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Tax-Exempt Review Committee

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Tax-Exempt Review Committee - January 23, 2018 Minutes

Regular Meeting Tuesday, January 23, 2018

The January meeting of the Tax Exempt Review Committee of the City of Fargo, North Dakota, was held in the City Commission Room at City Hall at 1:00 p.m., Tuesday, January 23, 2018.

The committee members present or absent are:
Present: Dave Piepkorn, Jim Buus, Jessica Ebeling, Kent Costin, Chuck Hoge, Mark Lemer, Jackie Gapp, Jim Gilmour, Robert Wilson, Ben Hushka, Erik Johnson, Mark Vaux representing FM-EDC
Absent: Bruce Grubb, Mayor Tim Mahoney

Commissioner Piepkorn called the meeting to order at 1:00 p.m.

A motion was made by Jim Buus, seconded by Jessica Ebeling, to approve the minutes from the December meeting held on December 19th. Motion carried.

Discussion Regarding the Continued Review of the Downtown Apartment Incentive Policy and Updates to the Policy Document

Ben Hushka said that, in anticipation of upcoming policy changes, he has worked on a couple of edits to the policy document. He said he has updated the membership list to include Robert Wilson who represents Cass County and Jackie Gapp, representing the Fargo School District. Mr. Hushka stated that there still needs to be an update to the map of the downtown area on page 15 of the document.

Commissioner Piepkorn asked a few questions about what the downtown map represents and is used for. Mr. Hushka stated that there are incentive policies in the document that are targeted to downtown and the map in the policy document should represent the targeted area. He stated that the current map is outdated and should be replaced. Jim Gilmour said that the City Commission has adopted new boundaries and suggested bringing forth that one for consideration. He said that the current map in the document is from a downtown area plan established a number of years ago. Mr. Gilmour said that there have been two plans since then that did not have real firm boundaries but the current plan has a more firm boundary. Mr. Hushka will include a map for the next meeting that will depict the current and proposed boundaries. There was also discussion related to the boundaries of the Renaissance Zone.

Mr. Hushka stated that in previous discussions on the downtown apartment incentive policy, definitions of affordable housing and low income were considered. He said that Dan Madler from Beyond Shelter is present.

Mr. Madler addressed the committee. He said that he is the CEO of Beyond Shelter, a Fargo based, non-profit, developer of affordable housing. He said that they have utilized the incentives under consideration to develop units across Fargo including some in the downtown area. He stated that having incentives does pay dividends and it is a very effective tool. Mr. Madler said that developing downtown for them is a challenge. They target a specific income group, which is 60%, or below, of the area median income. Mr. Madler said that the high cost to acquire downtown land is a barrier for them unless they can partner with others to make the economics work. He said there have been prices downtown for land at $15.00-$20.00 per square foot. In answer to a question from Jim Gilmour about how much they can afford to pay for land, Mr. Madler said that the highest they have paid for land has been $5.00-$6.00 per square foot. In addition, he said that special assessments can add another $1.00-$4.00 per square foot. Jesse Craig asked how much lot coverage do their projects typically have. Mr. Madler said that it is site specific. He said they are developing a project in south Fargo on 5 acres and they are putting 117 units on that site.

In answer to a question from Jim Buus about the definition of affordable housing, Mr. Madler said generally, a household would pay no more than 30% of their income for housing costs. He said that they target, for instance, senior housing and they go as high as 60% of the area median income. They also target the very low income. He said that they can serve a bandwidth of income between $8.00-$18.00 per hour. Mr. Buus asked about occupancy levels for their current units. Mr. Madler said that occupancy in the Fargo-Moorhead market is between 8%-10% and their vacancy is about 2% on 460 units, which is essentially turnover. He said that about 80 of their units are in the downtown area.

Commissioner Piepkorn said that we want to work together to assist and would like suggestions on what we can do. Mr. Madler said that this committee and the City Commission have been very supportive. He said when they have a project ready to go, they usually use the tools that the City has available. He said that significantly helps on the operational side by lowering rents by almost $100/month/unit. Mr. Madler also said that the ND Interim Taxation Committee will be discussing property tax exemptions. He said they need to continue to tell them about the success stories that are a result of the exemptions so that they don’t take them away.

Jim Gilmour referenced a recent change in state law and asked how much taxes they are paying on their projects. Mr. Madler said that they can either use the economic development incentive or the other statute. Both, he said, allows the project to pay local property taxes to support services and provide affordable housing. He gave the Homefield project as an example which pays about $9,000 annually on the building. He said if it were fully taxed, it would be about $53,000. He said they used the City incentive for that project to bring some certainty to the market to attract investors to bring equity to the project. He said they are strategic about which available statute they use for projects. Mr. Gilmour said that using the local incentive counts as a local match and improves their chances of receiving the low income tax credit funds. Mr. Gilmour said that now they also have to go to the County and we have seen them reject one of those applications already. He said that we need to provide more information on these to the County to see if they are going to be supportive or more of a roadblock. Jessica Ebeling, asked Mr. Madler, in addition to the 80 units they currently have downtown, if land was affordable, how many more units could they put downtown. He said that they could easily absorb another 100 units of the type of units they develop in addition to what other developers are constructing. Commissioner Piepkorn asked Mr. Madler if the units they develop are considered workforce housing. Mr. Madler said most of their units would be considered a little below the workforce level. He said their cap is 60% of the area median income which is about $37,000 per year for a two-person family. He said that workforce is probably between 60%-80% of median income. 80% of median, which HUD still considers low income, is over $50,000 per year income. Jim Gilmour said that it is really difficult to get these low income housing projects developed. He said there are usually tax credits, block grant money, waiver of permit fees, property tax incentives, etc. He said it is usually hard to get all of those things together. Gilmour asked if it would be a possibility to try to require that at least 10% of units be at market rents so, maybe those with housing vouchers could get into them.

Commissioner Piepkorn said that he would like Mr. Madler to come to the next City Commission meeting so that more people could hear some of these numbers. Piepkorn said that we also need to define the difference between low income and affordable housing. Jessica Ebeling said that the 80 units they currently have downtown sounds like a lot but, considering Mr. Madler said they could support another 100, it really isn’t a lot and shows there is a need. Mr. Madler said that the last two projects they opened, leased up in 45 days and 55 days respectively. He said that the elderly and young families are the driving force now in Fargo.

Commissioner Piepkorn asked developer Jesse Craig if he has ever considered doing a project with a mix of standard income and low income or affordable units. Mr. Craig said that there is a formula for that. He said as a developer, he would build it but he said the management of it is a different problem that would take more expertise. Mr. Craig said that the building amenities and styles required under code for units he is building also adds to the cost of the project. Commissioner Piepkorn said that we shouldn’t be making rules and requirements that make it difficult to build these projects. Chuck Hoge said that there is another area that comes into this. He said that at a recent Growth Initiative Fund meeting, they reviewed a request from a low income housing project. He said they also have to help fund projects creating primary sector and manufacturing jobs and talked about how much they should allocate to low income housing.

Mr. Madler said that they are only able to access funding one time a year. So they need to have a plan in place looking out a few years. He said that low income housing has the same cost to build so, it is all economics about how you can finance it to keep the rents down. He said that typical single family home financing is usually putting 20% down and financing 80%. With low income housing, they are able to access resources to put 80% down and only finance 20% to keep rents down because operational costs are less.

Mark Lemer said that low income housing tax credit projects in the metro area have been really good projects and they score really well because they get support from their communities that allow them to offer better amenities. He said that if they lose some of that support, they may not score as well and may lose some of the funding to develop those projects. Commissioner Piepkorn said that the Fargo Housing Authority also does a great job of acquiring land far ahead of time, before neighborhoods develop so, there is less push-back when they develop their projects.

Commissioner Piepkorn said that he would like to challenge Jesse Craig to be a model to try to develop something with a mix of an element of affordability into a project. Mr. Craig said that he will be willing to develop it but, not manage it. He said he has the land and has kind of an idea of how it could be worked. He said it would take a lot of different phases and a lot of different people involved. He said that you also need to figure out how to get it developed relatively quickly because of the high holding costs.

The meeting adjourned at 1:44p.m., Tuesday, January 23, 2018.