Committee Minutes

Minutes/Finance-Development Standby Committee
Monday, July 14, 2003 - 8:00 a.m._______________

Members present: Christensen, Glassheim, Hamerlik, Gershman.
Others present: Kreun, Keith Lund, Terry Hanson, Gregory Hoover, Al Grasser, Dennis Potter, Peggy Kurtz, John Schmisek.

2.1 Affordable housing districts.
Chairman Christensen stated there are three items on the agenda tonight where the council will award bids as he doesn't want to get contracts out until rules are in place and how monitor it to make sure they meet 50% commitment to sell homes to LMI individuals and discuss what happens if don't meet the criteria, and time period so have plenty of time to meet the representation. Mr. Grasser stated they can hold bids for up to 45 days (were at 30 and may have gone to 60) but not sure about that. Gershman stated there has been minor talk about affordable housing and if end up the way we were back in the 70's and City has to pay something and not do anything that will create criticism or event that would allow somebody to get reduced fees and not meet the criteria - what fences put up.

Keith Lund stated he had talked with the city attorney about this topic in preparation for this meeting and we have nothing to date with reduction in markup on special assessments, assuming the goal is not to impact the new homebuyer, and suggested several options, including restrictive covenant, unsecured and very difficult to enforce, or enter into a developer's agreement, unsecured as well but would be written very clearly that if they failed, the developer needs to pay back at a minimum the difference in markup of the special assessments - 15% difference between the 27% markup and if the developer was out of business, the City could be out of luck but not sure of any risk with that - and last option which the committee favored would be similar developer agreement or contract and require the developer to issue a letter of credit, or some type of agreement or performance bond where the City could make a claim on that. He stated that Mr. Swanson stated that with activity like this, wasn't sure if could go out for performance bond. The committee favored letter of credit, which was 1% year. Mr. Lund stated Crary is moving forward with about 30% of the infrastructure and overall development; Greenberg is around the same; and Promenade nothing at this point, not a lot of infrastructure going forward today, they've scaled down their project for this first year due to the lateness of the year - about 30% of the two developments that are moving forward today. Christensen stated the issue is City's risk - stated he was thinking a letter of credit because didn't think they could bond for it, and larger issue is that we're financing all of the infrastructure whereas before 50-50%; at a minimum have to require that specials get paid on an annual basis - so don't go into arrears because otherwise we pay the specials as citizens, and when going through the financial report which will come to their committee, we're on an average of picking up of about a half million to $600,000 year in specials in this community for those who don't pay their specials - it is incumbent upon us and there has to be an agreement that you pay your specials - if they go into arrears then the issue becomes are they due, probably be selling bonds for these specials and have to have letter of credit that not only secures the difference if they miss their goal, their missing the goal of 50% is not entirely their problem because we don't know that there is a market for the LMI envisioned, and if market forces they can't control, i.e., no market or not enough people that shouldn't be their problem. He stated as far as the specials are concerned, it should be their problem because we have put our money up as taxpayers for their infrastructure. It was noted that specials if not paid by property owner, paid out of mill levy. Christensen stated we have two issues but payment issues and issues that could be handled with a letter of credit. Mr. Grasser stated that part of the financial incentive of the affordable housing was a delay of specials for two years and three years in which actual assessments will actually be made - Kreun stated one of the things that does entice them is only bring in smaller amounts of property to test the market and if put some of these conditions on, they aren't going to develop huge numbers of lots and let it sit - only bring in small portions as market exists but want to give incentive. Christensen stated developers will recognize that they have to pay it and if they own the lot, and specials they have to pay. Property owner will have to pay real estate taxes and flood assessments and could be in arrears on flood assessments for five years. It was also noted that we are giving them 12%; need to be most concerned with speculators.

Christensen stated to give staff direction: to the extent that they fail to meet their 50% goal as to LMI over x period they would have to reimburse the City the difference between 27% and 15%, which is 12% and not any reason to add any interest on it because we haven't put any money out except salaries/staff. Committee agreed with that. Hamerlik stated it keeps it simple but adds an incentive that it isn't going to cost any more, and if put interest on it, it would serve as a little bit more of an incentive - committee not go more than 3%. Terry Hanson stated they have said 50% LMI, and that the main program established that 75% of their homes have to be under the initial offering price - $135,250 which is 2.5 x the median family income for a family of 4 in Grand Forks County. The committee favored a letter of credit, which protects them against a fly-by night that may come in and not get a shell corporation.

Mr. Grasser stated his comments would be about when implementing some of these changes, that they met with the developers and came up with various criteria, and trying to give the impression he thinks the developers have is the City approached them with this program and 3 started - that they talked about treating this as a test or pilot program and within the developments have Housing Authority, Crary and Greenberg and between those 3 were developing around 400 lots (part of the plats), they platted the property, asked for housing designations and went forward with incentives on the special assessments - they backed down off those lots and only reason they back down was the fact that the construction season was so late, that if they tried to put in all the underground, they wouldn't get any paving - so backed projects down so they could get a piece of it done and doing the next piece the next year and have expectation that they have to go-ahead to develop these 3 parcels per their understanding, the 75% goal of hitting the median housing, no up-front money and their weren't any financial consequences of not meeting that goal - the last of the discussions were that because if was test program, monitor and see how well they actually did it - their expectations are that they are going to get in what they can this year with the expectation that they can get the rest of it in next year under the same conditions - so if change conditions and thinks letter of credit won't be much of issue to Crary and Greenberg.

Christensen stated if half a million project, 12% of that is $60,000, and 1% of that is $600.00/year and if can't afford a letter of credit on $60,000, they shouldn't be in the business; that they didn't promise developers that this is the deal - that he has consistently said throughout meetings that before they bid these projects, wants to make sure we have the rules in place as to the consequences if it doesn't happen - this is a work in progress, and not concerned about representations having been made because we have to sit back and get ourselves in a position where we can answer to our constituents if it fails, appear that it's fair so that minimizing the City's risk. Gershman stated he agrees that it has been discussed on the council floor but there are expectations out there that the work was done, and thinks communication is the thing and would recommend some informal meeting of this group and staff get together to lay this out to say that this is where we are and reasons and what it is going to cost, rather than bring this to council - communicating this with reasons why doing it will go long way to calming this down.

Mr. Grasser stated he doesn't have any problems with doing this and what he would suggest that having that meeting with the same group of developers so that they have an interchange because he thinks communication is an issue here and thinks a good discussion so they can understand where we're going and we can understand where they think we've been or going; the issue about how do we control this and did good job in calling this a test case and for a final program have time to develop more things; the first place have chance to control it is in platting process, about widths of rights of way so can control how many lots are coming in, how many developers, and second place to control when they create the special assessment district and look at those districts at that time, and not subsidize that large of an area and only want to subsidize a small piece, and his suggestion is when plats come in, look at limiting the size of the parcel that is being platted (plats in these cases). Christensen stated not too many people have land to do it. Mr. Grasser stated assessment districts created and are being bid, did reduced portions of the project, control will be in the special assessment district. Gershman stated they won't do anything with the first 30% and that maybe is one test case and implement these on the remaining 70%. Mr. Grassers and Mr. Lund stated they would suggest that. Christensen asked what was the money on the first 30% - Mr. Grasser stated the cost on the projects are probably in the $700-800,000 total cost each. Gershman stated if we decide to do the first piece that a deal is a deal and if try to put these in it, it was discussed and that we're ahead of ourselves on this because of the building season and because of the interest - leave first one and implement what we're discussing here on the remaining 70%, and that is the decision this group has to make.
It was noted this could go into effect August 31.

Glassheim asked if we have at risk the 12% of the project not charging or 50% - Grasser stated we're giving 100% of the special at risk, normally at risk 50%. Glassheim stated on project cost, $400,000 additional to what normally would have. Glassheim asked if the committee would want to subsidize the letter of credit this first time, make they get it but we will pay for it. Mr. Schmisek stated he thought the city attorney would tell them they don't have the authority to assist in this way for a private developer. Mr. Grasser stated we are subsidizing them and not much money to work with when dealing with 15%, not covering costs - Gershman suggested calling Affordable Housing Committee back together, not just developers - Mr. Grasser stated he was suggesting the developers that might be impacted and leave up to the committee but need t communicate this back out because not sure everyone has been following the discussions as going through the council. Kreun stated have to call back the people affected and explain why we're doing what we are doing to protect ourselves to some degree.

Gershman stated we need to sit down with developers and explain political reality of it and by sharing it with them, they are going to understand that what we're talking about is $4,000 for a letter of credit and getting some things in place to protect the City, and even bring the minutes of the meeting where we have discussed this at COW and where we're ahead of ourselves and see if we are successful. Christensen stated he didn't think they would run into any problems - more policy procedure. Gershman stated they would meet with developers and let this committee know when the meeting is. It was noted that the 30% of $800,000 and they will be required to have letter of credit - and when make special assessment district out of it, bring in letter of credit.

Christensen stated 1: to the extent that they're forgiven the 12% and don't know for sure if they've agreed on that and if they don't meet their goals, should they pay it back; Kreun stated yes and they are required to do that. Christensen stated before having more on plate, have to have 75% of that sold and met criteria, then roll into the next, Kreun stated that would be another item to put on. Mr. Lund stated he didn't know if they should restrict the developer to sell 75% of the homes in that first little area at $135,000 or less before you let them build out the rest of it - the 12% is secured in a letter of credit and if have 5 infrastructure projects, have 5 developers agreement that all add up to what the City gave up in the 12%, combined total; Christensen asked if have it in written form to present tonight. Christensen stated second issue is security for the payment of the special assessments on the half we're funding - Mr. Lund asked if referring to the specials that are not transferred to a new home buyer - It was stated when the property is sold and reduce letter of credit on annual basis - the dollar amount of specials that are still on the developer needs to be secured.

Christensen stated we should give them a 7-year window to get this done. Mr. Lund suggested 5 and developer can come in for an extension if needed or warranted; committee reviews it. Mr. Schmisek stated we aren't going to lose any interest because we're going to capitalize the interest on these projects until they start getting paid, and that is going to fall on the final purchaser, and at one point talked about notification to the purchaser when he buys the house - don't know who that falls upon - realtor, developer that we require signed document.

Chairman Christensen moved that we recommend to Affordable Housing Committee that they meet with developers who are currently bringing projects forward and discuss with them the finance/urban development committee's concern of the following issues:
1) that they prepare and have a letter of credit equal to the difference between the traditional 27% vs. 15% fees for bringing these projects forward, which is 12%, and that the letter of credit be a finite sum and renewed on an annual basis until the project is completed;
2) that the developers be required to have adequate assurances, one of which would be a letter of credit equivalent to the amount required to pay one-half of the special assessments to be levied and assessed against the affordable housing projects as and when they come in;
3) that we monitor the project and at the end of five (5) years review these conditions;
4) that the developers be required to obtain from each homeowner who purchases a home an acknowledgement in written form of the amount of special assessments; and
5) that staff work with the city attorney to develop these policies.

Mr. Lund stated he didn't think there was any expectation that the developers that we're talking about aren't going to come back for more, and suggested that we not necessarily let this first 30% go but before we do any more infrastructure that we require them to become current in terms of their letter of credit as security that the City has, not hold them up now but if come back next year for another 30% and before we're going to do anything, lets get everything in place. Chairman Christensen stated the committee wants this now and if minutes prepared today, could have working document to go to developers.

Glassheim seconded the motion.

There was some discussion as to which developers were to be notified when the task force met, and Glassheim suggested that only the current developers be notified.

Chairman Christensen amended his motion to meet with the current applicants of the affordable housing project to discuss the central policy.

Hamerlik stated we're maybe changing something and meeting with two developers and casting the rest aside, they should be involved. It was noted that these are the only two developers aside from Housing Authority - Kreun stated that if we put this into place, they will be required like these two developers to follow - Hamerlik stated that they will not have heard any of this - talking about communication. Kreun stated when they make application, they will have heard about it. Gershman stated they call their committee together and are here to discuss what we've decided - that's what really upsets people. Christensen stated they are discussing a policy for implementation and this is just coming out of this committee and this is not council floor, we're adding additional policy. Kreun stated this committee has made recommendation for staff to bring this information to the council. Gershman stated they need to decide when to bring committee together, Glassheim suggested they first talk to developers and get more shaped up if strong resistance, can they do it, understand what we want but suggest another way to do it, then call the task force together, that we want to defend our money and this what thinking of doing.

Upon call for the question on the recommendation, and the motion carried.

Mr. Grasser suggested that stay with the recommendation about this being an experiment now and his suggestion was not to bring in any affordable housing districts this year, no advantage to it because can't get in any more - covered from somebody coming in on the short term - and that he has some problem with narrower rights of way but would like more conservative approach on how much of that we give away and how early on the process, and has some thoughts re. future ones come in and limit the scope of that a little and bear that in mind.

The meeting adjourned at 9:00 a.m.

Alice Fontaine
City Clerk