The workforce housing project proposal at 701-705 W. Main St. helped to spur greater discussion on the use of Tax Incremental Finance (TIF) extensions to fund such housing and improve existing housing stock in Waunakee.
While the village board has not yet taken a formal vote on the Cohen-Esrey proposal, members did vote in favor of a resolution allowing the use of an Affordable Housing Extensions at their Feb. 1 meeting.
Projections show over the next 10 years, three additional TIF districts are scheduled to close, allowing the village board to utilize a sizable amount of tax increment for what staff proposed be established as a Waunakee Housing Betterment Program (WHSP).
Waunakee Finance Director Renee Meinholz called the estimates rough, noting they were based on 2020 projections, but shared with the board at its Feb. 15 meeting a scenario of all TIF districts’ closure dates in Waunakee. Using 2020 projections, it shows the amount of tax increment that could be put toward the WHSP:
-2022, TID 2: $439,821
-2023, TID 4: $114, 337
-2025, TID 5: $568,100
-2028, TID 6: $1,487,781
-2030, TID 7: $122,135
-2034, TID 9: $417,815
-2039, TID 8, $437,632.
As the board adopted a resolution to extend TID 2 at their Feb. 1 meeting, board members had asked staff to research how other communities are using TIF in this way. Some expressed a desire for a policy to be in place prior to deciding on the Cohen-Esrey proposal.
Wisconsin law included the Affordable Housing Extension to its TIF law in 2009, so it is relatively new to many communities.
“Very few communities have landed a mother lode of funding from this program at this point,” Schmidt said.
The trend has been to use the funds for single-family or duplex properties with basic improvements to improve housing stock, he added. One example is the City of Menasha, where the Strong Neighborhoods programs helps citizens to invest in their homes.
In Fitchburg, the city anticipates the closure of two TIF districts over the next two years, according to Schmidt’s memo to the board. That city anticipates the addition of $6 million to its Affordable Housing Fund. Fitchburg is also using a part of its Affordable Housing Fund to develop a housing plan with the help of a consultant.
Schmidt suggested the board look to Waunakee’s Community Development Authority to suggest other policies programs other than improving existing housing stock.
But he said he found no other examples of guidelines for the use of Affordable Housing Extension funds for projects like Cohen Esrey’s, which has received Low Income Housing Tax Credits (LIHTC) through the Wisconsin Housing and Economic Development Authority.
“As far as something perfect, to take in this case, a LIHTC product, and its limitations and constraints, and then to put some sort of metrics and parameters to provide an award, that information just wasn’t there,” Schmidt said.
Draft policy and housing fund parameters
Schmidt suggested the village establish a Waunakee Housing Betterment Program that would provide 50% forgivable loan awards for projects.
Nicole Solheim, executive director of Wisconsin Partnership for Housing Development, explained the benefits of forgivable loan awards. Solheim has been consulting Waunakee’s Community Development Authority as it works on recommendations from the village’s Housing Task Force.
In larger cities, Solheim said, the grants are structured as loan programs so communities can see a portion of the funds granted for affordable housing projects return to its housing fund. Loans also have different tax implications than grants.
“A lot of them are loans, both from the perspective of taxes and a deal structure, and also again, wanting to be able to fund future projects,” Solheim explained.
Schmidt presented parameters to guide a Waunakee Housing Betterment Program with five bullet points.
One identifies eligible proposals as “income-qualified units affordable at 100 percent or less of the HUD Area Median Income where ‘affordable’ means no more than 30 percent of a household income.”
Another limits the loan to no more than 10 percent of the acquisition and construction costs.
One single project should use no more than 80 percent of the housing fund balance.
Half of the loan shall be forgiven 15 years after project completion, with the remaining 50% repaid at a time to be negotiated between the village and awardee and no later than 30 years after the project is completed.
The project must demonstrate a financial need.
Board members expressed support for the loan program and award criteria.
“I love that we’re trailblazing,” Trustee Kristin Runge said about the village’s use of the relatively new TIF use. A community development specialist with the UW Extension, Runge helped lead the village’s Housing Task Force. She is working with other communities on housing projects in the Dane County area, she said.
“I said I think Waunakee is going to come up with something pretty innovative regarding how they’re using TIF extension,” she told the board.
Runge supported the idea of a revolving loan fund.
“We are not just using that extra year that we gain from TIF or TID to fund one project, but we’re really making a long-term investment that we can use over the course of our lifetime as a community,” she said.
Trustee Nila Frye noted that 20-year TIF districts are created for businesses. She encouraged the board to be flexible when considering different housing projects and their ability to repay 50 percent of the loan within the 15-year span.
Trustee Bill Ranum suggested a bidding process for the funds.
In Madison, an annual Request for Development Proposals allows the city council to set priorities, Solheim said.
Trustee Gary Herzberg said the draft policy will facilitate the decision process for the village board and the Community Development Authority. Herzberg emphasized that each of the TIF districts are closing prior to their statutory timeline, allowing them to provide a benefit to the taxpayers through an extension.
“That’s how we sold all of these TIFs. I don’t want the public to start thinking, ‘We’re going do this on every TIF because then we’re going to have this pool of affordable housing,’ and forget about the reason why all these TIFs got approved in the first place,” Herzberg said.
Herzberg noted that several residents oppose the use the TIF and view the economic development tool as unfavorable to taxpayers while benefiting business owners.
“And now we’re just going to extend them another year,” Herzberg said.
Trustee Phil Willems also supported the forgivable loan program and said the criteria could be fine-tuned.
Village President Chris Zellner said he wanted the housing betterment project to be streamlined and wondered about the process.
He asked if the village board was rushing the policy because of the Cohen-Esrey project.
“To me, I don’t like that we’re rushing it,” Zellner said. But he added the process for receiving Low Income Housing Tax Credits is rigorous and difficult.
Zellner said he did not want Cohen Esrey to miss the opportunity, adding it would be lost for Waunakee, as well.
The Community Development Authority will likely discuss the establishment of a Waunakee Housing Betterment Program, along with criteria for a 50% forgivable loan program at the next meeting.