Ark Valley News - Kechi lowers developers’ letter of credit requirement

Kechi lowers developers’ letter of credit requirement
By Taylor Messick
Last Updated: November 16, 2017

On Nov. 9, the Kechi City Council unanimously voted to lower the city's letter of credit requirement for developers from 50 percent to 35 percent.

City Administrator Bob Conger said staff recommended the move in hopes that the city could be more competitive in the market for new development in the future. He also acknowledged that giving up the extra 15 percent puts the city at greater risk in the event of a default by developers. However, he is hopeful that this could be the first step in spurring future development.

“I don't want to give the impression that this is the magic bullet that will cure all of our development needs," said Conger. “This is one leg of a three- or four-legged stool when it comes to development."

Letters of credit are used partially as insurance for cities that are taking on new developments. When cities invest in infrastructure improvements, they want to know that the burden of those costs won't lie entirely on a city or its tax base if the development fails. Bond counsel J.T. Klauss was present to explain.

“This city has a policy to require a developer to post a letter of credit," said Klauss. “It's not (the developer's) credit you're then counting on. You're basically substituting the credit of the developer for a bank that we believe to have the money. Honestly, almost any Kansas or national bank that's going to write you a letter of credit is going to have the assets necessary if that goes awry. Banks don't give letters of credit to just anyone; this shifts the vetting obligation from the city to the bank."

Kechi is one of the only cities in the area with a 50 percent letter of credit requirement; most cities require 35 percent. Council member understood the need for the city to be more competitive, but were wary of putting the city at higher risk. Klauss admitted that he could see arguments for lowering letter of credit requirements and keeping them the same.

“It is better to have a 50 percent letter of credit," said Klauss. “However, you're too close to Wichita and competing communities that aren't requiring a 50 percent letter of credit. With absolutely no dishonor to the city of Kechi, your history of resident progression is not as strong as it could be. If developers aren't coming because of the 50 percent then I think you need to consider lowering it. I think Andover requires 50 percent, but they also have people standing in line to build homes in Andover."

Klauss acknowledged that the move is a possible way to encourage developers to start building affordable homes in Kechi. Affordable homes tend to attract young families and can also lead to more development. Council president Kevin Opat supported the move to 35 percent.

“We've got to make Kechi housing a little more affordable," Opat said. “I don't necessarily want duplexes in the middle of town, but we need starter homes for young families. With rooftops come other services and development."