Lately, there has been more action and excitement at Cook County Board meetings than at most football games. And on Tuesday, January 24 the meeting was no different, with a friendly crowd once again gathered for the opening of the public comment period.
The hot topic this week was a discussion of the financing package for the Cook County/Grand Marais EDA Lutsen housing project.
In a nutshell, the EDA has teamed up with One Roof Housing to build a 16-unit housing project in Lutsen near the Arrowhead Electric building on 7 acres of land. On Tuesday One Roof and EDA came before the county board and asked the board to approve issuing up to $1.6 million in tax abatement bonds as part of the financing for the $2,540,000 project.
If the deal works as planned, the county will sell bonds with the proceeds of those bonds loaned to One Roof to use for construction. Cliff Knettel, deputy director of One Roof, said he had been in contact with Dynamic Homes about building the housing units.
One Roof will use rent income from the housing to repay the bonds, with annual payments on interest and principal, are estimated not to exceed $110,000. County fiscal counsel Bruce Kimmel of Ehlers & Associates estimated that in year one of the project, net rent collections after expenses would equal 110 percent of the amount required for bond repayment. Because rents will rise while bond payments won’t, Kimmel estimates that by the last year of the bond payments, year 20, and rents would increase to 170 percent of the bond payment.
If rents fail for some reason to cover the annual bond payment, the shortfall must be made up by One Roof, which will pledge its “full faith and credit” toward retirement of the bonds. One Roof is worth approximately $6 million and has $400,000 on hand to cover shortfalls, so its “full faith and credit” is several times more than enough to cover $1.6 million in bonds.
Should One Roof default on bond payments, the rental units would revert to county ownership. At that time the county would have the option of selling the housing or hiring a rental manager and keep the project going.
The first three speakers, Cook County Chamber of Commerce Director Jim Boyd, Yusef Forest, the Member Services director at Arrowhead Electric, and Rita Plourde, director of Sawtooth Mountain Clinic, all spoke on behalf of the EDA’s plan to build workforce housing in Lutsen. Plourde noted that in her long tenure as director of Sawtooth Mountain Clinic, she has had to help doctors, nurses and other new staff find housing in the area. And the task has often been difficult. Forest said as a new member of the community it was hard for him to find suitable housing for his family. Boyd used the analogy of the Hedstrom family, starting with Andrew Hedstrom who purchased a sawmill in Tofte more than 100 years ago and moved it to Maple Hill where the business (not the original mill) still operates today. That was a risk, noted Boyd, who then told about the Hedstrom involvement in securing broadband for the county. Another risk that has paid dividends, he said. Then Boyd talked about Howard Hedstrom, Andrew’s grandson, who is the president of the EDA, and Howard’s involvement in the Lutsen Housing project. “This is the risk we must take on to build our community,” said Boyd.
But several people spoke in opposition to the county selling abatement bonds for workforce housing. The 16 units will consist of eight one-bedroom apartments and eight two-bedroom apartments. Many cited the cost to rent one room apartments at $850 per month, or a two bedroom apartment at $1050 per month, expressing distrust that most workers the housing units were built for would not be able to pay for them, and Pat Zankman of Hovland was one of them.
“If you applied for a mortgage of that amount you would be required to have an income of $40,000 to $50,000. Just who are the employees who make that kind of money?”
Lloyd Speck, Grand Marais, said that over the years Cook County taxpayers had given the EDA $3,300,000. “And what is the return to the taxpayers? A big goose egg.”
Speck cited county spending on the EDA business park and Superior National Golf Course. Out of 37 lots in the business park, only seven have been sold, said Speck. “Another big goose egg.”
As far as Superior National Golf Course, Speck said in October 2014 the county approved a $2,410,000 loan to be paid back over 15 years. “And now they are $4.9 million in debt. We are not the financial officers for the county. We have to decide what we really need and what we can have.”
Tom Crosby told commissioners he spends money at Lutsen ski hill and Lutsen resort and as a patron of those businesses, he wouldn’t mind if they raised their prices so those businesses could build affordable housing for their employees. But as a taxpayer, Crosby said he was against the county issuing tax abatement bonds and the risk it might pose to the county if they are sold for the housing project.
Pointing out the small estimated costs for utilities, Larry Gamer of Grand Marais, also noted that the rental for one bedroom had risen from $700 per month and the two bedroom units had gone up from $9,500 to $1,050, and he wondered aloud why, and when the new prices came into play. But commissioners aren’t allowed to speak during public comments, so Gamer didn’t receive an answer.
Greg Gentz took his two minutes at the mike, and two for his wife who wanted to speak but couldn’t attend the meeting, and stated, “Currently, taxpayers have subsidized this project in the amount of $140,000. This bond proposal will require a $106,000 ($121,000 approximately with the increase of up to $1.6 million) debt service payment per year that is projected to be covered by rental revenues from the 16 apartments. If the rental revenues do not cover this debt service, tax money would be used, which would increase the tax amount that every taxpayer would pay and which would ultimately increase any future tax levy. I find it unacceptable, as many do, that taxpayers are shouldering any risk from this private venture. (During the meeting, it was stated that One Roof Housing would be required to pay any debt service shortage due to lack of rental revenue before taxpayers, but like the business park failing, so could the Lutsen Project along with One Roof Housing who is responsible for multiple other projects also, not just our project. Their buffer of protection does very little to alleviate my concerns of risk to taxpayers.)
“If there is a question as to which entities are most likely to benefit from this housing project, I believe there are articulable facts to answer that question. I learned that private businesses around this housing project sent letters of commitment to cover a certain unknown amount of the rental revenue to DEED, one of the grant organizations providing a grant for the project, to satisfy DEED’s requirements. I have asked for copies of these letters. As of the January 17 EDA meeting, the EDA did not know if these letters of commitment were legally binding or to what percentage of the rental revenue they guaranteed. These businesses made this commitment for one year, per the EDA. I do not argue the importance of these businesses to our community or the need for rental units, which in this case will cost $850 for a 576-squarefoot one bedroom or $1050 for an 864-square-foot two bedrooms. I do argue that Cook County taxpayers should be protected from risk by this venture by those entities that will most benefit from these types of developments. (Regardless of the buffer of One Roof Housing being first-in-line to pay a rental revenue shortage.)
“There is a way that this bond could be funded and taxpayers would be protected from being on the hook for the $106,000 (or $121,000) a year debt service if rental revenue ever fell short. First, identify the entities that will be benefiting from this development and then require them to enter into a legally binding agreement with Cook County. The agreement would require something similar to the following: these entities would cover the entirety of the rental revenues (or some significant percentage) equaling $106,000 (or $121,000) for the life of the bond to cover the yearly debt service of the bond. An agreement of this type would protect the taxpayer from the risk of ever paying the bond’s debt service. Anyone that I have spoken to that is in support of this project tells me that there is little to no risk and that this project will certainly be successful, so logically there should be little argument from these entities that they would not be willing to shoulder this minimal risk in order to get the low-cost bond rate that the county can leverage.”
Jim Vannet of Hovland used the YMCA as an example of what could happen with the Lutsen housing project.
“A few years ago, the commissioners, at that time, decided to build the YMCA without a valid feasibility study to guide their decisions. Surprisingly, the past commissioners before they thought about a similar structure did a feasibility study and found that the project was unfeasible. Knowing this, the commissioners decided to go ahead with the YMCA project. Commissioners decided to write the management agreement stating that the county was obligated to pay for all overages (without a cap) concerning the YMCA. It appears that the commissioners went into the YMCA project knowing that it couldn’t stand alone without added tax dollars. The management agreement states that the YMCA must provide monthly financial reports for the budget.
“Why hasn’t the board stopped this hemorrhaging of tax dollars if they get monthly budget reports? Because of this overage clause in the contract, Cook County taxpayers have had to pay approximately $320,000 for the years of 2014 and 2015. In 2014, the year’s overage would have meant that 2.63 percent of that year’s tax levy was needed just to pay for the YMCA mismanagement! 2016 overages are up for grabs. The board of commissioners stated that there would be no added tax dollars needed for the YMCA
“To foresee the future, you must look to mistakes of the past. I have not heard a mention of or seen a detailed feasibility study written for the Lutsen housing project. Let those few businesses benefitting from the housing secure the project financing instead of the taxpayers. If there is a feasibility study, please share it with the taxpayers who will eventually get stuck with the bill.” Commissioners vote to approve public hearing
When the public comments were done commissioners reviewed the proposed housing finance proposal materials for the EDA Lutsen housing project, and approved a resolution calling for a Public Hearing on a Proposed Tax Abatement and Approving the form of Notice of the Public Hearing.
The total estimated amount of the abatement is $1,600,000.
Any person wishing to be heard on the proposed tax abatement will be heard orally or in writing at the public hearing which will be held on Tuesday, February 28, 2017, at 5 p.m. at the Cook County commissioners’ room.
According to the EDA, “Affordable workforce housing has long been a deterrent to attracting and retaining employees for business within the county. Based on an analysis of the Authority, workforce housing emerged as the number one economic issue facing Cook County and based on a study by Northspan Group of Duluth, and Cook County needs to add 350 to 400 housing units by 2020. The project is the first step in addressing this economic development need in the county. The county expects the benefits of the proposed abatement are not less than the costs of the abatement. The public benefits that the county expects to result from the abatement will be more affordable workforce housing within the county.”
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