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Councilors face tough decisions about Housing Initiative

Published: Thursday, Oct. 24, 2013 11:55 a.m. CDT • Updated: Thursday, Oct. 24, 2013 11:56 a.m. CDT

The six members of the Newton City Council have a lot of decisions to make between now and when it is asked to take up the Newton Housing Initiative at its Nov. 4 meeting.

Monday’s marathon meeting, lasting two hours and 41 minutes, did so largely because of council discussions about the initiative. Councilors were divided on a number of aspects of the plan, although there appeared to be a consensus that most were supportive of the initiative in general.

City Administrator Bob Knabel gave a brief presentation on two major aspects of the initiative that he said required discussion before proceeding: funding and implementation. He asked the council to provide him with a consensus of whether or not city staff should continue to work on the project afterward.

Following several lengthy discussions and open disagreements about various aspects of the proposal, councilor Noreen Otto told Knabel she thought he should bring it to the council for action at the Nov. 4 meeting.

Funding Discussion

The price tag for the Housing Initiative, as currently proposed, is $3.65 million. There was discussion about whether or not certain components were necessary, whether or not certain components were appropriate, and whether or not certain components were properly funded in the proposal.

Regardless of how the final Housing Initiative proposal looks before councilors vote on it Nov. 4, Knabel said there were three ways in which the city could pay for the program. They were:

• Use of existing city revenue -- If they go with this funding option, councilors must find approximately $1.22 million per year for the next three years to divert from existing city functions, services and payroll to cover the cost of the Housing Initiative. To do this, 11 percent of existing city employees would have to be laid off.

• Use of new city revenue -- If they go with this funding option, councilors would need to generate approximately $1.22 million per year through new taxes and fees. The bulk of it would come from a proposed 5-percent franchise fee Knabel said is hoped to be used for street improvements and existing staffing needs.

• Use of the city’s existing debt capacity -- The City of Newton has a calculated debt capacity of $41.2 million, of which a little more than $19 million is currently being used. Taxpayers currently pay $1.04 per $1,000 valuation of their property to service that debt. General obligation bonds could be sold to cover the full amount of the proposed Housing Initiative cost.

Knabel said he felt bonding for the cost of the program would be the most reasonable means of setting the program in motion. He recommended selling general obligation bonds with 10 year terms over the other options.

“If $1,200,000 were to be taken from the current budget to be used for the housing initiative, approximately $1,000,000 would be needed from personnel. That translates to about 13 employees, or about 11 percent of the current staff,” he said. “It would be the hope of the staff that [franchise fee] funds could be used for major street maintenance and additional staffing capacity.”

There are two ways in which the added debt could be serviced, which led to additional discussion and disagreement among councilors.

One way would be to maintain a relatively flat debt service levy. Using this option, more interest likely would be paid, and the bulk of the bonds would be paid off as earlier bond issues were paid off.

The second option would be to add the actual cost of the bonds to the debt service levy, and have the levy rise and fall as bond issues were added or paid off. This option would likely result in less interest paid, but would mean taxpayers must pay more up front out of pocket.

The first option would result in a debt service levy rate of $1.07, unless more bonds are sold, until 2024. The second would result in a debt service levy rate of $1.46, unless more bonds are sold, that would fall over time as earlier bond issues were paid off. The rate would drop to 42 cents in 2020 and fall to zero in 2024.

Implementation Discussion

As with the funding for the Housing Initiative, councilors must choose between an array of options for implementation. Those options are:

• use existing staff

• hire additional city staff

• contract for the services

In this discussion, the council appeared to have much greater consensus that it was having difficulty agreeing to hire a new city staff member to implement the program.

“If you decide to have existing staff handle these duties, I’m going to tell you now you’re going to have to tell them what you want them to stop doing to make room for it,” Mayor Mike Hansen said. “I’m in here frequently, and there isn’t a time that I see them without something to do.”

As the Housing Initiative is currently proposed, the following functions would need to be fulfilled:

• Coordinating the Housing Initiative overall

• Administering the Dangerous & Dilapidated Housing Program

• Administering the Abandoned & Dilapidated Housing Program

• Administering the Low-to-Moderate Income Housing Program

• Administering the Grants for Grads Program

• Developing guidelines for buyer, builder and property owner incentives

• Facilitating property subrogation for owners and builders

• Marketing the Housing Intiative programs

• Assisting with property acquisition needs

• Serving as director for the Newton Housing Development Corporation

Knabel said guidelines and procedures need to be developed for each of the programs and forms and documentation created. He said the programs will need to be advertised and promoted and safeguards put in place in order to ensure guidelines are met and the Housing Initiative is achieving its goals.

He said it was his hope the program administrator could also address the implementation needs of the Retail Initiative and the Buxton Report. He strongly recommended hiring a full-time staff member with a salary of between $44,572 to $65,074.

Knabel was able to find ways within the current budget to fund the position as early as December. He also outlined the advantages and disadvantages of contracting out for the services.

Advantages included:

• Extended employee benefits costs are not assumed by the city. The city will be paying for benefits through the contract, but the employee will not be on the city’s payroll.

• If not satisfied with the services, the contract is easier to terminate than an employee.

• The city may not have to cover overhead costs or office space for the employee. The contracted amount may include costs for utilities, copiers, telephone, etc.

• The depth and breadth of the organization that has the contract may be of value. As with Brick & Gentry, the company may have multiple staff that can work on a city issue, thus bringing greater experience to the solution. And, their expertise may be greater initially.

Disadvantages included:

• The city will be paying the “profit margin” for the company. Businesses will be covering its costs, plus charging an amount for profit.

• The selection of the employee serving the city may not be made by the city council. The city may have little say over who that employee will be. The employee may be assigned to the city as an account by the company such that the city has no choice in the matter.

• Initially there may be some concern about loyalty and commitment to the City of Newton, especially if the company is working for other communities and they know this contract is for a short duration. Newton may end up playing “second fiddle” to other clients.

• Control and timeliness ofthe work product can be an issue.

• The unit costs for the contracted service may be higher than the hourly cost of the employee. Because the companies have to cover not only all personnel costs and all operating costs, it also has to cover its profit margin.

Knabel also demonstrated how, based on the unit costs, the city would either pay more or receive fewer hours if contracting for the services.

Councilors noted they have had a number of requests for additional staffing from several departments. Most said they were troubled by the notion of hiring a full-time city employee for what may be a short-term position.

Daily News Editor Bob Eschliman may be contacted at (641) 792-3121, ext. 423, or at beschliman@newtondailynews.com.

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