Bloomington plan commission splits on payment-in-lieu rule, backs lower income thresholds for affordable units

Bloomington’s city council will sometime in the coming weeks and months have two potential ordinances on its agenda that would modify parts of the city’s Unified Development Ordinance (UDO) that are related to affordable housing.

That’s the outcome of Monday’s regular meeting of Bloomington’s plan commission.

On Monday, the Bloomington plan commission considered two proposals intended to update affordable housing rules in the city’s Unified Development Ordinance (UDO).

Both petitions originated from city council resolutions. One council resolution gave direction to revise incentives to make the construction of affordable housing on site more likely, by restricting payment-in-lieu (PIL) options to fewer kinds of projects.

The other resolution gave direction to allowable incomes of tenants for qualifying affordable units from to 120% (Tier 1) and 90% (Tier 2) of the HUD Area Median Income (AMI), down to 90% (Tier 1) and 70% of AMI (Tier 2).

The UDO has incentives that allow developers to construct housing that exceeds ordinary height or footprint restrictions, in exchange for making some of the units available on an income-restricted basis. If the units are not constructed on-site, the UDO has a provision that allows for developers to pay into the city’s Housing Development Fund—the so-called payment-in-lieu option.

The first potential ordinance will go to the council with no recommendation from the plan commission. The second one will have a positive recommendation attached to it.

Payment in lieu of onsite construction: Origin

The plan commission’s work stems from a recent city council resolution initiating a process to amend the UDO’s incentives for developers to build affordable housing. The recent resolution was a re-start of a process that began with a resolution passed in late November of 2024. The city council had to restart the process, because the plan commission did not hit the state zoning code’s twin 60-day deadlines for holding a public hearing and taking a vote on the proposal.

Payment in lieu of onsite construction: Split commission

The proposal would change a couple of parts of the UDO. One change to the UDO would allow developers to cover more of their lots with buildings or pavement, that is, impervious surfaces—if they build affordable homes that are also owner-occupied.

Currently, the amount of lot coverage allowed varies by zoning district, typically between 30% and 50%. The new proposal would let qualifying projects cover up to 80% of a lot, which would make it easier to build more or larger homes on smaller lots. That’s intended to help organizations like Habitat for Humanity maximize the use of land for affordable homeownership.

Another part of the proposal would set a minimum project size for developers who want to use the payment-in-lieu option. Instead of building affordable units on-site, developers can pay into the city’s housing development fund. Under the new rule, only projects with more than 30 units would be eligible to make the payment, rather than providing affordable units directly.

The change is meant to encourage more on-site affordable housing in smaller developments. The 30-unit figure was a reduction from the proposal the plan commission considered a month ago.

A planning department administrative manual change, which is not subject to plan commission approval, would also dramatically increase the amount that developers are required to pay under the payment-in-lieu option. By way of comparison, one recent payment-in-lieu arrangement resulted in a $3.44 million pledge, but with the new formula it would have worked out to $6.65 million.

The divided sentiments among plan commissioners on the payment-in-lieu question centered on the fact that some commissioners, as well as city staff in the housing and neighborhood development (HAND) department, think that payments into the city’s housing development fund are preferable to constructing housing onsite, which means enforcing the affordability of the units through zoning commitments or other contractual arraignments.

Asked to comment during Monday’s meeting, HAND director Anna Killion-Hanson said, “I actually think that the [city council] directive, to make it harder to use the Housing Development Fund, is actually the opposite of what should be happening right now.”

Killion Hanson said, “I’ve yet to see a small affordable housing development that is triggering that incentive that is not student housing. It is not working.” She continued, “We have massive compliance issues that are just creating a lot of headaches in my department, to be honest with you.”

Killion-Hanson said when a developer makes these agreements about the onsite affordable units, they pass it on to their property manager, who could be “some kid who doesn’t understand what AMI is” and the units wind up sitting vacant.

Killion-Hanson wrapped up her comments on the topic by saying, “You are creating a staffing issue for me, because the more … affordable units on site that you have, the more monitoring that we have to do.”

Plan commissioner Patrick Holmes went as far as to propose an amendment that would make the payment-in-lieu option the only option, with no possibility of receiving an incentive based on construction of affordable units on site.

Holmes’s amendment was put to a roll-call vote and failed 3–5. Voting yes on the amendment were: Steve Bishop; Patrick Holmes; and Tim Ballard. Voting against the amendment were: Flavia Burrell; Andrew Cibor; Jillian Kinzie; Hopi Stosberg; and Brad Wisler.

Wisler identified what is, to him, a fundamental problem with the logic of the payment-in-lieu program: “I do think that it’s pretty clear that the [Housing Development Fund] is making more direct impact on affordability than some of the other things we have here.” But Wisler continued, “I have a problem with the general principle of all of this, in the sense that the reward that you get for meeting any of these incentives is that you get to build units that are inherently cheaper to build, because they’re essentially adding on to your project, top floors, increasing footprint.”

Wisler added, “Right there they are, by definition, the most affordable units that you can build in terms of the cost of building them.” Wisler then pointed out the irony: “And so we’re saying, in order for you to be able to be allowed to build the cheapest you can build, you have to pay more money, which inherently wipes out the affordability of building those units.” Wisler wrapped up his thoughts on payment-in-lieu by saying, “I think there’s just a fundamental logical problem with the approach to this.”

The tally on sending the proposed UDO amendment to the city council with a positive recommendation failed on a 3–4 vote. Voting yes were Cibor; Kinzie and Stosberg. Voting no were: Holmes; Wisler; Bishop; and Burrell.

Recognizing that the flipped motion, to send the proposal to the city council with a negative recommendation would likely fail on the same 3–4 tally, plan commission president Brad Wisler observed that in order to take action the plan commission has to have a majority of five. So the plan commissioners voted unanimously to forward the ordinance to the city council with no recommendation.

The plan commission had a two-member deficit at the time of the vote because Ballard had left the meeting and Ellen Rodkey was absent.

Revising AMI percentages downward

Monday’s second petition on the UDO was also driven by a city council resolution, this one aimed at lowering the income cutoffs for “affordable” units in city-incentivized developments.

Under the proposal, in Tier 1 projects, all 15% of required affordable units would have to be for households earning less than 90% of area median income (AMI). In Tier 2 projects, 7% of affordable units would have to be for households under 90% AMI and 8% under 70% AMI.

The reduction in AMI figures, from 120% of AMI down to 90%, and from 90% down to 70% was based on local wage and income data for area residents. During the commission’s discussion, assistant planning director Jackie Scanlan said that the original, higher AMI threshold (120%) was established for “workforce housing,” but the new, lower thresholds (90% AMI for Tier 1, and 70% AMI for a portion of Tier 2) are designed to more closely correspond to the actual earnings distribution of local residents. The plan commission voted unanimously to forward the proposal to the city council with a positive recommendation.

Bloomington’s housing development fund

Based on Indiana’s DLGF (Department of Local Government Finance) records, the balance at the end of 2024 for Bloomington’s housing development fund was $2,527,547.01

Based on the city’s online financial data, the total expended from the fund since 2018 is $2,093,637. The expenditures have supported projects by Union at Crescent, Bloomington Cooperative Living Incorporated, Summit Hill Community Development Corporation, Habitat For Humanity of Monroe County, Middle Way House, and SCIHO-Switchyard Apartments, among others.

The projects that have used the payment-in-lieu option were presented by Scanlan on a slide at the October plan commission meeting. She gave the caveat that the information she’d pulled together for the slide was not necessarily definitive, but is the best information available at that time.

Bloomington projects that used PIL option