The Sturgeon Bay Common Council approved parameters for offering more than $2 million in incentives for two different apartment projects. The packages would require the use of American Recovery Plan Act (ARPA) funding, the use of revenue from an existing Tax Increment Financing District (TID) and the creation of another TID, which would be the city’s seventh if it were approved.
Neither of the developments “looks like it’s going to go without financial incentives,” said Marty Olejniczak, community development director, during the council’s March 15 meeting.
The developments would add 160 apartment units to the city’s west side near Target. The prices would range between $800 and $1,000 per month for one of the developments that the city is considering “affordable housing.” The other development, considered “high end,” would start at $1,200 per month.
Neither of the incentive packages would use general-fund dollars, which the alders stated was a selling point. The council approved the parameters of both incentive packages Tuesday evening, but that’s only the beginning. The development agreements – as well as the specifics for the complex financial arrangements – must still be approved.
The council unanimously approved the parameters for the incentive packages, but Alders Spencer Gustafson, Kirsten Reeths and Seth Wiederanders expressed concerns about the proposed monthly rents. They didn’t all agree that prices ranging in the upper $800s to $1,000 could be considered “affordable.” Neither did they all agree that creating the $1,200-per-month “high-end” housing was the best way to solve workforce housing shortages.
“Eight hundred is good,” Gustafson said. “One thousand a month for a single bedroom – that’s tough.”
Reeths said that take-home pay on a $50,000 salary “doesn’t leave a lot of money in the end” after all other life expenses are deducted. Gustafson agreed that for a person making $50,000-$60,000 a year, $1,000 a month for housing is difficult to swing.
“It’s tough out there, and I wanted to make that point,” he said.
The financial realities expressed by some of the alders were not those of others. Mayor David Ward said that by his calculations, and using a definition of 30% of a person’s gross income going to housing, a person making $17.50 an hour – or roughly $35,000 a year – could afford a rent of $1,000 per month.
Ward also said it wasn’t just workforce housing that was needed.
“We have housing needs for a broad spectrum,” he said. “We have professionals.”
Apartment Development #1
The first developer, Duquaine Development, would receive $750,000 to build a 64-unit housing development between Sawyer Drive (Oak Street) and Target.
The property is currently located within the Town of Nasewaupee, but the city signed an annexation agreement in 2019, agreeing to annex the property into city limits. The sewer and water would then be extended and assessed back to the property owner if the city does it, or paid for by the property owner, according to the agreement.
“It’s about 98% surrounded by city properties, and we can get sewer and water there easily,” Olejniczak said.
With all the pieces in place, the developer was still “unable to proceed with the development,” he said.
The land is not located within city limits, so the city could not use its most common tool for offering development incentives: the creation of a TID. Instead, and with approval from Ward to negotiate an incentive package, city staff took a different approach.
The incentives for this project would be paid for in part by federal ARPA dollars that Sturgeon Bay has received. The federal stimulus bill provided funding to all municipalities to aid public health and economic recovery from the COVID-19 pandemic. The money can be spent on a range of government operations that fall under broad categories, including “housing and neighborhoods,” which includes projects related to homelessness, affordable housing, housing vouchers and residential counseling.
Sturgeon Bay received $975,000 in ARPA money. Of that, $275,000 would go toward the Duquaine development.
“We don’t have a lot of incentives out there, and we think this is a good one,” Ward said.
The other $475,000 for that development would come from an affordable-housing fund being created by extending the life of the TID 1 (see below). The apartments would go for between $800 and $1,000 per month, according to the developer.
Apartment Development #2
The second development has been referred to as “high end,” with units that will cost $1,200 per month and have attached garages. The developer, Premier Real Estate Management (PRE/3), would build a 96-unit apartment complex between Duluth Avenue and Target on a 13.1-acre parcel of land that the developer entered into a contract to purchase last April.
The city is proposing an incentive package of $1.5 million in the form of developer-financed tax incremental financing (see below).
“They have [a] preliminary design completed, but according to the developer, the construction cost is projecting to be $2 million over what they can do,” Olejniczak said in his memo presented to the council for its March 15 meeting. “After some back and forth, and with the blessing of Mayor [David] Ward, we tentatively agreed upon an incentive package of $1,500,000 in the form of developer-financed tax incremental financing.”
Sturgeon Bay TIDs
Tax Increment Financing District (TID) 1 – the city’s first and the one that built the industrial park – was created in 1991 and was originally set to expire in 2018, according to Valerie Clarizio, city finance director/treasurer. But years ago, the city turned TID 1 into a donor to help out TID 2 – a district created in 1994 and designed to help rebuild Sturgeon Bay’s east-side waterfront.
As a donor, TID 1’s expiration was extended to 2028. But now, the city wants to turn TID 1 into a revenue source for an affordable-housing fund. Some of those funds would be earmarked for an apartment complex that would have rents of between $800 and $1,000 per month.
By statute, the city is allowed to divert revenue from an existing TID into an affordable-housing fund for one year only. After that, the TID would expire.
The city agreed to the extension concept during its March 15 meeting, but it must officially approve the move. That consideration is expected to come during the April meeting. The amount of revenue that TID 1 generates annually changes with the tax rate. For 2022, that revenue is expected to be $845,000.
The city currently has five TIDs: the above two, plus TID 3, which includes the WireTech property on the east side of 6th Avenue; TID 4, which includes the West Waterfront; and TID 5, for the former Sunset School property.
Two more are in the works: TID 6 along Egg Harbor Road, and now TID 7 proposed during the March 15 Common Council meeting to help fund a new housing development on the city’s west side.
According to the TID 7 arrangement being proposed, the developer would take the $1.5 million loan backed by the development agreement with the city – which has yet to be created – and then the city would return a portion of the taxes paid into the TID to the developer in order to pay down the loan, according to a memo about the arrangements by Marty Olejniczak, community development director.
“This TID reimbursement set-up is what the city created for the Bay Lofts [apartment complex] in TID #4,” Olejniczak wrote. “No upfront funding is proposed, and the loan is taken out by the developer, not the city, which limits the risk to the city. If the project generates less in value than anticipated, any shortfall is then borne by the developer, not the city.”
What’s a TID Again?
To create a TID, a municipality draws a box around an area within its boundaries that it wants to redevelop due to blight or economic development. All of the property taxes within that box make up what’s called the “base value.”
In Door County, municipal property taxes are pooled and then divided among the local school district, the Northeast Wisconsin Technical College and the County of Door, and then a portion goes back to the municipality itself.
In a TID, any increase in property-tax revenue does not get divvied up among the school district, technical college and county, but rather, it goes only to the municipality. The other taxing authorities continue to receive revenue based on the established base value. Once the TID expires, the property-tax revenue is once again split up among those four entities.
All of the city’s TIDs to date have involved the Sturgeon Bay School District. The TID 7 being proposed would instead, given its location, involve the Southern Door School District.