MINUTES

HOUSING DEVELOPMENT STUDY COMMITTEE

November 9, 1995
Second of two meetings

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. Rural Economic and Community Development.
3. Neighborhood Finance Corporation.
4. Iowa Coalition for Housing and the Homeless.
5. Tax Increment Financing and Schools.
6. Quad-Cities Development Cluster.
7. Homebuilders Association of Iowa.
8. Committee discussion and Preliminary Recommendations.
9. Written Materials Filed With the Legislative Service Bureau.

COMMITTEE BUSINESS

1. Procedural Business.

Call to Order. The second meeting of the Housing Development Study Committee was called to order by Co-chairperson Representative Libby Jacobs at 9:40 a.m., Thursday, November 9, 1995, in Room 22, State Capitol, Des Moines, Iowa.

Minutes Approved. Upon motion and unanimous vote, the minutes for the October 4, 1995, meeting of the Committee were approved as distributed.

Next meeting. Subject to Legislative Council approval, the third meeting of the Committee was tentatively scheduled for December 12, 1995, starting at 1:00 p.m.

2. Rural Economic and Community Development.

Ms. Ellen King Huntoon, Acting State Director, Rural Economic and Community Development (RECD), United Stated Department of Agriculture (formerly Farmers Home Administration) made a presentation to the Study Committee.

• Important housing issues.
  • The housing stock in Iowa is 80 years old, especially in rural Iowa.
  • Inadequate affordable rental units are available for seniors and families.
  • Inadequate funding exists for rental units for moderate-income senior citizens.
• RECD programs.
  • RECD overview. RECD administers approximately $1.5 billion in housing loans in Iowa through 25 local offices. RECD programs are limited to communities under 20,000 population which are rural in character. The programs administered in Iowa are geared to single-family housing assistance and to multi-family housing assistance.
  • Single-family housing assistance. This assistance consists of both grant and loan guarantee programs. The section 504 program provides low-cost loans to home owners to rehabilitate their homes. The program also provides grants to persons 62 years of age or over to rehabilitate their homes. Other programs provide loans and grants to permit low and moderate income households to obtain single-family housing.
  • Multi-family housing assistance. Iowa currently has the largest number of multi-family projects in the country. Ms. Huntoon indicated that her department has worked with the Department of Economic Development and the Iowa Finance Authority to leverage federal money to build several multi-family projects in the state last year.
• Federal budget issues.

  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 the U.S. Congress. Ms. Huntoon indicated that the current funding system allows Iowa to access unused federal moneys from other states and that block grants to the states would eliminate Iowa's ability to access this pool of money.

3. Neighborhood Finance Corporation.

Mr. Curt Heidt, Executive Director, Neighborhood Finance Corporation, addressed the Study Committee on the following program.

• Introduction.
  • NFC was founded in 1990 as a nonprofit mortgage banker. To date, the NFC has loaned over $28 million and granted over $4 million in designated neighborhoods in Des Moines.
• Model for housing development.
  1. Citizen participation with grass root level solutions.
  2. Economic diversity.
  3. Partnership - the state should not be the only source of funds.
  4. Accountability.
  5. Flexible tools.
• Tools needed for effective housing development.
  • Funding. Flexible sources of funds that encourage capital investment along the entire housing continuum. Possible sources, as listed in the housing summit report, are tax increment financing with specific linkages to affordable housing set asides, increased funding to the Iowa Finance Authority, and housing trust funds as funded by the current real estate transfer tax. Mr. Heidt indicated that housing trust funds need to be community based in order to facilitate the type of local cooperation needed to provide adequate housing for all. Another possible funding tool would be some form of tax abatement for home improvements.
  • Procedural. Cities and counties need procedural tools to allow them to acquire public nuisance properties sooner so as to allow rehabilitation of the properties. Much of the lack of moderate income housing could be redressed if rehabilitation of homes could be made more effective. Some form of a request for proposals procedure that is tied to the rehabilitation of the home deemed a nuisance could be developed to prevent persons unable or unwilling to fix the property from acquiring the property.
  • Technical. Building codes need to be reviewed and made more flexible, especially as to homes in need of rehabilitation. Reform of the codes could result in a 30 percent reduction in the cost of rehabilitating homes. Mr. Heidt indicated that codes need to be formulated so as to provide safe and affordable housing; separate codes for new and rehabilitated housing could be a viable way to provide increased flexibility. Even though most building codes are developed on the local level, the state can provide some leadership by developing a model state code that encompasses some flexibility.

4. Iowa Coalition for Housing and the Homeless.

Mr. Loyd Ogle, Executive Director, Iowa Coalition for Housing and the Homeless, made the following comments and recommendations to the Study Committee.

• Concerns for the homeless.
  • Homelessness in Iowa has increased by over 13.5 percent in the last two years with a large majority of the increase involving children and single-parent families.
  • Federal funding in Iowa for the homeless will be significantly reduced over the next few years.
• Recommendations.
  • (1) Fully fund the emergency assistance program so that it operates year round.
  • (2) Encourage the formation of local housing trust funds with proceeds from the real estate transfer taxes. Mr. Ogle indicated that he supports the proposal to give the counties the trust funds. Poorer counties should be encouraged to pool these funds with other counties. Direct state aid could be given to the poorer counties to allow for maximum effective use of these trust funds.
  • (3) Support the Housing Summit proposal to appropriate an additional $10 million to the Iowa Finance Authority Housing Improvement Fund.
  • (4) Be careful when considering loosening the low and moderate income requirements for tax increment financing.

5. Tax Increment Financing and Schools.

Dr. Veronica Slacker, Superintendent of Schools, and Mr. Ron Marr, Vice President of the School Board, Waukee, Iowa, addressed the issue of tax increment financing and schools.

• School district budgeting concerns.
  • Growing school districts are increasingly having a difficult time in formulating budgets and in doing long-range planning based in part on the growing use of tax increment financing by cities, the loss of funding for students who enroll after the budget certification date, and changes caused by the residential and commercial valuation rollbacks.
• Tax increment financing.

  Tax increment financing can be a useful development tool for cities. However, their use can negatively impact school district budgets. To alleviate some of the concerns, the presenters suggested the following:

  • Establish a percentage limit on the amount of a school district budget that can be affected by tax increment financing districts.
  • Provide some certainty as to the length of the tax increment financing period by restricting the ability of cities to roll over these districts for new projects.
  • Provide the school district more than a mere consulting role when a tax increment financing district is established.

6. Quad-Cities Development Cluster.

• Introduction.

  The Davenport-Quad Cities Housing Cluster is a collaborative housing information and services coalition representing over 30 different agencies in the area. The Cluster, through its member agencies, provides a continuum of services for all persons in need of housing, shelter and supportive services.

• Recommendations.
  • (1) Support $10 million state appropriation to the Iowa Finance Authority to cover federal recessions and expand current programs, such as rehabilitation loans, prevention of homelessness, and homeless shelter operations grant program.
  • (2) Support establishment of a housing trust fund from real estate transfer tax proceeds with the funds kept locally. This fund could provide upwards of $500,000 for housing projects by the Cluster. The fund could provide the necessary financial leverage to ensure a collaborative approach within communities for housing projects, especially for low and moderate income housing.
  • (3) Support tax increment financing for housing but maintaining the low and moderate income set aside requirement.
  • (4) Support the use of nonprofit organizations to provide transitional housing. The market currently does not support this type of housing. Through a collaborative approach with the Riverboat Development Authority, which provides a funding source, the Cluster has been able to support several low and moderate income housing projects in the area.

7. Homebuilders Association of Iowa.

Mr. Charles Wasker, General Counsel, Homebuilders Association of Iowa, made the following recommendations on behalf of the Association.

• Recommendations.
  • (1) Endorse the recommendations made to the Committee by the Department of Economic Development.
  • (2) Support transfer of the real estate transfer tax receipts to the Iowa Finance Authority. Does not support transfer of the receipts to county based housing trust funds.
  • (3) Eliminate sales tax on housing building materials.
  • (4) Reexamine the state building codes regarding housing and eliminate unnecessary requirements that increase the cost of housing without impacting on health safety. Fifteen to 35 percent of the cost of a house is a result of unnecessary regulations.
  • (5) Reduce the radon program to an educational approach.
  • (6) Multi-family housing should not be assessed as commercial property.
  • (7) Housing solutions will need the cooperation of governmental bodies and the private sector. Cities and counties need to demonstrate some willingness to reduce permit fees, amend building codes to eliminate costly and unnecessary regulations, amend requirements on subdivision costs, and to modify requirements concerning set asides for parks and recreational facilities.
• Discussion.
  • A serious problem for younger home buyers is the difficulty in making an adequate downpayment. Communities need assistance to identify and customize housing programs for these prospective buyers.
  • Concerns over whether the benefits of tax increment financing for housing will go to developers instead of to assist home buyers should be handled through competition.

8. Committee discussion and preliminary recommendations.

• Committee Discussion.

  As a framework for discussion of possible recommendations, Chairperson Jacobs indicated that the Committee needs to look at money and policy issues, such as promoting public/private partnerships to solve housing concerns. Representative Jochum indicated that the Committee needs to consider the wage structure in the state as it affects the ability of Iowans to obtain adequate housing.

• The Committee considered several recommendations made to the Committee and proposed that several be considered for discussion at the third meeting:
  • (1) Extend access to real estate improvement districts to all counties.

    The Committee also agreed to consider in a draft proposal a five-year limitation on 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.
  • (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) Assign $1.2 million of real estate transfer tax receipts, or funds from some other source, to the HOME program in order to meet half of the 25 percent match required by the program.
  • (5) Provide adequate funding to housing-related agencies to continue to assess the effectiveness of outreach efforts and increase technical assistance and education programs.
  • (6) Encourage the development of construction trades programs through IDED workforce development and school to work programs at community colleges and high schools.
  • (7) Support continuation of federal housing tax credits.

    The Committee indicated that it may recommend sending a letter, or drafting resolution, to Iowa's congressional delegation in support of these credits.

  • (8) Encourage local flexibility on building codes.

    The Committee expressed interest in further studying the possibility of establishing a separate building code for rehabilitating houses.

  • (9) Modify existing tax increment financing language to allow communities flexibility in using TIF but require each project to designate a portion of the proceeds for low and moderate income housing projects. The set aside would be based on the percentage of low and moderate income persons in the county and could be used as part of the TIF project or for other uses, such as rehabilitation.
  • (10) Make the interest from public bonds exempt from state income tax to improve their marketability. The bonds must be issued by cities, counties, real estate improvement districts, or other public housing entities for the purpose of developing or rehabilitating housing to qualify for the exemption. The Committee expressed some concern over the possible cost of this proposal.
  • (11) Consider appropriating $10 million to the Iowa Finance Authority to make up for federal housing program funding reductions.

    Senator Gronstal suggested giving a portion of this money to IDED for capacity building, giving a portion to the Iowa Finance Authority, and some as a carrot to local governmental units to enter into a partnership with the state to deal with housing. Senator Lundby cautioned the Committee to not divide this pool of money too many times such that administrative costs would become excessive.

  • (12) Direct 95 percent of the proceeds from the real estate transfer tax to the county in which the tax is collected. Seventeen percent would continue to be used for county administrative expenses with the remainder placed in a county housing trust fund. Five percent would continue to be appropriated to the Iowa Finance Authority.

    The Committee reached consensus that the tax receipts be used for housing instead of going to the general fund. The Committee was divided as to whether the money should be given to the county of collection or be kept in a state pool with some mechanism for local governmental units to access this money.

  • (13) Enable cities and counties to acquire dilapidated vacant houses through nuisance abatement procedures.
  • (14) Allow counties flexibility to dispose of tax-delinquent houses, including the ability to give special consideration to prospective low and moderate income buyers. Also impose stricter requirements for a buyer to demonstrate ability and intent to renovate the house for the purpose of habitation. Senator Lundby indicated that preference should be given to local agencies whose purpose is to rehabilitate homes for low and moderate income buyers.
  • (15) Review and modify state regulations on housing rehabilitation to allow local flexibility in areas other than safety. Local authorities should be encouraged to establish similar changes in local regulations.
  • (16) Make low interest revolving loans available for rehabilitation to replace the current rehabilitation grant programs administered by the state. Use principal and interest payments to establish a perpetual source of rehabilitation funding and encourage efficiency by loan recipients.
  • (17) Prohibit discrimination against manufactured housing by real estate improvement districts.
  • (18) Reduce taxes applicable to construction industry, particularly the sales tax on building materials used in affordable residential development.
  • (19) Change manner in which property under development is taxed. Phase in property taxes 15 percent a year starting three years after the property is acquired for development.

    The Committee indicated it would need some estimate of how much this would cost in lost revenues.

  • (20) Reduce fees and regulations, such as requirement that a portion of a development be set aside for park space.
  • (21) 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 from 75 percent to 60 percent.
  • (22) Allow school districts some authority in regards to the decision to establish a tax increment financing district.

9. Written materials filed with the Legislative Service Bureau.

• Materials Distributed Prior to Meeting:
  • Recommendations for Committee Consideration - compiled from recommendations made at first meeting.
  • Median Income Information - provided by Department of Housing and Urban Development.
  • Business Perspective on Housing - Mr. Steve Bragg, Pella Corporation.
  • Metro Area Housing Program - Recommendations to the Iowa Legislature.
  • AFL-CIO Housing Investment Trust - Letter and summary of financing programs.
  • Background Paper on Tax Increment Financing - Mr. Ted Chapler, Iowa Finance Authority.
  • Section 403 legislative proposals.
• Materials Distributed During Meeting:
  • Memorandum concerning state receipts from the Real Estate Transfer Tax - Legislative Fiscal Bureau.
  • Rural Economic and Community Development - packet of material.
  • Neighborhood Finance Corporation - summary of testimony - packet of information.
  • Iowa Coalition for Housing and the Homeless - summary of testimony - Iowa Department of Education
  • summary of homeless children and families.
  • Waukee Schools - Document entitled. "Factor Which Inhibit Financial Planning and Long Range Financial Forecasting in Growing Districts."
  • United Neighbors, Inc. - summary of testimony.
  • Homebuilders Association of Iowa - summary of testimony.

OTHER INFORMATION FOR THIS COMMITTEE:

| Charge | Members | Staff | Final Report |

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