I watched Jared Smart mumble about how developers needed more money from the taxpayers for arterial streets because they have had ‘Skin in the Game’ (FF 51:00) (he was referring to the platting fees developers have been paying since the 2nd penny tax got raised to a full penny.)
Wanna know how much SKIN developers have put in the game compared to taxpayers (financial report August 2011) (screenshot)
He was crying because there was a 81% cut in arterial street construction. But, Jared failed to mention that their ‘Skin in the game’ is barely 10%. We were told that the developers would match the city funding when that 2nd penny was passed. Sorry but $200,000 towards $2 million isn’t MATCHING funds. I think a 4 year old kid could do the math. I wonder what kind of audacity a person has to have to come before the city council and ask for money when they have contributed virtually nothing. This makes me furious, because I was there the night the council and mayor Munson made us sit for two hours before we could give our testimony, and I had to endure Craig Lloyd’s bathroom jokes about Joe Six-Pack’s contribution. I knew this would end this way, but I never imagined that a developer would have the nerve to show up and ask for MORE money when they have given virtually nothing. Jared, you should be ashamed of yourself.
This is the kind of stuff we encounter with “developers” (someone who bought a quarter on the edge of town expecting to make a killing in real estate) in small towns all the time. The ask “When is “the city” going to build streets out this way?” When we explain to them that “the city” doesn’t build streets on their land (subsidize their development) – they do – and they can then add the cost into the price of their lots – …………. you can imagine how they react as they realize their dream-based investment was just that – a dream.
I get won over by the sports metaphor cliches every time.
Oh, I’m sure they are pissed off they aren’t getting a sweetheart deal. I knew what they were up to that night they asked for the full penny. They were never going to keep their end of the deal. NEVER. Well, Huether showed them, didn’t he? I commend Mike for concentrating on our deteriorating infrastructure instead new roads in cornfields. These clowns just don’t get it.
Anon – Yeah, talk about one that is over used, or in this case misused. He wants us to have skin in the game? I guess taxpayer’s 2 million dollars is paltry compared to their $200,000.
Speaking of no skin in the game: http://arguspoliblog.tumblr.com/post/9880611488/gop-hq-in-wrong-county
I’ve heard of redistricting… but wow. Someone send those people a map.
Costner – Lora Hubbel – UGH!!! You should have heard her at forums when she ran for mayor against Munson. Cukoo for Cocoa Puffs.
Back to topic, Cotter assured council today they would ramp up new roads once development picks up during the council’s working session. Rath was at the meeting, hopefully she will come on here and update us.
This is a story about the arterial roads from last year, (Ellis – AL)
Plan to pay for streets crumbles with downturn
Sales tax generates less than expected, loopholes cut developers’ contribution
When Mayor Dave Munson and the City Council raised Sioux Falls’ sales tax in 2008 to pay for new streets, they promised that developers also would kick in millions of dollars to help.
Officials estimated that a sales tax increase and new fees on developers would generate about $10 million a year. The development fees would account for the bulk of that – about $6 million a year, or 60 percent of the program’s costs.
It hasn’t come close to working out that way.
Almost a year into the deal, developers had paid $301,000 in fees through November, or only 5 percent of what officials estimated they would pay into the arterial streets program this year. Through November, taxpayers had contributed $2.5 million to the program.
The drastic shortfall in collections has forced city officials to look at adjustments to the fee program, and a sluggish economy will mean much less spending than planned on new roads and utilities.
What happened?
Bad timing played a part.
On Sept. 15, 2008, the same day the council voted on the tax and fee increases, Wall Street investment bank Lehman Brothers filed for bankruptcy, sending the nation’s financial system barreling off a cliff. Banks clamped down on lending, and development screeched to a halt.
“The developers,” City Finance Director Eugene Rowenhorst said, “are not doing that much nowadays.”
The economic downturn also has hurt sales tax collections. They were down by 4.1 percent through November, although December typically is a good month for sales tax receipts.
Developers’ rush to avoid fees created glut of land
But officials say there are other reasons for the big drop-off in development fees. Builders rushed to get land platted or replatted ahead of Jan. 1, 2009, when the new fees kicked in. That helped create a glut of developable land, and it could take years to cut into that inventory.
“There was a lot of land out there that was already platted and available to build on,” City Engineer Chad Huwe said.
Builders also discovered loopholes to avoid paying the fees, and now city officials plan to review the program, with the goal of suggesting changes to the City Council next year that would better define when a developer is required to pay the fees.
“I think now that the fees are here, if there’s a way they can accomplish what they want without replatting, that is something they will pursue,” Huwe said.
It was a different world in 2006 and 2007. Construction on new residential and commercial buildings clipped along, with 2007 setting a record for valuation in new construction at $523 million.
But behind the scenes, some builders were upset with the city. Sioux Falls, they argued, was not moving fast enough to upgrade roads and utilities in areas primed for development. The lack of basic infrastructure was slowing growth.
Throughout much of 2007 and part of 2008, a group of developers met regularly with city officials to hash out a plan that would allow the city to spend more money on arterial roads and basic infrastructure.
When they unveiled the package in early 2008, officials told the public that Sioux Falls needed $81 million in the next five years for new roads but had only $37.5 million budgeted. To bridge that gap, they suggested raising the city’s share of sales tax from 1.92 percent to 2 percent, the maximum allowed under state law.
The city proposed two new platting fees – one for arterial streets ranged from $1,753 an acre to $15,606, depending on the parcel’s zoning. A water fee added another $1,653 per acre – significant costs to developers. With that, incentives for them to get their land platted before the new fees were in place.
The first attempt at raising the sales tax failed in May 2008 on a 5-3 vote. Undeterred, city officials brought the package back a few months later. This time the council split 4-4, allowing Munson to cast the deciding vote.
Mayor predicts long-term benefits
Munson said he would do it again. The tax increase and platting fees are in place and will begin generating more revenue when the economy picks up.
“You make decisions with the best information you have,” he said. “You don’t look at that vote of raising the second penny as immediate. It really was presented as a long-term solution.”
Although it’s not what officials estimated, the money already has been put to work. The widening of Sertoma Avenue from 12th to 26th streets is an example, Munson said.
Scott Ehrisman, a Sioux Falls resident who opposed the tax increase, said he’s not surprised the deal hasn’t worked as advertised. The city put up a Web site promoting the idea that taxpayers and developers would work together to pay for growth. Ehrisman calls that a ruse by city officials who wanted to raise taxes to their maximum.
Ehrisman notes that the city tried to raise the same tax in 2005 to pay for a recreation center, but the voters said no. This time, the voters didn’t have a say.
“I don’t believe the tax increase had anything to do with arterial roads,” he said. “They were planning on building those arterial roads with or without that tax increase.”
Ehrisman said the .08 percent increase should be rescinded until the development community has recovered enough to begin paying what the city promised it would pay.
“Developers have a choice,” he said. “They don’t have to build. They don’t have to pay the fees. But we have to pay the taxes.”
Need for street work drops with construction
Officials say their estimates were based on historic building trends in Sioux Falls. The program’s first year corresponded – inconveniently – with a very bad year in the building industry.
“I believe eventually we’ll get back to those historical growth rates that we had estimated to make this 60-40 split work,” Munson said.
Long term, when the industry recovers, the split between taxpayers and developers will even out, predicts Chuck Point, a vice president with Ronning Cos.
“The market goes up and down,” he said. “The estimates of what the city might pay and what the developers might pay were just that – estimates. They were brought forth by the city, not the developers.”
In the meantime, arterial street construction is unlikely to be the priority it was a year ago. There isn’t the money, and there isn’t the need. Two years ago, there were tracts waiting for new homes and strip malls. Today, some are in foreclosure.
“You have to adjust the construction plan around the funds you have available,” said Kevin Smith, the city’s assistant director of public works.
“Without a tremendous amount of new growth, the need to build some of those new arterials is not what it was five years ago,” he added.
After one year of working with the new system, officials say they need to make adjustments. They plan to sit down with members of the development community during the next three months to clarify issues. What happens, for example, if there’s a parcel already platted for 10 residences, and the owner wants to redraw the plat and add two lots? Are the new fees paid on 12 lots or two?
Some developers have tried to avoid the fees by claiming their changes are “minor plats,” which are not subject to the new fees.
“We’re trying to redefine our definition more clearly of what is a minor plat,” Huwe said. “Now, everybody comes in and says, ‘Here’s my minor plat.’ And we say, ‘No, it’s not.’ ”
Some people in the industry, Point said, think everything qualifies as a minor plat. There are “little glitches that come up that penalize or allow loopholes that shouldn’t be there.”
“It’s good that the city is willing to look at these things rather than being very hardened and saying, ‘Nope, everybody pays who falls into this category.’ ”
The decisions are unlikely to make everybody happy.
“Five years ago, nobody would bat an eye at $100,” Huwe said. “And now, everybody bats an eye at 10 bucks.”
Reach reporter Jonathan Ellis at 575-3629.
SIOUX FALLS ROAD CONSTRUCTION TIMELINE
2007: For most of the year, business community representatives and city officials meet to work out details of a plan to raise money for new roads. The final plan includes a combination of increases in fees paid by developers and a slight increase in the city’s sales tax.
May 2008: City councilors defeat a plan to raise the second penny sales tax from .92 percent to a full penny with the extra money going to new roads. The vote is 5-3.
September 2008: Scott Ehrisman of Sioux Falls asks the city ethics board to review the standing of Councilors Bob Litz and Greg Jamison for a planned second vote on a proposed fee hike for developers. Jamison’s family owns and develops property and Litz is a developer.
Sept. 12, 2008: The Board of Ethics for the city of Sioux Falls determines that Litz and Jamison do not have conflicts of interest regarding proposed city ordinances related to developers’ fees.
Sept. 15, 2008: Mayor Dave Munson casts the deciding vote to approve the city’s second-penny sales tax increase. The council had been deadlocked 4-4. The package included hikes in fees paid by developers for street platting and other actions.
November 2009: Developers had paid $301,000 in fees – only 5 percent of what officials estimated they would pay into the streets program in the first year. Taxpayers through November had contributed $2.5 million to the program, below the estimated $4 million expected to be generated through the tax increase.
Privatize profits; socialize costs – that’s the scam and it’s long past time it stopped.