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Memo- Housing Improvement AreasCITY OF HOPKINS MEMORANDUM DATE: September 3, 1997 TO: Honorable Mayor and City Council Members FROM: Kersten Elverum, u mg Coordinator SUBJECT: Housing Improvement Areas Purpose of Memo The purpose of this memo and the discussion at the September 9, 1997, City Council worksession is to evaluate the impact of the Housing Improvement Area (HIA) financing tool and to discuss the possibility of developing a policy /application process which would establish the City's position as relates to the use of this financing for private housing improvements. Overview The City of Hopkins has established two Housing Improvement Areas to date; one encompassing the Meadow Creek Condominiums and one for the Westbrooke Patio Homes. The improvements financed through the Meadow Creek Condominiums were completed in September 1996 and are considered to be a major factor in the 33% increase in sales price of these units. The Meadow Creek HIA had a delinquency rate of less than 1% in 1996, and a 7% delinquency rate for the first half of 1997. It is anticipated that many of the 1997 delinquencies will be made up in the second half payments. Improvements financed through the Westbrooke Patio Homes HIA are currently underway with over 60% of the improvements completed. While it is too early to evaluate the impact of the HIA improvements and the annual fee, sales have been occurring at approximately the same rate as before the project with values showing no significant change. Collection of the Patio Homes fee will not begin until 1998. Recently, staff was contacted by representatives of Valley Park Condominiums, formerly known as Westbrooke West, regarding the creation of a HIA to finance approximately $1 million in improvements in 1999. While HIA's for Meadow Creek and the Patio Homes were anticipated, the remaining three Westbrooke associations had in the past indicated they were not interested in financing any improvements. The potential to be petitioned by several more associations to create Housing Improvement Areas has led to a discussion regarding the need for a policy which would outline the circumstances under which HIA financing would be used and the criteria for evaluating applications. Analysis of Issues There are several reasons for the establishment of a HIA policy. The policy would clearly state the eligible uses of HIA financing and would provide evaluation criteria that could be used as the basis for approval or denial of an application. The evaluation criteria would attempt to weigh the neighborhood benefit against the risk to the City. The policy would also clearly outline the requirements for HIA financing so that association members could evaluate its use in their particular situation and would standardize and define the application process. The following are the major issues that staff would recommend being addressed in the policy: Membership Support There should be clear evidence that the project, including the cost and terms of the financing, is supported by a majority of the association members. The application for HIA financing should include copies of minutes from meetings during which the project was outlined and the results of a membership vote. Financing of Last Resort Housing Improvement Area financial assistance should not be provided to projects that have the financial feasibility to proceed without the benefit of Housing Improvement Area financing. Evidence that the membership has sought other financing for the project should be provided. Evidence could include letters from private lenders, the results of an association vote on an assessment or other evidence indicating a lack of other financing options. Term of Housing Improvement Area The term of the Housing Improvement Area should be the shortest term possible while still making the annual fee affordable to the association members. The term of the district should not, in any case, exceed 20 years. Security The membership should provide adequate financial guarantees to ensure the repayment of the Housing Improvement Area financing and the performance of the administrative requirements of the development agreement. Financial guarantees may include, but are not limited to the pledge of the association's assets including reserves, operating funds and/or property. Minimum/Maximum Project Cost There should be a minimum project cost established in order to make the financing cost effective for both the owners and the City of Hopkins. The City may also wish to consider incorporating a evaluation of outstanding debt, including the delinquency rate in existing HIA's, in the approval process for new HIA's. Application Process Staff would recommend an application process that required a preliminary application to be submitted prior to beginning the petition process. This would allow the City the opportunity to educate the association regarding the requirements of HIA financing and allow for an evaluation of the project prior to the public hearings. The preliminary application would have a fee to compensate for City administrative costs. Conclusion The Housing Improvement Areas that have been created in the City have been successful in meeting the goals of making significant improvements at terms affordable to most owners. The long term effects of this financing in regards to delinquencies and the effect on property values, especially at the Westbrooke Patio Homes, is not known. It is staffs opinion that HIA financing is a valuable tool, but its use should be evaluated carefully for each project. Under the State Law granting the City of Hopkins authority to create Housing Improvement Areas, the City is not required to adopt a policy regarding its use. However, it is staffs recommendation that a policy be considered in order to provide for the best use of this tool and to protect the financial liability of the City of Hopkins.