TIF Plan Details and My Opinions

RAGBRAI WATCH AND WAVE IS JULY 25th
incorrect date in my eMail!

With tonight’s approval of the TIF district and first approval of an ordinance identifying the district, City Council continues to move forward in the process to finalize and approve the One University Place development.

I think it is fair to say there has been a lot of misinformation about the project and the process of approving the TIF (tax increment financing) that goes along with it. In order to help explain what is happening I created a PowerPoint slideshow that I shared with the rest of council and the public at tonight’s council meeting. That PowerPoint can be found here.

Key information points from the PowerPoint:

1. Only the area of project itself is in the TIF District. Taxes collected on those properties, AFTER protected levies are paid to all entities, will be used to rebate the developer for construction costs.
2. All the major governmental entities (ICCSD, Johnson County, Kirkwood CC) will receive protected levies AND any leftover increment during the TIF.
3. With a very conservative 1.5% annual increase in valuation (last 10 years U-H has averaged a 5.5% annual valuation increase) TIF would be paid off in 13.5 years.
4. The Council is following recommendations from noted TIF critic, Peter Fisher, including bonding for the city community space rather than paying via TIF.

And here is my personal opinion based on the above:

TIF is justified as it will ensure that the project is built as a high quality residential/commercial development. 

The inescapable conclusion that I draw as I look over the long road we have taken to get to this point is this:

The Council and its staff have attained nearly every major concession or goal regarding the project that represents what a majority of University Heights seems to want. The City has repeatedly bent the developer to our will:

• The development is of a size that does not overwhelm the site or neighborhood
• The development includes commercial space that is desirable to many residents
• The development will have higher end residential space that will not be targeted to students
• The development will have a community center space at an attractive price
• The Melrose/Sunset intersection will be re-aligned at One University Place's expense
• The ravine east of the project will be protected in its current state

 

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.

A Closer Look at TIF

Council held a work session last night on Tax Increment Financing (TIF) as we continue to consider the One University Place project. We had two speakers talk with us, and it was a very informative and illuminating meeting.

The first presenter was Dr. Peter Fisher, Research Director of the Iowa Policy Project. Peter is national expert on public finance and is a frequently cited commentator on what is viewed as the abuse of TIF projects.

I spent a good deal of time speaking with Dr. Fisher in 2010 when in my first term on city council and the idea of TIF was proposed for One University Place. I find him to be very approachable and gracious with his time and expertise. Last night he had a PowerPoint presentation that he shared with the council and public who attended the meeting.
The slideshow can be downloaded from the U-H Municipal website:  TIF Presentation

The portion I found most helpful were the last two slides he shared. The first slide was guidelines for Responsible TIF Use:

These guidelines generally correspond with what I've said I would support in a TIF: a project based, rebate TIF with a definite time/cost ending. The only area above that I haven't supported is the last one in that I have mentioned TIF as a means to pay for the Community Center which would be a tax exempt facility. I will now need to consider bonding for a center in light of Dr. Fisher's suggestions.

The last slide was Questions to Ask:

These are the questions we should apply to One University Place, some I can answer now, others not yet:

Question One: YES ( we are only considering a rebate TIF, for the project site only)
Question Two: YES (I view the commercial space as a public benefit. The developer has said they could build a residential only project without TIF. I believe the public benefit of commercial space justifies a TIF)
Question Three: Not Yet (I'll talk about this down below)
Question Four: To ensure public benefit (This can be explained in my answer to question 2 as well as my firm belief that this property, which currently generates zero taxes, should be on the city rolls. If this development does not take place there is a high probability that it could be purchased by the University of Iowa, which would effectively remove any possibility of it generating taxes)

The second speaker was Tom Jackson of the National Development Council. City Council has hired Tom evaluate the One University Place project and recommend whether or not a TIF would be necessary. Tom has also performed this duty for the City of Iowa City as they consider re-development projects. Tom's work will heavily influence how I judge the answer to question 3 above.

Tom said he will have a full written report delivered to the City prior to our May 27th Public Hearing on the One University Place Planned Unit Development (PUD). He did have some preliminary remarks last night. Here are what I considered major points of what he said last night:

• While Tom didn't say outright that the project deserves a TIF, he did talk in general terms about amounts and time limits, so I am assuming he has deemed the project as viable and worthy of TIF
• Financing model is predicting an 8% return on the project 
• Local bank financing would be approximately 5% which would be paid first
• Private equity firms are not interested in projects generating under 15% return
• A TIF time limit of 12 years is the rough projection
• The payment would be a flat amount per year, so that after the first several years of payment, any excess amount generated from site would flow through normal channels to all other entities: county, city, school district
• A gap amount of $4 million is the rough projection

As I said at the beginning of this post, I found last night to be extremely helpful and what I learned will certainly influence and clarify my judgement regarding this project.

Latest One University Place Proposal

At Tuesday's regular council meeting we heard the latest site concept presentation from developer Jeff Maxwell and architect Kevin Monson. Here is the visual that accompanied their description:

You can download the PDF file HERE.

Let me give a bit of a summary here before we get to my thoughts.

The latest version of this project is similar to the version presented in September 2011. Like that plan the current proposal would have a 3 story mixed commercial/residential building in front and a five story residential building in the rear. This is a departure from the previous site concept shared in February 2014. That proposal had a one story commercial-only building in front and six plus stories of residential in back.

The major changes in the latest proposal, from the 2/14 one are these:

1. Increase residential units from 80 to 120 (same building footprints, smaller unit sizes)
2. 2 floors of residential above commercial in front building
3. Reduce commercial size from 20,000 to 15,000 square feet
4. Increase surface parking from 55 spaces to 108

Items number 1 and 4 would require a change to U-Heights Zoning Ordinance 180 this ordinance sets out maximum numbers for what could be constructed on the St. Andrew Church site. Major limits of the ordinance include:

UH Zoning Ordinance No.180

• 2 total buildings
• 80 residential units
• 20,000 sq/ft commercial space
• 45,000 sq/ft total building footprints
• 38' max front building height
• 76' max rear building height
• 185 parking spaces (min)
• 55 above ground parking spaces (max)

The increase in the number of residential units was to make the absorption rate (how quickly units sell) higher. It was stated at the meeting that it was hoped that 25% of residential units would be pre-sold. Smaller units will also carry a lower price tag, A ballpark number given was $200- $400K for units. The front building would consist of one bedroom units, while the back building would have 2 and 3 bedroom units. As has been true with all proposals, individual buyers could purchase more than one unit to combine into a larger condominium.

The reason for the increase in parking was explained as concerns by potential commercial owners that there wasn't enough customer parking. All residential parking will be underground in each building. It was noted that given the DECREASE in commercial space the total number of trips in and out of the property would likely remain similar to what was proposed before. I wrote about that here: Melrose Traffic.
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That's a rundown. Here are my thoughts.

I find it depressing that this project has had so many changes and turns and still has not been finalized. Every proposal we've had presented to us has had supporters and detractors.
 
I am not willing to reject this proposal out of hand. Since I have been on council I have been very clear that I support a mixed use commercial/residential development at the site of this project. Given this is the intersection of our only two arterial streets it just makes sense. Smart Growth development shows that mixed use, walkable projects are beneficial to citizens and their communities. I've said that in this space numerous times. 

A residential-only project could be built here without any support from the city. I DO NOT support a project like that. Yes, it would provide revenue that our city could greatly use, but it does not provide any of the other community enhancements that would truly improve our town, and the quality of life of the people who live here.

I'm not completely sold on greater number of residential units but understand why the developer is making that request. A greater number of smaller units means more income to the developer. Commercial space is at BEST revenue neutral and most likely a "loss leader" for this project, that's why the residential structure is so important. I have not talked to the developer specifically about this latest proposal yet, but will do so. I'm certain that this proposal is the result of conversations bank lenders, investors, and Tom Jackson of the National Development Council regarding what is a viable project. 

I see three potential markets for the front building units; graduate/professional students, UI Hospital employees, and sports fans. The first group has long been a part of our town, and given the UI's commitment to increase student enrollment, housing for all student demographics will remain tight. There were speakers at our council meeting criticizing that the front building would have many students. I would much rather have students in one bedroom small units designed for that purpose than have them in single family zoned neighborhoods where our infrastructure (parking, garbage, etc) are less able to handle higher density. I don't understand what appears to be complete dislike of students. The last group will be here infrequently at best.

It's hospital employees that I'm most intrigues me. Many UIHC workers (nurses, custodial, food service staff) could greatly benefit from nearby  work force housing, decreasing the need for vehicle parking at the hospital. One thing I want to explore more is how affordable housing plays into the development. Council has a work session tonight (1/19/15) to talk about his topic with the Johnson County Affordable Homes Coalition.

The dreamer in me supported reducing surface parking in Ordinance 180 down to 55 spaces in 2010. We wanted a maximum of green space. Today I have sadly come to the conclusion that if we want commercial we will need to increase surface parking. In the future, if that parking isn't needed it can be converted back to green space. Several speakers at the meeting referred back to former councilor Stan Laverman, who proposed those parking limits in 2010. I talked to Stan after the meeting and he readily agrees with me that the increased parking is a necessary concession to get commercial. He also is of the opinion that due to changes in the greater Iowa City metropolitan area since 2010, that a greater number of smaller units is warranted.

That's a first run at my opinions. I'm certain to expand on them more here in the weeks to come.

As always, I welcome comments or other feedback.