Heart of America Development Corp. will apply now for local tax breaks for its proposed $15 million residential development in northeast Hays.

The nonprofit developer won an exemption from the Hays City Commission on Thursday evening that Heart of America said it needs to make its 21-acre project affordable.

During a long discussion at the commission’s regular meeting, some commissioners worried about eroding the local property tax base.

But in final action, the commission voted to lift the policy roadblock, with plans to discuss the policy more in-depth at a later date.

New Commissioner Michael Berges was the only “no” vote, but even he was in favor.

“It’s not because of my lack of enthusiasm for the project, it’s because I don’t want to come back and keep amending each time,” Berges said. “I am excited about this.”

The developers, in partnership with Ellis County’s economic development arm, Grow Hays, asked the city to approve a Rural Housing Incentive District.

RHIDs were created by the state of Kansas in 2012 to get developers to build in rural areas where construction costs are higher. Developers recover their costs of building out sewer, water, streets, curbs and gutters, with proceeds from the property taxes paid on the district.

Heart of America wants to build homes in the $175,000 to $225,000 range, saying it's critical to recruitment and retention of a workforce with local unemployment under 2%.

“Without an adequate workforce, we cannot attract new businesses or retain the ones we have,” said Grow Hays executive director Doug Williams.

The Hays version of RHID requires developers to include 10 low-income apartments. Heart of America wants an exemption.

“I’ve had people that are not happy with this because we are giving up that tax base,” said Commissioner Ron Mellick. “They’re saying ‘I’d like to go ahead and build 10 houses, and I want to come in and apply for this.’ … All of a sudden we end up with everybody wanting their homes with no taxes on them.”

He said he wants the commission to discuss RHID more.

“I feel like we open up a real can of worms,” Mellick said. “We’re going to be probably every other month people coming up and saying I want to do this on mine. You’re giving it away now, we want it too.”

The 45-year-old Heart of America, an investment consortium of Ellis County businesses, closed a few weeks ago on land at Wheatland Avenue and 22nd Street.

Platted as 75 small lots, 62 feet wide, the houses will be about 1,150 to 1,400 square feet, Williams said, generally three-bedroom, two-bath, two-car garage, some with and some without basements.

Houses will be priced from $175,000 to $225,000, Williams said. There are 18 lots in Phase 1.

Berges asked what the undeveloped land brings in property taxes currently.

“$58 bucks,” said Mellick. “$58 bucks an acre, not very much.”

“You’re really not giving away any taxes that you’re currently getting,” Williams said. “You’re giving away the opportunity to collect taxes if somebody else were to go and develop something like this.”

The plat was made in the 1990s.

“So nobody’s been jumping to develop it?” Berges said.

Heart of America hasn’t disclosed what they paid for the land, but Williams has said that the seller, the Bill Lusk family of Wichita, agreed to a price far below what they were originally asking. The housing development will ultimately help the value and salability of the remaining adjacent 53 acres the Lusks own, Williams said.

“You also have to look at the price (the Lusks) were wanting for it,” Mellick told the commissioners. “At one time it was $50,000 an acre … That’s the problem we have with trying to achieve workforce housing … That all starts with affordable land. These individuals decided to take a lot less to help promote this.”

Williams said the land deal for Heart of America made the project workable.

“It comes out to about $2,600 per lot,” he said. “When you compare that to the cost of infrastructure for a lot, which is probably $30,000 to $32,000 a lot, you could have the land for nothing, and it wouldn’t make all that much difference on what your overall cost is going to be. The cost gets gobbled up in a lot of other areas.”

In an RHID, the city, county and school district forfeit a portion of property tax paid by home buyers over 25 years to reimburse the developer for 85% of the water, sewer, street, curb and gutter costs, he said.

That eliminates special assessments for infrastructure that are typically charged to the home buyer, about $150 a month on the homes in this price range, Williams said.

Homebuyers can afford $31,000 more in a home by not having to pay specials, he said.

Heart of America calculated its development costs at $2 million, Williams said.

“They don’t have $2 million to tie up in the development of this, but they do have some resources and some borrowing capability,” he told the commission. “I’ve talked to a number of local lenders who said they would step up and finance that portion of the infrastructure that Heart of America doesn’t want to finance collectively as their contribution to this project.”

Building suppliers, contractors and subcontractors have agreed to lower prices to help out, Williams said. Heart of America, Williams said, is the perfect developer.

“They aren’t profit motivated necessarily, they are community motivated,” he said. “They want to do what’s good for the community. They aren’t looking to get into this to make a lot of money.”

A real estate report from this past week showed only 10 homes for sale in Hays in the $175,000 to $225,000 range, Williams said.

“The average year built was 1966,” he said. “If we can add a sufficient supply of new homes, in that range, it’ll make a difference, and it’ll help soften prices.”

Normally, Hays has 80 to 90 homes total on the market. If they take 180 days or longer to sell, it’s a buyer’s market; less, and it’s a seller’s market, he said.

“Right now our average days on market are roughly about 140,” Williams said. “We have inadequate supply for too much demand.”

Typically there are 30 to 35 homes built a year in Hays, but in 2019 it was only 17, with none in the workforce-targeted price range.

Realtor Adam Pray, with Platinum Group, asked the commission to eliminate the 10-apartment rule altogether.

Mayor Shaun Musil, however, said “I just don’t think it should be a free-for-all.”

Commissioner Sandy Jacobs preferred the one-off exemption for Heart of America, saying she worries about the tax base, too.

“I think we put at risk not just the city’s ability on the increase in property taxes, but the county and school district, as well,” she said. “To me this is the cleanest way to take an existing policy, that works, so far, and accommodate a nonprofit that is meeting a need in our community.”

Mellick questioned local approval.

“If we open this up and we have rural housing improvement districts all over, our tax base, it’s going to go away,” he said, “And I don’t think the school district and the county is just going to approve these willy-nilly, especially for a for-profit company because of the direct effect it’s going to have on their budgets.”

“We haven’t had a single RHID yet,” Pray said to Musil, “and you’re concerned about a free-for-all? I’m hoping we get an applicant. And if we do get an applicant, you still have the power to say ‘geeze I don’t see the need, I’m going to vote against it.’ ”

Pray said he understands the commissions’ concerns, but 75 homes won’t solve the problem.

“With the supply on the market now, almost half is high end,” he said, $300,000 or higher.

“If you want a high-end home in Hays, we got plenty. Try to find a new home that’s built 1999 or later for $225,000 or less, we don’t have any.”