Rochester mayor, council clash over public money for apartments in historic building

ROCHESTER – Elected officials here are locked in a debate: Should state dollars meant to boost downtown be used for renovations to create apartments?

Mayor Kim Norton doesn’t think so. Last week, she vetoed a $245,000 grant that the Rochester City Council approved earlier in June and the Destination Medical Center board approved last month. The council overrode her veto Monday night by a 6-1 vote, with Dan Doering dissenting.

Norton takes issue with the grant program, which will be used to fund property owners Shawn and Michelle Fagan’s second-story renovation of their building at 324 Broadway Ave. S. into apartment space. Norton argues using DMC’s infrastructure investment program for the building would benefit a select few, rather than the public at large, using the state dollars.

“As a person who carried this bill, that was not what we said was going to happen,” Norton said. “It really hurts for me to see this happen.”

A former DFL state representative, Norton and then-state GOP Sen. Dave Senjem shepherded the DMC initiative through the Minnesota Legislature in 2013.

Destination Medical Center is a $585 million initiative funded through city, county and state money to pay for infrastructure to attract economic development in downtown Rochester, with the goal of turning the city into an international medical hub.

This is the latest in the debate over how building owners downtown with historic properties should be incentivized to preserve them.

The council approved a historic downtown commercial district early last year, which included a revolving-door loan program for restoration projects that kept some of downtown’s older properties intact. Property owners raised concerns at the time, arguing that grants were a better option as it costs more to keep up aging buildings.

Destination Medical Center’s board followed up with a downtown grant program last summer. The DMC board passed about $700,000 in grants in December, including $125,000 for an apartment project above the Marrow restaurant in the 300 block of Broadway Avenue.

At the time, commercial developer Bucky Beeman said he had been thinking about the project since buying the building in 2020 but was concerned about financing.

Norton vetoed the grant for that apartment renovation as well, though the council overrode her in January.

Council members Monday night argued the grants were necessary to support building owners downtown; the program was largely why the council approved a historic district in the first place, according to member Norman Wahl.

“I really do appreciate the mayor’s historical rendering of the money that was given through the Legislature, but things have changed,” he said.

Council member Shaun Palmer pointed out the DMC’s board, which includes Norton, had already approved the grant (though Norton voted against it). Palmer argued the grant fulfills DMC’s larger goal in bringing more economic development to Rochester.

“We’re actually adding an apartment downtown that’ll give somebody some place to live,” Palmer said. “And we’re adding something to the tax base.”

Council President Randy Schubring, who also serves on the DMC board, said the DMC plans to review and restructure its grant program later this fall in response to concerns from Norton and other public officials. Yet Schubring also voted to override the veto, arguing the grant will likely increase the Fagans’ property values and subsequently the building’s taxes.

Norton said the override was expected, though she was disappointed in the vote. While she welcomed a DMC review, she argued the grants already given would make it more difficult to meaningfully change.

“It’s going to be harder to say no after two (projects) than one,” Norton said.