The Details of the Bonita Avenue Developer Agreement

Published: Dec. 6, 2021 at 3:28 PM CST
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OTTUMWA, Iowa (KYOU) - Tuesday, the Ottumwa City Council will vote on a developer agreement to build three apartment units off of Bonita Avenue. The Council has already met two out of the three requirements to make the apartments a reality.

First, the site had to be designated as an Urban Renewal Area, which allows to set up Tax Increment Financing, or TIF. This means the City can capture funds on an urban renewal area - the Bonita Avenue site only - for specific projects.

The Council also passed this, but neither the Urban Renewal Area and TIF are effective without the third piece: a developer agreement.

The agreement the Council will vote on Tuesday gives a 50% property tax rebate to the developer, Huegerich Construction, for 20 years to a certain dollar amount. Ottumwa’s City Administrator Phil Rath says, with this agreement, the developer is taking on most of the risk, instead of the City. “They’re putting their skin in the game, saying ‘well I need that development to reach this level so that I am going to make enough revenue to pay back the bank that I’m borrowing against.’”

The agreement also would boost the proposed land valuation. Currently, the lot is valued at $6,650, which brings taxing entities around $300 annually. Huegerich bought the lot for $100,000, so Rath expects the valuation to be boosted to that, bringing levies up to around $4500.

But once the three apartments are complete, the land will be valued at $8.2 million dollars, as set in the terms of the agreement. That would bring taxing entities an estimated $120,000 each year until the 20 year agreement ended.

This is compared to an earlier proposed agreement that would net Huegerich a 100% property tax rebate over 20 years. It was panned in a public forum and voted down by the City Council. Even Rath said he didn’t like the proposal. To Rath, this new agreement is much better. “The developer is getting some benefit right away to pay off their debts,” Rath explains. “The city, the county, the school district are all getting more right away as well. From that first year, we’re all get something, and a lot more than what would have been there before.”

TIF also lets the City capture some additional project costs that are involved with building three apartments, like road repairs on Bonita Avenue and administrative fees.

Those additional costs are coupled with the 50% to Huegerich. The rest is divided among levy authorities.

Even if the agreement doesn’t pass Tuesday, the developer has said he’d build one 36-unit apartment building on Bonita. But Rath estimates that would only bring in around $1 million for taxing entities over the 20 year period. With the three apartment, TIF agreement, they would get $2.4 million. Huegerich has said the project couldn’t happen without TIF. And Rath says it’s a useful economic tool. “That’s where I see it as a benefit: to be able to spur development.”

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