City rolls out tax reduction plan looking to improve Mitchell's corroding homes, buildings
The formula requires property owners to make a minimum value of improvements to their homes or buildings within two district boundaries to qualify for the seven-year property tax payment reduction.
MITCHELL — Property owners with corroding homes and buildings in certain areas around Mitchell now have more incentive to spruce them up.
In an effort to clean up key areas of Mitchell dealing with a myriad of homes and buildings that are in rough shape, the city is rolling out a discretionary tax formula that will reduce property taxes for owners who make improvements to their existing structures.
“The idea is to encourage people to make investments into these areas that need more maintenance and upkeep. In turn, their property taxes will be phased in over a period of years,” City Administrator Stephanie Ellwein said of the goal behind the new discretionary tax formula. “It will really deal with our historic districts within the city of Mitchell.”
The Mitchell City Council established the boundaries for the first pair of districts that have numerous corroding buildings and homes that qualify to tap into the discretionary tax formula.
One of the boundaries called the urban renewal area stretches along the downtown corridor from East Seventh Avenue to Railroad Avenue. The historic residential district encompasses residential homes in a six-block radius near downtown Mitchell that stretches from East Seventh Avenue to West Second Avenue, a mixture of homes and multi-family units along Rowley and Duff streets and Sanborn Boulevard.
“As you are well aware, we’ve had some buildings that have been deteriorating over time,” Ellwein said of the downtown urban renewal area, which is primarily made up of commercial businesses and larger buildings.
The formula requires property owners to make a minimum value of improvements to their homes or buildings to qualify for the seven-year property tax payment reduction. The city's ordinance outlining requirements for the tax formula explains that all renovations and reconstruction of properties in both district boundaries must “increase the true and full value” of the structures.
For example, a property owner in the historic residential district who makes home renovations that add at least $5,000 to its true value will only pay 25% of the home’s increased value in the first and second year following renovation work. The homeowner will pay 50% of the pre-adjusted value in the third and fourth years. In the fifth and sixth years, the homeowner will pay 75% of the property’s value.
Commercial and industrial properties like those in the urban renewal area must also undergo renovations, new construction or improvements that add $30,000 or more to the structure’s full and true value to receive the same tax reduction. For properties in the historic residential district, any renovations or additions to homes must add at least $5,000 to the home’s true value.
With the aging buildings in downtown Mitchell, it came as no surprise to the council that the downtown corridor was among the first districts to be created for the tax formula. In recent years, some Main Street buildings have been demolished due to reaching a point beyond repairable. Council member Dan Allen asked whether a new building that’s put up on vacant Main Street lots would qualify for the commercial tax formula.
“If it was an improvement and caused the valuation of that property to increase and meet that minimum the state provides, yes, I think it would still qualify,” City Attorney Justin Johnson said in response to Allen’s inquiry.
How does this new formula impact Main Street buildings like the former Crafty Fox property and Woolworth building that have a Tax Increment Financing (TIF) district established? According to Johnson, all buildings within a TIF district automatically are waived from receiving the tax reduction.
Potential for new districts
The city’s newly updated comprehensive plan dove into the conditions of Mitchell homes in four residential areas, which included the historic residential district. According to a 2012 housing survey that examined a total of 1,005 homes in four neighborhoods, 252 of those homes – 25% – were deemed in need of “major repair.” The survey identified 41 homes as “dilapidated.”
Of the 1,005 homes examined in the housing survey, there were 337 homes that the survey dubbed as in “sound condition,” making up one-third of the total homes examined.
As the leader of a nonprofit housing organization that formed a little over a year ago with a mission to “clean up the core” of Mitchell and replace dilapidated homes with new affordable units, Terry Sabers was among those who pitched the new tax formula model to city leaders.
“As you saw in the housing study last week, something like 60% of core district homes need moderate to major improvements. As a community, we need to take a hard look at what we’re willing to do to improve the residential part of the city,” Sabers said during the citizens’ input portion of Monday’s city council meeting. "This whole thing has gone so long, it's going to be a team effort to bring this back.”
Considering there are other areas in the city not included in the first two districts that are grappling with corroding and dilapidated homes, Ellwein said the ordinance was created to address other areas in the future. Ellwein pointed to residential areas just west of Main Street as future areas that could potentially qualify for a new discretionary tax formula district.
“The ordinance was drafted in a way that, if we identify other areas that we want to focus on, we can also adopt those districts,” Ellwein said.
To create a new district for the tax formula, state law requires the area must have a percentage of homes or buildings that are considered dilapidated. That means some areas of the city with homes in sound condition won’t qualify for the discretionary tax formula.