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The former Kmart store on New Pinery Road in Portage has been empty for four years, and the property's value is plummeting. Portage city officials said Thursday they are certain it meets the state's criteria for "blighted" property -- but just in case it doesn't, the developer, Richard Lynn, would not be responsible for the city's costs to create a "blighted" tax increment finance district.

Portage City Administrator Shawn Murphy said Thursday he can’t imagine anyone declaring that the former Kmart and Fashion Bug property on New Pinery Road is not, in fact, “blighted.”

But in that highly unlikely event, developer Richard Lynn won’t be responsible for repaying the city for the costs it incurred to get the area declared a tax increment finance district.

Lynn Holdings Inc. owns the site where the Fashion Bug women’s clothing store was located until it closed in 2013, and where the Kmart variety store existed until it closed in 2014.

City officials are in the process of creating a tax increment district that would allow Lynn to collect some of the increased property tax revenue expected to result from improvements in the property, stemming from new businesses renting the existing buildings and a new structure planned for that site.

But unlike most other tax districts, this one would not offer any upfront money borrowed against expected valuation increases; instead, the revenue would be available to repay Lynn for some of his costs to upgrade the buildings, if and only if the valuation actually goes up.

The pre-development agreement with Lynn that the council had previously approved also would require Lynn to pay back the city’s costs for creating the district – amounting to about $20,000, for legal and consulting fees – should the promised development fail to materialize.

But Lynn sought, and got, clarification that he’s not on the hook for the city’s costs if state officials should determine that the site does not meet statutory requirements to qualify as a “blighted” area.

The clarification is only fair, said Mayor Rick Dodd.

“This is on the city, because we encouraged him to have this kind of district,” he said.

Murphy said the state requirement for declaring an area “blighted” entails documentation that at least 51 percent of the properties in the proposed district has experienced significant drops in value in recent years.

There’s only one property parcel in the proposed district, and its value has dropped from about $3 million in the years when Kmart was open to about $898,000 today.

Furthermore, the consultant working with the city on the tax increment district’s creation, Jon Cameron of Waukesha-based Ehlers, is quite certain the property meets the state’s criteria for blight, Murphy said.

“Everybody feels it is blighted,” said Council Member Dennis Nachreiner. “It meets all the criteria. But if it isn’t, then the city would be on the hook, not Lynn.”

Lynn has expressed confidence that tenants will occupy both buildings and the proposed new structure by the end of next year, if the increment district is created to help him recoup costs for bringing the buildings up to code.

Unless that happens, the buildings will remain empty, Murphy said.

“The buildings are dilapidated and unusable in their present state,” he said. “This could lead to devaluation of other property in the area.”

Council Member Mike Charles said the change in the city’s agreement with Lynn is indeed a risk, “but it’s a very, very small risk.”

Follow Lyn Jerde on Twitter @LynJerde or contact her at 608-745-3587.

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