Council Minutes
PROCEEDINGS OF THE CITY COUNCIL
OF THE CITY OF GRAND FORKS, NORTH DAKOTA
March 30, 1999
The city council of the city of Grand Forks, North Dakota met in its special session in the council chambers in City Hall on Tuesday, March 30, 1999 at the hour of 5:00 o’clock p.m. with Mayor Owens presiding, pursuant to call by Mayor Owens, which was served on all members on March 26, 1999. Present at roll call were Council Members Brooks, Polovitz, Lucke, Hamerlik, Bouley, Carpenter, Lunak, Klave, Beyer, Babinchak, Hafner, Martinson - 12; absent: Council Member Glassheim (on phone system).
Mayor Owens announced that anyone wishing to speak to any item may do so by being recognized prior to a vote being taken on the matter, and the matter of the agenda is the request for additional funding by Grand Forks Homes for the Congressional I and II project and opened the matter for discussion.
Council Member Klave stated that due to a conflict with this project asked to abstain from voting on any of the issues this evening; moved by Babinchak and Brooks. Carried 11 votes affirmative.
Council Member Babinchak asked what rules of conflict of interest in dealing with CDBG monies. Mr. Swanson, city attorney, stated that the normal conflict of interest rules for the State of North Dakota are superceded by the federal HUD regulations, the normal rules provide that if you have a direct pecuniary interest in a matter being considered by the governing body you must disqualify yourself; the HUD rules are broader than that, the HUD rules essentially include not only a direct but an indirect pecuniary interest and also include contractual interest and as a general rule of thumb you will often see the phrase “appearances of impropriety” as being a basis for disqualification.
The deputy city auditor read the committee recommendation: The Joint Urban Development and Finance Committee considered the matter of review concerning funding or other appropriate action on Congressional housing, and recommended that we purchase from Grand Forks Homes, Inc. the 69 lots at $15,000 per lot for $1.035 million and 34.6 acres for $12,000 per acre for $415,200, for a total purchase price of $1,450,200, and transfer to Grand Forks Homes, Inc. $4 million to cover carrying costs over the three-year period; that we transfer $1.8 million to Grand Forks Homes, Inc. to reduce the infrastructure by $9,000 per home and to get the full $15,000 price reduction and this would take a change in City ordinance that we would then special assess $1.2 million remaining owed to the City for infrastructure and this would reduce the purchase price by $15,000 which addresses the issue raised that the prices of these homes do not qualify for FHA; transfer to Grand Forks Homes, Inc. $600,000 for miscellaneous administration which includes finishing those basements for $50,000, a warranty program for $75,000, the project coordinator for $375,000, with that person being required to make progress reports to the city council at each council meeting and be prepared to answer questions and the internal cleaning, $400,000. The motion continued to change the employer-employee incentive program to a one to one basis with a maximum of $5,000 on the first 25 homes or $125,000 and add $100,000 to the Buyer Assistance Program with 20 additional homes at $5,000 per home. These items total $8,075,200 from which in the future the City would recoup from the sale of those lots the $1.4 million that we would be spending to purchase so that we could end up with a net CDBG cost of $6.675,200; all that program income be utilized to fund the limited eligibility program of $350,000 and the park screening project for $250,000. It was moved by Council Member Carpenter and seconded by Council Member Beyer that this recommendation be and is hereby approved. (It was noted that the committee votes were as follows: voting “aye”: Council Members Glassheim, Polovitz - 2; voting “nay”: Council Members Babinchak, .Brooks, Hamerlik - 3)
COUNCIL MEMBER BAKKEN REPORTED PRESENT
Council Member Hamerlik stated they received communication from Ms. Page and the Grand Forks Homes asking for a request for the additional funding and prior to that time she received a letter from Eugene Rerat and offered an alternative course of action, which was preliminary, but the last sentence was “..if you are interested in pursuing this proposal, please respond at your earliest convenience”, and questioned whether Grand Forks Homes responded to this request.
John O’Leary, Urban Development, stated that Ms. Sally Page was out of town and could not be here, that the letter referred to was received late Friday afternoon and it is his understanding that Ms. Page has been in contact with Mr. Rerat, has discussed some of the details and that Ms. Page as chair of this committee has no authority to respond in sole capacity, however, Grand Forks Homes Board will be discussing that issue.
Andrew Swanson stated he has been in banking and finance until retirement, and is in partnership that built several townhouses, etc.; and concerned about proposal before council and the way this is structured - to lower the price and offer incentives, can’t agree with that.
George Schubert, 2712 Oliver Street, stated he was concerned about people who have paid taxes for years and now considering action that is going to lower the value of property for taxpayers in the city, asked council not to penalize all the taxpayers and those that have to sell these homes, and another issue - concerned whether this is legal that you can take taxpayer dollars from whatever source and would like someone to put this information together, and ask opinion of the attorney general if this is legal.
Lora Lynn Maixer, 437 Burdick Court, stated that along with her with 9 other home owners from Burdick Court, and spoke re. concerns of condition of or problems with houses (roofs and shingles); that they were told there was a warranty on these homes; that since last year they have been referred to numerous members of Grand Forks Homes and Urban Housing to fix their homes but hasn’t happened. She stated that according to the executive summary over $400,000 that was made from the sale of Burdick Homes was put into Congressional Homes I and II, and are asking for help. She stated they have some estimates of cost for each home and would like to have some money ear-marked for their neighborhood.
Mayor Owens stated this was not pertinent to the question on the floor, not germane. Council Member Brooks moved to appeal the point of order, Council Member Lunak seconded the motion.
After some discussion and comments by Mr. Swanson, city attorney, stated that the motion to appeal the ruling of the chair is discussible, however, your discussion is related to whether or not the substantive matter is being discussed should be considered germane or not, and it is not to move forward with the discussion or debate on the substantive issue, and it would be his recommendation that you either vote on the appeal or discuss whether or not it is germane as opposed to getting into the underlying issue itself.
After further discussion, and upon call for the question Mr. Swanson stated the motion is an appeal of chair ruling and yes vote upholds the ruling by the chair and a no vote reverses the ruling by the chair; and a majority vote prevails; and upon roll call vote, the following voted “aye”: Council Member Hamerlik, Bouley, Carpenter, Beyer, Babinchak, Bakken, Hafner - 7; voting “nay”: Council Members Brooks, Polovitz, Lucke, Lunak, Klave, Martinson - 6. Mayor Owens declared the motion defeated.
Mr. O’Leary stated that Grand Forks Homes is the owner of this project, and the Board of Directors is in charge of this, and their relationship with the Office of Urban Development goes back 25 years when some of the first subsidized housing units and programs were made available through the Department of Housing and Urban Development and other federal agencies, Grand Forks Homes or a collection of churches was formed, contract was executed with the Office of Urban Development who at the time was not part of the City government, the predecessor to his office was the Urban Renewal Agency and that an authority similar to Airport Authority. In the early 80’s the city council decided to create the Office of Urban Development and under that office was the Grand Forks Housing Authority and the Community Development Office. He stated that since that time the contractual relationship between the Urban Development Office and Grand Forks Homes continued; that they serve as staff, keep the books for Grand Forks Homes but day to day management of the rental units of Grand Forks Homes is handled by his office, Terry Hansen and Joel Manske are in charge of those projects, but the policy decisions that are made by Grand Forks Homes are up to that board, and they give Office of Urban Development instructions as to what they want to do with their assets. He stated that their capacity as staff is similar to when serve this body. He also noted that the co-signers on this note are Grand Forks Homes and the Grand Forks Housing Authority, and both of those are entities that are independent of Grand Forks city council.
Mr. Swanson stated if the question is if the City has entered into any indebtedness, notes or bonds of that nature for the project, the answer is no; that at most there maybe an attachment to a memo that was on their desks tonight, the council in 1997 adopted a resolution that indicated in the event of a default on housing bonds that the city council would consider out of unobligated CDBG funds, and was limited to that; you are not obligated to allocate additional funds but you did covenant that they could bring the request forward, so that from that prospective if your question is there indebtedness or obligation in that regard, the answer is no.
Mr. O’Leary stated that the relationship of their staff to the Grand Forks Homes Board has produced remarkable results over the last quarter of a century, one of the policies is Grand Forks Homes and Housing Authority had for that whole period of time was to put all of the assets that are owned by either entity on the tax rolls, and generates hundreds of thousands of dollars of taxes every year, and that’s really quite different than most entities have across the country.
Council Member Hafner stated that the question of City’s obligation came up and that CDBG funds are eligible for housing; Mr. O’Leary stated they were. Council Member Hafner stated that after the flood when they were discussing housing, etc. the question came up of whether or not to use CDBG funds to fund new housing to replace housing stock and that they wanted to borrow money was to leverage CDBG funds because at that time we didn’t have a clue as to how much money we’d need from CDBG to help the city recover and that’s one of the reasons that Grand Forks Homes got involved in this situation. He stated that CDBG funds are necessary here to help the city recover and a plan that they would have used to leverage those funds simply didn’t work by circumstances.
Mr. O’Leary stated that the original cost matrix that was reviewed and approved by the city council had $20 million in it for new housing construction, and probably more convenient and less politically volatile if had left that $20 million in there, but what they tried to do was to leverage those dollars in every way they could - against CDBG, against Department of Economic Development, Department of Commerce and got a lot of miles out of the CDBG dollars, and as they moved forward with this $20 million was transferred out of the cost matrix because they’d looked at borrowing the money from Fannie Mae using CDBG dollars to pay the interest and that freed up $15 million out of the cost matrix which was allocated for other purposes. He stated that if they allocate additional dollars to the Grand Forks Homes project there is still substantially less than $20 million that was originally budgeted for new housing construction in Grand Forks. He also pointed out that there was some misinformation about the total number of dollars, that $6.5 million has been obligated to this project in total to date and that’s for the acquisition of land, infrastructure, etc. and if you went ahead with the motion on the floor, were still at 8% of the total project cost of $171 million and not 25% that's been discussed.
After further discussion Council Member Carpenter offered an amendment to the motion: that we amend by deleting the entire action of the joint committee of the Urban Development /Finance Committee and substitute the following: Carrying cost/construction/debt, $4,110,000; Infrastructure which is a reduction in price to be based off of an adjustment from the list price to the City assessed value, $2,412,500; and miscellaneous administration, $600,000 and includes the amount for the project coordinator, the finishing of the four basements that will be model homes, and adopt an employer/employee incentive with a 2 to 1 match for 40 houses at $10,000 per house or a total of $400,000; adopt a buyer assistance program for 60 homes at $10,000 per home for a total of $600,000, for a total of $8,122,500 to be allocated from the $171 million CDBG and in addition allocate some program income: $350,000 for the limited eligibility assistance which is the low-moderate program and that we allocate $250,000 for the construction of the park and screening along the RR tracks for a total of $600,000 from program income; and that we request that a) Grand Forks Homes form a management committee to manage the project and that committee consist of members of the Board of Grand Forks Homes and the Grand Forks Housing Authority, b) that this management committee report to the Grand Forks City Council at all councils regularly scheduled meetings; and c) that Grand Forks Homes/Management Committee advertise for a RFP to sell the entire project. Council Member Beyer seconded the motion.
Dick Evers, 3022 27th Avenue North, stated that if the City of Grand Forks is not responsible for this, this discussion should end and send it back to Grand Forks Homes. Council Member Carpenter stated that the City is not legally responsible for this project and the incentives under this amendment or reduction in price if it was across the board would be $12,500 and also considering an additional $10,000 so we are talking significant incentives.
Darrin Nelson, 505 S. 6th Street, voluntary chair of the Grand Forks Homes Sales & Advisory Committee, stated he thinks revisions address the primary issues, that walking away from the project would be disastrous, but keep in mind that they have a local consortium of banks that underwrote anywhere from $10 to $13 million of this and if we walk away it’s not somebody else’s money, it’s our money that’s going to be in default and need to find a way to get some positives out of this.
Council Member Babinchak questioned incentives on original recommendation from Grand Forks Homes on each of the buyer assistance, employer/employee and also the limited eligibility, it was forgiven $2,000 per year for five years and asked if that was still the intent, and Council Member Carpenter stated it was. She then moved an amendment to that, that it be at zero percent interest and in the event that the house is sold by the individual that received the incentive, the $10,000 be repaid back into that program; seconded by Council Member Hamerlik.
Doug Christensen, 19 Inland Hills, stated that have a potential buyer who is going to wait to see what council will do and if council makes a lot of conditions or incentives, etc. then the potential buyer will look at that with that in place, and suggested they reconvene the standing committee with the motion, ask them to study it. He stated he didn’t think City should spend the next two hours moving and amending to come up with an ad hoc proposal when have a buyer.
Tom Hagness stated that the intention was to have affordable homes for people that were in lower income neighborhoods, and to find a financial vehicle, Grand Forks Homes, so City has some responsibility in what we asked Grand Forks Homes to do for the City, and then hired Mortenson Company as a consultant and manager to see that these homes were properly built; that the City of Grand Forks shouldn’t be in the home business and suggested to table this and look at other offers and get a professional person in there to manage this.
After further discussion Council Member Hamerlik moved to table this matter for up to ten days with the mayor and proper people exploring other avenues including advice from experts in the field. Council Member Martinson seconded the motion. Upon roll call the following voted “aye”: Council Members Brooks, Lucke, Hamerlik, Lunak, Martinson - 6; voting “nay”: Council Members Polovitz, Bouley,
Carpenter, Beyer, Bakken, Hafner - 6; Council Member Klave abstaining.
RECESS
Council Member Hamerlik and Council Member Hafner moved that we recess for 5 minutes. The motion carried 13 votes affirmative.
After 5 minutes, the meeting reconvened with all member present.
Mayor Owens voted to break the tie, and voted not to table the motion.
Upon call for the question on the motion by Council Member Babinchak, with second by Council Member Hamerlik, and upon voice vote the motion was defeated.
Council Member Carpenter moved to amend the motion to term this as a preliminary allocation with disbursement of funds contingent upon council satisfaction with the status of requested items; Council Member Hamerlik seconded the motion. Carried 12 votes affirmative.
Council Member Hamerlik moved an amendment to the motion to delete that c) be taken out of request and demand that the Grand Forks Homes Management Committee actively pursue an RFP to sell the entire project before any funds are expended. The motion was seconded by Council Member Brooks.
Mary Lee Saundergard, 1122 Reeves Drive, real estate agent, commented on the idea of having someone come in and buy out Grand Forks Homes, that her concern is that the profits that particular company will make will come from Grand Forks Homes, that it would make more sense to benefit potential home owners in this area by allowing them to buy affordable homes than to turn it over to a developer who is going to profit on the homes.
Upon call for the question on the amendment by Council Member Hamerlik, and upon roll call the following voted “aye”: Council Members Brooks, Polovitz, Lucke, Hamerlik, Lunak, Martinson - 6; voting “nay”: Council Members Bouley, Carpenter, Beyer, Babinchak, Bakken, Hafner - 6; Council Member Klave abstaining. Mayor Owens voted in favor of the motion, and the motion carried.
Council Member Brooks moved an amendment under a) where it says Grand Forks Homes form management committee to manage project consisting of members of Grand Forks Homes Board/Housing Authority, and would like to amend that - Housing Authority, excluding any City staff. It was noted there are no city staff on Housing Authority, and Council Member Brooks withdrew his motion.
After further discussion it was moved by Council Member Hamerlik and seconded by Council Member Brooks to amend the motion to drop the RFP so it would read to actively pursue to sell the entire project. Carried 12 votes affirmative, Council Member Klave abstaining.
Upon call for the question on the substitute motion, as amended, and upon roll call vote, the following voted “aye”: Council Members Polovitz, Bouley, Carpenter, Beyer, Bakken, Hafner - 6 - voting “nay”: Council Members Brooks, Lucke, Hamerlik, Lunak, Babinchak, Martinson - 6; Council Member Klave abstaining. Because of the tie vote Mayor Owens voted, and voted in favor of the motion, which was passed.
ADJOURN
It was moved by Council Member Polovitz and seconded by Council Member Beyer that we do now
adjourn. Carried 13 votes affirmative.
Respectfully submitted,
Saroj Jerath
Deputy City Auditor
Approved:
_______________________________
Patricia A. Owens, Mayor