Friday, January 18th, 2019

Running’s reservations and Kevin Lahner’s pilot program

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In the world of competing open records requests, WISN’s Mark Belling reported first about Waukesha City Attorney Brian Running’s concerns about a proposed loan from the city of Waukesha to the Sunset Homes condominium board. I’m also reporting on the email in my column in tomorrow’s Waukesha Freeman, which was written yesterday. Since my column was written, other uncovered emails have revealed other details kept from the Common Council that, had they known, would have swayed aldermen against voting for the loan.

I also learned today that Alderman Adam Jankowski asked Mayor Shawn Reilly to put the item on the agenda for the September 15th meeting, so aldermen will likely get a second opportunity to vote on amending the TIF district to allow the loan. This is especially important because the TIF amendment cannot be vetoed, according to an opinion by Running, because Alderman Andy Reiland signed the legislation in Reilly’s absence. Reiland was unaware that signing it would end the mayor’s ability to veto the TIF amendment, and Reiland was also unaware that he could have vetoed the TIF amendment himself in Reilly’s absence.

Here is the email from Running to City Planner Jennifer Andrews with his concerns about the riskiness of the loan and the lack of collateral:
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The city did not follow any of Running’s recommendations and decided instead to go for an assignment of dues in the case of default. I asked Running today if he stood by his earlier reservations about the loan. He replied:

My position hasn’t changed.  The condo association is a poor credit risk, in my opinion, and it is difficult to secure a loan to a condo association because the association doesn’t own real estate against which a mortgage can be recorded.  Each unit owner has an interest in the common areas, so a mortgage on common areas would require every unit owners’ signature on the mortgage.  In the case of the Sunset Homes, that would be 120 signatures.  I advised that the city should require the association to show that they made the effort to do so, before we would consider a loan.  I also advised that we require them to produce documentation that would allow us to evaluate their financial position, to do as much underwriting due-diligence as we could.

I explained to the Council the difficulty of securing the loan, and I told them that if they did make the loan, then the City would be as well secured as a commercial lender would be in the same situation.  That means taking a assignment of the condo association dues, and taking a security interest in any property that the association has, including bank accounts.  I explained that being as well-secured as a commercial lender does not mean that there’s no risk of losing money, it just means that we will do the best we can to have the best security position we can.

The fact that the association is a poor credit risk does not disqualify it from consideration for a loan – as a practical matter, it’s a prerequisite to that consideration.  The project has to meet the “but-for” test, meaning that to be considered for TIF, it has to be shown that the project would not happen but for TIF money.  In other words, if financing can be obtained elsewhere and the project could happen without TIF money, then TIF should not be used.  Obviously, the but-for test is going to result in many poor credit risks being considered for TIF.

The projected benefit to the City is the main factor to be considered, and that’s a policy decision that the Council has to make.  If they make the decision to go ahead, then my job is to make sure that the project results in the least risk to the City as is possible.  That goes without saying.

Belling also mentioned City Administrator Kevin Lahner’s desire to turn this into a “pilot” program. Alderman Vance Skinner, who voted in favor of amending the TIF to allow the loan, asked Lahner if similar loans could be offered in other TIFs, including those in his district. Lahner replied:

Once of the issues that was not discussed fully at the Common Council due a focus on some other issues, is that in my view, this project is one step in the direction of a larger strategy to control blight and prevent property value decline. Quite frankly, this is somewhat of a pilot project to determine how something like this would work, and then possibly extend the program to other areas of the City. We fully understand that other large areas are even more deteriorated and that a variety of strategies could be used to combat these issues.

This particular project was chosen due to the unique set of factors presented at this time. The successful TID, redevelopment in this area, the current condition of the property, and an organized and committed ownership group that is seeking change led to an opportunity to put together this package. It was somewhat on our radar, as the neighborhood was consciously included in the TIF boundary, and recognized as an area of declining value. While it is somewhat outside of our normal practice, the project is clearly within the defined purpose of a TID. I don’t want to get to far off track here, but it has always been somewhat interesting to me that we willingly give large sums of money to wealthy development interests to promote development and redevelopment efforts to increase property tax values with very little discussion, yet when the same theory is applied in a residential setting it attracts significant debate. {Spelling and grammar left uncorrected. – JW}

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