COMMUNITY COMMENT: Taken Aback by FCHC Request
By RICHARD SOMMERFELD
July 29, 2010
This comment is my personal view as a taxpayer and a voter, not as Chairman of the Long-Range Financial Planning Working Group.
I was more than taken aback by the request from the Falls Church Housing Corporation (FCHC) for the City of Falls Church to bail it out of its current financial predicament. In no way is this a “minor modification” of the terms set forth by the City Council for the Wilden Project. It is a major change to the terms and to the project risks. Anybody who understands real estate development would understand that fact and Mr. Young confirmed it in his interview with the FCT. What we now have here is an admission by the FCHC that it is financially insolvent because it cannot make payment of its $2.7 million note due on August 7. To be clear, the definition of financial insolvency is when a borrower cannot meet its financial obligations as and when they come due. It also admitted that it may have to sell assets at a loss to make good on the note.
The FCHC also admits that it is attempting to help the Sawner estate settle its debt to the City. It goes on to admit that whoever the other “partners” are who invested $750,000 in pre-development work will lose their funds. The FCHC, for reasons that defy logic, spent $1.2 million on pre-development work when it had neither complied with the very soft terms set forth by the City Council nor had it lined up all of its equity and bank financing. By way of clarification, a loan from the City does not qualify as equity by normal accounting principles, even for a non-profit. Now, the FCHC has the audacity to ask the taxpayers of Falls Church for a bailout caused by financial mismanagement and overly optimistic forecasting for the entire Project. The City would not just be bailing out the FCHC, but all of the parties associated with this project, according to the FCHC memo.
Any assertion that this project ever made financial sense for the City is distinctly contrary to a thorough and well-reasoned analysis prepared by Mr. Mike Novotny of the EDA and comments made by Mr. John Lawrence, Chairman of the Planning Commission, who voted against the project. It would cost the City at least $100,000 in lost tax revenue–when every penny counts. If this project made that much sense, perhaps Mr. Young should advance the FCHC $1 million, inasmuch as he would be a benefactor of the total project.
To put the $1 million request into the context of the Schools’ budget, that would be the equivalent of 12 teaching positions plus 2 or 3 support staff. Down the road, the subsidized cost of at least $100,000 per annum would be the annual equivalent of 1.5 teaching positions. If we go through the math of the project, it is expected by the FCHC that in 15 or 16 years the City would essentially forgive the $2 million loan. How many teachers or policemen or firemen does that equate to?
In terms of the financial gimmickry of the FCHC request, if I understand Mr. Rogers’ memo to the City Manager, taxpayer funds will flow from the City to the FCHC and then back and forth between the FCHC and the Sawner estate, with a some portion of the funding maybe returning to the City in some guise to make it appear this is nothing more than a usual and customary fiscal arrangement. It would also allow Mr. Young to proceed with his development and then recoup $25,000 per parking space from the City.
I think that the City Council would be making a huge mistake taking taxpayer funds that were meant to restore the depleted fund balance and finance operations such as public safety and the schools and redirect funds for 66 subsidized housing units. The City Manager even stripped the CIP of all but $385,000 of capital expenditure to fund the operating budget. We just heard from the City Manager that he had approached Davenport & Co., the City’s investment bankers, about going to the debt markets to fund the depleted CIP. The Assistant Director of Finance has confirmed that tax collections are running $3.5 million behind last year.
After we listened to City employees pleading for their jobs in the Council Chambers (and on the City’s TV station) just 3 months ago, this is a major insult to them and their families. At the end of the day, the real issue is not whether the City Council would be voting on 66 subsidized housing units in the middle of the commercial district to be funded by depleting the fund balance again, but whether this Council wants to bail out the financial mismanagement of the FCHC and place further strain on the City’s operating budget.
Even if the City borrows the money from a bank, it would be sending the wrong signal to every household in the City that had to accept a 16% hike in real estate taxes to support the City’s operating budget, not bail out an entity that is admitting insolvency. It is an audacious argument on the part of Ms. Jackson and Mr. Rogers to say that the Virginia Development Housing Authority would turn its back on Falls Church for not funding this $1 million request for an admittedly insolvent FCHC. The Council needs to call in an independent auditor to examine the finances of the FCHA and its financial controls and not bail out the FCHC. The City should not the “bailout banker” of last resort for a non-profit that speculates in land development.
Mr. Sommerfeld is a businessman who lives in Falls Church City
Editors’ Note: The Falls Church Times has invited the Falls Church Housing Corporation to submit a Community Comment making the case for its request in this matter, and we invite others to share their views on this topic or others of importance to the City. Our comment policy appears in our “About” section. Please send your submissions to contact@fallschurchtimes.com.
By (see byline)
July 29, 2010
I’ve been reading the many posts written about the Wilden / McKeever project and what it comes down to is the $2 million dollar loan that the City will make to the FCHC. Now, this loan has been kicked around so much since the inception of this affordable housing plan that the subject has been really beaten up. Bottom line is that it is the same $$ with only half of it being released four months early. Is it a complicated project—you bet, but the decision for approval should be made by council tonight. What amazes me the most is the continued hatred of this project by the some cast of people over and over with the same objections that have been spoken to so many times.
What hasn’t been spoken about or explained is the attempt to sue our City, CC and City staff, and FCHC under the fair housing laws to block this project—a law suit that was turned away at the both State and Federal levels. So I would like to ask Sam Mabry and Ira Kaylin to give us all some information about that action. For all of the FOIA request being made by Sam at City Hall these days, I am asking one from them. Thanks—
Ms. Hockenberry,
I respectfully submit that there are at least two additional differences regarding the change requested by FCHC. First, the project previously was dependent on some other financing coming to the table. This deal is apparently so risky no one else is willing to step up to the plate. Second, the liability for the City wold substantially increase with the changes that FCHC has requested. What amazes me is the zeal in which people have pursued this white whale of a project. They appear to support it no matter how much it costs or how much risk the taxpayers of Falls Church City incur. Thanks
Does anyone know who will be moving to this place (if we do not stop it now)? Do they currently live in the city?
When you talk about the project “making financial sense” are you talking about the risk of failure (which is worrisome if it is increasing) or are you talking about the potential lost tax revenue of 100,000– I guess based on not having highest/best commercial development on the site — and costs of the loan (which would be more a concern about spending priorities)?
Do you support spending any money on affordable housing or do you think that we as a city should say “we can’t afford it right now”? Do you see this issue as a social obligation that government should support or something that we can leave to others?
Is the FCHC really a “non-profit that speculates in land development” or was its 2.7 million purchase appropriate, based on plans for this project — I dont know the timing of this purchase or how housing nonprofits usually pull together projects — should FCHC have only had an option to purchase until the plans/loans were together — would that have been possible?
With all respect Suzanne, I see this discussion as not so much a rejection of the goal of affordable housing but a more a question of can we do this in a fiscally responsible way.
The contributors here have made it clear that the economic conditions in the time between the plan appoval and now have changed. The City fiscal climate may have changed as well.
Just a thought.
Suzanne, I think those are good questions to generally consider – but not necessarily the questions at hand for the decision by City Council tonight. In some ways I think a lot of those questions were sorted out when the current plan was passed by the Council back in March. It’s being rehashed now because the needs of the project have changed (or, I guess, become more clear) and the previous agreement apparently isn’t sufficient to get the project done.
I’ve been trying to focus on how the new request impacts the City – does it create more risk (i.e. could the City end up having to put in more money than currently planned and/or could the entire project fail, causing us to lose any money we put into it now?). I hope the Council can get a clear understanding of the change in risk tonight before voting.
Personally, I’d be curious to see what people living in Arlington and Fairfax County put towards affordable housing (as a percent of their taxes) and try to make sure we’re in line with that (maybe we already are – I have no idea). I also think that our lack of success (according to the FCHC) over the past many years suggests we should consider a different approach – like teaming up with Arlington and/or Fairfax County to leverage economies of scale to get a high quality project done. Affordable housing seems like a regional issue to me – I don’t understand the importance of pinpointing on a map so that it has to fall within the City, no matter the cost or risk.
TFC — if this project REALLY is too tenuous and likely to fail, then I agree we should let it go! (we would be letting go of LOTS of federal/state money and maybe letting FCHC crash and burn)
But — when I read things like how the 100k (potential) lost tax revenue equates to 1.5 teaching positions, then I think we are talking about government priorities. (Cherry Hill park represents lost tax revenue also — we aren’t going to develop that because we support public parks)
What percentage of our budget supports social services and/or affordable housing? I recall that Fairfax County dedicates .5 cent (down from 1 cent) of RE taxes to affordable housing. How does our spending compare to other jurisdictions? Are surrounding jurisdictions funding (taking on debt for) affordable housing projects?
I think it’s a fair question — do we as a community want to support affordable housing, what is a fair percentage of the budget, and how does this project’s cost fit in?
Andy, I didnt see your comment when I was responding to TFC. I agree with you that the issue at hand should be the risk of failure — but lots of the commentary has been on how we “can’t afford it.” I think regional approaches make sense but that costs money too — we would need to be paying in our fair share.
With regard to Ms. Hockleberry’s comments–many of which are at least dissembling: The City of Falls Church was a party to a Federal Fair Housing conciliation agreement in 2004 as a result of the manner in which developers physically designed–which the City approved–the Broadway condominium project to appeal mostly to adults. In addition, the City Council took legislative action to diminish children in the building by placing a “tariff” on their residency in the building above a certain number (numerous articles appeared in the Washington Post regarding this matter). As a result of the Federal action, the Council rescinded the legislation and entered into the agreement with the Civil Rights Center acting as the agent for the US Department of Housing and Urban Development. Having worked in the Congress in a committed fashion on Fair Housing laws for many years, and as a Member of the Falls Church City Council, I wanted to make sure that the City never again tried to short stop Fair Housing laws. But it attempted to again with the City Center South project, which the developer stated in submittals to the City justifying its approval, that the residential multifamily portion of the project was designed for the purpose to mitigate school age children. While reference to school children was removed from the documents, the configuration of the proposed project did not change. When the City Center South project fell by the wayside as a result of the collapse of the condominium and credit markets, USHUD has placed its review in abeyance—but I am told not formally ended it. If there is further movement by the City to push the project ahead with the taint of discrimination against families or any other class of citizen, I have been given ever assurance that the Federal Government will again review the conduct of the Council’s legislative actions in this regard. Documents pertaining to the aforementioned are available on request…just let me know.
In the matter of the Falls Church Housing Corporation Project, the compelling financial review and critique by Richard Sommerfeld on his own personal behalf, as well as others, parallels the message Councilman Kaylin and I delivered to officials of the Housing Department in Richmond. Apparently to Ms. Hockenberry’s distress, the citizens and several of the Members of the Council are now applying prudent fiscal and policy measures to their decision with regard to this project. In short, I would say to my former Council colleague, we need to commit ourselves as a community to providing for the citizens needs rather than clamoring endlessly for what one special interest group wants.
The end of the Falls Church Housing Corporation project as it is now configured could well be the beginning of a stronger and better Falls Church City Government committed to a new level of fiscal and policy integrity.
And by the way Lindy, I am still working on the FOIA but in other public city documents in my possession I have found both substantive issues to address down the road as well petulant comments such as the one on February 2, 2009, in which Ms. Jackson describes a current member of Council and a current EDA Board Member as “giving me the creeps” and the Council Member as a “tightwad conservative trouble maker.” Not nice and not wise if you want their assistance.
We must always seek a level of civility where people can have different points of view without being demeaned. I feel you and I have passed that test in our dealings with each other. Best regards. Sam
There are some good questions and comments here, but this talk of bailouts and insolvency is way over the top. The City took a fairly hard line regarding the linkage between the commercial development and the Wilden, and basically told the FCHC to go forth and make it work. It seems all of the financing and construction plans are ready, with the lender for the McKeever requiring more money up front to buy the land before the loan is closed for the parking or building. The request is to pay in advance for the parking spaces, which were always part of the financial plan. Of the $1 million in question, half is available in the AHTF so the “risk” in this disbursement is really $500,000, assuming the $1 million was used and the project just fell apart. If the City did sell bonds for the $1 million then the $500k would pay the debt service for many years. However, the FCHC is borrowing the money so they owe it to the City regardless, and the Winter Hill property imo is certainly sufficient to provide the ultimate value to repay the City. I guess those who wish only to evaluate the direct economic consequences would say that this kind of “failure” that would prove beneficial to the City since the result would be to return the properties in question to “higher and better” uses.
The balance of the comments deal with the Wilden building itself, which is not really affected by the variables in the parking transaction, or affordable housing policy more generally, which is a very important topic but not what is before the Council tonight.
It should be a lively meeting tonight.
“Ms. Jackson describes a current member of Council and a current EDA Board Member as ‘giving me the creeps’ and the Council Member as a ‘tightwad conservative trouble maker.’ Not nice and not wise if you want their assistance.”
Sam, too bad you do not have some of the e-mails between Ms. Jackson and the Chamber of Commerce. She dogs city staff, city officials, and whole departments. Basically anyone she sees as having a differing opinion is a conservative idiot. Despite Ms. Jackson’s ranting and perceived enemies, her loose lips are her own worst enemy.
Dan, I’m still confused about what the FCHC is really asking for. The new language seems to prevent release of any funds until financing for the garage is “committed” (used to say “secured”) but it sounds like the garage financing can’t be nailed down until the land is purchased, with the $1M from the City. So either “committed” means something different than “secured” or this new language isn’t going to help (or I’m missing something).
Does the FCHC control the AHTF (and what is the source of that $500k)? If so, why not just use that and ask for $500k early from the City instead of $1M? It might make some people feel better about the request.
Does anyone know if this scenario is possible: the City puts in $1M this week to help buy the 360 land. Mr. Young’s committed loan from the bank runs into problems and he can’t get the money to build the garage. The Wilden construction begins anyway and gets about halfway done. Something strange happens and the FCHC ends up needing another $2M to finish the project. The City Council isn’t willing to sink more money into the project and the feds yank the rest of any funds they have committed. The FCHC has to completely sell the Winter Hill properties as part of a bankruptcy settlement to pay off its debt – but doesn’t raise enough money to pay back the City’s $2M. In the end the City is out the $2M, there’s no more Winter Hill. The Wilden sits half complete. The FCHC no longer exists and all the funds they have saved up over the years are gone.
I assume that scenario is farfetched but it’s the sort of thing that stresses me out. Investing $2M doesn’t stress me out that much. Taking up valuable commercial space for an apartment building stresses me out some – but building a 30k SF office building next to it makes me feel a little better.
Andy, you have smoke pouring out my ears. I am more confused than ever. I am streaming the webcast right now.
This meeting is fascinating (and not necessarily in a good way).
My comments pertain to the essence of a sustainable Falls Church at this point in time. If we lose the VA Supreme Court decision in our dispute with Fairfax County, we are going to have to dip into the fund balance for $2.2 million. The fund balance was meant to be restored over time by allocating $0.02 from the 16% real estate tax hike, but now some people want to put it to subsidized housing. The City Manager’s recommendation against agreeing to the FCHC request for accelerated funding was thoroughly supported by well-reasoned items. The City Attorney also recommended against the request.
Affordable housing can help the community in terms of diversification. Northern Virginia is an expensive area. Why didn’t the FCHC redevelop part of Winter Hill, which is already a residential area? Could it have done so at a lower cost because it already owns the land? Why take commercial real estate essentially off of the tax rolls? The EDA submitted a study with alternative uses. The Chairman of the Planning Commission was opposed for the same reasons. We have 2 square miles and need to make the best use of that finite real estate. We heard during the Council session this evening at the cost of rental housing has come down because of the Great Recession and he said that there were places nearby the city limits.
Those who spoke in favor of subsidized housing did so for all the right reasons. Unfortunately, our City budget is currently under great stress, so the timing is not in their favor. It should have been done 5 years ago or wait 3 years for the economy to recover.
Aside from the economic arguments behind The Wilden, the FCHC asked the City to accelerate $1 million of the $2 million loan because it could not find all of the equity over the past 5 years to comply with the bank’s requirements. If the banks want the equity now, they must have a perception of higher risk. If Mr. Young thinks the project is so good, and he’s a shrewd businessman, why doesn’t he make the emergency loan to the FCHC and take the risk? This evening we learned that the FCHC will make a $1.2 million equity investment in Mr. Young’s property with borrowed money. Mr. Young hasn’t lined up all of his financing yet nor has he leased as much office space as he thinks he should because of economic reasons in Northern Virginia.
As I recall. the proposed Wilden tenants are, for the most part, current residents of city subsidized housing located on James Street and South Virginia Ave. These people are neither homeless nor picketing to be relocated elsewhere to my knowledge. The problem seems to be that the funds from HUD are drying up for that current city housing. The idea, as previously presented to the neighboring residents, was to move those current city housing residents to a new building with a renewed federal funding (HUD) cash flow.
This would allow the current city housing complex identified above to be sold to get out of the expense of maintaining those existing buildings no longer funded in part by HUD. Several proposed uses of the existing city housing property have been mentioned in the past, included selling to a a developer who, in better times, could have erected several highrise appartment buildings with their increased traffic and parking problems in an otherwise single resident townhouse neighborhood.
Has anyone noted the fact that we are all happy the Mr. Young will be building an all-office building there as part of the deal:
Have we not noticed the exmpty office building sitting just North of the site on Annandale Road?
Or the empty retail building lining the end of South Maple Avenue?
Or how about the empty office buildings on North Washington Street?
Or what about all this empty office space throughout our City:
http://www.fallschurchva.gov/Content/Docs/CommercialDatabase.pdf
Will this new empty office building really add anything? Or are they planning to fill it with City Services so it looks full even if it brings in no revenue?