The Pierre City Commission laid out its expectations for the development of the old City Hall property through a Memorandum of Understanding with Chapelle Investments. The MOU also outlines the economic development tools Chapelle, the developer and affiliate of Hegg Companies, will request for the project.
“This agreement puts in writing how we got to this point and what we can expect moving forward,” said Pierre Mayor Steve Harding. “In particular, it states that the property will be used for commercial, retail, and residential development and that use of the City’s Tax Rebate Program, Tax Increment Financing, and a Business Improvement District (BID) will be requested by Chapelle.”
The MOU does not approve the use of the economic development tools. Each will require action by the City Commission at a later date. The City and Chapelle investments will now begin due diligence for those tools to determine feasibility and impact.
“While we work through this process, it’s important to remember these tools exist by state law for the sole purpose of spurring economic activity; they hold our taxpayers and our local governments harmless,” said Mayor Harding. “They take away no existing revenue.”
Tax Rebate Program
The City’s Tax Rebate Program was established in 2018 and rebates up to 1.25 percent of new sales tax collected on a development for a finite amount of time. Program use will be requested only for the hotel portion of this development, not Starbucks or other commercial property in the development.
Tax Increment Financing (TIF)
When a piece of property is developed or redeveloped, it drives up the property value. For example, undeveloped a piece of property might be taxed at $100 a year. Once developed, the tax value might jump to $500 a year. That $400 spread is considered “the tax increment”. When a TIF is used, that increment can be leveraged to cover infrastructure costs like underground utilities or curb and gutter. That increment does eventually go into the tax coffers, but not until the TIF either reaches a predetermined time limit, or pays off a predetermined percentage of infrastructure costs –whichever comes first. TIFs were successfully used for the Menard’s development, the Clubhouse development, and for the strip mall that houses Papa Murphy’s and Arby’s.
Business Improvement District (BID)
In this instance, a BID will be requested to establish a self-imposed visitors’ tax that is passed on to hotel patrons by way of an additional charge per room, per night. Those dollars are collected by the development owner, for a finite amount of time, to help offset costs related to parking lots, parking garages and other eligible costs. Additionally, the hotel portion of the old City Hall development will participate in the existing BID that provides a funding stream to promote the visitor industry in Pierre.
The redevelopment plan for the old City Hall lot was made public by Mayor Harding and Hegg Companies in May. The development plans include an 80-room hotel, a 60-unit apartment complex, an office building, retail space, and parking.
Demolition of old City Hall is expected to begin this year.