Madison leaders are hung up on the strings to attach to a $4.1 million pot of city money for affordable-housing developers in the city.
The city’s Housing Committee is reviewing a proposed amendment to the 2003 ordinance that created the affordable-housing trust budget and defined how the money would be spent. The amendment would remove many of the spending restrictions, but there are questions about whether the revisions go too far.
“We want to help jump-start different low-income housing projects,” said Madison developer Curt Brink, who is chairman of the city’s Affordable Housing Subcommittee. “But this is also going to be an interesting debate because there are already concerns about using this for operating costs.”
According to the ordinance, spending is restricted to loans for startup costs, such as architectural fees, for new affordable-housing projects.
But not much money is getting out. Brink said the ordinance limits annual spending because the city does not want to loan too much money until the budget hits $10 million.
Until then, the ordinance limits spending to 25 percent of the money added to the budget in the previous year. For example, the city added roughly $94,000 to the budget in 2009, so only about $23,000 is available to spend in 2010.
That’s far too prohibitive, said Alderman Michael Schumacher, the lead sponsor of the amendment. With the budget unlikely to reach $10 million in the next few years, he said, the city needs to use the money it has to spur development now.
Developers would gladly accept, said Gary Gorman, president and CEO of Oregon-based Gorman & Co. Inc.
“It could be huge if this goes through,” he said. “Lenders are becoming more conservative now, and if the city can fill the gaps in a project’s initial capital structure it could make or break a lot of work.”
The amendment would lift the $10 million safeguard and eliminate annual spending limits. It also would permit spending for developers’ operating expenses, maintenance and upgrades of existing units.
The operating expenses take it a step too far, said Madison Mayor Dave Cieslewicz.
“This fund was established for new opportunities and one-time expenses,” he said. “Operating costs are not one-time expenditures.”
Not only would loans for operating costs create a new city spending obligation, Cieslewicz said, but developers also could become dependent on those resources.
“If it gets used for operating costs or maintenance, I don’t know how we get that money back,” he said. “You could chew it up like all hell. Are we using it for taxes? Heat and light? Repairs? Management fees? It’s not how the money should be used.”
Money for the affordable-housing budget, Brink said, comes from a variety of sources, including city sales of surplus land or interest payments on city loans for new developments.
But Schumacher defended the inclusion of operating and maintenance costs.
“I understand the concerns because we don’t want to support bad management,” he said. “But if we’re interested in keeping housing providers in business, it seems like a contradiction to keep spending on new projects while we let affordable housing we do have go down the tubes.”
Schumacher said it likely will take two to four months of work on the amendment before it goes to the Common Council for a vote. There is still time to make changes, he said.
Those changes should include either tight restrictions or elimination of maintenance loans, Brink said.
“If there’s no way of recouping the money spent on maintenance,” he said, “then what happens when the fund runs out of money?”