The St. Ansgar City Council unanimously approved an agreement Monday that would give Milkhouse Candle Company tax incentives to move their factory to St. Ansgar, but the resolution was vetoed Wednesday by Mayor Norm Johnson.
In the agreement, the City of St. Ansgar would essentially freeze the property tax rate on that piece of land for 10 years, and any extra taxes paid due to an increase in the property’s valuation during that time would get refunded to the property owner, so long as the total amount does not exceed $195,000.
What they’re saying
Milkhouse President and owner Eric Sparrow said he and his wife were caught off guard by the mayor’s sudden veto, noting how they’ve been in talks with the city to complete the move for at least 8 months.
“Janet and I were surprised at the recent news of the veto by Mayor Johnson as we were under the impression that our business would be a welcome addition to the St. Ansgar community,” Sparrow said.
The veto was especially surprising since the mayor opened the floor to the public for any comments prior to the council’s vote on Monday and no one expressed any opposition, including the mayor.
Johnson later said he didn’t disagree with the incentives all together, but he feels the city would be leaving too much on the table the way the agreement was set up.
“The city is going to put the road in, and there’s a cost to that,” Johnson said. “By giving them a 100 percent rebate on their [property] taxes, it leaves nothing for us to do the services like fire, and so on – nothing goes into our general fund to help the city maintain and do what they need to.”
Why it matters
In his official veto, Johnson states that the city would be “obligated to expend substantial amounts of money to provide infrastructure, streets, water, sewer and to provide other city services to the property being developed”.
The veto goes on to suggest that the city shouldn’t be obligated to do so “without receiving property taxes to offset those costs”.
Theres a couple of important things to note here: The first part is correct — substantial amounts of money would be required to build new roads and infrastructure.
But according to an Urban Renewal Plan passed by the council on January 14 of this year, the city already intends to build that infrastructure anyway — and is currently in the bidding process, with a public hearing set for March 11.
The second part, however, isn’t necessarily true. The property taxes from the land with the Milkhouse factory wouldn’t need to directly pay for the new roads and infrastructure going to it — that money could come from projects the city has already ‘TIF-ed’ in the past — such as the Heartland, Alliant Energy and Grain Millers projects, for example.
“[St. Ansgar] does have other TIF revenue in the fund to be able to make that payment.” Jeff Heil said, the Senior Vice President of Public Finance at Northland Securites. Heil also advises the City of St. Ansgar, and is familiar with the issue. “All of the properties [that] are in TIF go into a fund, and the city can choose what to do with it for economic development.”
The Pros and Cons
It’s important to note that if the rebates to the Milkhouse property aren’t to exceed an aggregate, total amount of $195,000, so that averages out to a maximum of $19,500 per year for the next ten years – or the life of the incentive. Milkhouse would begin paying their taxes in full starting in the 11th year.
So the downside of the project, is that the city would be surrendering up to $19,500/ year of new tax revenue over the next ten years.
The upside, however, is that The Milkhouse factory is expected to bring a clean, $1 million-plus factory to St. Ansgar, along with over 20 jobs. Another upside, is that once the tax incentive is up after 10 years, Milkhouse would then be paying taxes in full which opens up opportunities for the city to build new infrastructure and attract new growth, much like those past Heartland, Alliant and Grain Millers projects have made it possible for Milkhouse to move to St. Ansgar.
So the question then isn’t whether the city can afford to provide infrastructure to the Milkhouse property, since it has the TIF funds available to do so. The question becomes – what, if any, projects should the city fund instead?
The back story
Milkhouse is a locally-owned candle manufacturer, currently based in Osage. Owners Eric and Janet Sparrow announced plans in 2018 to move their candle factory to St. Ansgar, because their current location could no longer keep up with their growing business.
The Sparrows had discussed potentially moving operations to New Hampton, but heard about a new property in St. Ansgar’s Industrial Park, owned by local resident Tim Schulz.
Schultz’s property was part of a Mitchell County development incentive that prohibits the land owner from selling the property until after five years. So in order for the Sparrows to own this land for their factory, they will have to wait until those five years have elapsed before they can take ownership of the land from Schulz.
On June 21, 2018, the City Council passed a resolution proposing they consider an agreement between Schulz, Milkhouse and the city. The agreement they came up with the one vetoed on Monday, after the council approved unanimously.
The council can overrule the mayor’s veto, and has called a special meeting for Friday, Feb. 15, 6 p.m. at city hall to discuss the matter.
“We are anxious to gain clarity at tonight’s meeting and have complete faith that the City Council will make the proper decision for our community,” Sparrow said.