Rochester council eyes TIF, tax abatement as tools to spur housing construction

Randy Petersen, Post-Bulletin, Rochester, Minn.
·4 min read

Feb. 25—ROCHESTER — The potential for using tax-increment financing and tax abatements to spur the development of more single-family homes in Rochester will be discussed Monday.

With the

most recent county housing study

pointing to the need for the creation of 5,628 new for-sale homes to be built between 2020 and 2030, current production rates are estimated to hit about 68% of the goal.

On Monday, the Rochester City Council will be presented with options to incentivize new housing construction. The discussion will be part of its 3:30 p.m. study session in council chambers of the city-county Government Center.

It's a discussion that was

touched on by Destination Medical Center Corp. board members

earlier this month as they reviewed planned local investments, including Mayo Clinic's proposed $5 billion expansion.

"If we don't get this housing going right now, we are going to find ourselves in a position where we can't house the workers we need, even to build or spend the $5 billion," said Doug Baker, Jr., a Mayo Clinic trustee who sits on the state DMCC board.

On Feb. 20, Rochester City Administrator Alison Zelms told Olmsted County commissioners that the

$5 billion "Bold. Forward. Unbound. in Rochester" expansion

isn't expected to create sudden population growth but housing needs will continue to grow.

"Everything I am hearing is that we are not going to reach 200,000 people in 2030," she said, adding projections of 2% to 3% annual population growth included with DMC planning appear to be on track through the rest of the decade.

At the same time, she said the city needs to be prepared and look for opportunities to encourage the construction of new homes.

"I think (the Unbound project) elevated how important it is for us to think about these things, but we do have some time to do that," she said.

Among the options to be discussed Monday is the use of existing financial tools that can help developers cover costs related to increasing interest rates and construction costs.

While recent use of tax-increment financing has focused on the development of multi-family housing, the city has a history of using it to support the development of single-family homes.

Standard TIF can be used to create homes for first-time buyers earning up to 100% of the annual median income for a two-person household or 115% for a family of three or more. TIF associated with the DMC initiative has more flexibility, but must be used with in the district surrounding the downtown core.

Using TIF would allow the city to reimburse increased tax amounts related to home construction, providing the developer with a specified amount to cover identified financing gaps, if they exist.

Another financing option is tax abatement, which would allow the city to capture a portion of property taxes paid to help reduce developer costs. Abatement has fewer imposed restrictions than TIF, but the process would require the city to get approval from the Rochester School Board and Olmsted County commissioners.

The Rochester council members will be asked Monday whether they want to consider adding flexibility for the use of TIF for the next two years, along with establishing a potential three-year tax abatement program to encourage housing development.

The discussion will also include other potential policy and program decisions designed to help increase affordable housing options in the city.

Meetings scheduled to be held during the week of Feb. 26 include:

Rochester

—City Council study session, 3:30 p.m. Monday in council chambers of the city-county Government Center, 151 Fourth St. SE. The meeting will livestream at

www.rochestermn.gov/meetings/council-meetings

and be available on Spectrum cable channel 180 or 188.

—Outside Agency Oversight Committee, 1 p.m. Monday in room 104 of City Hall, 201 Fourth St. SE.

—Heritage Preservation Commission, 5 p.m. Tuesday in council chambers of the Government Center.

—Library Board, 4:30 p.m. Wednesday in the first floor meeting room of the Rochester Public Library, 101 Second St. SE.

—Planning and Zoning Commission, 6 p.m. Wednesday in council chambers of the Government Center.

Olmsted County

—Commissioner education with Parks Department, 5 p.m. Tuesday in conference room 2 for the Government Center.

Rochester Public Schools

—School Board study session, 5:30 p.m. Tuesday in the boardroom of the Edison Building, 615 Seventh St. SW.