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Willy McCoy's plans hung up on water, sewer fees

An area restaurant owner hoping to open a Willy McCoy’s restaurant near Home Depot in Shakopee is concerned that water and sewer connection fees could quash his plan.

Willy McCoy’s owner Korey Bannerman is required to pay about $250,000 in water and sewer connection fees to the city of Shakopee, Metropolitan Council and Shakopee Public Utilities Commission.

While Bannerman understands the need to pay for his infrastructure usage, he is worried the amount is too much.

“I think there’s a huge demand from residents for casual, sit-down dining restaurants … but this is extremely expensive,” Bannerman said. “This is probably one-third of my total investment into that store.”

Bannerman has been planning to open the restaurant for 18 months, which would be between Home Depot and Southbridge Crossing Cinema off County Roads 21 and 18.

That building is under construction now, which presents another set of concerns for developer Steve Soltau, who owns the land and building.

Soltau, owner of Shakopee Crossings Limited Partnership, discovered when construction began that much of the site was used for garbage burial, and the contaminated soil might not be able to support the building. With the cost of cleanup at more than $2 per square foot, Soltau’s company sought assistance from the city in the form of tax increment financing, an urban financing tool.

In August, the Shakopee City Council, acting as the Economic Development Authority, unanimously approved a TIF plan, which will use the project’s newly created property tax revenue to cover the cost of cleaning up the soil. If Soltau doesn’t secure tenants for the building, there won’t be enough property tax revenue generated to fully reimburse him and the city, meaning Soltau’s company could end up eating some of those soil cleanup costs.

“I’ve got an 8,000-square-foot building that I’m trying to fill,” Soltau said. Though he’s hopeful the plan for a Willy McCoy’s pans out, he has backup plans in mind.

“Given its location, I’d be doing everything I could to make it a restaurant, but if someone is faced with fees that are insurmountable, these operators have a number of alternatives. They can invest in other communities in the metro or outstate,” he said.

Soltau has been developing property in Shakopee since the 1990s and said the fees tend to hit restaurants the hardest because they are considered heavy water users. Where a retail shop might pay for up to three units at a cost of $9,021 per unit, Willy McCoy’s will be on the hook for approximately 28 units.

That fee is divided among three entities, with 5.5 percent going to the city of Shakopee, 27.5 percent to the Met Council and 67 percent to SPUC.

“When you’re building a restaurant and suddenly those fees are over a quarter of a million dollars, it impacts the viability of that restaurant entirely,” Soltau said.

A cry for help

In December, Bannerman asked the city council to offset the water and sewer fees by allotting him sewer credits, which the city has in a reserved fund. The city council can vote to use those credits to pay for the city and Met Council portion of the fees, or about one-third of the cost per unit.

The council tabled the discussion because it has a policy that specifies credits should be reserved for companies bringing high-paying jobs to Shakopee. The policy says the council can grant one credit for every 10 full-time positions created that pay at least $19 per hour.

The policy also allows low-interest loans on the credits, with the terms dependent on the cost of the overall project. The council has the authority to deviate from the policy recommendations any time, according to the policy.

Soltau said the credits would be better used on small business development than a corporation.

“Those credits mean little to nothing to someone doing a $60 million project,” he said.

With such high demand for restaurants in Shakopee, Bannerman and Soltau want to see the council deviate from its policy to take the edge off the project fees.

“We’ll have a ton of salaries and wages out there, and it’s almost as if they don’t care,” Bannerman said.

Planning and Development Director Michael Kerski said the council, historically, has seen this issue from a different perspective.

“The council’s attitude is we have those (credits) for economic development purposes, not to make up for (Shakopee Public Utilities),” Kerski said, referring to the SPUC fees, at 67 percent of the total.

Even if the city council awarded some credits to Bannerman, he would still have to pay the SPUC fees at more than $6,000 per unit. SPUC Manager John Crooks said the water connection charges help pay for more infrastructure to support growth.

“We’re rapidly growing, so we have to put infrastructure in place, and when we have growth like this it has to happen in a short period of time,” he said.

Soltau maintains that development fees like the water and sewer charges are becoming too expensive. Since 2002, the SPUC water connection charge has increased from $567 per unit to $6,039 per unit. That’s not including the trunk water fee that is charged per acre, which was $831 per net acre in 2002 and today is $4,451 per net acre.

“SPUC shouldn’t be losing money on water,” Soltau said. “They charge for usage, so why is the connection fee so high? And why are the trunk fees so high?”

Crooks said it comes down to everyone paying their fair share.

“Any new customer that comes … has to pay their fair share of additions. That’s water tanks, booster stations, treatment of the water and pump houses,” Crooks said. “We don’t socialize the cost and have other restaurants and businesses pay for that.”

A water storage tank alone can run around $2.5 million, with a treatment facility and pump house costing at least $1.5 million, Crooks said.

Though Bannerman is still hoping for some assistance from the city, he did agree to a three-year payment program with SPUC, which gives him three years to pay for the fees with zero interest or rate escalation. In the end, though, a payment plan won’t ease the overall cost, he said.

What next?

According to SPUC minutes from its Jan. 7 meeting, city staff has been researching the utility rate structure. City Administrator Bill Reynolds emailed Crooks requesting its policy for rate increases and justification for its water connection charge, as well as its investment returns for the last five years and other data, and now the two governmental bodies are planning a joint meeting in March.

“We’d like to hear from their policy center, because they’re the ultimate ones that set those policies,” Mayor Bill Mars said Tuesday at a council workshop. “I’m strongly in favor of a joint meeting with their board and our board.”

At the same meeting, Mars said he’s hesitant to give financial assistance to a restaurant because restaurants tend to have short life spans.

“I like restaurants just as much as anybody else,” Mars said. “If you spend money to attract (a business) in some fashion, I think that would be for something that’s going to last a long time.”

Crooks will give a presentation about the utility fees at the March 12 joint meeting. In the meantime, Bannerman is forging forward, albeit hesitantly, with his plan to open Willy McCoy’s.

“I really hope we can resolve this. I’ve got my plans done. I’m ready to go in, Steve (Soltau) is eager to get it going,” Bannerman said. “There’s a lot of housing that’s gone up out there, but there’s not a lot of other restaurants, especially sit-down dining, in that area. We still hope everything is going to work out.”

tsabeln / Photos by John Stewart  

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