2-6-02

In the next days and weeks, the City Council will face a number of decisions concerning the future development of the Ray Nairn Farm.

Typically, we don't discuss developments or developers when a project is in its early stages because we are often asked to keep such information confidential until final decisions are ready to be made. This case has been different, however, in that the developers, Bob Rehm and Bjorn Kaashagen, have been very open about what they want to do and what they are seeking from the City.

The developers have an option on the 67-acre farm that is located on the northwestern corner of the intersection of S Main (200th Ave) and New Highway 61. The site is currently undergoing annexation into the City.

The developers have told us that they must make a decision on whether or not to go through with their purchase of the property by March 1.

The project is envisioned to take place over two phases.

In the first phase, the developers would commit to building a $3.5 million hotel, probably a Comfort Inn. They would also create additional lots and have stated that they think they are close to having commitments from a grocery store and a hardware store that want to locate there. Their preliminary site plan also calls for a couple of fast food restaurants, a "sit-down" restaurant, and a possible strip mall. If all of these things happen, they estimate that their Phase 1 would add at least $9 million of new value to the City.

The developers estimate that the cost for public improvements (streets, water main, sanitary sewer with a lift station, and storm sewer) at $1.1 million. The initial phase would begin with two streets that would connect to S Main. The two streets would be connected by a frontage road that would loop parallel to S Main and New 61. Phase 1 basically ends at the creek.

What are they asking from the City? The developers say that they want the City to provide $750,000 (of the total $1.1 million) in up-front financing to help pay for the infrastructure. The remaining $350,000 would be put up by the developers.

They would like the City to use tax-increment financing, or TIF, as a means to pay the City back for its $750,000 bond. They further want the City to rebate the principal and interest costs for their borrowing of the other $350,000.

They tell us that they need this assistance to lower lot costs from around $200,000/acres to $90,000-$100,000 per acre. Otherwise, the lot costs will be too high, and they would have to discontinue their project.

So far, the City hasn't used TIF to provide up-front financing for commercial projects. We have done it for industrial projects. But, in this case, the developers tell us that they cannot make the cost of the lots work without it.

The Big Question. Assuming that what the developers are telling us is accurate, then the question becomes: Is this project important enough to Maquoketa to make the Council consider using TIF on a commercial project in a way that we have not used it before?

My own view would be to say that we should.

The Nairn site is strategically important to the City. After Generac and Family Dollar began to build, we knew that their employees would want various types of service available in the area. We knew that the corners of the Old 61/New 61 interchange would become important to future types of development.

By taking a role in the financing of the project, the City is able to have input into who the developer is, what the developer plans to do, and the timeline for when it is done.

This line of thought looks at "risk" in a different way than those who might suggest that the City should not provide assistance to a project on the Nairn site because someone, if not these developers, will eventually do something on this property due to its location. Therefore, they are more comfortable than I am about taking no role in the development of this site, and they are more confident than I am that whatever comes along will be just as good as this project.

My concern about waiting to see who else might come in stems from my experience that not all economic development projects are equally as good. By taking no role in this project, the City would be risking this area on the possibility that another project might come along--someday--but the developer might not have a project in mind that most of us would like.

By using TIF, the City could use the classic line about using tax-increment financing to capture the new taxes from the project to pay for the up-front financing by saying, "If we didn't use TIF and the development didn't happen because of that, there'd be no new taxes generated anyway."

But, this development has more going for it than just saying that. This project would also:

1.) Create the beginning of a traffic system south of the City that can be added to as more land between our traditional City Limits and the Nairn site annexes over time. If further annexation happens and if further commercial and residential housing developments occur, Maquoketa will need a traffic system that creates access between the City and S Main/200 Ave.

2.) Although TIF would capture taxes for some years, the development itself would be capable of providing services and new types of jobs that many of our citizens want.

3.) The new commercial businesses on the site would also generate more in the form of the two 1% local option sales taxes that are available to both the City and the School District.

4.) And, the proposed hotel, with its pool and meeting room for up to 300 people, would double the number of hotel/motel rooms in town. Therefore, we have the potential to double the approximately $25,000 per year that we currently bring in from our 5% hotel/motel tax and use for our parks and recreation department.

What about the City's debit limit? As for the City's debt limit, former city manager, Pat Callahan, who now works with Ruan Securities, did a preliminary debt analysis for us.

As of now, Pat's numbers show that we have $2.5 million of debt capacity available. He recommends that we not touch our last 20% of capacity, so that would leave $711,000 to use as of today with about $1.8 million in reserve.

As of July 1, 2002 (after the City's new property values have been added and after we make some debt payments in June,) the City will have about $4.1 million in capacity. If the 20% rule were applied, we'd have about $2,043,000 available to use and a little over $2 million in reserve for emergencies or other uses.

The future. At this point, we don't know how the Council will decide, but the decisions that are made about the Nairn Farm will likely shape the future of Maquoketa for a long time to come.