Last night an apartment developer lost a bid to develop some apartments near downtown Rowlett. I spoke against the project. I am generally pro-developer and I find no pride in aiding in the defeat of this proposal. I am not against apartments, if properly managed. I am certainly not against low to moderate income families. In fact, I'm trying to work on some development and financing vehicles to provide really good housing for these Rowlett citizens.
I met with two of the members of the development team for about 30 minutes last night. We met before the project was presented to City Council. I actually liked the developer. I wish I could have supported their project. Even tho the developer and Marc Kurbansade, Director of Development Services, clarified some math I referenced, I still could not support the project for the following reasons.
Agreement with Dallas Housing Authority.
The developer had proposed entering into an agreement with the Dallas Housing Authority seeking additional financial equity for the project. This agreement would have allowed DHA to place tenants in 60 units of the 203 unit project. These tenants could have come from anywhere in Dallas County. My position was that I didn't mind helping low and medium income families in Rowlett, but I thought Dallas should take care of their own. You will see why when I discuss the taxing situation under this program. A new term I learned last night was "Walker Vouchers." It was pointed out that they were not Section 8, but I would have to say, to me they are very similar. There is nothing wrong with Section 8 when used sparingly in various locations. If too many are placed in close proximity, the apartment project or the housing neighborhood will become "tagged" as a Section 8 project. That's probably unfair, but that's how it works. To combat this, I think City Council should take steps to study Rowlett's needs for this income group and devise a plan to address it. I want to help Rowlett's people........not Dallas' people. The developer stated that his experience suggested that overwhelmingly, the tenants came from the local municipality. I have asked for evidence.
The taxing "quirk."
I am not an expert in government financed projects. Nearly all my financing experience was in the private financing world. I am aware of the Texas statues regarding appraisals for taxing purposes. Stated simply, the statues state that all property is taxed at market value mutiplied by the local tax rate. The only exception was agricultural land that rested in developing areas. In that case "roll back" taxes were accrued until the property sold, then someone had to pay the back taxes. I knew of no other exemptions.
When I saw that the Blue Line Lofts project had presented a value of $7,105,000 to calculate the amount of tax cost, I knew that number was wrong; at least in the private sector. This project would have cost at least $20 million. This would result in a tax bill of 1/3 of the percentage a taxpayer was paying for their homes. That didn't seem fair. It will become more apparent below. I was informed by the developer and Marc Kurbansade that these projects enjoyed some kind of special and favored disposition on establishing value. Their "appraisal" of tax values allows them to use "comps" of other undervalued projects in neighboring cities. If the State of Texas allows this, then my argument is with the state, not the developer. I have asked for evidence.
In the real estate appraisal business, there are only three ways to approach a Market Value appraisal: 1. Cost approach, 2. Comparable properties, 3. Income approach. In proposed construction, the cost approach is the preferred formula, altho the other two methods are considered. If the income approach of appraising the property doesn't support the cost of building the project, it won't be built. That's good common sense.
In this type of government financing, nothing makes economic sense. I was shown comparable projects by the developer last night in which towns around us have used that same discounted value to establish tax load. I don't want to get off in the weeds here. It's a lot more complicated than I can get into here. However, here is the end result for the Rowlett taxpayer. Remember.....Dallas Housing Authority is a tax free enity, therefore this is no "tax income." Utilizing the lower value proposed for the project, then applying the current tax rate, and then develop a "payment plan" to offset the absence of taxes, it would result in Rowlett receiving $55K a year in revenue from the project. This is about 1/3 of the amount that would be due if the same formula was applied to the project as applied to your house.
Now, think further. Rowlett will be responsible for fire and police protection. Rowlett will also be responsible for the maintenance of the the "wet" utilities (water, sanitary sewer, and storm sewer) and the roadways leading to this 203 unit project. If there is one fire call a year in this project, the bite into the $55K would be severe, if not totally spent. Add to fire protection, police protection and patrol, utility work and patching pavement, it is reasonable to assume that annual costs to Rowlett will exceed the $55K revenue. Anything over the $55K revenue, the Rowlett taxpayers pay for. Stated another way, Rowlett taxpayers will be subsdizing the project..........and many tenants may not even be from Rowlett. Therefore, Rowlett gets no tax revenue from the project. The "fee" paid by the developer is only $55K per year, and anything over that is paid by Rowlett taxpayers.
We need a better mousetrap. It's my opinion that the City of Rowlett should look into a financing vehicle called "Housing Finance Corporations." I have the regulations in my possession, now. I am beginning to study them. Marc Kurbansade is familiar with them. Brian Funderbunk, City Manager, is familiar with them. So far, it's my understanding they could replace the need for Dallas Housing Authority, and give Rowlett more control over their own destiny. I like that.
The availability of a "Housing Finance Corporation" may not solve the tax problem, but it would more nearly assure that our tax dollars are going out to help Rowlett residents, and I'm okay with that.
As I stated above, I liked the developer. I wish we had a workable HFC to replace the DHA. We would still have to do some numbers crunching on the taxing situation. If we do many of these DHA deals, the upward pressure on taxing home owner would increase. If these two issues were resolved, I would have to re-think my position.........but at the present time I remain unchanged.
I think the subject project, as presented, contain unacceptable risks for Rowlett home owners and tax payers. The two risks together are subsidizing a project that provides housing of not only Rowlett residents, but residents being moved in by a absentee manager. At the very least, these two issues should have been shared with the public. If this developer came back with a proposal to mitigate these two issues, I could be swayed.