MANKATO — Fees paid by developers when they obstruct streets and sidewalks could be headed downward in Mankato, just in time to provide a substantial break for a major downtown hotel project.
The revisions to be considered Monday night followed a work session where the City Council was asked to consider adjusting the charges imposed when a construction project forces the closure of sidewalks and streets. The fees are intended to reflect the disruption caused to drivers and pedestrians when public right-of-way is blocked off to provide additional breathing room for contractors performing demolition, construction or other work.
Charged on a per-day basis, the obstruction fees also serve as a financial incentive for developers to get their work done as quickly as possible and to not unnecessarily delay removal of the fencing used to block access to driving lanes, on-street parking spots and walkways. The justification, according to Mankato City Code, is to ensure that work progresses “in an expeditious manner … in order to avoid unnecessary inconvenience to the public.”
The relevant ordinance states, too, that “permit fees shall be assessed for work governed by this code in accordance with a resolution of the City Council.”
That hasn’t been happening for an undetermined number of years, the council learned recently. Instead of assessing fees as approved by the council, city staff have been deeply discounting the charges to developers when the obstruction involves only a sidewalk. That decision — charging $50 per day per block rather than the $300 daily charge authorized by the council — has resulted in six-figure breaks in some cases in the amount developers have been required to pay. (See accompanying story.)
City Manager Susan Arntz told the council that staff should not have unilaterally made that decision. Among other reasons, it deprived the council of the opportunity to decide whether the fees should be adjusted. That opportunity is now being provided just as Hotel Mankato LLC undertakes one of the largest private developments in downtown Mankato’s history — a nearly $93 million endeavor that will transform a block-long section of Main Street from Second Street to Riverfront Drive.
Although just a fraction of the development’s overall cost, the traffic obstruction charges will be far from inconsequential. The total anticipated charges would top $460,000 if applied as written in city code using the council-authorized fees, according to an estimate provided to The Free Press on Friday by interim Public Works Director Karl Keel.
Even with the sidewalk-obstruction discounts, the estimated charges to the hotel developers would total nearly $300,000.
“It’s a big project,” Arntz said. “It will obstruct three sides of a city block.”
New rules on the way
A potential adjustment, brought to the council work session by Arntz and Keel, creates a more complex set of fees compared to the current policy. As of now, the $300 charge per day per block in the downtown area covers any type of right-of-way obstruction, regardless of whether it’s the entire road, a driving lane, a parking lane or a sidewalk. The existing fees drop to $150 for arterial/collector streets elsewhere in the city and to $75 when the project is along a residential street.
To start the discussion, Arntz and Keel presented a plan that would create a graduated system of charges. For downtown projects, a private developer that completely closed a street would pay $450 a day, which typically occurs for no more than a handful of days — if at all — on most projects. The fee would fall to $225 per day per block if the obstruction reduces the number of driving lanes, $150 for obstructing only a parking or turn lane, and $75 if the closure only impacts a sidewalk.
For arterial/collector streets elsewhere in the city, the proposal drops the charges by a third compared to downtown projects: $300 for a complete closure, $150 for a driving lane, $100 for parking/turn lanes and $50 when the obstruction was limited to a sidewalk. In the comparatively rare cases where residential streets are impacted by private property construction, the associated daily obstruction fees would be two-thirds lower than those in downtown: $150, $75, $50 and $25.
Council to cut fees further
After a lengthy discussion, the council coalesced around the approach proposed by Arntz and Keel but wanted to further reduce fees on downtown redevelopments such as the hotel project. Council member Jessica Hatanpa suggested charging developers the same mid-tier rate regardless of whether projects occur in the city center or along arterial and collector streets throughout Mankato.
“I don’t like the idea of the downtown being so much more,” Hatanpa said.
The City Council for decades has made downtown revitalization a strategic goal, so the city’s fee schedule should not discourage that from happening, she said.
The fee changes brought forward by Arntz and Keel would have lowered the anticipated charges imposed on the hotel developers from the $462,000 under existing rules (and the $297,000 under the current practices applied by city staff) to $247,000.
The additional revision suggested by Hatanpa knocks it down further to an estimated $165,000.
The revised fees are on the council’s “consent agenda” Monday, meaning they are expected to pass without discussion and without a separate vote, receiving approval in conjunction with eight other items considered non-controversial. The new fees would become effective immediately, according to the proposed resolution.
If that happens, Mankato Hotel LLC will be charged nearly $300,000 less than what municipal rules currently would have required — a 64% cut.
The project, which will feature a 10-story AC Hotel by Marriott and adjacent four-story Element by Westin, began last month with portions of Second and Main streets obstructed with fencing to make room for the razing of existing buildings on the site.
Even though the fee changes are being approved more than a month after the hotel project obtained its right-of-way obstruction permit from the city, that doesn’t mean the change in the city policy and the cuts in the fee schedule are coming too late for the developers.
Mankato Hotel LLC’s bill will be calculated using the fee levels in place when the project is finished, which is when the payments must be made to the city, rather than the fees that existed when the permit was obtained, according to Arntz.
“It would be based on the time that it is charged,” she said.
Mankato Hotel LLC is made up of a coalition of some of the city’s most prominent developers who have been involved in tens of millions of dollars of downtown projects in the past 20 years. They include Tony Frentz and Rob Else, who developed the Eide-Bailly building at the corner of Second and Main streets; ISG principal Chad Surprenant, who worked with Frentz and Else on the 2012 redevelopment of the HECO office building at Hickory and Second streets; and Tailwind Group, the company behind a multi-building redevelopment on South Front Street.