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City approves aid for new apartment building

With a little help from the city of Cloquet, construction of a second apartment building across from Fond du Lac Tribal and Community College (FDLTCC) is a step closer to fruition.

With a little help from the city of Cloquet, construction of a second apartment building across from Fond du Lac Tribal and Community College (FDLTCC) is a step closer to fruition.

At the Dec. 18 city council meeting, councilors and Mayor Bruce Ahlgren unanimously approved the creation of a new Tax Increment Financing (TIF) District No. 2-2 as well as a $100,000 loan to 14th Street Apartments LLC - principals are Dave Chmielewski, Andrew Sill, Phil Strom, Robb Obey and Brent Belich - to help make the project happen. Plans for the new building show 18 units (six two-bedroom, four efficiencies and eight one-bedroom) with underground as well as paved parking in front.

It is part of an effort by the city and FDLTCC to attract developers to build more student housing, a need identified in a 2005 needs assessment at the college. As originally proposed in 2007, the 14th Street Apartment Complex was to have five buildings with 18 units each for a total of 90 housing units. The first building was completed in the fall of 2009 - on land purchased from the city - and has 18 units which are fully occupied.

Without the city's help, it would be nearly impossible for 14th Street Apartments LLC to turn any kind of profit on the building, Community Development Director Holly Butcher said.

"This is a $1.4 million project," Butcher told the council during the public hearing, explaining that the loan was a gap financing component "to entice the developer to complete the project."

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TIF districts are, in short, a commonly used development tool by local governments which allows the taxing authority (in this case the city of Cloquet) to capture the difference between the property tax currently paid on the undeveloped property and the tax paid after development. In this case, the estimated TIF is just over $20,000 per year (for a maximum of 26 years). That money from the TIF district can be used to reimburse the developer for certain qualifying costs, including construction or other site preparation expenses.

However, in order to qualify for TIF district funding, a project must pass a "but for" evaluation, showing that it would not succeed "but for" the creation of the TIF district and subsequent funding.

Without the TIF district - which will allow almost $200,000 in increased property tax revenue resulting from the development of the land to be funneled back into the project over time - as well as the 3 percent loan, Butcher said, the return on investment for the developer would be negative 2.95 percent. With TIF and a loan, it is estimated to be 2.84 percent, or possibly 3.37 percent if Carlton County also approves a low-interest loan to the developer.

In order to qualify as a housing district for TIF funding, the developer had to agree to rent 20 percent - or four units - in the new building to people with incomes at or below 50 percent of area median income.

During the same public hearing, the city also amended its original agreement from 2007 with the developer, which was changed from the planned five buildings with 90 units to three buildings with a total of 72 units. As well, because the developer would not commit to the third 36-unit building at this time, the city also removed the developer's rights to the land for the future Building No. 3.

Both the Cloquet Economic Development Authority and the Cloquet Planning Commission previously recommended approval of the TIF district and other development agreements.

Related Topics: CARLTON COUNTY
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