NORTH MANKATO — Special legislation allowing North Mankato to recoup about $1 million it spent to prepare for a Belgrade Avenue development ran into a brick wall in the state House last year.

Prospects appear to be much better in 2010.

“I just think times are different,” said Mayor Gary Zellmer, who pitched the North Mankato office and residential project in a meeting with House Speaker Margaret Anderson Kelliher earlier this year. “Last year wasn’t the time. This year is.”

The major problem a year ago was the opposition of House Tax Committee Chairwoman Ann Lenczewski to North Mankato’s tax-increment financing plan. A Bloomington Democrat, Lenczewski portrayed the city’s request as an attempt to recoup its site development costs on the Marigold Dairy site without using the more visible — and unpopular — option of higher property taxes.

This year Lenczewski has agreed to include the provision in a broader bill aimed at using tax incentives to promote job creation and economic growth.

“Our basic approach is to look at what the state can do from a tax perspective to create jobs,” said Rep. Terry Morrow, DFL-St. Peter, who is sponsoring the North Mankato legislation.

Morrow said the TIF proposal fits the goal well, and he reminded Lenczewski of that.

“Let’s say I’m very persistent,” Morrow said.

Other TIF projects in other cities are also being put in as Lenczewski sets aside, at least temporarily, her desire to more closely govern how the development tactic is used. Under TIF, local governments calculate the additional property taxes that would be generated if a development project is constructed and then use those taxes to help cover the cost of the project.

Critics of TIF worry it is overused by cities, forcing property taxes higher for counties and school districts than they otherwise would be if the TIF revenue wasn’t being diverted. Supporters note that schools and counties have to sign off on any TIF project, and they say many developments

wouldn’t happen without the subsidy — so the additional revenue would never have existed anyway.

North Mankato’s case is unusual because city officials are attempting to expand an existing TIF district. Originally, the TIF was for a hotel project planned for the long-abandoned property on the east end of Belgrade Avenue.

The hotel’s private financing fell through after the economy slowed following the Sept. 11, 2001, terrorist attacks. The city already had incurred the cost of demolishing the abandoned dairy and preparing the site for development — expenses that were to be repaid through the additional taxes generated by the hotel.

Nearly 10 years later, construction is to begin in May on a $1.7 million 19,000-square-foot building to house a mix of commercial, office and residential uses. That projects sits within the existing TIF district, but future phases planned for 2013 and 2016 are slightly outside the original district. The legislation would expand the boundaries, allowing the city to collect the tax increment from those $5 million and $4 million phases.

If the House bill is approved, the Senate is expected to include the North Mankato TIF language as well, said an aide to Sen. Kathy Sheran, DFL-Mankato. The idea was well-received in the Senate Tax Committee in 2009.

“It’s a significant piece of the puzzle,” Zellmer said of the tax legislation’s role in the long-awaited development project. “... This should allow us to recoup most of the costs we’ve already incurred on the property and anything else we have to do.”