New London’s riverfront development needs market-rate housing
By Robert Cloud
The city of New London may lose up to $115,000 annually if it only builds the first phase of its proposed riverfront development project.
Phil Cosson, a public finance consultant with Ehlers, spoke to the New London Common Council on Tuesday, Oct. 8.
Without the market rate development, he said the project will have a $2 million shortfall over the 27-year life of the tax incremental district that will help fund it.
Project phases
New London’s proposed riverfront project has two phases of development.
The first phase includes a three-story building that will house the library, 34 senior apartments on two upper floors and six three-bedroom townhouses adjacent to the library.
A second phase would be market-rate housing.
Initially, the city considered 12 condos and 32 town homes valued at approximately $9.7 million.
However, no developer has committed to developing market rate housing.
Assessing WHEDA housing
To pay for the first phase of the project, the city will apply for a $1.3 million tax credit from the Wisconsin Housing and Economic Development Authority.
New London will also borrow $1.75 million from the State Trust Fund Loan Program.
Payments on that loan average about $130,000 per year for a total of $2.57 million in principal and interest over 19 years.
By establishing a tax increment financing district (TID), the city will be able to capture all additional property tax revenues that the development generates.
However, revenues from the TID will likely be less than payments on the State Trust Fund loan.
Cosson said WHEDA projects are assessed based on rental income rather than construction costs.
“They may cost $6 to $7 million to build, but the valuation may end up being only about $1.3 million,” Cosson said.
Lower assessed value means lower tax revenues from the TID.
Two scenarios
Cosson provided two different financial scenarios for the riverfront project.
In the first scenario, New London only develops the first phase or WHEDA portion of the project.
The TID generates nearly $525,000 in total revenues from 2022-49, but the city’s total costs over the same period are more than $2.57 million.
Cosson said the shortfall would have to be covered by tax levy revenues.
“You need an additional $3.6 million in development, along with the WHEDA tax credit project, to make this work from a financial standpoint over the life of the tax increment district,” Cosson said.
Cosson’s second spreadsheet scenario showed 16 condos or townhouses being built over a four-year period.
Each residential unit would be valued at an average of $225,000 for a total value of $3.6 million.
There would be annual shortfalls of about $43,000 until 2040.
“They (annual shortfalls) get reimbursed full over the life of the district and the district closes out two years early in the black,” Cosson said.
Next steps
In order for construction to begin in the spring of 2021, Cosson said the city must review its commitment to the overall project.
He also asked New London to confirm its public infrastructure costs and available grants before moving forward.
Finally, the city must determine if it can raise the amount needed to fund the library.