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Erik Burgess, Published July 06 2013

Fargo to seek extension on downtown tax breaks

FARGO – Over the past 14 years, downtown Fargo reinvented itself through hundreds of revitalization projects.

But time could be running out on incentives that helped spur the transformation. Renaissance Zone legislation, enacted by state lawmakers in 1999, provides up to five years of income and property tax breaks in exchange for development. In the law, legislators set a 15-year cap for any city that decided to establish such a zone.

Fargo created its own Renaissance Zone in late 1999, hoping for a rebirth of the blighted downtown area. In late 2014, those first 15 years will be up. The city plans on applying for a five-year extension, allowed under statute, and state officials say with the program’s success here, it’s likely the extension will be granted.

Since the program’s inception, 736 property tax exemptions have been given to commercial and residential developments in Fargo’s Renaissance Zone, for a total of $7.25 million in tax exemptions.

In that same time span, the overall appraised value of downtown has nearly tripled, from $197 million in 1998 to $555 million this year. Property taxes downtown have also increased fourfold, thanks largely to the downtown Renaissance, city officials say.

Even for the original naysayers, it’s hard to be negative about the program.

Talk-radio host Joel Heitkamp was a state senator in 1999 and voted against establishing Renaissance Zones, saying the exemptions would only help big cities and could bankrupt an already broke North Dakota.

Now coming to work every day in Fargo, Heitkamp said his views on the program have softened.

“You can’t deny the vibrancy of downtown Fargo,” Heitkamp said. “So I’ve said on air that there’s things that I was wrong about on the Renaissance Zone.”

‘Rising tide’ downtown

In 1998, the total appraised value of the downtown area was

$197 million, a number that hadn’t budged for a few years, according to Ben Hushka, city assessor.

The first Renaissance Zone projects weren’t completed until 2002.

That’s when the overall appraised value of downtown – including non-Renaissance Zone developments – jumped to $273 million, Hushka said. By 2005, the downtown was appraised at $316 million.

Even through the 2008 recession, projects poured in, said Planning Director Jim Gilmour. Downtown’s total appraised value was $486 million by 2010.

In 2013, with the program in full swing for more than a decade, downtown is being appraised at $555 million, a 182 percent increase from 1998.

“We’ve seen this sort of rising tide of property values downtown,” Gilmour said.

The total appraised value of all 736 exemptions over the life of the Renaissance Zone is about $437 million, Hushka said.

The value of the program can also be seen in property taxes collected downtown, Gilmour said. In 1999, before the program started, Fargo was collecting $500,000 in property taxes from the downtown area, Gilmour said.

In 2005, those initial projects still had their five-year exemptions, so property taxes did take a dip. The city only collected about $350,000 downtown that year, Gilmour said.

By 2010, however, the city collected $1 million in property taxes from Renaissance projects.

This year, that number is $1.2 million. It’s projected to hit $1.6 million by 2014 and $2 million by 2017, Gilmour said.

While the city tracks the property tax exemptions, records on how much in income tax breaks have been given over the life of the program in Fargo are kept by state officials and were unavailable Friday.

Exactly how many dollars were spent on each renaissance project was also unavailable Friday.

Fargo will “in all likelihood” be approved for a five-year extension of the program if city officials can get a new plan together in time, said Paul Govig, deputy commissioner at the North Dakota Department of Commerce.

Fifty-four other cities, large and small, have Renaissance Zones statewide, but Fargo’s reapplication will be the first one in the state, Govig said.

“Fargo’s a good case and point,” he said. “The people in Fargo have done an excellent job to make use of a good program.”

Preparing that plan is a high priority for the city next year, Gilmour said.

Better quality of life

Downtown wasn’t always a desirable place to be.

Before the 2000s, the 100-block area was littered with bars, graffiti and panhandling, said Fargo police Lt. Joel Vettel.

There were more rundown, short-term rental properties than homes, with renters paying by the week, Vettel said. Many businesses downtown catered to that transient population.

Gilmour, who started working for the city in late 1994, can recall when downtown was a dead zone, and vacant buildings stayed on the market for years at cheap prices.

This was due to what police referred to as the “broken window theory” downtown, Vettel said.

The relatively small problems of graffiti or panhandling – the metaphorical “broken windows” – led to the perception that downtown was unsafe and unfit for development, Vettel said.

“We had the dark alleyways; we had the poor lighting – just a lot of little things that really created eventually some bigger issues,” Vettel said.

The Renaissance Zone program played a “huge role” in changing that perception, he said. Above all, people now want to live and own property downtown, which makes the area more of a neighborhood, Vettel said.

‘A snowball effect’

Despite the program’s success, Renaissance Zone legislation stirred opposition when it was passed by the state Legislature in 1999.

The Senate passed the measure 30-18 and the House 61-36, but it had its fair share of dissenters. Rural Demo-crats disliked the bill, saying it gave tax breaks to rich developers in big cities that didn’t need any help.

Then-Sen. Joel Heitkamp, D-Hankinson, called it a “bad piece of legislation” and said the tax breaks would only result in lost money for the state, which was broke at the time.

Even then-Gov. Ed Schafer, a Republican, was concerned the law allowed local subdivisions to make tax decisions for the state. Schafer ended up signing the program into law on April 8, 1999.

Heitkamp says he enjoys revitalized downtown Fargo, but he still argues Renaissance Zones haven’t been nearly as good to rural North Dakota.

The program largely helps “big players with big money,” he argues.

“The only difference is now North Dakota can afford them,” Heitkamp said.

Pam Gulleson, then a representative from Rutland and the House’s assistant minority leader, also thought at the time the program only helped Fargo and would be a tax burden to those not getting the exemptions.

“I think over the years it has shown its value,” said Gulleson, who works at Blue Cross Blue Shield in Fargo.

Not every improvement downtown can be attributed to the Renaissance Zone, Vettel and Gilmour both said.

Police have stepped up patrols downtown, and in the early 2000s, the city reconstructed Broadway, which Gilmour said was crucial to the success of the Renaissance Zone.

But looking strictly at the numbers, Hushka said “it’s pretty clear” the rebirth of downtown really kicked in once the Renaissance projects started.

“There was kind of a snowball effect,” Hushka said. “Even properties that didn’t necessarily get Renaissance Zone exemption, the value of those properties went up as well.”

There’s been more than $100 million in investments in buildings downtown that are in the Renaissance Zone but didn’t apply for a zone project, Gilmour said.

The city hopes to keep the renaissance going into the future, Gilmour said.

“You never put up that ‘mission accomplished’ sign,” he said. “Buildings will get worn out. Other buildings need to be done. So, I think there will always need to be a program like this for downtown just to encourage that constant reinvestment.”

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Readers can reach Forum reporter Erik Burgess at (701) 241-5518