Hutchinson is facing an urgent need for housing development, with studies indicating 1,000 units needed over the next decade.
City officials held a strategic session last week to, for the second time this year, address housing concerns. The meeting focused on exploring resources and tools to enhance house availability and affordability.
“We have plenty of land within the corporate city limits right now available,” Director of Building, Planning and Zoning Dan Jochum said. “I think that the biggest issue continues to be the cost of infrastructure.”
Hutchinson accounts for approximately 90% of the homes in the market area, according to Jochum.
During the strategic session, City Administration Matt Jaunich highlighted findings from a recent community survey, which revealed a generally positive sentiment toward the layout and design of residential areas. However, he noted a decline in satisfaction with the variety of housing options, with 48% rating them as good or excellent, down by 11%. He also mentioned a 15% decline in satisfaction with the availability of affordable quality housing, indicating a persistent challenge for the community.
“I think just from an overall standpoint, what we’ve done has been viewed well by the community,” Jaunich said. “I think there’s still some desire for a greater variety of housing options and then, obviously, the affordability aspect.”
Finance Director Andy Reid broke down the tools and funding options available, focusing on tax increment financing, tax abatement and bonds.
TAX INCREMENT FINANCING
Tax increment financing stimulates development by capturing increased property tax revenues generated from new construction or improvements within designated areas. Under TIF, the incremental increase in property tax revenue is redirected to fund qualifying project costs, such as infrastructure improvements or site remediation.
“The important thing to remember with TIF is the property owner is still paying property taxes,” Jaunich said. “Instead of that property tax getting collected and getting distributed amongst the entire tax base, it goes to this project. You’re paying most likely for the infrastructure in that area.”
TIF impacts the broader tax based by delaying the benefit of increased property value until the TIF period expires, Reid said.
“The normal citizen or taxpayers are paying a slightly higher tax rate because of that,” he said. “If this came on board all at one time right now, we would see a lower tax rate because of the higher value. Since that’s not happening until the end of it, taxpayers are paying a slightly higher tax rate because of it.”
TIF revenue is generated over a designated term and tailored to suit the project’s requirements, Reid said.
Distribution of TIF revenues is a critical consideration, he said, with options including developer-secured private financing or city-issued TIF bonds.
“The best option from the city standpoint would be the developer secures private financing and then uses the TIF revenue to pay that debt,” Reid said. “That puts all the risk on the developer of the TIF not performing. Option two, the city could issue TIF bonds to pay for the qualifying costs, but then the city’s going to accept the risk of the TIF not performing.”
Council members acknowledged the complexities associated with TIF, particularly in terms of affordability and the allocation of tax revenues. TIF often entails mandating a percentage of units be reserved for households below certain income thresholds.
“With TIF comes an affordability component … you have two options. Either have 20% of your units restricted at 50% of the county median income or 40% restricted at 60% of account median income,” Reid said. “That one component sometimes drives developers away from wanting to use it.”
TAX ABATEMENT
Tax abatement, different from tax exemptions, mandates property owners to fulfill their tax obligations while redirecting the taxes paid back to the property as a subsidy.
In comparison to TIF, tax abatement lacks an affordability component and is administered by the city rather than the county. However, it typically captures only city taxes, resulting in lower revenues, especially for multifamily developments, according to Reid. This shortfall often fails to cover the funding gap for such projects.
“The best option for the city would be if the developer secures private financing and uses the abatement subsidy to repay their debt,” he said. “That’s the lowest risk to the city, or the city could issue tax abatement bonds to finance the project, but then again the city would be assuming the risk of the abatement not performing, and (there’s) no affordability component under tax abatement.”
SPECIAL ASSESSMENT BONDS
City officials also explored issuing bonds and assessing developments for associated costs. The focus was primarily on single-family development scenarios, as they were deemed more relevant than multifamily projects. Under the proposal, the city would evaluate each property’s contribution to infrastructure expenses, contrasting with the current policy that assigns the entire cost to new developments.
“And I guess the question for council would be, ‘Does the city want to assume some of that cost, knowing that it would affect our tax levy,’” Reid said.
The bond option entails structuring the debt to the pace of home construction. Under this plan, assessments on properties would likely be deferred until lots are sold and homes are built. Initial years would see interest-only payments to allow time for revenue generation through assessments once properties are developed.
While this approach presents a viable solution to fund infrastructure, it also exposes the city to significant financial risk. Should assessment revenues fall short, or properties fail to sell as anticipated, the city would be responsible for covering the shortfall through the tax levy.
In addition to considering infrastructure financing for new developments, the council also addressed existing debt obligations, including roadway projects and essential equipment replacements such as fire trucks and snowplows.
Currently, the city issues debt annually for roadway projects, adhering to a debt limit of $1.9 million for annual costs financed by the tax levy or debt levy. The looming consideration is whether incorporating debt for developments would constitute additional debt or prompt the City Council to contemplate reducing existing roadway debt to accommodate the new financial obligations.
“So it’s either less maintenance if you’re not willing to raise the levy or you have to raise that levy to make up for shift in those funds,” Jaunich said. “I mean, these are the things that we have to start talking about if we’re going be involved in housing. We have to think about that.”
