MINUTES

HOUSING DEVELOPMENT STUDY COMMITTEE

October 4, 1995
First Meeting for 1995

MEMBERS PRESENT

• Senator Mike Gronstal, Co-chairperson
• Representative Libby Jacobs, Co-chairperson
• Senator Allen Borlaug
• Senator Steven Hansen
• Senator Patty Judge
• Senator Mary Lundby
• Senator Gene Maddox
• Senator Albert Sorensen
• Senator Tom Vilsack
• Representative Mike Cataldo
• Representative Larry Disney
• Representative Chuck Gipp
• Representative Pam Jochum
• Representative Brent Siegrist
• Representative Todd Taylor
• Representative Russell Teig

MEETING IN BRIEF

Minutes prepared by Ed Cook, Legal Counsel
Organizational staffing by Mike Kuehn, Legal Counsel

1. Procedural Business.
2. State Programs.
3. Housing Summit.
4. Construction Panel.
5. Tax-Increment Financing - Bond Counsel Perspective.
6. Federal Housing Issues.
7. Realtors Perspective.
8. Lenders Perspective.
9. Developers Perspective.
10. Written Materials Filed with the Legislative Service Bureau.

COMMITTEE BUSINESS

1. Procedural Business.

Call to Order. The first meeting of the Housing Development Study Committee was called to order by Temporary Co-chairperson Senator Michael Gronstal at 10:12 a.m., Wednesday, October 4, 1995, in Room 22, State Capitol, Des Moines, Iowa.

Preliminary Business. Upon motion and unanimous vote, Senator Michael Gronstal and Representative Libby Jacobs were elected Co-chairs of the Committee. The proposed rules were also adopted by the Committee.

Opening Remarks. Co-chairperson Gronstal indicated that housing development is a significant economic development issue and that the legislature needs to respond. Co-chairperson Jacobs indicated that housing is a major issue, especially on the local level, and that the Committee may need to explore some type of enabling legislation to empower local communities.

Next meeting. The Committee set November 9, 1995, as the date for the second meeting of the Committee.

Adjournment. The Committee adjourned at 4:32 p.m.

2. State Programs.

Mr. Ted Chapler, Executive Director of the Iowa Finance Authority, and Mr. David Lyons, Director of the Iowa Department of Economic Development.

• a. HART. The Housing Application Review Team (HART) is a new program for applying for state housing assistance. The team, including the Iowa Finance Authority, the Department of Economic Development, and relevant federal agencies, is designed to streamline the process for applications for housing assistance.
• b. Housing Community Visits. Mr. Lyons stated that he had visited 36 different communities who all listed inadequate housing as a major impediment to local economic development. The following comments concerning housing were relayed to Mr. Lyons during the visits:
  • (1) Smaller communities are impeded by lack of capital for housing infrastructure.
  • (2) Tax-increment financing (TIF) is too restrictive given current low and moderate income housing requirements; previous authorizing language for TIF was more favorable for housing development.
  • (3) Housing shortages exist in all price ranges.
  • (4) Rural areas are suffering from a lack of skilled building trades people.
  • (5) Smaller communities need the capacity to develop viable plans and housing alternatives.

In summing up, Mr. Lyons noted that one size does not fit all when it comes to housing options but that communities are looking for a "toolbox" of options for addressing their individual housing concerns.

• c. Department of Economic Development and Iowa Finance Authority Recommendations for State Action.
  • (1) Extend access to real estate improvement districts to all counties. Currently the program is only available to a few counties. This restriction has raised some concern by bond counsel over the constitutionality of bonds issued by these districts.
  • (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. One possibility is to set the percentage of low and moderate income housing required in a TIF district at the same percentage level of low and moderate income persons in the county.
  • (3) Assign $1.2 million of real estate transfer tax receipts, or money from some other source, to the HOME program in order to meet half of the 25 percent match required to leverage $10 million in federal funds. Currently, these tax receipts go into the general fund. One possible problem with earmarking these funds on a county-by-county basis is that some counties have so few real estate transactions that the fund would never amount to enough to leverage federal funds in that county.
  • (4) Increase education and capacity building.
  • (5) Encourage the development of construction trades programs through Iowa Department of Economic Development workforce and school to work programs.
• d. Recommendations Beyond State Responsibilities.
  • Support continuation of federal housing tax credits. Mr. Chapler indicated that these credits have resulted in the construction of 10,000 units over the last six years.
  • Encourage local flexibility on building codes.

Mr. Lyons indicated that the need for low and moderate income housing in the state is about $3 billion and that although the recommendations will not solve the entire problem, they are a good start in addressing this need.

3. Housing Summit.

Mr. Tom Hannafan, Mayor of Council Bluffs, and Mr. Glen Jesse, Jasper County Supervisor, Co-chairpersons of the Housing Summit.

Recommendations.

• (1) Flexibility needs to be built into any program to allow local communities to respond to the needs in their community.
• (2) Modify the requirements for low and moderate income housing in regards to tax-increment financing, similar to the recommendation made by the Department of Economic Development and Iowa Finance Authority, to permit greater use of TIF for housing.
• (3) Permit easier and earlier acquisition of derelict housing by cities. In addition, building codes need to be more flexible since the current complexity of the codes can significantly increase the costs of rehabilitating housing.
• (4) Seek a $10 million state appropriation to the Iowa Finance Authority to make up for potential shortfalls in federal funding of housing programs.
• (5) Extend access to Real Estate Improvement Districts (REIDs).
• (6) Establish a local housing trust fund from real estate transfer taxes.
• (7)Encourage the development of building trades programs to increase the pool of building trades persons in smaller counties.

Discussion.

• Mr. Hannafan indicated that the League of Cities board has approved the recommendations of the Summit and will seek approval from the organization later. Mr. Jesse indicated that the Iowa State Association of Counties agrees with most of the recommendations but still would prefer limiting the use of TIF to industrial development and not for housing. Mr. Jesse indicated that he could agree with the TIF recommendations if the affected county, local governmental unit, and school district all have some input in the decision to establish a TIF district.
• As to why private development has not taken up the slack in creating housing, both Mr. Hannafan and Mr. Jesse noted that the cost of lot development is high and this dictates that only more expensive homes are feasible for developers. In addition, taxation on lots becomes immediately payable further increasing the cost and risk to developers. Mr. Jesse indicated his hope that the use of real estate improvement districts might lower lot development costs.

4. Construction Panel.

Manufactured Housing. Mr. Joe Kelly, Iowa Manufactured Housing Association.

Mr. Kelly first noted that a manufactured home is considered a house built to the federal building code while a modular home is considered a home built to state and local building codes. He indicated that about 25 percent of new construction is manufactured housing and that the industry is uniquely situated to provide the kind of affordable housing needed in rural Iowa. Although these homes are gaining acceptance, many people still view manufactured housing unfavorably, making it difficult for developers to gain local approval to construct manufactured homes. In addition, the wide variety of building codes in Iowa makes it difficult to keep lot costs down for developers who might use manufactured homes. He recommended that requirements be placed on real estate improvement districts not to discriminate against manufactured homes and that affordable housing be a part of all comprehensive land use plans.

Contractors. Mr. Jim Obradovich, Assistant Director, National Electrical Contractors Association, Iowa Chapter.

Mr. Obradovich indicated that the Association is trying to meet the needs for residential development. He then suggested that further development could be spurred in several ways:

• Adopt OSHA reform on the state level, including a refocus from enforcement of paperwork violations to assistance of contractors in compliance.
• Lower the cost of permits and speed up their issuance.
• Reduce taxes on the construction industry, particularly the sales tax on building materials used in affordable residential development.

Lumber Yard Owner. Mr. Doug Wapells, Soldier, Iowa, representing the Iowa Lumber Association.

Mr. Wapells indicated that development in his area is currently ahead of his ability to meet the demand. Still, he noted that most new homes in his area are more upscale and not affordable housing. He then indicated several barriers to small town and rural housing development:

• Access to capital for builders and homebuyers. He noted the reluctance of banks to make favorable loans for affordable housing despite their willingness to make car loans at a higher loan amount.
• City infrastructure, especially water and sewer hookups.
• Lot costs. In elaborating on this point, Mr. Wapells noted that lot and capitalization costs are the biggest percentage of housing costs, not building materials costs. He noted that the materials costs for a 1,100-square-foot home are about $15,000 without a foundation.

5. Tax-Increment Financing - Bond Counsel Perspective.

Mr. John McKinney, Ahlers, Cooney, Dorweiler, Haynie, Smith, and Allbee, P.C., and Mr. Robert Josten, Dorsey and Whitney.

Mr. Josten detailed the history of tax-increment financing. First, he noted that unlike tax abatement, where a local governmental unit abates all taxes for a period of time, tax-increment financing consists of a reallocation of property tax dollars to one unit of government for use on projects within the tax-increment financing district. He noted that TIF began to be used for housing as a result of legislation in 1985 allowing the use of TIF for economic development purposes and not limiting TIF to slum or blighted areas. As a result of this change, some cities began to use TIF to finance streets, sewers, and other necessary infrastructure for housing. In 1991, legislation was adopted limiting the use of TIF for housing to low and moderate income housing. Low and moderate income housing was only vaguely defined until 1995 when low and moderate income housing was redefined as 80 percent of the median family income in the county. As a result of these most recent changes, the use of TIF for housing, especially in smaller communities, has fallen significantly; Mr. McKinney indicated that his firm has not done any new TIF housing projects this year while Mr. Josten indicated that the number of projects for his firm has fallen from 50 last year to 10 this year. Mr. McKinney also noted that another problem with the low and moderate income requirement is that it tends to stratify the income levels in the community.

Mr. Josten indicated that a possible solution is to mandate that a certain percentage of funds be made available for low and moderate income housing in a TIF district. As to the suggestion that TIF districts be prevented from being used in more upscale projects, Mr. McKinney, whose firm did the Glen Oaks (West Des Moines) TIF district, indicated that the best check on inappropriate use of TIF is the local governmental unit. Another proposal to place a time restriction on TIF of 10 years was viewed as feasible by the bond counsel if the limitation was placed on projects within the district and not just on the district. Both attorneys noted that some TIF districts may begin a project well after the start of the district and that the 10-year period should run from the beginning of the project, not the district.

Mr. McKinney also discussed real estate improvement districts. He indicated that his law firm believes a portion of the legislation permitting these districts creates constitutional questions and that his firm is supporting corrective legislation. He stated that most of his clients, i.e., small towns, are not interested in getting into the housing business but are looking for tools to get private developers involved.

6. Federal Housing Issues.

Mr. Joe O'Hern, Secretary's Representative, and Mr. William McNarney, State Coordinator, United States Department of Housing and Urban Development.

HUD/Iowa Partnerships.

HUD contracts with the Iowa Department of Economic Development to administer several programs in the state, especially for smaller cities, such as Community Development Block Grants, the HOME program, the emergency shelter program, and HART. HUD is also involved with the Iowa Finance Authority, the Iowa Civil Rights Commission, and the Department of Human Services in dealing with various federal grants.

Administration Proposals.

Although Congressional approval is not likely for the entirety of these proposals, the current HUD administration is proposing several changes to the way HUD operates.

• Consolidation of about 60 grant-related programs to three: the Community Opportunity Fund, the Affordable Housing Fund, and rental assistance.
• Changing the focus of federal public housing funding from a mix of people and place-based funding to an all people-based funding of programs.
• Transforming FHA to a government-owned corporation.

Federal Budget Issues.

Although HUD is likely to survive this year's budget process, HUD's funding will probably be reduced by about 20 percent, with the largest drop coming in federal public housing programs. Homeless assistance may also be significantly limited. HUD indicated that these reductions could result in up to a $100 million annual decrease in HUD-related economic activity in Iowa.

7. Realtors Perspective.

Mr. Martin Lee, Executive Director, Iowa Association of Realtors.

Housing Concerns.

• a. The Development Costs of Subdivisions. Currently, developers have three years to sell lots after which the lots can be reassessed at full market value and taxed on this amount. This creates a disincentive for developers in rural areas since it often takes over three years to sell all the lots. A solution would be a phase-in of the full taxes owed by 15 percent a year after the initial three-year period.
• b. Unreasonable Regulation on Developers. Current regulations and fees assessed for housing developments need to be reduced. For example, requirements to set aside a portion of the development for parks can significantly reduce the profit margin for developers.
• c. Revenue Transfer Tax. Realtors believe that 100 percent of the tax proceeds should go to the Iowa Finance Authority.
• d. Lead Abatement. Proposals to increase governmental regulations on this will likely further deter future rural housing projects.

8. Lenders Perspective.

Mr. Jeff Plagge, President/CEO of First National Bank, Waverly, Iowa.

Problem Areas in Iowa Housing.

• (1)Aging housing stock.
• (2)Lack of low and moderate income housing.
• (3)Lack of good rental housing.
• (4)Cost of new development.
• (5)Lack of small town developers.
• (6)Elderly housing.
• (7)Difficulty in smaller communities to access housing programs and the secondary market, due, in part, to the difficulty in establishing an appraised value for housing in small towns.

Solutions.

• Lenders indicate the need for public-private partnerships and flexibility in housing programs, since one size does not fit all.

9. Developers Perspective.

Mr. Robert P. Burns, Architect, Burns & Burns Architects and Developers.

Mr. Burns discussed two affordable rental housing projects he was developing in North Liberty and Ida Grove, providing the Committee with information on how the projects were funded. Federal budget cuts, however, will significantly imperil these types of developments unless the money can be provided from other sources. He indicated that state funds should be appropriated to provide the local match required for the federal HOME program. The advantages of having the state provide the local match is that it can set priorities and can require a local government match to receive priority for this funding.

10. Written Materials Filed with the Legislative Service Bureau.

• a. Iowa Department of Economic Development - "Iowa - The Smart State for Business" - packet of information
• b. Iowa Finance Authority
  • Program Activity Maps by Senate and House District
  • Pamphlets on First-time homebuyer mortgage loan program, Mortgage Credit Certificate Program, and Down payment/Closing cost grant program
• c. Report from the Housing Summit
• d. Iowa Manufactured Housing Association
  • Summary of Testimony
  • Special Report - Local Regulation of Manufactured Housing
  • Pamphlet from Manufactured Housing Institute
  • Consumer's Guide to Today's Manufactured Homes
• e. National Electrical Contractors Association
  • Summary of Testimony
  • "The Quality Connection - A Commitment to Excellence"
  • "The Quality Connection - A Case Study for the Electrical Construction Industry"
  • "What is NECA?"
• f. Robert Josten - "1994 Amendments to Urban Renewal Law"
• g. United States Department of Housing and Urban Development
  • Comments by William H. McNarney
  • HUD's Partnership with Iowa
  • Housing Cuts in Iowa
  • FY 1996 Senate Appropriations Bill Highlights
• h. Realtor Positions on Housing - Iowa Association of Realtors
• i. Robert Burns - Perspectives on Iowa's Housing Situation - Affordable Rental Housing

OTHER INFORMATION FOR THIS COMMITTEE:

| Charge | Members | Staff | Final Report |

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