Tax-Exempt Review Committee - February 27, 2018 Minutes

Regular Meeting Tuesday, February 27, 2018

The February 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, February 27, 2018.

The committee members present or absent are:
Present: Dave Piepkorn, Mayor Tim Mahoney, Bruce Grubb, Jim Buus, Jessica Ebeling, , Chuck Hoge, Mark Lemer, Jackie Gapp, Jim Gilmour, Ben Hushka, Erik Johnson, Rick Steen representing Cass County
Absent: Kent Costin

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

A motion was made by Chuck Hoge, seconded by Jessica Ebeling, to approve the minutes from the January meeting held on January 23, 2018. Motion carried.

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

Jim Gilmour explained the map of the downtown provided in the information packet. The map displays overlays for the original Downtown Area Plan adopted around 1985, and a boundary called Downtown Focus Area from a more recent study, of which Mr. Gilmour said there have been several studies over the years. The map also shows the location of the Renaissance Zone blocks.

Commissioner Piepkorn asked if the different boundaries should be combined into one. Mr. Gilmour stated that the orange Downtown Focus Area would seem to be most logical with the exception of probably including the block west of University to encourage housing.
Mayor Mahoney asked what the vacancy is in the downtown. Mr. Gilmour said that citywide, the vacancy rate is about 9% and the downtown is very close to that rate. Mr. Gilmour said that the In Focus study addressed a need for more downtown housing due to more commercial development. Mr. Gilmour distributed a list of projects over the past 12 years that have added 605 apartment units in the downtown.

Commissioner Piepkorn asked if a 10% vacancy is low for the downtown. Jim Buus stated that, historically in our market, 10% is quite high. He said that stabilized, it’s been about 6%-7%. Mr. Gilmour said that about 3 years ago, we saw it drop to 3% and then there was a lot of construction. Mr. Gilmour stated that we should update our apartment survey to determine our needs. Gilmour said that an ideal vacancy rate equilibrium would be around 5%-6% so the investor gets a good return and, for the renter, there is competitiveness and rents aren’t too high.

Commissioner Piepkorn said that, when we talk about developing downtown, the challenge is accumulating land because of multiple property owners and different values. He said that the City has control over some of the land and we have to make sure that we have some set aside for low income housing.

Commission John Strand addressed the committee. He said that one of his main concerns is affordable housing. He said that doesn’t just mean low income housing but, also housing that is available to whatever your income status is. Commissioner Strand said that when he travels to conferences, this topic is of concern in a lot of places. He said that there are two things he has explored. One is a community land trust. He said they don’t have to be a City entity. He said typically they are a non-profit entity with City representation, as well as tenants and community representation. He said that Tim Beaton of the Fargo Moorhead Area Foundation, said that they would like to champion this. Commissioner Strand said that typically in a community land trust, the non-profit entity would have dual ownership with the tenants. The non-profit would own the land and there would be a 99 year lease. There would be a reduced likelihood of foreclosure as well as addressing gentrification issues. Typically affordable housing is the focus. Another item Commissioner Strand said that he has seen addressed is inclusionary zoning. He said that involves including affordability in your zoning. Mr. Strand said there are 500 cities across the country employing that concept.

Mayor Mahoney asked Jim Gilmour if, in his opinion, we want to see apartments to continue to be developed downtown, should we continue to provide incentives. Mr. Gilmour said he did because of land being harder to acquire. He said the current policy at 5 years at 100%, and 5 at 75%, we start to see some return after five years. He said when we adopted this policy in 1999, we really didn’t see any activity for about five years. He said now it seems to be working and we are getting apartments downtown and he doesn’t think now is the time to cut it off. Gilmour said that other programs we should talk about is the incentive for low and moderate income tax credit projects. He said that with the Federal Low Income Tax Credit program last year, there were 11 projects that applied statewide and there was only enough funds to do four or five. Gilmour said that one of the criteria they look at in evaluating projects is local participation. He said that in our case, we have used lower permit fees & block grant money. Mr. Gilmour said that if we are going to be competitive in the state to get these projects, giving these incentives may give them the few extra points to get funded through that program. Commission Piepkorn said that we also need to talk to our legislators to keep these programs in place.

Mark Lemer stated that with the Low Income Housing Tax Credit projects, a greenfield development would have much different numbers than a downtown project due to the cost of downtown land. He asked if we are giving enough incentive for low income housing tax credit projects in the downtown. Jim Gilmour said that it would be really difficult to do a Low Income Housing Tax Credit project downtown unless the City contributes land it has at a much-below market rate.

Mayor Mahoney asked how we have solved the issue with the high-rise. Lynn Fundingsland, with the Fargo Housing Authority, addressed the committee. Mr. Fundingsland said that they have looked at selling the building to a private developer, demolishing the building, and looked at several alternative scenarios. He said with the constraints in funding, the only reasonable solution is rehabbing the building. Lynn said there are 248 units there with average unit size of 350 square feet. He said the average income of tenants is 20% of the median area income. Mr. Fundingsland said that to compete for the Low Income Housing Tax Credit projects, most that are being awarded now are either senior or assisted living facilities. He said they cannot dedicate the high rise to either of those because of the mixed clientele. Lynn said that the State is working with them to help with being able to qualify for some 9% & 4% credits. He said that they would have to dedicate that part of the building to seniors; which they are able to do. Mr. Fundingsland said that in order to do this, they need to gut the building, remove the asbestos, vacate the building, and reconfigure the floor plans with a little larger units. There would be 185 units rather than 250. In response to a question from Jim Gilmour regarding some draft changes in scoring for low income housing credits, Lynn said that, in the draft, they have taken away the restriction for no more than one project in a community and added points for preservation projects. Mr. Fundingsland said that the one problem with the site is the limited amount of parking spaces and they are getting younger people with jobs and cars.

Commissioner Piepkorn thanked Mr. Fundingsland for the information and congratulated Lynn for all of his years of great service and leadership to our community.

Mayor Mahoney asked Rick Steen the reasons for the County not approving their portion of a recent incentive for a low income project. Mr. Steen said that, being the first one under that scenario, they just weren’t prepared. He also said that with the tax credits, the majority of commissioners felt that we would never see taxes on that project. He said that there has been discussion about building in a “hold harmless” clause with these and feels the County may look more favorably on these with that. Mr. Steen said that on the past couple of projects, the County has gone with the five year portion and the City with the expanded exemption. He said that the County feels they would like “…to see some type of property tax return on it in our lifetime.” Mr. Steen said that the County approved five years for the past couple of ones the City went longer on. But, he said that they don’t see all of the five year ones the City approves because they don’t go to the County. So, they don’t see the whole picture of how many are being approved and whether they are working or not.

Mayor Mahoney said on some of these we have an outside firm calculate the financials and see what the projected rate of return is and what is reasonable. Commissioner Piepkorn suggested that the next time Springstead, the financial consultant, comes to town, they should meet with the County Commission and explain what they do. There was discussion about having Springstead on this committee’s agenda and invite the County to attend.

The meeting adjourned at 1:40p.m., Tuesday, February 27, 2018.