Destination Medical Center’s initial steps into the next five years of its 20-year plan come with the uncertainty of how the economy will recover from the pandemic.
At the same time, DMC Economic Development Agency Executive Director Lisa Clarke said meeting the first five-year DMC targets has put Rochester in a position of strength.
“Being that close on many targets -- on investment targets, on employment targets -- was great because it really sets us up for success in the next five years, which might be a little bumpy in the first couple years,” she said.
Much attention has been focused on the $963 million in private development and $98.5 million public spending, but job and tax generation targets also show how far the project has come.
“The whole economic model for DMC is really built off of new jobs,” said Catherine Malmberg, a University of Minnesota and leading consultant for the five-year update to the DMC plan. “That’s the driver of the other successes in terms of investment, tax income and those sorts of things, so it starts from those jobs, and the quality of those jobs is also important.”
In its first five years, the DMC initiative saw 7,700 new jobs created, which is more than a quarter of the 20-year goal of 30,000 new jobs.
“Fully 6,000 of those jobs are Mayo Clinic,” said Patrick Seeb, the DMC EDA director of economic development and placemaking, who will take over for Clarke when she retires Monday.
Of the new jobs in education and health services, the average annual salary is $80,496, more than the $75,000 area median household income in Rochester.
On the other end of the spectrum, an estimated 1,333 new jobs in the leisure and hospitality industry pay an average annual wage of nearly $22,000.
“The service sector pay is concerning,” Malmberg said. “I think we feel that living wages of $15 an hour or greater may be needed to support those downtown workers and reduce future needs for additional affordable housing,”
Rochester Mayor Kim Norton, who serves as vice chairwoman of the state DMC Corp. board, agreed the $10.58 average hourly wage for downtown hospitality workers is concerning, but noted early expectations were for more lower-wage jobs to be created, when compared to higher-paying jobs.
While hospitality jobs, as well as some higher-level jobs, have disappeared during the COVID-19 pandemic, Norton said construction is a sector that has continued to see work within the DMC district.
In five years, an estimated 861 construction jobs were created by projects within the city core.
The DMC five-year update notes an average construction wage of $64,532, but also cites an hourly pay rate of $39.11 for work in DMC projects, putting the potential annual salary for those jobs at more than $80,000.
Norton and Clarke said efforts to keep projects moving through the pandemic, although adding stress to downtown access, have kept construction crews employed.
“It’s very important right now to have continued employment for the community,” Norton said.
Increased jobs have boosted state taxes, according to DMC EDA reports.
During the first five years, approximately $157.5 million in taxes were collected by the state from construction and operations in the DMC district. During the same period, the state has contributed $22.5 million for DMC-related infrastructure projects.
Estimated tax revenues show the city has collected $3.37 million through the same projects.
The initial DMC sought to generate 5 percent of an anticipated $7.5 billion to $8 billion in new net tax revenue over 35 years. The five-year update states roughly 12 percent of the final goal was actually generated.
Seeb said most of the tax revenue specifically cited in the five-year report comes from added income and sales tax, but the city is also seeing a shift in property tax revenue.
R.T Rybak, chairman of the DMCC board, said the tax shift is key to the initiative’s goal for providing a tax benefit to local residents,
“One of the things we wanted was to have the increased development downtown lift the tax burden off homeowners,” he said.
A look at downtown changes during the past five years show that dial appears to be moving. The tax capacity in the DMC district grew by 1.4 times since 2015, outpacing other parts of the city based on new construction, according to the DMC update.
Joe Minicozzi, founder of Urban3, an Asheville, N.C.-based urban planning consulting firm, said the district makes up 1 percent of the city, but contributes 14.7 percent of the property tax revenue.
The fact has some downtown property owners in a bind, as property values increase and boost annual taxes.
While big gains are expected as parking lots and blighted properties are developed, such as the estimated annual tax revenue that will eventually increase from $135,000 to $1.25 million at the Berkman Apartments, other properties are seeing increased costs with minimal changes.
For example, owners of a building at the intersection of First Avenue Southwest and Third Street paid $17,000 in property taxes in 2014 and saw the annual bill climb to more than $35,000 in 2020, after the assessed value of property more than doubled in the same period.
Mayo Clinic, the city’s largest property taxpayer, has also seen its tax bills climb.
While the clinic is exempt from taxes on properties used for inpatient treatment and education, it is projected to pay nearly $6.1 million in property taxes on the Gonda Building in 2021, up slightly from the $5.5 million paid in 2015. Other properties have seen similar increases.
Norton said the city has discussed what can be done to stem some of the most rapid increases for existing buildings as new development catches up.
“I understand their concern and there has been talk about whether there is something we can do for tax relief,” she said, adding that any remedy will be complicated and likely require support from the Minnesota Legislature.
Meanwhile, new development is emerging that won’t see delayed tax generation related to tax-increment financing agreements.
The newly constructed Hue Apartments, for example, has already seen property taxes nearly double from the $15,000 paid in 2014, and the building at the intersection of First Avenue Southwest and Fourth Street is still seeking its first tenants.
Built without TIF support, the tax contribution is expected to rise as the building fills up.
ATTRACTING MORE DEVELOPMENT
Minicozzi said such development will shift more tax burden away from homeowners, but he said it comes with a price. He said infrastructure and public space investments are needed to attract development.
Clarke said that has been the goal of the DMC initiative’s dedication to creating an attractive district for living, dining and interacting, based on a need to engage visiting patients, as well as community members.
As she prepares to retire from a position she started working toward a decade ago, she said she’s confident the project is on the right track to continue attracting new development while also helping the city overcome the impact of the pandemic.
“I think DMC has a beautiful road ahead," she said, "and our first five years are a perfect example of what we can do.”