Council hears financing options for potential Red Oak townhome project

The Red Oak City Council heard options for potential funding towards the StudioOne Townhomes project, proposed just west of First Street on Woodland Hills.
The project would include 33 units in the first phase. The units would be one or two bedroom with a one car garage, and would create a transitional opportunity for young couples without children or an aging population, freeing up other homes in the community.
At the regular Red Oak Council meeting May 1, the council met with Chip Schultz, the managing director of public finance at Northland Securities of Des Moines. Schultz said he was there to outline a couple of options for the council to consider in regards to the project.
“The two main distinctions between the two approaches, based on discussions we’ve had with the developers are, assuming the developers fund the infrastructure projects up front. That is in a perfect world; however, if that approach is used, based on their feedback, it may position the townhome project to be at a pricing level that may not be as affordable as you’d like them to be,” Schultz said. “The other alternative would be for the city to fund the infrastructure, while not having any sort of city debt service levy increase beyond what you currently have.”
Schultz said if the developer funded public infrastructure during the construction period, the city’s involvement was to work with the developer to “rebate” a portion of the property taxes,  payable to the developer over time. The rebate would be proposed to occur through a tax increment financing rebate mechanism. The rebate would be based on the new housing property valuation derived from StudioOne townhomes.
“You’re at 11 years with a typical Iowa market rate residential TIF rebate project. That can be lengthened to 16 years with the consent of the Red Oak School District, Montgomery County Supervisors, and Southwestern Community College. That may put the project in a position of being more financially viable and meeting the city’s goal of more housing stock, if the city were to fund the infrastructure, but it’s a big decision for the council,” commented Schultz.
Taxes would be paid by the developer, as they would be maintaining the property as the owner. Schultz said he had traditionally worked for the city, and he was trying to bring the two sides together for discussion of the project. Schultz said he was approaching the project with sensitivity to property taxes.
“The city has a 2012 bond issue with a debt service of $235,000 per year. The final payment of that is in 2025, and a 2018 general obligation bond issue with final payment in 2026. Most of those debt service payments are around $340,000 per year. With those two debts being paid off, that opens up the capacity for funding future project without having a city debt service levy increase. That would be the goal if the city were to be of the mind to fund the infrastructure for this project,” advised Schultz. “If the city had other core city street projects, those could be reviewed as part of the same bond issue, adamantly with the goal of not having a property tax levy increase.”
With an assumed project valuation of $6.5 million, the city would end up with around $1.6 million of valuation available for an annual TIF rebate amount, which didn’t give the city the flexibility Schultz wanted to see.
If the city were to fund the public infrastructure during the construction period, Schultz said the city would be upfronting the public infrastructure costs through a general obligation bond issue.
Debt service on the bonds would be structured to take into account existing payments on general obligation debt of the city and would gradually be layered in as existing debt was paid off.
Red Oak Mayor Shawnna Silvius said housing remained a primary goal of the city.
“This would be an opportunity to have market rate housing with hopefully no additional debt for the taxpayers, and expand our tax base,” stated Silvius. “This project is a huge need. We heard that from our housing study.”
Schultz added there was a broader sense of financial benefits beyond those that would come to the city.
“As more population moves into town, school enrollment goes up, increasing certified enrollment which brings in more operating budget for the district. More head count in town brings in more dollars for the county from a road use tax standpoint, and local option sales tax dollars as well. If the project proceeds, it does benefit the wider local government and school and not just the city,” Schultz explained.
Schultz made it clear that he expected no decisions from the council, and would be presenting more concrete figures during the May 15 meeting, and present a set of scenarios that would fund whatever project deemed prudent to the city.
“The plans will be arranged, and then the city can simply evaluate whether or not to proceed with those various scenarios. Everything will be driven by the council’s decision and whatever priorities they may have,” said Schultz.
No other discussion on the financing took place at the meeting, and no action was taken.