Lawyers to confir on city harbor development agreement

MONDAY, NOVEMBER 26, 2018 — The Tower City Council again visited the Tower Harbor Project during its Monday, November 26 meeting. It acknowledged that the city has been selected to be a recipient of Minnesota local road improvement funds. This state spending will benefit improvements on Pine Street in front of the firehall and across the East Two River bridge in rerouting the existing roadway to accommodate the construction of condominiums at the city harbor. St. Louis County will act on the city’s behalf in administering the state-aid project. Short Elliott Hendrickson, Inc. (SEH) engineers will need to submit construction plans, on behalf of the city, along with engineering estimates to the Minnesota Department of Transportation (MNDOT) for final approval. MNDOT currently is earmarking $420,000 for the project.

City Clerk-Treasurer Linda Keith told the city council that in accepting this grant, the city obligates itself to spending $186,000, its portion of a matching finance package necessary to complete the work.

Councilman Lance Dougherty, asked “What are our plans to come up with the $186,000?”

“That is to be determined,” Keith answered.

Their are options for funding the city’s match, according to Mayor Josh Carlson. He said that the Iron Range Resources and Rehabilitation Board could be approached to help the city with the match because the roadway changes are a part of the city’s harbor project. He added that the city might also find money available from the city’s own Gundersen Trust.

While the city council acknowledged the grant and discussed potential ways it could meet its obligations, no action was taken by the council.

Mayor Carlson then telephoned potential developer Jeremy Schoenfelder in New Mexico, to further discuss the details of the development agreement between Tower Harbor Shores, a limited liability company formed by Mayor-elect Orlyn Kringstad in 2016, and the city.

On November 13 both parties agreed to a city tax abatement of 75 percent on the proposed projects real estate taxes and planned to seek 100% tax abatement from St. Louis County. The city further agreed to offer that abatement over 15 years, although it is not expected that St. Louis county will agree to any tax abatement scheduled for more than 10 years. In addition the city agreed to pay Tower Harbor Shores 12% more than the company spends on infrastructure to cover their high-cost of commercial real estate lending.

Clerk Keith told Schoenfelder and the city council, during the conference call, that the city’s attorney, Christopher Verta, of the Fryberger law firm in Duluth, informed her that the city can not pay any amount over two percent above prime and the city can not commit the county to that amount.

Schoenfelder said that his attorney can not find where the city is limited in the manner that Keith claimed and disagreed with Keith, arguing that the city is not entering into any debt. Keith maintained that establishing the abatement of the taxes and thus obligating the city to pay that abatement, once it is collected from the condominium owners, to the developers is indeed “pledging future tax dollars to be paid by the city to a private entity.” There are also issues relating to competitive bidding and the city’s needs to adhere to those laws, Keith said.

Mayor Carlson asked the clerk if the advice came from the city’s attorney and Keith assured him that it did. The issue is also in conflict with the city charter, Carlson said.

“I would love for someone else to do it, (install the infrastructure),” Schoenfelder said, although it was acknowledged by both parties that was very unlikely. Schoenfelder maintained that although the city was potentially loosing future tax dollars, without the project the city currently has no taxable real estate at the harbor currently.

“I think our attorneys need to get together,” Schoenfelder said, explaining that he believed there was a gap in understanding between the developers and the city and both parties attorneys.

“I got laughed at by everyone I approached with the 12% idea,” Keith told the city that both the city’s attorney and its financial adviser raised the same concerns about the 12% over actual costs, and a need to competitively bid any city projects.

“I’m not comfortable with the 12% number,” Carlson said and indicated that he believed there was little to salvage on the project. “We’ve done this dance for three years now, trying to figure out how to do this. When do we come to the realization that we don’t have a working project?” Carlson asked.

“Does anyone else feel this way?” Carlson asked his fellow members of the council.

Both Councilman Dougherty and Councilman Brad Matich acknowledged they favored allowing the attorneys time to come together and determine if Tower Harbor Shores and the city could move forward. They expressed concern that there was not any written correspondence from their attorney.

“I hate the fact that I’m hearing that people feel we don’t have a workable project, Schoenfelder said as he acknowledged hurdles the developers and the city have already accomplished. “I remember, back in the beginning, Gary Lamppa kept telling us ‘the city will get the money, the city will get the money.’”

Matich and Dougherty made and supported a motion to refer the matter to council. Councilor Brooke Anderson said that she could support referring the matter to council, provided that it was for a final consideration of the development agreement. The vote supporting turning the development agreement over to the attorneys passed, 4-1, with Carlson making the dissenting vote.

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In spite of what the Ely alternative press has reported there has been no attempt to “scuttle the long-planned town home project” by Tower’s Mayor or City Clerk. The city also acknowledged at this meeting that it is on the hook for $186,000 towards additional infrastructure benefiting the city harbor project. What really happened is that Mayor Josh Carlson gave an honest assessment of his opinion on where he thinks the city is at in reaching a workable agreement towards developing city’s harbor real estate with the current development team. This type of honest assessment is exactlly what Tower needs right now.

Either way, condominiums at the harbor or not, Tower still has and will have a harbor project. It just needs to be fine-tuned into one which works for Tower citizens.

There are those who would like Tower taxpayers to forget that the reason the city backed away from accepting infrastructure development expenses for Tower Harbor Shores is because this company itself said it will not demonstrate its creditworthiness when asked to do so by the city council.

Mayor Carlson clearly explained that the project seems doubtful giving the current challenges. He is absolutely correct. Next month there will be a new mayor. The mayor-elect is deeply involved in this harbor development project. In fact he may still be a principle player in this development in spite of his public statements to the contrary. Nothing is very clear at this point about Tower Harbor Shores, LLC, except its limited liability in the condominium development project . The city council would be wise to proceed cautiously.

Anyone who would like the tedious experience of watching a full video of the city council conducting its business out in the open at this meeting is welcome to do so on the city’s website: