Economic development funds go unspent in several Minnesota cities

Skyline of downtown Rochester, Minn.
The skyline of downtown Rochester, Minn., is seen Thursday, Feb. 14, 2013. Rochester is pumping $5 million toward economic development projects across southeastern Minnesota.
Alex Kolyer / For MPR News

Five months since 17 cities in southeastern Minnesota received sales tax dollars from neighboring Rochester for economic development projects, much of the money remains unspent, even at a time when public budgets are tight.

Rochester is pumping $5 million toward economic development projects across the region to comply with a one-time legislative requirement of a local sales tax extension Rochester voters approved last year.

The cities, chosen based on their size and proximity to Rochester, received half of the money in July. The other half will come next summer.

Chart: Revenue distribution to 17 small towns

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Officials in Dodge Center, Byron, Dover, Eyota, and Elgin are among those waiting to spend the money.

Dodge Center, a small community of about 2,700 residents west of Rochester, is receiving $286,000 -- about a quarter of the city's annual operating budget. City Administrator Lee Mattson said the money eventually might be used for a commuter parking lot or improvements to pedestrian walkways. But right now, officials don't want to rush to spend it.

"This is a very rare opportunity," Mattson said. "So we don't want to act too quickly to do something.

"We want to make sure that we've thought our options through and we use the money in the best way and in the spirit that it was intended to be used for," he said.

The Minnesota Legislature required the city of Rochester to share part of its sales tax revenue with neighboring communities. State Rep. Greg Davids, R-Preston, introduced the controversial bill so the sales tax would benefit the entire region as Rochester and its main employer, the Mayo Clinic, continue to grow.

City and Mayo Clinic officials estimate the city will grow by about 32,000 residents in the next 20 years.

Officials in some cities say they're waiting until the second payment next year before moving forward with projects as the first payment from Rochester wasn't enough to do much with.

Cities do not have a deadline for spending the money. The only requirement they have is to provide Rochester with an annual report of how much money they spend and how, Rochester Assistant City Administrator Gary Neumann said.

Each city's officials will decide how to define an economic development project.

"The state statutes are very broad. I mean, what's economic development for us in Rochester may be completely different for a small town," Neumann said. "So they have to make their own decisions on what they believe is economic development. That's not really, at this point in the process... for us to say."

While most of the cities wait to decide how to use the money, some have gone ahead with projects.

Chatfield used part of its $297,544 to buy an abandoned house. City officials plan to demolish it and clear up some land in hopes of attracting a variety store to the city.

Pine Island is using the $349,365 it receives from Rochester to pay down the costs of a new frontage road and intersection project.

In Kasson, city officials have spent their $635,024 to build a business incubator inside an abandoned building on Main Street.

Kasson City Administrator Randy Lenth said the project would not have been viable for the city's economic development agency, without the extra funding.

"It would have been a stretch for the EDA to come in here and put the kind of money that we're talking about into this building to do the incubator," Lenth said. "More than likely, it would not have happened without the sales tax money."