Cannon Falls staff outline water, sewer caps and developer payments for proposed data center; work session set for Thursday

Cannon Falls city staff briefed the City Council on terms under negotiation with a developer proposing a data center, saying the development agreement is not final and that a joint work session with the Planning Commission is scheduled for Thursday to share detailed figures.

John, a city staff member, told the council that water use in the agreement would be capped at 43,000,000 gallons per year at the end of a 10‑year buildout. He said the property includes an irrigation well with an existing appropriation of 41,000,000 gallons per year that could not be repurposed for industrial use without Minnesota Department of Natural Resources approval and would be available for non‑city uses only in narrowly defined emergency circumstances. "43,000,000 gallons per year is the cap of which water that they can draw from the city," John said.

On the sewer side, staff said the most recent request shows average collections of about 50,000 gallons per day. City studies, staff said, were used to confirm that the existing sewer treatment plant can accommodate the projected flows within the limits proposed in the agreement.

Staff described ongoing negotiations over surety and capital contributions. The developer would dedicate land for the city to build a water tower, and the city is seeking an upfront capital improvement payment to help fund necessary upgrades at the aging sewer plant. Staff said those payments and the schedule for them remain under discussion and will be shared at the Thursday work session.

Utility infrastructure costs for electricity also have been discussed. Staff reported that Dakota Electric and Prairie River Energy indicated developers typically pay upfront for transmission and distribution upgrades so costs do not fall to other ratepayers. "I called Dakota Electric and got in touch with their engineering division and I was told by them that all the costs would be upfront paid for by [the developer]," a councilmember said.

Staff told council members the developer has not requested city tax increment financing (TIF) and that council historically has not supported using tax dollars to subsidize such projects. The draft agreement includes a one‑time park dedication fee of $494,000 tied to city code and a dedicated contribution to the school district; staff said the school contribution amount was not provided at tonight's meeting and would be discussed with the district.

Noise from the project would be governed by the Minnesota Pollution Control Agency (MPCA) for industrial noise thresholds; staff said the city could enforce mitigation and revoke a conditional use permit if mitigation was not provided or regulatory thresholds were exceeded. Staff also said utilities and the Public Utilities Commission set priorities for service and that residential customers are prioritized over industrial users in outage situations.

City staff said the developer presented a taxable market value and economic impact study from Ernst & Young; city staff reviewed the assumptions and said they appeared reasonable though projections are inherently uncertain. Staff also noted that attorney, engineering and consultant time spent on city review have been covered by an escrow agreement rather than by the city.

The council was told that the development's water and sewer allotments are expected to be phased, with lower caps in early years, and that phasing would allow the city to plan capacity and rates. Staff said, in theory, revenues from the development could outpace operating costs and create room to explore rate adjustments, but no estimate was provided.

Staff emphasized that specific penalty provisions for exceeding water or sewer caps and final terms for significant industrial user agreements remain to be negotiated and could depend on the final end user. Detailed financial figures and finalized development‑agreement language will be presented at the joint work session with the Planning Commission on Thursday.