Background on Resolution 16-50

I received a question from a citizen yesterday asking why was One University Place divided into two parcels, and two condominium regimes. The questioner wondered if it had to due with who would control a home owner's association, commercial owners or residential owners. Below is my response. Of course after sending it, I remembered the most important reason, for this occurring, which is this:

In December, 2015 the development team was informed that if the property was to be assessed on Jan. 1, 2016, then a condominium regime had to be filed with the State of Iowa by Dec. 31, 2015. The simplest way to file that was to make the south building, already under construction, a separate entity. Without a filing by 12/31 there would be no assessment of the property as commercial or residential and to be taxable until Jan. 1, 2017, meaning any taxes generated would come an entire year later. Remember than an assessment on Jan 1, 2016 will result in an initial property tax payment in Sept. 2017. Since the property had previously been assessed at $0 valuation due to it's use as a church, there would have been no taxes paid.

The issue of dividing the property into two plats really has nothing to do with commercial owners vs. residential in a condo association. Council first heard about this at the Dec. '15 council meeting. At the Jan. 2016 Council meeting there is a considerable explanation of why this was done. In the Jan 16 Legal Report the city attorney explains what the issues are at length. Look at his report, item 6, are on pages 6-8 of the linked document.

In the Feb 16 Legal Report city attorney also outlines details of what should happen to ensure that all PUD and TIF document details are carried out by two condominium regimes instead of one. Item 2, pages 8-13 outline these opinions.

The March 16 legal report states that the city attorney and developer's attorney had begun working through those details. The April 16 legal report says the process between the attorneys is still underway but not complete. The May 16 legal report says the process is close to completion and a chart showing all provisions of the PUD and TIF agreement and how they are addressed in North and South condo declarations is being created.

The June 16 Legal Report states that due to the fact that the financing proposals (GO Bond and special assessment) being considered will also include amending the PUD and TIF documents, council should wait until those actions are complete so as to consider all amendments to the PUD and TIF at the same time. Item 6 on page 65 outlines this.

That brings us to the September meeting when the GO bond work was complete, so council was to consider all the PUD and TIF amendments. What Resolution 16-50 does is finish that process and allow us to go forward with a special assessment of OUP to repay the Public Works project, which is the larger portion of the general obligation bond that was let on 8/29. It also allows us to take advantage of better pricing on the community center due to that special assessment. I've written in more detail about that on my blog: What is the Impact?

The Sept. 16 Legal report gives a summary of the process and more details. Item 2 pages 188-191 refer to this. The chart mentioned in the May legal report can be found on pages 61-64.

One University Place Approvals

At our City Council meeting tonight Council voted 4-1 (Quezada voting "no")  to approve the TIF Development Agreement which essentially approves the One University Place project. While this is nearly the culmination of 7 years work on planning this project, it is truly the beginning of the project itself. 

Unlike most times, tonight I had a prepared statement to make regarding the vote. However the way our discussion went, I never had a chance to deliver it. So here are my thoughts on why I voted to approve the TIF :

As I consider tonight’s vote I want to reflect the journey that has gotten us here. When I was first elected in 2009, my hope was the U-Heights would be a financially secure community that maintained its high quality of life. Approving this project, and the TIF that will make it happen is a major step toward realizing that goal.

What I think is important to remember here is that the City is not a part of the purchase process for this property. This development is located on private land owned by St. Andrew Church. Unlike River Landing in Coralville, or Plaza Towers in downtown Iowa City, we as a City do not own this site, we could not solicit bids and choose a developer from among competing projects.

Despite this, the residents of this community have molded this project over the past 7 years and their ideas have resulted in improvements and enhanced amenities. We will have commercial enterprises that will add to our community. We will have a community center, at an attractive price, where we can gather and celebrate. There will be playground space and attractive outdoor facilities. The ravine east of the project will be preserved in its current state. We will have an improved arterial intersection with better traffic flow than we have currently. Those traffic improvements will be paid by the project itself.

I don’t think anyone on council believes that Tax Increment Financing is to be given away lightly or surreptitiously. We have received advice from the National Development Council as to the need and amount of gap financing. Without a TIF, this project does not proceed.  While a gap of $4 million dollars, which results over time in a $6.7 million rebate payout is certainly not small, it is a reasonable amount, and the city will be able to repay without putting the city or its residents at a financial risk.

This TIF we are considering complies with the guidelines set forth by Peter Fisher of the Iowa Policy Institute for responsible use. Only taxes collected on property in this development will be used to rebate costs. Dr. Fisher advised not including the cost of a community center in the TIF because we shouldn’t TIF for non-tax generating space. We are following that recommendation.

Because I certainly know that tonight’s vote is not the end but the beginning of the next chapter in the future of U-Heights, and I know that approving this project will make us a financially secure community that maintains its high quality of life  I will be voting yes.

Here is the link to more information about the project. 

One University Place Information

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

 

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

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.

One University Place PUD My Thoughts

In the past week City Councilors received the National Development Council's report analyzing whether a TIF proposal would be warranted for the One University Place project. We also received the latest Developer's Agreement draft document.  Both of these will be helpful as Council holds it's Public Hearing and Special Meeting on Wednesday May 27. This meeting will be at the University Club at 7:00 PM. All citizens are invited to attend and comment.

Here is a link to the Agenda and Attachments for the hearing and the meeting. Also in this document are all the reports submitted to Council covering various aspects of the plan. This packet runs 138 pages, so here is a chronological listing of what's in it:

1. Agenda
2. Attorney report
3. PUD Submission 4/17/15
4. PUD Submission 5/21/15
5. MPOjc report
6. MPOjc traffic report
7. NDC gapfunding report
8. UH Building Inspector report
9. UH City Engineer report
10. Coralville Fire Department report
11. Iowa City Water Division report
12. UH Police Department report
13. University of Iowa report
14. Development team responses to city reports
15. Resolution 15-30
16. Development Agreement revised 5/21
17. Resolution 15-31
18. Resolution 15-32

While I think reading the entire packet is informative, I would especially recommend reading the two documents that I made into links above.

Here are my thoughts: I'm comfortable with the PUD plans as amended in the submission of 5/21/15. I will support Resolution 15-30 with the considerations listed (some of which have been addressed by the developer's response.)

I'm also comfortable with the Developer's Agreement as presented. I will support Resolution 15-31.

I'm also willing to support a rebate TIF as outlined in the NDC gap financing report. What that amounts to is a 10% support level, based on the final value of the project. 

Gap Financing Report

It is fair to say the most anticipated report for next week's PUD public hearing was the gap financing report from the National Development Council. Tom Jackson from NDC has worked with the City and the Development group for over a year. His report came to councilors today and can be found here:

Gap Financing Report

I've had a quick read through it and will need to look more closely again tomorrow. Jackson does recommend that the city allow a $4M rebate TIF to the developer. That represents roughly 10% of the projected tax value of the project.

The PUD Public Hearing will be Wednesday May 27th at 7:00 at the University Club.

All of the reports for this hearing as well as other project information can be found here:

http://university-heights.org/BuildZoneSanit/OUP/15/index.html

I hope to see a good turnout of city residents.

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.

TIF Talk

City council will continue discussing Tax Increment Financing (TIF) at a work session on Tuesday April 28th. We held an informational session on TIF last month. Here is a link to the official minutes of the meeting as posted at the City of University Heights website:

http://university-heights.org/council/15/minutes/150323minutes.pdf

I recommend reading these. I also took notes at the meeting, here is what I recorded:

1. Explain difference doing TIF funding as opposed to doing a municipal bond to provide funding for a development.

Difference between fronting cash or a TIF rebate arrangement. When city has to front, they have to borrow, and puts city’s credit at risk. TIF rebate requires developer to front cash, and then offers future economic benefits, keeps risk on private side. Iowa law allows cities to define “necessary.” That includes infrastructure low-moderate housing.

2. What are the different types of TIF funding- Bond, tax rebate, tax abatement, et.al

Basic tenet: tool to repay obligations to a city or county of urban renewal projects. Has to have a public obligation. 1. Traditional banking (borrowing or a bond) general obligation can be paid by debt obligation levy. 2. Internal borrowing must have your own funds. 3. Negotiated TIF contracts or rebate agreements. 4. Statutory obligation for low income if you TIF market rate projects. One more tool “tax abatement” not a TIF. Keeps new valuations from going on the property tax roll.

3. What is a TIF district and who decides the location of the TIF district?

Location is defined by City Council and BOS have authority to establish urban renewal areas. TIF district is designated by ordinance.

4. Our town has a bonding capacity of about $5.3 million. How is our bonding capacity affected by the different types of TIF funding or a municipal bond?

Law sets debt limit. Interest is not legal debt. Utility borrowing, special assessments not considered debt. GO and TIF are debt. Annual Appropriations make it such that city’s payment liabilities are dependent on city council decisions and action. You can put specific concrete benchmarks to incentivize developers.

5. If TIF funding or a municipal bond is chosen as a gap funding mechanism, who determines how the repayment is used and where it goes. E.g. Johnson County, School District, University Heights.

All decisions are made by city council. Can’t control whether or not revenue comes in and the pace. Minimum assessment agreement establishes a floor of valuation with assessor. Makes TIF revenue stream more predictable.

6. How is University Heights' bonding capacity affected as new buildings are added to the tax rolls and a portion of the TIF or bond is repaid?

As buildings are added debt limits goes up 5% of assessed valuation of new construction. Have to wait for assessment to catch up. 18 month lag. Bond rating of city won’t be an issue.

7. Are there any employment requirements for any TIF funding or bonding?

Required? No but cities could say that if jobs are created in commercial projects the TIF could be higher. 

8. What are the circumstances in which TIF could go totally wrong and result in "bankrupting the city" that we hear from some individuals?

TIF negotiated contract shouldn’t ever hurt a city, since it isn’t the public credit put at risk. However fronting cash is risky but with debt limits and savvy lenders it shouldn’t be an issue either.

9. When does Affordable Housing come into effect for TIF projects?

Lower and moderate income set aside if used for public infrastructure related to new market rate housing then must have additional funding for low/moderate income. Amount is county specific due to rates. In negotiated contract that developer gets percentage after LMI (low moderate income) is first required. TIF for commercial does not require set aside.

What triggers that obligation (TIF used in residential project or for residential purposes, I believe);

How much funding is involved (how is the obligation computed); and

How is the obligation paid – over time, as TIF is rebated, etc.

Questions from audience

When should city not use TIF?

Each community has to make that decision about what is appropriate use and when.

Any implications for public space not subject to taxation?

2012 leg says analysis has to be done to find feasibility. Keeps discretion at local level.

In determining increment on tax exempt property how is increment measured?

County assessor starts from zero when counting in similar projects but must involve assessor to know for sure.

Coralville’s Bond Rating drops 6 levels in 2 years What about U-H? What about local banks not wanting to loan to us?  

Doesn’t work for a rating agency and has a hard time considering how we might need a bond rating agency. Are you making a good policy decision and a good fiscal decision?  Banks generally will enter with municipalities. 

20 year TIF collection limit under current law. For market rate housing TIF limit is 11 years.