Private gain at the public trough – you decide.

There has been significant discussion of late about affordable housing in Payson.  On April 10th, the Town of Payson declared a housing emergency via Resolution 3376.  There was also a housing proclamation on that date.  The issue is not unique to Payson.  Housing prices are a national issue.  One way to measure the health of the consumer is by debt ratio.  Historically home prices average around a ratio of five times.  That is, to afford a $150,000.00 home, the ratio would suggest an income of $30,000.00.  In 2006, the housing bubble year, the ratio was at 6.75.   As of December 31st, 2023 the ratio is 7.64. 

The average home value in Payson, as reported by Zillow is $444,893.  Realtor.com reports a Payson median listing price of $550,000.00 at the end of March 2024.  That was a reduction of -7.3% year-over-year.  The median sold price was $415K.  Taking the median sold price, and the historical debt ratio of 5.0 requires a household income of $83,000.00.  The current median household income reported by the Census Bureau in 2022 dollars is $60,095.00.  At the historical average ratio of 5.0, the typical household in Payson can purchase a home for $300,000.00.  Those homes are not available.  The same phenomenon has happened in the rental markets.  As with the rest of America, wages have not kept pace with inflation.

The Town of Payson has limited recourse to directly impact housing costs.  Elements in the Town’s direct control are connection and building fees. The meeting of April 10th, declaring a housing crisis, also saw the first reading of Resolution 3380 to increase town fees.  Limiting government fees does not appear to be part of the conversation. The business of government is government, and the government’s revenue is the citizens.

During court testimony on Friday, April 19^th, 2024, Town Manager Troy Smith outlined a project under consideration by the TOP that relies on the low-income housing tax credit (LIHTC) program.  Currently, Payson has three proposals for affordable housing that utilize federal tax credits to offset development.  That program is administered through the Arizona Department of Housing (ADOH).  A wealth of information about the program and applications may be found on their website.  The tax credit is not a direct burden on Payson.  The LIHTC program is a dollar-for-dollar tax credit against the developer’s federal tax burden since 1986.  Tax code has long been a tool to encourage or discourage behavior.

One of the propositions, Proposition 401, specifically addressed leasing of TOP public land.  The propositions were purportedly repealed by the TOP Council on April 12th, 2023, via TOP Ordinances 953 and 954.  The purported repeal is currently the subject of a pending suit in Gila County Superior Court, Case No.  CV2023-00118.  A ruling has not been made at the Superior Court level.  We anticipate the matter will be appealed as it contains a central question of the Arizona Voter Protection Act of 1998.  If our group is successful, leases entered into on TOP public land, after 2019, longer than three years may be set aside.

We have researched all three proposals before the ADOH.  There are concerns about two of the three proposals.  Neither of the two proposals is “shovel ready.” One requires federal involvement to designate a current floodplain suitable for construction, locally known as the American Gulch Project.  Does that proposal have the potential for significant private gain at public expense?  Keep reading and draw your conclusions.  There may be feeding at the trough. 

Low-income housing tax credits are awarded based on a points scale.  Currently, the project most likely to be awarded tax credits, if they are awarded to Payson, based on eligibility points of the ADOH records, is the Green Valley Apartments II/ Payson Regional Housing Development project.  That project has a perfect 200 of 200 possible points.  Mr. Smith testified that the property was acquired in December, and the Town was approached in January.  We are struck by how quickly the project came together, less than five months from concept, to a perfect 200-point proposal.

A brief synopsis of the three proposals and observations of each:

Proposal TC-1069-24 Green Valley Apartments II / Payson Regional Housing Development:

40 Units, LIHTC Self Score 200 points.  Presumed general occupancy.

The TOP acquired the proposed parcel, Parcel Number 304-16-223N, in December 2023 with Resolution 3364.  The parcel is located in an area of proposed town improvement outlined by the Capital Improvement Projects Citizen Advisory Committee (CIPCAC).  The revenue to fund the project was partially established by Ordinance 964 on February 6^th.  The project is to grade and improve a dry gulch subject to flooding.  Funding for the gulch project has not been obtained.  If a bond is issued for funding set against the revenue, that may be subject to Proposition 402.  The CIPCAC project estimate is nine million ($9,000,000.00) dollars, as discussed in the Town Memo.  The feasibility study from 2020 may be found here, reflecting the required engineering and floodplain work.  On March 13th, 2024, Resolution 3375 was passed to lease land to Payson Regional Housing Development (PRHD), a non-profit entity.

The lease is between Payson Regional Housing Development (PRHD) and the Town of Payson.  The signatory for PRHD is Jacob Swartwood.  A Director of PRHD is former Mayor Craig Swartwood.  PRHD is the manager of Green Valley Apartments of Payson, LLC as found on the Arizona Corporation Commissions filings.

In our research, we learned about a land transfer from Green Valley Apartments of Payson, LLC, to the Town of Payson in 2005.  We are uncertain if that transaction is related to the current proposal.  The attached warranty deed shows Section 9, Township 9 North, Range 10 East.  The property adjacent to Green Valley Apartments of Payson, LLC is Section 9, Township 10 North, Range 10 East of the Gila-Salt River Principal Meridian.  Township 9 is located in the Tonto National Forest.

Significant application/project concerns are:

• The lease appears to require Parcel Number 304-16-223N to be divided after improvements of $9,000,000.00 at public expense to the American Gulch area. The land cannot be developed without public-funded improvements, and the improvement values do not appear to be considered in the lease or purchase price.
• The lease appears to allow for the purchase of the property at a predetermined price.
• The lease appears to allow for mortgage encumbrance.
• The lease appears to allow for subletting at the discretion of the lessor PRHD.
• The lease may be subject to the ongoing litigation of Proposition 401, as discussed above.
• Any bond issued for the proposed land improvements may be subject to Proposition 402, as discussed above.
• From a review of the ADOH scoring matrix, the current assigned score of 200 points is incorrect based on land ownership.
• The potential for private enrichment via the required floodplain improvements appears significant.

Proposal TC-1077-24 Payson Peaks / Danco Communities:

60 Units, LIHTC Self Score 155 points.  Danco engages in senior and mobility housing.  The co-sponsor is Payson Senior Center.

The proposed parcel, Parcel Number 304-02-015X, is not owned by the TOP.  On March 27th, 2024, Resolution 3378 was passed with an OPTION to lease land to Danco Communities.  Payson Land 30, LLC currently owns the land.  Should the LIHTC be approved, the TOP must acquire the land to fulfill the lease option.

If the land cannot be acquired, there is potential for a claim from Danco against the Town of Payson.   The option terms revert the property to the TOP at the expiration in 99 years.  Unlike the Payson Regional Housing Development lease, there are strict provisions in the option of encumbrance of the land.  If that project is awarded, the Town must secure the land, potentially above market rates, as doing so would be less expensive than Danco’s potential breach of contract claim if the option cannot be executed.  The current property owner would potentially benefit significantly from that leverage.

Significant application/project concerns are:

• The Town of Payson does not currently control the land.
• From a review of the ADOH scoring matrix, the current assigned score of 155 points is incorrect based on land ownership.
• The proposed lease may be subject to the ongoing litigation of Propositions 401 and 402, as discussed above.
• The potential for private enrichment via the required sale/acquisition appears significant.

Proposal TC-1089-24 The Reserves at Mogollon Rim / Overland Property Group:

72 Units, LIHTC Self Score 180 points.  General occupancy and associated commercial development.

Of the three proposals, the presentation by Overland Property Group appears to be the most beneficial to the area.  The proposal has the most total units and includes minor commercial development to benefit the entire community.  That commercial aspect will generate TPT/sales tax to benefit the Town.  The property is privately held and controlled.  There is no lease with the TOP.  The involvement of the TOP appears to be limited to a letter of support to the ADOH.  There is no potential for private enrichment at local taxpayer expense.  The Reserves at Mogollon Rim would fit the stated workforce housing goals well.  More than half (48/72) of the units will be for those with an income between $18,000.00 +- to $46,000.00 +-.

Significant application/project concerns are:

• None.

If you wish to express any concern or provide input on the selection to the Arizona Department of Housing, it appears the best contact at the ADOH is:

Mr. Keon Montgomery, Assistant Deputy Director, Housing & Community Development,

Arizona Department of Housing, 1110 W. Washington, Suite 280, Phoenix, AZ 85007. 

Telephone: 602-771-1209

Additional contact points for the Executive Team can be found on the Department’s website, and additional phone numbers can be found in the staff directory.

Payson needs affordable housing.

We are hopeful the Arizona Department of Housing is receptive to citizen input on the selection process.  Should the ADOH award a LIHTC to the Payson area, it appears the best outcome for Payson is that the award be made to proposal TC-1089-24 The Reserves at Mogollon Rim / Overland Property Group, as there are no significant pitfalls to construction and the project is “shovel ready,” providing the quickest benefit to the community.