City Commission Workshop Examines Key Issues

IRONWOOD, MI - Wednesday, December 17, 2008 - The Ironwood City Commission, City Staff, and a group of concerned citizens gathered yesterday evening to discuss two hotly debated City issues and two others. Commissioners and City Staff attending last night's meeting included: Mayor Bruce Noren; City Commissioners Tom Laabs, Bob Burchell, Gemma Lamb, and Suzanne Toth; City Manager Scott Erickson; Community Development Director Dan Petersen; Ironwood Public Safety Department (IPSD) Director Bob Erspamer; City Assessor/Building Inspector Dennis Hewitt; Financial Director Julie Frederickson; and City Clerk Karen Gullan. In the audience were key members of City boards as well: Ironwood Planning Commission Chairman John Wyssling; Planning Commissioner Sam Davey; and Downtown Ironwood Development Authority (DIDA) member Steve Frank. Representing the press at the meeting were photojournalist Ralph Ansami from the Ironwood Daily Globe and yours truly.

HOVEY'S TOWERING PINES 2% PILOT ORDINANCE

City Manager Scott Erickson started last night's meeting with a background presentation of the Hovey Companies, LLC Towering Pines project. The City Commission is currently considering a 2% PILOT (Payment In Lieu of Taxes) Ordinance that would exempt the DeWitt, Michigan developer from all conventional property taxes on their proposed $5 million 49-unit Ayer Street subsidized housing project. Instead of paying conventional property taxes estimated at nearly $180,000/year, the developers would make a PILOT payment of only $4,400/year (or less depending on occupancy and water/sewer utility costs). Two years ago, the City passed a 2% PILOT for Hovey that expired because construction had not yet begun.

The YouTube video below briefly describes how PILOT's work and how they affect "mom and pop" local businesses. In the example, the "Big Box" store would be Hovey Towering Pines Apartment project and the "Mom and Pop" businesses would be existing Ironwood landlords and taxpayers. According to the proposed PILOT Ordinance, the Michigan State Housing Development Authority (MSHDA) will technically own the property until the 35-year mortgage is paid off. The City would lose all interest in the property and the City will not issue bonds for financing. Financing for the Hovey project will be principally done through MSHDA and a private lender.

Scott Erickson told the gathering that he was in contact with a MSHDA representative and he asked him how an increase in the PILOT percentage would affect Towering Pines. According to Erickson, the representative said it could jeopardize the entire project.

Erickson then handed out literature taken from the MSHDA Home Team Advantage website that explained the benefits of similar projects to participating communities. He explained that communities "compete" to get these projects, and that two years ago, Ironwood was "given the opportunity" to participate. He went on to say that the 2% PILOT was part of the competition process, and that Ironwood offered such a low PILOT to Hovey in order to have the project locate here. He continued by saying that the 2% PILOT was the "City's investment" into the project.

Erickson pointed out that MSHDA has many housing programs. He suggested that rehabilitation options for existing rentals in Ironwood "may be" available through one or more of the programs. He went on to say that each project would have to be considered "on its own merits." Erickson told the group that rehabilitation of existing apartments could even be done through the same MSHDA Home Team Advantage program Hovey is using. He also suggested that other money may be available through Rural Development (USDA) and Housing and Urban Development (HUD).

Suzanne Toth questioned if it was possible for someone to "buy out" Hovey in the future to extend the 35-year mortgage with MSHDA, thereby extending the PILOT. Erickson stated that the current language in the PILOT ordinance leaves the issue "open-ended." In other words, it is not clear that the PILOT would expire after 35 years. He told the gathering that MSHDA's legal department was going to examine the situation and get back to him.

Gemma Lamb questioned who would be paying what utilities for the project. According to Hovey, Erickson pointed out, tenants would be paying their own utilities -- heat; lights; cable; hot water; etc. -- but Hovey would be paying the water and sewer. She asked if anyone had any idea how much income the project would generate for the City each year. Erickson explained that Hovey would be paying roughly $4,400 each year, after utilities (water and sewer).

"Is that firm?" Lamb questioned.

"No," Erickson said, "That would be variable depending on the rents and the utilities." He went on to say that Hovey was not really being set up as a "revenue generator" for the City. "It's a community development tool!" Erickson declared.

Previously, Bob Burchell questioned what would happen to the PILOT payment money. Would it go directly to the City? Or would it be shared by all of the area taxing entities?

Burchell interjected that Fennville, Michigan had a similar Hovey project there and the first year Hovey paid a total PILOT of approximately $2,500. Of that money, the City of Fennville received about $750. The remainder of the money went to the County, the schools, and other taxing entities there.

"It's very little revenue for the community!" Erickson repeated. He went on to compare the Ironwood Housing Authority's 10% PILOT to Hovey's proposed 2% PILOT. He explained that the City of Ironwood gets approximately 38% of the Authority's 10% PILOT payment. That being said, the City would collect only $1,672/year if they were able to keep 38% of Hovey's 2% PILOT. If a similar development valued at $5 million located without the benefit of tax exemption or PILOT, the City would realize over $80,000/year in tax revenues.

Mayor Bruce Noren asked Erickson what the projected water/sewer revenues would be. Erickson said the water/sewer utilities would total in the neighborhood of $30,000. Mayor Noren went on to ask if the City would be gaining, losing or retaining the same number of water/sewer customers in the next five years. Erickson pointed out that Hurley will soon be leaving the Ironwood water system at a loss of about $200,000/year.  He explained that Ironwood Township was also exploring other alternatives to water than purchasing it through the City.

Tom Laabs asked why the PILOT payment amount dropped from its originally proposed $9,600 to the currently proposed $4,400. Mayor Noren explained that Hovey originally proposed that two of the apartments in the complex would be "market rate" apartments -- meaning that they would not be subsidized and would be rented for the "going rate" of comparable apartments in the area. "Market rate" apartments would not be exempt from conventional property taxes. Noren told Laabs that MSHDA wouldn't allow "market rate" apartments in the complex, and they would not finance the project with "market rate" apartments available.

Erickson elaborated on Noren's comments stating that MSHDA's goal was not to create "market rate" apartments for people that can afford them. Their goal, he said, was to make "a higher level apartment" for families that struggle. When Hovey initially proposed the project to the City of Ironwood, Hovey representative Tim Hunnicutt told the Commission that the project was to be 49 "market rate" units with "no subsides." A few months later, Hunnicutt told the Commission that the complex would be an even mix of "market rate" and low-income (subsidized) housing. Then Hunnicutt announced that there would be two "market rate" units and the other 47 would be low-income. Now, Hunnicutt claims MSHDA will not finance the project as long as there are "market rate" apartments in the complex.

Noren went on to defend Hovey stating that it was the City's idea to include "market rate" apartments in the project to increase the tax revenues. The Hovey Companies LLC have developed and maintained over 700 rental units in the State of Michigan. Virtually all of their rentals are heavily financed through MSHDA. The Chronicle could not find evidence that any of Hovey's rental units are unsubsidized "market rate" units.

Laabs suggested that a 5% PILOT would bring the City back to the same dollar amount they originally agreed to in the now expired PILOT Ordinance. He suggested that the City either increase the PILOT to 5% or insist on Hovey including two "market rate" units in the complex to increase tax revenues.

Gemma Lamb asked who proposed 49 units. Was it MSHDA? Was it Hovey? Or was it the City?

"Did Hovey come in with a plan and said, 'This is my vision for Ironwood,' or did we say this is our vision for Ironwood -- this is what we want?" Lamb questioned.

Erickson replied that it was a joint decision. He admitted that there never really was any discussion on what number of units really met the City's needs. According to Erickson, the City went along with 49 units because that's what Hovey proposed. Dan Petersen interjected that Hovey opted for 49 units based on the market study they paid to have compiled.

Bruce Noren told the gathering that the City was really encouraging Hovey to include garages with the rentals. He went on to say that the 2% PILOT was so low partly because of the fact that Hovey was going to be adding such amenities to the units as well as including public tennis courts on the property. He said that existing public tennis courts "have gone to hell" because of the weather and the fact that they haven't been properly maintained. He suggested that Hovey could possibly pay a higher PILOT if the complex did away with the garages.

Laabs asked if Hovey intended to build the tennis courts. Erickson told Laabs that Hovey was proposing one tennis court and that the City's Parks and Recreation Committee wanted four. It was decided, Erickson said, that the grading, graveling, etc. for all four courts could be done by Hovey and the paving and finishing of the courts could be done by the City through some sort of grant funding. Erickson then stated that it was proposed to move the courts across the street near the ball field to create a "sports complex" there, but nothing ever came of that.

Laabs pointed out that many of the rules have changed, and he feels that Hovey should be open for negotiations on the PILOT. Erickson agreed.

Mayor Noren suggested that no action be taken at the next meeting since there were so many unanswered questions and issues that needed to be addressed.

Laabs said he would like to see some negotiations on the PILOT amount. He said that the engineering has all been done, and the only real issue is financing.

Erickson summarized his assessment of the discussion stating that three central points need to be addressed before approving or rejecting the PILOT: (1) the 35-year term of the PILOT and whether or not it can be extended; (2) whether or not the 2% PILOT can be increased to "perhaps 5%"; (3) whether or not eliminated the garages and possibly the tennis courts would allow an increase in the PILOT; (4) if "market rate" units can be added to the complex to increase tax revenues on the property.

"I think it's fair to say that we are looking for the highest rate of return we can get if we are going to do this!" Noren said.

"... and give up the least, right?" Laabs added.

Laabs asked one final question before the audience was given a chance to speak. He asked if there was room for expansion on the property, in the future, should Hovey have more tenants than he has units. Erickson responded with, "Potentially!" He went on to say that there are eight acres on the site, but even with wetland issues, there is more land available to the west.

This reporter addressed the work group and asked them if they were familiar with Dr. Jonas Salk and the Salk Polio vaccine. When the March of Dimes announced that Dr. Salk had created a killed-virus vaccine for poliomyelitis. Desparate parents signed up by the thousands to participate in a double-blind study of the vaccine. In a double-blind study, 50% of the study group is given the active vaccine, 50% is given a placebo. Salk believed so strongly in his research that he opposed the double-blind study. He believed it wasn't right to deprive half of the study's subjects of the vaccine that could prevent paralysis, breathing disorders, or even death.

The point I was making was that talking about things wasn't researching them. The City Commission has talked the Hovey project to death, but no one has taken the time to fully research the matter. How have similar projects impacted similar communities? Are the "facts" that Hovey, Hunnicutt, and Woods providing accurate? How can the City make any decision based solely on the words of the developer? Has anyone inspected existing housing to see if it truly is inadequate? What numbers support the "need" for additional housing? Is there enough housing to satisfy MSHDA's demand? Wouldn't a developer's "market study" tend to be a bit one-sided? Should anybody put full faith in a developer's word when he's out to make a profit?

I also pointed out that it isn't fair for anybody to get such a huge tax break when they aren't filling a need for the community. Industrial park businesses provide jobs and stimulate the economy. A tax break is understandable for job-creators. Non-profits provide services to people in need. A tax break for non-profits makes sense. A developer coming into the area with the sole purpose of turning a profit and with no intention of providing any benefit to the City should have the right to locate here, but the should be obligated to pay the same taxes as any other taxpayer.

Steve Frank told the Commission that there is no evidence that the Hovey project will bring any new people to the area. He pointed out that the "gain" in utility usage is merely a "shift" from one location within the City to another. He said, "If I apply to MSHDA and I decide to move into Hovey, I shut my house down. That's $600/year you lose in water and sewer rates. With no evidence that anyone is moving in from out of the area, that's a zero sum gain. Everybody that moves out; you lose that revenue; then you just bill Hovey over there."

"No evidence has been supported. All Hunnicutt talked about at the last meeting was Ionia, Michigan. Besides the first letter, Ionia has nothing in common with Ironwood. It's a completely different demographic. They have larger industries right next door, and in other towns nearby. It's a totally different demographic. Why did he present that information? Because it supported his view. This is not a Habitat for Humanities project to come in. Bill Gates is not funding this project out of the goodness of his heart. This is a business! Every bit of data that has been presented to support this project has been generated by that business! Their goal is to make money! If you don't have your own research to balance out their claims, in no way should this go forward!" Frank said.

Planning Commission Chairman John Wyssling asked the Commission if they had a chance to take a look at both sets of site plans submitted by Hovey for the Towering Pines project. He pointed out that the first set of site plans showed the tennis courts; the developmental area; the playground; etc. including a private entry drive. The second set of site plans eliminated the tennis courts and showed a public road along the side of the project. Wyssling pointed out that the public road would have to be paid for and maintained by the City.

Erickson defended Hovey by stating that the road would be built by the developer on the second plan. He told Wyssling that the shared road was to allow Bob Schonberg access to the property he was originally planning on developing.

Wyssling said he knew what went on, but he wanted to make the point that the drive went from being completely independent to suddenly being a shared entity with the City. He made notice that the garages are listed on the plan as "proposed." He also stated that the issues the Planning Commission originally had with the first site plan came back unanswered on the second site plan. No attempt was ever made to correct the problems the Planning Commission required to be addressed.

OUTDOOR WOOD BURNER ORDINANCE

The second topic of discussion for the workgroup was the Outdoor Wood Furnance Ordinance.

The majority of people attending last night's meeting were there to defend outdoor wood burners. The major issue with the outdoor wood stoves is the smoke and fumes, and the City was attempting to increase the stack height of existing wood burners to reduce the amount of smoke from the units.

Recently, the Planning Commission held several meetings regarding this issue, and after much public input and research they came up with a reasonable compromise to existing owners of the units and a solid set of requirements for new installations. Unfortunately, the ordinance the Planning Commission revised wasn't the same ordinance the City Commission received in their packet at the last City Commission meeting.

The Planning Commission agreed that it was unsafe to require excessive stack heights on units that were designed to support lower stacks. The Planning Commission agreed to place language in the ordinance that required owners of the wood furnaces to follow manufacturers recommended stack heights. Originally, the Planning Commission was considering stack heights on outdoor wood furnances that were excessive. Citizens pointed out the dangers and the lack of data that supported any benefit to higher than required stacks. The Planning Commission recommended to the City Commission that manufacturers recommended stack heights be followed.

The ordinance the City Commission saw at their last meeting, was an earlier, unrevised version of the Planning Commission's ordinance that required excessively tall stacks on existing wood furnaces. It was pointed out at the City Commission meeting that excessively tall stacks didn't address smoke issues. When cloud cover is low, smoke will be an issue no matter how high the stack is on any wood burner -- indoors or outdoors. Several people at the City Commission meeting noted that higher stacks allowed for cold spots that invited creosote build-up. Hot moist fumes from the fire condense on the cold spots, allowing creosote to deposit there, creating a fire hazard.

Several people at last night's meeting addressed the Commission. It was pointed out that many of the wood furnaces are designed to burn unseasoned wood. It was also pointed out that many manufacturers void their warranty if the stack height is over the recommended height.

Dates of operation were another concern of the Commission. Some wood furnaces are also used to make domestic hot water. In those cases, a fire needs to be burning year round. It was quite obvious that each of the people in the audience were very much aware and considerate of their neighbors. Most of the owners try to light their fires on cold days or rainy days when people generally have their windows closed.

It was alleged that homeowner's insurance was higher on homes heated with an outdoor furnaced. Virtually everybody attending the meeting who owned an outdoor woodburner claimed their insurance went down with the outdoor wood stove.

In the end the City Commission tended to agree with the Planning Commission's recommendations regarding the wood burners. It is expected that the City Commission will vote to approve the ordinance as presented in the revised version submitted by the Planning Commission.

LOCAL STREET FUNDING

The group briefly discussed options for funding road improvements throughout the City. Four basic schemes were suggested. Each of these schemes will be further explored in future meetings. The first plan is to try to do as much as possible out of the general fund.

The second plan is put a "dedicated" millage on the ballot for road improvements.

The third plan is to drop existing street debt service. And the fourth plan is to place special assessments on certain streets.

The Commission expressed pros and cons on all of the various options, and will consider using one, two, or a combination of the schemes to fund City street improvements.

FIRE DEPARTMENT COST RECOVERY

Bob Erspamer addressed the group and explained that most of the homes and businesses that are involved in fires are uninsured. It was previously suggested that the City actively try to recover costs from insurance companies when fires occur in insured homes and businesses. Erspamer told the Commission that attempts to collect cost recovery must be done to insured and uninsured homes and businesses uniformily or the City could be accused of committing insurance fraud.

Erspamer handed out sample ordinances from Gladstone as well as other literature on the topic. The Commission will consider some sort of action in the future regarding recovery of fire costs.