HomeMy WebLinkAbout04-14-2017 Economic Development Committee� r ,
CITY OF IOWA CITY
UNESCO CITY OF LITERATURE
1. Call to Order
AGENDA
CITY COUNCIL
ECONOMIC: DEVELOPMENT COMMITTEE
FRIDAY, APRIL 1 4, 201 7
1 1 :00 A.M.
EMMA HARVAT HALL
CITY HALL
2. Continue Discussion of TV Policies
3. Staff report
4. Committee time
5. Other business
6. Adjournment
If you need disability -related accommodations in order to participate in this program/event please contact Wendy
Ford, Economic Development Coordinator at 319-356-5248 or wendy-ford@iowa-city.org. We ask that contact us
early to allow sufficient time to meet your access needs.
EDC 4.14.17 packet
page 1
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CITY OF IOWA CITY
VNCSCO CITY OF urCRATURE
CITY OF IOWA CITY
MEMORANDUM
Date: April 12, 2017
To: Economic Development Committee
From: Wendy Ford, Economic Development Coordinator
Re: TIF Policy Review meeting Friday, April 14, 2017
At your meeting on March 23, you began discussion of TIF policy outlined in the staff memo
dated March 10, included again with this packet. At your meeting on April 5, you continued the
discussion. On Friday, April 14, you plan to pick up the discussion with building height, the last
of 6 areas of policy review.
Included in this packet for the April 14, 2017 EDC meeting:
• The March 10 staff memo outlining TIF policy review points
• A memo from the City Attorney regarding Up -front cash vs. TIF Rebates
• A letter from the Greater Iowa City Area Home Builders Association
Minutes from the April 5 meeting are not available yet.
Please let me know if you have any questions.
EDC 4.14.17 packet
page 2
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CITY OF IOWA CITY
UNESCO CITY OF LITERATURE
CITY OF IOWA CITY
MEMORANDUM
Date: March 10, 2017
To: Economic Development Committee
From: Wendy Ford, Economic Development Coordinator
Re: TIF Policy Review
Introduction
In January of 2016, the City Council established a set of seven Strategic Planning Priorities,
including one to Promote a Strong and Resilient Local Economy. In support of that planning
priority, Council listed seven initiatives, including one to review and consider amending the
City's Tax Increment Finance (TIF) policy.
The Economic Development Committee asked staff to frame key policy decisions. The goal is to
tailor a set of TIF policies that offer a balance of specificity and flexibility. Ideally, policy
decisions will align with Strategic Plan objectives, other City planning documents, and standard
measures such as the state's high quality jobs thresholds, blight remediation and expansion of
tax base.
Staff conducted eight focus groups between June and November, 2016. Focus groups included
developers, architects, engineers, members of labor and worker justice organizations, members
of social service oriented non-profit groups, members of community promotional non-profit
groups, taxing entities and others. A lengthy report was presented to the Economic
Development Committee (EDC) at your December 13, 2016 meeting. Feedback from the focus
groups indicated that those associated with the development process were critical of the project
and design approval process in part because of a lack of clarity for what is required for a project
to merit TIF. People with expertise in sustainability seemed to reach consensus that LEED
Silver Certification could be required of most traditional TIF projects. It was also noted that
place -making is a public benefit, important to making a welcoming community, and includes the
provision of Arts, Cultural and Social Services yet it is difficult to fund these public benefits using
project -based TIF.
Upon reviewing the focus group work in December, 2016, the EDC asked staff to solicit
additional stakeholder input on key decisions for the next meeting. The issues EDC members
identified for further discussion include building height and form, sustainable features, and the
process through which incentives are considered. Local organized labor leaders have also
reached out to the City with recommendations for TIF policy revisions. Staff conducted a
roundtable to refine the focus group input. This roundtable consisted of three architects and a
developer. Staff also communicated with a local labor representative to ensure a solid
understanding of their issues.
EDC 4.14.17 packet
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April 12, 2017
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This memo organizes the economic development issues addressed during the review process,
provides supporting information from community focus groups and staff and presents policy
decision points for each.
1. Balancing building height and form with building economics
Deemed the most important policy by developers and architects, the building height issue
downtown is critical because it determines more than the aesthetics of new downtown buildings.
It shapes the residential population and thus, downtown diversity because of the economics of
the buildings themselves.
Developers note that the vast majority of student housing developers do not seek TIF because
student housing projects cash flow on their own and need no external support. In Iowa City,
student housing developments tend to be 4-7 stories tall, the maximum allowable with wood
frame construction. There is one recent exception in the RISE at Court and Linn, a large
development with a high rise tower dedicated to housing more than 500 students. Large or
small, the market value for student housing developments is so high they are able attract
enough investors and debt to avoid a financial gap. The economics are simple: smaller buildings
are less expensive to build requiring only wood framing, and are very lucrative because of their
premium downtown location and the ability at times to attract large rents from people living
together.
Developers indicated that there is very little market for permanent residents in smaller buildings
downtown. First, the student -aged population can typically outbid other segments of the market.
Second, the older demographic wants dwelling units in buildings that are differentiated from the
student population, with amenities, other permanent residents and, often with views found in
higher rise buildings.
Developers say there might be a market for permanent residents in mid -rise buildings, but the
economics of mid -rise buildings are challenging. Generally, the requirement for steel
construction begins when the building exceeds 5 stories, essentially doubling framing costs per
square foot. Limiting a building to 7 or 8 stories does not allow for enough additional income to
pay for the added expense of the steel frame building without incentives. When there isn't
enough income, the value is lower and so is the appeal to investors and bankers, which creates
an unnecessarily large financial gap per square foot of building. As the building gets taller, the
market value begins to be high enough to attract investment and banker interest, thus shrinking
the financial gap per square foot.
Developers point out that of more than 2,000 housing units in downtown Iowa City, only 75
condos are occupied by permanent residents; fewer than 4% of all downtown residents. The
other 96% is predominantly student -aged persons. Each new permanent resident downtown
adds to the diversity that we have been working to encourage. By allowing only mid -rise
buildings in mid -block parcels downtown, the diversity we seek in our downtown population will
be harder to achieve and the financial gaps will be more expensive per square foot. More
EDC 4.14.17 packet
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April 12, 2017
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importantly, the development community may likely focus on the lucrative student market thus
not even attempting to work with the City on TIF projects.
Policy Decision points:
a) Determine a clear, predictable policy on building height for TIF projects.
Is the height permitted by the underlying zoning code sufficient or is there
another guideline the Council wishes to use?
b) Determine how to consider architectural impact on adjacent properties.
Is staff design review sufficient? It is important to note that most projects are not
fully designed at the development agreement phase. Changes are often
necessary throughout the design process; general compliance with initial
concepts rather than exact adherence to early design phase documents can be
used.
c) Promotion of Historic Preservation and reinvestment into existing building stock.
Project -based TIF depends on substantial increases in property value. Often
times this cannot be achieved when density is not increased. Thus, Council may
want to consider district -wide TIF applications for renovations or less time
consuming processes such as tax abatement.
2. Sustainability Features
There was consensus that LEED, while imperfect for every project type, is a good standard to
achieve for most new construction. In discussions with architects who design to LEED
standards regularly, there was consensus that LEED Silver Certification is the appropriate level
to require for a downtown building project, with some exceptions based on project scope or
location.
Focus group participants agreed that LEED is a good standard because it covers a wider group
of metrics than just energy efficiency and thus, leverages higher quality projects. Buildings earn
LEED points across a range of categories such as site, water, energy, materials, indoor
environmental quality, etc. One concern from a roundtable member after our meeting was that a
building could achieve LEED Silver without scoring any points in energy efficiency, so her
suggestion was to require LEED Silver certification with a minimum of 8 energy efficiency
points. For those projects that would not be appropriate for LEED Silver certification (perhaps
outside of downtown and RFC or rehabs of historic buildings), one idea was to require
documentation of energy efficiency equal to 8 LEED points. The 8 point standard was not
reviewed and addressed with other focus group members. Roundtable participants also noted
that a metric other than LEED may be needed for manufacturing facilities; their discussion
applied generally to residential and mixed use buildings.
EDC 4.14.17 packet
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April 12, 2017
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They agreed that while downtown projects should be able to achieve LEED Silver, achieving
LEED Gold certification would be a greater burden financially, requiring more financial gap filling
by the City.
Other measures of sustainability were also discussed, such as simply exceeding the current
energy code by 20%. This could be a measure or option available to developers when projects
are not well -suited for LEED.
Policy Decision point:
a) Determine sustainability standards to require for TIF projects.
Options may include LEED Silver, LEED Silver with a baseline for energy
efficiency points, or for those projects not suited for LEED, 20% or greater than
energy code requirements, if applicable.
3. Affordable Housing
In May of 2016, Council adopted a resolution approving inclusion of affordable housing goals in
Economic Development policies. The following policies are for new construction projects that
include residential dwelling units and have requested City financing:
A minimum 15% of the residential units must be affordable for a minimum of 20 years, or the
term of the developer's agreement, whichever is longer. It should be noted that only the gap
between affordable units required through economic incentives and those otherwise
required by code (for example, the required 10% in Riverfront Crossings) will be considered
for City financing.
For rental housing, dwelling units shall be targeted to households at a maximum of 60%
Area Median Income (AMI). The City may negotiate dwelling units being designated for
households at a lower AMI.
For owner -occupied housing, dwelling units should be targeted to households at a maximum
of 110%AMI.
The City may negotiate a fee -in -lieu of on -site affordable housing with the fee to be used for
affordable housing purposes (for example, grants/loans for construction of affordable
housing, down payment assistance for income -qualified households, etc.). Fee -in -lieu of
negotiations currently allow the flexibility for providing affordable housing units off -site; off -
site provision is something Council may consider addressing more explicitly.
Policy Decision point:
a) Determine any refinements to above policy such as flexibility in the location of where
affordable units required for a project may be alternatively located.
EDC 4.14.17 packet
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April 12, 2017
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4. Social Justice
Wage The
In November of 2015, Council adopted a resolution aimed at ensuring the City will not contract
with any person or entity who has participated in Wage Theft by violation of the Iowa Wage
Payment Collection law, the Iowa Minimum Wage Act, the Federal Fair Labor Standards Act or
any comparable state statute or local ordinance, which governs the payment of wages.
Contractors in TIF building projects
Representatives of organized labor have submitted four recommendations for changes to the
City's economic development policies. The recommendations address organized labor's
concerns regarding contractors and subcontractors who use leased employees, sometimes
known as independent contractors. The concern is that an independent contractor can operate
essentially as an employee without the protection and benefits afforded to employees.
The labor representative made four recommendations for any project involving TIF. Staff
understands the goals of these recommendations, and believes to some degree the City's
economic development policies can help meet these objectives. However, there are significant
enforcement challenges and in some cases existing enforcement mechanisms better suited to
meet these goals. The four recommendations with staff commentary are listed below.
The requirement that all contractors and subcontractors be in compliance with all tax
obligations (workmen's comp, payroll, corporate, etc.);
Staff comment: Annual rebate certifications required by the City could also require a
statement from developers that to the best of their knowledge, all tax obligations have
been met. However, existing state and federal enforcement mechanisms are more
appropriate, as there may be cases in which there is a dispute as to whether obligations
have been met.
ii. That there be no use of leased employees (sometimes known as independent
contractors);
Staff comment: Monitoring of this requirement would be extremely challenging, and the
goal of this recommendation could be partially met with the inclusion of items iii and iv
below.
iii. That all contractors be in compliance with registration/licensing requirements at the Iowa
Workforce Development's Iowa Contractor Registration; and
iv. All subcontractors are disclosed.
Staff comment on recommendations iii and iv: Not all contractors and subcontractors will
be known by the developer at the time of the development agreement. A policy could
EDC 4.14.17 packet
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April 12, 2017
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include that the City, at its sole discretion, may request disclosure during the
construction process. Violations of State registration and licensing requirements are
more appropriately enforced by the State.
Policy Decision point:
a) Determine whether to adopt any of the recommendations above.
5. Other requirements
When certain projects are presented that align with other stated City goals and priorities, related
standards apply. Below are four for your consideration.
1) Quality of jobs created and/or maintained. An EDC member asked for clarification on the
definition of high quality jobs. The City has required that for a project to be awarded
incentives based solely on jobs, the jobs must meet the same quality standards as those
used by the State of Iowa High Quality Jobs Program. Each year, the State updates its
Average Wage and Laborshed Area data. Traditionally, the City has also required that most
jobs to be created meet or exceed 120% of the average, which for FY17 is $24.17 per hour.
This threshold could be adjusted down to the average or to any other point the Council feels
is appropriate.
2) Class A office space. Historically, the City has required that new office space or office space
in an old building on first floor or above be built or renovated to BOMA (Building Owners and
Managers Association International) Class A standards (see below for definitions):
Class A
Most prestigious buildings competing for premier office users with rents above average
for the area. Buildings have high quality standard finishes, state of the art systems,
exceptional accessibility and a definite market presence.
Class B
Buildings competing for a wide range of users with rents in the average range for the
area. Building finishes are fair to good for the area. Building finishes are fair to good for
the area and systems are adequate, but the building does not compete with Class A at
the same price.
Class C
Buildings competing for tenants requiring functional space at rents below the average for
the area.
3) Hotels. The City views hotels positively because of the visitor population they attract and the
hotel motel tax they generate. Visitors spend money and their economic impact is
EDC 4.14.17 packet
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April 12, 2017
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significant. The 7% hotel tax on every room -night sold is also a boon to the community,
adding up to more than $1 million per year in Iowa City.
4) Community engagement. Iowa City values the tangible aspects of new buildings, new jobs,
new office space, historic rehabilitation, etc., There may be another measure to consider
too: the level of community engagement of the entity requesting TIF. Exemptions may
include a company offering a job training program or willingness to improve and maintain a
public space. You may want to consider stating this value in an introductory paragraph
about TIF policy.
5) Public Improvements. You may want to consider a statement in the policy as it relates to the
use of TIF for Public Improvements. TIF revenues can be used to forward the goal of
ensuring a vibrant and walkable core. Stating this in the TIF policy reinforces the link
between public improvements and economic development with projects such as the
pedestrian mall renovation and/or streetscape improvements. Likewise, catalyst projects,
such as the Riverfront Crossings Park that will drive the private redevelopment opportunities
in the neighborhood would be another means to further economic development activity in
the Riverfront Crossings Area. The public improvements category could also encompass
the Arts, a significant component of place making and arguably, an economic development
catalyst.
Policy Decision points:
a) Determine whether to adopt a wage threshold for incentives based on jobs alone.
b) Determine whether to specify that any office space in buildings receiving
incentives meet BOMA Class A office standards.
c) Determine if we want to consider prioritizing hotels, assuming a positive market
study showing need.
d) Determine whether to state community engagement is important to prospective
TIF recipients.
e) Determine whether to make a policy statement about the use of TIF for public
improvements serving as economic development catalysts.
6. TIF Mechanics
1) Rebate vs. upfront TIF. The EDC has previously stated a preference to grant TIF rebates.
The reason for this simple: it puts the majority of the risk on the developer. The project has
to be successfully built, meet taxable valuation requirements and pay property taxes in order
to receive the first rebate. Conversely, if the City grants TIF up front, the funds are spent and
there is no guarantee that the project will be built and pay taxes, generating the TIF to repay
the City's up front financing. As a safeguard against the possibility that TIF would not be
generated from a project granted upfront financing, the City has used Minimum Assessment
agreements to ensure that property taxes from developers' other property holdings will be
used to repay the City when upfront TIF is granted.
EDC 4.14.17 packet
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April 12, 2017
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At the Developer roundtable, a concern was raised that without upfront TIF, more significant
projects will not happen because they will not be able to attract the necessary financing.
This, in turn, will feed into the diversity problem noted in the building height discussion
above. There was discussion that perhaps the size and scope of projects could determine
eligibility for upfront TIF, but there was no consensus on what size or scope to merit upfront
financing might be. It may be appropriate to consider additional public benefit for any upfront
TIF.
2) Developer Equity. The EDC has historically required that Developer Equity be at least equal
to the TIF, ensuring that the developer has as much `skin in the game' as they are asking
from the City. Developer equity does not include project debt. This has proven to work well
and you may wish to consider keeping the policy going forward.
3) Length of TIF term. The length of a TIF term, whether in the form of rebates to the developer
or repayments to the City for funding upfront incentives, has been determined by the need
demonstrated in the financial analysis. A policy you may wish to consider would be whether
to cap the length of time a TIF can be allowed or remain flexible, depending on the project.
Policy Decision points:
b) State whether rebates or upfront are preferred or not and under what conditions,
if any, upfront TIF may be granted.
c) State whether Developer Equity should be equal to the gap filled by TIF.
d) Determine caps, if any on term length for TIF.
We will discuss these policy decision points at your meeting on March 23. If you need any
background information, please feel free to email or call me (wendy-ford(cDiowa-city.orq: 319-
356-5248).
EDC 4.14.17 packet
page 10
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CITY OF IOWA CITY
MEMORANDUM
Date: April 4, 2017
To: City Council Economic Development Committee (EDC)
From: Eleanor M. Dilkes, City Attorne0kAA —___'
Re: TIF: Up -front vs. Rebate
Several years ago, after a recommendation from the EDC, the city amended the TIF policies to
expressly state a strong preference for rebates. This was done because up -front TIF shifts
developer risk to the City. A rebate agreement eliminates a number of significant risk factors for
the City. With a rebate agreement, if the Development fails and the taxes aren't paid, there are
no taxes to rebate; if the ongoing obligations are not met, the City does not rebate the taxes.
With an upfront cash agreement the City assumes significant risks that are traditionally held by
the developer, including non -development, under -development, changes in valuation, changes
in the TIF formula, destruction of the project, and failure to meet obligations such as
employment targets or sustainability certifications. If the City incurs debt in order to provide the
money up front the City risks not receiving the taxes promised by the development and will not
have the non-payment of rebates as an enforcement tool. As with any contract it is far less risky
for the City to have the money in hand and disburse it when the condition is satisfied than it is to
provide the money before the conditions are satisfied and try to get it back when things go sour.
In this case the City would be obligated to use non -project revenue to pay back the debt that
was issued to support the project. While requiring a minimum assessment agreement with an
up -front TIF will assure that the property is taxed at a certain value, it does not guarantee that
the taxes will be paid.
Bond counsel has advised that when the City provides up -front funds it is acting as a bank and
should secure itself against the risks as a bank would. The easiest illustration of this is the
typical home mortgage. If I borrow $300,000 from the bank to buy a home I sign a Promissory
Note agreeing to pay that loan. That Note is my personal obligation and would not, alone, make
the bank whole if I did not make the payments. That's why the bank requires that I sign a
mortgage as security for my personal obligation. If I don'tican't make the payments, the bank
can foreclose the mortgage and take back the house in order to cover the debt.
With agreements for up -front TIF it is the security that poses the problem. For this reason, in
addition to expressing a preference for rebates, the current policy also states that security is
required for up front financing:
The use of TIF rebates shall be considered highly preferable to the alternative "cash
up -front" TIF............
...................For up front financing security is required
While the City can get a personal obligation and guaranty from the Developer to cover any
"shortfall" in taxes available to pay the debt, the city has not been successful in prior attempts to
obtain additional security such as an Urban Renewal Revenue Note whereby the City agrees to
contribute up -front proceeds from a Note that is purchased by a bank identified by the
EDC 4.14.17 packet
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April 4, 2017
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Developer and guaranteed solely by the TIF revenues received on the Project. Note that while
the City can sell revenue bonds, the financing costs are higher, and the TIF revenue from the
entire district secures those bonds, not just the ones for the Project for which the bond is issued.
Securing the bonds with proceeds from the entire district also may constrain the City's ability to
use such increments for other projects or from releasing the increments back to all the taxing
bodies including the City of Iowa City itself.
For these reasons, the Ahlers firm (the city's bond counsel) always recommends rebates if at all
possible. They have estimated that Development Agreements that include only up -front grants
are somewhere in the neighborhood of 5% of all Agreements they assist clients in negotiating.
Bob Josten of the Dorsey and Whitney firm also provided a 5% estimate to Wendy Ford. While
these are estimates, these two firms likely provide a good amount of the representation needed
by cities and counties in connection with such matters. Therefore, 5% is likely a fairly good
estimate of the frequency of up -front TIFs in Iowa. I understand that the most likely scenario for
a large up -front grant is when the Developer simply won'ttcan't do the project without up -front
money and it is a project that the City really wants to see happen. The other type of up -front
arrangement Ahlers sees is when the Developer is looking for a relatively small up -front grant.
In these cases, the city typically has the money readily available and thinks the project provides
a desirable public benefit, and it appears to be a relatively low risk that the City is willing to
assume. Iowa City has used such grants, typically with non-TIF money, for projects such as
fagade grants.
The current policy is a prudent one that gives Council the flexibility to use an up -front TIF in
those instances when after an evaluation of all the facts and circumstances presented by a
particular project, including the available security and risk and public benefit, the Council
decides that up -front financing is necessary to make a project with the desired level of public
benefit a reality.
Please give me a call if you have questions.
Cc: Geoff Fruin, City Manager
Wendy Ford, Economic Development Coordinator
Dennis Bockenstedt, Finance Director
Sara Greenwood Hektoen, Assistant City Attorney
EDC 4.14.17 packet
page 12
11 South Gilbert
The Greater Iowa City Area P.O. Box 3396
Iowa City, Iowa 52244
HBA Phone: (319) 351-3
Fax: (319) 358-2442443
E-mail: Karyl@hbaofic.org
HOME BDILDERs AssDGATioN www.iowacityhomes.com
April 10, 2017
To: Iowa City Economic Development Committee; Iowa City, City Council
From: The Greater Iowa City Area Home Builders Association
Dear Committee and Council Members,
On behalf of the Greater Iowa City Area Home Builders Association (HBA), I would like to
comment on the Economic Development Committee's consideration of the City's Tax Increment
Financing (TIF), Policies.
While it is good to have a well-defined economic development policy on TIE, the HBA believes the
City's policy should articulate public policy goals and aspirations, rather than memorialized
requirements. These public goals should include several key considerations that are also important to
our HBA members: affordable workforce housing; functionality and use (such as Class A office
space); community amenities; degree of sustainability (LEED Silver, Gold or Platinum); and
preference for the mechanics of the TIF requested.
Ultimately, each of these public policy considerations are likely to add expense to any project.
However, because TIE is really gap financing, the City should retain flexibility to approve projects
that achieve many, but perhaps not all, aspirational goals. A point system that credits public policy
goals is a better methodology for implementing TIE than instituting rigid TIE requirements. Projects
that meet a greater number of stated outcomes should receive a greater degree of TIF assistance and
vice -versa. In any event, it is shortsighted for the City to require certain defined criteria (such as
LEED Gold) which may discourage many development opportunities. Rather, the City should retain
flexibility to approve projects on a case by case basis based on the likely public outcomes and the
City's commitment toward investment.
Thank you for your time and attention to this matter. Please let me know if you would like further
input from our organization
Karyl Bohnsack
Executive Officer
Greater Iowa City Area Home Builders Association
Affiliated with National Association o(Home Builders & Home Builders Association of Iowa
EDC 4.14.17 packet
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