Development costs yield cash crunch in Tower

TOWER— The bills are piling up and the city’s cash flow isn’t keeping pace, and some of the reasons for that were the subject of intense discussion when the city council met here on Monday.
The city’s engineers on the sewer and water extension to the harbor and adjacent Marjo development failed to account for the cost of electrical service to two lift stations, and that oversight has pushed the project costs well above anticipated levels.
To date, the city has paid out about $219,718 in harbor- and Marjo-related expenses, which was not reimbursable from grants. Most of that was for engineering services and for the electrical extensions for the lift stations. Wetland credits for the harbor development totaled $51,361, further adding to the strain. That’s according to a financial breakdown provided to the council by clerk-treasurer Tammy Mortaloni.
Available IRRR grant funding is quickly running out with weeks yet to go to complete the utility extension. The city can still tap approved funds from MN Housing and the Tower Economic Development Authority, which have committed a combined $305,000 to the project. But that’s not enough to cover the $619,179 invoice received by the city last week from Veit, the contractor handling the utility extension, without another $180,000 payout from the city.
Mortaloni told the council that she recently transferred $60,000 from the Hoodoo Point Campground fund to help pay city expenses. And council member and TEDA president Joe Morin mentioned that the city, due to insufficient funds, has still not reimbursed TEDA for a $58,000 grant payment from the state that was wired to the city for payment of the new solar array at the charter school.
Council member Bob Anderson questioned if there was a way to hold the engineers accountable for overlooking the electrical extensions, but other council members seemed to doubt there was much the city could do.
While the city had committed $400,000 toward the utility extension and site prep work, Mayor Setterberg said the bills were coming faster than anticipated. The city had hoped to tap remaining funds from a $3 million minerals bond approved in 2023 by the Legislature, but costs for the ongoing rapid infiltration basin, or RIBS, project have come in higher than city officials had initially hoped. That’s leaving fewer funds available for reallocation to the ongoing utility extension.
With more bills yet to come, the council discussed exploring the creation of a tax increment financing, or TIF, district to provide gap funding for the ongoing work. Under a TIF, which is usually accompanied by a development project, a bond is issued with repayment coming from the increased tax base generated by the project. Council members were open to the possibility but want to have a better understanding of the status of the project and available funding to more accurately determine the size of any bonding needs.
Anderson again expressed frustration with the situation, particularly the need for a TIF, which would earmark a percentage of the additional tax base, potentially for ten years or more, to pay off the bond. But Setterberg said the city would merely be seeking information about how to create a TIF district. “It doesn’t hurt to understand the process,” he said.
Mortaloni, along with TEDA president Joe Morin and TEDA director Marshall Helmberger were set to sit down with project engineer Alan Johnson, of Bolton and Menk, on Thursday of this week to go through the budgets and billings in detail so city officials have a better understanding of the financial need.
The concern over the city’s financial status led Anderson to question whether the council wanted to approve seeking the next phase of funding for the harbor project, which would wrap up the remaining soil mitigation and provide for streets as the project is completed next year. He asked what the city would do if that phase of the project came in over budget. Other council members, however, noted that failure to proceed would leave the city with a project that’s only partially completed. Morin suggested that the next phase is pretty straightforward, mostly involving dirt work and paving.
In the end, the council voted unanimously to move forward with the funding request.
Anderson, however, dissented on another funding resolution, this one for a CDBG application to fund sewer line work involving Cedar Street and the eastern-most portion of old Main Street, from the Lake Vermilion Cultural Center to the Cedar St. intersection. Anderson questioned whether the city could be on the hook for additional costs and said he couldn’t support it. Setterberg said the city wouldn’t know its financial obligation toward the project until later, but that it would ideally be funded by grant funds in its entirety.
No parking zone
In other business, the council approved a motion to establish a no parking zone in the cul-de-sac at the north end of Pine Street in the Northstar Addition, but to provide an opportunity for residents to seek temporary allowances for special events. Residents have complained about the parking of vehicles, trailers, and ATVs in the cul-de-sac by guests at a short term rental unit there. Anderson brought the issue up to make sure that the city didn’t allow the residents’ concerns to be overlooked. Residents along the cul-de-sac have attended several council meetings over the past year or more to complain about the disturbances they’ve experienced from guests at the property.
“I don’t want to kick the can down the road anymore,” said Anderson.
Setterberg and council member John Van DeVoort both said they had checked on reports of vehicles parked in the cul-de-sac, but found the vehicles either belonged to other residents there or their own guests.
Anderson said he wanted to see the short-term rental operators to be held responsible for violations on the property. Morin questioned whether that would always be reasonable, citing an instance of a domestic dispute between a couple. “How would you blame the rental owner for that?” he asked. But Anderson said the city’s ordinance appears to be more lax than ordinances he’s reviewed from other area cities. “Right now, they get all the benefits of running a business, without any accountability,” he said, speaking of the owners of the rental unit.
The council directed Mortaloni to send letters to residents of the cul-de-sac, notifying them of the no parking provision.
In other business, the council:
• After a lengthy discussion and review of photos provided by Van DeVoort, the council gave Van DeVoort the authority to work with the city’s public works to determine the best locations for pedestrian crosswalk signs along Main Street going forward. The location of the signs this summer had generated some complaints and Van DeVoort proposed relocating them more to the side of the road, near the bike lanes, to better facilitate traffic flow at certain intersections. Van DeVoort said he had been biking within the bike lane this summer, when a truck trying to avoid the crosswalk signage had moved sharply to the right, forcing him to swerve to avoid being hit. He said he’s spoken to business owners, who are supportive of the signage but suggested other locations might be better.
• Approved a canvas of the Nov. 3 city election results in Tower. Results were previously reported by the Timberjay.
• Approved a resolution notifying PERA that the city has raised its annual pension contribution for firefighters from $1,000 to $2,000.
• Tabled action on the $619,179 invoice from Veit pending further information.
• Approved, with reservations, three change orders associated with the harbor/Marjo utility extension totaling $138,403. Of that, $14,460 was the cost for Veit to remobilize after the delay in wetland permitting. The rest was related to electrical connections and relocations. The city is still expecting at least one additional change order related to the boring of the utility lines under Hwy. 169.
• Approved a sponsorship agreement with the Howard Wagoner Trail Club.
• Voted to hold a portion of a $45,000 invoice from the Tower-Soudan Historical Society for work done at the old fire hall, which is now serving as Tower City Hall. The city had originally committed to covering $25,000 of the costs and Mortaloni said she was surprised when the invoice came in well above that level.