Yes, it’s possible to build too much housing. But Junction City has been recovering.

Dawn Meadows in Junction City is fostering an actual meadow. Butterflies flit from yarrow to yellow St. John’s wort. Delicate wildflowers intermingle with wild sumac. In the summer, the vacant lot is a riot of color and sound, filled with birdsong and the insistent hum of insects.

As idyllic as it is, this impromptu prairie and many areas like it represent one of the biggest challenges Junction City has faced over the past two decades. The lot is part of the municipal land bank and a remnant of an ill-conceived building spree that nearly bankrupted the city.

The story of how the city built entire neighborhoods for a population that never materialized is, in some ways, a story of bad timing and unforeseeable events – a fluke. But the experience also illustrates the risks many smaller communities can take in pursuit of economic development, and of the catastrophic fallout that can result if the gamble doesn’t pay off.

In Junction City, the recovery process has not been without obstacles, and there are open questions as to the social costs of its charted path. The population has been in decline, with Junction City losing 408 people from 2022 to 2023 and 4.7% of its population since 2020.

But the city has, in other ways, made a remarkable comeback, in large part due to high levels of transparency, introspection, and trial and error on the part of the city’s political leaders.

This is not a story about how to avert disaster. It is a story about bouncing back from one.

Build. Build. Build.

Discussions about the housing crisis generally focus on a housing shortage. The United States has a deficit of up to 2 million housing units, according to statistics compiled by Moody’s Analytics. But for the better part of two decades, Junction City has struggled with the opposite problem: an oversupply of housing.

In the wake of the Great Recession, hundreds of communities were left with half-constructed houses and empty subdivisions. But Junction City’s troubles began not with the subprime mortgage crisis but earlier, with an announcement from the Pentagon.

In 2005, military officials announced that the Army’s 1st Infantry Division, historically garrisoned at Fort Riley but at the time headquartered in Würzburg, Germany, was returning to Kansas. The division, long referred to as the Big Red One for the crimson numeral on its shoulder patch, at the time contained upward of 2,400 soldiers. Additionally, a brigade of the 25th Infantry Division was being stationed at Fort Riley, bringing an additional 3,400 troops and 1,000 civilian employees to Junction City and the surrounding area.

The community was excited. There had been a sense of loss, not to mention economic strain, when the Big Red One vacated Fort Riley in 1995. Its homecoming signaled both a return to better times and a once-in-a-generation shot at economic growth. At the time, officials projected that the city’s population could jump from 18,000 to 50,000 in just a few years. More residents meant more revenue, more business, more investment in the city. As one business owner put it at the time, rapid growth “was a good problem to have.”

Among other things, the population boom meant the city needed to add housing – and fast. The city annexed 1,400 acres of agricultural land and laid the infrastructure for dozens of subdivisions. Prior to that, Junction City typically added about 30 new housing units per year. By the end of 2005, it had added 900.

As Allen Dinkel, the recently retired city manager, put it, the Army had told Junction City: “‘Build, build, build.’ So the community did, did, did.”

Gambling on growth and losing

From the beginning, they overshot. The city parceled out lots for thousands of new housing units, even though, according to historical trends, only about a third of soldiers stationed at Fort Riley lived in Junction City. So, it should have expected to fill no more than 3,600 dwellings.

More problematic than the math, however, were the arrangements the city made with developers. In the U.S., municipalities generally aren’t in the business of building housing. Outside of code enforcement, tax incentives and a few units of public housing, they generally leave the provision of shelter to the private sector.

In Junction City, the local government signed contracts with numerous developers to build out the subdivisions and deliver the necessary housing. As part of those contracts, the city agreed to provide all of the infrastructure: sewer lines, water lines, roads, sidewalks. To do so, the city used its bonding authority to borrow millions of dollars, which would be recouped through what are called special assessments, an extra fee levied on properties that fall within special benefit districts and paid by future homeowners.

“Everyone forms special-benefit districts,” Dinkel, the city manager, says. “You put your streets in, your sewer, your drainage, your water lines. And then you pay it back with special assessments over the next 20 years.”

Most cities, though, negotiate some form of financial protection, Dinkel says, a clause in the contract, for instance, that stipulates should a development fail, the developer will reimburse the city a percentage of the cost of the infrastructure. In Abilene, for instance, where Dinkel was city manager from 2008 to 2010, the city also invested in new housing developments in response to the Army’s announcement. “But they had some guarantees built in, where the developer at least lost something ,” he says. “We didn’t do that here.”

It would prove to be a ruinous oversight. By 2008, the city had amassed $112 million in general obligation debt, and the mechanism to pay off that debt was beginning to falter.

The promised population boom never quite materialized, a combination of an oversupply and the fact that a good number of soldiers shipped out right away, which meant they may not have brought their families to the area, explained the current mayor, Pat Landes. Cities like Manhattan had added housing as well, siphoning some of the soldiers away from Junction City.

“Manhattan did a lot of multifamily – like duplexes and apartments that I think a lot of soldiers chose to go to,” says Jodie Wilkey, a real estate agent who has lived in Junction City since 2000.

Without buyers, housing developers walked away, leaving the city with dozens of empty cul-de-sacs and millions in uncollected revenue. Pete Robertson, a former city commissioner, told reporters that Junction City had become a “ghost town for phantom soldiers.”

And then, the world economy collapsed. Construction everywhere ground to a halt. An estimated $2 trillion in real estate value vanished overnight. The U.S. entered the worst economic recession in almost a century. It was arguably the worst time for a city’s financial future to be tied to an abundance of unsold homes. Junction City had gambled on growth, and lost.

‘We were broke’

As many communities discovered in the aftermath of the Great Recession, there isn’t a playbook for what to do when millions of dollars in real estate investments go up in smoke. For residents of Junction City, it seemed there was no good way forward.

By 2010, the city’s debt had reached $133 million. “We were broke,” recalls Landes, who has served as mayor six different times since 2011. “(The city) had about $50,000 in the bank. Several funds were in the red. They were having to furlough city employees to make payroll.” There was talk of the state taking over the city’s finances.

The debt was more than three times what Dinkel says a city of its size should ever have on its balance sheets. “There’s an old rule of thumb that you never want your general obligation debt (to be more than) $1,000 to $1,500 per capita,” he explains. “In other words, our magic spot should be between $25 (million) and $40 million.”

Voters understandably lost faith in their leaders. In 2009, former Junction City Mayor Michael “Mick” Wunder was indicted on federal charges of bank fraud, perjury, conspiracy and unlawful monetary transactions. The charges were directly connected to Junction City’s housing developments.

According to the FBI, Wunder had taken $10,000 in bribes from Lawrence developer David Ray Freeman in exchange for a promise that Freeman’s company, Big D Development, would receive contracts to develop at least two of Junction City’s new subdivisions, a deal worth as much as $12 million. Freeman also promised the mayor a house in one of the new developments. The two men were eventually convicted and sentenced to at least 18 months in federal prison. (Wunder died in 2022.)

In 2011, Landes was elected to his first term as mayor. To chart a path out of the financial crisis, he and city officials worked with outside advisers to put together a fiscal transformation plan. Among its recommendations was to use an increase in sales taxes to begin paying down the city’s debt. That year, voters approved a 1 percentage point sales tax increase whose revenues would go exclusively to debt service.

The additional tax revenue, which last year amounted to roughly $5.3 million, didn’t solve the problem of the vacant lots, however. As developers became delinquent, the county assumed ownership of thousands of empty parcels. When a tax sale failed to attract more than a handful of buyers, the city formed a land bank – one of the first in Kansas.

In the years since, Dinkel (who came to the city in 2014) says the city has experimented with numerous strategies to put the properties back into the hands of the private sector. There have been numerous pricing structures. Tax incentives and rebates. Consultants and real estate agents.

“We’ve tried every which way to sell lots,” Dinkel says. “If you’re a teacher, we’ll give you a lot for $1,000.”

None of it made a dent. Finally, in 2017, the City Commission voted to waive the special assessments that, until then, had been attached to the properties. The attitude was: “We’re just going to eat ’em,” Dinkel says. “We’ve been eating them anyhow; we’re just gonna eat ‘em.”

Additionally, the city began offering lots for $5,000, with a $4,000 rebate if the developer had a certificate of occupancy within 12 months.

It was another gamble, but this time it worked. Local developers and homebuilding outfits began snatching up the lots, slowly at first, and then a little faster. It was a modest renaissance, but it was the most interest the city had been able to attract in years. And when the new houses sold, outfits bought more lots.

Building a neighborhood

Casey Maransani is one of several homebuilders who has purchased land bank properties. A former educator, Maransani is the owner of Italian Estates Property Management in Manhattan. Around 2018, Maransani spun off a real estate development company and began building houses in the area.

Initially, he was hesitant to expand to Junction City. But in 2021, he bought his first two lots and went in with a partner on two others. “The worst case scenario is you’re holding on to a piece of land for $5,000,” he says. “There’s no specials, so the holding costs are basically nothing.”

But the properties sold, and in the three years since, Maransani has developed, in whole or in part, 44 properties, the majority of them in a

subdivision on the far west side of the city called Sutter Highlands.

Most of Maransani’s buyers are members of the military, who finance their homes using VA loan guarantees. But there are exceptions. Corey Johnson, who works for Maransani doing building maintenance, moved from Miramar, Florida, to Junction City in 2022.

Born and raised in Jamaica, he had a friend in the Manhattan area, and the cost of living was a fraction of what it was in Florida. Although most of his work is centered in Manhattan, Johnson and his wife bought a house in the Sutter Highlands subdivision because it was affordable and, more importantly, new. “There were some houses (in Manhattan), but they’re older houses,” he says. “I would have had to put work into it.”

Johnson’s house overlooks Junction City’s new $132 million high school. A lot of his neighbors are retired soldiers, and so the area is “nice, quiet,” he says. What little downtime he has Johnson spends watching Jamaican news on YouTube or tending his tomato garden. Sitting in his driveway one recent evening, he says, in a thick Jamaican patois, “Life is good, man.”

An uneven patchwork

Driving around the west side of Junction City today still feels a bit surreal. Rows of new-ish houses face empty lots overgrown with cottonwoods and cedars. Sidewalks dead end in wild meadows. There are cul-de-sacs with a single house on them and cul-de-sacs with no houses at all. The prevailing sense is one of unfinishedness.

But there are also, amid the insurgent woodlands, signs of life. Workers erect the wooden frames for new houses. Kids play basketball in the street. According to Dinkel, the city has sold more than 600 lots since it waived special assessments – 200 lots in 2023 alone.

“It’s working,” he said. “We’ve made a lot of mistakes, and we had to sell the lots at a fairly reduced rate. But we’re getting them sold, and houses are being built.”

“People kind of like the seclusion. They’re OK with the fact that there’s an empty lot that their dogs can go run on or that their kids can explore,” notes Wilkey, the real estate agent, adding that in some cases buyers also purchase an adjacent lot.

It would be an exaggeration to say that the land bank has been a blessing in disguise, but in some instances, the blank slate has been a boon for the city. In one case, the city turned a group of unsold lots into a new city park. “I think we need to do more of that,” Landes says. “I don’t think we have nearly enough park space west of Highway 77.”

The possibilities represented by so much publicly owned open space also suggest an alternative path not taken by the city years ago. Wilkey points out that even at the height of the building boom, the city’s growth was somewhat uneven. Housing dominated, without corresponding investments in downtown revitalization or businesses or amenities such as parks. Perhaps if the city had focused as much on investments that improved the quality of life of the existing community and burnished its reputation, it would have seen more of the growth it craved. It’s hard to know.

Junction City’s chosen path may not be the playbook for every community. Among other things, its reliance on a sales tax – which by its nature is regressive – has disproportionately impacted lower-income residents. And Dinkel says there are still tensions between those homeowners who purchased homes prior to 2017 who are continuing to pay special assessments and those who purchased homes after the assessments were waived.

But Landes says there are lessons for other city leaders. “The biggest mistake was not making sure the developers were bonded in case everything fell apart,” he says. More broadly, he says local governments need to be transparent and honest with themselves. “Don’t be afraid to ask more questions and … get a fresh set of eyes on things.”

Today, through an extension of the sales tax increase approved in 2019, Junction City has slashed its general obligation debt by nearly 70%. “When I came here, we had $115 million in general obligation debt,” Dinkel says, clearly proud. “When I retire this summer (by September) we’ll have our general obligation debt down to $40 million.”

A version of this article appears in the Summer 2024 issue of The Journal , a publication of the Kansas Leadership Center. To learn more about KLC, visit http://kansasleadershipcenter.org . Order your copy of the magazine at the KLC Store or subscribe to the print edition.

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