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Annexation likely be delayed

Elected officials from the city of Bemidji and Bemidji and Northern townships indicate their preference for moving forward with annexation in 2012. The Bemidji City Council, Bemidji Town Board and Northern Town Board met for two hours Tuesday night at Northern Town Hall to discuss annexation issues. Pioneer Photo/Bethany Wesley

Applause scattered throughout Northern Town Hall Tuesday night following a productive two-hour meeting between three local governmental bodies.

Bemidji city and Bemidji and Northern township officials came to a compromise on the first phase of orderly annexation. The overwhelming majority of those present agreed that annexation should be delayed until 2012, at which time the tax distribution from annexation would be sped up to benefit the city.

"We're all trying to find out where that win-win is for everybody, and it's a tough one in this case," said Mel Milender, the planning administrator for the Greater Bemidji Area Joint Planning office, who served as the meeting's moderator.

In order to amend the tax distribution set in the Joint Orderly Annexation Agreement, that agreement will need to be amended.

A straw poll, taken by a show of hands, showed that the 2012 annexation process would be the preferred choice of three debated.

That poll, however, is not binding; the final decision as to whether to wait to begin annexation lies with the Bemidji City Council, which is scheduled to formally consider the issue during its regular meeting on Tuesday. Six city councilors were present; four indicated a preference for the 2012 annexation option.

Complicated issue

The first ring of properties became eligible for annexation at the beginning of this year.

However, the ongoing reassessment process for the already finished Birchmont Drive reconstruction project prompted Northern Township to ask the city to delay annexation.

The Birchmont Drive project was completed in 2009 and assessments were applied to more than 200 parcels of property.

Because of impending annexation, the city of Bemidji was the governmental agency in charge of awarding bids, but was not able to assess property owners, so Northern Township was in charge of approving the project and ordering the assessments.

Owners of 54 properties appealed the assessment and won. In the ruling, Judge Heather Sweetland ruled that nearly everything done on the project was done correctly, except there was not enough evidence in the assessment proceedings that showed that each affected lot increased in value by at least the amount it was assessed.

So Northern Township is now reassessing those 54 properties - seven of which lie within the first phase of the annexation map.

Because of that, Northern Township requested that the city delay annexation.

Covering costs

In theory, it is possible that Northern Township will recover all of the costs of the reassessment process by assessing those added costs back to the property owners who appealed.

But assessments can only be applied up to the amount of which the properties increased in value due to the road project.

Thus, Northern Township officials voiced concerns that they would need to be able to levy taxes back on the entirety of Northern Township to recover its expenses.

They did not want to do so after annexation, when they would have fewer residents.

"We need Jan. 1 of 2012 (to be the start date for annexation)," said Mike Kelly, a supervisor with the Northern Town Board. "That would be the best scenario for the township."

Tim Mountain, a supervisor on the Northern Town Board, said the township has hired an agency that will begin the evaluating properties soon.

"That's going to be a significant cost," he said. "We're going to be funding this for a long period of time."

Tax distribution

According to the existing annexation agreement, approved in November 2004 by all three municipalities, specific parts of the townships become eligible for annexation in 2010, 2015 and 2020.

Eventually, the city will collect tax dollars from the annexed properties, but it will not be immediate.

During the year annexation begins, the township maintains its taxes levied against the properties.

In the first full year of annexation, the township will keep 100 percent of the township property taxes. In the second year, the township gets 80 percent of city taxes; then 60 percent in year three, 40 percent in year four and 20 percent in year five. The city will keep all city property taxes from year six and beyond.

But some city councilors said they believed an expedited time frame for tax distribution should be considered, since the city will be waiting longer to expand its tax base.

Councilor Ron Johnson said he would be in favor of delaying annexation until 2011, if the townships were willing to consider changing the five-year plan for tax distribution to a four-year plan.

"I think that should be a nice solution, and it shouldn't hurt anybody," he said.

Councilor Kevin Waldhausen, noting the added expense for the city to provide services, said he was concerned about a possible overlap if the tax distribution was not changed.

For instance, assuming annexation began in 2011, in 2016, the city would be receiving 80 percent of taxes from the annexed area - in addition to now being in the second phase of annexation, during which time the city would only get 20 percent of the taxes from the second phase of annexed properties.

"I believe that would create a little bit of a hardship on the city," Waldhausen said.

Residents' taxes

Also discussed was the impact a compressed time frame for tax distribution would have on incoming city residents.

Just like the taxes are gradually brought into the city's coffers, township-turned-city residents are incrementally levied city taxes.

City taxes are typically levied at a higher rate than townships, so affected property owners follow a similar chart: They pay township taxes and then also a percentage of city taxes that continues to increase each year until they are paying the full amount at the same time the city recovers the full tax benefit from annexation.

City Finance Director Ron Eischens explained it this way:

The city begins annexation according to the already-adopted annexation plan, which currently dictates a five-year tax-distribution plan. The owner of a $100,000 house in a township that has an 18 percent tax rate needs to incrementally meet the 41 percent tax rate of the city of Bemidji.

The township taxes on that home would be $180 a year. Under the five-year plan, that $180 would be increased by $50 to $230 the next year, then $280 the year after that and then $320, etc., until the homeowner was paying the full amount of city taxes.

However, if the compressed tax distribution plan is implemented, instead of $50 a year, that same $100,000 home would see an increase of $62 a year until it reached its full city tax amount ($180, then $242, $304, $366, etc.).

Bemidji Township?

Officials from Bemidji Township were more quiet during the first half of the meeting as Bemidji city and Northern Township officials discussed their positions and sought a compromise.

But then someone asked if it was possible to delay annexation for Northern Township and still proceed this year with annexing the first phase of properties within Bemidji Township.

"Bemidji Township is not in favor of being annexed without the whole group," said Becky Livermore, chairwoman of the Bemidji Town Board.

Jan Heuer, supervisor with the Bemidji Town Board, referenced the orderly annexation agreement, stating that it was formed to provide orderly growth to avoid "piecemeal" annexation or "cherry-picking."

"The spirit of the annexation is that it would occur at the same time for many reasons," she said.

Options discussed

Earlier in the meeting, before the poll was taken, Heuer urged the group to come to a decision so residents know what to expect.

She said the annexation matter was beginning to sound like the Brett Favre saga: He's retired; now he's not. We're annexing this year; no, now we're going to wait a year.

"We're losing credibility, all of us, with our constituents," she said.

The group ultimately voted on three options:

- Proceed with annexation in 2011 according to the current five-year tax distribution.

- Proceed with annexation in 2012 with an amended, four-year tax distribution.

- Proceed with annexation for Bemidji Township in 2010 and Northern Township properties in 2012.

No one voted for the first option; all but two voted for the second option; three people voted for the third option (Mountain voted twice: both for the second and third options).