Council discusses financing options for old hospital demolition
Trending
While setting a date for a public hearing on an amendment to the city's Urban Renewal Plan for Area No. 4 may not sound particularly exciting or newsworthy on its face, the motion before the city council on Monday evening offered a chance to engage in initial discussions on its financing options for the potential partial or complete demolition of the former downtown hospital property at 405 E. Main St.
Although Judge Christopher Polking awarded the city the title to the large property back in June, the owner -- Scott Covalt of CD Marshalltown LLC -- has filed an appeal that is still pending with no updates or rulings issued as this edition of the T-R went to press. During Monday's meeting, City Administrator Carol Webb explained that the amendment would add the former hospital to the list of authorized projects within the existing urban renewal area.
"The reason we're bringing this forward now is because we're beginning to incur expenses related to the former hospital campus including some planning, engineering, some environmental assessments and some other work that we're doing," she said.
Adding it to the plan, she noted, establishes a framework for eligible project costs to be financed through internal loans or advances and eventually be repaid through Tax Increment Financing (TIF).
City Finance Director Cole O'Donnell then broke down some of the city's financing options including an internal loan that could either be interest free or at a nominal interest rate, a loan set up to be paid back through future taxes generated by TIF and issuing general obligation (GO) bonds. A hybrid model using a mixture of TIF and property taxes could also be utilized.
Based on some early estimates and projections, using TIF alone on a $5 million bond would require a first-year payment of approximately $457,500 on a 15-year payback schedule -- $118,379 of which would come from the city's general fund.
Another option is to utilize Local Options Sales Tax (LOST) reserves with a $228,750 year one payment -- just over $59,000 from the general fund. An internal loan would likely come from the sewer fund.
Councilor Gary Thompson commented that currently, the general fund operates at an average of a $750,000 deficit every year, and he didn't feel that adding another $118,000 to that number was feasible. He then asked which option would have the least impact on the general fund, and O'Donnell replied that it would probably be the internal loan.
"The reason being is that we can then structure the payback differently than if we went with issuing bonds, because once you issue bonds, you're on a payment schedule, period," O'Donnell said. "You can front load it, back load it in order to make it more palatable in the short-term, but in the long run, you're still going to be paying the bonds."
An internal loan would provide more flexibility and a lower interest rate until the property is redeveloped. O'Donnell told the council he could run scenarios with Speer Financial to get a sense of the pros and cons of each option, but he recommended passing the resolution before the council keeping the option for TIF open.
Mayor Mike Ladehoff shared that he and Webb had been part of a Zoom meeting with Iowa Economic Development Authority (IEDA) Director Debi Durham, and they believed state grant funds will be available to assist with the process.
"What that looks like, yet, we don't know, because we have to get our ducks in a row first, but she did make indications that we would be able to get some grant money to help knock the hospital down," Ladehoff said.
Thompson asked if they would have an answer before the upcoming public hearing, but Webb didn't feel it was necessary to know immediately because the resolution indicates that the city is pursuing other funding sources.
With no public comments, the motion setting the date for the public hearing on Sept. 14 passed by a unanimous 7-0 vote.
Contact Robert Maharry at (641) 753-6611 ext. 255 or rmaharry@timesrepublican.com.