Herald Journal - Enterprise Dispatch - Delano Herald Journal
Howard Lake grocery building purchase will not use city tax dollars

June 29, 2009

By Jennifer Gallus
Staff Writer

HOWARD LAKE, MN - The City of Howard Lake wanted to make it clear at a special meeting Tuesday that the city’s purchase of Mark Custer’s grocery store building will not be made using city tax dollars.

Additionally, the city said that business subsidies are quite common within the city, especially tax increment financing, but that this subsidy is strictly coming out of the city’s Voyager Fund, which was created by federal, not city tax dollars.

At least a dozen interested citizens attended the meeting. Of those attendees, several asked questions, but nearly all prefaced their questions with the comment that they were in favor of what the city was trying to do to get a grocery store back in town.

The city intends to purchase the building as soon as one of two unnamed, interested retailers commit to the project, which the city hopes will happen in the next few weeks.

At that time, the city will use its Voyager Fund to lend money to the retailer, and to the city’s economic development authority which will cover the down payment on the contract-for-deed to purchase the building and to pay for refurbishing of the building.

The city cannot do a contract-for-deed for more than five years. At the end of the five years, when the balloon payment is due, the city hopes the new retailer will purchase the building.

For the worst case scenario, if the store were to fail within the first five years, the city has the option to default on the loan and sell the building, or the council could decide then to levy city tax dollars to keep the building.

“The general fund is not obligated in any way for this project,” City Administrator Kelly Hinnenkamp said. “We have other outs.”

Hinnenkamp explained that if something did go wrong, the city would first deplete the remaining amount in the Voyager Fund, and then decide whether to default on the contract-for-deed or to use taxpayer money.

There is about $425,000 in the fund, and the city said it will likely use 90 percent of the fund for the project.

The city’s Voyager Fund is a revolving loan program that was created in 2000 from federal grant dollars, and has never been fed city tax or levy dollars.

“All of the Voyager Fund will be replenished in the future,” Hinnenkamp said. “Some by the purchase, some from the EDA, and some by monthly payments.”

The purchase price has not yet been disclosed since negotiations are currently underway. However, the city said that Custer was asking $400,000, but that he was very reasonable in lowering the price, and that it is confident the public will be pleased with the end amount that was agreed upon.

One cost that did come out of the city’s general fund was for the appraisal of the building, which cost $2,500.

Repairs and refurbishing of the building will include total roof replacement in the next year or two, HVAC upgrades, electrical, floors, and painting. Those costs are all included in the total financing package.

“When a building sits for three years, there’s a lot of deterioration,” Hinnenkamp said.

Once a retailer commits, the business “will still pay taxes and insurance just as if a private individual were coming in,” Hinnenkamp added.

“This is the closest we’ve been to getting a grocery store in the last three years,” Hinnenkamp said. “We will not get a grocery store without city involvement at some level. There will be no levies, no tax abatement, no exposure to city dollars.”

The council said that when the next step is taken, it will do its best to keep everyone informed.


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