31 Responses to “Housing Corp Application Generates Questions”

1. Andy Rankin on November 5th, 2009 4:23 pm
   So the FCHC is going to ask for $2.8M instead of the $2.0M that was previously approved?

   The 999 year loan issue sounds confusing, Carol says there’s a good reason to do it that way and that it didn’t impact the points system, but it seems clear that a $2.8M loan would have a more favorable impact on the points than a $2.0M loan.

   I’ve looked at the 367 page application and it includes quite a few supplemental documents that provide more information about the application. I was surprised that there wasn’t anything included that describes in greater detail the terms of the $2.0M (or is it $2.8M) loan.
2. Ira Kaylin on November 7th, 2009 2:28 am
   Carol,

   Your comments in the article raise as many questions as they do answers.

   Of particular concern is the following quote from you, “VHDA’s spreadsheeet tax credit application formulas are not set up to deal with soft loans, local matches or balloon loans or irregular payment schedules”…these are my words, as a result the VHDA advised the FCHC…”"to trick” the formula by inputting 999 wherever there was a local subsidy or grant that is not straight line debt which is CCSSA’s is not”.

   It is clear with the comment above that the $2.8 million “loan” is either subsidized or is a grant. In comments you made to the article “Housing Corp. seeks $2 million City Funding for New Project” you stated that local subsides have to be greater than $50,000 for project eligibility. As a result the possible range of cost to the City is between $50,000 to $2.8 million. By definition the City can not be repaid the $2.8 million plus a market interest rate at the end of the loan as you claim., The question is how much is this loan going to cost the City?

   The City’s original calculation of a $2.8 million repayment ($2 million in principal and $800,000 in interest) was based on a loan of $2.0 million. In any event the City was never going to receive $800,000 in interest payments since, under the original proposal, over $500,000 was going to be returned to the Affordable Housing Fund. Is the Affordable Housing Fund different than the Affordable Housing Trust Fund?

   In addition you stated “We do not intend to give the City any fiscal problems with this project.” Yet all subsidies are covered, dollar for dollar, from the City’s Operating Budget since the debt the City has to take on is straight line and at a market interest rate.

   It is counter intuitive that a project less than one half the size of the original proposal requires a loan that is 40% larger. Why the increase in loan size? I hope the answer isn’t that the absence of the City Center Developer proffer of $4.2 million is to be covered by the City’s taxpayers. Logically the request from the City should have been less than $1 million.

   I believe you also mentioned, in comments to the original article, that it would be “naive” for the FCHC to ask for additional City support for the project in light of current financial circumstances. Yet you are asking for additional City support. How do you make these comments compatible?

   This transaction has an internal contradiction that can not be resolved; it has to be a grant/ or highly subized to be acceptable to the VHDA and yet appear to generate a full repayment to the City so that it is not perceived as a burden to taxpayers. It is one or the other but can not be both.

   When will TCB expalin ihe proposal to the City?

   FCT: The care that was taken to prepare the above article is much appreciated.

   I
3. Dan Maller, City of Falls Church on November 7th, 2009 7:35 am
   Ira, I believe you are not counting these numbers correctly.

   FINANCING COST. There is ~$500k in the Affordable Housing Trust Fund (AFTF) now, which will be used to defray the debt service costs, so the net cost over the 15 years is $2.3M. There is an expected repayment schedule under which in simplistic terms the project will pay the money back later than the City would be obligated to pay it, creating a cost to the City. In economic terms, this cost is the difference between the present value of the obligations. The one number is $2M, and the other can easily be calculated but appears to be not less than $1.5M, therefore the true economic subsidy would be approximately $500k or less. Note that as I have previously suggested the AFTF could be used to repay the resulting economic cost to the City and therefore those funds would offset the cost. What I mean is that when the funds are repaid, the AFTF could be assessed the economic cost and reimburse the General Fund, resulting in an aggregate economic cost of approximately zero. Yes, I realize that if you look at an individual budget year, there is a cost, but I think you are twisting these numbers to make a political point under the guise of technical analysis. Your comment about a 40% larger loan is utterly disingenuous at best; this is the same proposed loan.

   CHANGED PROJECT. The original CCSA plan provided for a “family” building that carried very substantial service costs to the City. I voted for this because it was linked to the Atlantic Realty CCS project by the $4.2M proffer and because the net fiscal benefit to the City of the two projects was expected to be many times the amount of that cost. [Incidentally the EDO is updating their analysis of the fiscal modeling of the mixed-use projects, and I believe this will again show that the current benefit of these projects has been greater than originally estimated at the time of approval] Now, the FCHC is proposing to build only a scaled-down senior/disability housing component, which carries dramatically lower service costs to the City. As I indicated above, there are measurable costs, but as in the analysis of the financing costs, there are direct and indirect benefits both economic and otherwise which citizens and taxpayers [and the City Council] should and do take into account in the consideration of whether to approve this project. Not the least of these “other” considerations is the opportunity to erect in bricks and mortar a small example of the values of this community. I wonder if there is a place in your analysis for this?
4. Andy Rankin (Falls Church) on November 7th, 2009 9:18 am
   Dan, the very end of your comment sticks out to me as something important. It seems to be suggesting that people who don’t support this project (or a project where the City helps construct a stand alone building for affordable housing) have different values than the people who do. I’m not sure that’s true in all situations.

   Assuming the values you’re talking about have to do with the community providing affordable housing options, there are ways to do that other than constructing a big building to house people whose income is lower than average. Specifically, the City has helped provide affordable housing by having units included in new mixed-use development.

   Carol has suggested that that approach does not provide enough units, which brings up my first question – how are we determining how many units are enough? My next question is, if we took the money we’re potentially putting into the CCSSA and figured out how to apply that to the other approach (having affordable units included with mixed-use development), would that get us enough units?

   My guess is that it wouldn’t, for two main reasons. First, I’m guessing the state and federal funds that we’re trying to leverage would not be available if we this other approach. Second, I’m guessing it’s more efficient to build a building dedicated to affordable units rather than have them included in new mixed-use construction.

   But I’m not convinced that quantity over quality is better.

   A third reason, that we’re not adding mixed-use developments at a pace fast enough to allow us to achieve “enough units,” brings me back to my first question – how we’re deciding how many units are enough?

   For me the question isn’t whether or not the City should invest in affordable housing. What I’m trying to figure out is how much affordable housing should the City invest in and what kind of affordable housing would the City be proud of. There are more complex questions, like the overall economic impact of whatever affordable housing approach is taken and how that might impact the City’s ability to do other good things – but I’m not trying to dig into that yet.
5. Tony Starks Falls Church on November 7th, 2009 11:06 am
   I have some different issues concerning the the FCHC project. It is obvious we need some more affordable housing in the City. The investment the City is making is not over the top but could be saved for more diversified affordable housing stock.

   1) I would rather see SOME of the housing go to non-seniors since FCHC has provided all seniors living in their community with vouchers. If my memory serves me, I think that it is about 75+ residents. Why add 60+ more units that are strictly for seniors? I understand that maybe financing will not work if the project is not senior only, but that just means the City should wait for better economic times to invest in a more diversified project like FCHC first proposed.

   2) What is going to happen to the current property FCHC owns? I do not think that is set in stone which bothers me. Maybe it is to keep it as a place where current tenants are still housed. Maybe converted to condos and sold at affordable rates. Maybe sold to the highest bidder, which would mean we would have a net loss of affordable housing. Who knows?

   3) When the City was presented with this project it was mixed use and it had some non-senior housing. FCHC talked about low wage workers not having a place to live in the City, which is the largest need for affordable housing. But now we are about to spend every affordable housing dollar we have to house only seniors because it is the only thing we can get financed. What will we do about affordable housing after this project is built? We will have no leverage money.

   4) Who is going to pay if/when the project has cost overruns? FCHC says they need every City dollar they can get to make this reduced sized project work. So if the project were to go “over budget” or if the projections were “off”, which happens a bit around here, will the City just let a half built building stand idle or will we have to jump in to the rescue, and will we have the money to do so? It would not be responsible of us, as a City, to partner with a non-profit and subsidize a project without being able to assist with bumps down the road. I am sure FCHC does not plan on any bumps but even the most experienced developers hit bumps.
6. Lou Mauro on November 7th, 2009 5:32 pm
   It is wrong for Dan Maller to suggest that only the privileged and enlightened few on the majority of the City Council are willing and able to consider the “values of this community” and that it is “utterly disingenuous at best” for Ira to question the financial status of the FCHC affordable housing project. Do you know what “disingenuous” means, Dan? Are you saying that Ira is “utterly” lacking in candor “at best”? That is tantamount to accusing him of lying. If that’s what you mean, back it up. If not, apologize. [Once again a member of the Council majority responds to a comment, not even directed to him, with personal criticism.]

   Andy: you are spot on. No one disagrees with the need for affordable housing in the City. You ask why affordable housing units are being lumped into one structure and not spread throughout the “mixed” use projects the Council has been approving for the last decade. In addition to City politics, the answer is simple: it’s because the residential DEVELOPERS decide how many units they are willing to include in their structures, and the City, though it has had all the leverage, has not forced them to include more. We can only conclude that the Council thinks it is more important for the developers to achieve their desired levels of profit than for more affordable housing units to be included among the more than 600 condo and apartment units already approved. Thus may we not also conclude that if an appropriate number of affordable units had been included among the condos and apartments there would be no need for a stand-alone affordable housing project?
7. Ira Kaylin on November 7th, 2009 6:51 pm
   Dan:

   The only politics that I am aware of is the politics of “distraction”. My only interest is finding out how much the FCHC project is going to cost taxpayers; particularly in the FY 2011, FY 2012, and FY2013 budget years.

   Based on currently available information, approximately $500,000 will be provided by the AHF to cover the City’s debt service in the budget years mentioned above. However, that amount will be returned to the AHF in year 16. As such the primary purpose of the AHF debt service coverage is to obscure the actual cost to taxpayers in the up coming budget years.

   The AHF has to be repaid, that is, appear to be a loan, in order to avoid the $500,000 payments being considered a direct contribution to the FCHC project. If it is a contribution, i.e., not used to cover the City’s debt service then the FY 2011- FY 2013 Operating Budgets would have to cover the full debt service incurred by the City’s borrowing. Also the City’s contribution could be reduced to $1.5 million. The present value (PV) of the $500,000 is irrelevant.

   .

   Also the net payment to the City is $2.3 million; it is not the net cost. The net interest payment to the City is $300,000. I believe it is more transparent and accurate to consider the transaction a $2 million grant.

   Also the present value of the City’s loan to the FCHC can not be calculated because the cash flows in the first ten years of the loan are unknown. You can only use a PV measure when a specified cash flow stream is known, against which a discount value can be applied. This precisely why the VHDA computer formula had to be “tricked”.

   As regards my being “disingenuous” regarding the size of the loan, I would appreciate your providing a reference to $2 million in the new proposal. The only number I read was $2.8 million which was in the table provided in the article. If you have the term sheet for the new transaction please let us know. Until it is demonstrated otherwise the number in the VHDA table means that the City’s loan is 40% lager than the previous request.

   You agree that in a given year there could be a budget cost. Property taxes are paid yearly; shortfalls are covered in the year the expense occurred. Your claim that the net cost at the end of year 15 is zero is incorrect and irrelevant. Ms. Jackson already stated that the VHDA would only consider those applications eligible for tax credits if there was a subsidy. How can it be claimed that the net cost to the City is zero?

   The “economic benefits” that you claim exist are irrelevant since they do not generate cash to cover debt obligations.

   Many issues have been raised; including the subordinated nature of the loan (which reduces the probability of repayment) and the apparent lack of interest capitalization. These factors would need to be incorporated in the calculation of the loan subsidy. No doubt that these two considerations gained “points” and would further explain the need to “trick” the VHDA software.

   Dan, accusing me of “twisting” the numbers for political purposes is pretty strong stuff. If you have a financial analysis, not an “economic” analysis, that demonstrates that my understanding of the new proposal is incorrect please let me know. Unsubstantiated declarations are not an analysis.
8. Sally Brett, Falls Church City on November 8th, 2009 10:34 am
   A most informative exchange, but has the City Manager responded? This is exactly the kind of dialogue that online newspapers (and ideally print) provide citizens and which cannot be found elsewhere.

   It is unfortunate that veiled ad hominem arguments seem to be the m.o. of our City servants, but perhaps they will learn to stick to the issues. Commenting citizens can only hope so, and serve as their example.
9. Gordon Theisz on November 8th, 2009 3:10 pm
   Since the Latin I speak is doctor related, not lawyer related, I looked it up:

   An ad hominem argument, also known as argumentum ad hominem (Latin: “argument to the person” or “argument against the person”) is an argument which links the validity of a premise to a characteristic or belief of a person advocating the premise.

   Person 1 makes claim X
   There is something objectionable about Person 1
   Therefore claim X is false

   Thanks Sally for making me stick to the old adage: You learn something new everyday!
10. Dan Maller, City of Falls Church on November 8th, 2009 9:22 pm
    Ira Kaylin is a good man who I have said before is making valuable contributions to City affairs, and I certainly did not mean anything against him personally. However, I think it is more than fair to accuse somebody of having a hidden political agenda by pointing out issues with their data and arguments. I tried my best to correct the facts, and I also admitted or explained my own political agenda. I think if we are going to espouse goals and values that we should back them up with concrete actions, and I think the particular project under consideration is worthy of consideration for its benefits, as much as we should be willing to accurately discuss the costs and to have a full discussion of the benefits as well.

    The property currently produces $35k of tax revenue according to the most recent analysis provided by the EDO, which would no longer be collected if the project is built. However, the construction activity will directly produce a considerable amount of revenue from BPOL taxes during construction, and the project and the people it will bring will enliven a neglected corner of our CIty and provide jobs for construction workers. The City would be asked to float $2 million of 15 year financing, which would be carried for the first 2-3 years by funds in our affordable housing trust fund, but would not expect to receive any interest payments for 5 years thereafter, which means that we would expect to be budgeting debt service for years 2013 or 14-17 without offsetting revenue. It is very fair to ask about the technical structure of this loan, but it is the very same proposal that has been discussed for several years. I do look forward to the explanation of the bizarre information reported above concerning the terms of the loan, but I will suppose that the database is not set up to recognize a balloon loan nor deferred interest, and that the $2.8M represents the principal and interest costs to be incurred by the City which are not promised to be repaid during the initial period but are agreed to be deferred until the cash flows from the project are sufficient to commence repayment.

    There is nothing wrong with opposing this program, but is it fair to suggest some unstated violation of accounting standards? Is it fair to accuse the City of not looking at the “out years” but to declare them irrelevant when they are detailed?The FCHC, a creation of the City of Falls Church, has decided to take the risk of proceeding with partial design work pending a full process of consideration of the project by the City. I hope we can ask and answer all of the questions raised here and elsewhere in this process, which is only now beginning.
11. Andy Rankin (Falls Church) on November 9th, 2009 12:12 am
    The tax generated by the property is not the only thing to consider when looking at this project – but since Dan brought it up we should consider not just the revenue the current structure produces but also the potential of other uses of the location. What if you put a regular mixed-use residential building in that spot (similar to what has been build recently)? Or better yet, what if you could land a new commercial building? Either one would generate more than the current building and much more than the CCSSA – and a mixed-use building could even bring a handful of affordable housing units.

    I’m not saying this means we shouldn’t build the CCSSA – I’m just saying that we shouldn’t look at only the current revenue that would be lost but we should consider future revenue too.

    This is an example of what makes this (and most) issues hard for me to figure out. Rarely do you get a full picture of the pros and cons of an issue laid out in one place. I think Dan and Ira (and others) are making good points about this proposed project – but nobody seems willing (or able) to lay out all the pros and cons together.

    I think the League of Women Voter’s report from 2001 on the issues related to moving the election from May to November is an outstanding example of a balanced view of a controversial topic. I’d love to see someone put together something similar on the affordable housing issue. If you haven’t read the report you really should (even if you don’t care about the May/November election issue): http://www.lwvfallschurch.org/files/may_or_november_lwvfc_report.doc
12. Carol Jackson on November 9th, 2009 1:35 am
    Gentlemen,

    I can’t decide who has had a better time this weekend, you all reviewing the multiple assumptions being made about one number, $2.8 mil, on Page 21 of the application TCB/FCHC submitted to VHDA in May OR me taking the weekend off to celebrate my 60th birthday.

    You’ve certainly burned up some time and brain cells writing in all the above. I can’t follow it all at this late hour.

    Now that I’m of a certain age and it’s past my bedtime, I’ll simply say that on Friday I discussed with Lucinda Mester, Asst City Manager and staff liaison to our CCSSA project, the agreement that her office will be sending a clarifying statement attesting to: 1) the explanation they received of the 999 soft loan term data element insert to trigger the correct calculation intended by the nature of the $2 mil source of funds we claimed from the City, and 2) the apparent confusion over the $2.8 mil number.

    In the meantime, let me assure you all that the current itemization of sources of funds to construct CCSSA that was submitted to VHDA on Nov 5 with the nonrefundable fee to reserve the tax credits awarded to the project, clearly stated $2 mil as the City’s loan. This subordinated loan will be paid back in total no later than year 16, including 100% interest amoritized as a 15 year note using the City’s borrowing rate locked in when the loan is settled some time this summer. As a placeholder, the City CFO has been estimating that the interest CCSSA will pay will be @$800,000.

    Let me also clarify: Since the $2 mil is a loan, the CCSSA application claimed only the utility fee waivers as a true City grant subsidy to get the “yes or no” points for that “Subsidy > $50k” category. There was no point gain or loss identified with the City’s loan. The 15 year real estate tax exemption is also scored as a “yes or no” Tax Abatement points award without considering the associated $$ savings to the project’s operations. Those savings are invaluable to the project’s bottom line each year in order to get a lender to agree to the debt service ratio required.

    For those of you who are so interested, VHDA publishes their scoring guide for the 2009 Application. You may find it fascinating reading–I personally rely on my financial and legal advisors and now our senior partners to plan the strategies for point scoring.

    As FCHC ED, I just want to get this project built so we can move on to our next set of goals focused on housing options for local workforce currently priced out of our FC housing market. Those needs are tracked by City Housing and Human Services staff and were last reported in any detail using 2006 info. Rental prices have increased since then. In the report, staff advised the city lacked 267 rental units priced to house people with the appropriate incomes currently living in our city–meaning those people were paying an inordinate share of their low incomes for their housing costs, probably at the sacrifice of health care or rainy day savings that prop them up during job loss, etc.

    The same report did not attempt to say how many rental units our city should be considering IF we want to have local employees able to live in the community where they work. That’s an entirely bigger number of underserved people whom the Housing Corporation values as contributing members of our community and for whom we’d like to provide housing opportunities. We are mission driven in correspondence to the City’s long held core vales. It’s very important to us that the City’s elected officials share the City’s stated values regarding these issues. If not, then the community needs to rewrite its value statements and get on with other things

    Let’s ask EDA to sponsor a workforce housing presentation and get that dialogue going.

    P.S, TCB as CCSSA senior partner and majority owner, is the guarantor of all perm debt AND they will cover cost overruns first from the project budget and as a last resort from their own resources. I stand by our statement that CCSSA will not ask for any additional City funds beyond the 3 categories of funding currently approved as of Dec 2008 for the larger project which approvals now need to be transferred by Council resolution later in 2010 to the the smaller project that will be in front of them at the same time for SE amendment. I think those were the 2 most compelling speculations I read from your combined dialogue.

    How about we drop CCSSA convo for awhile let our council and staff get back to the current budget decisions. Meanwhile, our project team will be working with city planning staff to submit all the docs needed for the formal city review of our smaller project this winter. We’ll look forward to all the detailed questions at that time.

    Let’s discuss our city’s housing and economic goals in the meantime. The LWV did a white paper on City’s housing about the same time they studied the elections. I’m sure they’d be pleased to share it.

    Carol Jackson
13. Mike Novotny on November 9th, 2009 10:03 am
    Dan, with all due respect, if you were buying a car and agreed on the loan terms, but then the dealer came back and said sorry we can’t give you that family SUV we talked about anymore but we can give you the subcompact for the same terms…would you honestly say that was the “very same proposal that has been discussed for years”? The same loan for a different product is not the same thing.

    The BPOL tax is a one-time event, yes? How much does this mean for the City? I assume there will be no annual tax revenue from the project going forward since the City waived this for the first CCSA project. So with only one time revenue + loss of existing $35K annual revenue, perhaps it would be better to keep the current $35K per year?

    I do think you’re right this would create construction jobs, but are you going to require a certain percentage of the workers hired are Falls Church residents? If not then we are contributing $2M to the greater economic good. Not a bad thing necessarily, but for the moment I would prefer to leave the stimulus to Obama.

    More importantly, wouldn’t it be better if a new project going on this parcel could support itself financially, or better yet generate new tax revenue while still providing affordable housing? Our five newest residential projects in the City all provide net new revenue to the City (roughly $2.5M) and collectively provide 40 affordable units. Yes, the quantity is lower but the quality is higher, and each project produces money for the City.

    Wouldn’t it be better to see the 350, 360 and 370 Washington parcels consolidated and developed as a mixed-use development with affordable units integrated in instead? As we’ve seen with our newer projects, this type of development could generate $400K to $500K in net new revenue for the City, rather than cost the City upfront as well as in ongoing services while producing no new revenue.

    Even unconsolidated at a 2.0 FAR (floor to area ratio), which is the same CCSSA is seeking, this parcel alone could support 56K SF in class A commercial office space with retail on the first floor. This was originally called for in the Code before it was changed by the Special Exception for CCSA. Let’s assume that space is worth $300 to $400 per SF in assessed value (please any brokers or tax assessors feel free to adjust my numbers), that would mean $200K+/- in new revenue for the City.

    Ultimately it’s not as much about the loan terms as it is a planning exercise for the City and its downtown area. What do you want to see there for the next 50 years? The plans for that area have changed and it’s time to re-evaluate. Maybe it’s CCSSA, or maybe it can be something better for the City and its residents?

    Regards,
    Mike

    PS, Carol, that’s a good idea having EDA setup some presentations on workforce housing, the more informed input we can get the better.
14. TFC on November 9th, 2009 1:44 pm
    Wow. I almost hate to stick my nose in this.
    All I can say is sometimes ya can’t do everything ya want to do. Some things have to wait for a more opportune economic environment.
    Does anyone know if we are losing potential city business employees because we do not have enough affordable housing for low wage folks?
    Some areas are just more expensive than others, our City appears to be one of these.
15. Carol Jackson on November 10th, 2009 1:52 am
    Dear Mike,

    You are an EDA member. Please request of Dave and Rick and Becky the workforce housing topic be planned for presentation asap.

    Dear TFC:

    I’d be happy to give you a tour of the FCHC attempted housing development files the last 15 years. it’s quite a nice and large variety of sites and ideas that were never fulfilled. Most times, the owners did not want to sell for a reasonable price. Sometimes, FCHC was told in no uncertain terms by city leadership that “the time and/or location was not right”. In slow times, the city couldn’t afford it. In good times, there were too many other enticing fish to fry to share our city territory with those who can’t live here “naturally”.

    I’m from that old- fashioned school that taught “to whom much is given, much is required”. That equates to community willingness to share our tax revenues and/or forego a portion of same for the benefit of others and the understanding that housing a full spectrum of residents is healthy and beneficial to the overall well being of our community for the long haul. We used to think we wanted our local workforce, returning college kids and retirees to be with us in FC City.

    If that premise is now hollow in FC City, then it’s time for our leaders to find the honest courage to change our city’s value statements and performance plans to embrace the sentiments you express.

    You are correct; our community is too expensive for the majority of the local regional population and if we care not to make at least a noble and tangible attempt to offer opportunities to a viable segment of those shut out from our gates, then it’s time to be honest and change our stated vision and values. It’s really that simple–we should not advertise what we make no concerted effort to deliver.

    In the case of CCSSA in 2009, we have 50%+ of the funding coming from one time federal sources and are asking for a city commitment that has no impact on the 2011 budget and minimal impact on the city’s budgets thru 2013. The guaranteed federal funding disappears if we don’t settle on it this Spring.

    That’s a bird in the hand we honestly thought the community would desire, but doesn’t sound like it from the few comments made in this venue.

    In the meantime, we are continuing to try to consolidate the 3 properties into one larger mixed use development, but that takes time since all has changed in the last year in the commercial lending and investment market place as we all know. Believe it or not, beginning construction of a new seniors mixed use apartments building on S. Maple Ave in the 300 block is a PLUS in trying to entice prospective commercial investors. They are not concerned with the size nor tenant profile of CCSSA as any impediment to future development. We will not be exploring these opportunities in the public arena, so I will say no more until we have some concrete plans for the Council to consider.

    Let’s meet up at EDA AH session very soon. Please know, we honestly have no animosity for the positions stated recently about AH not being the highest and best yield use for our privately owned land or 2nd guessing the need or volume of permanently affordable rental housing currently underserved in FC. Our mission contributes to the long term health and well being of our community.

    The role of FCHC is to be the city’s housing partner. If there is no community will for our mission, then we want to know that from our citizens and our leaders and we’ll be looking for the best takeover buyout we can find–think First Virginia Bank morphing into BB&T. Killing off FCHC would get the City $55,000 savings in the general ops budget–about $.0018 on the tax rate. Best regards, Carol Jackson
16. TFC on November 10th, 2009 7:27 am
    Carol, thanks for the details. I agree it will be up to the citizens to decide if this is an urgent need based on consideration of all the factors that have been discussed in this and other forums.
17. Ira Kaylin on November 10th, 2009 10:21 pm
    Hi Carol,

    Happy Birthday.

    Not to worry, I have plenty of energy to pursue this issue.

    I am more interested in seeing the CFO’s analysis rather than the Assistant City Manager since the CFO is the person who is responsible for recording this transaction in the City’s Financial Statements, and is the person who will interface with the City’s External Auditor.

    Additional question: At the City Council Work Session where the FCHC first indicated, at least publically, that it was going to submit its application the VHDA (prior to review by the City Council) you stated that once approved by the VHDA it would not be possible to introduce changes to the project. Is that still the case? If that is the case then the City Council really has no input; it either accepts or rejects the proposal. Is that correct?

    I hadn’t realized that your “bottom line” concern was the necessity of getting a private lender to participate. The following issues and observations arise from this information:

    1) Can it be assumed that the Private Partner (TCB) calculated an imputed rate of return? It would be greatly appreciated if this rate of return or equivalent profitability measure could be provided. If they are concerned about “the debt service required” they would have calculated some form of profitability measure. TCB is entitled to some profitability; the question is how much?

    2) It was important to note that TCB will guarantee all permanent loans and all cost overruns. How much is TCB charging for this guarantee? Their guarantee can be included either directly, by a specific line item, or indirectly included as some form of fee. A commenter had raised the question as to whether a Developer’s Fee had been included in the cost of the project. In that regard is a Developer’s fee being charged? If it is I understand that this fee often ranges from 3% to 5% of total project costs. If there is a Developer’s Fee, what is the Developer’s Fee as a percentage of total project cost?

    3) Also it now appears that the City (taxpayers) is providing two “guarantees”. The first is the promise to repay the investors purchasing the City’s $2 million bond. It was explained, at last night’s City Council meeting, that the FY 2010 expenditure cuts were intended to ensure the City’s AA Credit Rating. The second guarantee is the City’s contractual obligation to absorb the cost of the deferred loan payment from the FCHC by promising to repay the City’s Bond irrespective of the performance of the underlying asset (the loan to the FCHC). In the private sector this second form of guarantee can cost a lot of money. This is another subsidy.

    Changes must have been introduced in the FCHC proposal between the first and second submissions — otherwise the VHDA would not have changed its ranking. What are those changes? Were there financial enhancements provided to the private lender over what had been originally proposed?

    Sally Brett has put her finger on an important issue. The FCT is the only place where it is possible to have an extended exchange of information on important issues facing the City. Citizen input is not permitted in Council Work Sessions. The three minutes permitted at the City Council meeting is virtually without value. For some issues the time allotment is far too brief; worse yet, at City Council meetings there is no opportunity for follow-on questions.

    This conversation should definitely be continued in the FCT. It is the only forum available to Citizens. I also beg to differ with you that there are other more important budget issues for the Staff and City Council to address. $2 million is a big item for the City’s budget. From the number of responses, I think others in the community would like to see the conversation continue.

    We were at last night’s City Council meeting, in which the City Manager was authorized to make necessary expenditure reductions required to eliminate the FY 2010 budget shortfall of over $5.6 million (which under current budget calculations is still $700,000 short in reductions). A member of the City Council stated that next’s year’s (FY 2011) budget shortfall will be “staggering”, though no numbers were provided. It is in this fiscal environment that the requests for taxpayers’ subsidies, like that of the FCHC, have to be scrutinized with extreme care.

    Also, it would important to know why a project 1/2 the size of the original proposal still requires the same size loan from the City?

    For me, and at this juncture, the social value of the project is not the issue at hand. The questions are how much is this project going to cost, what is the dollar value of the financial subsidies, the transparency of the cost to citizens, and how does the City plan to cover all the subsidies required by this project? After these numbers are provided the social benefits can be discussed.

    The mixing of financial management requirements with social objectives helped bring down Fannie Mae and Freddie Mac. What social objectives are they achieving today? Moreover, no one will bail out Falls Church.
18. Mike Novotny on November 11th, 2009 12:19 am
    Carol, it’s a good suggestion, think it could be informative to all. We’ll discuss at our next meeting to see if the group wants to set something up.

    Mike
19. Carol Jackson on November 11th, 2009 11:47 pm
    Dear Ira,
    Your questions are good ones and they will be answered when our Seniors Apts plan is illuminated in public after City staff, including the CFO, has had a thorough opportunity to review it and make their analytical recommendations in response to City regs, zoning code and fiscal policies. During that public info time, I promise you we will host some extensive QandA sessions with all who are interested. We also hope we will be invited into homes and halls as people may have more detailed questions than we can cover in City Council presentations, etc.

    I will answer one of your questions now: why does this smaller (1/3 last year’s project size) seniors mixed use housing development require $2 mil from the City’s Capital Reserves fund as a 15 year loan when it is producing only 66 units instead of the 174 the Council approved last year to accomodate a full range of income-challenged occupants?

    In fact, the Council approvals last year provided $6.2 mil in City subsidy funds: $2 mil (@1/3) as the 15 year loan AND $4.2 mil the Council designated for the 174 unit project which was to be provided as cash by Atlantic Realty as they built the mixed use properties in City Center South. Those funds were in Council control to designate, but not to provide directly. FCHC’s 174 unit project depended on the total sum = $6.2 mil which equates to $35,000 per unit. FCHC could not have built the 174 unit building with only the City’s $2 mil loan as the only local source. That full project required the total $6.2 mil from City and ARC combined.

    The smaller senior units project, 66 units, requires the same per unit local subsidy in order to garner all the other federal and state funds (including discounted debt rates). The city’s loan is equal to @$30,000 per unit.

    Furthermore, we are only asking the City to continue to dedicate the $2 mil as a 15 yr loan to our project in the letter and spirit of the CIP decision that was made in 2006 to fund and dedicate $2 mil to leverage an increase in affordable housing opportuntities. At the time that decision was made, the example of an expected per unit City leverage amount was @$100,000 per unit. At that time, the funds discussed were expected to be a grant and not a loan to whomever developer would bring 20 AH units to FC in one location. In contrast to that expectation, FCHC is paying back those funds no later than year 16–that is a big difference from what the Planning Commission and Council approved in 2006.

    Thanks for the greeting. Carol J
20. Andy Rankin (Falls Church) on November 12th, 2009 9:28 am
    This has probably been answered before so feel free to just log this question for inclusion in a future Frequently Asked Questions document: what happens if the FCHC is unable to repay the loan after 15-16 years?
21. Ira Kaylin on November 13th, 2009 2:57 pm
    Andy and Carol,

    Andy:

    You ask a great question and we await a direct response from the FCHC.

    Carol:

    The City Manager, at the November 9, City Council meeting, indicated that he will be having extensive community conversations BEFORE proposing the FY 2011 budget.

    Is the FCHC planning to have its community discussion before the final plan is presented to the City?

    If I understood you correctly you are suggesting that the Citizens wait until the City (City Managers Office, zoning office etc) reviews the FCHC proposal and makes its recommendations. Shouldn’t the City’s recommendations wait until Citizens have been given an opportunity to provide their inputs?

    The FCHC is legendary for demanding decisions be made on very, very short deadlines. When were you expecting to open the “extensive Q and As” and when do these public meetings have to be completed?

    I repeat the question I raised in my previous comment. In light of the fact that the FCHC indicated, at the time the City Council was informed of the new (smaller) project, that if accepted by the VHDA it would not be possible to make changes. If that is the case what is the likelihood of the City Council being able to make amendments or is the vote “yes or no”?

    A response would be appreciated.
22. Carol Jackson on November 14th, 2009 1:23 am
    Thank you, Andy and Ira,

    I repeat my suggestion which I have now also made directly to Rick Goff that the EDA host a session focusing on affordable housing as it impacts a local economy for better or worse. There are lots of experts who can help our citizens sort thru their concerns and questions.

    The TCB/FCHC partnership formed to construct City Center South Senior Apartments at 350 S. Washington St will be submitting its official application for consideration by City staff. We will receive and respond to their counsel and recommendations prior to our plan being vetted by the Council, Planning Commission and other Boards and Commissions, including the EDA, in accordance with the timeline to be developed by the Planning Director and Assistant City Manager who is the staff liaison for our work within our Cooperative Partnership with the City Council.

    For this phase of our plan to add to the City’s inventory of permanently affordable rental housing opportunities, we have federal and state funding prescribed by the application we submitted to VHDA in May. The Council will be asked to consider this plan upon recommendation from City staff. Of course they can decide whatever amendments they like, but we are asking for a yes or no vote on the plan they will hear once it has been negotiated and adjusted according to our work with the staff whom we greatly respect to represent the City’s goals and priorities.

    Down the road, we will be working more open endedly with staff and other interested parties to develop our next phase of plans for producing rental housing available to all income eligible residents in addition to seniors.

    I don’t know when the Manager plans to submit his 2011 budget to Council, but my guess is the data and fiscal impact info for CCSSA will be known to him at that time.

    As for Andy’s question about the hypothetical worst case that the CCSSA partnership would not repay the City’s loan plus interest in year 16, then hypothetically the City would be like any lender holding paper tied to assets–they would own 2nd position in a lovely age and income restricted mixed use apartment building, valued initially at $16 mil which the City and VHDA could flip to some more soluble affordable housing operator in 2027.

    Frankly, when the CIP was approved in 2006 to include the $2 mil dedicated for affordable housing investment, those funds were originally discussed and intended to be a grant to a housing developer who would bring a projected 20 units of housing to the City. In that case, there was to be no pay back to the City, so we are expecting the Council to consider the risk of not making good on their 15 year loan plus interest to be pretty small in the scheme of things.

    Come visit me at FCHC or your favorite watering hole for any more conversations on this topic, which must certainly be boring everyone else by now. Thank you, Carol J

    EDITOR’S NOTE: “Boring everyone else?” Certainly not — according to Google Analytics, this back-and-forth discussion of a critical element of City policy had by Saturday morning (Nov. 14) received 432 page views — and that’s just counting the people who clicked on the “Recent Comments” bar. The story itself, which of course includes the comments, generated another 229 page views before it rolled off page 1 well over a week ago. So thanks to all (especially Carol, Ira, Andy, Dan, and Mike) for creating this discussion in a public forum.
23. Ira Kaylin on November 14th, 2009 4:52 pm
    Carol:

    Thank you for your response.

    I would appreciate your clarifications/responses to the following questions/observations. A Yes or No answer would be appreciated.

    Will the citizens have an opportunity to provide their input before the City makes it recommendations to the City Council?

    Can it be assumed that the FCHC will ask the City for a Yes or No vote? That is, the City accepts or rejects the proposal as it is presented to them.

    Therefore, if the answer is Yes then does that mean Citizen inputs will be limited to 3 minute inputs/interventions at City Council or Planning Commission meetings?

    At this point I would like to respond to Andy’s question regarding what happens after year 15/16 if the FCHC can not repay its loan.

    Please note that in lines 387-393 of the public document entitled “Commitment to Provide Long Term Financing, Among the City of Falls Church, Falls Church Housing Corporation and CC South Housing, LLC” it is unequivocally stated that, should the project fail (at any point), the City is only eligible for payment after six (6) First Position claimants are paid off. Should there be any funds left over the City is only eligible for 50%; the other 50% goes to the “Partnership” which presumably includes the FCHC.

    By contractual arrangement the City would never be “made whole” should the project fail.

    Carol, I fully agree that your first instinct was correct. If the City wanted to support the CCSA project it should have offered the funds as a grant. The loan as it formulated is a grant and has to be “booked” as a grant.

    In other words this project needs to be evaluated as a grant.

    I know I speak for others when I say we are not bored. We appreciate having a forum where these issues can be publicly aired.
24. Carol Jackson on November 15th, 2009 6:07 pm
    Thank you, Ira. Here’s the deal: CCSSA was proposed for federal govt cash equity funding to VHDA in May by formal application which you have studied thoroughly it would seem. CCSSA received @$8 mil in two types of federal funding that must be put to use no later than June 2010. That is the plan we are asking Council to approve.

    We are not starting from a new position gathering open-ended input as the federal funds are tied to what is now on the table as a 4 story mixed use project with affordable rental units set aside for seniors and residents with disabilities. If we change the use or the scope we don’t get the federal funds; if we don’t have the federal funds we don’t have a housing project of any sort–with our without citizen input and/or Council loan.

    Citizens will be welcome to comment to FCHC and Council or other B&Cs all along the way–privately and in public hearings. That’s the way the FC process always works.

    As for the long term financial commitment doc you are quoting, my copy is at work, but without looking at it, I’m guessing the 6 pay off positions are ones that will go away after year 15 when the tax credits compliance period will end. In year 16 there will only be debt obligations to pay off and those will be 1st position VHDA and 2nd position City of FC.

    If for some reason FCHC can not pay off the balloon note plus interest, there will be affordable housing operators lined up to take over this deal after compliance period as that is the time cash flow eases up and the property will be stable and reliable by then. In the intervening first 15 years, FCHC’s senior partner, The Community Builders, owner of @25,000+ units east of the Mississippi, will be the guarantor of all debt, including the City’s loan.

    Let’s also be clear: The City will loan $2 mil from it’s CIP (not general funds) and receive full repayment, principal PLUS interest, @$800,000, returned no later than 16 years. FCHC will provide at minimum $2.25 mil in Owner’s investment equity and will receive the trickle down 6th position cash flow then split with the senior partner. That amount will be next to nothing in the first 15 years and then increase annually in the years after. Those Residual receipts will be accumulated in reserve for capital improvements and replacements that will be needed after year 16.

    It is FCHC that will never be made whole and we are glad to assume responsibility to be playing this role as the City’s cooperative partner to fulfill our combined housing mission for our community.

    If the city’s stated housing goals are no longer popular nor well-supported, then that’s what citizens need to communicate to your Council and Planning Commission.

    Carol Jackson, FCHC
25. Andy Rankin (Falls Church) on November 15th, 2009 8:51 pm
    Once the structure is built, how will things work? This will show how little I know about how this affordable housing stuff works.

    I understand that residents have to qualify. In this case, potential residents have to be of a certain age (or have a certain disability) and also have income below some level. Once someone qualifies, are they renting a unit, like it’s an apartment? How much do they pay? Does that cost go up over time?

    It sounds like after 15 years the City is supposed to get paid back the $2M plus interest. If I’m reading things right, it sounds like it’s almost certainly going to be the case that the FCHC won’t be able to make a $2.25M (or whatever) payment in 15 years. At that point the City could force the sale of the building and recover the investment that way? Is there a market for buildings like this? Do they generate profits over time (obviously must be much less than a conventional building)?
26. Carol Jackson on November 15th, 2009 11:47 pm
    Andy, We’ll save the “how does AH housing work” for EDA workforce housing session. Rents are set below market rates to be affordable (@30% of total income spent for housing costs) for people having incomes of 50 or 60% of the Area Median Income charted by HUD for each region in the nation. For example, one person household earns max @$40,000 and rents will be set accordingly.

    Earlier today, I introduced a new statement and number to be contributed to this deal by FCHC as cash up front from the organization’s own assets = $2.25 mil.

    That is separate from the $2 mil the project will borrow from the City and pay back no later than year 16, beginning with P&I payments in year 11 and a balloon payment which will be accomplished by refinancing in year 16 once the tax credit investors are finished with their term. During the first 10 years, the City will have the possibility to be paid interest from any cash residuals and that’s what Ira saw as the City’s 6th position. So the real cost to the City is the time cost of the interest owed since they may not receive anything in the first 10 years, depending on the cash flow which normally begins at zero and builds slowly and incrementally over the years. There will be no need for forced sales or whatever–the City will be repaid as planned and on schedule.

    This project will be fiscally sound as guaranteed by TCB and loaned a first trust by VHDA which doesn’t mess around with lending to risky deals. We will have plenty of Big Brothers watching out and you all can sleep well at night, knowing our city has signed on to do something solid and with certain precedent and stature all over Virginia.
27. Ira Kaylin on November 16th, 2009 1:16 pm
    Dear Carol:

    In your response to Andy you stated that Principal and Interest payments begin in year 11. You also state that there will be no capitalized interest and that the balloon repayment will be refinanced in year 16. Debt service payment on deferred Principal and Interest compounded over ten years is huge.

    I would like to quote from a Falls Church City publically available document that describes, in lines 139-140, the structure of the City’s proposed transaction.

    “At the time of the full loan repayment the $532,000 (15 years or sooner) is restored to the AHF (which stands for Affordable Housing Fund) as well as the $2 million CIP funding.”

    In other words according to the original term sheet the $2 million CIP loan was to be turned over to the AHF upon loan repayment to the City.

    If the above is part of the new proposal you have confirmed that the proceeds of the loan will never be available to the citizens of Falls Church for other purposes.

    If these proceeds are to be used in the proposed refinancing, the FCHC will be refinancing itself from the City’s original loan. Using your words this is “no, no”.

    Ira Kaylin, Former Chief Risk Officer, Inter American Development Bank
28. Carol Jackson on November 17th, 2009 1:31 am
    Ira, It was good to discuss this together in person tonight to clear up misunderstandings as well as agree that your real concerns are with City decisions about the 15 year loan structure and not with Housing Corp. Now that I read what you wrote earlier today, I will just try to clarify one or 2 items:

    a. We will pay 15 years of straightline interest, @$800,000, by the City’s estimate of 5% rate. You are correct that the unpaid interest will not compound, so that is a revenue loss to the City the Council was willing to forego.

    b. The AHF will not be the source of CCSSA refinance in year 16. We will refinance the property’s first trust with a 3rd party financial institution and pay back the City the remaining balloon payment balance.

    As we agreed, the remainder of your heartburn is with the City’s decision to make their dedicated CIP investment in affordable housing a loan instead of the originally intended grant. C’est la vie. FCHC accepted that change last year and we are prepared to incorporate the 15 year soft loan into our financial structure to build CCSSA with $8 mil cash in federal funds, $4 mil in debt, $2 mil soft loan from City and $2 mil in owner cash from FCHC. Thanks for talking with me tonight. I appreciate the personal contact. Carol J
29. Jonathan Smythe on November 17th, 2009 2:24 pm
    I am surprised to see Ms. Jackson summarizing Mr. Kaylin’s thoughts here on a blog. It would seem to me that Mr. Kaylin should summarize his own thoughts. Ms. Jackson, you also come off arrogant with your “heartburn” and “c’est la vie.” I think Ms. Jackson really should have sent this as an email rather than a public posting. Where’s her sense of decorum?

    And a small sticking point: the Council was willing to forgo unpaid compounding interest? Will I be able to find those words in the ordinance? Was this point specifically discussed?

    Lastly, how does the housing corporation justify building 1/3 of the building originally intended but still use all of the funding allocated for the larger “workforce housing” project? Afterall, it was the workforce housing component that so many came forward supporting in order to get the funding for the original project.
30. Ira Kaylin on November 17th, 2009 10:05 pm
    Jonathan:

    Thank you for your comment is it very much appreciated.

    In fairness to Carol we agreed to end our on-line conversation since it was made clear the transaction was designed by the City. Apparently the FCHC did not want a loan and did not ask for one, would have preferred a grant and had so stated at that time of the funding request.

    In that regard I concurred that the “conversation” should be continued with City officials, not with the FCHC. I have already sent a technical email to the City’s CFO outlining my concerns.

    After having a civil discussion with Carol I was surprised to see my concerns trivialized by being characterized as “heartburn”.

    $2 million (the size of the loan to the FCHC) is not a trivial number. My issue is that the “all in cost” of that transaction to taxpayers is being obscured. That is, the transaction is heavily subsidized, at taxpayer expense, and will cost more than has been, up to now, explicitly disclosed by the City.

    The lost income due to the “forgiveness” of capitalized interest payments is not explicitly stated in the City’s description of the transaction, was never raised by the City Council and is not included, explicitly as a subsidy, in the Ordinance (not all City Council members were in favor the “loan”). There are other “hidden subsidies” embedded in the transaction. However, unless one is familiar with the technicalities of project finance they are either difficult to locate or difficult to understand.

    Citizens can not make informed decisions, irrespective of election cycles, if we do not have the necessary information on which base those decisions.

    Regards,
    Ira
31. Carol Jackson on November 18th, 2009 7:28 am
    Dear Ira,

    I apologize for using descriptive terms which came across as disrespectful of the very real concern you have for this part of the CCSSA project’s financial support by the City. To me heartburn means a focused, yet never assuaged pain and thus after my much appreciated direct conversation with you, I thought that word was pretty descriptiive and did not consider it flippent. Please forgive me.

    As for c’est la vie, that phrase was intended to describe the Housing Corp’s ultimate conclusion about our request for the $2 mil CIP Housing set aside turning at City Manager’s request and Council’s concurrence from a grant to a loan. We gave it our best shot to request as a grant, but were turned down and settled for the 15 year loan terms the Council voted to approve last December. Until you and I spoke in person, it never occurred to me that you personally would have preferred the City make a grant award instead of the loan terms over which you are not peaceful.

    Yes, we agree the project will be subsidized at taxpayer expense in that after a few years (no earlier than FY 1013), assuming no other cash contributions to the AHF from private developers, the general fund will be paying the interest carry (@ $100,000 per year) prior to year 11 and suffering the loss of the compounding interest as well as the timing of money since the straightline interest will be paid beginning year 11 and completely paid back in year 16.

    Beginning at occupancy in FY 2012, the City is also foregoing the collection of real estate taxes for 15 years which nets out (tax revenue – City services expenditures) to @$45,000 drain on city budget as estimated now by the city’s fiscal impact model, which will be shouldered by all taxpayers. That $45,000 loss does not reflect any off setting residual sales tax and/or fees etc. that the owner and households will be generating as City revenue. Studies show that seniors (especially those without cars) spend an inordinate per household amount at local retailers compared to wealthier residents with their autos.

    As for the “why we are asking for the same $2 mil in municipal loan from the City to produce only the Phase 1 seniors apartments project,” I have explained in other blog entries that answer more fully from FCHC’s position. The short answer is the larger project last year had a total of $6.2 mil in City funds: $ 2mil as the loan PLUS $4.2 mil to be awarded and dedicated to the larger CCSA project by Atlantic Realty as their ADU voluntary concession by the entire 9 acre City Center South development that was to have been under construction this spring. Our larger one building project needed every bit of that entire $6.2 mil City package. (Equal to @$35,000 per rental unit).

    When we applied to VHDA for tax credits having split the one building into 2 Phases in order to compete for credits for both uses, we split the total $6.2 mil between the 2 applications. With only the Seniors apartment approved for credits, we are asking the Council to transfer their previously approved City loan to the senior Phase 1 project. (Equal to @$30,000 per rental unit). There will be no family building proposal until we can find a new source of equity to replace the all but lost Atlantic Realty proffer. We are actively searching for that equity source.

    We do not expect the City to provide these funds, so we are returning to what the city can do and has been officially on record to do to assist the production of affordable housing units since they approved the CIP in 2006.

    FCHC is gratefully proud to have the City’s Cooperative Partnership designation and as such carry out the City’s stated housing goals to the extent we are capable.

    Again, please accept my apology, Ira. I was sincere in saying I appreciated the opportunity to keep discussing until we had heard each other well the disconnects that had occurred concerning the loan.

    FCHC is not trying to hide anything. We did not generate most of the documents the Council approved last year and until you tried your best to explain to me the source of your concerns about the way the City will need to account for their loan, I could not appreciate your earlier comments about the loan v. grant when written in this blog.

    I think I will now take the other gentleman’s advice to say I am always available for a discussion, but think I have done my honest best to answer questions in writing within this forum which admittedly often fall short. Thank you for providing this forum. My work phone is 703-241-5402. I am happy to discuss further with you or anyone who wishes to contact me.

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