The special property tax assessments for the remake of Nicollet Mall are raising a lot of questions

MinnPost photo by Peter Callaghan
The new Vikings stadium is the first parcel on the eastern edge that is outside the assessment area.

Here’s a fun fact about the pending special property tax assessments being implemented to help pay for the rebuilding of Nicollet Mall: Target Field is the last parcel on the western edge of downtown that is inside the assessment area — while the new Vikings stadium is the first parcel on the eastern edge that is outside the assessment area.

That fact is probably a lot more fun for the Minnesota Vikings than for the Minnesota Twins. Being inside the zone will cost the Twins $1.08 million — more than $50,000 a year between 2017 and 2037. The ballpark’s share for renovating Minneapolis’ main street is among the largest, likely surpassed only by the $1.3 million that owners of the IDS Tower will pay, and the $1,126,339 assessed to the Wells Fargo Center at 90 7th Ave.

Among other downtown landmarks, City Center at 600 Nicollet will be assessed a little more than $885,000, the U.S. Bank Building at 800 Nicollet $918,240, the Hyatt Regency Hotel just under $408,000, Capella Tower $621,644, Target Co. headquarters $338,228.85 and city-owned Target Center $114,856. The Minneapolis Central Library will pay $461,687.

“We were surprised by it, and certainly have a lot of questions about the methodology,” said Twins President Dave St. Peters. The baseball organization, he said, is a big supporter of the Nicollet Mall reconstruction, saying he had “no dispute relative to the priority that project represents for our city, state and region.” The ballpark is exempt from regular property taxes but not special assessments. Under its lease, the team, not the Minnesota Ballpark Authority, pays such assessments.

But the size of the assessment, given the distance the ballpark sits from the mall — and the fact that the Vikings stadium is not included — were among the concerns he raised with city elected officials. Even so, St. Peter did not expect the team to appeal its assessments.

The Vikings have no such concerns. Indeed, even if the the team’s new, $1 billion-plus stadium been included in the assessment zone, the annual special assessment would not have been paid by Vikings ownership. Instead — under the legislation creating the football stadium — it would have been the responsibility of the Minnesota Sports Facility Authority.

Who pays, and how much?

Why Target Field is in, however, and the Viking stadium is not is among several questions asked by property owners who have been objecting to their own assessments.

“The Mall will be a stopping point for tens of thousands of Vikings fans and stadium-goers, many thousands of whom will cross the mall on their way from parking in ramps A, B & C,” wrote Kurt Glaser, an attorney representing The Basilica of St. Mary, in his challenge to the Basilica’s $50,000 assessment. Glaser also believes that several new projects, such as the two Wells Fargo office buildings near the new stadium, will be under-assessed.

“Collectively, these benefitting properties are worth more than $1.4 billion,” Glaser wrote. “These properties should pay their fair share of the benefit they will receive from this project.”

Who pays and how much are important questions for owners of the 7,100 parcels within the special assessment area. That’s because the private share of the $50 million project is fixed at $25 million. The city gets the same amount for the project either way. But the more parcels and more value included would have spread those costs among more payers. Every dollar that might have been assessed to the Vikings stadium, for example, is one fewer dollar needed to be paid by others.

Map showing the three assessment categories on and around Nicollet Mall.
City of Minneapolis
Map showing the three assessment categories on and around Nicollet Mall.

The complex assessment plan considers eight different property types and four zones, based on nearness to the Nicollet Mall. The property groups based on usage are office, hotel, retail, parking, industrial, institutional, land and residential. As explained to the City Council, an office building closest to Nicollet Mall with a value of $10 million would pay $2,900 a year for 20 years, while a condo in the zone furthest from the mall with a value of $250,000 would pay $210, or $10.50 a year.

So why isn’t the Vikings stadium being charged to help renovate the 12 blocks between Grant Street and Washington Avenue South?

Even though the new stadium was only in its design phase when market values for the mall project were used to determine the assessment scheme, the land did still hold the Metrodome, and could have been assessed using that value.

Robert Strachota, president of Shenehon Business and Real Estate Valuations, which crafted the assessment system, said the firm excluded the Vikings stadium because the part of downtown holding the stadium didn’t show enough “measureable special benefit” from the mall renovation. Under assessment practices and state case law, he said the assessors have to be able to detect a market benefit for a majority of the parcels in a given neighborhood. And while there was a market benefit to the stadium from the Nicollet Mall redo, Strachota said, the firm didn’t find there to be a similar benefit for a majority of parcels in the rest of the neighborhood, which meant the entire neighborhood had to be excluded.

Which neighborhood was that? According to Shenehon’s judgment, the stadium is in a separate neighborhood east of Chicago Avenue — and not in what is known as Downtown East, the redevelopment area that contains the Ryan Companies’ Wells Fargo projects as well as what will eventually become the commons park. That neighborhood is part of the special assessment area.

Strachota said the firm doesn’t use the same neighborhood names and boundaries as those commonly used by residents, but instead relies on geographic boundaries and the distance from Nicollet. For example, some of what residents would consider to be the North Loop is in the assessment zone, while other parts are not. The Ford Center, at the corner of North Fifth Avenue and Fifth Street, for example, is part of the assessment plan; the new Be The Match headquarters, located across North Fifth Avenue, is not. Also excluded from the zone is the Minneapolis Farmers Market area, which is being considered as possible site for a new soccer stadium.

In addition to working for the basilica, Glaser is a contract city attorney for the cities of Centerville and Lexington, and has represented both governments defending special assessments and property owners challenging them. He doesn’t think the neighborhood method is required in such assessments, and quoted from the city charter, which requires that if the city can identify a special benefit to a parcel it must include it in the assessment, regardless of whether neighboring parcels benefit.

“It seems to me that they should have followed the literal language of the Charter provision … and assessed against ‘each property’ (including the stadium) which was ‘benefited by the improvement,’ ” Glaser said.

Despite such complaints, the Minneapolis City Council last week gave the project and the assessment system crafted under contract with Shenehon the go-ahead. Property owners can appeal their special assessments to Hennepin County District Court. Once that process is completed, the assessment rolls will be finalized, with collections starting in 2017.

Council Member Jacob Frey is a strong supporter of the Nicollet Mall redo, saying he thinks each parcel assessed will benefit at far greater levels than they are being assessed. But he said he knows that some are unhappy with the assessments and wishes the Vikings stadium had been included. But Frey says he understands the rationale used by Shenehon. As for the Twins, Frey said, “they’re contributing greatly and it is much appreciated.”

Date for market evaluations also debated

The other criticism of the assessment scheme centers on the date Shenehon and the city chose to use for market evaluations in crafting assessments: Jan. 2,  2014.

That date reflects property values measured in 2013. Don Elwood, the city’s director of transportation planning and one of the leads on the project, said the data were the most recent available when planning geared up last spring. He said the planners wanted the financing to be completely in place before bonds were sold and bids were awarded.

The state awarded the project $21.5 million and the city of Minneapolis is contributing $3.5 million. Property owners will pay the rest, based on how much the value of their property will increase due to mall renovation.

But was the city required to pick a date that was before a handful of large downtown projects were completed and on the tax rolls?

As part of the process, for example, Ryan Companies’ twin office buildings near the new stadium will be assessed as surface parking lots, not Class A office space, because that’s what they were in 2013. The two Wells Fargo office buildings will pay $26,253; the parcel across South Fourth Street from the park, where apartments will rise, will pay just $5,347.78.

Likewise, the Nic on 5th luxury apartment building, which sits on both the mall and the light rail line, will be also be assessed as though it was still a parking lot. It will be charged $119,000 over 20 years.

City Attorney Susan Segal said state law and the city charter combine to create a narrow band within which the city has to fix market values for the assessment. For example, she cites a city charter provision that says, “The assessment and levy may occur within one year before work begins on the improvement.” Another date could have been chosen, but she didn’t agree with Glaser that the city could have waited for market values on the day the new mall opens in 2017.

“You have to pick a point in time,” she said. “New property undoubtedly will have come online after January 2014 as it will the year after that and the year after that. There’s no perfect point in time.”

Glaser said the language cited by Segal is permissive, not mandatory. That is, it is permitted to set the assessment up to year before work begins, but it isn’t required. He said he has seen governments wait until after bids are opened to set the market values used for assessments. That way the city knows the actual costs of the project. He sees political motivations in picking 2013 market values, since the city is directly involved in both the stadium project and the Ryan Properties buildings.

“There is no rational relationship between that date and this project,” Glaser said.

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Comments (2)

  1. Submitted by Steve Titterud on 05/20/2015 - 01:31 pm.

    Mr. Glaser’s objections have fallen on the deaf ears of…

    …Minneapolis officials, including the city attorney.

    Apparently he has not noticed that the City Charter is obeyed only when convenient in the eyes of our city government – and when inconvenient, is either interpretted according to the perceived needs of the day, or is mocked as a relic of the past, like your crazy aunt.

  2. Submitted by Tom Melchior on 05/20/2015 - 03:22 pm.

    Nicollet Mall Assessment

    Not sure why a big deal is being made of this. If you look at the map, the different assessment areas seem quite reasonable. The Vikings stadium is 8 blocks from Nicollet Mall, the Twins 4.5 blocks. Seems much ado about nothing.

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