City rejects developer request for TIF dollars

WASHINGTON — Members of the Washington City Council denied a request for TIF dollars from developers of the MSJ subdivision last week, after a tense back-and-forth between project management and city officials.

An old proposal would send the subdivision’s first $10,000 of Tax Increment Financing (TIF) revenue to the city for a bond payment, with the remaining dollars split 50/50 between the city and the company. Managers of the in-construction neighborhood requested a different arrangement, which would still send the city $10,000, but then send all TIF revenue to the developers until they received $370,000 or until 15 years passed, whichever came first.

In a memo to city council members, City Administrator Deanna McCusker said that would take until roughly 2037.

“It is unfortunate that supply prices have increased and ultimately increased this project, but I don’t think this responsibility should fall to the city to pick up,” the memo said. “Our costs were also impacted by the supply costs. We need TIF dollars for future housing projects.”

The municipality has already paid roughly $1 million for project-related expenses, borrowing $800,000 for infrastructure investments and spending $200,000 of its ARPA money on a sewer-boring project.

Developer Jeff Hazelett said the company needed the extra cash after problems with an engineering report put the development beyond a feasible budget. While a 50-50 revenue split could partially offset that loss, he said it wasn’t enough.

“You do a lot of work before you ever know for sure what it’s going to cost … we went out and worked for months with the city based upon those initial numbers,” Hazelett said. “We also got to a point where we had priced our lots and so-forth, and then lo and behold, the engineer misses his estimates by 38%. That’s a big number, it’s $370,000.”

Hazelett said the development company didn’t have the money for that, and that paying off a loan for the amount would total $480,000. He said the company had no alternative, and that absent extra TIF revenue, the development might fall through.

"We can discuss it in great lengths, but if we don’t have the ability to go and build houses, it won’t really make a lot of difference,“ he said. ”Because you won’t generate any taxes, and you won’t generate the dollars that are needed … if you add nearly a half-million dollars to this project, it doesn’t work.“

With 31 lots in the development selling at $45,000 apiece, the developer said he was hesitant about raising lot prices to make up for the difference. Eight lots have already been sold.

“You’re diminishing your chances of being able to get them sold in a timely fashion,” Hazelett said. “One of our biggest goals was to make it financially feasible for people to build and get excited, and we’ve done that. We’ve kept our prices low.”

The developer pitched his proposal as effectively cost-free for the city, since the requisite cash was not yet in-hand.

“TIF is generated from us going building some houses, and generating tax revenue,” Hazelett said. “This doesn’t come from the city, it doesn’t come out of the city pocket, it doesn’t come from the city coffer … this money can’t be earmarked for something else because it hasn’t even been generated.”

Hazelett said developers could have reworked the project as cost errors became clear, but claimed the city had reassured him of a solution as early as June or July. City Administrator Deanna McCusker disputed that, claiming she was first contacted Sept. 22.

In any case, the City Council was less than receptive, voting the proposal down 4-0. Council Member Elaine Moore said the lost TIF revenue would shut down future development projects that could otherwise use the money.

"I’m not comfortable with this,“ she said. ”I feel like we’re being the bank, so that, it bothers me. It’s hard understanding TIF and all of the pieces of this, but I just feel like we are bankrolling, and I don’t want to feel that way … we’re balancing the budget, we have wants, we have needs.“

Mayor Pro Tem Millie Youngquist said she didn’t understand why a 50-50 split was off the table.

“I just wish there was a way that we could share this amount, without the city taking all the brunt of it,” she said. “Apparently, that’s not possible.”

Comments: Kalen.McCain@southeastiowaunion.com