$600,000 funding error in city’s affordable housing has city staff eyeing money recouped from billing audit
A funding mistake in the city’s affordable housing trust fund is casting doubt on whether the city will pursue a talked-about property tax cut in 2019.
City officials recently learned they can’t use bonds to finance about $600,000 worth of projects approved as part of the city’s affordable housing trust fund. That has left city officials scrambling to find $600,000 in cash to pay for the already-approved affordable housing projects.
Recently, commissioners have discussed taking the money from a $630,000 windfall the city received after an audit found the city had failed to send bills to a number of entities doing business with the city. However, city commissioners previously had discussed using a good portion of the found money for property tax relief in 2019, reasoning that past tax increases could have been mitigated if the city had properly sent out bills to the entities.
Now, this most recent mistake may derail those discussions. Mayor Stuart Boley said the discussion should happen in the wider context of the city’s 2019 budget.
“It’s going to be there when we start our (budget) discussion,” Boley said. “We will have discussions about what’s the appropriate use for the money then.”
The news is disappointing to some residents who believe city government already is putting a strain on people’s wallets.
Patrick Wilbur, a leader with the Lawrence Sunset Alliance, said returning the recouped money to taxpayers in the form of property tax relief seems like common sense.
“The city is directly responsible for that, so I think there is a good-faith notion in here,” said Wilbur, whose group has lobbied against recent tax increases. “In addition is the fact that our mill levy went up last year, and it’s only fair that that money be returned to the taxpayer.”
As part of this year’s budget, the city increased its property tax rate by 1.25 mills, adding about $25 a year in city property taxes on a $175,000 home. In addition, the city approved utility increases that add about $65 a year in utility costs for the average Lawrence resident. Douglas County and the Lawrence school district also increased their property tax rates.
Searching for $600,000
The latest issue comes after the city learned it didn’t have an accurate understanding of how it could legally fund affordable housing projects.
Originally, the city planned to issue debt, in the form of bonds, to fund the affordable housing projects. However, the city’s bond counsel, after reviewing the proposed affordable housing projects, advised the city it would be difficult for those housing projects to meet bond requirements that the projects contribute to economic development, Assistant City Manager Casey Toomay said.
That determination has left the city searching for a source of cash to fund $600,000 in affordable housing grants it already awarded this year. Using the dollars recouped through the audit is one of two funding options being recommended by city staff, the other being shuffling $600,000 worth of Parks and Recreation projects from cash to debt in order to free up the needed cash for the affordable housing projects.
City staff has noted that using the recouped dollars to fund the affordable housing projects would still provide some temporary property tax relief. Specifically, it would allow the city to avoid interest on the $600,000 in bonds it would have issued for the affordable housing projects, the result being about $65,000 in interest and a 0.13-mill reduction in the property tax rate for a period of five years.
Ultimately, the choice of what to do with the $630,000 in recouped money and how to pay for the $600,000 in affordable housing projects is up to the City Commission.
Like Boley, Vice Mayor Lisa Larsen and Commissioner Jennifer Ananda said whether the hundreds of thousands of dollars recovered in the audit will be used to directly offset the city’s property tax hike is still up for debate.
Larsen said she is open to the full discussion on what to do with the extra money, but is undecided. She said the decision will require scrutiny.
“Anytime we get an opportunity to provide some property tax relief where the money is truly available, then obviously that’s something that should be looked at really hard,” Larsen said. “Should it be returned to the public? Maybe so. But I don’t think I want to tie my vote to any one thing until we’ve heard every single option.”
Ananda said for her, that choice is also “to be determined” and would need to be weighed against other possibilities for the money.
“Our job as a commission is to look at what is available to us and to make the best decision for all residents,” Ananda said. “… We have a lot of options because we have a lot of needs.”
The affordable housing funding mix-up raises the question of why the city wasn’t clearer on how it could fund housing projects before it awarded the money. Lawrence voters approved a sales tax last year that will provide about $1 million annually to the city’s affordable housing trust, and some of the public criticism leading up to the vote centered on whether the city had a clear plan for how it would address the affordable housing shortage in Lawrence.
Boley, who was formerly a member of the Affordable Housing Advisory Board, said the funding mix-up doesn’t have to do with the city’s understanding of affordable housing projects, but conversations between city staff and bond counsel about what the city could do with proceeds. He said the city was pretty upfront in saying what it had was “a roadmap for developing a plan,” which includes commissioning a housing study that is currently in progress.
“What the voters responded to was not a plan; they responded to a need,” Boley said. “And they were right. And that’s what we’re trying to do as we go through this, is respond to a need that is present in our community.”
About 40 percent of Lawrence renters and homeowners — or more than 13,000 households — spend more than 30 percent of their income on housing costs, qualifying them as “cost-burdened,” according to Census numbers. Half of those cost-burdened households spend more than 50 percent of their income on housing, making them severely cost-burdened.
More housing money?
Boley and Larsen have also expressed interest in correcting another aspect of that funding mistake, which erroneously disqualified certain types of affordable housing assistance.
Because the city was originally planning to use debt, that funding source disqualified certain affordable housing programs from applying for those dollars. Originally, the grant program did not allow organizations that provide housing subsidies such as vouchers to apply for affordable housing grants because debt can’t be used to fund such programs.
Now that the funding source is cash, Boley and Larsen would both like to consider using the excess fund balance anticipated in the city’s general fund — Larsen has suggested $200,000 — to fund additional affordable housing programs such as vouchers this year.
Larsen, who originally proposed the idea, said cash-funded projects such as voucher programs are an important part of efforts to alleviate affordable housing problems. For instance, some voucher programs are used to help people living in the homeless shelter transition into their own housing.
Boley said he’d like to consider the idea because the whole application process “was based on a flawed premise.” He said it’s hard for him to cut out programs that require cash funding this year, and that he sees providing more funding as a chance to correct the city’s mistake.
“We started in good faith, but what happened was we learned other things since we did that budget,” Boley said. “And how can we say there are needs that we haven’t addressed because they didn’t quality for our process?”
Another aspect that led to Larsen’s proposal is that extra money may be available, and not just the money recouped from the audit. Larsen said she has been watching the city’s general fund balance and anticipates there will be excess funds in addition to the accounts receivable dollars. But that won’t be known for sure until the city’s year-end balances are known, and Larsen said it’s at that point that she’d like to have that conversation.
“If we didn’t have this situation happen with bond funding versus cash funding, then we might not be having this conversation at all,” Larsen said. “But I feel as though there could be an opportunity there to address a little bit more of the needs and give those other types of programs that couldn’t be bond-funded a chance at it.”
Should the commission ultimately decide to allocate another $200,000 to the affordable housing trust, Larsen said she is interested in opening up another round of grant applications this year before the city’s 2019 budget process.
The $630,000 recouped from the billing audit and the potential for other excess revenue will test how this commission will deal with unexpected dollars. Finance Director Bryan Kidney said that there is no city policy for what should be done with such excesses, but that the administrative best practice that the city follows is that any overages are transferred to the city’s reserve fund for discussion in context with the budget process.
The sales tax dollars that will be devoted to the affordable housing trust will not become available until 2019. Still, for his part, Wilbur said there is a lot of money on the way for affordable housing, and any discussion about whether to devote additional dollars this year, such as the $200,000 Larsen is proposing, should be had in context of all needs. He said he is uncomfortable with money being diverted that directly outside of the budget process.
What the commission has decided is that it will go ahead and fund the $600,000 in affordable housing grants it already awarded. Kidney said that means the projects will need to be funded by a cash transfer from the general fund this year. He said the city would not have issued the debt for the projects until next year, so there is no other direct effect on this year’s budget.
City staff has not provided a date for when 2017 year-end balances will be known. The city’s 2019 budget process will begin this spring.