EDA Meeting Date: October 28, 2024
To: Members of the Economic Development Authority
From: Nate Carlson, Economic Development Coordinator
Title
Fifth and Washington Liquor Store Mixed-Use Development Update
Body
Action Requested:
The EDA shall hear an update on the 5th and Washington mixed-use redevelopment project.
Summary Report:
The EDA will receive an update on the 5th & Washington project. Since the last EDA board meeting the project was discussed at the Council work session on September 10 and City staff hosted a well-attended, “Open Air Open House,” on September 28.
The City Council delegated advisory responsibilities to the EDA through CC Resolution 2024-044 (Attachment 1). The EDA board provided an advisory recommendation via resolution (Attachment 2) related to the redevelopment as outlined in the memo in September.
At the September 10, 2024, Council work session, Economic Development staff and partners presented information regarding the status of the proposed 5th & Washington redevelopment project to the Council. That presentation is summarized here and included in Attachment 3.
Staff has been working with several consultant partners to develop conceptual scenarios for the development. The team includes TSP Architects, the firm providing guidance for a new liquor store; Bruce Jacobson, the landscape architect and community engagement consultant for the Riverfront Enhancement Action Plan; and internal stakeholders from the housing and planning groups within the Community Development Department, along with the City’s financial advisor.
Team members:
Bruce Jacobson - Landscape architect and community engagement consultant
Von Peterson - Principal/Architect, TSP Architects
Greg Schoer - Architect, TSP Architects
Nick Anhut -Municipal financial advisor, Ehlers
Ben Martig - City Administrator
Jake Reilly - Community Development Director
Brian Whitt - City Liquor Store Manager
Nate Carlson - Economic Development Coordinator
Melissa Hanson - Housing Coordinator
Mikayla Schmidt - City Planner
Staff is seeking direct feedback from EDA Board members to advise and inform the City Council in November, specifically regarding how to recruit suitable development partners for the entire project. This project is part of a broader context within the downtown commercial district and a component of the overall comprehensive outcomes for development in the city. The adopted Northfield Comprehensive Plan policy direction for economic development is, in part, to diversify and increase the tax capacity of the city in a fiscally responsible manner. The draft 2045-horizon plan contemplates the same result.
The Northfield EDA discussed the project in detail at the regular meeting in June and with the finance subcommittee in July. Several themes can be extracted from the conversation between EDA Board members and City Staff:
¾ The City of Northfield needs to provide clarity to the community regarding the financial feasibility of a new and improved municipal liquor store, and the policy considerations that go into maintaining a municipal liquor program. Highlighting the “why” and “how” of moving the liquor store will provide better understanding to the public.
¾ The City of Northfield needs to be clear and transparent regarding the cost and rationale for the structured parking component of the project. Public perception of parking needs will continue to be central to any redevelopment project discussion, and the city should provide answers to those concerns. A phased approach to solving perceived parking problems has been mentioned by several members of groups advisory to the Council.
¾ The commercial components of the project also need to be reviewed in greater detail. Northfield has a vibrant and successful downtown market. However, new commercial space comes at a premium and EDA members have raised concerns about feasibility of retail/service-type commercial users. More than one person identified a need for newer class A office space, which has not yet been contemplated as a component of this project.
¾ The housing component is a significant stated and demonstrated need for the community. Construction costs associated with housing are very high at this time. EDA board members recommend more information about the financial feasibility of including housing. To accommodate at least 50 homes in the project, the maximum height limit is exceeded om the current preliminary design work.
At the Open House event, held in the parking lot at 5th and Washington, staff and consultants showed potential floor plans, offered an interactive look at digital images of a potential future building on the site, with options showing what it might look like at various heights, density, and masses. Other information about the process, the timeline, and the desired outcomes was available.
Many people came to discuss the financial feasibility of the project and wanted to know more about how the project would be funded, who would be funding it, and why there was a need for a new, bigger municipal liquor store. Staff was not prepared to answer those specific questions at the time, other than information related to the financing and related debt service associated with the new liquor store. As described at the September 10, 2024, Council Work Session, the liquor store project will pay for itself, including debt service, through its revenue. The project is projected to generate more revenue than required.
Information regarding project feasibility, including costs were included in information available in Council item 24-556 (Attachment 3). There was also interest in knowing how many housing units there would be; how much they might cost; whether they would be ownership or rental units; how many parking spaces would be included, how the parking would be managed and allocated, and how the parking and potential residential units could impact the congestion in the public streets around the site.
Alternative Options:
None related to this report.
Financial Impacts:
Financial impacts have been presented by the City’s Financial Advisor, Nick Anhut of Ehlers. Much of the financial aspects are unknown, given the development partner for the housing component has not yet been identified.
A committee of EDA Board members, Randy Yoder, Enoch Blazis and Andy Beaham, met with the City’s redevelopment finance team on August 15 to learn more about the project financials. A community member, Rick Estenson, was invited by the City Administrator to participate in the meeting due to professional banking expertise and status as a trusted community leader.
This committee confirmed the following facts associated with feasibility:
¾ The liquor store project is financially feasible and poised for long-term success. The city should continue planning for this part of the project.
¾ The commercial component is also financially feasible, ideally with a private development partner.
¾ The parking component can and should be part of the project, and more information is needed about the appropriate number of parking spaces. The City should define how the parking will be funded.
¾ The housing component does not appear feasible given stress in the housing and construction finance industries today. However, a private partner could help educate the City staff and elected and appointed officials regarding the long-term financial outlook on a multi-family, mixed-use building. The Committee raised the question of scaling the project to secure a more effective project in the near term.
Municipal Liquor Additional Financial Information
In 2015 the City Council re-committed to exploring the longstanding need for a new and expanded liquor store to better meet customer needs, market conditions and community goals. The following were specific goals defined for the project outcome:
• To control the sale of alcohol; and
o Municipal liquor stores started after Prohibition as a means for cities to control the distribution of alcohol in their communities. Later, cities found their municipal liquor store could be a method of generating needed non-tax revenue. Today, the purpose of municipal liquor stores is to "control the distribution of alcohol - while simultaneously generating income for the community";
o "Controlling the sale of alcohol" is different than "responsible service." All alcohol sellers should serve responsibly - don't sell to underage or intoxicated individuals. However, cities like Northfield reflect a community attitude with added emphasis on responsible service as well as reflecting community values on bringing awareness of the pitfalls of substance use and supporting programs targeted at education on the topic such as the Northfield Alliance for Substance Abuse Prevention that "advocates for and with youth, committed to creating a community where our youth can lead healthy lives free of alcohol and drug use."
o Providing access to one sole municipal liquor monopoly operation (versus unlimited private liquor licenses and access under a private model) of intoxicating liquor in the city will provide greater assurance of the control of alcohol to our customers who are 21 years of age.
• To provide revenue to supplement traditional tax and fee revenues; and
o City Profits Benefitting the City
§ The Northfield Liquor Store has contributed over $800,000 (over $80,000/year) to directly reduce City property taxes over the last 10 years;
§ The City has used those funds to directly invest in the Northfield Alliance for Substance Abuse Prevention and the Youth on Boards programs. Should the City eliminate those we would have to reduce or eliminate these programs or increase property taxes to keep these programs as currently provided;
§ The Northfield Liquor Store has had gross profits of about $1,700,000 (over $170,000) over the last 10-years which includes transfers to the general fund and building cash reserves for maintenance and new building construction plans;
§ Municipal Liquor Compared to Privatization of Liquor
§ If the City did not have municipal liquor the estimated City revenues generated from a private liquor store (at the same site) including property taxes and license fee is estimated at about $6,000 per year to the City. Again, this is compared to the $170,000 per year we have seen in recent years as a municipal liquor operation.
§ In summary, if the City privatized municipal liquor there would be an anticipated property tax increase of $74,000 per year to make up the losses in revenues and fees while continuing our youth substance prevention and youth on boards leadership programs.
o Expanded Northfield Liquor Store
§ A new and expanded liquor store that better serves our customers is projected to pay for itself through a combination of liquor store cash reserves and a city loan repaid by increased sales revenue from the store.
§ State law prohibits the use of city property taxes for liquor operations and if there is a shortfall, specific public hearings are necessary to authorize shortfalls covered by non-liquor store funds.
Tentative Timelines:
• July - Initial EDA Review and Feedback
• August - Initial Planning Commission Review
• August - EDA Resolution Initial Recommendations to Council
• September - HRA Review
• September - Council Work Session
• September - EDA regular meeting continuation of work based on Council feedback
• September 28 - Community Open House
• October 24 - Update to EDA Board
• November - Council considers delegating responsibility for project completion to EDA