Decision needed by next Monday
The Greene County supervisors were asked at a special meeting Wednesday to do what the Jefferson city council didn’t do Tuesday evening – approve an application for a $1 million loan at 1 percent from the Iowa Finance Authority’s new Workforce Housing loan program. The funds would be used for the Water Tower rental housing project in the northwest quadrant of Jefferson.
The Workforce Housing loan program was officially announced Oct. 9. The deadline for applications is Nov. 2.
GCDC executive director Ken Paxton and banker Sid Jones, a member of the GCDC board, presented the same information Wednesday as they had Tuesday night. Also at the special supervisors’ meeting were Duane Jensen and his son Ben Jensen of JCorp, the developer of the Water Tower project.
For the first time at a public meeting, Duane Jensen explained how the project has come to financial uncertainty. According to him, he had a verbal agreement to partner with a local developer for the 44-unit project. JCorp secured a tax increment financing agreement from the city of Jefferson and Home State Bank had agreed to finance the project. However, the local developer backed out of the project two months ago, taking with him half the capital that had been planned on for the project.
The property had already been purchased and the city had already installed a new sewer line in anticipation of the project. Rather than abandoning it, Jensen decided to move forward and try to secure the needed financing with JCorp as a sole owner.
That became impossible when the appraised value of the completed project (based in large part on potential rental income) fell short of the cost of construction. Considering cash JCorp has to invest in the project and the amount of money a bank can lend for it, there is a $761,500 shortfall of available money.
Only cities and counties are eligible for the Workforce Housing loan program. Jones said JCorp had initially asked that of the $1 million, $625,000 would be as a grant and $375,000 would be as a loan. “IFA sees this program as a way to give cities or counties flexibility to provide grants without going into their cash reserves,” Jones said.
Jones told the supervisors that the Jefferson city council had not approved the application because it would have added $1 million to their debt load, regardless of the amount that would be paid back by JCorp. The city has a bonding capacity of $9.9 million and $5.28 million in debt. Adding another $1 million would have put the city’s debt at more than 60 percent of its total capacity, something the council was unwilling to do.
“I still think they believe in the project, but from a debt capacity standpoint, they became concerned,” Jones said. “The debt level was something they were having trouble getting around.”
Although the loan application is due next Monday, the loans won’t be awarded until February. Jones suggested that during those months there could be discussions with other public bodies about paying a portion of the debt. He named new jobs and increasing valuations at Wild Rose, Bauer Built and Scranton Manufacturing as bringing in new revenue. “Those tax dollars land at different spots. Should all the work fall on one public entity, or is there a way to share that? We also have a new entity that’s not really a public entity, and that’s Grow Greene County. There is going to be a sharing of revenue that comes out of there, and they’re very interested. They want to support it. I think there are new sources of money to help these processes. The public bodies need to get together in these discussions to not have it all fall on the county or on the city of Jefferson. There are ways to organize ourselves a little differently,” Jones said.
Jones said the added tax revenue of Phase I (two 8-plex units and one 4-plex) would be $29,500 a year, with total debt service of $50,000 a year. He suggested that the city of Jefferson could have changed the TIF agreement with JCorp to accommodate loan payments. If half the money were grant and half were loan, the city could cover the payment with the added revenue. He said there would be a new source of revenue that would exceed the debt service, having no net effect on taxpayers. “If the project isn’t built, you don’t have the $29,500 in new revenue and you don’t have the $25,000 debt to pay. We haven’t moved forward.
“This housing issue is not going to be solved easily. I really do believe that communities that figure out a way to be involved are going to be the ones that will benefit. The gap will get greater. The communities that figure it out will get bigger, and the ones that don’t will die…. The gap between successful communities in rural Iowa and rural America and those that don’t step up and do some of these things is going to get wider. I’d just as soon be on the top side of that,” Jones said.
Jones read from a housing needs assessment that was prepared specifically for the loan application. It was based on population, income, the number of vacant rental units and other factors. In summary, the assessment found “With a slight increase in job force, an aging population, the general population declining, the income levels increasing, there appears to be a demand for housing of this type. This project is the first of this kind in Jefferson and will benefit from the new appeal. The size of the project does not appear too large to absorb.”
Board chair John Muir said he is concerned about setting a precedent, that other developers will expect similar assistance. He noted that the reason the county is in a better position regarding existing indebtedness is because of decisions made by previous boards. Paxton repeated what he has said previously – that the first project will be the most challenging because of the problem with a lack of comparables in the appraisal, and that developers of future projects should have an easier time getting financing.
Supervisor Guy Richardson is the county’s ex officio on the GCDC board and is an active participant. He told the supervisors that GCDC is looking at taking on whatever portion of the loan is given to JCorp as a grant. “The grant portion probably is going to be taken on by somebody other than us,” he told the supervisors. “That’s part of the agreement that would be worked out during the next three months,” he added.
Supervisor Dawn Rudolph expressed frustration that they were being asked to make a decision in three days that the Jefferson city council had weeks to consider.
At the close of the meeting, Jensen said that when the local investor backed out, he followed through on the purchase agreement. “We probably would have been better off to renege on the purchase, but we decided to follow through and finish it. We own it, and we’re here, and it’s been a good run so far, up until last night. With full support, and if you believe half of what Ken (Paxton) says with his report, it’s not logical or practical not to figure out how to build houses.” He said he would gladly welcome a partner or investors into the project.
Jensen and JCorp staff completed the loan application naming the city of Jefferson as the borrower. Should the supervisors agree to the application, only a small amount of information would need to be changed.
The superivosrs will discuss the application at their Monday meeting. A decision will be needed that day in order to get the application filed with the Iowa Finance Authority before the deadline.
