Petition may force Iowa City's hand on funding for downtown building

The City Council next week will likely reconsider a $2.5 million deal with a developer that has been criticized by some residents.

The council voted, 6-0, April 3 to put $2.5 million in public money toward a 14-story mixed-use building developer Marc Moen plans to construct on the Pedestrian Mall downtown. The total cost of the building, at 114 S. Dubuque St., is estimated at $10.7 million.

A petition drive has started since then calling for voters to be allowed to decide whether the city should contribute to the project.

The petition deadline is effectively July 10, because that's when the council is scheduled to hold a public hearing and vote on a $2.8 million bond sale needed to come up with the $2.5 million.

If the petition is successful, the City Council would have three options:

• Abandon the bond proposal,
• Call for a special election on the bonds,
• Or use a different type of bond that is not subject to a reverse referendum but is estimated to be $300,000 more expensive.

Carol deProsse, an Iowa City resident and one of the main petition organizers, said the latter option would be an “abomination.”

“If we meet that (signature) goal and the city denies us the chance to have an election, I'd say they just didn't give a damn about democracy in Iowa City,” she said.

Petition organizers need the signatures of 697 eligible voters. A count was not available Thursday, but deProsse believes they'll have enough.

She said the overwhelming sentiment of signees is they see Moen – a prominent downtown landowner – as a wealthy person who doesn't need public financing for his project.

Moen has said the $2.5 million is vital for the building to become a reality, and the city received an opinion from the National Development Council saying essentially the same thing.

The project has been enthusiastically backed by city staff and council members. They say it would help with their goal of attracting more retail, high-grade office space and owner-occupied housing downtown.

Moen's project would have all three of those elements, with retail space on the first two floors, three floors of offices, and condominiums and apartments above.

The city initially planned to sell what are known as general obligation bonds to raise the $2.5 million. Those bonds are subject to a reverse referendum.

Another option now under consideration is revenue bonds. A referendum could not be called on them, but they carry higher interest rates than general obligation bonds do. Over the 20-year repayment period, the total cost of the general obligation bonds would be about $3.75 million, Finance Director Kevin O'Malley said. Revenue bonds would add another $300,000, he said.

City Manager Tom Markus said in the face of a successful petition, he'd recommend the council move forward with the revenue bonds and do so at Tuesday's meeting. That would bypass the petition.

City Council member Connie Champion said that unless she received new information that gives her pause, she'd support using the revenue bonds to fund a project she believes will benefit Iowa City for decades to come. Other council members have made similar comments.

“I appreciate that there are people out there who think that we shouldn't back Moen with money,” she said. “On the other hand, people like Moen are the ones who are putting money into the city.”

Council member Jim Throgmorton, however, said that if a successful petition is submitted, he believes the council should at least discuss the idea of a special election and, though his mind is not made up, he'd be inclined to vote to put the matter on the ballot.

The project would use tax increment financing, in which the new property taxes, or "increment," generated by a development go toward the project. Tax-collecting bodies like the city, county and school district do not receive the increment during the term of the agreement.

TIFs, as they are commonly called, gained a lot of attention, and criticism, last year with Coralville's use of the tool to land a Von Maur department store at the expense of the company's Iowa City location.

Markus said as long as other neighboring communities aggressively use TIF, Iowa City will need to respond accordingly.

“We're going to have to step up our game, period,” he said.

Though the funding for Moen's project was initially described by city planning staff as a forgivable loan, Finance Director Kevin O'Malley said Thursday that is not true. The city would pay back bond buyers with taxes generated from the property.