Council Approves Two New TIF Districts to Facilitate Affordable Housing Growth
- Steve Jurrens
- Mar 3
- 4 min read
Northeast Radio SD News - Watertown, SD - In a meeting dominated by economic development strategy and fiscal debate, the Watertown City Council on Monday night greenlit two new Tax Increment Financing (TIF) districts designed to inject nearly 200 new affordable housing units into the local market.
City Manager Alan Stager set the stage by highlighting the tool’s historical success in Watertown. He noted that the city currently manages 12 active TIF districts with a combined base value of $6.3 million—a figure that has ballooned to an increment value of approximately $123 million following development.
“You can really start to see the significant impact that the creation of tax increment financing districts have had in our community,” Stager said, reassuring the council that the city remains well under the statutory 10% cap for such districts.
TIF #21: The Oaks II Expansion
The first project, designated as TIF District #21, supports “The Oaks II,” a 72-unit multi-family complex proposed by the Stencil Group. The project, with an estimated total cost of $16.3 million, will provide a mix of studio, one-, and two-bedroom units. To qualify as an “Affordable Housing” TIF under state law, the developer must cap rental rates at 80% of the Area Median Income (AMI).
Tobin Morris of Colliers Securities, acting as a consultant for the city and developers, detailed the harsh new reality for builders.
“In 2017, 2018... you’re probably paying 75 to 85,000 a door. Today’s conditions are much different. You’re 150 to 200,000 a door,” Morris explained. “The margins are thin... there’s simply no projects [without the TIF] because you figure you borrow 10 million at 7%, you got to come up with 700,000 just of interest.”
However, Councilman Dan Schutte questioned the “but-for” necessity of the tax break, noting that other developers have recently completed projects without government aid.
“If another developer can do it without a TIF, it’s hard for me to grasp the but-for clause,” Schutte stated. “I’m still struggling... I want to see the project completed, and I’d like to see the developer succeed. But just looking at the numbers... I’m still not completely sold.”
Councilman Brent Mohrmann took a more pragmatic view, emphasizing the risk management required for such large-scale endeavors.
“I truly feel that right now with the market, the way the market is... I feel these TIFs do help put that percentage number up to a number where developers have confidence and a lot more comfort with taking the risk and stepping out and building an apartment complex.”
The Oaks II TIF, which will fund $953,564 in infrastructure and land costs, passed after a lengthy discussion.
TIF #22: Dakota Commons Reserve and Neighborhood Compromise
The second approval, Resolution 26-09 for TIF District #22, supports “Dakota Commons Reserve,” a $17.5 million project featuring eight buildings and 112 units. This TIF proved more controversial because the developer doubled the project’s size from four units to eight after initial rezoning discussions.
Councilman Doug Allen expressed significant “heartburn” over the lack of transparency in the project’s evolution.
“Perhaps naively, we assumed that what we were looking at was probably what was going to be proposed, and it wasn’t the case,” Allen said. “It makes the ‘but-for’ in that particular case really give me a lot of heartburn... I feel like in some ways it’s a gun to the head.”
Despite his frustration, Allen acknowledged the broader economic pressure on the community.
“Insanity of tariffs that drive up developer costs... absolutely ridiculous. It’s crippling us as a country,” Allen noted. “But we know that a part of our job is to ensure the growth of the community. And I think that housing is a component of that.”
A key feature of the TIF #22 plan is a $200,000 contingency fund to address neighbor concerns by creating a direct access road to 19th Street, bypassing existing residential trails.
Stager noted, “The neighborhood will be much more accepting of this development if there is a point of access directly onto 19th Street.”
Safeguarding the Public Purse
Councilman Lynn Jurrens looked for reassurances that the city was protected from “sins of the past” regarding TIF management.
“The homeowner in Watertown and the homeowner everywhere else is getting their rear ends kicked in right now,” Jurrens said, citing examples of property taxes nearly doubling in four years. “Nobody wants to pay taxes... but we need reassurances to the people who put us on this city council.”
In response, city staff highlighted new, rigorous language in the development agreements, including a waiver that prevents developers from protesting their property assessments for the life of the TIF. Tobin Morris added that the city now has an “annual appropriation” hammer.
“It becomes a really big sledgehammer on a very technical, vengeful kind of way,” Morris remarked, explaining that the city can choose not to appropriate the funds each year if a developer fails to deliver, without impacting the city’s constitutional debt or credit rating.
The meeting concluded with a reminder that these tax dollars “don’t exist unless this development gets built,” according to Councilman Allen.
The council ultimately voted to move both projects forward, hoping to spark the “uplift” needed to accommodate Watertown’s growing workforce.
