The Tomah City Council approved an increase in funds to a builder’s agreement between the city and 3rd Gen. LLC at the council’s regular monthly meeting Tuesday night.

In March the builder’s agreement was struck to provide 3rd Gen. $1.25 million for building assistance via Tax Incremental District 8 to be paid to 3rd Gen. upon the city receiving a certificate of occupancy of the former Tee Pee site upon the project’s completion.

The council approved an additional $250,000 to be added to the agreement with a 7-1 vote with councilman Richard Yarrington dissenting.

The additional funds will come from the $250,000 grant awarded to the city by the Wisconsin Economic Development Corporation for community development and is contingent on improving blighted property. The grant stipulates that the funds must be used during either the demolition or construction phases of the project.

City administrator Roger Gorius said the change was proposed to the council because 3rd Gen. was under the belief that the total assistance was $1.5 million, rather than $1.25 million, and it based the construction costs and loan information on that amount.

It was a misunderstanding that originated around parking, Gorius said. When the city began talking to 3rd Gen., it was concerned about parking availability near the business and was under the assumption that the grant would be used to assist in fixing the parking problem.

“In the process it was their interpretation that the $250,000 grant money was going to be incorporated into their project for use,” Gorius said. “Consequently, they set their plans thinking that that would be $1.5 million. So at this point there’s a difference of $250,000.”

The council was under no obligation to provide the extra $250,000, Gorius said. He characterized the situation as a misunderstanding based on what was conveyed and interpreted by both sides.

“I feel that part of this is a lot of miscommunication on our part ... and we said we would work with them on this,” he said.

Councilman Jeff Cram said the council’s intent was to provide a $1.25 million incentive anyway, even before the council was awarded the $250,000 grant, so it’s not much of a change.

“It’s fulfilling our end of an intent for a group that has shown absolute great faith to the city not only in this project but in other things as well,” he said.

Gorius agrees.

“If you look at the original agreement, we would have been in it $1.25 million anyway, so the $250,000, grant money ... as long as we tie it into (the project) and keep it tied into the builder’s agreement, we fulfill our obligation to what the state is requesting us to do to get that $250,000 grant,” he said. “The $250,000 we borrow we can do with as we see fit when we give it to the project.”

Councilman Richard Yarrington said he voted against borrowing the $250,000 for two reasons.

“One, I believe Gerke is getting excessive amounts of financing compared to some other merchants in the downtown area,” he said. “The (second) part of it is the builder’s agreement. When it was made, it had a larger footprint than it does now. It has been scaled back.”

In other business the council approved an application for three State Trust Fund Loans for development inventive agreements as part of TID 8. They include the 3rd Gen. Project for $1 million, the Veterans Assistance Foundation for apartment renovations and roof repair for $180,000 and $70,000 to finance small business loans.

The $1 million loan for the 3rd Gen. project was a topic of contention when council members nearly voted it down Monday night at the Committee of the Whole, stating concern over the repayment. It passed unanimously Tuesday night.

Gorius said the funds would be repaid through the increase in tax revenue from the project over the next 15 years.

“That’s how we generate the revenue back through the TID is we take a percentage of the taxes paid back over time, and in this case this TID runs for 27 years, with 22 active and five for shut down,” he said. “So for the next 20-some years those taxes will come in, and they will pay a percentage and that percentage will ... over the time it will pay back that money through tax increment to the city.”

Mayor Mike Murray said a good example is the renovation of the Kwik Trip on the south end of town.

“By incentivizing Kwik Trip, in other words by taking a percentage of their taxes, we are refunding to them for a length of time a portion of their taxes which they put toward remodeling their building,” he said. “They could have left the building the way it was, and they would have paid taxes on the building the way it was.”

The $1 million loan is for the builder’s agreement with 3rd Gen., Gorius said. If the council voted no, he said it could be interpreted as a breach of contract.

“As an administrator, it’s my responsibility to inform you that’s extremely serious. This could very easily enter us into legal stipulations that you don’t really want to go against,” he said.

It would lead to a lot of strife for the city, Murray said.

“To breach a contract ... will cost the city tremendous amounts of money not only in lawyers’ fees, but what’s that going to look like to any business that wants to come to Tomah in the future?” he said. “Are they going to be willing to enter into any kind of financial agreement with the city of Tomah knowing that at any point in time that rug could get pulled from underneath them and say ‘we’re not going to fund it now.’”

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Meghan Flynn can be reached at meghan.flynn@lee.net.

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