... After Bad Investment in Reserves of Loveland
by David Miller
LOVELAND, OHIO - In May of 2005 the Business Courier described Mark Bradley Zaring as, “Already the Tri-State's fastest-growing home builder” and announced that Zaring had decided to try his hand at land development.
“Zaring's four-year-old company, Mark Bradley Homes, is planning 21 new luxury homes on a 16 acre site off Paxton Road in Loveland. Clermont County records show the land was sold in February for $830,000 to Paxton Holdings LLC, a joint venture between Zaring and developer Robert Krohngold. Zaring hopes to have a furnished model ready for potential buyers by fall. He's calling the project The Reserve of Loveland.”
Accordint to the Courier article, Zaring used his middle name to brand his company, because the Zaring name had been sold to Drees.
"It's beautiful land with rolling, wooded, walk-out home sites. It's like a nature preserve out there," Zaring told the Business Courier. “He is the second-oldest son of well-known Cincinnati homebuilder Allen Zaring.”
The Business Courier said the company sold 43 homes in 2004 at an average price of roughly $600,000. “Its annual sales of $29 million represented an 81 percent increase over 2003,” according to Courier research.
When Paxton Holdings LLC asked for permission from the Loveland Planning and Zoning commission, they were required to have a surety bond or irrevocable letter of credit equal to the cost of installing public improvements like water lines, fire hydrants, roads, sidewalks, and curbs and gutters at the Reserves of Loveland. The costs of the public improvements were reviewed by the city engineer, and the developer agreed to the dollar amount before they are granted permission to begin construction. City Manager Tom Carroll approved these estimates and put an ordinance before City Council for their concurrence. The Ordinance passed.
As the improvements are made, the developer can ask that the amount of the letter of credit or bond be reduced. After all of the improvements are made and a final inspection by the city engineer, the City “accepts” the public improvements and it is then that the streets become “Dedicated City Streets” and the City then assumes all maintenance responsibilities.
In May of 2005, the original irrevocable letter of credit was set by the City at $601,000 and issued by Fifth Third Bank. It was reduced to $388,000 in August of 2005, and again reduced to $61,000 in February of 2006.
Letter of Credit Expires Without Notice
Carroll reported to City Council on March 2 of this year, “Unfortunately, staff learned in December that the remaining $61,000 letter of credit expired on July 1, 2009.” Carroll further said that the developer had breached the development agreement, and “The City should have taken steps to ensure that the letter of credit was either extended or called.” He also stated as fact, but without providing collaborating evidence, that the developer was now financially unable to renew the letter of credit.
Oops: Amount Wasn’t Enough AnywayIt was also at this time that the City Engineer “revisited” the estimate of remaining work at the Reserves and determined that it would now cost $115,921, instead of the $61,000. The subdivision had also now been platted for 23 lots; with nine home completed, seven owner occupied, and two “market homes” needing interior finishing. With the default of the developer, Fifth Third Bank, who issued the construction loan as well as the expired letter of credit to Mark Bradley Homes, took ownership of the remaining vacant lots, according to Carroll. Carroll also said that Fifth third only took possession of the building lots, not the land under the streets or sidewalks.
Carroll went in search of a solution when residents of the Reserves asked him for help.
Carroll then took the negotiations private with representatives of Fifth Third's Special Asset Division, and behind the closed doors of executive session with City Council.
Carroll, in a March 2, 2010 report to Council, offered four “Policy Options” they should consider: 1) Create a tax increment finance district (TIF) to capture property tax revenue from the Reserves and use the money to complete the unfinished infrastructure, 2) Levy a special assessment against the properties in the Reserves of Loveland, 3) Pay for the project from the City General Fund, or 4) Pursue legal remedies against Paxton Holdings LLC and Fifth Third Bank through the courts.
“How did this slip through our hands?”
Without saying who made the mistake of letting the Letter of credit expire, Carroll said in the report, “If a mistake was to occur, the City is fortunate that it was with the Reserves of Loveland and not a larger, more costly subdivision..”
At the March 9, 2010 council meeting, Councilman David Bednar turned to Carroll and said, “I just have one question. How did this slip through our hands?”
Carroll responded that he didn’t think he had a good explanation. “On behalf of the City, I take full responsibility for letting the letter of credit lapse.”
Council member Brent Zuch, apparently attempting to paint Carroll’s admission as a heroic act of shielding some other City staffer from blame, responded that he appreciated the City Manager’s, “The buck stops here attitude.” He continued, “However, I’m sure it’s not part of his day-to-day duties.” Zuch said it would not be the best use of Carroll's time to make sure the bonds are current.
Former City Finance Director, Bill Taphorn, who still worked at the City when the letter of credit expired has said it was Carroll who was responsible.
Carroll said at the March 23 council meeting that the “financially struggling developer” was “on the brink of bankruptcy.” and that the city would likely have to step into the shoes of the developer and complete the public infrastructure of the subdivision. Zuch said he was in favor of the TIF, or option 4. “Let’s sue everybody we can and see what we can get out of them.” Zuch said he was not in favor of taxing just the “poor residents” who already lived in the Reserves to remedy a situation they didn’t create. He described some of the debate as classism, and said as a council member he would advocate on behalf of the affluent just as strongly as he would for the poor.
On March 9, Council member Mark Fitzgerald said that letting the letter of credit expire was a serious matter, “The reduction of the bond amount in 2006 may have been ill advised as well.” He said that while the City prides itself in being “business friendly” that if the City “shirks its regulatory responsibility it can come back to haunt us.” Fitzgerald was not on council when the bond reduction was voted on in 2006. “Council was, with all its good intentions, perhaps a little too generous in that reduction - way back then.” At the meeting Carroll also took responsibility for the amount of the bond reduction in 2006. He said the the amount of work left to be completed, was underestimated.
TIF option “a perversion”Fitzgerald, served as Loveland’s city manager, in the ‘90’s, and is the current city administrator of North College Hill. He said that the TIF option was “a perversion of what the intent of TIF’s are.” Fitzgerald favored option 2, which would only assess the benefiting properties because, “It is an actual direct cost of that subdivision. He said that to do otherwise would be a subsidy to that subdivision paid for by others. He said that the City’s options should be 2 and 4.
Waters “Muddled” by Park ShelterLoveland resident, Brett Griffith made a presentation to council on May 25 opposing the use of a TIF. His reasoning is that the scheme for completing the sub division would take property taxes away from the Loveland School district and other entities that rely on property taxes. Griffith asked why the failures of a private enterprise were being placed on the shoulders of public entities and taxpayers.
Later in the meeting, council discussed the possibility of using funds from Fifth Third Bank for recreation improvements. Carroll, having negotiated with Fifth Third, reported to Council that they had verbally committed to put between $67,000 and $73,700 towards the infrastructure of the Reserves. Carroll had also been negotiating with Fifth Third, whereby the bank would “donate” $75,000 to the City for the construction of a shelter in Nisbet Park in exchange for releasing Fifth Third of all responsibility of completing the infrastructure at the Reserves. This agreement would stipulate that the City would complete the remaining public improvements.
It wasn’t until then that Griffith realized that Fifth Third’s contribution was possibly not going to be used for the subdivision, but diverted for a shelter at Nisbet Park - making the school district’s subsidy to Fifth Third’s bad investment even greater. Griffith is the Treasurer of the Loveland Schools, and was somewhat incredulous that before his eyes, matters were becoming worse. Board President, Kathy Lorenz and business manager John Ames were also present at the meeting.
Zuch responded to Griffith that he thought it unfair to expect homeowners of the Reserves to pay thousands of dollars because a developer “went belly-up.” There were several residents of the Reserves also present at the meeting. Zuch also said he favored taking Fifth Third’s $75,000 and instead of applying it towards the Reserves - using it to build the park shelter.
Fitzgerald noted that “The waters had been muddled by linking park development to the Reserves of Loveland.”
$50,000 “is a pittance”Council member Paul Elliott said that if Fifth Third owes the City $67,000, “It should be collected.” He said he wasn’t convinced that bank didn’t have an obligation to complete all of the improvements. He said that if the only way Fifth Third would come up with the money was if the City made up the $55,000 shortfall, he would not at this time accept their money.
City Solicitor Frank Klaine said that Fifth Third did not own the underlying subdivision streets, they were still owned by Paxton Landholding LLC (Mark Bradley Homes), and the Bank may not have a legal obligation to do anything.
Councilman Todd Osborne made a motion to have the TIF ordinance move forward and presented for a first reading at the next council meeting.
When Elliott said he would be voting “No” because a TIF diverts tax dollars, and other entities like the School District will seek additional levies to generate the lost revenue, Zuch said $50,000 in tax revenue “is a pittance to large governmental entities.” However, Zuch had stated earlier in the meeting, that the City of Loveland has a tight budget and could not afford to dip into its own General Fund to make the improvements.
Carroll says that when new homes are built in the Reserves, the additional property taxes normally paid, would be diverted to a City Tax Increment Equivalent Fund. The TIF would last until enough taxes are collected by the City to complete the street, sidewalks, etc. He said the Loveland School District would normally receive 65-70 per-cent of the taxes without the TIF.
If the Fifth Third portion goes instead to Nisbet Park, the total lost to the Loveland School District is equivalent to a teacher’s salary for one year.
Elliott said that $50,000 wasn’t a pittance to a school district, “But would be - to Fifth Third Bank.”
At the last City Council meeting on June 8, Griffith again spoke against the TIF. He said that as of the first of May, Fifth Third Bank owned 15 lots appraised by the Clermont County Auditor at $150,000 each, for a total of $2,250,000. “Since this date two lots have been sold and recorded for $125,000 each. And supposedly another lot has been recently sold. This puts about $375,000 in the pockets of Fifth Third Bank.” He also said, “I find it hard to believe that the city council would even think about taking the money that is supposed to be used for roadwork, the reason for the TIF, and instead move it over to a pet project which then in turn would cost the taxpayers over double the amount to fix a road at today's rate.”
Osborne, Weisgerber, Zuch, Bednar, and Linda Cox have voted to proceed. Elliott and Fitzgerald have voted no. Cox said however that she couldn’t agree to use the money from Fifth Third for the park if it could be used to complete the Reserves.
TIF and Settlement Agreement with Fifth Third - Now Before CouncilUnder the TIF ordinance, and settlement agreement negotiated with Fifth Third, any new property taxes generated by additional sales of homes in the Reserves would go each year into a fund the City must use to complete the development of the subdivision. The City will agree to lift the burden of snow removal and other maintenance retroactive to last January. The City would take full responsibility for the installation and completion of underground communication utilities, and items normally considered amenities such as buffer areas, recreation facilities, and open areas. The City would also have to purchase land from Fifth Third if any is needed for these improvements, paying from the accumulated TIF money.
Fifth Third would then issue its second letter of credit to the City in the amount of $75,000 which the bank would hold in a “PW Account”. The City can use this money to reduce the TIF Fund, or divert it to building the park shelter.
The money Fifth Third “donates” to the City, if it is used for the park shelter, will also pay for a plaque on the shelter, honoring the Bank’s “donation.”
In his full statement printed below, Griffith said, “By not making Fifth Third Bank pay any more money you are in fact making me and the residents of Loveland City and the Loveland City School district pay more.”
“Please use the money for what it was intended for. I have no doubt that a new shelter house would be a nice thing to have but I don’t think the money should be diverted away from the Loveland City Schools and other taxing districts to build it.”
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