Manhattan commission looked at benefit district fees to reduce city’s risk

In benefit districts, the city finances infrastructure improvements — which includes upgrades to streets as well as water and sewer lines — for developers, which are then paid back in the form of special assessment taxes. The cost of improvements are divided among all properties within the district. The alternative to this process would be to finance the improvements privately, which is estimated would increase the cost of a residential home by tens of thousands of dollars.

The fee was brought up as a way to build a reserve fund that could cover the annual payments on those improvements should someone fail to pay the special assessment. The discussion arose in response to a couple of developments that went delinquent on their payments — Lee Mill Village and Four Winds — which ended up being sold by the county in a tax foreclosure sale after more than three years. City staff estimates that a 2 percent fee would generate about $140,000 per year.

Though the city has had two examples of developers going delinquent on specials, staff did point out that less than 2 percent of special assessment taxes have gone uncollected over the past 10 years.

Representatives of multiple development companies attended the meeting to voice their thoughts on the possible fee, including Bayer Construction Vice President and CEO Neil Horton. He said that most developers would be happy if they were in the city’s position and could recover costs 98 percent of the time.

“Based on the numbers you threw up there, it seems to me like you’re getting ready to penalize 98 percent of the people who do something right in order to cover 2 percent who do something wrong,” Horton said.

He also recommended the city look into alternative types of collateral that developers could put up to protect the city’s investment in infrastructure. Rich Seidler of Commercial Real Estate Services was also at the meeting and spoke about the potential fee’s impact on affordable housing.

“We can’t preach that we need affordable housing and then turn around and issue more fees that have to be passed on to the end user,” Seidler said. “It just doesn’t make any sense, the two just don’t go hand-in-hand.”

Commissioner Jerred McKee was wary about raising housing costs in the city, but said that they need to mitigate risks for other taxpayers as well.

“Everytime we have to raise property taxes that makes home less affordable as well,” McKee said. “While I understand that it’s only 2 percent that are falling behind, that’s still an expense that we have to pay on the taxpayer and in a tight budget that’s probably going to raise to a mill increase.”

McKee and other commissioners also expressed interest in an idea brought up by Horton to perform financial reviews of developers prior to approving their petitions for benefit district.

Tim Schultz of Schultz Real Estate Development also spoke during public comment, saying he wouldn’t have a problem putting up an additional 2 percent if the city considered returning a portion of it over time.

“Just like Westar does when we do an electric extension,” Schultz said. “We pay, they keep a certain amount,  but then they refund it as the electric is hooked up — gas, generally the same way.”

Mayor Mike Dodson said that fleshing out the process of creating the benefit district and evaluating developers might be another way to go about reducing risk to the city.

Commissioners asked staff to look more into the topic and alternatives and bring the topic back at a future date to-be-determined.