Minnesota Cities Magazine

Two-Way Street: How Has Your City Promoted Economic Development?

Economic Development Coordinator
City Of Harmony

The City of Harmony and the Harmony Economic Development Authority (EDA) established an innovative program in 2009 to improve the look, value, and structural quality of commercial buildings. Located in southern Fillmore County near the Iowa border, Harmony has about 1,000 residents.

Business rehab
Harmony’s Commercial Rehabilitation Program provided up to $10,000 per property in the form of a forgivable loan to make a variety of exterior enhancements. Exterior windows, doors, siding, roof repairs, signage, brick work, energy efficiency improvements, accessibility issues, and code violation corrections were all eligible expenses. The program also required a dollar-for-dollar match; to receive the full $10,000 award, applicants had to invest an additional $10,000 of their own funds.

In many cases, businesses would do needed upgrades like replace an aging furnace system. This program allowed them to also replace inefficient windows and doors or outdoor signage essentially for free, creating a win-win situation.

Structure and investment
The program was structured as a 0 percent APR loan with a five-year term. The principal amount would be forgiven at a rate of 20 percent each year. No payments were due unless the owner sold the building within the five-year term of the note, in which case the owner is responsible to repay the appropriate pro-rated principal amount back to the EDA.

Harmony initially invested $150,000 into the program, but these funds were expended within two years, prompting the City Council to approve additional projects on a case-by-case basis. In total, the city invested nearly $182,000, sparking an additional $213,000 of private investment into 25 commercial properties throughout the community.

Shot in the arm
We feel it was a tremendous success. An informal poll identified 35 buildings in need of exterior repair, so we were able to address over 70 percent of the issues the EDA identified. Nearly 50 percent of all the funds spent through the program were spent with Harmony businesses, and about 35 percent within the region. This was definitely a shot in the arm, especially during the Great Recession.

City Administrator
City Of Owatonna

Owatonna (population 25,400) uses a collaborative approach to economic development. The city formed a group in 2006 called the Owatonna Partners for Economic Development (OPED). Made up of representatives from the city, county, utility, business incubator, and chamber, this group brought to fruition a complicated project that saved Owatonna taxpayers over $1.4 million and revitalized an entire city block.

Empty hospital buildings
The complication arose when the hospital announced plans to move in 2006. The city-owned former hospital, built in 1931, had multiple additions and was located in a residential neighborhood adjacent to a church. The reuse had to be compatible with the neighborhood.

Church leaders investigated acquiring the property, but the demolition costs prohibited that. Although the property was professionally marketed, the building remained empty for almost four years. The city had ongoing carrying costs, and the estimated cost for demolition totaled $1.4 million.

Fareway Foods was interested in building a new grocery store at the centrally located site. And Mayo Clinic was interested in part of the old hospital. But both were discouraged by the high demolition cost.

Overcoming financial obstacles
To overcome these obstacles to redevelopment, the city employed tax increment financing (TIF), and established a redevelopment district with a 25-year life.

Unfortunately, even with this tool, there was a sizable gap left to fund the demolition and construction costs.

To close the gap, partners were needed. OPED facilitated the collaboration efforts of the city, Steele County, Mayo Clinic Health Systems, Sacred Heart Church, Front Door Realty, Allina Health and Owatonna Public Utilities. Each of the partners contributed to close the gap.

Winning partnership
With the help of all the partners, a development agreement involving Mayo, Fareway, Sacred Heart Church, and the city was signed in 2012. As a result, the old hospital facility has been demolished, Mayo Clinic has new office space, and the community has a new grocery store, new jobs, improved access, and room for a needed church expansion.

Read the July-August 2014 issue of Minnesota Cities Magazine

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