DEPARTMENT OF HOUSING AND COMMUNITY DEVELOPMENT: OVERHAUL THE PROCESS OF PROPERTY ACQUISITION AND DISPOSITION

5-A – 5-F
DEPARTMENT OF HOUSING AND COMMUNITY DEVELOPMENT:
OVERHAUL THE PROCESS OF PROPERTY ACQUISITION AND DISPOSITION
Problem Identification:
– While the city has a database that tracks all property ownership and vacant buildings throughout the city (Real Property database), the accuracy of its content is uncertain. In addition, the database does not include information about properties being acquired, disposed or developed. Finally, the internal HCD/HABC operating system, HABNET, is not linked with the Real Property database. All of this makes it difficult for the agency to develop an accurate, reasonable acquisition/disposition strategy.
– The current backlog of parcels to be acquired by known interested buyers is 400 citywide; the total number of buildings known to be vacant and deteriorated is estimated to be 12,000; and the total number of unoccupied (not yet deteriorated) buildings is estimated at 40,000 (including the 12,000 vacant and deteriorated buildings).- The City has no proactive strategy for acquiring and disposing of vacant buildings in middle-class neighborhoods.

– The acquisitions function is split among three departments (HCD, Department of Real Estate, City Solicitor’s Office). The three departments are not staffed adequately to address the backlog or ongoing demand of acquisitions and dispositions, nor do they coordinate their procedures to expedite the acquisitions process.

– Goals are not set for the parcels the city should acquire and dispose of annually and staff are not held accountable to performance standards.

– The acquisitions process includes unnecessary steps that slow down the speed at which properties can be acquired.

– Many title companies and appraisers refuse city assignments due to low fees and slow payment, thereby increasing delays in the acquisition process.

– The disposition process is lengthy and complicated and discourages people from attempting to buy city-owned residential and commercial properties. The process currently takes almost a year from receipt of a proposal from a potential buyer to the settlement date.

– No system exists for quickly disposing of small lots that are not part of a greater redevelopment strategy.

Recommended Action:
– Hire an MIS consultant to develop a central repository of information about all properties to be acquired and disposed of that will handle data collection, evaluation and mapping. This information must be easily accessible to all municipal agencies and the public. All other recommendations in this section depend upon dramatic improvement in the division’s Information Technology capability.

– Eliminate the current 400-unit backlog of properties to be acquired. Address ongoing staff shortage by hiring 5 professional real estate staff (3 in HCD, 2 in the Department of Real Estate) and 2 attorneys in the City Solicitor’s Office. Hire 2 additional real estate staff to handle disposition in HCD.

– Assign one staff person the responsibility of identifying vacant buildings in middle-class neighborhoods and proactively pursuing options for acquisition, rehabilitation and sale.

– Establish annual goals of number of parcels to be acquired and disposed of by the City. The number of parcels acquired should be tied to the demand for these properties. Assign teams of acquisition staff in HCD, Department of Real Estate and City Solicitor’s Office to work together to complete specified volume of acquisitions annually.

– Eliminate routine ordering of a second appraisal of property to be acquired.

– Improve City procurement process for title services by increasing fees for service and ensuring timely payment. Consider hiring in-house title and valuation staff.

– Decrease processing time for dispositions in half, to no more than 6 months, by eliminating the need for HCD to get approval from the Department of Public Works (DPW), the Planning Commission and the City Council when trying to convey a property to a potential buyer.

Classification:
Cost Savings, Organizational, Revenue Enhancement, Service Improvement

Function/Operational Area:
HCD ‘ Neighborhood Revitalization, Department of Real Estate, City Solicitor’s Office, DPW.

Estimated Annual Impact:
Will generate $1,000 in tax revenues per year for every new property added to the tax rolls. Beginning in year two, this would be approximately $300,000 (see Analysis). Cumulative revenue would increase, and by the end of Year Five, the cumulative revenue generated would be $3 million. Factoring in cumulative additional salary expenditures, net revenue at the end of year six would be $425,000. Note: net revenue would benefit the city, while costs would be borne by HCD.

Estimated Implementation Costs:
$465,968 (see Analysis) + $81,000 for MIS consultant, making the total first year expense $546,968. By the end of Year Five, the cumulative expenditures for salaries would be $3 million (including the 1st year MIS consultant).

Barriers to Implementation:
HCD’s salaries are quite low. It may be difficult to find qualified professionals without making salary adjustments.
Improving the City’s procurement processes without adequate IT improvements and increases in fees for services may be a lengthy process.

Projected Implementation:
1.5 – 2 years

Next Steps:
Have stakeholders agree on method for having interdepartmental cooperation on acquisitions process. Each department must begin process of receiving approval for hiring additional staff. Study costs/benefits of in-house title and valuation services. Improve MIS systems.

Analysis:

Estimated Annual Impact – Cost-Benefit Analysis of Recommended Staff Additions

Cost of Year One MIS consultant: $60,000 salary + 35% benefits = $81,000.

At this time, it is not possible to estimate the capital costs required to develop an interactive database that will handle data collection, evaluation, and mapping.

Estimated Annual Salaries and Related Costs

Salaries(3) $370,000.00
Fringe Benefits $ 95,968.00(4)
Total $465,968.00

Current staffing level at HCD (professional staff only): 3
Requested additional staff: 5 in HCD, 2 in Real Estate, 2 in City Solicitor’s Office
Estimated volume of acquisitions per year per professional staff person: 150
Estimated additional acquisitions/ per year (3 HCD acquisitions staff only):(5) 150 X 3 = 450
Average property tax payment per single family dwelling: $1,000 per year
Average rate of new dwellings developed from acquired parcels: 2/3
Estimated number of new properties paying property taxes annually: 2/3 X 450 = 300
Annual return from new properties paying taxes (Year Two Only): 300 X $1,000 = $300,000

Salaries Plus Benefits for Added Employees (Years 1 – 10)

Year Annual Salaries Plus Benefits(6) Cumulative
Year 1 $465,968 $465,968
Year 2 $489,266 $955,234
Year 3 $513,729 $1,468,963
Year 4 $539,415 $2,008,378
Year 5 $566,386 $2,574,764
Year 6 $594,705 $3,169,469
Year 7 $624,440 $3,793,909
Year 8 $655,662 $4,449,571
Year 9 $688,445 $5,138,016
Year 10 $722,867 $5,860,883

Estimated Property Tax Revenues, Years 2 through 10 (7)

Year No. of Properties on Tax Rolls
Generated by New Employee Acquisitions (cumulative)
Revenue per year Cumulative Revenue
Year 2 300 $300,000 $300,000
Year 3 600 $600,000 $900,000
Year 4 900 $900,000 $1,800,000
Year 5 1,200 $1,200,000 $3,000,000
Year 6 1,500 $1,500,000 $4,500,000
Year 7 1,800 $1,800,000 $6,300,000
Year 8 2,100 $2,100,000 $8,400,000
Year 9 2,400 $2,400,000 $10,800,000
Year 10 2,700 $2,700,000 $13,500,000

Total revenue to City at end of Year Five: $3.0 million
Total costs to HCD at end of Year Five: $2.574 million

Net revenue to the City at the end of Year Five: $425,236

(3) Includes salaries of 5 Real Estate level II employees (three for acquisitions and 2 for disposition at HCD, two in Real Estate), each at the maximum level in grade ($37,700 – $46,100 per year) and two contract attorneys at $70,000 per year each.
(4) Actual costs of fringe benefits and employer-paid payroll taxes for new municipal employees in HCD. Includes employer paid FICA (7.65% of salaries); retirement benefits (5.7% of salaries); health insurance ($5,000 per employee annually); prescription drug coverage ($1,452 per employee annually); vision care ($48 per employee annually); and survivor?s benefits (.29% of salaries). The City apparently does not compute overhead costs.
(5) This assumes that the other positions in Real Estate and the City Solicitor?s Office are filled and that the new staff are dedicated to acquisitions.
(6) Assumes total salary increase of 5% per year.
(7) Assumes new acquisitions remain constant at 150 transactions for each of the three employees per year and that from these new acquisitions, 300 dwellings will be added to the tax rolls.