The Stillwater City Council will give the HAF Group $150,000 in TIF assistance to construct a new building on the east side of Main Street at Olive.

The council voted 4-1 on Tuesday in favor of granting the HAF Group TIF assistance for the downtown project. Council Member Jim Roush cast the sole vote against the measure.

The assistance grant exceeds the city’s general TIF policy by about $100,000, but according to city records, “there is both precedence and site-specific reasons why a larger TIF assistance package could be supported.”

The downtown property was recently purchased by the HAF Group to develop an exact replica of the “Peaslee Building” that was destroyed by a fire in the 1950s. Currently, the space is a walkway on the east side Main Street between Marx Fusion Bistro and Bronze.

The project calls for a two-story, 3,920 square-foot building that will have office space for four tenants on the second floor and retail space on street level.

While designing the project, the engineers ran into the same issues designers had with the St. Croix River Crossing Project, Stillwater Mayor Ken Harycki said. “There is 50 feet of muck that can’t support the foundation.”

Any new building on the site requires a special geo-micro pier system, a memo from City Planner Michel Pogge to the council reads (PDF attached). Substantial costs will also be incurred due to rules of new construction on a flood plain.

Those issues mean construction will cost about $170,000 more than it would if the project were built on a site with different soil conditions and no flood-proofing requirements.

Because a more substantial foundation system is required due to soil conditions and the city wants to see a two-story building—to match the neighboring buildings—on that site, city staff members supported the $150,000 request.

Stillwater’s TIF Policy

The total project cost is $1,002,240, according to city records. Land acquisition and site development makes up $173,445 of that price tag and is “potentially TIF eligible.”

The city’s TIF policy for commercial retail projects allows for 50 percent of the increased tax revenues for five years.

The estimated market value of the building after it is constructed is $598,195, according to city records. At that market value, total tax revenues would be about $20,900 annually.

If the city’s TIF policy were followed, the total eligibility for grant assistance for the project would be $52,250, according to city records.

The City Council approved $150,000 in TIF assistance.

How Will the Money be Paid?

Since the council approved the request for TIF assistance, the decision now is whether the city will provide the HAF Group up-front finances or “pay-as-you-go” assistance.

An agreement about how the TIF assistance will be allocated will be determined through negotiations between City Attorney David Magnuson and the HAF Group, Harycki said. If the city council does not approve of the agreement, the assistance can be denied.

Traditionally, the city has only provided “pay-as-you-go” assistance, because the city did not have funds in the bank to support new commercial development, city records state.

“In this case, the city has TIF funds in the bank to provide the requested assistance so there is no risk that the City could not make a payment or would have to bond for the payment; however, it may be prudent to only provide pay as you go assistance to ensure that the development creates sufficient value to support the assistance,” a memo to city council members reads.

Staff recommends that the city prepare a development agreement to provide $150,000 of up-front TIF assistance.

“This is exactly what TIF money is for,” Harycki said. "In 7 ½ years the city will break even."

The TIF assistance will be paid back to the city through property taxes.