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Preston enters into option agreement for POP property

Fri, Sep 27th, 2013
Posted in Preston Government

By Karen Reisner

The Preston City Council and the Preston EDA held a combined meeting on September 23 to discuss the possible disposition of Preston Oil Products (POP), the long abandoned gas station at the corner of St. Paul Street SW and Mill Street SW. Councilman David Harrison was absent.

EDA members Dwight Luhmann, Tim Kiehne, and Joanne Szuch were present.

The first issue was whether or not to close the meeting. City Attorney Dwight Luhmann noted that they have had an open dialogue to this point and suggested it should be closed only if they were to negotiate a price. City Administrator Joe Hoffman added they should close a meeting only when they really need to. Councilman Robert Maust seemed to agree, saying it is public money we will be spending. The meeting remained open.

Cathy Enerson, business development director, reviewed the recommendation of the EDA to purchase the three dilapidated parcels that was first discussed at the August 5 meeting of the city council. The other two parcels are the Hellickson rental house on Mill Street SW and the bulkhead tank area near the trailhead.

At the August meeting Councilman Robert Maust had expressed concern about the potential expense for the city if the ground were found to be contaminated when the underground tanks at the POP are removed.

Enerson described an option agreement which would protect the city from exposure to unknown risks (the possibility of contaminated ground). The city would pay the estate or a subcontractor $19,000 to remove the tanks after which the soil will be sampled. The city would hold an option to buy the POP property for $1. If the ground were found to be contaminated, the city could walk away. If there wasn’t any contamination, the city could exercise the option and pay an additional $2,200 in costs (10 percent of investigation costs and of a response action plan) and own the property. The property would at this point still have the above ground structures and cement in place. It will cost an additional $12,280 to then remove the above ground structures and level the site to make the site more attractive to developers.

A very long back and forth debate ensued. Luhmann explained that there was a chance that the estate could qualify for the state’s Petrofund which would cover 100 percent of the tank removal costs. It would have to be proven that the tanks were abandoned by 1988. Luhmann suggested the property value would increase considerably when the tanks are gone and it is shown not to be contaminated.

Maust did not think the estate should potentially benefit if they could qualify for the state money. The EMV of the property without the tanks would be about $22,000. Councilman Charles Sparks argued that once the property is cleaned up, it could be redeveloped.

In the agreement the city would be paying out up to $21,200 even if the estate could qualify for the state money. Luhmann referred to it as an option within an option. If the seller doesn’t qualify for the state Petrofund money, the city would pay up to $19,000 directly to the contractor to remove the tanks. Hoffman explained that either way the cost to the city will be the same as the property becomes more valuable with the tanks removed, assuming it tests clean. He admitted it is an unusual option agreement.

The main thing the $1 option affords the city is the protection from being the property owner should the ground be found to be contaminated. In this case the city could op to not exercise the $1 option. The tanks will have been removed. Enerson insisted that the $1 option takes all the potential risk of paying for contamination clean-up costs away from the city.

Maust asked if in the end the city will still be the on the hook to pay 10 percent of the clean-up cost if it is contaminated because the estate doesn’t have the funds to do it. The Petrofund would pay 90 percent of the clean-up. Enerson suggested that if the ground were found to be contaminated, the state would likely seize the property to clean it up, so it would not be a threat to drinking water. Leaks from abandoned tanks are a leading cause of groundwater contamination.

Luhmann said even if the city decides not to exercise the second ($1) option, there is value in having those tanks removed.

Maust suggested the city pay the estate to clean up the above ground building and cement to improve the appearance of the property (without removal of the underground tanks). Mayor Kurt Reicks argued that if the property were to be flooded, it might be even more of a threat to drinking water, if the cement was removed and if the ground were contaminated which wouldn’t be known under this scenario. The POP lies in the floodplain. The only way to determine if the ground is contaminated is to remove the underground tanks.

Councilman David Collett said the city will be out the $19,000 if the ground is contaminated. Luhmann said he assumed there is value in just getting the tanks removed.

Reicks maintained cleaning up these properties is part of a vision to make the city look better.

A motion was made to buy the bulk head site and rental house for a total of $4,500. There will be a separate purchase agreement for each property. This was approved unanimously. The money for the purchases will come out of the EDA budget for acquisitions. It will cost $7,000 for demolition at the house site and $5,500 for demolition at the bulkhead property.

A motion was made to enter into an option agreement with the purchase price of $1 for the POP property. The agreement includes the city paying $19,000 for tank removal and up to a total of $21,200 to include the additional costs. The motion failed to be approved the first time.

Collett asked if we just eat the cost if we end up walking away from the property because of contamination. Enerson said there is a small chance of that, but then the city is protected from unknown contamination clean-up costs.

The motion was made a second time. Maust said the total city investment to clean-up the POP property below and above ground would be $33,581 (this assumes the ground is not contaminated and the city would own the property in the end). His figures include the $19,000 to remove the tanks, the $2,200 for additional costs, and $12,380 for demolition of the above ground structures. The option agreement for the POP was approved with Maust voting against.

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