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Facilitating New Home Ownership in the City of Wichita

Facilitating New Home Ownership in the City of Wichita

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Published by Bob Weeks
Facilitating New Home Ownership in the City of Wichita
Facilitating New Home Ownership in the City of Wichita

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Published by: Bob Weeks on Feb 13, 2012
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02/13/2012

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Agenda Item No. IV-5City of WichitaCity Council MeetingFebruary 14, 2012TO:
Mayor and City Council
SUBJECT:
Facilitating New Home Ownership in the City of Wichita
INITIATED BY:
Department of Finance
AGENDA:
New Business
Recommendation:
A
dopt the home rule ordinance and place on first reading.
Background:
Since October 2011, City staff have been working closely with the Wichita Area BuildersAssociation (WABA) to develop ways to stimulate new home construction and ownership in the City of Wichita. Home ownership builds stronger communities, creates jobs and provides a more stable tax base.Annually, during periods of economic expansion, total new construction (residential and commercial) hasadded approximately 3% annually to the City’s assessed valuation tax base. Since 2010, this figure has been closer to only 1%.WABA reports that the Wichita MSA supported over 16 thousand construction jobs during the lastdecade. Many of those jobs have vanished, and the unemployment rate among construction workers has been estimated as high as 29%.
Many other communities in the MSA have programs to stimulate new home construction and homeownership. These programs include varying components, such as cash payments to buyers, rebatesof municipal property taxes, credits towards municipally provided utilities, discounts on recreational programs, and waivers of utility connection fees. Many of these programs are in addition to andcoordinated with discounts and incentive programs offered by developers and builders.
Analysis:
To promote additional new home construction and new home ownership, the City of Wichita, after extensive coordination and discussion with WABA, is proposing a New HOME (NewHome Ownership Made Easy) Program. The program will provide a 5 year rebate of City propertytaxes for eligible property. To be eligible, property must be in a participating development, with alltaxes through 2010 (general and special assessment) current in the development. In addition, to beeligible, the special assessment and general taxes must be paid current at the date of sale and closingof a property.The program is designed to encourage the building of 1,000 new homes within the City limits over a period from March 1, 2012 through December 31, 2013. The program will be limited to the first1,000 eligible new home owners. City staff from multiple departments has evaluated each of the proposed incentives individually and with the Center for Economic Development and BusinessResearch at Wichita State University. In addition, best practices research was conducted utilizingsimilarly sized communities to determine what, if any, actions are being taken to stimulate housingconstruction in those communities.
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The program also includes an administrative regulation change to increase available developmentlots. Currently Administrative Regulation 6.2 (AR 6.2) requires developers to be current on specialassessments in existing developments before they would be considered for additional newdevelopment. This limits exposure for the City of Wichita. However, it also could preclude the useof special assessment financing to complete a development and allow new homes to be marketed andsold. For that reason, the program includes a one year moratorium on this section of AR 6.2.
Financial Considerations:
The program will not have a direct cost to the City; however, it willresult in an opportunity cost in the form of lost property tax revenue for the next five years. The Citywill rebate 100% of City property taxes for the first five years for eligible home buyers. On a homevalued at $200,000 (assuming appreciation of 2% annually) and a stable mill levy, the cost of this program would be an estimated $3,873 in lost property tax revenue per home over five years.
Year Home Value City levy Refund portion Refund Amount Cumulative1 200,000 .0324 100% $744.26 $744.262 204,000 .0324 100% 759.14 1,503.403 208,080 .0324 100% 774.32 2,277.724 212,240 .0324 100% 789.81 3,067.535 216,490 .0324 100% 805.62 3,873.15
The maximum City exposure in terms of lost revenue is estimated at $3.8 million over five years.This lost property tax revenue is expected to be offset by increased property and sales taxes based onthe additional employment and spending by the residential construction industry. In addition,assuming 1,000 new homes are constructed at an average value of $200,000 each, at the end of thewaiver period, an estimated $23 million in additional assessed valuation would return to the City taxrolls, generating an estimated $745,200 in new property taxes annually. City operating expendituresto service developments in which eligible new homes are built are expected to be minimal, sincethese areas are currently platted and annexed by the City.The program will also result in accelerated collection of delinquent taxes. Developments are eligibleonly if taxes are current in the development through 2010. In addition, taxes on new homes sold arerequired to be current at the time of sale. This impact is difficult to estimate; however, currentdelinquent specials on vacant lots within the City of Wichita are an estimated $3.3 million.The Center for Economic Development and Business Research at Wichita State University analyzedthe fiscal impact of the proposed New HOME incentive program on the City’s General Fund. Theanalysis compares the present value cost of incentives to the present value benefits of direct andindirect jobs created and construction expenditures. In this case, a 1.48 to one ratio of benefits-to-costs is reported.
Goal Impact:
The City Council’s goals for Economic Vitality and Affordable Living and Quality of Lifeare advanced through the stimulation of new home construction and ownership in the City of Wichita.
Legal Considerations:
The Law Department has prepared the ordinance and approved it as to form.
Recommendations/Actions:
It is recommended that the City Council adopt the home rule ordinance and place on first reading.
Attachments:
Program summary materialSummary of incentive programs offered by other communities in the MSAHome Rule Ordinance
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(Published in The Wichita Eagle on March 2, 2012 028001ORDINANCE NO. 49-214AN ORDINANCE OF THE CITY OF WICHITA, KANSAS (THE “CITY”),AUTHORIZING A PROGRAM FOR REBATES TO HOMEOWNERS OF THECITY PORTION OF AD VALOREM PROPERTY TAXES PAID ONQUALIFYING NEW HOMES IN QUALIFYING DEVELOPMENTS FOR APERIOD OF UP TO FIVE YEARS, SUBJECT TO CERTAIN LIMITATIONS,CONDITIONS AND RESTRICTIONS; AUTHORIZING STAFF TO PREPAREAPPROPRIATE APPLICATION FORMS AND AGREEMENTS TO BEEXECUTED BETWEEN THE CITY AND HOMEOWNERS PARTICIPATINGIN THE PROGRAM; AND, AUTHORIZING THE CITY MANAGER TOEXECUTE SUCH AGREEMENTS ON BEHALF OF THE CITY.WHEREAS, Article 12, Section 5 of the Kansas Constitution empowers cities todetermine their local affairs and government; andWHEREAS, the Governing Body of the City of Wichita, Kansas (the “City”), infurtherance of its objectives to build stronger communities, create jobs and provide a more stabletax base, desires to stimulate new home construction and home ownership within the City’scorporate limits; andWHEREAS, as a means of stimulating new home construction and home ownership, theGoverning Body of the City finds it necessary and desirable to establish a rebate program to beknown as the New HOME (New Home Ownership Made Easy) Program, which will provide arebate of the City portion of real property taxes on eligible properties for a period of up to fiveyears, subject to certain limitations, conditions and restrictions. NOW, THEREFORE, BE IT ORDAINED BY THE GOVERNING BODY OF THECITY OF WICHITA, KANSAS AS FOLLOWS:
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