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Big Berkman sale doesn't end TIF agreement

Benefits of development assistance agreement transfer to new property owner as taxes are paid on site with increasing value.

The Berkman
The Berkman building on Monday, April 11, 2022, in Rochester.
Joe Ahlquist / Post Bulletin
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Answer Man,

With the sale of the Berkman Apartments, does the developer need to return the $10.5 million the city approved in tax increment financing. It would only seem fair. 

A taxpayer

Taxpayer,

You can’t return what you haven’t received.

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That’s true in this specific case, as well as other projects that receive tax increment financing, commonly known as TIF, in Rochester.

It’s a mistaken belief by some that Rochester developers are handed a bag of money when TIF agreements are signed.

The funding outlined in various development assistance agreements with the city provides potential access to TIF payments twice a year, but they typically don’t start until after construction is complete, and the approved support is not made in a lump sum.

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The payments are basically a rebate on property taxes, and the related agreement is used to help secure financing for a project that might otherwise fall short when it comes to funding.

I asked one of my minions to reach out to city staff to find out where The Berkman stood, regarding TIF payments.

Brent Svenby, Rochester’s senior administrative analyst, told him the payments started last year.

The Berkman agreement, which created a TIF district for the property on the southwest corner of Second Street Southwest and 14th Avenue, calls for the owner to pay full taxes on the property each year, but anything beyond what would have been taxes on an assessed $57.5 million market value in 2019 would be “captured” by the city to make a pair of TIF payments each year to the developer or owner of the property.

It ensures all taxing entities get what they would have received before construction, but delays the added tax revenue for up to 15 years.

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In 2019, taxes paid were $117,246, according to Olmsted County’s online records. This year’s total property tax for the site is slightly more than $1 million, with the first half already paid.

If the value of the property happens to drop below the 2019 value in the future, the owner will not receive TIF payments until the value increases. Likewise, if taxes are not paid, there are no funds available for TIF payments.

The agreement basically freezes the annual taxable value for the owner by providing the rebates as taxes are paid, and it is expected to run for 15 years or until the $10.5 million (plus interest) is paid, whichever comes first.

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The 13-story Berkman tower, which opened in 2020, features 277 apartments, a 73-room hotel, and street-level commercial space. It stands a few hundred feet away from Mayo Clinic’s Saint Marys Hospital.

Since the TIF deal created a district for The Berkman, any future payments will be made to whoever owns the property within the district, which likely adds an incentive to the purchase.

Imagine buying a home in today’s market and knowing you’ll get a guaranteed property tax rebate each year, even as your neighbors continue to complain about their home values, and related taxes, increasing.

That said, I should point out that “guaranteed” is likely a strong word when it comes to a TIF agreement and transfer of property.

The property owner or the city could seek to end the agreement early, if other elements of the original development assistance agreement aren’t met, but as long as the building is operating as expected, it’s likely the payments will continue.

Send questions to Answer Man at answerman@postbulletin.com .

Related Topics: ANSWER MANREAL ESTATEGOVERNMENT AND POLITICS
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