Consideration and Possible Adoption of Resolution No. 2018-02:  A resolution of the City Council of the City of Flagstaff, Arizona authorizing the execution of the Second Amendment to the Development Agreement between VP 66 & Woody Mountain, LLC and the City of Flagstaff related to the development of approximately 197.58 acres of real property generally located at 3425 West Route 66 and establishing an effective date. (Second Amendment to Timber Sky Development Agreement)

VP 66 & Woody Mountain, LLC, which is managed by Vintage Partners, LLC, is the developer of the Timber Sky project generally located at 3425 West Route 66. In November 2016, the City and VP 66 & Woody Mountain, LLC entered into a development agreement pertaining to the Timber Sky project. A few months after the development agreement was finalized, the City Council adopted revised Engineering Fees for development projects in Flagstaff, as well as a revised cost of recovery schedule for Engineering Fees. While some fees were reduced, the majority of fees were increased. In August 2017, after the revised Engineering Fees and cost recovery schedule became effective, Vintage informed City staff that the increased fees would significantly impact the Timber Sky development, and with the increased fees in place Vintage would not be able to proceed with Timber Sky. The proposed Second Amendment to the Development Agreement applies to the engineering fees and cost recovery schedule that were in place when the development agreement was adopted by City Council to the Timber Sky development for the term of the Agreement as an incentive for Vintage delivering one hundred (100) affordable housing units within the development.

The proposed Second Amendment would waive up to $1.6 million in Engineering Fees, which is the amount Vintage has estimated will be the difference between the old and new Engineering Fees for all four phases of the project. However, if the Timber Sky development does not proceed, those fees would never be collected. If the fees are waived and the Timber Sky development proceeds, the City will obtain one hundred (100) affordable housing units, which would not be delivered to the community if the Timber Sky development does not proceed.

The City currently has an incentive policy for affordable housing in place that can be utilized by developers. That incentive policy was not utilized here. The incentive proposed in the Second Amendment (waiver of fees) is one of the types of incentives offered in the incentive policy, but the structure of the incentive is not entirely consistent with the current policy. Agreeing to an incentive in a development agreement outside of our current incentive policy may reduce the effectiveness of the current policy and complicate subsequent development agreement negotiations. In the event this amendment is approved, City Council may want to consider directing staff to revise the current incentive policy to better effectuate Council's affordable housing goals and objectives.

AFFORDABLE HOUSING
Support development and increase the inventory of public and private affordable housing for renters and home owners throughout the community.

Yes, the City Council approved the Development Agreement for the Timber Sky project on November 15, 2016, and approved the First Amendment to the Development Agreement on August 15, 2017. The Development Agreement and First Amendment are attached to this staff summary for ease of reference.

1. Authorize execution of the proposed Second Amendment.
2. Do not authorize execution of the proposed Second Amendment.
3. Do not authorize execution of the proposed Second Amendment and direct staff to negotiate amendments to the proposed Second Amendment.
    

VP 66 & Woody Mountain, LLC, which is managed by Vintage Partners, LLC, is the owner of approximately 197.58 acres of land generally located at 3425 W. Route 66 (the “Property”). On November 15, 2016, the City annexed a portion of the Property and approved a rezoning of the Property to allow Vintage’s proposed development of a multi-phase housing community called Timber Sky.  The City and VP 66 & Woody Mountain, LLC also entered into a development agreement on November 15, 2016, to facilitate the development of Timber Sky.

At the February 15, 2017, budget retreat, staff presented Council with an overview of the results of a user fee study that had been completed with the assistance of a consultant, MGT America. That study examined user fees for Planning and Development Services, Engineering, Fire, and Recreation Services. With respect to Engineering user fees, staff recommended revisions to the fee structure and that a cost recovery of 100% be established for all but one of the fees (Traffic Impact Analysis) so that public funds are not supplementing construction of developments.

On April 6, 2017, the City posted a Notice of Proposed New or Increased Fees on the City website and provided notification of the new fees through social media. The City also provided outreach and conducted a series of open houses with stakeholders, including the development community, in April and May. The City Council adopted the revised fees and cost recovery schedule on June 20, 2017, and the fees became effective on August 1, 2017.

In August 2017, representatives from Vintage approached the City Manager with the concern that the increase in Engineering Fees would derail the Timber Sky project. Vintage estimated that the new Engineering Fees would add $1.6 million in costs to the project, which the developer could not sustain. Over the next few months, Staff worked with Vintage on a proposed Second Amendment to the Timber Sky Development Agreement that would waive or forgive the estimated $1.6 million in increased Engineering Fees. After a series of back-and-forth negotiations with Vintage, a proposed Second Amendment was finalized for Council consideration. An overview of the proposed Second Amendment is provided below.

Overview of Proposed Second Amendment to Timber Sky Development Agreement:

• Locked-in Fees: Engineering Fees and cost recovery schedule that were in place when Development Agreement was adopted by City Council will apply to the project for the term of the Development Agreement as an incentive for Vintage delivering one hundred (100) affordable housing units within the development.
• 75% Target for Affordable Units: Amendment establishes 75% target for sale of affordable housing units prior to plat recordation within Phase 4. If 75% of the affordable units have not been sold and transferred to the City’s Community Land Trust (CLT) prior to developer requesting plat approval for Phase 4, the City will withhold plat recordation within Phase 4 until the target is met, or until Vintage pays $16K for each undelivered affordable unit.
• Flexibility to go to 125% AMI: If the affordable units are not selling at 100% of area median income (AMI), the amendment allows for the Affordability Plan to be amended to adjust the AMI for qualified buyers to 125% of the AMI affordability level.
• Affordable Unit Delivery Requirements Unchanged: The Development Agreement still requires delivery of 100 affordable housing units.