The Truth about TIF and the NDC

One of the most unfortunate aspects of the events leading up to our June city council meeting was the guest editorial by Silvia Quezada  that ran in the Press Citizen Tuesday morning. Tom Jackson, Director of the NDC, sent an email to all of City Council Tuesday afternoon. 

Silvia did start the meeting Tuesday night with an apology to Tom and the NDC. However since approximately 40 members of the public were at the meeting and I'm sure more than that read her editorial, I think it is fair to run his response here.

Subject:   RE: Follow-up University Heights From:   "Tom Jackson" <TJackson@nationaldevelopmentcouncil.org> Date:   Tue, June 9, 2015 12:05 pm To:   "silvia quezada" <smq130@hotmail.com> (less) "council@university-heights.org" <council@university-heights.org> Priority:   Normal Options:   View Full Header | View Printable Version  | Download this as a file

Councilmember Quezada – I was sorry to see in the paper this morning that you feel that “NDC was instructed to analyze the (One University Place) project assuming $4 million in TIF plus interest.)  That was not my direction from any of the members of the University Heights City Council and is not the way that NDC conducts gap analyses.  What I did do was review budgets, sales projections and operating revenues and expenses for multiple iterations of the project.  If, in my initial analysis of the project’s financials, I had found no evidence of a financing gap, I would have informed the City of as much and future considerations could have focused on zoning without any need to debate the use of tax increment financing (TIF).  Instead, I identified a financing gap in that initial submission that exceeded $9 million.  This number was well in excess of what I was told was the City’s total bonding capacity and it was a number that couldn’t be amortized with a TIF rebate in anything approaching the maximum available terms of private financing.    Councilmember Lane stated in the last council meeting, and I believe during a meeting that you and I had with him in the spring of 2014, that the City couldn’t risk more than $4 million in gap financing to help incentivize development on the St. Andrew’s site.  Given this feedback, the Developer had no choice but to rework and resubmit successive plans and associated financials to try to eliminate the majority of their financing gap.  Even the plan that included the one-story retail/commercial building that was reviewed by Council in early summer 2014 – and that received relatively favorable review from your residents – could not bring the financing gap below $5 million.  A rework of that plan led to the current Developer proposal and my analysis that it evidences a financing gap with a present value of $4 million dollars. I believe that you have, through the services the City contracted with the National Development Council to provide, received an independent review of the financing scenarios that have been associated with each iteration of the project’s design, unit count, unit mix, project budget, and projected sales and operating revenues and expenses.  This review couldn’t be independent of the proposals made by the Developer, because the current development team is the only one that has control of the St. Andrew’s site.  Given that control, the Maxwell team is the only one investing in the designs, construction estimates, proforma development, etc. that are necessary prerequisites to NDC’s analysis.  I’ll be in attendance at tonight’s City Council meeting to answer any questions you may have regarding my analysis of the current proposal’s gap financing needs.  All the best - Tom Tom Jackson, Director National Development Council 927 Dudley Road Edgewood, KY 41017 (513) 300-0886 Mobile tjackson@nationaldevelopmentcouncil.org www.nationaldevelopmentcouncil.org

My Vote on One University Place

I voted in favor of the PUD and the Developer's Agreement at our June City Council meeting tonight. Neither decision was taken lightly nor without considering the many details of both documents. I also considered how those documents work in light of the request for TIF that the developer has made.

I have spoken at length lately about the merits of commercial development, how a rebate TIF is a best way to make sure this project succeeds, and why this project is good for our town. Tonight it is time for me to go back and reflect on what started me on this path 6 years ago.

When I first ran for council in November 2009 I spoke at length about our city budget and my concern over it. The fiscal year that had ended in June 2009 had a $39K annual deficit. I had spoken in favor of the proposed development as a citizen who saw walkable commercial as important to maintaining our town's quality of life. The more I studied the situation the more I realized that the economic impact was critical as well.

Even though the development has not progressed, we as a city received a reprieve in the form of the Local Option Sales Tax (LOST) that was collected in Johnson County from July 2009 through June 2013. We received roughly the equivalent of a 10% increase for those four years. We managed to bank quite a bit of those proceeds, even though our annual carryover was always smaller than the amount of LOST received.  In conversations with Finance chair Jim Lane and City accountant Steve Kuhl 100% of the City's current carryover is attributable to LOST.

It is time to move this project forward. We need this to continue as a vibrant community and we need this be economically viable in the future.

We also scheduled a Public Hearing for July 14th to discuss TIF district. I will have much more to say about how this TIF is structured and how it works in the coming month.

Details, Details, Details

I think its fair to say attention regarding the One University Place development has ratcheted up bit in town this week. With fliers appearing at doors and citizens being encouraged to contact councilors, I thought it would make sense to remind people what is happening. Many statement I've read lately are not the reality of what is happening.

City Council will consider a PUD (planned unit development) document and developer's agreement at the June 9th council meeting. At the special meeting we decided to have the City's TIF attorney, John Danos, begin the process of preparing documents to consider a rebate TIF. 

Council has heard from citizens and at least one council member that a TIF is unnecessary for this project. I disagree and would cite two pieces of evidence to support my thoughts. One would be the NDC Gap Financing Report we received. The other would be what is happening around us. 

The City of Iowa City recently announced the awarding of a contract to CA Ventures to developed the city-owned property at the old St. Pat's school site. Much was made of the fact that this development would NOT receive any TIF funding. This 1.1 acre parcel will be home to a 15 story condominium tower AND a 14 story hotel tower. 

Here is some of what the March 23, 2015 Press Citizen story had to say:

The proposed building, called RISE at Riverfront Crossings, is a $102.5 million, nearly 560,000-square-foot project that includes two towers: a 15-story residential tower and a 14-story, 152-room hotel. Designs for the towers include 127 one-bedroom units, 149 two-bedroom units and 44 three-bedroom units. Designs also include more than 23,000 square feet of office space and 6,000 square feet of retail space.

Davidson said Core Campus, which proposed HUB at Iowa City, was named an alternate preferred developer, in case an agreement cannot be made. Plans for HUB at Iowa City include a 15-story mixed-use building with 31 efficiency units, 75 one-bedroom, 83 two-bedroom and 161 three-bedroom units. Plans also include a 153-room hotel, 4,000 square feet of retail space and 20,000 square feet of office space.

Davidson said that although the two projects are similar, the mix of housing options offered by CA Ventures project, particularly the one- and two-bedroom units, made the project more desirable.

"(RISE at Riverfront Crossings) housing options include about 90 percent one- and two-bedroom units, and almost half of Core Campus' units are three-bedroom," Davidson said. "Usually when we hear three-bedroom units, we think of college roommates living together, and we'd like to make the residential space more available."

CA Ventures has offered the city $6.5 million for the almost 60,000-square-foot property, $1.5 million more than Core Campus' offer. Neither project currently requires tax increment financing assistance from the city.

Davidson said, due to the developer's interest, construction could begin at the site as early as this year.

"The developers are trying to stay on track with the (University of Iowa's) plans to expand," he said.

This parcel, is one fourth the size of the St. Andrew site. To get a quality development, that is not focused on student housing, it has to have a mass that is much larger than what has been approved on the St. Andrew site.  It is also important to note the yellow highlight I used to show what real student housing looks like. A predominance of 2 bedroom units is NOT a student property. Also students want to be close to downtown, the east campus and other students. A west side site would not do that. The last sentence of the above article is important, as UIHC expands we need to be ready to bear the pressure of increased housing needs due to expanded hospital staffing.

I also want to remind people what TIF expert Peter Fisher had to say when he spoke to council on April 28th. Here is a link to my write up on that: A Closer Look at TIF. We are following the recommendations he made at this meeting.

This project remains high quality project with 104 units, and 5 story and 3 story buildings. By contrast the RISE project is 320 residential units and 152 hotel units. I don't think our town is willing to double or triple the size of the project in order to not have a TIF request.

The current TIF request is 40% of what was asked for in 2010. I have consistently told this developer to bring in a high quality project and if there is to be gap funding that the city's participation be modest. A rebate TIF that is equal to 10% of the projected valuation while not exposing the City to any risk, meets that criteria.