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A-3. Housing Improvement AreaBuilding Inspections t Phone: 952.227.1180 MEMORANDUM CITY OF TO: Todd Gerhardt, City Manager CHMNSEN and does not have a policy as to whether or not this would be a tool the city would Phone: 952.227.1160 FROM: Kate Aanenson AI CP, Community Development Director 7700 Market Boulevard issues regarding its application in the city. PO Box 147 DATE: July 14, 2014 0 Chanhassen, MN 55317 benefitting housing units. Phone: 952.227.1400 SUBJ: Housing Improvement Area Administration Housing Improvement Areas are used in much the same manner as special Phone: 952.227.1100 BACKGROUND Fax: 952.227.1110 to assist areas where common elements of the property are maintained by owners Building Inspections City staff received a request this spring from a Chanhassen homeowners association Phone: 952.227.1180 through the Carver County Community Development Agency for the establishment of Fax: 952.227.1190 a Housing Improvement Area (HIA). To date, the city has not created a HIA district Engineering and does not have a policy as to whether or not this would be a tool the city would Phone: 952.227.1160 want to use. The purpose of this memorandum is to define a HIA and discuss the Fax: 952.227.1170 issues regarding its application in the city. Phone: ina 227.1140 what is a Housing Improvement Area? Fax: 952.227.1110 from at least 25 percent of the affected property owners. The local government must Phone: 952.227.1300 The 1996 Minnesota State Legislature enacted a law (428A.11) intended to provide Park & Recreation cities with a means of assisting homeowners associations with financing Phone: 952.227.1120 improvements to common areas. A Housing Improvement Area is a designated Fax: 952.227.1110 portion of a community in which housing improvements are financed with public Recreation Center funds. The public financing is then repaid through fees imposed against the 2310 Coulter Boulevard benefitting housing units. Phone: 952.227.1400 ordinance establishing a Housing Improvement Area. Subsequently, it will establish Fax: 952.227.1404 Housing Improvement Areas are used in much the same manner as special Planning & assessments, such as sidewalk widening and park improvements. The law is designed Natural Resources to assist areas where common elements of the property are maintained by owners Phone: 952.227.1130 Fax: 952.227.1110 associations which do not have an appropriate reserve fund to finance improvements. p Public Works In order for a city to create a housing improvement area, a petition must be received 7901 Park Place from at least 25 percent of the affected property owners. The local government must Phone: 952.227.1300 determine the feasibility and need for the improvement. Additional public hearings Fax: 952.227.1310 must be held for the affected property owners in order to discuss the improvements. Senior Center These hearings will also focus on the potential tax burden the affected property Phone: 952.227.1125 owners would have to bear following the improvement. Fax: 952.227.1110 Web Site If the local unit of government makes the required findings of need, it will adopt an www.ci.chanhassen.mn.us ordinance establishing a Housing Improvement Area. Subsequently, it will establish a fee on the property owner to cover the improvements that must be repaid by future taxes. Chanhassen is a Community for Life -Providing for Today and Planning for Tomorrow Todd Gerhardt Housing Improvement Areas July 14, 2014 Page 2 of 7 What problems can Housing Improvement Areas solve? Many older common interest communities constructed in the 1960 -70's did not collect adequate association fees. This led to depleted reserve funds that made it impossible to finance large -scale improvements, i.e. driveways, decks, windows, etc. Both the fund balance of the association and the burden on the property owners is a factor in determining whether or not to create housing improvement areas. The creation of a housing improvement area can be a city financial tool to address deferred maintenance and maintain the quality of common interest properties. In addition, the financing is generally provided with market interest rates and long terms so that the monthly payments are affordable to the owners in the designated area. What are the benefits of a Housing Improvement Area? The quality of a city's housing stock is a window into the city's priorities and values. A clean, well - maintained community will attract residents seeking a safe and reliable place to raise a family. By the same token poorly- maintained properties repel new residents and ensure that there will be no improvement in conditions. In areas that have large concentrations of multi -unit ownership properties, creating improvements to common areas is often dependent on the financial condition of the residents' association. ANALYSIS 1. What types of improvements can be included? The enabling law provides that the improvements are to be made to the common elements of the housing structures. Common elements are generally those maintenance and capital improvement items which are the responsibility of the association and not the individual home owners such as windows, siding, roofing and parking lot /driveway resurfacing. 2. When is a Housing Improvement Area designation appropriate? A Housing Improvement Area can be established only if- The proposed improvements to the common elements are necessary to maintain and preserve the housing units, and • The proposed improvements could not be financed privately by a bank or by the condominium or town home association or housing unit owner. 3. What steps should an association take to be considered for Housing Improvement Area designation? Todd Gerhardt Housing Improvement Areas July 14, 2014 Page 3 of 7 The first step is for the association membership to meet and determine to the extent reasonably possible, the needed improvements to the common elements. • The next step is to obtain a reasonable estimate or estimates of the total costs of those improvements. • Once the costs have been estimated, the association should investigate all reasonable means of financing the improvements including any balance in the association treasury, additional fees imposed on the unit owners, private financing by the association and /or the individual owners, and any other possible housing improvement assistance. • If all other means of financing the improvements are unsuccessful or provide an undue hardship on the owners, a petition signed by the owners of at least 25% of the housing units to be included in the proposed area may be filed with the city requesting that a Housing Improvement Area be designated. The petition should also request a public hearing on the imposition of a fee to pay for those improvements. A suggested petition form is enclosed. 4. What happens after an adequate petition is filed? • The petition is presented to the City Council who determines whether it contains all the required elements under the law and whether it contains at least the minimum number of required signatures. If the petition is found to be adequate and is accepted by the City Council, a date for a public hearing is set. • Prior to the public hearing, city staff prepares a preliminary listing of the improvements proposed to be made. This list will require city employees to view and inspect the property and discuss the problems with owners and /or members of the association. • At the hearing staff will present its findings and owners will have an opportunity to present relevant testimony and issues related to the proposed area. The hearing is intended to assist the City Council in determining the proper boundaries of the area, the extent of the necessary improvements, and that there are no other available financing methods. If the City Council makes the required findings of need, it will adopt an ordinance establishing a Housing Improvement Area and will designate the Economic Development Authority (EDA) as the implementing entity. The ordinance will, among other things, designate the area, establish the improvements to be made, and determine the basis for the imposition of the fees. Fees may be based on the tax capacity of each unit, the square footage of each unit or some other method as determined by the City Council such as per unit basis. Under the State law, the ordinance takes effect 45 days after adoption. The ordinance must be adopted within six months of the close of the public hearing. Todd Gerhardt Housing Improvement Areas July 14, 2014 Page 4 of 7 • After the ordinance is adopted, the EDA staff will work with the association to determine through estimates, bids, and similar methods the costs of the improvements. Once the costs have been determined to the extent possible a second public hearing is held at which time the owners may discuss the proposed fees in general, or they may question the fee proposed to be imposed against their individual unit. Within six months of the closing of this public hearing, the EDA will adopt a resolution imposing the fee. This fee may not exceed the amount stated in the hearing notice, but it may be less. The fees to be imposed are to be at a rate, term or amount sufficient to produce revenues required to make the improvements. The resolution takes effect 45 days after it is adopted. The fees will include an administrative charge and will be collected along with property taxes for the number of years established in the resolution. The fee may, however, be prepaid in full to avoid the payment of interest. 5. What is the recourse of owners who disagree with the designation of the area or the imposition of the fee? Before the ordinance is adopted, any owner may file a written objection claiming that the owner's property may be in the area or subject to the fee. The City Council then has 60 days to make a determination on this objection. This determination may be appealed to the District Court. After an ordinance or fee resolution is adopted, if owners of 35 percent of the properties located in the designated area file an objection to the ordinance or the fee resolution before the effective date, the ordinance or the resolution does not become effective. For this reason, the City and the EDA will want to be assured that the fees will be imposed before proceeding with the improvements. 6. What are the obligations of the owners and the association after designation of a Housing Improvement Area? • Obviously, all parties need to cooperate with each other so the improvements can be made or constructed in a timely fashion. The State law requires that before the city or the EDA adopts a fee resolution, the association must submit a financial plan. This plan has to be prepared by an independent third party acceptable to both the association and the City Council and EDA. A plan prepared by the association does not meet the requirements of the law. This plan must demonstrate how the association will be able to finance the maintenance and operation of the common elements of the development, and also demonstrate how the association will be able to conduct and finance capital improvements in the future. Without this plan the City Council and EDA may not wish to proceed with the improvements. Todd Gerhardt Housing Improvement Areas July 14, 2014 Page 5 of 7 • On or before August 15th of each year, the association must provide the EDA with a copy of its audited financial statements. The City, as part of the original ordinance, may require the submission of additional information as well. 7. How long does a Housing Improvement Area designation last? Establishing a new housing district area after June 30, 2028 requires enactment of a special law authorizing the establishment of the area. In Chanhassen there are 21 Homeowners Associations that could meet the criteria of improvements that have common elements that are necessary to maintain and preserve the housing units, or have proposed improvements that could not be incurred financially by the condominium or town home association or housing unit owner. These associations total 1,836 housing units. Number Common HOA Approved Type of Development of Elements Units Cimarron Home single- family (122) Owners (Chaparral) 4/3/1978 twins (98) 156 parking areas quads and townhouses (15 6) Red Cedar Cove 8/5/1985 townhouses 18 private street and Assoc. shoreland West Village 4/20/1987 townhouses 62 private street, Community Assoc. parking South Lotus Villas 7/10/1989 townhouses 14 private street and Townhome Assoc. parking Oak Ponds townhouseV private street and Homeowner's 6/14/1993 r (south of Santa Vera) 98 parking Assoc. Prairie Creek 6/28/1993 townhouses 34 private street Townhouse Assoc. Mission Hills 10/24/1994 townhouses th 56 private street Garden Homes (north of West 86 ) Mission Hills Villas townhouses private street, HOA 10/24/199 4 th (south of West 86 ) 146 playground equipment Oak Hill townhouses private street and Homeowners 4/10/1995 (north of Santa Vera) 51 parking Association Todd Gerhardt Housing Improvement Areas July 14, 2014 Page 6 of 7 Because the city has a number of HOA built between 1979 and 1997 there may be an increased demand for assistance for the creation of an HIA. The city may want to consider developing a policy. RECOMMENDATION Number Common HOA Approved Type of Development of Elements Units Powers Place 5/10/1995 twins 48 private street and Townhouse Assoc. parking Autumn Ridge 8/14/1995 townhouses 82 private street Condominiums Autumn Ridge 8/14/1995 townhouses 58 private street Town Homes Lake Susan Hills 10/9/1995 townhouses 34 private streets Townhome Assoc. and parking North Bay private street, Homeowners Assoc. 4/22/1996 detached townhouses 76 beachlot Inc. Townhomes at 10/28/1996 townhouses 25 private street Creekside Walnut Grove 7/14/1997 detached townhouses 44 private street, Homeowners Assoc. park Walnut Grove Villas 7/14/1997 townhouses 150 private street, Assoc. park parking lot, Powers Ridge 4/10/2000 multi - family units, 262 private street, Condo HOA apartments /condos club house and pool Arboretum Village 5/14/2001 townhouses 140 private streets, parking Highlands at Bluff Creek Townhome 6/14/2004 townhouses 15 private street Association Liberty on Bluff private streets, Creek HOA 3/27/2006 townhouses 407 parking, pool and club house TOTAL UNITS 19836 Because the city has a number of HOA built between 1979 and 1997 there may be an increased demand for assistance for the creation of an HIA. The city may want to consider developing a policy. RECOMMENDATION Todd Gerhardt Housing Improvement Areas July 14, 2014 Page 7 of 7 Staff is seeking direction as to any additional information the City Council may desire if they are to consider creating a policy for the creation of a Housing Improvement Area. g: \plan\housing improvement area \issue paper 7- 14- 14.docx