Tax break for low-income apartments rejected
The Alexandria City Council turned down a request for tax increment financing that would have built a $1.5 million, 12-unit apartment complex for low-income families.
Acting as members of the city's Economic Development Authority at Monday's council meeting, the council rejected member Todd Jensen's motion to approve the financing on a 4-2 vote. Mayor Sara Carlson was the only other member who voted for it.
Council member Bobbie Osterberg said her constituents raised several concerns about the project — the 18-year length of the financing, whether a tax break was truly needed, and whether college students, instead of families, would occupy it.
Osterberg also suggested it would be better to let supply and demand determine the project's success instead of a tax break.
Unique Development LLP, which has another 36-unit apartment complex on Rosewood Lane, applied for the financing. It wanted to to build a 15,000-square-foot multi-family apartment complex at 1810 Sixth Avenue East on McKay Avenue.
It would have included six three-bedroom units, five four-bedrooms and one five-bedroom with monthly rates ranging from $975 to $1,250. The apartments would only be available to those making 60 percent or less than the county's median income. For a household of four that amounts to $41,280.
Tax assistance was proposed for the first phase of an overall project that would include three more apartment buildings of the same size. The total cost of all four phases would amount to $6 million.
With tax increment financing, property values are frozen at the current amount for a specified period of time and the new higher taxes that would normally be paid once the property is redeveloped is diverted to help cover some of the costs of the project.
Unique Development partner Samuel Herzog of Fergus Falls told the council that the project wouldn't happen without tax increment financing. He said the bank wouldn't finance it otherwise. With the financing, the project's annual profit margin would be 5.5 percent compared to most rental properties with a 7 to 10 percent profit.
Herzog said that demand for larger apartments of three or more bedroom is "incredible" in Alexandria — unlike any of the other five communities his company has units in right now. He said they've been receiving more than a dozen applications for each unit. A Facebook posting of the development reached more than 24,000 people, he said.
"Without a doubt, Alexandria is our fastest growing community with the most demand for affordable housing," Herzog said. "The demand is just crazy."
The apartments, Herzog said, would draw larger families into the community that may not be prepared to purchase a home yet. He expected most families would live in the building for an average of 20 months before buying a home.
During a public hearing, one person from the public spoke — John Kes, a resident on Rosewood Lane. He said if the demand for housing is so strong, the development shouldn't need TIF. "Let's see what the market does," he said.
Kes added that the first phase of the project could potentially add about 50 new residents to the city, which would create more need for public services and more expense for taxpayers.
Instead of giving developers a tax break, Kes said he'd rather see a public-private partnership that would provide assistance directly to renters who need it.
Council member Virgil Batesole questioned whether the rents would be low enough for families to afford. He said that Alexandria has one of the highest housing rates in the state, with renters paying 30 to 35 percent of their incomes on housing. He said rents should account for only 25 percent of income.
Batesole added he heard from 10 constituents who said 18 years of tax increment financing was too long and should be cut to 10 years.
The property had been owned by LifeRight Outreach and was tax-exempt. It was sold to Unique Development and the taxes are projected to be $2,000 annually before development. With the financing, no additional property taxes other than the $2,000 each year would have been collected for 18 years, saving the developers a projected $120,784, which would have been used to help cover the costs of developing the land.
The development would have increased the value of the land and building to about $1.3 million.
Because the Economic Development Authority didn't approve the establishment of a tax increment financing district, the council didn't need to vote on it. "Without a district, we are done," said Mayor Carlson.