Our View: Yampa Valley Housing Authority's foolish gamble

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At issue

Yampa Valley Housing Authority’s Elk River Village parcel

Our view

Decision to stop making loan payments is shortsighted.

The Yampa Valley Housing Authority’s decision to stop making payments to First National Bank of the Rockies on a $2 million loan is a shortsighted stunt that puts the agency’s long-term future in doubt.

The YVHA board of directors sent a letter last week to the Steamboat Springs City Council and Routt County commissioners stating that YVHA plans to suspend $10,000-per-month loan payments on its Elk River Village property.

The Housing Authority purchased the 11-acre West Steamboat property in 2006 for $2.3 million, putting down $300,000 and borrowing $2 million from the bank in 2007. The goal was to undertake a project similar to Fox Creek Village, a successful YVHA development that was completed in 2006 and provided housing to 30 families making 120 percent or less of the area’s median income at the time.

YVHA’s timing on the Elk River parcel could not have been worse. Shortly after the loan was completed, the housing market collapsed. Property values plummeted in 2008 and only now are beginning to recover. Demand for affordable housing — and by extension, public support for YVHA — effectively dried up.

The most recent appraisal for the property was $1.5 million in 2011, and the Housing Authority said the only offers it has received on the property have been for even less.

YVHA thinks the bank should lower the outstanding principal on the loan by $800,000 to be more in line with the current value of the property, which YVHA estimates to be between $800,000 and $1,000,000.

To date, First National Bank of the Rockies has been unwilling to revise the terms of the loan, and who can blame the bank? There is no compelling reason for the bank to write down $800,000 in money it rightfully is owed.

YVHA’s threats to stop payments — as well as its claim that the loan is null and void because, in the opinion of YVHA’s attorney, the loan violates terms of Colorado’s Taxpayers Bill of Rights — seem aimed primarily at scaring the bank into negotiations.

So far, the threats have not worked. And even if they eventually do and a revised agreement is reached with First National Bank of the Rockies, what financial entity in its right mind would ever work with the housing authority again?

YVHA is far from the only entity in this position on a property loan. This week, about 50 percent of participants in a Steamboat Pilot & Today survey said they remain underwater on their mortgages despite recent improvements in the housing market. The vast majority of those residents will continue to grind out mortgage payments and hope for better times.

In our view, the city and county — which created YVHA in 2003 and continue to be the YVHA’s sole funding sources — have an obligation to work with the agency’s board of directors to ensure the agency has enough funding to continue its existing operations and meet its debt obligations. It’s disheartening that City Council member Scott Myller and Routt County Commissioner Doug Monger, who both serve on the YVHA board, think threatening to walk away from a $2 million loan is the best option.

Make no mistake — the housing authority does have other options. YVHA could go to voters with a limited property tax proposal, though the chances for success of that seem slim.

A better option would be to continue making payments on the loan in the not unrealistic hope that recent improvements in the housing market will continue and the original goals of the Elk River Village property eventually can be accomplished.

That doesn’t seem altogether unrealistic, except that given this recent stunt, it’s hard to have any faith that YVHA has the foresight and patience necessary to make that happen.

Comments

Scott Wedel 1 year, 3 months ago

Few additional points: 1) YVHA has a new Denver based lawyer Dee Wisor. YVHA's lawyer had been Bob Weiss whom has a long history of advising local governments. There is no explanation on why YVHA apparently switched lawyers. Is YVHA acting upon well considered legal advice or did they go lawyer shopping to be told what they wanted to hear?

2) The legal theory that the loan for the Elk River parcel is invalid certainly raises legal questions about YVHA's other loans. The loans for YVHA's lots in Sierra View are essentially identical as the Elk River loan and both were in the same YVHA budget dept.. The loan for Fish Creek Mobile Home Park is very similar, but in a different YVHA budget.

3) YVHA's hope that the bank will accept a lower principle on Elk River and that YVHA will eventually be able to develop it is pure fantasy. Why would any bank ever lend money to YVHA for a development project? A government agency that tried a novel legal theory to invalidate a loan which they stopped making payments is not a good credit risk.

YVHA should give up their catastrophic attempts at development and limit itself to buying cash flow positive properties. The success of the Fox Creek development was a trap for YVHA because every speculative developer was making money at that time. YVHA is supposed to be a long term agency and cannot afford to be wiped out every time there is a downturn in the real estate market.

If YVHA can legally stop making payments on Elk River then it should have stopped making payments years ago. If YVHA needs to claim that TABOR invalidates their Elk River loan then that appears to require restructuring all of the loans. Thus, YVHA should not have raised the TABOR issue on this one loan until they had plans to restructure their other debts to comply with TABOR.

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John St Pierre 1 year, 3 months ago

Curious if YVHA has liability insurance on its board of Directors???? Although a non profit enjoys limited liability... I believe< and correct me if I am wrong, that this principle applies, however, only when the board has fulfilled its basic duties, such as the duty of care. Board members are legally bound to "exercise reasonable care when he or she makes a decision for the organization. Reasonable care is what an 'ordinarily prudent' person in a similar situation would do."
I would think that they may have some exposure following this plan with the bank

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Scott Wedel 1 year, 3 months ago

John,

I think the liability coverage is more for covering the damages for making a decision when there wasn't proper notice or other unintentional mistakes.

As long as a political body follows the rules in considering an issue then it is very hard for a court to later decide that their decision was so wrong that the board members become personally liable.

YVHA Board is getting legal advice from a lawyer so that makes it harder to argue they are acting contrary to the rules.

In terms of a bad decision, the SB City Council that approved the Iron Horse purchase were instantly recognized as having made a big mistake and they were removed at the next election. But suing them for damages and undoing the purchase was not an option.

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mark hartless 1 year, 3 months ago

So, here is an entity created by the City and County (thank you very much), which intends to renege on a promise it made to a company which the rest of the public does business with and which will, consequently be forced to raise its prices to the rest of us to cover it's loss from this weasel that now is going to skip out on its obligations.

But the weasel is not just going to reneg... , nope! An all-to-common "encore" of todays brand of weasel is that it attempts to paint it's victim (in this case the bank) as somehow a "bad guy" for not giving them a "do-over" on 800 grand!

My first reaction/question to THIS part of the story is: Does the City of Steamboat Springs and Routt County seriously intend to allow this entity, it's own creation, to behave this way???

Secondly, Does anyone even grasp the utter absurdity of even creating in the first place, an entity with a stated purpose of providing "affordable housing" in a world-class ski town? Folks, just click your heels together and say that 3 times "affordable housing in a world class ski town..."

And why, would someone PLEASE tell me, is it/was it the job of government to provide this commodity, this illusive creature called "affordable housing"?

And if this is the proper domain of government then how can it stop with housing??? Why not "affordable groceries"; or "affordable mtn bikes"; or "affordable lift tickets", or gasoline, or ...???

Yet, in the face of reams of empirical data why is there not a groundswell asking the $64 question in all this: Where the Hell is the limit to governments insertion into our lives?

Now that all the cooks have sufficiently spoiled the stew, lo-and behold... the market has intervened, crushing real estate values and creating... wait for it... guess what... "Affordable Housing" !!!

OK everybody, "the coast is clear", you can come get some "affordable housing" in this asylum now.

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Scott Wedel 1 year, 3 months ago

FNBR prices won't affected by this because a company's prices is set by the market, not what one company would like to get to make up for losses.

But I think the prices for City and County debt could be negatively affected because we have an elected official of each board willing to try a novel legal theory to negate a government body's debt agreements. So now there is increased risk in lending to City and County.

YVHA's legal theory that they could benefit by claiming they failed to follow TABOR would threaten the bond market for all of Colorado. FNBR is likely to get legal help from bondholders with billions of Colorado government debt.

And YVHA's theory that FNBR has to agree to a lease purchase agreement shows YVHA has a startlingly level of financial ignorance. A lease purchase agreement is a premium feature since it allows the leasee to purchase if the value goes up more than the option price and not to purchase if the value stays flat or declines.

If YVHA was proposing a lease purchase agreement at $2M to replace the current debt agreement then that might make some sense to FNBR But asking for a cram down to well below a recent appraisal and a lease purchase agreement is completely ridiculous. There is no reason for FNBR to agree to taking the losses and giving YVHA any profits from not only any increase in value, but from the current value

YVHA is the like 14 year old informing her parents that it is summer and she will come and go as she chooses. Her parents say no, she will tell them where she is and be home by 10 pm. So then she thinks a fair compromise is a 2 am curfew or she says she will run away to force her parents to negotiate. The 14 year has a near delusional misunderstanding of the balance of power and responsibility of the situation. Her negotiating position and tactics show immaturity and poor judgment. The more she negotiates the less trust and confidence her parents have in her.

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mark hartless 1 year, 3 months ago

So if a bank (or any other company) sustains losses and can't raise its prices to compensate what else can it do?

1. Go out of business, which eliminates competition and thus raises prices.

2. Provide less services which is the "other shoe" to raising prices.

Either way, the bank won't eat the loss totally, it will cost the taxpayers and consumers of Routt (and other) County[ies].

And you are right, Scott, that the biggest cost might be that the County, City, and the entities it creates to save the world all become known as welchers and all financial entities jack their rates accordingly.

Either way, it is the taxpayer and consumer who will get screwed... as usual.

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Scott Wedel 1 year, 3 months ago

"So if a bank (or any other company) sustains losses and can't raise its prices to compensate what else can it do?"

It is the owners of FNBR that suffer the consequences of loan losses, not the taxpayer.

A business's prices have to be competitive so that it has customers. A bank with greater losses than other banks does not get to charge more than it's competitors on new loans to make up for its greater losses on existing loans.

A bank that lends too much to bad borrowers is going to make less money than its competitors and could even go bankrupt. The bank has to learn how to better identify credit risks when making loans.

The loan to YVHA quickly would have been classified as a troubled loan since YVHA couldn't make the required payments that included principal and instead asked for a modified agreement to just pay interest. So FNBR has had years to see the potential of a loss on this loan and to see what they did wrong. In hindsight, it was foolish of FNBR to give a loan to 90% of purchase price of unimproved land to a government agency without a strong revenue stream that was just breaking even on its improved properties.

If some other joint government agency such as Yampa Valley Sustainability Council were to go to FNBR today and ask for a loan to 90% of purchase price for a lot to be a recycling center then they would face far different response from the bank.

I think local taxpayers could be at risk because the default could affect how ALL lenders view loans to Routt County and Steamboat Springs. Lenders do not the idea of borrowers deciding that the borrower can later decide that the borrower made a mistake and so the borrower doesn't have to comply with the loan agreement.

YVHA not paying on the loan is not a violation of the deed of trust because that loan agreement states how nonpayments are to be handled. The loan agreement does not say that YVHA must make loan payments or is violating the law. YVHA can stop paying on the loan and then should expect the consequences as spelled out in the loan agreement. YVHA's Denver lawyer has apparently convinced the YVHA board that they can stop making payments and that he has a legal theory on why he can prevent the consequences from occurring. That is the big risk because if the courts don't agree with him completely then YVHA has just killed itself. YVHA has to have their Denver lawyer's legal theories accepted to absolve them of damages for Elk River strategic default, but not affect their other loans also never approved by the voters. YVHA can cope with neither damages related with the strategic default or have the validity of their other loans undermined by never being voter approved.

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John St Pierre 1 year, 3 months ago

I would suspect that FNBR made this loan as part of their required "community reinvestment act" that every bank must do..... and in the interest of good public commitment.... I would also give FNBR the benifit of the doubt in that I would think that in reviewing the loan documents if you saw that the City and County were both in defacto the co-signers, one would have to conclude this was a no risk loan.......

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Scott Wedel 1 year, 3 months ago

Community involvement loan programs are about loaning in lower income areas. So banks are encouraged to not limit loans to the more profitable wealthy areas.

My post was not criticizing FNBR. In 2007, it was typical of lenders to assume that land prices were appreciating. Some lenders didn't care if the borrower could repay because a foreclosure on an appreciating property was more profitable than the loan itself.

FNBR, like all banks, have become much more risk adverse than they were in 2007.

City and County are explicitly not guarantors of YVHA's loans. The deed or trust has no suggestion that either will step in. I think FNBR's loan is typical of the times. And that FNBR is comparatively happen that they have received interest payments for as long as they have. FNBR won't need to immediately sell this property at whatever price. They can easily enough hold it until a buyer offers a fair price.

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mark hartless 1 year, 3 months ago

That's what I said, Scott. You are now arguing with my agreement. Take a pill...

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Scott Wedel 1 year, 3 months ago

BTW, I predict that City of SB will bail out YVHA on the Elk River parcel. The costs to the City in financial terms and, more important to the City Council, the disintegration of YVHA will be too much for them to not throw city money at.

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Scott Wedel 1 year, 3 months ago

Our County Manager forwarded me the lawyer's letter that was to be attached YVHA's letter.

I can see why it was not written by longtime YVHA lawyer and lawyer to local government's Bob Weiss. It is highly speculative if not outright wrong.

It argues that municipal property cannot be foreclosed upon. The cited case is of a mechanic's lien filed against against a subdivision's streets. So the court ruled that the contractor hired by the developer cannot foreclose upon streets that have been dedicated to the city as those are essential public services. The contractor is able to go after the lots owned by the developer, but not the streets. Obviously, a vacant parcel of land is not providing essential public services and could be foreclosed upon.

The other cited cases deal with situations of property with a mixture of debt to different people for improvements. So they are unwinding situations where the government district paid for improvements, but defaulted on debt. Those complications where the court is preventing undue enrichment to a lender from a foreclosure do not apply. There is absolutely nothing in this letter giving any reason why FNBR cannot foreclose upon the property.

It would appear to be true that after the foreclosure that FNBR cannot sue YVHA and ask for damages. But that concern is not the focus of YVHA's letter.

This letter does convincingly argue that YVHA lacks the legal authority to pay on any of its debt. Thus, YVHA should have also stopped paying on the Hillside Apts, Fish Creek Mobile Home park debt and Sierra View lots.

The question was raised in above comments of board member liability. Considering that the YVHA Board learned in NOVEMBER 2012 that they received legal advice stating that the lacked the legal authority to pay on ANY debt and yet have made about a million dollars in debt payments, what in the world has the YVHA board been doing?

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Scott Wedel 1 year, 3 months ago

YVHA is so inept that their website doesn't even say when they hold public meetings. Unlike other government boards, they would rather not tell the public when and where they hold meetings. They do not use their website or the newspaper's Happenings to mention when they will be holding meetings. If you wish to go to one of their meeting you first have to investigate to learn when and where it is being held.

Nor does their website have meeting minutes or agenda since 2010.

Assuming they have maintained the same habit as from 2010, looks like YVHA will be holding a meeting Thursday at noon at the County Commissioners meeting room.

I will be there. I will ask them to honor the legal advice they have received and stop illegally making debt payments on all of their debts.

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john bailey 1 year, 3 months ago

and sometimes you are spot on. all I can say is go get em scott. carp I broke the rules...~"0) sorry fellas......

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john bailey 1 year, 3 months ago

thanks jerry, one in a million times, my hips hurt from hulainging , is that a word?

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rhys jones 1 year, 3 months ago

Here's my trick: I don't read the article, before I read the comments -- and if a certain contributor is composing the usual volumes, I don't bother reading any of it, since the situation is well in hand. That saves wasting a LOT of time.

Jerry -- Rockies sucked tonight, huh?

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john bailey 1 year, 3 months ago

read what article?..~;0) we don't need no stinking article! rockies? the Stanley cup is on whats wrong with you?jejeje

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Scott Wedel 1 year, 3 months ago

I went to the meeting.

First off, Bob Weiss is still their lawyer. On his advice they sought legal advice on the issues of debt with a law firm specializing in municipal debt which resulted in the letter from Dee Wisor.

So I told them in public comment that their website lacks their recent minutes and agenda. That my request for the lawyer's letter attached to their city council and commissioner was ignored for four working days until today when I got a call saying I could fill out their open records request form. Which I believe is blatant violation of CORA because if they understand it is a request and can identify what is requested then a government agency has 3 days to respond. I told them that the County had given me their copy of the letter.

I also told them that I do not understand how they received legal advice 7 months ago telling them they cannot legally pay on debt not approved by the taxpayer and they have spent about $1 million on debt after receiving that legal opinion.

They then said "end of public comment" without any board comment. "Yes, we are completely messed up, but we can ignore the public".

Then they went into the history of the Elk River purchase. Saying there was great demand from the city council and county commissioners to purchase property for development and it was done with the support of the ENTIRE COMMUNITY. I raised my hand to attempt to point out there were numerous comments at the time on the problems of that parcel, but I was told that public comment was over and that the board does not interact with the public at their meeting. So they are allowed to continue to believe the Elk River purchase was the result of them only doing what was expected of them.

Then they complained about the editorial in the newspaper that they say focused too much on TABOR and not enough on their financial situation.

Then they said that Elk River is special among their loans because it is the only one they cannot afford. That the City and County are essentially making that payment. That Fish Creek and Hillside make enough to pay their loans. And the Sierra View lots have a payment that they can afford. That is an accurate picture of their financial situation, though I believe the County believes they are funding YVHA for affordable housing programs, not to make payments on Elk River.

Then they went into executive session and kicked me out.

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Scott Wedel 1 year, 3 months ago

But here's the thing, this editorial is entirely correct to mention TABOR because that is based upon their legal advice and is what YVHA is mentioning in their letter to FNBR

Just because YVHA has a severe financial issue making the payments on the FNBR debt and that is the focus of their concerns, does not mean the legal issue of TABOR and debt vanishes for their other properties.

They have received legal advice that TABOR prevents government agencies from issuing debt without a public vote. YVHA is pretending that their legal advice is "government agencies can walk away from debt they cannot afford".

YVHA has decided that Dee Wisor's legal advice mentioning TABOR is irrelevant and to be ignored except as it pertains to YVHA's financial situation and negotiating position with FNBR.

If only this area had like some group of people that believed in limited government powers and the importance of governments to follow the law that would be willing to seek an injunction preventing YVHA from further wasting public funds for debts never approved by the public as detailed in YVHA's own legal advice.

But since the YVHA board largely consists of Democrats and SB is as Democratic dominated as Boulder then apparently their is no local opposition to Democrats even when they are making a mess of governing.

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Scott Wedel 1 year, 3 months ago

BTW, YVHA's letter to the City and County was misleading when it stated that FNBR had not responded.

Actually, there is a response from FNBR that makes complete sense. From the letter: So far our negotiations have been such that the authority wants the Bank to take a huge loss on our loan and the authority retain all the upside assuming that the value of the property will recover over time, and history indicates that will be the case. Such a proposition is unacceptable to the Bank.

As I expressed to you in our last meeting, the Bank is willing to work with the authority in a manner that is MUTUALLY beneficial. The Bank can provide terms through a new lease/purchase arrangement (subject to a non-objection by our regulator) that may decrease the authority's monthly debt service. We are not in a position to incur loss of principal. Why would the Bank incur all of the TEMPORARY loss in value and give the authority all of the upside for future increases in value? That simply is unacceptable.

A default on the authority's loan with the Bank will not be in the best interests of either party or the public.

Furthermore, as I explained to you in our previous meeting, the authority's Denver legal counsel is representing a bank that is fighting a similar issue in the Court of Appeals and arguing on the side of the bank.

I am willing to meet with you and the rest of the authority's board provided the meeting will be held in good faith and will respect the concept of good faith and fair dealing. If the authority is set on the Bank taking a loss and allowing the authority to retain the land the upside recovery of value, we will have nothing to discuss.

(I capitalized two word that the letter had underlined)

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Scott Wedel 1 year, 3 months ago

So in YVHA's letter to the public they say that "FNBR has so far been unwilling to consider YVHA's restructuring proposals".

When, in reality away from the privileged groupthink that is YVHA's board, FNBR states in a letter that they have considered YVHA's proposals and states why FNBR is rejecting those proposals.

Where oh where are those typically older wealthier people that elsewhere have formed a party in opposition to Democrats that are willing to take on the Democrats local scandal of mismanaged do gooding and turn up the heat by applying YVHA's legal advice to all of YVHA's properties?

YVHA's legal advice clearly says that Elk River and Sierra View are identical legally.

Fish Creek Mobile Home Park and Hillside Apts are now an enterprises, but the debt created the enterprises. And Fish Creek, like government agency, not like an enterprise, has received grants which would appear to trigger TABIR's requirement of debt being approved by the voters.

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Scott Wedel 1 year, 3 months ago

So I told them in public comment that their website lacks their recent minutes and agenda.

Which, by "recent" I said 2011, 2012 and 2013. And the archived minutes lacks 2009. So, by "recent" I meant the last 3 years.

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Mark Ruckman 1 year, 3 months ago

Scott, rarely to I applaud your tactics and unwillingness to let go of issue. In this case I do APPLAUD your efforts.

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rhys jones 1 year, 3 months ago

I thank you too, Scott, for putting your own time into researching this... and I could have told you, you would be thwarted at every turn. The local good-ol'-boy politics are but a microcosm of the larger state and national scenes: Closed-door meetings, "executive session" and untraceable money trails. The Ivory Tower perceives themselves to be superior to the common folk, and judging by the results, maybe they are. Just don't look behind that curtain.

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jerry carlton 1 year, 3 months ago

Yes The rockies sucked. Do not know what they did this afternoon.

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rhys jones 1 year, 3 months ago

Sorry to momentarily defect, Jerry, but I really appreciated Scott taking his time, valuable as that is, to research this for us; he has so much to do... at least he's channeling his energies in the right direction, documenting the ineffective and even corrupt forces that be.

Government, non-profits, insurance, law, and medicine represent the biggest ripoffs known to man, and you're lucky to get a thumb in any of those pies.

I don't know what happened yesterday, too lazy to Google it, maybe they won't suck as bad tonight. Already the Rocks are doing better than most years. Go Team!!

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Bob Schneider 1 year, 3 months ago

The editorial board should stay in the newspaper business. Even if the YVHA doesn't default would anyone seriously want them borrowing more money after this debacle? Their reputation being ruined to prevent further borrowings is the least of that entity's problems. They should have "walked" or theatened to 5 years ago. Doug Monger is right !!

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mark hartless 1 year, 3 months ago

No he is not. Their mistake was being in this business in the first place. Once in, they should pay their damned bills like I have to. Their reputation being ruined is the BEST thing that ever happend to taxpayers, especially if it keeps them forevermore out of business. It is NOT the domain of government to provide housing; but it sure as heck IS incumbent on government to lead by example when it comes to owning up to commitments.

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rhys jones 1 year, 3 months ago

YVHA says their other properties are "largely self-sufficient" which makes me wonder, who might be skimming the cream off those cash cows.

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John St Pierre 1 year, 3 months ago

WHO is on the board at present???? Pilot should at least publish who is on the YVHA board

the city has been advertising to fill a seat for months... no one applied????

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John Fielding 1 year, 3 months ago

.

There may be a place for temporary government subsidy of housing costs for people in dire situations, but when it is expanded to the point it has reached with this entity (as well as other ventures like Iron Horse) it is wasteful of tax dollars (and fees charged to developers) and damaging to private efforts to provide low cost housing.

.

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Scott Wedel 1 year, 3 months ago

John St Pierre,

Looks like they've updated their webpage to now have a current list of board members: http://www.yvha.org/aboutus.php

Their site still lacks agenda and minutes for 2013, 2013, 2011 and 2009 as well as current budget or annual report.

Rhys,

I doubt there is overt skimming. Hillside Apts and FCMP appear to be intentionally operated to break even. So rent for the apts is set to cover expenses and so is well below market rent. I think a 2 bedroom apt is about $700.

I believe it is far more typical for government housing to have an empirical standard for setting rents of say 30% of income for the 75th percentile of the county's median income. So then established properties can generate income for other opportunities to provide housing for more citizens.

YVHA's policy allows a few people to receive exceptional deals and provide no benefit to anyone else. By staying so cheap, Hillside is renting to a lot of disabled people. Is nice for them that they get to live in SB, but it also means YVHA is helping a lot of people that don't work to live in SB. But, the local theory of affordable housing is to focus on workforce housing so local employees can live here, not to provide cheap disabled or retirement housing.

40% of Hillside's rental income is from government rental subsidy assistance!

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Fred Duckels 1 year, 3 months ago

It seems that the Iron Horse and Elk River parcels have finger prints on them and the best defense is a good offense, hence we see renewed discussions in order to clean the slate for more social engineering

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Fred Duckels 1 year, 3 months ago

Some of the proponents of stiffing the bank have their fingerprints on this deal and the sooner that it goes away the easier that they will breathe.

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rhys jones 1 year, 3 months ago

Fred -- For once we agree. The skimming is not "overt."

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