Marion City Council approved increasing the term of industrial revenue bonds from 30 to 65 years for construction of duplexes and remodeling September Apartments by Homestead Affordable Housing.
The motion passed in a 3-1 vote at a special council meeting Thursday with Jerry Kline voting no and Todd Heitschmidt abstaining because of his position as president at Marion’s branch of Central National Bank.
Mayor Mary Olson asked city bond counsel Sarah Steele, from Gilmore Bell law firm, to answer several questions before she changed positions from Monday’s meeting and voted for the term change.
“I guess I can’t ask my questions because they are for a lawyer and once again the city’s lawyer is not here,” Kline said when Olson asked council members’ opinions.
City Attorney Susan Robson was in town according to Heitschmidt, but on vacation and did not attend Thursday’s meeting.
Lee Leiker spoke on behalf of USD 408 and its partnership with Homestead in the school’s home construction program.
“It’s been a highly successful project I believe to be very beneficial to the students and their education,” Leiker said.
None of the other 10 residents in attendance spoke despite a council invitation to do so.
Essentially the bonds will act as a lending tool so Homestead can be exempt from sales tax for project construction materials, and for property tax for the next 10 years, although developer Tom Bishop says the property will be tax exempt perpetually.
“It’s much like getting a private loan through the city for the project,” Heitschmidt said Friday.
Industrial revenue bonds, IR bonds, are bonds used by cities to bring in new business and promote economic development. They are sponsored by the city, but the proceeds are directed to businesses. IR bonds do not count against city debt and the city does not have to pay them back. These bonds make the business responsible for repayment, not the city issuing the bonds.
The city has used IR bonds before to finance businesses such as Marion Tool and Die.
Homestead applied for federal tax credits for low-income senior housing, Heitschmidt said. The state approved Bishop’s project, and he received tax credits totaling $410,264, or 10 percent of the total project cost, for the next 10 years.
“The bonds are the funds Homestead would get if he applied for a loan through a bank,” Heitschmidt said. “The bonds are given by the city and then sold to investors.
“The investors will pay about 90 percent of the $4.2 million we’re projecting the project to cost. That will leave $300,000 left. Central National will own that debt and Homestead will pay on it like a normal loan.”
The loan will carry a 25-year term and make Central National liable if the loan is defaulted on.
The other bonds, once paid, become void. For that reason, the 65-year bond term will have little impact on the project.
The lease agreement between Homestead and Central National and the city expires in 15 years. At that point, the two companies will decide where to take the project next.
“The 15-year-term is strictly to cover the tax breaks,” Heitschmidt said. “He must obey the Section 42 housing rules for low-income housing until then or lose his tax breaks.”