Some Common Council members wonder if they are setting a precedent with the decision to reduce the special assessments owed on two city lots.
“If we do this for this particular subdivision, will we have other developers coming and asking?” Ald. Paul Lehman said during the council’s Sept. 18 meeting.
During that meeting, the council voted to reduce the special assessments on two lots in the Swan Ridge Subdivision.
Steve Hackett voted no, and Paul Hagen was absent.
John Lockwood, who works at First State Bank, abstained.
First State Bank holds the mortgage for the subdivision and suggested that the city and the bank take a pro rata share of the net proceeds based on the debt owed on each parcel.
That suggestion came after Glenn and Jennifer Huffman offered to purchase two lots in the subdivision for $37,500.
DC Paso LLC owns the subdivision, and the offer of $37,500 did not cover the special assessments of $27,959 owed on each of the two lots – or a total of $55,918 owed in special assessments.
The $27,959 in assessments includes $17,435 in the base assessment and $10,524 in interest.
The base assessment covered curb and gutter, street, sewer and water. The $17,435 base assessment owed on each lot constitutes 91.4 percent of the total principal debt owed.
In addition to special assessments, $11,020 is owed in current and back real estate taxes on the two lots.
The Realtor commission and other fees on the two lots totals $4,502.
City Administrator Henry Veleker said that about $3,500 of that amount is Realtor commission with $1,500 of that amount going to the Fox Valley-based listing broker and $2,000 going to Waupaca Realty.
When the amount owed in real estate taxes and the Realtor commission and other legal fees are subtracted from the Huffman’s offer of $37,500 for the two lots, the net proceeds are $21,978.
With the council’s vote last week, the city will receive $20,085 in special asessments for the two lots, and First State Bank will receive $1,892.
Prior to the council’s vote, Ald. Dave Shambeau, who is a Realtor, said said new housing starts in the city are few and far between and that with this action, no money will go the developer of Swan Ridge Subdivision.
It was in 2001 and 2002 that Swan Ridge Subdivision’s infrastructure went in, Veleker said.
The city’s cost for the infrastructure was $401,007, and it issued General Obligation bonds for the project.
The interest rate was 5.25 percent, and an additional 2 percent was added to that rate to cover administrative costs for a total interest rate of 7.25 percent, Veleker said.
The subdivision is not in a Tax Incremental Financing District, and Velecker explained that in the case of Swan Ridge Subdivision, each time a lot sells, the special assessments owed on the lot are calculated.
When the property was initially developed, it had 21 large lots and four outlots.
In 2004, after one of of the partners in DC Paso passed away, the current owner approached the city and asked to replat the remaining lots into smaller ones. The owner believed there would be the potential to sell more lots if they were less expensive.
When that took place in 2004, the four outlots remained and 29 lots were created.
Today, there are seven houses in the subdivision, with the Huffmans planning to break ground this fall on their new home.
There are a total of 137 lots currently listed in the city, and a multiple listing service showed that in the last five years, there was a closing on 12 city lots.
“The bank came up with this structure, which is fair,” Veleker said. “We get our pro rata share of the net proceeds based on our percentage of the principal debt owed on each lot.”
If the house the Huffmans build is valued at $250,000, the city’s portion of the tax bill – at the current mill rate – would generate $2,472 in city taxes each year.
Veleker said council members believe it is better to have some activity rather than none.
In addition, with three years of back taxes owed on the property in the subdivision, he said it is close to going into foreclosure.
“In that process, bids are routinely much less than what the value is, and all the proceeds go back to pay back taxes,” Veleker said. “Financially, we come out in a better position than if these properties go to a sheriff’s sale.”
He said that when the Swan Ridge Subdivision project began, it was on the heals of the Swan Park project and that the manner in which the city structured the infrastructure costs was a typical way for a city to do so.
An interest rate of 7.25 percent to developers was competitive at that time, Veleker said.
“This is the first time that the council has been requested to amend those special assessments based on an actual offer to purchase,” he said. “We don’t know if it will spur more activity.”
In regard to comments made by some aldermen about what requests the city could face in the future, Veleker said, “The council will have to decide if it is a precedent. But, short term, knowing the situation with back taxes, it makes sense.”