City modifies finance plan for former Sharkee's lot

Luverne City Council members took action last week to modify tax increment financing for the former Sharkee’s property on South Highway 75.
The city originally purchased the property and prepared the lot in 2016 for an unknown future development.
With Towne Square Apartments coming soon, the city took action to amend financing plans for what’s now a certain development.
A public hearing Tuesday, May 4, addressed “the proposed modification of Tax Increment Financing District No. 23,” commonly known as the former Sharkee’s property.
Tammy Omdal of Northland Securities had worked with city staff on the original TIF district in 2016 and is now helping with the modification.
She attended the May 4 meeting by Zoom to offer background and answer questions.
“Now that the project is coming to fruition and more is known about the development that will occur, the projected tax increment that will be derived has increased,” she said.
Based on the most recent adopted budget, the original estimate was about $1.4 million of tax increment.
She said the present estimate for tax increment over the 26-year life of this redevelopment district increased to approximately $4.9 million.
The modified plan will provide for use of those funds for project costs, and it will provide for the city to reimburse itself with interest from tax increments, Omdal said.
In order for the city council to plan for the use of tax increments for site improvements, utilities and other qualifying public improvements, the public needed to be informed by way of Monday’s hearing.
By statute, the city must authorize an interfund loan to advance certain costs in connection with the TIF district based on the updated budget.
City finance director Barb Berghorst explained why the modifications were necessary over time.
“We purchased the Sharkee’s site and paid for the demolition and we did not have a project at that time,” she said.
“I knew we could reimburse ourselves for those costs once a project was determined.”
She said she was conservative about projecting future development.
“We started with an estimated market value of $3 million for something to go on that site,” Berghorst said.
“We didn’t know what it was. It could have been a new bigger Dollar General in the middle of a parking lot, which would have been a relatively low value with less impact on the other infrastructure.”
Now, with a firm project with a future estimated market value of $8 million, the city is now in a position to amend the plan.
“We know that we’re getting the apartments, and we’ve named Don Jahnke as the developer of record. And he has other potential businesses he’s working with,” Berghorst said.
“Now you have a more complex development that requires different infrastructure, plus from 2016 to now, the costs of those improvements — including the blacktop parking lot and eligible expenses — have increased.”
Council member Caroline Thorson asked Berghorst if any other modifications might be necessary as the project moves forward.
“I asked for estimates on the high side with inflation factor,” Berghorst said. “If the development occurs over the next couple years, no other modifications will be necessary.”
Following the hearing, which no one from the public attended or submitted comment for, the council approved modifying the TIF plan and establishing the amended interfund loan.
The loan funds will be used as needed and will be repaid on a schedule when the city receives the increments, based on the minimum assessment value.
Mayor Pat Baustian said, “All I can say is, ‘Wow. How time flies.’ It was May of 2016. It’s about time we get moving on this.”
The city’s site preparation — grading, moving a gas line, extending a storm sewer — is nearly complete, and construction on two three-story, 27-unit apartment buildings will begin yet this spring.
Hope Housing Foundation closed April 15 on primary financing, and Berghorst said she’s waiting for the mortgage to be recorded before releasing funds.
“This type of development doesn’t come easily to a small rural community,” she said. “But this one will. We have no reason to believe it won’t.”