School board's reluctance puts Eagan tax deal on hold

In an unusual and bold move, the Burnsville-Eagan-Savage school board has effectively denied the city of Eagan's request for three more years of tax revenue to pay back costs incurred as part of creating a successful new development, Cedar Grove.

The area, near Hwy. 13 and Cedar Av., is now home to Twin Cities Premium Outlets and several townhouse and condo projects. Plans for a hotel are in the works.

Board members voted 5 to 2 to postpone indefinitely the extension of Cedar Grove's status as a tax increment financing (TIF) district. TIF districts are economic development tools used to encourage cities to make initial investments in rundown areas to spur development, with payback coming later.

"We're disappointed," said Mayor Mike Maguire. "We thought that we made our case for the existence of a gap in the financing behind the Cedar Grove district and a good case for proactively making sure that gap didn't fall on the back of the taxpayers."

The city says the extension is needed because it will not have collected enough "increment" on Cedar Grove by 2029, the year the TIF expires, to recoup its $66 million investment. Without an extension, it will be $13 million shy — and even with it, $2 million short. Officials say the recession delayed development, resulting in the deficit.

That $66 million went toward acquiring land, building a parking ramp and development costs.

With TIF districts, the full tax revenue on an improved property doesn't benefit local government until the district is decertified. The three-year extension would have meant the school district would forgo about $2.8 million in tax revenue.

"The board feels it would be best to revisit this," said Jim Schmid, board chair. "My personal side is, I believe [this action] leaves the door open for the city of Eagan and the board to discuss this further."

But without the school board's approval, the extension won't happen anytime soon, said board member Bob VandenBoom. He added that the city is not aware of another time a school board has denied a TIF extension.

VandenBoom said while he supports the development generally, he believes city officials provided numbers to the state on the updated TIF plan that they knew were unrealistic, making it look like the district would eventually end up with a $20 million surplus, not a deficit.

Maguire, however, said those figures were just guesses: "When you estimate, you know one thing — you will be wrong."

Despite the city's claim that it was struggling to recoup its investment, officials provided conflicting information on whether more city money would be spent on future Cedar Grove projects, VandenBoom said.

VandenBoom believes the updated TIF plan "was never workable without significant outside assistance."

He added, in an e-mail: "Good intentions for the Cedar Grove area aside, if I were to vote 'yes' after knowing how the city used the TIF update process to achieve their ambitious spending goals, wouldn't I be supporting a fundamentally flawed process — open to abuse?"

Two other board members, DeeDee Currier and Abigail Alt, disagreed with the board's action and wanted to take a vote on the extension.

"In my opinion, the expectation to act is quite clear," Alt said.

Currier, a former principal of an elementary school near Cedar Grove, was passionate about supporting the extension. She is "grateful for the new vitality of the area … Eagan officials have explained, albeit not perhaps in the most endearing fashion, the effect of the recession/depression of 2008 through 2010 on the original TIF," she said.

And the board should be supporting local officials, because the district needs community support to pass a $65 million bond and a $2.5-million-per-year technology levy this February, Currier added.

TIF district designation must be granted by the state legislature. The state approved extending the district last session, provided the Dakota County board, the Eagan City Council and the Burnsville-Eagan-Savage school board approved. The first two entities have already done so.

Without the city's initial investment, state and county officials agreed, Cedar Grove likely wouldn't have been redeveloped, but remained blighted.

What's next for the city of Eagan? "We'll just move on, I guess," Maguire said. "If and when that gap comes to fruition in 2029, or if we take measures to alleviate that somehow, only time will tell."