originally calculated the estimated rate for street reconstruction at $310.18 per foot of street frontage for parcels in the MISD and sidewalk reconstruction rates applicable to all properties at $8.50 per foot of frontage for 5 inch thick sidewalk and $10.35 per foot of frontage for 7 inch thick sidewalk.

Staff has reviewed alternatives and worked with Phil Wheeler and Dave Goslee to come up with a recommended alternative to reduce the assessments for many of the property owners.

We believe it would be more equitable for the City to charge a lower assessment rate for non-medical parcels consistent with that assigned for other Central District Corridor – Residential (CDC-Res) properties versus that of Medical-Institutional Special District (MISD) properties.  All Mayo properties developed at the higher intensity of development were assessed at the MISD rate.  Staff does not recommend that this assessment rate be reduced.

The staff has recalculated the estimated rate for street reconstruction at $155.08 per foot of street frontage for parcels that are not developed at the full permitted intensity in the MISD. Sidewalk reconstruction rates applicable to all properties at $8.50 per foot of frontage for 5 inch thick sidewalk and $10.35 per foot of frontage for 7 inch thick sidewalk, the total amount of which has already been assessed against each parcels.

There are a total of 48 properties with frontage along the Project.  Mayo Clinic owns 16 parcels for which the MISD overlay zone is applicable.  The assessment rate on these 16 parcels will not be adjusted.  One (1) parcel is zoned PUD.  The remaining 31 parcels zoned CDC-Med are positively impacted by the proposed change to reduce the assessment rate from $310.18 per foot to $155.08 per foot. The assessments adopted by the City Council on January 18, 2012 account for $1,458,321.56 in revenue which covered 35.5% of the $4,107,354.33 in estimated project cost.  The proposed change in the assessment rate for the 31 properties will result in $1,092,797.60 in revenue, a reduction of $365,523.96.  The revised assessment amount would cover only 26.6% of estimated Project costs.  The reduction in assessments of $365,523.96 will need to be made up by an offsetting increase in funding from the City’s annual Municipal State Aid Account.

Staff recommends that the proposed reduction in the assessment rate and amount for each property requires that each property execute a Settlement or Assessment Agreement that shall fulfill the remaining Project J7265 assessment obligations in the following manner:

  • Upon approval by the City for further development or redevelopment of the parcel as part of the MISD Campus, the property owner acknowledges that the City will annually adjust the future assessment obligation calculations based on the annual change in the ENR Construction Cost Index for Minneapolis, and that the adjusted amount will be levied as a supplemental assessment and certified to the Olmsted County Auditor for collection with taxes for the parcel over 10 years @ 5.75% interest with the first payment being due with collection of the property taxes in the year following the certification.

Staff recommends the following:

  1. Seek City Council concurrence on the proposed reduction in the assessment rate and amounts for property that has not been developed at the higher intensities allowed by the MISD.
  2. With Council concurrence prepare and send an Assessment Agreement to each non-medical parcel owner that reduces the current assessment and provides for future payments if the property is redeveloped in the MISD.
  3. Request Council action to approve the executed Agreements.


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