Last week’s City Council meeting began with a talk about City Hall taking yet another stab at streamlining how it does business with developers and builders.
Making the presentation to the council was John Helbling, an Alliant Energy expert on a management efficiency process known as LEAN.
Once again, as in years passed, Alliant is loaning Helbling’s services to the city free of charge.
Deeper into last week’s meeting, the subject turned to the failed low-income housing project, Osada.
Down the line on the City Council, council members – except for Chuck Wieneke — enthusiastically endorsed a rescue plan for the empty, visible, five-story building. The plan is designed to provide some local incentives that developer/builder Fred Timko says he needs to convert the 67 loft apartments in the building into 58 loft condominiums.
For Wieneke’s part, he said he didn’t like the creation of a $700,000 pool of money — which will be funded from new property taxes based on Timko’s renovation investment — so that Timko can offer breaks for those buying condominiums ranging in price from $100,000 to $200,000.
The other council members said the incentive made sense because Timko’s venture comes with no little risk to him and comes with great potential for the city if the Osada building doesn’t sit empty.
Wieneke continued on, saying that Alliant Energy should be paying to create some or all of the $700,000 pool of money, not the city. By Wieneke’s count, the city was paying too much and Alliant was making out too well.
No one on the council agreed with him.
In the two days after the council meeting, it seemed to become clear that no one is lining their pockets with profits among those who previously invested in the Osada project.
Both Mark Thompson, legal counsel for the Iowa Finance Authority, and Tom Aller, president of Interstate Light and Power Co., Alliant’s energy subsidiary in Iowa and Minnesota, both assured as much.
The road to here began back in the 1990s when Cedar Rapids community leaders wanted to create more low-income housing, and an entity existed, the MidAmerica Housing Partnership (MAHP), to manage it once it was created.
As continues to be the case today, one way to create financing for low-income housing projects is through federal tax credits. A private entity puts up money for a low-income project and recoups its money by paying less tax using tax credits.
Using that tact, what now is known as Alliant Energy Investments provided about $3 million to help pay for the renovation that turned an old empty warehouse into the Osada low-income loft apartments, explained Alliant’s Aller. Alliant then received federal tax credits to reduce its federal tax bill over time as a way to recoup what it has spent on Osada.
What is known now is that the Osada idea didn’t work out. Last fall, MAHP failed, and though some of its properties were kept alive by a new entity, the Affordable Housing Network, the Osada project did not survive. It needed to many repairs and it had too little cash flow to pay its bills.
The community’s choices for Osada were two: let it go bankrupt and let the Iowa Finance Authority get stuck with it; or figure out a way to redevelop it.
The Timko proposal then emerged for him to buy the building for $3.1 million – it’s appraised at $3.3 million, council members said last week – and for Timko then to pay to renovate it for $3.5 million more.
But who gets the $3.1 million?
The Iowa Finance Authority’s Thompson reported last week that the authority, which holds the mortgage on the Osada building, is owed about $1.9 million on the project with another $200,000 forgivable loan also in question.
By the way, Thompson added that no deal has been inked yet to sell the Osada building to Timko, who is part of an entity called BPI -GRR LLC.
Meanwhile, Alliant’s Aller explained that the federal requirements on some of the Alliant tax credits used to pay for Osada architectural work have been satisfied. However, the strings connected to other of the tax credits involved in the low-income housing project have not been. The U.S. Internal Revenue Service will want money from Alliant now that Osada has failed, he said.
In proposed numbers used by council member Wieneke at last week’s council meeting, Wieneke said the Iowa Finance Authority will receive $1.6 million, Alliant $1.5 million and the city nothing from Timko’s $3.1-million purchase price.
The Authority’s Thompson said he hadn’t given up on getting $1.9 million and Alliant’s Aller said Alliant, at the end of the day, really doesn’t get anything.
Aller said whatever comes Alliant’s way in the sale to Timko is headed to the IRS and elsewhere. There’s also $100,000 going to helping-service agency Four Oaks for stepping in to manage and oversee the breakup of MAHP properties; $200,000 to the city for low-income housing; and there are vendors who provided service to the property that need to be paid.
If the IRS takes less rather than more, Aller said Alliant will send the money back to the city or the community.
“And when that distribution of money is done,” he added, “there will be zero dollars left for anybody, including Alliant.”
Council member Wieneke last week focused on the investment made through City Hall in the past for the Osada project.
According to a tally rounded up by the city’s Community Development Department, the city steered just over $1 million to the Osada project. About $380,000 of that amount was federal dollars from the U.S. Department of Housing and Urban Development that passes through the city, and $225,000 was a revitalization tax exemption. A total of $350,000 was an outright grant of city tax dollars.
The Iowa Finance Authority’s Thompson noted that the authority has other outstanding debt from the former MAHP that it will have to eat along with what it won’t get in the Timko deal.
As for Aller, Alliant is a publicly-traded private company that doesn’t rush to say it might have lost money. In truth, the final tally of who lost what won’t be known for months if not a year.
Council member Pat Shey, a bank officer who recused himself from debate and voting on the Timko proposal because his bank is providing financing to Timko, said late last week he’s sure Alliant isn’t profiting. The last thing Alliant needs is a headline saying it made money off the failed Osada project, Shey said.
Council member Brian Fagan was quick to step in last week to disagree when Wieneke suggested that Alliant wasn’t doing enough.
Fagan said the city didn’t want to send any signal that might discourage the use of federal tax credits in the future to help increase the low-income housing stock in the city.
Council member Monica Vernon said it was important to leave an accurate perception about Alliant, which she said has done much good as a “major player in this community.”
The city has new projects on the horizon, she added, and private-sector support from the likes of Alliant is going to matter.
Both Vernon and Justin Shields both applauded the Timko redevelopment plan for the Osada building, both wondering who would have done it if not him.
“A lot of people had the chance to line up,” Shields said, adding the city even could have bought the property. “Mr. Timko put up his money.”
Council member Jerry McGrane called the coming Bottleworks condominiums “a great opportunity to rebuild that neighborhood.”
Council member Kris Gulick said the city incentives will allow Timko to make a reasonable return on investment for a risky venture.
Council member Tom Podzimek called the condominium project a testament to the “smart growth” that the council is promoting. City snow plows must travel more than a mile to pass 58 households in a typical city neighborhood; here those 58 households will be in one place, he said as he imagined the inexpensive cost to deliver that the plowing service.
Don’t get Alliant’s Aller wrong: He said the company’s initial role in the Osada project wasn’t an outright gift of money. The company expected to cover its upfront payment over time with tax credits.
“But this project would never have happened unless the old IES Co. (now a part of Alliant) hadn’t put up the $3 million to begin with,” Aller said. “And at the time, we were trying to be a good citizen. Everybody wanted to do the project. The vice president (Al Gore) was there as I recall.
“But the point is sometimes projects don’t work.”