Working Session

MAYOR COUNCIL WORK SESSION
Wednesday, February 25, 2009 - - 4:30 p.m.
A101

Present: Bjerke, McNamara, Gershman, Christensen, Kreun.
Absent: Mayor Brown, Bakken, Glassheim.

President Gershman called the meeting to order at 4:30 p.m.

Discussion of the following applications for abatement of taxes for the following:
a) Grand Forks Homes, Inc., Oak Manor Apts., 710 4th Ave S. – 2006-2007
b) Grand Forks Homes, Inc., Cherry Heights Apts., 110 Cherry St. – 2006-2007
c) Grand Forks Homes, LaGrave Appts., 810-830 4th Ave S. – 2006-2007
d) Grand Forks Homes, LaGrave Learning Ctr, 832 4th Ave. S. – 2006-2007
e) Continental Homes, Inc. Apts., 1800-1804 and 1808 Continental Dr. – 2006-2007
f) Homestead Place Apts., 1639 24th Ave. S. – 2006-2007
g) MDI Limited Partnership #35, Riverside Manor Apts., 813 Lewis Blvd. – 2006-2007
h) Faith & Hope, LP, Westwood Apts., 2500 14th Ave. S. – 2006-2007
i) Housing Authority of City of GF, Ruth Meiers Ctr., 770 S 14th St – 2006-2007
j) Housing Authority of City of GF, lot next to 770 S 14th St – 2006-2007
k) Terzetto Village, LLC, 12 lots, Promenade 2nd – 2006-2007
l) Westgate Village, LLP, Westgate Village Apts, 1100 N 55th St. – 2006-2007


Terry Hanson, Secretary, Grand Forks Homes, thanked the Council for holding this work session today and stated that they feel the listed properties should be exempt from taxes under the North Dakota Constitution and the Century Code. Hanson explained that they had begun applying for exemption with the Assessing Department about a year ago and wrote letters to Mayor, Duquette and Hoover with explanation as to why the exemption was being requested, which was that it was becoming more difficult to secure enough funding to deliver the programs that they were currently offering for residents.

Russ Melland, Camrud, Maddock, Olson & Larson, Ltd., stated that provided corporate documents supporting that the properties listed are devoted to providing low income housing, entities activities are restricted in use and activities to be for low income housing, asks that they constitutionally meet criteria for qualifying for exemption from tax and statutorily meet definition and are wholly used for a purpose that qualifies for exemption. He continued that they cite three legal cases – Evangelical, Riverview and YMCA, and feel that those cases show the ND law is fairly well laid out and establish factors and parameters to use in making exemption decisions in this type of case and also have Attorney General’s opinion addressing a tax credit case in Minot which is very similar to the Riverside project which is one of the properties we are requesting exemption for. He continued the ND Housing Finance Agency report also included in supplemental information regarding identifying special need for low income housing in Grand Forks, as well as some other reports also citing that need in Grand Forks. He stated that there are parallel cases in Bismarck, 11 properties, and in Minot, 9 properties, all of which operate and have similar ownership to the properties included in the requests being considered today and feel that is important to have similar treatment for these properties here as they get in other cities in the State. He stated that there is no interest in doing any harm to the City of Grand Forks through this action, but feel that there is a clear case here to have the exemption request approved.

Emily Wright, Executive Administrator at Grand Forks Housing Authority, addressed the group and described the programs that are provided at the various sites for which exemption is sought. These programs include property managers and resident service coordinators that help clients get connected to services within the community, such as applying for rent assistance and other public assistance, provide afterschool programs for youth, provide opportunities for noon meals and public health care such as flu shots for elderly residents, provide entertainment educational opportunities for residents such as bingo nights, movies, computer classes, and sponsor a “Teen Team” group and positive opportunities for youth including tutoring. She stated that through the provision of the afterschool programs have saved a single parent of three children about $8,000 in childcare expense. The Senior Citizen Center brings in an average of 20 meals to the Link and Homestead Place daily with an estimated value of $6 for each of these meals. She stated that having the properties fulfill a need in the community and provide a place for other charities to deliver their services.

Bjerke asked whether there is an eviction policy. Hanson stated that there is. He stated that rent is based on 30% of income with $25 minimum and if have no income is possible that if resident has no income could have zero rent. Hanson continued that they do not evict for inability to pay, but for failure to pay when there is ability to pay. Bjerke inquired whether the afterschool programs are only open to residents or if anyone can participate. Hanson they could be open to anyone. Wright added that a preference is given to residents of the properties, but assuming that there was no need then would take other youth into the programs as want them to be full and would probably see nonresidents that are on some type of assistance and then move to general public. Bjerke asked who pays for the meals that are brought in. Hanson stated that the Senior Citizen Center has a grant which covers the cost for the meals that are brought in and they do accept payment from those that can pay, but participants are not required to pay in order to have a meal. The group also noted that there may be some from the community that come in for a meal that are not residents and that is allowed.

Bjerke inquired whether passage of these exemptions would open the door to any facility that may have similar availability of services, such as 1224 Walnut St., for them to come in and also request an exemption. Warcup replied that potentially other properties could come in and make same request if they felt they qualified.

The group discussed the definition of a charity and whether is truly charity if have an eviction policy. Hanson responded that residents do have subsidized rent and that along with other services that are available is the charity. The group discussed that the rent is subsidized, but subsidized amount is actually covered through federal dollars, so property owner really gets full market rate rent when sources are combined. Christensen inquired where is the charity when you have an eviction policy. Hanson stated that the initial charity primarily is the rent in that they subsidize the rent. Hanson stated that the rent is 30% of income and can be zero if income is zero but have minimum that try to get of $25 and rest of rent is charity. Christensen stated that taxpayers subsidize the rent through housing vouchers, not property owners. Hanson stated that some come from federal housing program and the tenant is receiving charity in that way. Hanson stated that under definition is that it relieves poverty and in state does not matter where the charity comes from, as long as there is charity associated with services provided and if did not have these facilities would often be homeless or living in a shack and not the accessible facilities that are provided. Hanson continued that it’s whether the tenants are receiving a charity and feel that they are in this case. The group discussed that there are certain criteria that must occur to qualify for exemption, that ownership by nonprofit is not enough, programs must be provided to residents, a gift or charity must occur to residents, and seems that eviction disqualifies that. Melland pointed out that there is some housing provided free to some elderly and referred to a VA case.

Murray Klein, developer of charitable housing, stated that he is involved with the Minot development that sought exemption and the AG opinion and his development here is very similar and feels that precedent has been set to qualify the project for the exemption. Melland referred them to footnote 3 of the Minot case. Murray and Hanson both commented about the need to provide this type of housing and that many residents would be living in much worse conditions if these developments were not available here in the community and that provide a better program for the community than some of the federal projects that are seen in other communities nationwide.

Gershman commented that the work done is appreciated, but have to look at the criteria and also the dollars that are involved and that are asking for the City to give up 3 mills per years and also to give back what was paid for the last 2 years. He asked what would be changed in operations for the Housing Authority if the exemption is not approved. Hanson replied that some of the properties do make a profit and pay taxes and that not their concern, but with some properties not making a profit and can’t transfer profits from one property to another, so may lead to letting some go back to bank if don’t make enough to pay the taxes. Hanson cited as an example that when “The Link” was added between Cherry Heights and Oak Manor, the value of the property and taxes went up, but there was no increase in revenue. He continued that rents in Grand Forks are high and in order to qualify for certain programs need to meet some comparability standards and for Homestead are already facing challenges and had to lower the rent, which now will result in a $13,000 annual loss if do not receive the exemption.

Hanson reiterated that any profits that are achieved must stay with that property and be used for that building or services provided there and can not be used to offset costs at another property. He added that they considered coming forward at this time with only the properties that have losses at this time, but that decided to bring forward all at once since feel that all do qualify for exemption and would only mean would be back later for rest of the properties when they are no longer holding even. Hanson said that committee asked what would be cut and there is not really an answer, as many of their programs are grant funded so would rather be a refund of the grant if no longer provide something and that could lead to a 3% loss each year and would hurt in the long run as many grant opportunities are only available once or twice and then they expect you to find new source of funds.

McNamara asked about the MN case that was reversed because the property owner did not provide goods or services directly. Warcup stated that there are some opinions that if the property owner gets a rent that totals a normal market rent for the property, no matter the source the rent comes from, then there is no charity, as the owner is whole and that is what is basis in the Minnesota case. He added that there have not been any cases yet in North Dakota on this issue and results from other states are varied. The group discussed other cases that have been cited and that some side that even if it uses a federal subsidy as part of the rent it receives that is not charity and should be taxed. The group discussed that the owner is still receiving a rent that makes them whole with market and that is important to note in determining if there is a charity involved and also to consider the eviction policy. Melland noted that eviction only applies in case where there is an ability to pay and the tenant refuses to pay. Less Hilliard, resident and program director, stated that if sent the rent issue aside and look at the services and programs that are provided seems to be clear case of providing at no cost things that improve the health and quality of life for the residents.

Warcup reviewed with the Committee the process for exemption of property and criteria. Mel Carsen, City Assessor, stated that his recommendation is to look at the properties individually, and that on those properties that have been most discussed so far this evening his recommendation is to deny. This is based on the fact that the owner is receiving a market level rent and the services that are provided can also be obtained at other locations also at no cost, including within individual homes in the community. He continued that the qualify you have to provide the services, not just allow others to come in and provide them. He also agreed that when eviction policy is in place then does not seem to meet the criteria as outlined for a charity.

Carsen continued that for the LaGrave Learning Center, does recommend approval of abatement, as is a public facility and open to all.

Carsen stated that for the Ruth Meiers Center and the adjacent lot, he recommends denial of the request. He did recommend exemption for 2008, and that was approved. He stated that they are a different type of property and fall under different law than others on the list, that can collect payment in lieu of taxes on that property and feels that to refund for 2006 and 2007 is inappropriate and normally view the fact that they paid the taxes at that time as acceptance of the tax amount and made payment in lieu in that amount.

Carsen stated that is recommending deny the request for the Terzetto Village application is for an area of vacant lots and have no basis to justify a charitable use at this time. If in the future were developed and met charitable use criteria could reapply at that time.

Carsen stated that for the Westgate Village Apts, would recommend a reduction in value for 2006-2007 due to loss in value due to shoddy workmanship. For 2008, do not recommend exemption.

Warcup commented that it is not odd to find no case law in ND that addresses this request, have an Attorney General report, but feel that is a very limited opinion. He referred the council to other opinions cited in his packet and noted that in footnote 4, it is the City that determines if it is charitable. Warcup reviewed four factors to consider related to this request:

1) Ownership is not determining factor to qualify for exemption even if owner is a 501c3
2) Services or programs beyond the basic rent should be provided by the agency, not by others.
3) There should be a gift or charity by organization .
4) Policy of eviction – In GF Housing Authority Admin Plan Chapter 15 talks about when an eviction can take place, if rent is late, habitually late (3 consecutive months or 5 times in a year), and if fail to pay mandatory eviction.

He noted that there are other items in the administrative plan that also seem against charitable determination, must meet government subsidy guidelines to become occupant, if can’t then you are out. Property owner is operating as a provider for other government programs, not as a charitable entity on their own with private donations. He added that just because a property shows a profit is not an automatic exclusion from exemption. Warcup stated that some courts have identified charity as relief of government burden, and see none in this case, only agency operating government programs.

Motion by Christensen, Second by Bjerke, to request Warcup and Carsen create findings to support Carsen’s recommendation and to bring this matter back to a work session for continued discussion. Group requested that copies of the findings be forwarded to Hanson and Melland when completed.

Kreun inquired whether a property needs to be either fully exempt or not exempt or if there is a way to exempt portions of a building that could fit the charity description. Carsen stated that can exempt a portion of a building that qualifies for charitable definition. He cited the example of the Girl Scout office, the part used by Girl Scouts is exempt, the rest of the building is taxed. The group discussed whether there could be some areas of some of the properties, such as The Link, that may qualify for exemption even if the rest of the property is still taxed. Carsen stated that he will review the properties and if appropriate make changes in his recommendations for any areas that could qualify. Bjerke also requested that with the findings, Warcup include a copy of the spreadsheet that he had compiled to analyze the criteria of charitable use for each property. Kreun commented that as chair of the Housing Authority Board glad to see a second look being given to some of the properties, as do provide good service for community.

Meeting adjourned at 6:10 p.m.

Respectfully submitted,

Sherie Lundmark
Administrative Spec Sr