Facilitating New Home Ownership in the City of Wichita

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Agenda Item No. IV-5

City of Wichita

City Council Meeting

February 14, 2012

TO: Mayor and City Council

SUBJECT: Facilitating New Home Ownership in the City of Wichita

INITIATED BY: Department of Finance

AGENDA: New Business

Recommendation: Adopt 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 closing

of 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 Cumulative

1 200,000 .0324 100% $744.26 $744.26

2 204,000 .0324 100% 759.14 1,503.40

3 208,080 .0324 100% 774.32 2,277.72

4 212,240 .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 028001

ORDINANCE NO. 49-214

AN 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 BE

EXECUTED 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 to

determine their local affairs and government; and

WHEREAS, the Governing Body of the City of Wichita, Kansas (the “City”), in

furtherance of its objectives to build stronger communities, create jobs and provide a more stable

tax base, desires to stimulate new home construction and home ownership within the City’s

corporate limits; and

WHEREAS, as a means of stimulating new home construction and home ownership, the

Governing Body of the City finds it necessary and desirable to establish a rebate program to be

known as the New HOME (New Home Ownership Made Easy) Program, which will provide a

rebate of the City portion of real property taxes on eligible properties for a period of up to five

years, subject to certain limitations, conditions and restrictions.

NOW, THEREFORE, BE IT ORDAINED BY THE GOVERNING BODY OF THE

CITY OF WICHITA, KANSAS AS FOLLOWS:

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Section 1. Authorization of the New HOME Program. Pursuant to the authority of

Article 12, Section 5 of the Kansas Constitution, the Governing Body of the City hereby

authorizes and establishes the New HOME Program, which will provide for a rebate of the City

portion of real property taxes on eligible properties for a period of up to five years, subject to

certain limitations, conditions and restrictions as hereinafter described.

Section 2. Eligibility to Apply for Program. Home owners may apply for New HOME

Program rebates on single-family, owner-occupied homes together with the underlying land and

appurtenances, purchased on or after March 1, 2012, if the property, and as to subsection 2. e),

the applicant(s), satisfy the following eligibility criteria:

a) The property is a newly-purchased or constructed home which has not previously

been occupied;

b) The property is located in a platted development, within the City’s corporate

limits, and all special assessment and general tax obligations on all buildable lots (meaning

platted lots currently served by existing street, utility and drainage infrastructure sufficient to

support residential structures that could be constructed thereon) within such development are

paid current through 2010;

c) All special assessment and general tax obligations on the property for which

application is made must have been paid current as of the date the applicant home owner closed

the purchase of the property, and must still be current as of the date of application;

d) The property must not be located within a tax increment finance district;

e) As part of the application process, the applicant(s) must furnish a properly

completed Form W-9 and must enter into a Program Agreement to be developed by City staff,

which will include an agreement that all taxes and special assessments will be paid when due

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during the period the property is covered by the New HOME Program, that the owners will

comply with all conditions, limitations and restrictions of the program as set forth in the Program

Agreement and this Ordinance, and that the owners will not appeal the valuation of the property

or seek refunds of tax for periods for which rebates have been paid.

Section 3. Applications and Application Period. Application for participation in the New

HOME Program shall be made on forms to be developed by City staff, and applications will be

received from and after March 1, 2012, for a period from March 1, 2012 through December 31,

2013 or until such earlier time as one-thousand (1,000) properties have been approved for

participation in the program.

Section 4. Rebates. Once an application is approved for an eligible property, and the

owner(s) have entered into the Program Agreement with the City, the City, subject to the

limitations and restrictions of the Kansas Cash Basis and Budget Laws and the further

conditions, limitations and restrictions referenced in Section 5, below, will issue a rebate

payment to the property owner(s) on or about July 1 of each year, continuing for a period of five

(5) years (the “Rebate Period”), which payment shall be in the amount of the City share (as

determined by the Sedgwick County Treasurer) of general ad valorem property taxes which the

applicant owner(s) or a predecessor in title actually paid or caused to be paid on the property the

preceding December and May.

Section 5. Early Termination of the Rebate Period. The Rebate Period shall be

terminated early, and a property removed from further participation in the New HOME Program,

with no payments to be made by the City thereafter, in the event that the owners of the property:

a) sell or cease to occupy the property as a residence; b) fail to make (or cause to be made)

timely payment of all special assessment obligations and general taxes relating to the property, as

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and when the same are due; c) appeal the valuation of the property or seek refund of any tax for

which rebate payments have been made; or, d) fail to comply with any other obligation or

condition of the Program Agreement. Provided, however, that property will not be removed

from participation due to events described in subsections 5. b) or 5. d) unless the property owner

fails to cure a delinquent payment or other event noncompliance with the Program Agreement

for a period of thirty days following written notice mailed by the City.

Section 6. Authorization of Program Agreement. City staff are authorized and directed

to develop a form of Program Agreement consistent with the requirements, conditions,

limitations and restrictions of this Ordinance, and the City Manager is hereby authorized to

execute and deliver such Program Agreements with home owners whose applications have been

approved, on behalf of the City.

Section 7. Further Authority. The City shall, and the officers, agents and employees of

the City are hereby authorized and directed to take such further actions as may be from time to

time necessary for administration of the New HOME Program and to carry out and give effect to

the transactions contemplated by this Ordinance.

Section 8. Effective Date. This Ordinance shall take effect and be in full force from and

after its adoption by the governing body of the City of Wichita, Kansas, and publication once in

the official newspaper of the Issuer.

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PASSED by the Governing Body of the City of Wichita, Kansas this 28th day of

February, 2012.

CITY OF WICHITA, KANSAS

By_______________________________________

Carl Brewer, Mayor

ATTEST:

______________________________ Karen Sublett, City Clerk

(SEAL)

Approved as to Form:

_______________________________ Gary E. Rebenstorf, City Attorney andDirector of Law

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NEW HOME INCENTIVE PLAN

CITY OF WICHITA FEBRUARY 14, 2012

New Home Ownership Made Easy (New HOME Program)

Staff are proposing a program in which the City of Wichita will

join efforts with other communities in the area to attract buy-

ers for newly built homes. Home ownership builds stronger

communities, creates jobs and provides a more stable tax base.

The New HOME program is simple and designed to help indi-

vidual new home buyers. For eligible properties the homebuyer will receive a rebate of City of Wichita property taxes for

five years.

To participate in the New HOME program, special assessments

and general tax obligations on all buildable lots in a new home

development must be current through 2010. In addition, the

special assessment and general tax obligations owed on any lot

sold under this program must be paid current on the sale and

closing of a lot.

New HOME Program

City Property Tax Rebate

- For eligible property, a 5 year rebate of City property taxes will be

provided. On a $200,000 home, this rebate is valued at an estimated

$3,873.Eligible Property

- Property must be in a participating development: all buildable lots

must be current through 2010 on all special assessments and all gen-

eral taxes.

- Special assessments and general taxes must be paid current at the

date of sale and closing of a property.

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CITY OF WICHITA FEBRUARY 14, 2012

For eligible home buyers, the City will rebate 100% of Cityproperty taxes for the first five years. On a home valued at

$200,000 appreciating at 2% annually, this would total an esti-

mated $3,873 over five years.

The program also includes a rule change to increase available

development lots. Currently City rule AR 6.2 requires develop-

ers to be current on special assessments in existing develop-

ments before they would be considered for further new devel-

opment. This limits exposure for the City of Wichita. However,

it also could preclude the use of special assessment financing tocomplete a development (financing streets for example, if water

and sewer has already been extended) and allow new homes to

be marketed and sold. For that reason, the program includes a

one year moratorium on this section of AR 6.2.

Year Home value City levy Refund portion Refund amount Cumulative

1 200,000 0.0324 100% 744.26 744.26

2 204,000 0.0324 100% 759.14 1,503.40

3 208,080 0.0324 100% 774.32 2,277.72

4 212,240 0.0324 100% 789.81 3,067.53

5 216,490 0.0324 100% 805.62 3,873.15

Notes: Assumes a continuation of the City’s current mill levy and 2% annual in-

creases in the value of the home. Both variables are subject to change.

Potential New HOME Program Refunds

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CITY OF WICHITA FEBRUARY 2012

Several cities in the Wichita area offer a wide-variety of new homebuyer incen-

tives. These range from breaks on utility fees, waivers for property taxes, and

memberships to local civic centers. In some cases, developers may also piggy

back incentives with City programs. Programs that have been or are currently be-

ing offered in the area are listed below.

City of Bel Aire - Some incentives are unique since Bel Aire actually owns vacant lots.

Aside from those incentives, new home buyers (not currently residing in Bel Aire) can receive

either free water and sewer for up to six months or a limited grant of between $1,500 and

$2,500, depending on the value of the home. New home buyers also receive a discount on Bel

Aire property taxes worth 50% for the first two years, 38% in year 3, 25% in year 4, and 12% inyear 5, and a one-year family membership to the local recreation center. Current Bel Aire resi-

dents that purchase a new home receive only the one-year recreation center membership and a

waiver on utility disconnect and re-connection fees.

City of Garden Plain - The City of Garden Plain offers a $3,000 to $6,000 credit towards

water and sewer bills, depending on the value of the home. Additionally, some developers and

home builders have committed to matching this rebate for lots and homes. Therefore, a new

home buyer may purchase a home within the city limits that is discounted by up to $18,000 -

$6,000 off the lot (developer), $6,000 off the house (builder), and $6,000 off utilities (City).

City of Maize - The City of Maize offers graduated utility discounts through a 10-year

grant program when a new home is purchased that is located within the city limits and has a

minimum appraised value of $125,000. The 10-year benefit is capped at $25,807.51, (based

upon a maximum appraised value of $700,000). The program has a 100% waiver of Maize city

taxes in years 1 to 3, 80% for years 4 to 6, 60% for years 7 and 8, and 40% for years 9 and 10.

City of Park City - In 2009, Park City began offering $500 towards the purchase of a new

home on a first come first serve basis. In 2010, a $1,000 incentive was offered based on a lim-

ited amount of funds.

City of Haysville - Grants are available to applicants who are purchasing a new ‘custom

construction’ home or an existing 'spec' home which has not been occupied or rented for more

than 12 months. The home must be located inside Haysville city limits. This program provides a

total grant in the form of a $1,500 voucher that is redeemable in any combination of the follow-

ing incentives: 1) credit applied to the homeowners water bill; 2) closing cost assistance; 3)

down payment assistance; or 4) mortgage payment reimbursement.

Incentive Programs in Other Communities

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CITY OF WICHITA FEBRUARY 2012

Incentive Programs in Other Communities

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Facilitating New Home Ownership in the City of Wichita

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