East Bethel built $50 million project expecting hefty development.
With the strike of a gavel in a far corner of Anoka County, five people committed nearly $50 million to a water and sewer project for homes and businesses that didn’t exist.
It was December 2010, and the East Bethel City Council had just approved a controversial plan to build two plants in the largely undeveloped city that doesn’t even have a grocery store. City leaders saw an opportunity to be the “next big burb.”
The project wouldn’t serve any of East Bethel’s existing 11,000 residents; it was built for the future, for the growth it would spur and handle.
Three years later, the plants are up and running, but the growth that was expected to bankroll the project hasn’t materialized. Only three businesses are connected.
Residents are absorbing a 15 percent jump in their 2014 city property taxes to meet the first round of payments on $18 million in bonds sold for the project. City leaders — who have all turned over since the project was approved — are desperately trying to keep the project from sinking East Bethel. One council member at a meeting with state lawmakers spoke of worst-case scenarios, including the prospect of a “failed city” without some outside help.
Many inside and outside the city point a finger at the regional planning agency, the Metropolitan Council, which fronted East Bethel $30 million for the project based on growth forecasts and now is in line for repayment through hookup and user fees that aren’t materializing.
“It was a travesty it was passed. I think it was a travesty the Met Council let it happen,” said Mayor Bob DeRoche, who joined the City Council in 2011, weeks after the project was approved. “We are in a position now to figure out how to make it work.”
To many, the story is one of overly optimistic projections fueling unrealistic ambitions, of a once-fast-growing city that followed a path neighbors wisely resisted. But there are some who say it’s too soon to write off the project. They say it may someday be remembered as an investment that helped lay the groundwork for the city’s future.
Growth and recession
The project was first conceived around 2004, a time when the housing market was hot and suburban growth seemed all but guaranteed.
East Bethel was 48 square miles of mostly undeveloped fields and wetlands. But if it installed city services, it would be the first in the area to do so, enticing developers to the community 28 miles due north of Minneapolis.
“We were in times of rapid expansion. The city had been issuing 100-plus building permits a year,” said City Administrator Jack Davis, who has held that job since 2011. “What happened in Blaine could happen in East Bethel.”
A 2006 outside analysis for market potential envisioned a new city center, a “commercial and civic heart of the community” rising from the fields along Highway 65 with shopping, houses and condos. A city and Met Council forecast projected that East Bethel’s population would double by 2030, to more than 23,000.
Then came 2008 and the Great Recession. Growth projections seemed iffy to many residents who pleaded with the council to pull the plug on the project. Housing permits, which had peaked at 126 in 2004, dropped to six in 2008.
The water and sewer project became the issue in the 2010 City Council elections. Three of the five seats were on the ballot, and all three were won by newcomers who opposed the project.
But the council, including three lame-duck members, pushed it through days before the majority left office in 2010. Part of the rush was to take advantage of several federal incentive programs that expired at year’s end.
“This is what they thought they could do. It’s an Alice in Wonderland kind of deal,” said current Council Member Tom Ronning, who was elected in 2012 and had opposed the project as a private citizen. “It’s my opinion there couldn’t have been any due diligence with this. The numbers just don’t add up any place.”
The new council looked into scrapping the project. But with the bonds sold and other outlays already made, the cost would be steep — between $5 million and $10 million, according an analysis commissioned by the new council.