Waupaca reduces penalties on struggling development plan
The development agreement between the city of Waupaca and Russ Young Inc. that dates back to 2004 is now amended.
The common council approved the developer’s request for an amendment by a vote of 7-3 when it met on Feb. 3.
Deb Fenske, Steve Hackett, Alan Kjelland, Eric Olson, Jillian Petersen, Dave Peterson and Scott Purchatzke voted yes, while Paul Hagen, John Lockwood and Paul Mayou voted no.
“I appreciate the circumstances you’re in. You want to spend your money here. We should be working with you,” Fenske said before making a motion to approve the amendment to the agreement which had been drafted.
When Russ Young Inc. entered into a development agreement with the city on Oct. 19, 2004, it was for a project consisting of 11, two-unit condominiums with a minimum development cost of $3.5 million.
With five of the units built thus far, the penalties assessed on the project totaled about $265,000 through the end of 2013.
The developer paid $101,500 of those penalties.
Under the amended agreement, Russ Young Inc. will:
• Pay the city a total of $110,000, with the payment to be made in three installments by Dec. 31, 2017. That $110,000 is the portion of the development subsidy that did not go toward the installation of public infrastructure or the project’s site development costs.
• Build three buildings (six units total) by Dec. 31, 2021, with two of those buildings completed by Dec. 31, 2018.
In addition, the current development penalties on the five parcels still owned by the developer and reflected on the tax roll (about $297,000) will be frozen while the developer performs under the amendment agreement.
If the developer defaults, the penalties associated with parcels controlled by Russ Young Inc. will be put back on the tax roll, with accrued interest.
Russ and Barb Young began seeking relief from their development agreement in 2012.
Discussions resumed last summer and involved Mayor Brian Smith, City Administrator Henry Veleker, Development Director Brennan Kane and City Attorney John Hart.
That resulted in the proposed amendment that was brought before the council on Jan. 20 as part of a Committee of the Whole discussion.
During that meeting, Veleker told the council that things began unraveling when the recession started in 2008.
Barb Young said this is not the first development agreement they have had with the city but that in the case of this one, they ran into problems because of the housing recession.
“It took three years to sell the last condo,” she said. “We want to complete it.”
They asked for relief from the penalties associated with the original agreement.
“It is a challenge here,” Barb Young told the council. “The market is stagnant now for new construction.”
One council member expressed concerns about other developers in the same situation.
“I worry about current and future predictaments. An agreement is an agreement. The city fulfilled 100 percent of it,” Mayou said.
When Barb Young asked how other developers are doing in the city, Veleker said five subdivisions are struggling.
What differentiates the Youngs’ offer, he said, is the fact that the city would get back the $110,000 it gave them.
He said when lots in subdivisions end up in foreclosure, they go back to the county.
“The chance of getting anything back is not there,” Veleker said.
Barb Young said it is a beautiful project, and they would hate to see it stop.
She understands the city has other development agreements and said perhaps, each case should be taken at its merit.
During the council’s Feb. 3 meeting, the mayor asked that if the council agreed to amend the agreement with Russ Young, Inc., the motion should include that the taxes of about $5,000 be paid in full to the county.
“That’s our intention,” Barb Young said.
When Mayou asked the Youngs if they could personally guarantee payment of penalties on the lots if they do not build the units, she said, “This is as far as we’re willing to go.”
He replied, “I understand your intentions are good, but 2021 is a long time away.”
Barb Young then said, “Frankly, we’re going to build faster if we can.”
She said they already paid the city $100,000 in penalties, will pay the city another $110,000 and are committed to building in an “area where new construction is as stagnant as possible.”
Most municipalities are working with their developers, feeling there is more to be gained in working to complete projects, she said.
Mayou said the impression being given was that if the city did not agree to the amendment, it would lose.
If the Youngs default on their loan, it would hurt their reputation, he said.
After the council voted to amend the agreement, Russ Young thanked the city and said, “We will try our very best not to disappoint you.”