Debate over Heartland continues
A mix of community members supporting and opposing the Heartland Co-op grain elevator filled the Jefferson County Board of Supervisors meeting in the second floor courtroom to overflowing today for three hours.
Jeff Heil of Northland Securities Inc. was on the agenda, hired by the supervisors to guide them through the financial choices for paving Nutmeg Avenue and/or Osage Avenue as part of the project.
Heil presented options including a general obligation bond to be paid back through property taxes assessed to Heartland’s structure, a Tax Increment Finance district and variations on those choices.
“Urban renewal projects are common in Iowa for this type of economic development,” said Heil.
“The board of supervisors signed a Memorandum of Understanding with Heartland Co-op in December, which is not legally binding, but shows your intentions,” said Heil.
He said the estimated assessment value of the grain storage facility is $15.8 million. With the new Iowa commercial property taxes rollback, the supervisors should consider 90 percent of that estimation and using a $24 levy rate, the grain storage facility could generate a little more than $325,000 in annual property taxes.
“It’s not guaranteed,” said Heil. “I understand the price tag for paving Nutmeg Avenue is $2.8 million. If you go with an urban renewal bond, you won’t collect taxes until 2017-18.
“I understand Heartland wants to begin construction this summer, and while you’re waiting for those taxes to begin, you would borrow to make payments,” said Heil.
He said if the supervisors choose a general obligation bond, it is backed by the county and carries lower interest rates, and making a $250,000 payment per year, over 20 years, that leaves a $75,000 cushion in case assessment isn’t as high or something else changes.
“Your memorandum of understanding includes rebating any excess beyond your payment back to Heartland for 10 years,” said Heil. “I would add a caveat to that. I’d like to see the board use 75 percent of the property taxes for roads and have a 25 percent cushion. I’d advise caution, because you don’t know what will fluctuate or change, because the county isn’t the only tax collector on those property taxes. You need to be flexible with the excess.”
Heil said a general obligation bond doesn’t have to have a public vote, but it does carry a clause that the public has 10 days to petition the county for a vote.
“General obligations bonds are cheaper and more efficient than a TIF and cheaper than a revenue bond. If the public protests and wants a vote, when it’s gotten to being an urban renewal project — and it’s just one, private project such as this is — it’s kind of a strange thing to have a vote,” said Heil. “Votes are usually for projects such as a community pool or a city hall.”
Supervisor Lee Dimmitt asked if a TIF uses a revenue bond.
“It’s legal to use a revenue bond for a TIF, the only thing the bond holders have claim to is the revenues,” said Heil.
He said if supervisors use that route, nothing could stop the project, not even a court.
“The public can legally stop a general obligation bond,” Heil said.
“You’ll pay higher interest for a TIF plus you have to have a reserve fund — you have to put one year’s payment in escrow — and it needs to cover 125 percent.”
If Jefferson County supervisors decide not to rebate excess property taxes back to Heartland Co-op, the excess funds go back to the taxing bodies, including the county, the school district, fire district and hospital, or whatever other entities have a claim on the property taxes.
“Or you could pay off the bond earlier with the excess,” said Heil. “You won’t have 125 percent, though, it’s more like 107 percent. That might be a tough bond to market. To market a bond, it needs to be a true revenue bond.”
Another option would be to lower the amount of funds from $2.8 million to $2.3 to upgrade and pave Nutmeg Avenue, said Heil.
If the county wants to rebate property tax money to Heartland Co-op for only one year, it would only work using a general obligation bond, he said.
“With the estimated $325,000 annual property tax revenue, you would wait until 2019 to make the first bond payment, which will cost $132,000 more to rebate it all and will only net you $90,000,” said Heil. “If you did it for two years, double that.”
The county would have no authority to rebate other tax asking entities, only the county’s portion.
“The school district has protection,” said Heil. “Property taxes fill the first $5.40 per pupil formula; and the top 12 percent. The middle is filled in by the state. So the school district will not lose any funding no matter how you bond or rebate.”
Heil said the first common incentive to economic development such as this is to do the road project.
“You as a county can bond tax-exempt, which is much cheaper for you than it is for a private company such as Heartland Co-op,” he said.
“I came into this discussion after the memorandum of understanding was signed, and you signed an intent to pave the road and rebate excess taxes,” said Heil. “You’ll have to figure out which is your priority: infrastructure or doing business. You have more information now than you did three months ago.”
Supervisor Becky Schmitz asked if the supervisors could still go back to the table and say in good faith, the county wanted to change the memorandum of understanding.
“Yes, I think you can,” said Heil. “The best option is to move forward. As a comfort level, I recommend the 75 percent level for bond payment. I’m assuming upgrading Nutmeg Avenue is vital. Go back and negotiate a fair offer to do Nutmeg. It would be hard to also keep the intent of a rebate for 10 years.”
Supervisor chairman Dick Reed said he considered his words as powerful as a signature.
“But we didn’t know the true [money] figures back in December,” he said. “We didn’t know the financial position.
“I think Heartland Co-op is good for the community as a whole,” said Reed. “We’re an agricultural-based community. I have an issue with paving Nutmeg Avenue and not getting to make the underpass a two-lane.
“It wouldn’t take as much money to pave Osage Avenue, and paving it would be a big benefit to Jefferson County as a whole as well as Heartland Co-op.”
Todd Phillips, Heartland Co-op executive vice president of grain and risk management, was among audience members and was invited to the supervisors’ table to address the audience.
“I’m passionate about this project,” Phillips said. “We’ve been working on it a long time.
“As a co-operative, producers will have the ability to be partners, and the money will stay local. Heartland has 63 Iowa locations. We see a good opportunity here for Jefferson County and the surrounding counties.”