MANKATO — Downtown developers will see municipal fees sliced by more than half when their project disrupts roadways and sidewalks under revisions approved by the City Council Monday night.
The fee reductions became effective immediately upon passage, meaning anticipated charges levied on a major hotel project underway on Main Street will plunge by nearly $300,000.
The adjustments, which will provide a 64% cut in fees assessed to Hotel Mankato LLC, were approved without comment as part of the council’s “consent calendar” — a grouping of items considered noncontroversial that are passed on a single vote.
The obstruction fees, assessed on a per-day basis, serve as a financial incentive for developers to avoid unnecessary delay in removing fencing — set up to provide working space for construction or demolition — when it blocks access to driving lanes, on-street parking spots or sidewalks.
The policy in place prior to Monday night’s action set a uniform fee regardless of whether the obstruction blocked an entire street or just a sidewalk — $300 per day for each block impacted in the downtown area, $150 for arterial/collector streets elsewhere in the city and $75 when the project impacted a residential street.
For major downtown projects that take months or even multiple years to complete, the fees can add up to hundreds of thousands of dollars.
That didn’t mean they were always levied in their entirety, however, something the council learned two weeks ago. Instead of assessing fees as mandated by council policy, city staff have been deeply discounting the charges to developers when the obstruction involves only a sidewalk.
The decision to charge $50 per day per block rather than the $300 daily charge authorized by the council resulted in developers in some cases receiving six-figure breaks in the obstruction charges.
In passing the new policy, the council is essentially following the lead of an unidentified staff person who decided at some point in the past that the fees were unreasonably high. The now official amendment to the old fees is a graduated array of charges reflecting the level of disruption, particularly to vehicular traffic, but the overall result is a major decline in what will be charged.
For downtown projects, a private developer will pay the current $300 fee only in the rare and brief instances when a project completely closes a street. The fee would fall to $150 per day per block if the obstruction is limited to a reduction in the number of driving lanes, $100 if the project closes only a parking or turn lane, and $50 if the closure impacts nothing beyond a sidewalk.
In the much more uncommon cases where streets in residential neighborhoods are impacted by construction on adjacent private property, the associated daily obstruction fees will be lower still: $150, $75, $50 and $25, respectively.
The downward adjustments will apply to all projects going forward, but Monday night’s action will also substantially benefit the $92.7 million downtown hotel redevelopment even though it began in January.
The developers will pay an anticipated $165,000 in right-of-way obstruction fees instead of the $462,000 in charges that could have been assessed under the previous rules. It’s a significant cut even from the $297,000 that would have been levied under the unsanctioned practice by city staff of providing steep discounts when only sidewalks were closed.
The council has long supported downtown redevelopment projects, but the mammoth hotel project — featuring a 10-story AC Hotel by Marriott with a top-floor restaurant and an adjacent four-story Element by Westin — has generated a particularly lengthy set of city-backed subsidies.
The council successfully applied for a pair of state grants totaling $1.42 million on behalf of the developers. The grants aim to recoup some of the costs associated with redeveloping properties containing dilapidated buildings, in this case demolishing the old City Center Hotel, its underground parking garage and the Landmark Building.
In addition, the council has shown strong interest in accelerating improvements to the aging Civic Center Parking Ramp, which is adjacent to the hotel project and will provide overflow parking for hotel guests. Tentative plans are to invest $1.4 million in local sales tax proceeds into aesthetic upgrades to the 55-year-old ramp before the hotels open in late 2026 or early 2027.
And the council approved an uncommonly large package of tax-increment financing, which will return to the developers most of the additional property taxes generated by the new hotels from now until after 2050. The council has traditionally limited TIF subsidies to 15 years, after which the added property taxes flow to the city, county and school district.
But the council agreed to extend that to 26 years for the Hotel Mankato project, the maximum allowed by state law, which will result in an estimated $9.944 million in property taxes being rebated to the developers to help cover project costs.