Crow Wing County HRA requests board to consider selling tax-forfeited lots

The Crow Wing County Board of Commissioners received a rundown of what a Housing Redevelopment Authority is and what an HRA can do at an informational meeting Tuesday.

Brainerd HRA and County HRA Executive Director Jennifer Bergman gave an update at the committee of the whole meeting at the Historic County Courthouse on Laurel Street in Brainerd.

"We are a local unit of government ... governed by state statute," Bergman said. "HRAs are created by cities or counties in the state of Minnesota, and we have 155 across the state."

An HRA is the housing and redevelopment arm of a city or a county. Its purpose is, for example, to provide a sufficient supply of "adequate, safe and sanitary dwellings," clear and redevelop blighted areas and remedy the shortage of housing for low- and moderate-income residents.

"And then redevelop blighted areas-and I would like to stress this last part-in situations in which private enterprise would not act without government participation or subsidies," she said. "If the private sector is doing it and it is working, then the HRA has no business being involved."

HRAs acquire and sell property, issue bonds, perform needs assessments, and operate and/or acquire affordable housing, including federally-assisted public housing.

"The way that it works is we recertify people every single year. Every year, they have to come in and tell us what their income is, how many people are in their household. There's a bunch of different things that our staff goes through," Bergman told Commissioner Paul Koering.

HRAs develop and administer housing rehab loan or grant programs, create interest-reduction programs, operate parking facilities, develop and administer down payment programs, plan housing development projects and administer Section 8 program.

The Section 8 program allows private landlords to rent apartments and homes at fair market rates to qualified low-income tenants.

"Every year, every March, every October, the federal government sets what are called 'fair market rates,'" Bergman told Commissioner Paul Thiede.

"The Section 8 program-or what's called now the 'Housing Choice Option Program'-we have 320 housing choice vouchers, and it is countywide. That is a voucher an individual tenant gets, and they shop landlords to see if they would be willing to take Section 8."

The county created the county HRA in 1986, which is governed by a five-member board appointed by, and representing, the five-member county board of commissioners. The county HRA administers two tax increment financing districts and created two revolving loan programs.

The county HRA is also involved in the "creation of affordable housing opportunities, community development initiatives, and neighborhood revitalization efforts in cooperation with the city of Brainerd, city of Pequot Lakes and other organizations."

"The Crow Wing County HRA doesn't own any housing, so what the Crow Wing County HRA does mostly is redevelopment types of projects or housing types of projects," Bergman said.

Bergman also highlighted the Brainerd Oaks, Serene Pines and Dal Mar Estates projects that involved the county HRA and that process is being proposed for other county tax-forfeited properties.

"Brainerd Oaks, Serene Pines and Dalmar Estates, of course, was ultimately purchased by the Crow Wing County HRA. We had a development agreement with a developer, who is constructing homes," Bergman said of the three tax-forfeited properties.

Bergman asked the board Tuesday to consider a "county HRA tax-forfeited property hold policy and sales procedure" to ensure properties are returned to productive use, with the goals of building the county's density and tax base, eliminating blight by reinvesting in neighborhoods.

"This really stemmed from the Brainerd Oaks project," Bergman said. "It wasn't easy. It was six months of really hard work, but there was some success in getting these tax-forfeited lots back on the tax rolls."

Eight lots in Brainerd Oaks and four in Serene Pines were sold to the developer in March, and eight more were since sold. The county HRA first became involved with Brainerd Oaks in 2005, when the HRA loaned $155,000 to the project. A total debt of $185,000 was written off in 2012.

"We have 16 homes that are complete, less the escrow items ... and four that they plan on building once the frost goes out. Eight of those homes have been sold, two are pending and six are for sale," Bergman said. "The developer did reach out to us and plans on building more lots."

Brainerd Oaks went into tax forfeiture in 2008, with the other two developments following in 2014.

"The only reason the HRA was involved in this whole piece to begin with is, if you recall, the county has the authority to sell tax-forfeited property to another governmental agency at less than market value," Administrative Services Director Deborah Erickson said at the meeting.

The county HRA entered into negotiations with Coon Rapids-based real estate developer Paxmar a few years ago, and after initial negotiations with county HRA staff, Paxmar submitted an offer to purchase lots in all three developments.

The county had been offering the lots for sale, but by law cannot sell them for less than the assessed value, which includes the assessments. The average cost of special assessments for each lot was more than double and in some cases triple the estimated market value of the lot.

Minnesota statute allows the county to sell lots to the county HRA for less than the estimated market value if the lots are considered blighted. The county HRA's attorney provided the legal opinion that all three subdivisions met the definitions of blight outlined in state statute.

The county HRA negotiated a sale based on the estimated market value provided by the county assessor. The organization discussed obtaining assessments on the lots and decided to use the estimated market value.

"The city of Brainerd agreed to take a reduced amount of what the assessments would be. They basically took the sale price," Erickson said.

Paxmar's offer initially called for purchase of 113 lots in the developments at 86 percent of the assessed value, and the plan would include the building of 93 homes over six to 10 years, with a minimum of 10 and a maximum of 30 lots under construction each of those years.

Of those 93 homes, 63 would be built in Brainerd Oaks, 23 in Serene Pines and seven in Dalmar Estates. A minimum of $1.5 million of homes would be in construction each year.

"So the county didn't really get anything except getting all these properties back on the tax rolls, which was a good thing," Koering said.

County Administrator Tim Houle said, "What we did was agree to sell to the HRA for a nominal sum, but what the city agreed to do was to wave the special assessments ... and it made them marketable. ... We had been holding those lots for years and years and years and years."

Bergman's goals also include creating a "clear, straightforward and efficient procedure for the HRA and developers to act on acquisition of tax-forfeited property" and "encourage developer investment to stabilize county neighborhoods and construct affordable housing."

"The Brainerd HRA and the Crow Wing County HRA took a look at all the tax-forfeited land and created a policy, and we modeled that policy after something that's currently out there that was created by the St. Paul HRA and Ramsey County," Bergman said.

Purpose and goals include a documented, specific plan so non-conservation property could be sold for less than market value, an incentive to correct blight that made the land undesirable and a policy allowing the board to consider the sale of tax-forfeited properties to the HRA.

"The request is Crow Wing County Land Services provide us a list with the tax-forfeited land annually. ... The tax-forfeited properties that we're looking at would only have blighted structures currently on them. That is our mission is to try to eliminate blight," Bergman explained.

"The HRAs would then have 30 days to review that list and ask that a number of them be put on hold and then we would have six months to do our due diligence where we would go out and search for a developer who would then come in and construct the homes."

The HRA would solicit proposals from developers to purchase the property subject to HRA board approval. A discounted price would be targeted at 50 percent of the assessed value for for-profit developers and 25 percent for nonprofit developers building affordable housing.

The HRA would negotiate a contract with the developer at which point HRA staff would submit an application to the county board requesting the property be conveyed to the HRA for $1. All proceeds from the lot's sale from the HRA to the developer would sustain the program.