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October 2005
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Volume 4 Issue 5
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Code
Reforms Aid Rehabilitation Efforts |
In many regions of the country, older housing accounts for a substantial
part of the housing inventory. In the Northeast, almost 30 percent
of all housing units in 2000 was constructed before 1939. In the
Midwest, more than 21 percent was in place before 1939. These units
have the potential to continue to provide housing for millions of
Americans who might not be able to afford newly constructed, higher-priced
homes. While many of those units have needed repair, local building
codes often resulted in increased building costs, thereby reducing
the affordability of these older units.
Building codes designed for new construction are rarely suitable
for use in rehabilitation. Fortunately, ongoing regulatory reform
efforts eventually resulted in the creation of the International
Existing Building Code (IEBC), which addresses many of the impediments
to rehabilitation that were common in previous code iterations.
Recent changes to the IEBC have made it an even more valuable tool
for rehabilitation.
Old Code Approach
Before these reforms were enacted, code officials used a formula
to determine the acceptability of rehabilitation. Known as the “25-50
percent” rule, the older codes established different rules
based on the cost of the planned construction relative to the value
of the un-rehabilitated structure. Although this rule varied somewhat
in different jurisdictions, generally, if work would not exceed
25 percent of the structure’s value, then a contractor and
building officials could negotiate what work was required to comply
with the local code. For work that would cost between 25 and 50
percent of the value of the structure, the contractor had to meet
building codes for all planned work. If the planned work exceeded
50 percent, then the contractor had to bring the entire building
into compliance with the current building code.
Let’s say that an owner plans on replacing windows, doors,
and some other items in a modest rental house. Because the initial
value of the house is fairly low, the cost of the upgrades exceeds
50 percent of the home’s existing value. Under the old approach,
the building official would require that all electrical and plumbing
elements of the house be brought up to code. Based on these additional
costs, the owner would frequently abandon the entire project as
not being financially viable.
Early Reform Efforts
During the 1970s, the U.S. Department of Housing and Urban Development
(HUD) introduced the concept that code administrators should base
requirements on the type of work undertaken. HUD prepared a series
of rehabilitation guidelines to assist in fairly and flexibly administering
code requirements. After a HUD-convened symposium held in 1995 (see
The
Status of Regulations for Housing Rehabilitation), HUD and New
Jersey jointly undertook further reforms. In early 1997, New Jersey
officials issued a draft of a new Model
Rehabilitation Subcode that they subsequently adopted the following
year.
The Subcode codified the idea that requirements should be based
on the nature, rather than the cost, of rehabilitation work. In
May 1997, HUD issued a variation on the New Jersey approach-, The
Nationally Applicable Recommended Rehabilitation Provisions
(NARRP). Together, these two efforts establish a new regulatory
framework that keeps requirements in proportion to the actual scope
of planned work. Based on these efforts, other states and local
governments followed suit with similar reform efforts, including
Rhode
Island and Maryland.
HUD has also released a companion document titled Innovative
Rehabilitation Provisions: A Demonstration of the Nationally Applicable
Recommended Rehabilitation Provisions that illustrates how the
provisions are applied in practice. Another HUD publication, Smart
Codes in Your Community: A Guide to Building Rehabilitation Codes
provides a broad overview of the general regulatory environment
governing the use and reuse of existing buildings. It also offers
examples of state and local efforts to reduce regulatory complexity
and suggests possible strategies to help spur reinvestment in the
existing building infrastructure.
International Code Council Effort
Encouraged by these promising reform efforts, the International Code
Council (ICC) embarked on its own push to improve the regulatory requirements
for rehab. The ICC is the successor organization to three previous
codes organizations: the Building Officials and Code Administrators
(BOCA), the International Conference of Building Officials (ICBO),
and the Southern Building Code Congress International (SBCCI). In
1999, ICC appointed a committee to study various codes and draft the
International Existing Building Code (IEBC). ICC distributed the final
draft of the new code in 2001, and published the first edition of
the IEBC in 2003.
The drafting committee embraced the premise that the extent and
type of planned work, rather than the cost, should dictate the type
of improvements required by the code. The more work the owner planned,
the more upgrades the code would require. The committee’s
approach also recognized the difference between the terms “repairs,”
“alterations,” and “change of occupancy.”
As a result of these changes, code officials would be able to consistently
interpret and enforce the code’s provisions.
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Conclusion
Older housing provides an invaluable source of shelter for many
in the United States. Unduly restrictive code requirements often
discourage the redevelopment of these properties, resulting in housing
deterioration and neighborhood decline. Reforms that had their origins
in the 1970s have significantly contributed to the ICC’s International
Existing Building Code. According to ICC Manager of Standards Ed
Wirtschoreck, "This code provides flexibility in terms of building
design and construction costs." He went on to say that, "It
allows communities to safeguard the public and improve existing
building stock, without mandating the requirements (and expense)
of new construction."
Be sure to read our December issue of Breakthroughs to
see how these reform efforts encourage rehabilitation by establishing
code requirements that are in line with the scope of work to be
performed.
Columbus
Makes Written Commitment to Improve Development Review Process
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In the late 1990s, Columbus, Ohio’s mayor determined
that the process for approving development was seriously flawed,
and set out to remedy the situation. Deborah Hoffman, Administrator
of the Building Services Division, calls the resulting document
a historic agreement between industry and the city to reduce
processing time for building and other permitting reviews.
The Memorandum
of Understanding, inked in November of 2001, establishes
a set of standards that the city and industry must meet in
order to reduce the amount of time needed to approve development
plans. As part of the agreement, industry leaders agreed to
a 28 percent increase in fee charges, as long as these increased
fees would assist in streamlining the process.
City Commitments Outlined in the Memorandum
The city agreed to undertake 22 actions to streamline the
development process in Columbus. Some of these actions include:
- Designate a single point of responsibility.
- Maintain appropriate staff levels, appropriate training,
and overtime or contract services to cover peak periods.
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Here we see an affordable
housing subdivision in Ohio
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Make development laws, requirements, standards, procedures,
and processes available in print and on-line.
- Hold training seminars.
- Consult with the industry before making fee, policy, rule,
or procedural changes.
- Provide applicants with the opportunity to have a pre-filing
project review.
- Establish and maintain a tracking system to identify and
document processing time.
- Notify the applicant’s contact person of the name
of the coordinator assigned to a project.
- Establish an e-mail hotline for plan/plat review questions/status.
- Establish a standard form for issuance of a limited or
partial building permit prior to site plan approval.
- Perform requested building inspections in the field, usually
within one business day of receiving the request.
- Provide builders/contractors checklists for structural,
HVAC, plumbing, and electrical inspections.
- Collect and document causes of reinspections.
- Advise the builder/contractor of the applicable code
section when rejecting work and limit the reinspection to
only the work that was rejected.
- Maintain legally required continuing education.
- Identify potential inspection consolidations without sacrificing
public safety and code compliance.
- Implement the information technology enhancements.
Industry Commitments Contained in the Memorandum
According to Hoffman, the agreement also specifies responsibilities
on the part of those who apply to the Columbus Department
of Development, Building Services Division for permission
to build housing. These commitments include:
- Learn and comply with the city’s development laws
and processes.
- Avoid submitting an incomplete or noncompliant plat or
plan.
- Address review comments when submitting a revised plat
or plan.
- Contact the staff to schedule a project review before
filing an application for plat/plan approval or building
permit.
- Provide the plat or plan in both digital and paper format
when filing an application.
- Designate a single contact person and project decision-maker
when submitting a plat, site plan, or infrastructure engineering
plan.
- Depict the planned phases on engineering plans and plats
if the development will be implemented in phases.
- Submit final engineering plans for (a) sanitary sewer
and (b) street, storm sewer, water, grading, erosion control
and street lighting prior to or concurrently with the final
plat.
Service Timeframes and Redress Procedures
Columbus also established specific timeline standards against
which city staff’s performance can be measured. The
agreement says, however, that these standards assume the applicant
will submit complete plans and address review comments. Some
examples of the timeline standards include:
- Processing the preliminary plat – 22 days;
- Processing the final plat – 42 days; and
- Residential (1, 2, 3-Family) permitting process –
7 days.
Should these timeframes not be met, applicants will receive
a credit or rebate of a portion of the fee, or they can request
a meeting which will result in a decision within 120 hours.
The agreement also puts city employees on notice that the
city will evaluate performance on the basis of meeting the
standards listed in the agreement. The agreement also outlines
a 19-step process for reviewing applications and actions applicants
can take, should the city not meet the timeframes contained
in the agreement.
Impact and Results
According to Hoffman, the 13 agencies responsible for undertaking
these reviews have not missed a deadline since signing the
agreement.
According to Jim Hilz, Executive Director of the Building
Industry Association of Central Ohio, “This is a great
effort on behalf of Columbus.” Hilz went on to say that,
“We are trying to copy this process in other communities
where processing delays increase the cost of owning land before
development can occur.” While he applauds the overall
effort, Hilz says that builders will continue to work with
the city to streamline communications.
Hilz congratulates the city on the original document and
the city’s continued willingness to reduce processing
time. “We still have bumps in the road,” says
Hilz, “But overall, there is more good coming out of
this process than bad.”
Tax
Increment Financing of Infrastructure |
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Communities That Use TIF Encourage Affordable
Development by Easing the Tax Burden on Residents
Budgetary and other financial constraints are forcing
local governments to examine alternative methods of
building new schools, roads, fire halls, libraries and
other public facilities amenities. Many communities
require developers to provide this new infrastructure
as part of the development approval process. While helping
to keep a lid on general property tax increases, these
requirements often add to the cost of providing affordable
housing. Realizing that these costs could impede affordable
housing development,, some communities are adopting
tax increment financing (TIF) to pay for increased public
facility needs.
Tax Increment Financing Fundamentals
In its basic form, TIF allows a local government to use
tax revenue generated by a development to pay for public
infrastructure needed by that development. In a tax increment
financing agreement, the local government taxing authority
establishes an area or tax district where it agrees to
freeze the tax assessment on a tract of land. For new
construction, the base can be the original assessment
against the raw land. For redevelopment, the base can
be the assessment against the land and the existing improvements.
The taxing authority uses any additional assessment against
the new improvements and the taxes to finance required
improvements.
Tax Increment Financing in Rapid City,
South Dakota
TIF has been available in South Dakota since 1978.
Rapid City created its first TIF district in 1983, and
has created a total of 52 districts. In a recent interview,
city planner Karen Bulman observed that, “Rapid
City is very conservative in granting tax districts.”
She went on to say, “Only ten percent of the taxable
value of the city can be in these districts. City authorities
want to maximize the return to the city for any tax
districts established.”
She also commented that using TIF for affordable housing
is a fairly new strategy in rapid City. In order to
qualify for this financing option, developments must
meet several criteria. The mandatory criteria that apply
to housing are:
- At least 25 percent of the area is blighted;
- The project complies with the Comprehensive Plan;
and
- There is no net loss of pre-existing tax revenues.
In addition to the compulsory criteria, a project must
meet two of six elective criteria. Four of the six relate
to housing developments, and encourage projects that
can…
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Demonstrate that TIF makes the project economically
feasible;
- Eliminate actual or potential hazard(s) to the public;
- Result in additional redevelopment in certain downtown
TIF areas; and/or
- Result in the construction of affordable housing
units.
The city defines affordable housing as projects where
the developer reserves at least 51 percent of the dwellings
for those earning below 80 percent of the area median.
In addition, residents must pay no more than 30 percent
of gross income for housing. The dwelling must remain
affordable for at least ten years or the owner must
repay a portion of the tax increment financing benefit.
The city has a number of discretionary criteria it uses
to evaluate projects. A more detailed description of
these criteria is contained in the “Guide
for Applicants.”
TIF Uses
Developers can use TIF for capital costs of public
improvements, the clearing and grading of land financing
costs, and other costs associated with the public infrastructure
required by the development. Those constructing affordable
housing cannot use this type of financing to construct
residential structures.
Process
Those seeking approval for a TIF district must complete
an application that includes a specific list of uses
for which the developer will need tax increment financing.
Only those identified uses would be eligible for the
program.
City staff submits applications for TIF to the Project
Review Committee, who then makes a recommendation to
the Planning Commission and the city’s Common
Council. The Common Council retains final authority
to approve the proposal. Following approval, the city
staff and the applicant negotiate a development agreement
that the Common Council must approve.
When approving the agreement, the city only makes a
commitment that the applicant/developer can use the
additional tax revenue to retire the debt. The city
does not issue bonds, nor is it responsible for the
debt. The applicant/developer secures the financing
to pay for the approved infrastructure improvements
based on the city’s commitment.
South Creek Village
Recently, a developer approached Rapid City with a
proposal to construct an 80-unit housing development
using Low Income Housing Tax Credits. Since the developer
of South Creek Village was committed to serving low-
and moderate-income households, the project was, “Just
on the edge of profitability,” said Murray Klane,
a consultant with the Gandolf Group, LLC. The city’s
requirement that any development with more than 40 units
provide two points of ingress and egress would have
had a tremendous impact on the economic feasibility
of the project. In addition, the city required that
this development provide a street connecting two existing
streets. With government restricted rents, the project
could not carry the additional debt without TIF assistance.
According to Klane, “Categorically, we would not
have been able to complete this project without the
policy decision by the city to create this tax district.”
The developer asked that the city create the tax district
and use the increased revenue to pay for the required
street improvements. Once the city made its commitment,
the developer’s lender pledged to fund a loan,
based on the city’s action. Klane said that the
approval process took three to four months, but he was
so pleased with the result that he was considering a
TIF for another affordable housing development.
The Tipping Point
Rapid City’s infrastructure requirements could
have prevented the developer from constructing 80 units
of much-needed affordable housing. In this case, the
city and the developer created a means whereby the developer
paid for the obligatory roads, but used TIF, rather
than increased rents, to pay for the improvements.
For additional information on tax increment financing,
visit HUDUSER’s Bibliographic
database.
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