Housing subsidy or incentive? As debt mounts, Fargo leaders debate use of specials in new developments
FARGO — The cost of special assessments has stirred debate among city leaders over whether the city should be involved in what some consider a housing subsidy and what others consider a way to encourage home ownership.
Most homeowners are familiar with specials as a kind of property tax used to pay for repairs of streets and sewers. But it's also used to finance the construction of streets and sewers in newly developed areas with the tax paid by new homeowners.
By the end of 2016, the debt associated with repairs and construction totaled $416 million. That's 7 percent higher than what it was a year ago and 42 percent higher than five years ago.
For City Commissioners Tony Gehrig and John Strand, this arrangement benefits developers who don't have to take on the debt themselves and the associated risk. "This is definitely a subsidy. It's definitely a risk to the taxpayers. And it's definitely a business that the city does not need to be in," Gehrig told commissioners at a meeting Monday, Nov. 20.
For Mayor Tim Mahoney, the benefit goes to new homeowners. The city enjoys very low interest rates compared to developers, and those savings are passed on to homeowners and encourage them to become Fargo taxpayers instead of some other city's taxpayers, he said.
Gehrig and Strand said they're not opposed to growth but fear the opposite. If the economy were to go sour and the new homeowners couldn't afford to keep their homes or pay special assessments, all that debt will fall upon taxpayers, they said.
Don Dabbert Jr., owner of Dabbert Custom Homes and a board member of the Home Builders Association of Fargo-Moorhead, said developers actually put up 50 percent of the cost of streets and sewers so the risk isn't entirely on the city.
He added that the increasing special assessment debt should be seen in the context of a rapidly growing city.
Still, Strand said he wonders if it's the city's job to facilitate development. He said he'd like to know how other cities handle this issue after hearing a city engineer say that some leave street and sewer debt entirely up to developers.
City Administrator Bruce Grubb said staff will do some research and report back later to commissioners.