Pine City Council discusses future of HRA, tables vote on grant application for building rehabilitation

The Pine City Council tabled a vote on applying for grant funding to rehabilitate the Hillside Court Apartments and discussed the future of the city's Housing and Redevelopment Authority at Wednesday's meeting.

Pine County economic development coordinator Lezlie Sauter explained that the city was selected to submit a full application for a grant through the Minnesota Department of Employment and Economic Development's small cities development program.

The funding request would be for $488,750 to rehabilitate the 34-unit apartment building.

The HRA would also be required to match just over $182,000 to receive the full funding if selected, as well as conducting lead and asbestos testing.

"I do know the management company is going to work through some of that testing right now, just to kind of know what we're getting into before this is awarded, if it is awarded," Sauter said.

Sauter also explained that Pine City would be the grant holder, and pass the funds to the HRA, which would be required to maintain ownership of the apartment property for five years in order for it to be forgiven.

"I know the council wishes that the HRA would maybe dissolve and dispose of their property," Sauter said. "In order for them to do that, because they have been HUD-funded for the last 45 years or more, they do have to be able to have a functional, rehabilitated property in order to do that. So this is step one, I would say, in that process."

'The building should never have gotten to this point'

Council member Kyle Palmer raised concerns about constraints in place with government funding for the rehabilitation work.

"This building should have never gotten to this point, and now we're waiting on government funding to keep pulling together," Palmer said. "We don't have a big budget that's taking care of the property itself, so are we always going to be relying on government grants to step in and fix this building? And that's my concern, is what happens if they decide to pull the rug out from us one day, and we do end up having to bite the bullet and put money towards it."

Mayor Kent Bombard, who sits on the HRA board, explained that federal funding has "kind of stepped down over the last fifty years."

Bombard said the U.S. Department of Housing and Urban Development (HUD) pays between $90 and $150 per unit per month for maintenance.

"Given those facts and figures, I think the HRA could do a heck of a lot worse than it's doing," Bombard said. "Is it in a great position? No. I think we can all agree, we've been trying to get the foundation fixed here since I was on HRA originally in 2018, 2019."

'Probably the best shot' to fix foundation

Bombard said "this is probably the best shot" he's seen for funding to fix the building's foundation since being on the HRA board, and added that Pine City's grant application is "very competitive."

"If the building's fixed, it opens up a lot of possibilities for turning it over to a different entity," Bombard said. "Though we have to wait five years, it's probably going to take at least a year to deal with all the paperwork to transfer the building out."

Bombard said there are two recommended outlets for transferring the Hillside Court Apartments: A Section 18 disposition or a Rental Assistance Demonstration (RAD) conversion.

"A RAD conversion is an incredibly difficult process that's time consuming," Bombard said. "We would need a consultant that deals in RAD conversions."

Sauter said a RAD conversation takes approximately 2-3 years and requires 100% of capital needs projects to be completed before a transfer.

A Section 18 disposition would treat the property as Section 8 housing, with vouchers for every unit in the building. Bombard explained that the disposition would spin the building off into its own LLC, with an HRA as the primary owner.

Bombard also said Section 8 is currently "getting a lot higher returns from the government" than HUD.

"They're trying to push organizations out of the strictly HUD-funded public housing that we currently have within the city," Bombard said.

After Palmer asked about long-term plans for major renovations for Hillside Court, Bombard said the refurbishment plans are to "get the foundation fixed and go from there" at this time.

"We haven't talked about any sort of major renovations beyond fixing the foundation," Bombard said.

Palmer expressed concerns about a lack of a long-term plan for success for the apartment building.

"I think this is as close as we've gotten so far to fix the building," Bombard said. "And we know we have to fix the building before we can transfer it."

'A conundrum across the nation with public housing'

Bombard said that while the grant opportunity doesn't fit the council's goal of the property changing hands within a year, compromise is necessary to get the foundation fixed.

"The most important thing in my mind that we have to remember is that the people who live in this building are still residents of our community," Bombard said. "They voted for us, they're our constituents."

Palmer contended that the burden still falls on taxpayers.

"The conundrum that you're witnessing here is a conundrum across the nation with public housing," Sauter said. "It was government-funded constructed, government-funded subsidized and paid for, and the government funding to subsidize those rents hasn't kept up with operating costs."

Sauter reiterated that fixing the foundation is a necessary step toward a Section 18 disposition, and said Section 8 funding is a "better, more consistent stream."

"The property is self-sustaining," Sauter said. "They do have a few hundred thousand dollars in the bank, and they do operate on their own. They don't use the levy funds to operate right now."

The HRA has enough capital funds for the grant funding match, but not enough to cover the entire cost of the foundation project.

Council member Dan Swanson asked if there's a what-if plan in place if the city doesn't receive the SCDP grant funding.

"We try to find some other source of funding, or we keep on keeping on until they can afford to fix it," Bombard said.

Bombard said, as a city, there's no option to "just close the doors and walk away," with obligations to the federal government and clawbacks of potentially millions of dollars.

"Not to mention, you're setting 34 units of housing out on the street," he said.

The council voted 2-0 to table the vote on the grant application to the March 18 meeting. Bombard abstained from the vote, and council member Dave Hill was absent from the meeting. The grant application has an April 15 submission deadline.

"You've given me a lot to think about," Palmer said.

"Housing and public housing is not a simple topic, so I can appreciate that," Sauter responded.