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HOUSING DEVELOPMENT STUDY COMMITTEE

FINAL REPORT

January 1996

MEMBERS

AUTHORIZATION AND APPOINTMENT

The Housing Development Study Committee was established by the Legislative Council for the 1995 interim. The Committee was authorized two meeting days and subsequently was authorized a third meeting day. The Committee was charged with determining what, if any, changes should be made to Iowa's laws regarding housing development and making recommendations. The Committee was to contact persons representing the following groups for participation in the interim study: The Director of the Department of Economic Development and the Director of the Iowa Finance Authority, or their designees; a representative of the Iowa League of Cities; a representative of the Iowa State Association of Counties; a representative of an organization representing homebuilders; a person with experience in municipal bonding and knowledgeable about the legal requirements for issuing bonds; a person representing an organization which advocates for low and moderate income persons regarding housing; a person with experience in financing the development and purchase of housing; a representative of the Iowa Association of Regional Councils; and a representative of an organization representing real estate brokers. The Committee was also charged with consulting with the Department of Economic Development and the Iowa Finance Authority and coordinating the activities of the Committee with the Housing Summit, and with the Executive Branch.

1. Presentations.

a. October 4 Meeting. The following presentations were made to the Committee at its first meeting:
State Programs. Ted Chapler, Executive Director of the Iowa Finance Authority, and David Lyons, Director of the Iowa Department of Economic Development, provided an overview of the housing programs administered by their agencies, and made recommendations to the Committee, including expanding the availability of real estate improvement districts statewide (currently real estate improvement districts may be implemented in only six counties as part of a pilot project), making tax increment financing more available for housing by adding flexibility to the manner in which the low and moderate income housing requirement may be met, and providing an appropriation of $1.2 million to fund part of the match required by the federal HOME program.
Housing Summit. Tom Hannafan and Glen Jesse, co-chairpersons of the Housing Summit created pursuant to House File 577, reviewed the report and recommendations of the Summit and the process by which the Summit reached the recommendations. Recommendations of the Summit include expanding the use of tax increment financing for housing, appropriating $10 million to the Iowa Finance Authority to make up for shortfalls in federal funding of housing programs, and making it easier and faster for cities to acquire derelict housing.
Federal Housing Update. Joe O'Hern, representing the Secretary of Housing and Urban Development (HUD), and William McNarney, HUD State Coordinator for Iowa, discussed the Clinton administration and Congressional funding proposals for housing programs and the potential impacts on Iowa programs of the reductions in funding proposed by Congress. Currently, HUD is looking at an overall reduction in housing funding of about 20 percent. These reductions potentially could result in up to a $100 million annual decrease in HUD-related economic activity in Iowa.
Tax Increment Financing (TIF). John McKinney and Robert Josten, attorneys specializing in municipal financing, discussed the history of tax increment financing (TIF) in Iowa. They explained how recent amendments limiting, for housing, the use of TIF to housing for persons with family incomes under 80 percent of the area median income has significantly restricted the ability of communities, particularly smaller communities, to use TIF for housing purposes. They also discussed possible changes to chapter 403A, regarding municipal housing projects, to provide more flexibility for communities to meet the need for low and moderate income housing and the need for other kinds of housing projects.
Builders. A panel consisting of a manufactured housing representative, electrical contractor representative, and a lumber yard owner discussed housing issues from their perspective. Recommendations included prohibiting real estate improvement districts from discriminating against manufactured homes, requiring that affordable housing be a part of all comprehensive land use plans, and finding ways to reduce permitting costs and delays. It was also noted that capital access is a problem for both builders and buyers of homes and that the costs of developing lots often makes building a house in the $50,000 to $75,000 range unprofitable.
Developers. A panel representing housing financiers, developers, and realtors recommended redirecting real estate transfer tax proceeds, currently going to the state general fund, to the Iowa Finance Authority, and appropriating state funds to provide the local match required for the federal HOME program and to make up for lost federal funding. The Committee was also told that it should avoid a one-size-fits-all approach to solving Iowa's housing problems.
b. November 9 Meeting. The following presentations were made to the Committee at its second meeting on November 9:
Rural Economic and Community Development. Ellen King Huntoon, Acting State Director, Rural Economic and Community Development (RECD, formerly Farmers Home Administration) of the United States Department of Agriculture, spoke regarding the programs administered by RECD, and the potential impact of anticipated reductions in its budget from the budget for federal fiscal year 1995. The RECD programs are limited to communities under 20,000 in population and rural in character. The programs consist of single and multifamily housing assistance in the form of loans or grants aimed at low and moderate income families and the elderly. Iowa has the largest number of RECD multifamily projects in the country. Ms. Huntoon also discussed the implications for Iowa if federal funds are consolidated into block grants and the amount of funding reduced from past levels. Iowa could see a 30 to 40 percent decrease in available program funds and up to a 60 percent decrease in funding for rural infrastructure under the block grant proposals now before Congress.
Neighborhood Finance Corporation. Curt Heidt, Executive Director, Neighborhood Finance Corporation (NFC), discussed the role NFC plays in housing development. The NFC was founded in 1990 as a nonprofit mortgage banker and has loaned over $28 million and provided grants of over $4 million to designated neighborhoods in Des Moines. The NFC programs operate on a partnership philosophy, seeking citizen participation, economic diversity, maximum leverage of funds, and goals that create accountability. Mr. Heidt stressed the need for flexible sources of funds for housing development, for tools to encourage capital investment along the entire housing continuum, and for introducing some flexibility in local building codes.
Iowa Coalition for Housing and the Homeless. Loyd Ogle, Executive Director, Iowa Coalition for Housing and the Homeless, spoke regarding the need for Iowa to take a more active role in improving Iowa's response to homelessness and the lack of affordable housing in the state. Mr. Ogle recommended fully funding the emergency assistance program so that it operates on a year round basis, encouraging the formation of local or regional housing trust funds with proceeds from the real estate transfer tax, and endorsed the recommendation from the Housing Summit that the General Assembly appropriate an additional $10 million to the Iowa Finance Authority Housing Improvement Fund.
Impact of TIF on Schools. Dr. Veronica Slacker, Superintendent of Schools, and Ron Marr, Vice President of the School Board, Waukee, Iowa, explained the impact of tax increment financing (TIF) on the Waukee school district. While supporting the use of tax increment financing as a positive development tool for cities, Dr. Slacker recommended that school districts be involved, in more than a consulting capacity, in the planning and implementation of tax increment financing districts and that a limit be placed on the amount of a school district budget which may be diverted by tax increment financing. Mr. Marr stated that tax increment financing reduces a district's ability to plan for expansion and to avoid large changes in the property tax levy.
Quad-Cities Development Cluster. Robert Zelsdorf and Shelley Sheehy, representing the Davenport - Quad Cities Housing Cluster, expressed their support for an additional $10 million appropriation to the Iowa Finance Authority, the creation of local housing trust funds using real estate transfer tax proceeds, and maintaining the current low and moderate income requirement for tax increment financing for housing. Mr. Zelsdorf also provided an overview of the services currently provided by the Cluster and explained how creation of a local housing trust fund would provide upwards of $500,000 for housing projects by the Cluster.
Homebuilders Association of Iowa. Charles Wasker, General Counsel, Homebuilders Association of Iowa, stated that the Association has officially adopted the recommendations made to the Committee by the Department of Economic Development at the October 4, 1995, meeting. (See page 2 under the "State Programs" heading.) Mr. Wasker also recommended that the sales tax on housing building materials be eliminated, that proceeds from the real estate transfer tax be appropriated to the Iowa Finance Authority, that the state codes regarding housing be examined with an eye toward eliminating unnecessary requirements that increase the cost of housing without impacting on health and safety, and that multifamily housing not be assessed as commercial property.
Proposed Committee Recommendations. The Committee proposed the following recommendations made to the Committee be considered for discussion at the third meeting:
  1. Extend access to real estate improvement districts to all counties.
  2. Allow flexibility in using tax increment financing for housing development, assuring that each TIF district generates a benefit for low and moderate income housing.
  3. Make housing projects utilizing TIF nonrenewable and limit the life of a housing TIF project based on a cost/benefit analysis conducted by the local entities prior to implementation.
  4. Provide adequate funding to agencies to continue to assess the effectiveness of outreach efforts and increase technical assistance and education programs.
  5. Encourage the development of construction trades programs through IDED workforce development and school-to-work programs at community colleges and high schools.
  6. Support continuation of federal housing tax credits.
  7. Make the interest from public bonds for housing exempt from state income tax to improve the marketability.
  8. Consider appropriating $10 million to the Iowa Finance Authority to make up for federal housing program funding reductions.
  9. Assign $1.2 million of real estate transfer tax receipts, or funds from some other source, to the federal HOME program in order to meet half of the 25 percent match required by the program.
  10. Allow the proceeds from the real estate transfer tax to remain in the county in which the tax is collected if the county creates a housing trust fund. Five percent of the proceeds would continue to be appropriated to the Iowa Finance Authority.
  11. Divert real estate transfer tax proceeds from the General Fund of the State to housing development uses.
  12. Enable cities to acquire dilapidated vacant houses through nuisance abatement procedures.
  13. Allow counties flexibility to dispose of tax-delinquent houses, including the ability to give special consideration to prospective low and moderate income buyers.
  14. Review and modify state regulations on housing rehabilitation to allow local flexibility in areas other than safety.
  15. Make low-interest revolving loans available for rehabilitation to replace the current rehabilitation grant programs administered by the state.
  16. Prohibit discrimination against manufactured housing by real estate improvement districts.
  17. Reduce taxes applicable to the construction industry, particularly the sales tax on building materials used in affordable residential development.
  18. Change the manner by which property under development is taxed. Phase in property taxes 15 percent a year starting three years after the property is acquired for development.
  19. Do not increase governmental regulations in this area.
  20. Increase the percentage of property owners which must petition city council from 20 to 35 percent in order to force a vote of the city council on approving a low income housing project and reduce the supermajority approval requirement from 75 percent to 60 percent.

2. Recommendations.

At its third meeting on December 12, 1995, the Committee adopted the following recommendations (Recommendations a through e were adopted by the Committee in the form of proposed statutory revisions. These recommendations may be found in Attachment 1.):

3. Materials Distributed at Committee Meetings.

OTHER INFORMATION FOR THIS COMMITTEE:

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