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HomeMy WebLinkAbout01/27/2012 City Council Members: Rhonda Smiley, Assistant to the City Manager David Couch, Chair Harold Hanson Ken Weir AGENDA SUMMARY REPORT Special Meeting of the HOUSING INCENTIVE TASK FORCE Friday, January 27, 2012 - 12:00 p.m. City Hall North First Floor – Conference Room A 1600 Truxtun Avenue, Bakersfield, CA 93301 The meeting was called to order at 12:00 PM. 1. ROLL CALL Present: Councilmember David Couch, Chair Councilmember Harold Hanson Councilmember Ken Weir Staff Present: Alan Tandy, City Manager Ginny Gennaro, City Attorney Rhonda Smiley, Asst. to the City Manager Joshua Rudnick, Deputy City Attorney Steven Teglia, Asst. to the City Manager Andrew Heglund, Associate Attorney Chris Huot, Administrative Analyst Nelson Smith, Finance Director Raul Rojas, Public Works Director Jim Eggert, Planning Director Brad Underwood, Asst. Public Works Director Phil Burns, Building Director Marian Shaw, Civil Engineer Dianne Hoover, Recreation and Parks Director Housing Incentive Task Force Agenda Summary Report January 27, 2012 Page 2 Others Present: Antonie Boessenkool, Bakersfield Californian Scott Lott, The Gas Company Donna Carpenter, Association of Realtors Matt Towery, Towery Homes Dave Dmohowski, Premier Planning Group Jeanne Radsick, Association of Realtors Scott Tobias, Association of Realtors Leigh Ann Cook, Chamber of Commerce Thomas Judge Ryan Shultz 2. ADOPT DECEMBER 20, 2011 AGENDA SUMMARY REPORT Adopted as submitted 3. PUBLIC STATEMENTS None 4. DEFERRED BUSINESS A. Discussion and Recommendations To Stimulate the Building of New Homes: Tandy / Smith / Rojas City Manager Alan Tandy stated that the City’s ability to be flexible has been constrained by a history of litigation to invalidate the transportation impact fee (TIF). The court validated the fee, leaving little flexibility for the City to extricate itself. This is a national problem, and the amount of money necessary to offset the differential between foreclosures, short sales, and new home construction is a number too large to address here to provide any meaningful incentive. Staff calculated, at the Committee’s request, the total number of lots that are prsently buildable, having streets, curbs and gutters, sidewalks, etc. The legal basis to be able to charge the TIF and to validate the fairness of those charges is based on the assumption that new homes generate regional trips and impose demands on the street grid system. Charging a new home, which will generate “X” number of trips, a different cost than another home that is going to generate the same number of trips will cause a nexus problem and an equal protection problem. City Manager Tandy provided a summary of the match requirement associated with the nine projects of the Thomas Roads Improvement Program (TRIP). The City fronts the money, which then is reimbursed .89 cents on the dollar, or .93 cents on the dollar from the Thomas grant money. The construction of all nine projects of the TRIP program will total over a billion dollars; the program cost will exceed the amount of the Thomas money and all current revenue sources. The City’s portion of additional funding needed to complete all the projects is approximately $150 million. He indicated that any action which potentially reduces the City’s bonding capacity will ultimately come from the General Fund. Housing Incentive Task Force Agenda Summary Report January 27, 2012 Page 3 City Finance Director Nelson Smith presented a report that included various calculations based on a concept that resulted from discussion at the December 20, 2011 Task Force meeting, proposing that 50% of the TIF be collected in the first year and the remaining 50% spread over the tax bill for the following five year period. He explained it would result in a negative impact to the City’s bonding capacity. Committee Chair David Couch asked how many residential permits were assumed for the calculations and whether a percentage of that number was allocated to building ready lots. Finance Director Smith stated he assumed a total of 600 permits and that every permit pulled would be out of the buildable lot inventory under the program. Committee Chair Couch asked if it was realistic to assume that every permit would be from the approximately 2,200 buildable lots, which would cause less impact to the bonding capacity. Finance Director Smith responded it was, because if a permit is pulled for a lot outside of the approximately 2,200 buildable lots, they would not be part of the program and the full fee would be paid up front. If the permit pulled is part of the 600 permits in the assumption, the bonding capacity would not diminish as much. However, if the City were to go for a bond issuance and disclosed that Council took action to defer receipt of certain revenue being pledged, it could move the City from a lower coverage requirement to a higher coverage requirement, ultimately reducing the bonding capacity. Committee Chair Couch asked if the bonds were general obligation bonds. City Manager Tandy stated that the exact structure of the bonds had not been determined and would likely not be determined until very late in the process, as federal and state legislation varies greatly over time. Committee Chair Couch stated that, in the assumption, the bonding capacity was determined by an assumption of $6 million in revenue from transportation impact fees and $7 million revenue from gas tax, but nothing from the utility surcharge revenue. City Manager Tandy stated the utility user surcharge could be used as a practical method for payments but, the rating agencies will not allow it be formally counted to the pledge. Committee Chair Couch asked if the revenue that would be received from the property tax payments in year two was accounted for in the calculations. Finance Director Smith responded that revenue received in year two and through year five was included. Housing Incentive Task Force Agenda Summary Report January 27, 2012 Page 4 Public Works Director Raul Rojas presented a report addressing questions that resulted from discussions at the December 20, 2011 Task Force meeting. Dating back to the year 2005 there are approximately 2,259 lots which fit the description of buildable lots (lots which have roads, curbs and gutters, and sidewalks with minor improvements needed). City Attorney Ginny Gennaro reiterated that any adjustments, including a temporary or permanent reduction applied to the property tax, and any form of pilot program related to the TIF, exposes the City to liability and vulnerable to litigation. Ms. Gennaro stated she could not quantify the degree of risk to litigation and damages to the City at this time. The City’s processes and collection of the TIF has been upheld twice in the Court, and the most conservative approach would be to maintain the status quo. Donna Carpenter, representing the Association of Realtors and the Home Builders Association, stated she hoped to find a way to work together with the City to stimulate construction and increase sales to make up some of the difference in volume identified in the assumption. Ms. Carpenter also asked which projects are related to the $150 million funding deficiency under the TRIP program. City Manager Tandy stated that in comparison to cutting the fee in half and spreading the other half of the fee over a five year collection period with a 1.5% interest rate and simply mortgaging the full cost of the fee, there was no significant incentive. In some cases, the cost was actually higher in the first five years under this program then if the fee were added into the mortgage balance. Mr. Tandy also explained that the total amount of money relates to projects that have been completed, projects that are under construction, and projections that are to be put under construction in the future. Those projects include: the 178/Fairfax interchange, the upcoming 178/Morning Drive interchange, the widening of SR 178 to Miramonte, the 24th Street improvement project from SR 99 to M Street, the widening of Rosedale Highway, and the now completed widening of 7th Standard Road. In addition, portions of what will be Highway 58, known as the Centennial Corridor project will connect the current termination point of Highway 58 to the new interchange at Mohawk and the Westside Parkway. There is also a portion of the cost of the Hageman flyover, although only the design, environmental, and land acquisition phase are included in the funding. Finally, there is the SR 99/7th Standard Road bridge. Public Works Director Rojas stated the $150 million figure is most likely what the City will need to bond for in the future to cover the cost of the remaining projects. This amount does not include any money that the City has already paid for projects completed and under construction. City Manager Tandy added that staff continues to utilize design and environmental work on projects to attract other sources of revenue from state and federal grants. In total, it is estimated to be a $1.2 billion project. Committee Chair Couch asked why funding for a completed project was included in the $150 million figure. Housing Incentive Task Force Agenda Summary Report January 27, 2012 Page 5 City Manager Tandy stated that he was speaking of the program in its entirety. He stated some environmental work for certain projects had started earlier than others, and some were more complex than others. The single largest project with the highest cost and the largest contributor to the $150 million is the Centennial Corridor. It will be the slowest and most complex project, as it will trigger the largest property acquisition, the most relocation of homes and/or businesses, and incur the largest dollar cost. Ms. Carpenter also asked if the County pledge of $72 million for these projects is included in the factoring of the $150 million and if other sources of revenues, such as CTC funding, are also included in the calculations. City Manager Tandy stated the County pledge is incorporated into the revenue stream on the numbers. The next funding expected from the CTC, which will fund the Westside Parkway from Allen Road to Stockdale near Heath, is also included in the budget in the anticipated revenue stream. If staff is successful in attaining additional grants for any previously mentioned projects, it would have a beneficial impact on the $150 million amount. Mr. Tandy clarified that the $150 million funding deficiency is only the City’s portion amount need to pay for costs of the projects. Ms. Carpenter asked if there was any documentation that could be provided detailing contributions and the funding balances needed. City Manager Tandy stated that the figures change and evolve constantly; an upcoming meeting would result in new revisions, and something could be produced at that time. Public Works Director Rojas also stated it was a yearly requirement to provide FHWA with a report including that information. Leigh Ann Cook, of the Chamber of Commerce, asked if the most expensive option regarding the Highway 58 extension project was being utilized in the calculation, as there was a less expensive alternative. City Manager Tandy stated he believed that the calculations were based on the low cost estimate, but there are a variety of factors to consider, including potential litigation and other concerns. No alternate has been selected yet, and if alternate A or C is selected, the costs will go up, causing an increase to the $150 million. Committee member Ken Weir thanked staff for providing the report and providing the Committee with options. He stated that most of the lots that are going to be built in the next few years are going to be built on the approximately 2,200 buildable lots staff has identified. Committee member Weir asked how the City would be affected if the number of permits pulled continues to decrease over the next few years. City Manager Tandy stated any net reduction in the TIF reduces the bonding capacity and also causes the projection of the $150 million deficiency to increase. Housing Incentive Task Force Agenda Summary Report January 27, 2012 Page 6 Committee member Weir stated that the calculations used in the scenarios provided in Finance Director Smith’s memorandum were based on revenues from recent history since the recession started. Mr. Weir also stated if something could be done to stimulate building it could possibly trigger an increase in sales tax and gas tax revenue for the General Fund. However, moving forward on the idea described in Finance Director Smith’s memorandum could make it very difficult to stop the incentive program if litigation occurred. Committee member Harold Hanson asked if the funding would be compromised and possibly defaulted on if the program were stopped, for whatever reason. Committee Chair Couch stated that stopping the program would eliminate offering the incentive but would not necessarily discontinue the collection of money that individuals have agreed to pay on their property tax bill. City Attorney Gennaro stated litigation continues to be a possibility and those consequences and their effects are also unknown. City Manager Tandy added that an equal protection lawsuit was also possible. Committee member Weir made a motion to temporarily, for a period of one year, reduce the TIF to the Phase 3 amount of $7,343, to be effective at a time to be determined by Council and applicable to all lots. He also inquired about the process to follow. City Attorney Gennaro stated that should the motion pass, the recommendation would go to the full City Council for a vote. If presented to Council as a resolution, it would not have to go through the 1st reading or 2nd reading, followed by a 30 day waiting period. A resolution would also provide Council with the flexibility to repeal the it, should anything happen after the policy is adopted. The Committee recessed at 1:00 p.m. and resumed at 1:05 p.m. City Manager Tandy stated a closed session of the entire City Council would be necessary before any consideration was given to a resolution and that Committee member Weir’s motion would increase the figures previously discussed with greater consequences. Committee member Weir added to his motion that the difference in the reduction of the current fee and the Phase 3 fee would be collected over the next four year period. Finance Director Smith indicated that in his analysis he concentrated on total revenue and the total revenue impact; he did not differentiate between commercial and residential development. City Manager Tandy asked Committee member Weir to clarify his motion. Housing Incentive Task Force Agenda Summary Report January 27, 2012 Page 7 Committee member Weir stated that the current TIF of $12,870 would be reduced for one year to $7,343. The difference of $5,527 would then be divided by four for the remaining four years of the five year program, whereby $1,382 would then be added to the current fee of $12,870. For the next four year period, the fee would be $14,252. The City would then collect the same amount of revenue, assuming the same number of permits is pulled every year. This would apply to all permits and lots. Committee member Weir stated that, in the current economy, all permits pulled will most likely come from the 2,259 buildable lots, so it would not be necessary to restrict the program just to those buildable lots. Committee member Weir also asked that Scenario C provided in the packet at the previous Housing Incentive Task Force meeting be analyzed and explained thoroughly at the next meeting. City Manager Tandy stated that the motion was based on the assumption that there would be an equal annual issuance of permits, and staff could not determine the consequences it would have on the bonding capacity. It would not make the City whole, in terms of future bonding capacity, but those calculations would take a great amount of time to compute and could not be done during the current discussion. Committee Chair Couch asked staff to prepare an analysis of the effect of Committee member Weir’s motion on the bonding capacity, with the assumption that 600 permits would be issued. He asked that various scenarios be prepared with a different percentage of permits being pulled from the buildable lots, including: a scenario assuming that 80% of the 600 permits come from buildable lots and 20% from other lots, another with 60% of the permits from buildable lots and 40% from other lots, another with 40% of the permits from buildable lots and 60% from other lots, and then 20% of the permits from buildable lots and 80% from other lots. Committee Chair Couch also asked staff to prepare an analysis of the effect on the bonding capacity if 50% and 75% of the permit fee is paid at the issuance of the permit and the remaining 50% and 25%, plus 1.5% interest, were to be paid over a four year period on the property tax bill, assuming 600 permits would be issued. This would only apply to the 2,259 buildable lots; commercial and industrial would be excluded. Committee Chair Couch asked where the remaining funds would come from if $150 million is going to be needed and the current bonding capacity is only $95 million. City Manager Tandy stated that as a practical matter, a portion would come from the utility surcharge and any remaining portion would come from the General Fund. Ultimately, there will be an amount that will have to come from the General Fund. City Manager Tandy stated that the scenarios proposed by both Committee members Couch and Weir, as a short term program for one year, would realistically be based on an assumption of using buildable lots. Committee Chair Couch indicated that a scenario based on a longer 3 to 5 year time frame need only be based on an 80/20 ratio of buildable lots compared to other lots. Housing Incentive Task Force Agenda Summary Report January 27, 2012 Page 8 Committee member Hanson stated that the developers have previously indicated they need a $10,000 to $12,000 price reduction, so a reduction of $5,500 would not make a big difference. Ms. Carpenter asked how many permits would have to be issued annually in order to generate enough revenue that the General Fund would not have to be tapped. Mr. Rojas indicated that it would take an unrealistically high number and would not be attainable. Committee Chair Couch concluded by requesting that staff also re-examine the rates charged to commercial developers at a later time. 5. COMMITTEE COMMENTS None 6. ADJOURNMENT The meeting adjourned at 2:12 cc: Honorable Mayor and City Council