Under city ordinances and fees established by the Mankato City Council, the developer of a downtown Mankato apartment building owed the city as much as $181,000 for blocking public streets and sidewalks during its 2024 construction.
Instead, the bill was slashed to less than $41,000 under a formula that was unilaterally established by an unidentified municipal employee at some time in the past, according to city officials.
The decision to give developers substantial breaks on the charges is one that’s been repeated for multiple projects, but city officials said they are unsure of the cumulative financial impact and have no plans to try to recoup the money.
Brennan Cos., the developer of the 26-unit Silos Apartments in Old Town, would have faced municipal charges of at least $153,000 for blocking public right-of-way during construction if Section 6.06 of Mankato’s City Code and the fee schedule set by the council had been followed. Under the strictest interpretation of the existing fee structure, the bill would have topped $181,000, according to city officials.
Instead, the charge actually imposed on Brennan Cos. was $40,800. That discount — granted without the approval or knowledge of the council — meant as much as $140,000 that would otherwise have been destined for city coffers stayed with the developer of the four-story building at the corner of Second and Plum streets.
The $5.2 million luxury apartment complex that opened in August wasn’t alone in receiving the discount.
The $23 million Eide Bailly building, which opened in 2019, received what was likely an even larger break for obstructing sidewalks on Main and Second streets for more than a year. And the markdowns may have extended back to Tailwind Group’s mega-development a decade ago that brought a trio of multi-story office and commercial buildings to downtown, along with sidewalk and street obstructions that impacted portions of Riverfront Drive and Front, Cherry and Warren streets for two years.
Genesis of discount unclear
City leaders say all they know is that at some point in the past, some unidentified person in city government apparently decided the fees established by the council were excessive when a right-of-way obstruction involved only sidewalks. Instead of bringing that opinion to the council, the employee instructed staff in the engineering department to shrink the fees.
The change resulted in developers being charged $50 per day, rather than what the policy called for — $300 daily charges if a single street’s sidewalks were obstructed by a project and $600 per day if walkways on two streets were impacted.
“The practice of charging $50 per day for sidewalk-only obstructions has been going on for many years,” said City Manager Susan Arntz in response to questions from The Free Press.
Arntz said she has seen no indication there was any favoritism shown in who received the discounted charges, noting that city forms cite the lower amount for permits involving sidewalk obstructions.
“While I don’t have an exact timeline for when this practice began, staff have been following the procedures they were trained on,” she said. “The permit form on our website specifies a $50 per day charge for sidewalk obstructions, providing consistency for our staff.”
In actuality, even that form suggested city staff had leeway in deciding whether or not to grant substantial discounts to developers. The form lists the daily fee for obstructing sidewalks and trails as “$50-$300” for each block impacted. In the form’s fine print, next to the four asterisks, it states “fee is variable based on usage.”
The discounted charges preceded Arntz’s hiring as city manager in fall of 2020. She said she became aware of the practice when Brennan Cos. President Joe Brennan submitted an application for tax-increment financing for the Silos project. The application, which came before the council in April 2023, included Brennan’s $20,000 estimate of what the project would face in street and sidewalk obstruction fees.
The council ultimately approved an estimated $582,000 in tax-increment financing subsidies for the Silos development along with a $100,000 low-interest loan from the city’s economic development fund.
As the project was constructed, municipal engineering staff noted much more extensive right-of-way intrusions than what the $20,000 estimate would have covered. Staff documented a combined 90 days of impacts that forced driving lanes to be shifted on Plum Street, according to a summary compiled last month. Sidewalks on both Plum and Second street were closed for the entire 255-day course of construction.
Applying the $300 daily fee required for right-of-way obstructions of any kind under the city ordinance, the total charges for the impacts on the two streets should have been at least $153,000. When all associated fees were included, the total rose to $181,050, city Communications Director Paul David told The Free Press Friday.
Instead, that $300 daily fee was applied only for the 90 days when the obstructions forced lane shifts for drivers on Plum Street, according to a summary of the obstruction fees compiled last month.
Staff cut the fee in half to $150 per day for when Second Street was closed for plumbing connections to the new building. The charges for the sidewalk obstructions were dropped to $50 a day and were assessed for the walkway closure on just one street rather than both.
The bottom line was a $40,800 charge to Brennan Cos. — a break of 77% from what was required under the city ordinance and fee schedule.
One more rebate request
The practice by staff of deeply cutting right-of-way obstruction charges came to the City Council’s attention on Jan. 27, prompted by Joe Brennan’s request for one additional discount. Brennan suggested the total obstruction charge should drop another $15,950, shaving the final bill to $24,850. He reasoned that the disruption his project caused to pedestrians on Plum Street was less impactful because the street was already closed at Riverfront Drive, which underwent reconstruction during summer of 2024.
“I am asking the City of Mankato to rescind the obstruction fees which occurred during the Riverfront Drive project on the grounds that they are enforced per block, and that Plum St. was already (significantly) obstructed due to the Riverfront Drive project,” Brennan wrote in a letter included in the council packet.
Appearing before the council, Brennan described the success of the Silos Apartments project.
“We got the building built in 8½ months. Normally it takes a year-plus,” he said, later portraying the development as an important contribution to the city center’s revitalization. “It’s fully occupied four months after we opened. I’m proud of it. Clearly there’s a demand for downtown living.”
The building, named for the silos mural it overlooks, has been marketed as “urban living at its finest” with rents ranging from $1,274 to $1,774 a month.
Before the council discussed Brennan’s requested fee reduction, Arntz advised the elected officials he had previously been granted a much larger fee cut.
“Our staff interpreted the fees differently than what our fee schedule provides,” she said, referencing the $40,800 in charges invoiced to Brennan. “And these do include a reduction — a dramatic reduction — already. So had we followed our policy, we would have had a much more significant fee charged.”
Council member Jessica Hatanpa asked for further explanation: “Can you explain the difference? I mean, that’s a huge difference.”
Arntz turned to interim Public Works Director Karl Keel, who had looked into the matter and determined that staff thought the charges should be lowered to $50 per day when only sidewalks were obstructed by a downtown project, even if “the strict interpretation of the fee schedule would be that we would charge $300 per day for each block.”
That approach — it was revealed publicly, apparently for the first time — has resulted in downtown developments receiving considerable reductions without the council being consulted.
“Admittedly, should not have done that,” said Keel, who was hired for the interim position only last year. “We should charge the fees strictly by the fee schedule. But over the years, staff has adjusted that to try to — in their mind — be more reasonable about how the fees are assessed or charged. Again, we’ll talk to you more about that as part of the work session after this meeting.”
Price-cuts go public
During that work session, Council President Michael Laven noted that a staff member was making a decision that, assuming it was offered for the mammoth Tailwind project, might have been several times more substantial than the Silos discount.
“That probably would have been in the hundreds of thousands,” Laven said, suggesting decisions of that magnitude should be made by the council. “… They made that determination in the office, ‘This is going to be way too much.’ I appreciate this coming back to us.”
During the regular council meeting, none of the council members directly criticized the decision by staff to override the council-approved fees. But Mayor Najwa Massad seemed uninterested in giving Brennan his requested added discount upon learning the charges had already fallen by as much as $140,000.
“I think that is a pretty significant amount,” Massad said.
Hatanpa also expressed opposition to the additional reduction in charges to Brennan, saying the obstruction fees “really are our only mechanism to keep the project moving … .” And she, too, noted the substantial reduction provided long before the issue came to the council, seeming to struggle with how to characterize the action by staff to reduce the fees charged: “It was misapplied — or done in a reasonable manner — already, upfront.”
Laven made the motion to reject Brennan’s requested additional reduction, keeping the charges at the staff-discounted $40,800.
The motion passed unanimously.
Follow-up questions
In the days following the meeting, Arntz replied in writing to a series of questions from The Free Press while declining to respond to others.
Arntz did not directly answer whether city staff have investigated the extent of the discounts provided to projects beyond the Silos Apartments, including the Eide Bailly building and the Tailwind redevelopment, or whether they have calculated the amount of revenue lost by not collecting the fees called for under city policy.
“Our priority now is to correct this and ensure consistency moving forward. We do not plan to revisit past projects to recalculate charges,” she said. “While I understand the concern about potential lost revenue for the general fund, I would not characterize it as a loss.”
She also said there is no need for any staff member to be disciplined.
“This work is handled by our engineering technicians in accordance with how they were trained,” Arntz said. “Staff currently using this methodology do not know the origin for the practice, just that this is what they were trained to do for sidewalk-only obstructions. With the request from Brennen (sic), we felt it was time to provide greater clarity of how we are going to execute this work and if any updates to the policy should be made. … We plan to bring back a more formal policy related to obstructions at the February 10th meeting.”
The Free Press asked as well if the sidewalk-obstruction discount was provided in every instance since the markdown policy came into existence or if the full fee was charged in some cases. Arntz was asked, too, if she was aware of other instances where fees established by the council have been reduced or eliminated by staff without the authorization of the city manager or the council. Her response was that systems are now in place to reduce the likelihood of that happening.
“From an internal control perspective, we’ve implemented stronger tracking controls for all permits, through the permitting software implemented in the last 18 months. The issue arose from a missing component — specifically, the update to the fee schedule — which is now being addressed,” she said. “As you know, I take this work seriously. We have an ethical responsibility to the public as a local government. Like other cities our size, we continually work to evolve our practices, as demonstrated by updates to our Charter and financial policies in the last few years. While this issue should have been addressed earlier, I am committed to ensuring that we get it right moving forward.”
As for the deep fee cuts that staff were providing for developers, Brennan told the council he was thankful, particularly after initially estimating that the streets and sidewalks would be obstructed to such a limited extent that the fees would total just $20,000.
“Unfortunately, it came in higher than that, and I appreciate the city staff recognizing the undue burden that $180,000 would have placed on the cost of providing housing in the community,” he said.