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Rochester business files lawsuit over transportation improvement district fees

The lawsuit filed in Olmsted County District Court by Tap House Real Estate asks the court to find the fees “illegal, null, void and unenforceable” and require them to be refunded.

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Tap House West, June 23, 2021. (Ken Klotzbach / kklotzbach@postbulletin.com)

ROCHESTER — A class action lawsuit has been brought against the city of Rochester for its transportation improvement district fees.

The lawsuit filed in Olmsted County District Court on Tuesday, Feb. 15, 2022, by Tap House Real Estate, 2365 Commerce Drive NW, asks the court to find the fees “illegal, null, void and unenforceable” and require them to be refunded.

The civil suit argues that the city was unjustly enriched by the fees and that the fees, which are alleged to have been calculated arbitrarily, are unconstitutional under the Fifth and Fourteenth amendments.

“This lawsuit is about accountability,” Andrew Davick, attorney at Meshbesher & Spence, said in a statement. “The law is there for everyone to follow, including the city. The city of Rochester isn’t above the Minnesota Supreme Court. The city needs a law to authorize its fees and it does not have one.”

The city did not have an immediate response to the issues raised in the lawsuit.

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Davick told the Post Bulletin it was the parties' hope in bringing the suit that not only would the fees be reimbursed but that the city would stop the practice going forward.

Rochester’s transportation improvement districts are designated areas where development is anticipated but the existing city streets fail to meet the needs of the anticipated growth and related traffic.

Development agreements in these areas define the split of infrastructure costs between the developer and city. Without an agreement, related street work would be addressed under existing city schedules.

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The Rochester ordinance, signed in 2004, states the goal was to find ways to fund street improvements ahead of regular schedules, without delaying scheduled maintenance.

“The TID concept is intended to establish in advance the division of costs between the city and a developer seeking approval of a development in an area where the city streets are inadequate,” former city attorney Terry Adkins wrote to the council as the 2004 ordinance was being discussed.

At the time, the city cited a $26.5 million street-maintenance backlog associated with more than 300 miles of existing city streets.

With an estimated $210 million needed for 20 years of maintenance, the city predicted more than $175 million would be required to construct more than 80 miles of new streets to serve city growth in a 40-year period.

Citing a recent ruling in the Minnesota Supreme Court, attorneys for Tap House Real Estate LLC argue that municipalities may not use voluntary contracts to “strongarm developers into paying unauthorized transportation infrastructure fees.”

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The lawsuit states that the fees are coercive because the city does not send the bill until midway through the development process, when developers have already invested substantial time and money into a project. Tap House Real Estate LLC “involuntarily paid under duress” $102,500 in the fall of 2019.

“Even opting out is not a real option,” the lawsuit states. “The City’s policy is to specially assess TID fees against developers who try to opt out.”

The lawsuit is being brought as a class action suit as it is yet unknown the number of businesses or developers who may have been affected.

“Fees and taxes and levies, if done properly and legally, are a part of daily government and a part of our lives but the city has to do it the right way and do it appropriately,” Davick said.

Rochester City Attorney Michael Spindler-Krage said the city's anticipated court response is being handled through the League of Minnesota Cities, and John Baker of the Minneapolis-based Greene Espel Law Firm has been assigned to the case.

"Mr. Baker is reviewing the complaint, and we will be answering the complaint in due course," Spindler-Krage said.

Emily Cutts is the Post Bulletin's public safety reporter. She joined the Post Bulletin in July 2018 after stints in Vermont and Western Massachusetts.
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