NEW ULM – New Ulm is looking to establish the city’s first tax abatement for a residential development.

During Tuesday’s meeting, the city council reviewed a request from M & D Properties to create a tax abatement program at 2229 N. Highland Avenue. The owners of M & D Properties previously received a building permit to construct eight-unit townhouses at this site. Each of the units would be two stories with two bedrooms.

A tax abatement program allows a city to rebate a portion of the property taxes back to the property owner who then uses it to offset development or redevelopment costs.

Community Development Director Dave Schnobrich said the tax abatement would help ease the cost of building the properties and allow rental rates to be affordable to residents in New Ulm. The project would also help address housing needs in the city.

New Ulm currently has six existing tax abatement and one pending abatement program. The six previously established tax abatement programs were for industrial businesses. The pending abatement program is for the former Lamplighter building that is being redeveloped into a winery. The property is classified as commercial.

Schnobrich said typically, for housing the city would authorize a Tax Increment Financing (TIF) district, however, a TIF requires setting a mandated income limit for the property. A tax abatement program does not have a mandated income limit. For this reason, some developers prefer using a tax abatement instead of TIF.

Councilor Larry Mack asked how many years the abatement would be in effect.

Schnobrich said that the term of the abatement was up to the council, but most cities go with a five or 10-year term. The maximum term for a tax abatement program is 15 years.

Councilor David Christian asked Schnobrich if he foresees other communities using tax abatement to resolve the housing crisis.

Schnobrich said other communities were already using tax abatement for residential developments. For some of the larger housing projects, the abatement has lasted 15 years. He said some Minnesota counties are using abatement programs for single-family housing.

Councilor Mack made the motion authorizing city staff to prepare information to establish a tax abatement program at 2229 N. Highland Avenue. The motion was seconded by Councilor Tom Schmitz and was passed by the council.

The city is required to create a development agreement for the abatement project and hold a public hearing before the program goes into effect.

Staff with the assistance of David Brown Associates will prepare revenue projections for the project ahead of the council’s Jan. 17 meeting.