Chris on 
[I know this appeared on Johns blog, but the work is impressive, and I think it is worthy of a larger discussion.]
Let me start off by saying that I don’t know everything and I don’t understand everything. I start out with that statement because something just doesn’t add up for me — it doesn’t make sense to me. Although I admit I don’t know everything there is to know about various sources of development incentives from the local, state and even federal level; to be fair, I am not completely without knowledge either.
At Tuesday’s City of Wausau Plan Commission meeting, after a public hearing, a zoning change was approved for a 40-unit apartment complex near downtown. It would be located where the Zastrow Beer Distribution facility is, on the river just south of Bridge Street. This zoning hearing is not the first step in the process for this development. Although the meeting last night was to get the zoning situated, about a year ago the City of Wausau approved a Developer’s Agreement for this project where the City of Wausau (through various sources, including funds allocated toward development of low-income housing) was going to provide a total of $450,000 towards this development.
Before I start my rant about how this project appears to be an outright abuse of those systems in place to help with our “affordable” housing crisis, it is important that I make a few of my personal thoughts clear.
I do not oppose a development of this nature in this location. This property is currently zoned manufacturing, which made sense back when we floated logs down the river. However, today a mixed use of commercial and high-density housing along the river front makes sense from an urban planning perspective. I also, in concept, don’t have a problem with the Community Development Authority (CDA) using money they have available to eliminate blight. However, I would hope that because this is a limited resource, they would be selective in its use to get the best bang for the buck.
I have said for a while that our rental housing market for “market-based” rentals is saturated. And, reports done not that long ago by the Wausau Daily Herald and City Pages both verified the amount of overbuilding that has happened, and what this overbuilding has done not only to the supply, but also the quality of housing available. However, the market is, though, in my opinion, overbuilt. I cannot and will not object to a private developer proposing a multi-family development in an location that is consistent with that type of use and the developer is taking this gamble with their own money. After all, I am a free-market kind of guy.
Personally, I think we need to take a much closer look at what our government (city and state in this case) is doing when a developer realizes that the only way to make a development profitable in a saturated market is to have the government defer their risk with grants, tax credits, and other incentives.
I did testify at the public hearing. However, my testimony was neither truly in favor or against. Instead, I was providing information. The hearing was only on the zoning aspect of this project, and as I already stated here, this is a good use of that land from an urban planning perspective. Although the hearing was on the zoning, I did try to address the funding issue without being completely out-of-order. I pointed out two facts: The market for “market-rate” multi-family is beyond saturated; and there is a severe shortage of income-based housing (often called subsidized housing, or often labeled “affordable” housing).
We have a crisis when it comes to housing for those with very low incomes. Most of our subsidized housing developments have waiting lists. The waiting list to get on the Section 8 Housing Voucher program has gotten so long with so few people coming off of it, that the Housing Authority isn’t even taking new applications any more. When I testified, I wanted to know how many of the 40 units were targeted to help with this urgent need. I wanted to know how many families this $450,000 would help, what were we spending per family? You can imagine my shock when the final answer to the question as I phrased it was: ZERO. I was told these are “tax credit” units, which differs from those type of units where the rent paid by a tenant is a percentage of their income. In exchange for these “tax credits” (issued by WHEDA), they have to keep the rents at a level that is affordable to “low and moderate income” individuals.
To give you an idea how much help $450,000 could do if targeted differently: The average amount that I get as the Housing Authority portion of the rent payment for my tenants that are on Section 8 is about $260 per month (let’s round that up to $300). That means that someone who just needs a safe roof over their head costs the Section 8 program about $3,600 per year (let’s call it $4,000). At $4,000 per year per family, over 50 families (10% of those on the waiting list) could get safe housing for over 2 years!
(That is based off of the payments I receive, can any one from the Housing Authority correct my numbers as to what the average cost per household is, if my $4,000 per year number is off?)
We must remember that certain types of City funds can only be used certain ways. You can’t just take this $450,000 and use it to fund the voucher program. That is a federal government issue (although WHEDA does provide funding for some of the vouchers our Housing Authority provides). If, instead of cash for clunkers or new home buyers credits, the federal government would put some funding in the Section 8 program, we could solve the problem of this huge waiting list of families that need help AND solve the problem of record vacancy levels in market rate units AT THE SAME TIME. However, the federal government has no time for solutions that make sense, and this post is not about the federal government use of money to solve problems.
It was said at the hearing this is a $6.9 million multifamily development (however the Daily Herald reported it at $7.2 million). That comes out to well over $170,000 per unit. Based on my experience, a good rule of thumb when calculating the financial feasibility of multi-family projects is $100 per month in rent = $10,000 of value. That is a rough guideline. An example of how to use it would be if the market says you can get $600 per month in rent, you are looking at about $60,000 per unit. If you are relatively close, for example $80,000, the project may still cash flow, just the risk increases as you need to sharpen your pencil. However, but if the market dictates $600 per month and the costs are going to be $120,000 per unit, there is no way to make that thing profitable. On this project, we are looking at units that run from $600 to $750 per month with a cost of over $170,000 per unit. You do the math.
One way to make this work is to cut your costs, bringing down the per unit cost. Another way is to not spend less money, but instead someone else’s. One way to do this is to get WHEDA tax credits designed for low income housing. Another place to ask for money is to ask the City of Wausau to throw money at the project. If I remember correctly from information that came out when the developers agreement was being discussed, they are cutting operating costs also, specifically property taxes. It is my understanding this nearly $7 million project is not going to be taxed on $7 million of value.
The person at the hearing representing the developer said at the hearing that as a condition of getting these WHEDA tax credits, they have to keep the rents “low and affordable” for low and moderate income individuals and families. Really? $600 for a one-bedroom? That is not housing for low income individuals. That is “market rate.” Actually, if you look around, that is a little higher that what the market charges for one-bedroom units.
As a matter of fact, only a few of these units will even take those people who do manage to get off the waiting list and get Section 8 vouchers (though I don’t know of too many landlords in town who would turn down a Section 8 tenant, so there is no need for units that take Section 8, the need is for Section 8).
Based on the information handed out last night, of the ten one-bedroom units, only two will be at rates that are eligible for Section 8. Late last year, I had been told by Mary Fisher of the housing authority (no relation) that the highest need is for two-bedroom units. Of the 19 two-bedroom units in this project, only two are priced within Section 8’s guidelines. The other two-bedroom units rent from $650 to $775. (The highest priced two-bedroom unit Section 8 will allow is $631).
The information provided at the public hearing that specifically addressed how this housing will cater to our need to provide safe housing for low income individuals and whether the CDA’s contribution to this project actually created more questions for me than answers. I feel one of the reasons the developer’s agreement passed was that I was not the only one who thought this development would help with our low income housing needs. The biggest question I have, was there a deadline in the developer’s agreement? Now that we know this project won’t help with low income individuals, can that agreement be re-negotiated?
We have a need for housing that is affordable to our low-income families (the market provides plenty of housing for moderate income families). We have programs available through the City of Wausau and through WHEDA to help solve those needs. This project, in my opinion, does nothing to help with our low-income housing problem and that money would best be, not put toward this project,but instead focused more on things that will actually solve the problem.
I close this post as I started, reminding you that I do not know everything, and maybe there is something going on here, something important, that I am missing. If that is the case, I need for someone to explain to me what I am understanding incorrectly. Please educate me – educate us. Because if I am understanding the situation correctly, a great disservice is being done, not only by the City of Wausau, but also by WHEDA.
Let me first say that this is all tough for people to understand, tho you have explained it well. I need to ponder this more, and learn more, but a few things jump out right away. Nr. 1, I would like to see that property developed into something nice. So on the surface, I might go along with the idea of above low-income housing going in there. Nr. 2, I agree that we need to make low-income housing available. Nr. 3, I feel the developer should shoulder all the burdens of the development you disuss, and build what will be profitable for him. But he should do that on his own, without city, state or federal money, and without credits. He wants a free market, give him one, no governmental financial support. So my overall reaction is to agree with you that the $450K should be applied to low-income housing as you suggest and let this developer do his thing on his own and wish him well in making a profit. I suppose that would dissuade him from undertaking the project. So sad, too bad, someone else will come along, you can bet on it. It’s a fine location begging to be developed.
Mr Rosenberg and other council people visit this site regularly and Mr Rosenberg usually posts on matters regarding city policy, council or committee votes, etc.
I’d be interested in hearing his rationale behind the city’s vote for this development when it seems it does not in fact benefit the low income in good numbers or in longevity.
thedbc, good luck! I tried to get him to respond when Doc’s outstanding piece ran the first time.
Evidently, he only knows everything “city” when he wants to. Let’s not forget he’s up for re-election and he’s very good at it. He’s not likely to commit a Sann, because he knows better. Never say anything you can be held to, especially if it’s controversial. He can be called many things like “left wing”, “staunch democrat” and “liberal” but “stupid” is definitely not one of them.
Is “committing a Sann” the new “getting Munsoned?
I also can’t help but wonder why Jim hasn’t commented on this yet.
He is normally very good about explaining things where there are misconceptions. I appreciated it when he corrected me on how arbitration works.
My guess is that we are discussing things, espeically the WHEDA element, that is not something he is really familiar with.
Also, it is possible… that he had the same misunderstandings as I did when this project first got the city part of the funding approved over a year ago – that is project and its property tax credits would help a little with our housing crisis for low income individuals. And, he is now attempting to verify my statements to better address them.
Although I don’t know.. afterall, he has no real “duty” to throw in his two cents. For a very long time he has been one of the only members of the council to come onto various online forums to offer insight – and historically he gets awarded with random attacks from anominous screen names for his effort. Jim does not speak for the city or the council, he speaks for himself but all too often his words are interpreted as the “official” city response – which is not fair.
I dont believe that the only reason he hasn’t chimed in is because he is worried how his response will impact his bid for re-election. If that is the case, it would be disappointing..
Because at times Jim and I agree dead on with things. At other times, we are at opposite ends of the issues… However I have always felt that no matter what the issue was, Jim was at least able to explain his stance in a way that allowed readers to see things from his point of view. Whether we agree or disagree, I could always understand his point and I believed he made an effort to understand mine.
Now now. Let us be fair. Rosenberg has been on of the few council members, or Mayors, to have any sort of internet transparency, or taken the time to engage in this manner. I think that is more than commendable.
Just because he did not comment, yet, or ever, on this topic, does not place him in the unreachable column. He has been very reachable.
I am sort of surprised by the depth of John piece myself. It is some great work. I hope to see more from John.
John and Dino you two are so very gracious today. I wish I could be like that more often.
I actually agree with all the positive things you guys have said about Jim. I just can’t get myself to say them. John laid it on a little thick, but he ain’t no dummy either. They both know the game and now is no time to burn any political bridges for either of them. Why do you think they call it “politically correct”? I just can’t master the art.
The problem is, as long is it isn’t a controversial topic, he knows pretty specifically with detail what’s up and he articulates it well. Come on now boys, we three know damb well he could if he wanted to. He knows exactly what’s going on here and could explain it well. Of that, I am confident.
My note was just a feeble attempt to draw him into the fray. And Doc, your little “If that is the case, it would be disappointing.” wasn’t far from it. But, I love your sneaky attempt. We’ll probably never find out in print. He’s too smart for that. (ya think that one will work?)
Carry on, Gentlemen. (including you Jim)
And by the way, it’s the $450k give away causing the “no show”. So there.
I haven’t gone back to the original action by the council on this matter so I’m reluctant to comment on some of the issues being raised. The city’s side of the equation was not a single funding source, but a combination. Likewise, the city’s goal is not solely to develop affordable housing, but to effect redevelopment of a challenging area. As a comparison, the city’s involvement when we worked with the Pic & Save development across the river was around $750,000, with a development agreement that called for at least $6 million in new tax base. It was controversial at the time, but it has outperformed and most people now see it as a positive improvement.
Debating the merits of the Metro Plains development for the Zastrow property is no longer timely and denying zoning wouldn’t be a fair or proper response by the city, after the good faith that has been shown thus far by all of the parties involved. The council acted in favor of city participation quite some time back. City officials have worked with WHEDA officials to assist on the tax credits being sought by the developer. More recently, WHEDA Executive Director Antonio Riley met with some of us here in Wausau and we discussed the importance of this development.
Is the plan perfect? No. Does it advance the interests of the city in proportion to our participation? In my view, absolutely. People can wish it was a different project, but we can only choose from what is on the table. Given the difficulty of securing significant economic development projects in strategic locations and the catalytic nature of what I think this project can bring, I come down solidly on the side of “take it” rather than “leave it” – and THAT, after all, was the choice. It’s not between someone’s ideal and the Metro Plains proposal.
Tax credit projects have advantages and disadvantages. The provisions impact the developer’s ability to raise capital and also reduce future costs to hold and operate the property. The East High School redevelopment was a tax credit project. I’ve visited a number redevelopment projects in the Twin Cities that were also done in this fashion. In these projects, around 20 percent of the units use a sliding scale to determine rent and this is the affordable housing aspect. (Of course, that leaves 80 percent – the great majority of the units – which remain unaffected.)
It is common to have controversy with development projects in which the city becomes involved. Good people with good intentions will sometimes disagree because they may place different weights on the different factors involved in some complex situations.
Thanks, Jim! I knew you could do it well. A good, politcally correct answer, as expected. And, you candy-coated the dollar amount controversy so well that even I can accept it.
Your last paragraph sums it up well and defuses me. Damb, you’re good.
John and Dino, what did I tell ya? It’s not everything, but it’s pretty good.
Now, it’s Friday and Lent. Yea!! Go have a fishfry and an old fashioned…but heavens don’t drink and drive. I wish all a great weekend. Salty, out.
As I had said in my original post, I did acknowledge that the hearing was just on the zoning issue itself, and this project in this location fits rather well.
I had acknowelged that I was borderline “out-of-order” by bringing up the funding as part of the zoning, as I understood the developers agreement had already been approved. However, that agreement was approved over a year ago… did that agreement not have some kind of “sunset clause”? Did the agreement say that the City will kick in $450K no matter when this development happens… 2009, 2010, 2018?
There were three sources of the funds making up the $450K. As I understand it (and of course, since this was over a year ago and my memory goes as I get older, please correct me if I am wrong)… but part of those funds came from the TIF that this project is going to be located in. Part of the funds came from Community Development Block Grant (CDBG) funds that had been set aside to help with low-income housing projects, and part of the funds came from what are called HOME funds that also are designed to help with our severe shortage of housing for low income individuals.
As was discussed quite in depth in one of Debra Weiss’ posts, this project makes PERFECT sense for TIF funds. This type of infill development. If you look up the word “blight” in the dictionary, the picture it shows is going to look alot like our riverfront in that area of town.
My problem is with the other funds that were targeted for helping with our low income housing situation – which is truly in CRISIS mode. My problem is also with the WHEDA tax credit program which I understand has nothing to do with the City.
The hook on both of these is that funds can be used to help with funding for “low to moderate” income families. And after doing research on the WHEDA and HUD websites, in Marathon County, “moderate income” for a 2 Bedroom unit is just over $40,000 per year.
The simple truth is that if you are looking for a 2 BR unit, and your household income is $40K, there is no shortage.. there is no unmet need. The need is for those making $15,000 per year and less!!
So, these WHEDA tax credits and the part of the city funding package that was earmarked for low income housing…. are instead going to be used for, what in our area anyway, is actually market-rate housing… the average rents of this development are actually higher than what the average rents are for this market.
I understand the concept that you don’t have all of these projects to choose from, you have this one project on the table. I get that… but if we throw this low-income housing money at a project that doesn’t do one single thing to address that problem, we now have emptied the well for real low income housing projects.
This appears as though another example of taking funds that are earmarked for one thing, and reallocating them to something else. I understand this happens all the time in government as situations change. But it bothers me that when these funds are reallocated, they are taken for uses that help the lowest income amongst us and are rerouted to projects targeted at those in comfortably higher income brackets. Yet, we have a chuck of money set aside from room tax funds for the 400 Block, but when when the city was trying to work out its budget issues, it seams like reallocating those funds toward the general budget… I don’t know that was ever on the table.
As someone who sees this need every single day… it gets very fustrating when I can’t help people who truly need the help. It gets fustrating when programs that were originally designed to low income individuals get tweaked so they can go to other projects that have no benefit to those most in need… and this is not just a city issue.
This is a WHEDA issue that will allow this $7 million project to provide housing to families who already have their pick of housing options when the low income people are on the outside looking in. This is a HUD issue that sets policies that allows the WHEDA issue to happen. This is a federal government issue that is making sure we have money to buy new cars we cant afford (cash for clunkers) and money to buy houses that we were going to buy anyway instead of having money available to help those in the most urgent need.
I am disappointed at all levels of government when it comes to the funding for this particular project. They get public funds to compete against me… and based on the information I heard at the council meeting when the developers agreement was approved, this may be a $7 million project, but they are not going to be paying property taxes on a $7 million project… if I remember right, their taxes are going to be based on $2 point something million. For what is essentially market-rate housing – tell me how that is fair… (that is a rhetorical question by the way)
The Housing Authority is no longer taking applications for the Section 8 program… there are over 500 low income families in need of that housing that are already on the waiting list and that wait is measured in years. If I thought that this project, with all of the low-income housing funds being thrown at it would result in so much as one of those families coming off that waiting list… I would at least back down a little… but based on the rental rates provided at the public hearing and the testimony from the developer… not one single low income family so deperately in need of safe and affordable housing is going to come off of the waiting list from this housing development.. NOT ONE..
And that is the kind of stuff that keeps me up at night.
Exactly John, exactly! You are awesome. Now I don’t have to be the heavy.
The smoke and mirrors, the candy coating and the lipstick on the pig all work like the sugar to make the bad medicine go down. But at the end of the day WRONG is WRONG. I understand all the politcal gymnastics, but this should not happen like this. The shift of wealth continues and in this case from Wausau to the Twin Cities. That speaks volumes. Why do think they come here? Think about it.
A “Take or leave it”… from any developer, that’s a joke. That’s exactly the time to call the bluff, and “leave it”. If you think for one minute that these people care about “fair” when dealing with Wausau, I have a bridge to sell ya.
At least if they are going to allow it to be built, they should make sure it looks like something decent. What I’ve seen is absolutely butt ugly and not a contribution to the city. It’s planned future blight. The actual, real financial merit of the project starts out on wobbly legs, and gets worse with the existing market they are really targeting. Low income my ass. In name only. With all the government back-stops it’s a great deal to walk away from. At least it will keep Ann busy.
Side note: At least it makes Zastrow whole. You know…the guy that took his business and tax base and moved it to Merrill. Anyone figure that tradeoff in their calculation. I think not.
There I go being a dickhead, again. Sorry.
The sad part about this whole thing is in addition to the developer receiving tx credits to construct a major portion of it, it will pay property taxes at 1/5th of the market value of the property, indefinitely, despite the value of it. This will burden the city, school district, county, and tech for a long time, arguably with “high users” of services (police, fire, school, etc…). So in essence….all of us tax payers will be “paying their taxes for them”. Wonderful. And…..that is why I was against it on the council originally and I am against it now. We don’t need to become (or keep growing as) a welfare magnet in this city.
First off, I want to welcome Councilman Matt Kaiser to the website. Thanks for coming Matt.
And John Fischer, you are awesome.
Matt…I was with you, and thought you were right on track up until you said…”We don’t need to become (or keep growing as) a welfare magnet in this city.”
So, I ask you to simply explain that broad generalization? Low income housing is not a magnet for the welfare you might be pointing at.
College students live in low income housing. They have, after all, low income. Or no income. The city of Madison seems to be doing just fine.
I am afraid that I have to ask you to explain that broad generalization. Many urban centers have successful low income housing, and many have giant systemic failures.
But, your comment does not touch on anything other than welfare.
Yes, I felt the same thing that Dino did.
I don’t think this “thing” starts out as a welfare magnet. It just has a great chance of becoming one, because the deal is so close to being financially unsound that if any little goes wrong (like the real market), and it flops, then developer walks away. And then WHEDA and the city are on the hook. By that time, our money is in MN, never to be seen again.
If the redevelopment of the whole area hasn’t caught up with this development, the downward spiral, death dance begins. Because it is such a crappy , low ball design, it has no real chance to compete with the real market because it’s proforma rents are actually way too high and the real rent achieveable will not crack the nut.
I think all of these things are just side issues. The main point is that this development is so bad for so many reasons. Each one isn’t so bad by it’s self. Cumulatively, they are an absolute reason to stop this development in it’s tracks, using whatever tactics available today. Approving the $450k give away and the 80% R.E tax /year abatement forever, a full year before final approval is granted, is absolute bull shit…. A snakey tactic to get this by the public., under the radar. A classic divide and conquer tactic.
“No longer timely”; “wouldn’t be fair”; “after the good faith that has been shown”, are all feeble, flimsy excuses for continuing this lunacy. A year between approval components is NOT timely and “fair” and “good faith” are not even a part of the developer’s vocabulary. They certainly don’t care about us and thus, we shouldn’t care about them. This is business, so check your emotions at the door.
Doc, you are absolutely right…it’s crap like this that keeps me awake at night, too. That, and Jim trying to justify it.
Matt, the City tax payers should reward a hero that could pull some magic to stop this, at this late orchestrated date. Strike while the iron is hot and may the force be with you…for the taxpayers sake.
Please be careful not to put words in my mouth,,,
My statements aren’t “toned down” to be politically correct, my statements are how I feel… and just by making the statements I have I feel I have pretty much guaranteed that I want to do a project that involves the CDA, I have almost certainly signed my own death warrant.
If the only pictures you have seen of this development are the iddy bitty ones at the Herald website, you really need to see the larger ones with more detail. The style of architecture is a post modern that is fairly common in larger urban areas.
My one and only problem with this development, is that I thought that by getting city and state funds, that this would help take some of those families on the Section 8 waiting list who are in desperate need of safe housing that they can afford with an income that meets the poverty guidelines off of that list. Tax credits from WHEDA, CDA funds, and reduced property taxes to help provide at least a little bit of relief to our low income housing crisis… I can live with that.
It is when I learned that this project would do none of those things when I started to object… not to the project itself, but the funding sources.
The WHEDA program requires that either 20% of the units be income limited to those at 50% of median income, or 40% of the units income limited to 60% of median income. However, those income threshholds (which are established by HUD at the federal level) means that we are looking at an income limit of $40,000 for a family of four (I have the sheet back at my office, so that is not an exact number). In the market, most landlords use an underwriting guideline of 25% to 1/3 monthly income… which means a family of 4 qualifys for a rental in the $1,000 per month range, and the market has much for them to choose from. Having a project getting tax subsidies to compete against those of us who have to pay “real” taxes is inherrantly unfair.
However, that is not a city issue, that is a WHEDA issue.
As for the timing of the project…. a $7M project can take 2-3 years to put toghether… however at the zoning hearing, it was stated that they didn’t get the WHEDA funding last year and are trying again this year (and that the fact the property wasn’t zoned properly was a factor in last year’s WHEDA decision).
My question on timing is a procedural one. On this (or any) developers agreement, is there something on the agreement that says that to get these funds, they have to meet certain date deadlines? And if so, what where they? And if not… why not.
Comparing the city handout of $450,000 for low income housing when it isn’t really low income housing to using $750,000 to rehab where Pick N Save was built isn’t right in my view.
Pick N Save and Culvers and Mobil didn’t go to the city and pretend they were building their busiensses to help low income people. And those places pay taxes and they have hired dozens and dozens and dozens of people.
I have no issues with the rezoning. Let this developer build their apartments, let them rent to low income ormedium or whatever they want. Handing them city money to do so is wrong.
Start helping low income people afford rent in existing housing units, not big developers build large complexes with only a few low income eligible apartments for a limited time. This does nothing to alleviate the real needs out there. Nothing.
I still think some are debating issues that aren’t really the crux of this one. The question for the city is whether we are better off WITH this development or WITHOUT it. “City money” in this case is a portion of the future revenue stream occasioned by the development and money arising from federal programs that are clearly appropriate for this type of development or we wouldn’t be able to use them. Moreover, there are often timeliness standards that require reinvestment of loss of the funds to the city. In short, the money will not magically morph into Section 8 vouchers if this project is scuttled.
In the past, thedbc has raised issues about the homeowner rehab program, in particular. I followed up on those concerns and we responded by shoring up funding from two sources in the course of our budget work this past fall (so I’m not someone who blows off legitimate criticism and I’m as interested in having solid programs that serve the public interest as anyone else.)
The comparison to the Pic & Save project is appropriate for several reasons:
1. It took place on a challenging property.
2. It was controversial.
3. It produced a catalytic impact that resulted in more development; there was synergy.
4. It was a for-profit, primarily privately-funded development (just like this one will be.)
There are tax advantages inherent in tax credit projects, but they are not tax-free. Again, I’m not here to claim that there aren’t any downsides, but I simply hold to the belief that they are — on the whole — outweighed by the advantages of this project.
If money was taken from a program meant to help house low income people and put into a building that doesn’t house a majority of low income people, is it really being used the way it should be used?
As for the low income rehab program, had the money not been taken out of the program and given to the Palladian to begin with, it wouldn’t have needed “shoring up” later would it? Correct me if I’m wrong, but the large amount of funds was taken from thelow income rehab program and stuck in the business program to help the Palladian, which does not one thing for low income homeowners. When that happened, the waiting list for the rehab program went from 12-18 months, to currently three years and increasing. Was that a good choice? I guess I disagree that it was. Regardless of the nice looking vacant building downtown.
A developer could have just used his own cash, a low income homeowner can’t wait three years for a roof or a furnace when banks aren’t lending.
When the council transferred funds back into the program (smart move by the way), it is still a far sight short of what was taken out initially. Will the fund ever get fully repaid? Will the waiting list ever get back to a resonable length of time?
OK, back to the new building. What is Zastrow’s paying in taxes each year? Mr Kaiser said this current building will pay only 1/5th of the taxes it should. So in the long run, will the city be taking in less money than if we told a developer to build their for profit project on their own? We also helped fund the thing to begin with. I don’t see where we end up ahead.
According to my score card, the city paid $450,000 to build it, will probably see a reduction in property taxes and only helps a few low income families for a few years. That doesn’t sound like a win in the long run.
Based on the max home rehab loan of $25,000, this $450,000 could have helped rebuild 18 homes. Seeing as most loans are well under $25,000, we’re talking likely 25 homes in the worst areas of town being rebuilt. Now, in my opinion, that is better off for the city in the long run. Those owners do not get tax reductions and they are legitimate low income people who, if the loan wasn’t there would not be doing the work. Those loans also put local construction companies to work for weeks at a time and those companies buy materials from local suppliers and employ local workers that live here, pay taxes here and raise families here. To me, that’s a win.
Seems to me like you’re making some huge assumptions here. One is that the $450K would be available for homeowner rehab. While I don’t have the figures at my disposal here, I can assure that is NOT the case for a good portion of the money (and I don’t even know what portion of it would be, if any.) You’re also assuming that the project would still be built if the city had chosen not to participate in the development. I don’t believe that is the case and I’m 95 percent certain that it is not. You also seem to take the position that this project will not spur further development (which doesn’t match our experience.) You’re certainly free to arrive at a different conclusion and some people have, but there is a reason that it was not the prevailing view and the choices that you are offering aren’t really what was on the table.
I hope you didn’t take my comment as arguing or anything, that was not my intent.
I’m just trying to say that maybe the city should find ways to house low income people and find new ways to help existing property owners in larger numbers.
It’s my opinion that doing that will help the city get better faster than tossing money at big developers to add to the already vacant properties.
I think eventually, that riverfront area is going to become very valuable and that the city doesn’t need to worry so much about it. That’s all private land there and it’s all on the market, it will be sold and developed without city money. By all means, assist with plan approvals and rezoning, but money, no. If it’s blighted and you want it fixed up, simply enforce the laws we have regarding that instead of paying people to do so. If my house was blighted, I doubt the city would toss cash at a new buyer if they asked for it to fix the place up. Wouldn’t the city make me fix the issues or fine me?
Why do theowners of those lots by the river get a free pass on the over growth (not being cut down in ten years is a free pass) and blighted buildings, signs, trash, etc? Maybe if the city enforced the laws we havem, the property would be more attractive and more buyers would step up and want to build there?
Just an idea. Maybe there is a reason laws aren’t enforced on these owners, I don’t know. I would like to know though.
John has asked this before, but if a for-profit project isn’t viable without tax dollars, is it really viable at all?
I disagree with your assumption that development will take place in a timely fashion along the riverfront without any city participation. It’s mostly brownfield and much of what makes it more likely to be developed going forward has to do with some good work that we’ve already been involved with. WHEN things happen is also an issue because the community is not a static group of citizens (and I’ve talked about this before, with respect to how and when certain things are paid for.)
When you’re talking about a TIF project, you’re often talking about dedicating a portion of the future revenue stream from the property tax to be paid by a specific project toward making it feasible. No project = no new revenue. (You may also be talking about how something fits into the overall district’s costs and return, for example, the River Edge trail.)
Some people may not LIKE it, but TIF is one of the few economic development tools that Wisconsin cities have. Deciding to be some kind of conscientious objector to it would simply make a community less competitive in comparison to alternative communities. That’s not to say that every project is going to worthy or worthwhile. (The city does NOT approve every proposal that comes along and there are often negotiations about various aspects of those that are accepted, too.)
How do people feel about charging widows and orphans a half percent sales tax for 30 years to build an NFL stadium for 10-12 games a year — games that many of the people paying will never be able to afford or even have the opportunity to attend? (I’m not saying that Green Bay made the wrong choice. I’m just saying that under the standard that everything has to stand on its own, the Lambeau Field project probably doesn’t make the grade, does it?)
The point is that we have some resources that we can bring to bear and there are choices that we make. I believe that on the whole, the City of Wausau is better off for the direction of those choices over the past dozen years; that it’s a significantly better place and that the same outcomes would not have been achieved without an aggressive approach to economic development. Others are free to disagree, second-guess or whatever. But to make the case that property taxes would be lower or services would be better if we hadn’t been involved in economic development projects is a case that I have yet to see successfully made — and there’s a reason for that.
Again, not to beat a dead horse but….
The WHEDA tax credit funds are being used “properly” by this development, and that is a problem to address at the state level. These funds are for “low to moderate” income housing. However, there is no requirement that the funds be used for “low” income as long as they are used for “moderate” income. And, what HUD and WHEDA calls “moderate” income is what the rest of us call market rate. That is a problem with that state program and beyond city control.
Also, with the City’s $450K, I get it that those funds cannot necessarily be used for different purposes… and I also understand they come from three different sources. And, I actually don’t have a problem with the use that portion of those funds that are TIF.
I dont know the exact breakdown, but if I assume that the three sources of funds are evenly distributed, that would mean $150K from TIF, $150K HOME funds, and $150K CDBG funds earmarked for low-income housing. (Again, I don’t know the actual breakdown)… my problem are those low-income funds.
At the zoning hearing, CDA called this a $6.9 Million development, the WDH reports it to be a $7.2 Million development.. so there is already $300,000 in “fudge” here. So, to tell me this developer would have walked away from a $7 Million tax-credit funded development if ONLY those low income housing funds were not allocated…….
I have been involved in a number of development projects, admittedly the largest I have worked with was only half that size at about $3.4 Million. However, $300K is about 4.3% of $7 Million. If the only way I could make a project that is already seriously over-priced (remember, over $170,000 per unit) work was to reduce my costs 5%… I am sure at least I could find that savings if the city said you could only have $150K and not the full $450K.
And DBC, you state that this project will only serve a few low income families and then only for a limited time…. I do need to correct you…. this project will serve ZERO low income families.
Yes, a few of the units will be at low enough rents that they will be able to take section 8 applicants… however, every person who is on section 8 in this county already has housing.
“this project will serve ZERO low income families.”
Are you sure you want to stand by that comment? Because I don’t think the project would qualify if that was truly the case.
Based on the rent listing we got at the public hearing for zoning, which is we were told is the same listing that was provided with the original proposal last year.
2 of the 1 BR units will be at $316 per month
the rest will be $556 or higher
2 of the 2 BR units will be at $375 per month
the rest will be $650 or higher
2 of the 3 BR units will be at $425 per month
the rest will be at $750 or higher
a rule of thumb used by most landlords for income-qualifying tenants is that they need to have income that is 3-4 times the rent…
For those cheap 1 BR’s, that means an income of $11,400 to $15,168 per year
From my experience, and you can confirm with the Housing Authority if I am wrong… but many of those who are low income that need housing assistance are under the $10,000 per year mark.
and in researching the WHEDA program, either 20% of the units have to be limited to people at 50% of the county median income, OR 40% of the units have to be limited to people at 60%of the county median income.
In real numbers, 50% of county median income for a one-person household is $23,400 per year (to qualify for Section 8, they would need to be under $14,050). For a family of 4, at 50% income is limited to $33,400 (to qualify for Section 8, a family of 4 needs to be at $20,050 or less).
(This is all from information handed out at the zoning hearing by Anne)
So, to qualify for the WHEDA funds, they have to hold off 20% of their units (or 8 total) to people who make UNDER those thresholds. Well, based on normal underwritng critera, a family of 4 making $33,400 per year would qualify for a market rate rental of $928 per month at 1/3 total income.
So, I stand by my statement as it applies to what I consider low income, which is not what WHEDA considers to qualify for the program, but was HUD considers as low enough income to qualify for Section 8.
Low income standards vary by program. For example, the standard I’ve seen used in many programs is 150 percent of the federally defined poverty level. If WHEDA defines low income differently than you do or HUD’s Section 8 program defines it, then saying that WHEDA’s standard is NOT low income is a value judgement. It also doesn’t mean that renters of these units will all be at the maximum allowable income (because it’s something we can’t possibly know, before a shovel has even hit the ground.)
that is a valid point… and one of the things that I have said is that when I did more research on the WHEDA program, what they define as low income and what reality is with low income from what I see on a daily basis are vastly different.
And true, we don’t know what the end result will be.. but lets look at one of those 3 BR units for $425 per month. That price would actually help out someone with a low income.
But, the WHEDA guidelines say the income has to be at or below those levels I quoted. So, if a family of five applied for that $425 unit that had an annual income of around $18,000 per year from sources that were non-collectable (like SSI), and another family of 5 applied for the same unit at the same time that had a household income of about $35,000 per year. Who do you think the landlord will approve.
And, considering these are river front, $170,000+ per unit rentals, I am willing to bet they will have a waiting list for units at the prices they are offering and will be able to meet their 20% guidelines with people that are not far from those limits.
And.. although that is “not something we can possibly know before a shovel hits the ground”….
We can make educated assumptions… based on market history, based on experience, etc. Afterall, that is what the pro-forma financial statements are in business plans…
I am not going to pretend that I understand all the aspects of this property obtaining the funding it is getting. I just sort of look at the whole project as a concept, (I have a tendency to overlook details sometimes)
With the shape of that part of town and the surrounding neighborhood the way it is, it seems like it would be very difficult to find a developer that would want to tackle all these issues, especially at an economic time when other cites are maybe willing to give up even more to, “sweeten the deal.” Then add to all this the fact the whole area is brownfield.
If it were left up solely to the city taxes to clean up this neighborhood, tear down and haul away the old rotting structures on this land, and then pay to clean up all the environment problems, how much would that cost? (this isn’t suppose to be rhetorical, I am really asking).
If we can give some incentives to developers to get this area to start moving in the direction it has to, is it not worth it? By taking less at the beginning we can ensure something actually happen over there, and if the area takes off, these seems like a good plan.
So is the issue here on the concept of the project, the money the city is suppling, or the tax break? Just thinking about the project as a whole, it seems like the city is making a small investment towards progress in an area of town that really needs it.
in my view the way this is being done at least assures us something will be built there, we could spend millions cleaning up that part of town, and not get any offers from developers, or get offers that will take forever to get back money used to clean up the area. We obviously are not cash-rich at the moment, and this project seems to allow us to get that part of town rolling for a relatively small amount down and a $7mill+ project.
If the whole funding issue was easier to understand for more people do you think less of them would have a problem with this plan, or am I missing something all together?
Just a few questions I had in my head…
How does the city taxpayer have responsibility to pay to clean up pollution on privately owned land?
All of that land down there is currently privately owned. Some person or business owns it. If it is contaminated, why isn’t it their sole responsibility to clean it up to standards? Why does the city have to pay to help fix their problems?
If someone was dumb enough to buy ex factory land and assume it’s clean, that is their issue, not the city’s. Once they find out it’s polluted, they should be on the hook to clean it up.
Can anyone explain why someone can buy land and then get me to pay to fix it up for them and remove pollution for them at my expense?
What are the rules about polluted land and how did the city end up on the hook to clean up private land that the owner will then sell for a profit?
I would love it if I wanted to build a rental duplex home and the city not only covered my down payment for me, but they also reduced the taxes on that new house to 1/5th the normal costs.
I promise to then rent the home to two section 8 recipient families if any should apply when it is available. Also, if the land was formerly a gas station, I expect the city to pay for the clean up costs, since even though I oen the land, I certainly don’t want to pay the costs of cleaning it up.
How can I go about getting that check and tax relief from the city?
See how odd that sounds? So how does a millionaire developer get the money in the same circumstances?
I think right now it is the owner’s responsibility, and that’s why nothing has been done down there for longer than I can remember…it must be cheaper to let it sit the way it is than fix it up to sell.
Ideally this would be the responsibility of the private individual, but who knows how long it will take for this to get done? Are we able to change the laws so unless the environmental concerns are addressed major fines could be issued to who ever holds that land now?
Or would it be faster and easier to try to get some developer interested in the area by conceding what we can to get the demand for the area increased?
I don’t know all the answers but with this plan at least something will be happening soon. How long has that area sat there like it is? How much longer will it sit if the city can’t help provide some incentive to move things along?
Tyler..
I get what you are saying about the short term sacrifice vs long term gain and the big picture approach..
I get what people like Jim and Anne say when they say this project would be an ideal catalyst for other riverfront development in that area
Some development incentives are possible because of the development itself… and the city’s share is seen as an investment in future tax revenue through future growth.. and I get all that.
I am just saying that in this case, what is a very small piece of the pie for the developer is a very big piece of the pie for people with very low income in desperate need of safe housing.
I understand that from time to time, a few must suffer for the benefit of the many… it just bothers me when their appears to be a situation when the many must suffer for the benefit of a few.
As for the brownfield status of the land… I am no expert… … but one would wonder how this would play a roll..
http://en.wikipedia.org/wiki/Superfund
This project is not all things to all people. It is a step forward. Again, the choice is not against an IDEAL, but whether or not to accept or reject what is being proposed. I don’t agree that it is a case of “many must suffer for the benefit of a few.” I believe the city as a whole will benefit from this project. There were contrary votes against the Pic & Save development project and some of that was a discussion of “Why should we have to pay to support the project of a millionaire.” For that, I would offer two observations:
1. When it comes to the TIF portion, what is being paid is coming out of the new revenue stream created by the project. Once again: No project = no revenue. (So you can’t take the total and say that it should be spent on something else, as if you had it in the first place. You don’t.
2. Have you ever tried to build a multi-million dollar project with someone who does NOT have significant resources? People with money to invest have more than just money. They also have choices. If you want to attract that kind of capital investment to your community, then it behooves you to make it worth their attention, because there are plenty of people competing for the opportunity.
As for environmental assessments and cleanup, the fastest way I can think of to mitigate risk as a developer would be to avoid any potentially contaminated site like the plague. Because we have programs in place at all levels to help mitigate this risk — (and it’s critical to be able to do this) — we also have a successful track record of putting challenging properties back into beneficial re-use.
On the subject (in general terms):
http://www.vierbicher.com/pdfs/Bulletins/20_1_FundingJanuary2010.pdf
Interesting discussion you guys are having here.
I see it’s trending toward environmental remediation. Maybe I missed it somewhere along the way, but I never saw where this property needed any environmental cleanup.
I don’t think that we know that right now, but it is a risk in properties like this. The EPA definition of brownfield:
IN GENERAL- The term “brownfield site” means real property, the expansion, redevelopment, or reuse of which may be complicated by the presence or potential presence of a hazardous substance, pollutant, or contaminant.
What we have seen is that developers may be reluctant to take on the risk (and justifiably so.) Previous projects along the river corridor have included an element of environmental cleanup. An example would be the property in the area of the Dudley Tower and the Eye Clinic of Wisconsin.
How about the exact status of the real estate abatement, for lack of a better term. And please compare it to the other TIF type projects. Is it really 20% forever?
In an aside, I want to thank Matt Kaiser, Jim Rosenberg, and Andy Sutton for taking part in this discussion.
All three are elected officials, and from this discussion all three have a vested interest in discussion.
We hope sometime, to see more elected officials taking part in these respectful, and civil discussions.
In reply to Saltpeter, I believe it is possible for the status to change at some point in the future, but it is not for a long time (like a 15-year minimum and sometimes longer.) I realize that people are taught not to trust wikipedia, but there is a pretty decent summary of the program here:
http://en.wikipedia.org/wiki/Low-Income_Housing_Tax_Credit
One thing in the piece that I found interesting (subject to confirmation) is that relatively high percentage of housing projects in the use that use this type of financing since 2006. Not surprisingly, this coincides with a period in which conventional real estate investment has encountered plenty of challenges. Just eyeballing it without further research, I would lean toward seeing the large relative share of tax credit projects as more likely to be a symptom than any kind of cause.
Edit: “… the relatively high percentage of housing projects that have used this type of financing since 2006.”
THis comment sadly will have nothing to do with the article. But, I just wanted to say that I absolutely appreciate the great discussion here.
Thank you all for that. This is a complicated topic, and questions were asked, thoughts put forth. Thank you all.
Especially thank you to the elected officials that came forth to discuss these matters.
In the future, I hope we have far more coverage of the city council here in Wausau, and of course these upcoming elections.
Maybe some of you would like to write profiles of candidates?
I agree in principal with John’s back of the envelope analysis of this development. $170,000 per unit does not make sense in Wausau, Wisconsin or really anywhere else in the country right now. I was wondering why such a large, and presumably smart, developer would build a project like this at a time when the market is over-built and no bank would conceivably want to fund such a project. The answer to this question comes from Metroplains’ website and from understanding a little bit more about the Low-Income Housing Tax Credits (LIHTC) that Jim Rosenburg mentioned earlier.
Through LIHTC tax credits, the federal government will basically reimburse 70% or more of their cost to build the project. Let me repeat that because that did not sink in for me until I did some investigating on the Metroplains website: 70% or more of their cost to build the project will be reimbursed by the federal government through LIHTC. So the project doesn’t have to pencil out at $7 million, it has to pencil out at $2.1 million (actually $1,650,000 after you subtract the $450,000 from local funding sources) and this can be financed conventionally so the developer does not have any out of pocket costs. That combined with the lowered tax assessment that the city is offering and this project will produce ample positive cash flow.
LIHTC’s have been in existence since 1986 and the state funding for these credits increased significantly in 2001. From what I can tell from the WHEDA website, there are over $43,000,000 in tax credits available for these types of developments in Wisconsin alone. The only catch is that it requires a 15-year commitment on the part of the developer to provide a significant amount of paperwork and documentation to WHEDA showing that the property is meeting the federal guidelines for the tax credits. If the property meets all of the requirements, the federal government will grant up to 9% of the cost of the project in tax credits per year for 10 years (this amounts to 90% of the project cost). The tax credits are sold through a syndicator like Enterprise and turned into liquid cash. The buyers of the tax credits not only get all of their money back over a ten year period (untaxed), they get an additional tax shelter from the depreciation of the property and any potential losses. This is another discussion but there are several advantages to buying these credits. It used to be that they could sell each dollar of tax credit for a dollar of today’s money but with the poor economic conditions the percentage is a little less. It also depends on the percentage of low-income units to market-priced units but they will all likely fall into the low-income bracket due to the lax or outdated federal rent and income standards that John mentioned earlier. On their website, Metroplains Management lists “government compliance” as one of their areas of expertise and this is what allows them to make the tax credits so profitable.
Here is an excerpt from Wikipedia that explains the credits: “The LIHTC provides funding for the development costs of low-income housing by allowing a taxpayer (usually the partners of a partnership that owns the housing) to take a federal tax credit equal to a large percentage of the cost incurred for development of the low-income units in a rental housing project. Development capital is raised by “syndicating” the credit to an investor or, more commonly, a group of investors. To take advantage of the LIHTC, a developer will typically propose a project to a state agency, seek and win a competitive allocation of tax credits, complete the project, certify its cost, and rent-up the project to low income tenants. Simultaneously, an investor will be found that will make a “capital contribution” to the partnership or limited liability company that owns the project in exchange for being “allocated” the entity’s LIHTCs over a ten year period. The amount of the credit will be based on (i) the amount of credits awarded to the project in the competition, (ii) the actual cost of the project, (iii) the tax credit rate announced by the IRS, and (iv) the percentage of the project’s units that are rented to low income tenants. Failure to comply with the applicable rules, or a sale of the project or an ownership interest before the end of at least a 15-year period, can lead to recapture of credits previously taken, as well as the inability to take future credits. These rules are described in greater detail below.”
If you go to this link on the Metroplains website you can see an example of this in action through the Pine Beds Townhomes in Ladysmith, WI: http://www.metroplains.com/portfolio/view/id:163. The total project cost was $2,058,000 for 24 units ($85,750/unit). $1,298,000 (63%) was paid for by equity raised through LIHTC. They were given Block grant funds of $220,000 (11%) and the rest was financed through a first mortgage of $540,000 (26%). It doesn’t say if Ladysmith gave them a reduction on their tax assessment but they probably did. With a brand new building that is only financed at 26% loan to value, I don’t think they will have any cash flow issues, and the real money is probably made by paying themselves for the design and development. I am impressed by this company. They do about three of these projects per year and their business model is recession proof. The only thing that could slow them down would be another change in the tax law.
I haven’t given my opinion on the Zastrow building project because I am still mixed. I think it would be good for the City of Wausau and good for that part of downtown, but it will hurt the apartment rental market in Wausau even more. These units will not be absorbed by population growth so the tenants will have to be taken from other buildings around town and the LIHTC’s and City money kind of give this property an unfair advantage, all things being equal. $7 million will buy you a pretty nice 40-unit apartment complex even if most of it will be going to St. Paul through development fees. It won’t help low-income residents for the reasons John already discussed, but hopefully it will help the continued revitalization of downtown which many believe is the key to the overall economic health of the City of Wausau. It will certainly be an improvement to what is there now.
So not only are the feds funding 70% of their building for them with tax dollars, but the city of Wausau also saw fit to toss another $450,000 of tax dollars at them too along with cutting their assessment down for them as an added big kiss on the cheek.
Dear lord. Does the gravy train ever help around here for the common folks, or are the gifts only for the millionaires?
More handouts, less help for the truly needy. And I can only guess it’s going to get much worse.
In his comment a few days ago, thedbc, said the city of Wausau is giving the Trolley apartments folks $450,000 to help with the development. Yes and no. “Giving” would be incorrect, because that total is made up of two interest-free loans. The city will get the money back and it will be used to spur other projects seen as beneficial to the community. The developer will receive that amount from the city, but the city will be repaid.
you don’t have to be a millionare…
you only have to know how the game is played.
I understand small parts of the game – but the WHEDA/HUD part of the game, way above my pay-grade