Marion approves tax abatement
It was all or nothing.
If Marion City Council did not grant a 100 percent tax exemption for the full 10 years, Tom Bishop and Homestead Affordable Housing were going to walk, leaving one completed duplex. The council still needs to approve an ordinance for the issuance of bonds, but if the council was going to vote against the project, the time was Monday.
“If I put in existing taxes, all the rents would go up,” Bishop said. “All the commitments were made by making rents as low as possible.”
The council voted 3-1 for the proposed resolution, giving the project a full tax exemption on the industrial revenue bond. Todd Heitschmidt abstained because Central National Bank has a mortgage on the property where 10 duplexes are planned along Eisenhower Drive. CNB also is working with Homestead to finish the construction project.
Jerry Kline voted against the project.
“I represent the people that say we need the tax revenue,” Kline said. “I knew it’d pass, but I had to hold true to those people.”
The council weighed the benefits of the project against the loss of tax revenue.
Homestead Affordable Housing, through its limited liability company Homestead Rural Rehabilitation, is planning to make about a $4.2 million investment. The plan includes nine more duplexes. The budget to rehabilitate 20 September apartments, seven of which are empty, is $570,000. Bishop said the apartments in September Building 1 are in various levels of disrepair.
For the 13 people living in the September housing, Bishop said Homestead is obligated to provide living accommodations while the apartments are renovated.
Bishop outlined in his plans that low-income elderly housing was a need in Marion, and the surrounding area, because of demographics. At the end of a five-year projection, Ribbon Demographics estimated that about 98 people in the area, age 62 and older, would be looking to rent with an income of $10,000 or less, 237 with an income less than $30,000.
He said rent for the duplexes and apartments would be established on a sliding scale based on income. On the low end, rental housing would be available for $40 a month. On the high end, it was slated for $285 a month.
When Bishop was talking about commitments, what he meant was the two-year process of procuring grants for the project. The Kansas Housing and Resources Corporation is providing $410,000 annually in low income housing tax credits and a $243,000 home grant. Homestead also has an agreement with USDA Rural Development to reduce the $499,000 mortgage agreed to by Rural Development, Inc., on September apartments to $120,000, its appraised value.
With every house built, an independent consultant, Municipal Consulting, LLC, estimated the city to bring in about $40,000 a year in utilities. With the costs increasing gradually each year, they estimated the total over that time to be $406,904. The city also is set to gain $5,414, about $500 a year, in other revenues over the 10-year course of the abatement.
The cost of property taxes abated for the completed project is estimated at about $75,000 per year, increasing every year from $65,713. The company estimated the city would lose $751,494 in abated taxes total.
The county is estimated to lose $765,760 in property taxes. The school district is estimated to lose $560,451.
Bishop did say that the Marion High School construction class will be involved with the project, although it may not be by constructing duplexes. He gave the example of raised planters to be placed in front of September apartments. Bishop said construction could begin in May.
The city will get property taxes after everything is constructed and the 10-year period ends, right? Probably not. Bishop said he intends to file for a permanent property tax exemption through the state because Homestead Affordable Housing is a 501 (c)(3) non-profit company providing low-income housing for the elderly. He said it is impossible to secure this exemption without buildings in place.
Marion City Administrator Doug Kjellin has said Homestead is going to use local contractors for the project. Homestead may use some local contractors for the construction project, but nothing has been established. Bishop said he has discussed using contractors Lucas King has used for high school projects. Homestead is using a general contractor out of Wichita. Bishop said all contracts will be up for bid as in other construction projects.
Sales tax on any materials for the project is also exempt with the industrial revenue bond.
One of the benefits suggested by Bishop, but not calculated in Municipal Consulting’s data, was that houses abandoned by seniors could go to young families with jobs and children.
Homestead has completed eight senior housing developments. They are 48 units in Augusta, 59 units in Haysville, 36 units in Atchison, 32 units in Wamego, 40 units in Mulvane, and 30 units in Harper, 24 units in Holton, and 36 units in Junction City. Every one of those towns is larger than Marion and most are close to a larger metropolitan area.
Marion already has several homes on the market. Kline said the effect of more houses hitting the market could be to decrease values because of lower demand.
Marion will own the property for the life of the 10-year bond; the city will be named on the title. If Homestead were to go bankrupt, the city would not have a responsibility to pay debt.
Homestead Affordable Housing has a $300,000 15-year mortgage, 5 percent interest, with Emprise Bank.
The council made the decision after a 90-minute public hearing. Ruth Herbal expressed concern about Homestead Rural Rehabilitation’s influence with the project. Bishop responded that Homestead Rural Rehabilitation is the necessary company to acquire mortgages, loans, and grants. He also said that Homestead Affordable Housing will be managing the properties. She also said the value of the properties is not $4.2 million set for the project, but $1,383,000. She also asked about the drainage pond being given back to the city. Bishop said it Homestead’s plan to keep the drainage pond.
Darvin Markley talked for about an hour. One of his primary concerns was about Homesteads’ relationship with a project in Rusell. Initially a project was scheduled in Rusell to coincide with the Marion developments. Bishop said that the projects are no longer connected and none of the funds secured through the industrial revenue bond would be used in Russell.
“I would get you the city manager’s number but he doesn’t work there now,” Bishop said. “I don’t want to be called a liar here.”
Markley then muttered back that it was fine.
“No, no, no: it’s not fine — just this property, just this city,” Bishop said.
Markley also brought up a few different tax payment options including a sinking fund, pilot, and administrator’s fee. Bishop said that none of those options were applicable to this situation.