ROCHESTER – A last-minute catch spurred Mayor Kim Norton last week to veto a $125,000 grant to renovate a historic downtown building's space into an apartment, arguing the project is better suited for a zero-interest loan program. The Rochester City Council disagreed.

The council shot down Norton's veto 6-1 Wednesday amid discussions on how Minnesota's third-largest city navigates preserving historic structures vs. allowing property owners to use whatever means necessary to make their land profitable. The vote also brought up questions over who gets access to downtown economic funding.

Council members approved a historic downtown commercial district around this time 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 (DMC) board followed up with a downtown grant program last summer. The DMC board passed about $700,000 in grants last month, including $125,000 for the 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 was among DMC board members who supported the project in December; the council passed it as part of a package earlier this month. But Norton said she had misgivings once she realized the project was adaptively reusing the commercial building.

"It wasn't until the contract came before me to sign that I fully understood," she said.

Norton said she believed projects like this, which transforms a building to create new income sources for property owners, should be paid for using loans instead of simply granting money to fix a historic building as-is. She felt it should be funded through the city's loan program rather than DMC dollars, which include county and state funding.

The council disagreed with Norton, arguing the DMC grant money was appropriate. Council members Norman Wahl and Shaun Palmer said the project was in line with the months of work city staff and council members did to create a benefits package for downtown property owners, while member Andy Friederichs argued any sort of improvement in a commercial district brings in more money.

"It's all generating revenue and bringing favorable people to our downtown," Friederichs said.

Council Member Patrick Keane also pointed out that Beeman would have to match the grant with his own funding to renovate the building.

Norton questioned why the city created a loan program for downtown historic property owners in the first place if not for projects that would change a building's use, arguing that other property owners would probably want access to DMC funding but their properties aren't considered historic.

"Building out apartments on the second floor is something we could be doing in many, many of our businesses downtown," she said. "We might want to think about expanding these opportunities."

Dan Doering, the council's only dissenting voice on the matter, said he agreed with Norton's interpretation of how grant and loan funding should be used to preserve commercial buildings downtown.

"I understand the argument for economic vitality, I understand the need for downtown housing," he said. But "I think the mayor has made some pretty compelling points."

Rochester has 32 properties, mostly in the southern part of downtown, included in the historic preservation district. The buildings represent some of Rochester's oldest properties and have been a rallying point for longtime residents who seek to maintain the city's history.

Norton has issued eight vetoes since she was first elected in 2018. The council has overridden four of them, including Wednesday's vote.