As of today, there are only eight days left until the beginning of Fiscal Year 22. On Monday, June 21, the five elected officials got a glimpse of where things stand through the first eleven months of Fiscal Year 21. A shortfall related to the economic shutdown that began in Fiscal Year 20 is not as bad as initially reported.
“Based upon the current conditions of what we’re seeing in terms of revenues, things are continuing to trend in a positive direction,” said Ryan Davidson, a senior budget management analyst for the city.
The main event at Council’s meeting on May 17, 2021 was direction to proceed with a plan to use millions of funding from the Virginia Department of Transportation to cover another cost overrun for the long-planned Belmont Bridge replacement. The project was put out for construction bids in February with a $31 million cost estimate. According to the city’s Urban Construction Initiative manager Jeanette Janiczek, that wasn’t enough money.
“The lowest responsive, responsible bid can be awarded with existing project funds, however there is a need for additional funding, $4.2 million, to cover contingency, construction inspection services, VDOT oversight, as well as utility relocation,” Janiczek said.
VDOT has suggested adding funds from its bridge maintenance account, something referred to as State of Good Repair. Janiczek said possible reasons for the higher estimate include inflation, increases in material costs, and potential issues related to the pandemic.
Janiczek said one choice would have been to remove items from the project, such as a pedestrian tunnel on the southern end.
“Any of these options would result in us having to rebid the project,” Janiczek said. “This adds at least a year in time but most importantly it doesn’t fulfil the commitments we’ve made to the public as well as the Board of Architectural Review.”
Janiczek if the appropriation of the VDOT goes forward in June, construction could begin this summer. Another public meeting will be held when the contractor is hired to explain how traffic will continue to use the bridge during construction.
“So once they submit their baseline schedule, we’ll release that to the public and let people know what to expect during construction,” Janiczek said.
Asked by Council if the project costs could increase, Janiczek said many of the prices for materials would be locked in as soon as the construction contract begins.
City Manager Chip Boyles said he thought construction costs would increase as the federal government prepares to make billions of investments in infrastructure projects. That’s why he r
“If this project is delayed, we’re already seeing very substantial inflationary projections into the near future,” Boyles said. “If President Biden’s infrastructure package that is in Congress is approved, you will see multiple fold of capital projects underway. If this had to be rebid, I would say that we would end up with less product and at least the same amount or more of the cost.”
The second reading of the appropriation will be on the consent agenda for Council’s June 7 meeting. They’ll next meet on May 25 to have a work session on the 7th Street Parking garage followed by a May 26 joint meeting with the city School Board on the reconfiguration of the city’s middle schools.
Council adjourned their meeting before 8 p.m. something that newcomers to city government should never ever expect.
Council held a public hearing on the budget for FY22 which so far does not include any funding from the American Recovery Plan because staff wants to have a full sense of restrictions that may come with the money. However, Boyles said one of the first uses will be to fill the revenue shortfalls from FY21. Staff have been working to close a multimillion dollar budget gap.
“While revenue projections are improving for FY21, we still estimate a $9.2 revenue loss for fiscal year 21,” Boyles said.
The Charlottesville School Board has entered into a $1.47 million contract with architectural firm VMDO to conduct design services for the reconfiguration of the city’s middle schools. VMDO has also been hired to put together growth and capacity scenarios for the entire school system.
One item on Charlottesville City Council’s consent agenda for the March 15, 2021 meeting were the recommendations of a task force for how a small pool of federal funding should be spent in the Ridge Street Neighborhood.
The group is suggesting that $25,000 in Community Development Block Grant (CDBG) money be spent on traffic calming and another $220,000 be spent on three sidewalk projects. As part of the traffic calming, speed limit signs would be installed on the old section of Ridge Street.
The prospect of the West Main Streetscape being implemented is still alive as City Council still wants more information about how the project could be salvaged. The project was split into four phases in order to secure funding from the Virginia Department of Transportation, but staff has recommended not fully funding the project.
Council has not made several final decisions about the proposed $160 million Capital Improvement Program for the next fiscal year and the four years that come after it. That amount also includes $8 million for a 300-space parking deck as well as a $50 million placeholder for reconfiguration of the city’s middle schools.
“There certainly is a lot of unknowns when we think about going into the future of the CIP especially when we think about schools and not knowing the scope of what they’re going to be [doing],” said City Councilor Heather Hill. “And also thinking about the parking deck situation and what options we may have.”
Councilor Lloyd Snook said he felt the city was at a point where it should proceed with West Main Street in a fashion similar to Council voting to proceed with the pedestrianization of East Main Street in 1974.
“The more I have thought about it, the more I have thought the future of the city is going to be along the axis between downtown and the University and we ought to be spending our time, our energy, and our resources on that area,” Snook said.
Snook said he was less inclined to support the parking garage.
Mayor Walker said budget staff have been clear that the city is running into its debt capacity and the city should proceed cautiously.
“I just don’t know how we are rating West Main Street and still thinking that is a must and that it must continue at this time when we’re talking about things like housing and schools,” Walker said.
Snook said he has been persuaded by arguments that at least $3 million in maintenance improvements are needed on West Main Street.
Councilor Hill said believed the city has made an investment in West Main and should see the project through.
“The biggest thing is just the other dollars coming from other sources that are not the city, and there’s not a lot of projects where we find those opportunities,” Hill said.
Those external sources include $5 million from the University of Virginia and the potential $10.8 million in VDOT Smart Scale funds for Phase 3 of the West Main Streetscape. Phases 1 and 2 require a local match in order for the city to draw down Smart Scale Funds and revenue-sharing funds already approved.
“I’m really struggling with just closing the door on this,” Hill said.
The draft CIP contains a placeholder of $50 million in FY24 for the school reconfiguration.
Walker said would prefer to keep some of the debt capacity available for future needs.
“If we okay West Main at this point, we are limiting schools to an amount because we are boxing ourselves in,” Walker said. “And then everything else that comes up as a result of this pandemic and how long we’re in it, then we are also restricting ourselves there.”
Councilor Michael Payne said he supported the vision of the West Main project, but could not support prioritizing that over schools or affordable housing. He said he would support the city paying for the bare minimum and losing some of the Smart Scale funding due to the debt capacity issue.
“We’re in the same situation where we could eliminate our city funding of West Main Street, and the parking garage, and we still even then wouldn’t be that close to getting our CIP budget on a sustainable level,” Payne said. He also said he would like to continue conversations with the School Board about the reconfiguration project due the large amount of money required to pay for the capital costs.
A firm is working with the school board to further refine the cost estimates for school reconfiguration. There was also interest in getting more information about various scenarios for West Main, including incorporating some of the results of a recent value engineering study. Councilor Snook had this idea.
“One of my thoughts is that we have a brand new city manager, and let’s let him put his creative thoughts to work and see if he’s got some ideas for us,” Snook said.
City Manager Chip Boyles said he would have a conversation with VDOT about when Phase 1 and Phase 2 need to get underway to stay within the six-year deadline required of Smart Scale. Jack Dawson, the city engineer, said the right of way phase is expected to begin this July to keep the project on VDOT’s schedule.
“There is some urgency about what direction we think we may need to go in, sooner or later, for sure,” Dawson said.
Vice Mayor Sena Magill said she would support reducing the scope of the project.
“What can we do with just the revenue-sharing match?” Magill asked. “There’s a lot extra that is on top of what we need for our revenue-sharing match.”
Council agreed to wait on a final decision on West Main until they have more information on options. David Brown is the city’s public works director.
“We do have some time to where we can look and evaluate to make a determination,” Brown said. “For the project, we can evaluate and make an assessment, rescope the project that still meets the requirements of the funding sources so we still have that opportunity.”
Boyles said he would prepare options for Council to consider.
“We can get enough information to come back to you with some concepts and maybe even some recommendations and staff can continue to keep working forward,” Boyles said. “It won’t be that much wasted effort based on whatever your decision is in later March or April.”
The FY22 operating and capital budget will be presented to Council on March 1. The first public hearing is scheduled for March 15. Budget adoption will be roughly a month later.
The Charlottesville City Council will be presented with a $160 million five-year capital improvement program (CIP) that anticipates spending $50 million on a reconfiguration of middle school education.
Council and School Board will meet Thursday, January 28 at 5 p.m. to discuss budget preparations. (meeting info)
Staff has not recommended new funding for the West Main Streetscape in Charlottesville’s proposed capital improvement program for the next fiscal year, though the first phase of the project is fully funded. The future of a second phase is not certain at this time.
“The current CIP draft reflects priorities raised by City Council in previous budget work sessions,” said Charlottesville Communications Director Brian Wheeler. ”The inclusion of a $50 million placeholder for the City Schools reconfiguration project means other projects have to be reconsidered.”
While capital improvement budgets look ahead for five years, Council will only adopt an actual budget for fiscal year 2022, which begins on July 1. The proposed budget for FY22 is for $35.4 million, with $26.8 million anticipated to come from the sale of municipal bonds.
The draft CIP also continues the city’s $10 million investment in a new parking structure at the corner of Market Street and 9th Street. The project’s purpose is to support a new General District court to be used by both Albemarle County and Charlottesville.
The five-year budget anticipates a total of $13.5 million in investment in new construction of Charlottesville Redevelopment and Housing Authority including $1.5 million in FY22.
“This funding is the second year of a original City projected commitment of $15 million for the redevelopment of the public housing sites,” reads a summary of projects. In October, Council signaled they would approve a performance agreement governing the use of $3 million to help finance the Crescent Halls redevelopment and the first phase of redevelopment at South First Street.
The draft CIP restores several budget line items that were zeroed out for the current fiscal year. Instead of spending about $6.7 million of general fund revenue for certain items that could not be paid for through the sale of bonds, Council agreed with a plan to put that money aside in case of a shortfall.
For FY22, the draft budget restores funding to “non-bondable” items such as “city-wide traffic engineering improvements” and “bicycle infrastructure,” as well as funding for parks.
The draft budget also includes $800,000 a year in funding for the Charlottesville Affordable Housing Fund, for a total of $4 million. The specific use of those funds would be determined later.
Another significant project that would be paid for with cash is $2 million for infrastructure at Friendship Court. That’s separate from $394,841 for the first phase of Friendship Court redevelopment and $750,000 for phase two. Council approved a performance agreement for that funding in October.
School reconfiguration
The basic details of a plan to reconfigure Charlottesville’s middle schools were presented to the City School Board in December 2018. Michael Goddard is a project manager with the city who addressed Council at a work session on November 20, 2020.
“The plan is to utilize existing public properties so no land acquisition would be required,” Goddard said. “We would like to expand the pre-school and provide best-in-class wrap-around services, move 5th grade back to the elementary schools, reduce middle year transitions. By adding the 6th grade to Buford, we would make that a three year school.”
Both Walker Upper Elementary and Buford Middle School were built in the 1960’s. Goddard said another goal is to eliminate students needing to go outside to transfer between buildings.
The project has a placeholder cost estimate of about $55 million based on work conducted by the firm VMDO. In the fiscal year budget for 2020, Council authorized $3 million for design and pre-engineering.
“What we expect to see from our architect as part of this initial phase is a visioning document which gives us a general idea of what we can do, a goals and objectives document which lays out exactly what it is we intend to accomplish,” Goddard said.
West Main Streetscape
The firm Rhodeside and Harwell has been paid at least $2.8 million to develop design and construction documents for the three-quarter mile stretch between the University Corner and the Downtown Mall.
A value engineering study intended to reduce the costs will be shared with Council on Monday.
A slide from the September 30, 2020 City Council work session on the West Main Streetscape. (preview story) (summary story)
A total of $12.95 million was requested for the West Main Streetscape project in FY22 , but was not included. The project was split by Council into four phases in October 2017 in order to help secure funding. Phase 1 spans from West Main’s intersection with Ridge Street and McIntire Street to 6th Street NW.
“Phase 1 remains funded from prior CIP allocations,” Wheeler said. “The local allocations to Phase 1 are $3,162,045 spent and $13,422,860 available.”
The city received $3.2 million in VDOT revenue-sharing funds for West Main Phase 1, and the city will still spend $13.4 million in city funds.
Phase 2 travels between 6th Street NW and 8th Street NW. The city received $2 million in VDOT revenue sharing and $2 million in VDOT Smart Scale funding for this phase. The city had anticipated spending $7.1 million in capital funds but that is not reflected in the current CIP.
“We expect City Council to provide additional feedback on both phases in the budget discussions,” Wheeler said.
City staff had not budgeted spending any city money on West Main’s Phase 3, which spans from 8th Street NW to Roosevelt Brown Boulevard. Last year, Council agreed to submit a $10.38 million request to the VDOT’s Smart Scale process. Last week, staff recommended funding of this project.
As of last September, the city had not identified a funding source for Phase 4 which has a preliminary cost estimate of $8.7 million.
A former chief operating officer at the University of Virginia said in a March 2018 letter to Council that UVA would allocate $5 million for the city to use on the West Main Streetscape. The offer still stands.
“The University remains committed to its funding pledge for the West Main Streetscape project,” wrote UVA spokesman Brian Coy. “Per discussions with the City, our intent is to focus on safety and security improvements towards the western end of Main Street, supporting both students and the broader community.”
The fallout from the economic shutdown related to the COVID-19 pandemic means that Charlottesville is facing a tougher financial future than would have been expected. Last night, the City Council got an update on the city’s financial picture. Ryan Davidson is a senior budget analyst with the city. (read the report)
“There’s been a marked decline in many of our revenues and our new revenue projections are approximately $5 million than what we had previously presented to City Council,” Davidson said.
Specifically, meals tax collections are $2 million lower than had been forecast in September, and transient lodging tax collections are $1.86 million lower. But not all sources of revenue are in the red.
“Licenses and permits,” Davidson said. “This is one bit of good news! We are seeing continued strong performance in our building and plumbing and our other permits. We’re expecting almost a half million increase.”
Davidson said in the worst case scenario with revenues that continue to decline, the city could end up with a $13.2 million shortfall by the end of the year. To manage that shortfall, budget staff are using the cash reserve that Council agreed to put aside when it approved the budget for the current fiscal year. That money would have gone to various items in the capital improvement program. Davidson said the city may also need to use surpluses from both FY19 and FY20.
“That can be up to $4.1 million that we could bring in as the potential revenue source to help fill that gap,” Davidson said. He added that the city is trying to avoid laying off any employees, but it will take a full effort by Council and staff to continue to get through the year.
Davidson reminded the Council there are still just over five months left in the fiscal year, and projections can change over time as conditions fluctuate.
“Let’s try to manage to the worst case scenario, then if things are better than that, then we will be prepared for that,” Davidson said. “And if they’re better than that, we have leverage and we will have resources that we have not yet had to use.”
Charlottesville’s appointed officials sought fiscal clarity from Charlottesville’s elected officials during a budget work session on November 12 that sought to gauge Council’s willingness to seek additional revenues to pay for major projects. John Blair is the interim city manager.
“As you all know there are a number of large scale capital projects that have been talked about in various iterations through the past few years but what I’ve asked our budget team is to provide you with some numbers that are going to demonstrate using your debt capacity for various projects,” Blair said.
Listen to an audio version of this report.
Blair said that the city is close to its debt capacity and more projects will likely require tax increases, but he said that topic was not directly before them. Blair’s budget for FY2022 will not be unveiled until March. It will also be the first to be prepared under this Council.
“Obviously I think a number of you have interest in various capital needs whether it be affordable housing, education, infrastructure,” Blair said. He also said this would send a message to would-be city managers about the kind of city this Council wants it to be.
For now, the budget is in the very early stages of formation because exact revenues aren’t yet known. Budget staff needed to know Council’s thoughts on whether to change a key policy to increase the amount of bonds that could be sold to pay for capital projects. Doing so will increase the amount the city needs to spend on debt service to pay back those who buy those bonds for a steady return.
We have been in fiscal year 2021 since July 1, and a decision was made by Council earlier this year to continue with $25.8 million of projects in the capital budget, and they signaled support for a total five-year plan of $124.1 million.
“We were going to fund $84 million of this five year plan with bonds, and if you recall, due to COVID, just about all of the cash that was originally intended to go to the CIP was held in a reserve with the general fund to offset any of the unknowns,” said Krissy Hammill, Senior Budget and Management Analyst for the city of Charlottesville.
Practice has been to use a mixture of cash and bonds to pay for capital projects and since 2010, the average has been 37 percent in cash. For this year’s capital budget, 93 percent will be paid for through bonds. Currently the city has about $90 million in government debt, $80 million of which is for bonds that have been approved for projects but not yet issued.
“That means that we typically issue bonds on a cash-needed basis so we don’t issue the bonds until the project is either imminent or underway because we do have spending requirements that once we issue the bonds we typically need to spend that money within 24 months,” Hammill said.
Hammill said the city has been building up a fund balance to help reduce the amount of cash that needs to go to debt service each year. But at some point, the city will need additional cash from property taxes to make up the difference. Hammill showed a hypothetical situation where $32 million in new bonds are floated each year through FY2027. That would increase the debt service steadily over time, from $11 million in FY2022 to $19.2 million by FY2026.
“You’ve basically built in the need for a penny of additional revenue, that’s equivalent to basically a penny a year,” Hammill said, adding that in further years, the need for additional revenues would continue to grow.
To put it colloquially, Hammill effectively stated that the city can float an additional $52 million in bonds without maxing out the credit card. Potential projects include additional spending at the future parking garage, reconfiguration of city schools and continued investments in affordable housing.
Parking structure
After a long discussion about debt financing and how much additional capacity can be found, Council then began discussing potential projects. The first was whether a $10 million project to build a new municipal parking garage could be altered to provide more building height.
In a ten-page white paper dated October 14, Economic Development Director Chris Engel lays out the current plans.
“The City has plans to construct a parking structure on a one-acre assemblage of property it owns at the intersection of Market Street and 7th Street,” Engel wrote. “A conceptual design study indicates that a four level structure of approximately 300 parking spaces and 12,000 square feet of street front commercial space is feasible on the site and such a structure is permissible by-right within the City’s current zoning ordinance.”
Engel also included a contingency of an estimated $5 million to build a stronger foundation and employ other measures to ensure the taller building would be structurally sound.
At the November 12 work session, Engel said the project will be built using a design-build contract, which means one firm will be asked to do both tasks. A request for qualifications is expected to go out this month, followed by a request for proposals early next year.
“When we go through the process of seeking a design-build contractor, their proposals will have those types of details that we can compare one to another and that’s when the city chooses the best respondent and gets into a contract with them to actually build it,” Engel said.
The city has never pursued a project through a design-build project before. Engel explained this project is not a public-private partnership in part because of a bad experience within the last decade when a project to develop a city-owned parking lot fell apart.
“[West 2nd] started as a design competition really and then lead to a development agreement,” Engel said. “The path that we are on now is not that. The path that we are on now is that this is a city-owned facility. We build it with our money and we own it and we control it. That’s in part to eliminate risk and that’s done in part to honor the agreement with [Albemarle] county and best control those parking spaces so that they have confidence. Entering into a third-party agreement complicates that a little further.”
In the case of West 2nd, the city asked private developers to submit proposals to redevelop the City Market lot with a mixed-use building and space for the market.
“We spent four years and we ultimately got to a point where the project did not proceed from there,” Engel said.
Engel said the parking garage is expected to be operational in three years.
Councilor Heather Hill said she remembered when these questions were asked two years ago.
“It just seemed like it wasn’t a feasible option to go that route and invite a partner given the significant cost between what we’re proposing here and how much additional it would cost to do more than what we’re proposing,” Hill said.
Councilor Lloyd Snook asked how much delay there would be if Council decided to go on a different path.
“If we said, okay, the courts aren’t actually going to be built until 2025 and we’ve got sort of a slow-down in parking needs at the moment because of COVID and working at home and all the rest of that stuff, and some of that is going to maybe happen for the next couple of years, maybe we don’t need desperately need to get things done by 2023, maybe we work something out with the county to say, okay 2024 is fine. These are all just hypothetical here.”
Engel said it would be hard to predict the delay but again repeated that negotiations would likely take six months to a year.
Councilor Michael Payne asked if the city could just provide the required spaces for the county at the Market Street parking garage.
“When we’re looking at our CIP budget we’re going to have to, there’s no way around trying to revisit past decisions and figure out what to prioritize and re-adjust,” Payne said.
Another question before Council was whether the city should invest in improvements to make the Dogwood Vietnam Memorial in McIntire Park more accessible. Staff had recommended working on a way to build a parking lot closer to the memorial to replace the one removed for the skate park. Council did not reach consensus on how to proceed.
Council needs more info to provide direction
Council was asked to come up with priorities to help the budget staff develop a preliminary CIP budget.
“Without cutting something out, we are anticipating the need for tax increases,” Hammill said. “Not this year necessarily, but soon in the future.”
The city’s property tax rate has been $0.95 per $100 of assessed value since 2008.
One of the big questions is this Council’s willingness to proceed with school reconfiguration.
Hammill said $3 million was allocated to the school reconfiguration in FY20 to help with design. According to that budget, the purpose is for “architecture and engineering services and [to] determine preliminary designs and costs.”
Councilor Lloyd Snook said he was not sure how much direction he could give at this time.
“As a general proposition it’s hard for me to think of anything that’s more important that we do than educate our kids and we ought to be allocating significant resources to educating our kids but whether significant resources means $60 million over six years or $3 million next year and we’ll see or anywhere in between, I don’t know how to answer that question,” Snook said.
The West Main Streetscape has $18.5 million in approved funding, but the bonds have not yet been issued. Hammill said staff would be asking for another $8 million to complete the financing for the West Main project.
A value engineering study to bring the cost of the West Main Streetscape down is not ready. That project currently has a total cost estimate of $49 million though some of the four phases have been funded by the Virginia Department of Transportation. Council had a work session on this topic on September 30 and are expecting a report from RK&K about how adjustments can be made to save money.
Mayor Nikuyah Walker said she couldn’t make a decision until that information was ready.
As the budget work session came to a close, Councilors said they needed more time before making decisions on specific items. But let’s hear from three of them.
“There is no way that we’re getting out of this without cutting things that we all care about tremendously,” said Vice Mayor Sena Magill.
“This has to be put out to the community and they’re going to have lead that conversation with us given the scale of this investment and what it could mean to taxpayers,” said Councilor Heather Hill.
“I echo Councilor Magill’s point that I think that as well as in the context of COVID which is creating greater uncertainty for us in terms of our revenues could be worse than what we’re thinking, the composition of the Senate at the federal level should make us contemplate the reality that there will not be additional support coming from the federal government to bolster state and local governments,” Payne said. “Even if we assume tax increases, if we’re just taking an honest look at it, I think our only path forward is to look at some of our previously committed expenditures and evaluate what the trade-offs are and make cuts.”
Council will have another work session on the budget this Friday beginning at 1 p.m. Before that, they will have provided direction on whether to proceed with additional local spending for traffic calming efforts on 5th Street at their meeting on November 16.
Charlottesville City Council has endorsed an agreement that describes how a $5.5 million loan from the city to the Piedmont Housing Alliance will be used for the first phase of the redevelopment of Friendship Court.
“It has been over four years getting to this point and with a tremendous amount of work from in particular on the part of residents of Friendship Court and in particular the advisory committee at Friendship Court,” said Sunshine Mathon, the executive director of Piedmont Housing.
There are currently 150 rental units at Friendship Court, which was built in 1978 on land cleared through the urban renewal of Garrett Street.
“Resident-led redevelopment efforts propose a four-phase approach to replace all of the existing units and add additional residential units over the next eight to nine years,” said Brenda Kelley, the city’s director of redevelopment.
In 2019, Piedmont Housing was awarded funding from the Virginia Housing Development Authority through the Low Income Housing Tax Credit program to help finance the first phase of the project. The loan from the city helped make that application more attractive. The VDHA is now known as Virginia Housing.
“In total, the overall redevelopment proposes to construct approximately 450 new affordable units and more details to come before City Council in the future,” Kelley added. “This approach allows current residents to move directly into newly constructed units in each phase so that there is only one move associated with the relocation of residents.”
The first phase will be built where playgrounds and the community gardens have been. Mathon said the gardens will be relocated elsewhere within the development.
There will be 106 units, 46 of which will be new replacements for existing subsidized units at Friendship Court. The terms of the deal require the affordability restrictions to be maintained for 99 years.
“The item in front of you tonight provides for a master covenant that spells out the overall master plan requirements and also more specifically provides a separate phase one covenant that identifies the terms and the conditions for allocating the forgivable loan,” Kelley said.
In fiscal year 2019, Council allocated $5.545 million in capital funds to the project to pay for public streets, infrastructure, utilities, and affordable units for households with low to moderate incomes.
“The master affordable housing covenant will be recorded in the public records to provide assurances of affordability for the entire site,” Kelley said. “However, in the event of foreclosure, the affordability restrictions will terminate.”
Piedmont Housing will be required to submit an annual report. When the terms of the LIHTC funding are up, the city will have first right to lease or purchase units that are constructed. They’ll also have that right if the projects are ever foreclosed upon.
Piedmont Housing’s repayment will be deferred for 40 years as a forgivable loan, but if the nonprofit breaches the terms of the agreement, they will be responsible to pay for the full amount plus interest.
Part of the funding structure involves an agreement between Piedmont Housing and the Charlottesville Economic Development Authority.
“To help facilitate the financing of the project, Piedmont Housing has requested that the city consider an agreement that will share the incremental increase in real estate tax revenue generated by the investment,” reads the staff report for Council’s discussion. “With a commitment from the city to contribute the future revenue stream (as a grant), Piedmont Housing will borrow on this with a private lender to create the cash needed to begin the project.”
Mayor Nikuyah Walker was concerned about how this was set up given the number of other projects that will have the city paying to cover the costs if its own taxes, such as with Crescent Halls and South First Street.
“Essentially [Piedmont Housing] is taking out a $3 million loan for the gap funding for this and the request for the [Tax Increment Financing] would mean that the city would then forgive taxes up to the amount of the initial loan plus the interest that would accrue over the 30 year period,” Walker said. “Is there a better option than this arrangement where they’re taking out a loan that we will pay back anyway?”
Councilor Heather Hill said she thought this was a result of increased costs for the project.
“Things change,” Hill said. “There are a lot of moving parts, there are some inflationary costs in terms of the construction and that’s what I remember being like, you know, things were covered. Things are now not coming in like we thought. I remember sitting around a table with staff and another Councilor and that’s kind of where I remember that precipitating and then a lot of brainstorming going on to feel like what are some ways to get through this because we knew the city wasn’t going to be in a position to just outlay that capital outright.”
Walker said her caution is based on not knowing what future financial requests will be for the additional phases.
“I think these are two very important projects,” Walker said. “Of all the projects that I have voted on or not voted on that have been in front of us, and I’m just speaking for myself have looked at it, I think [CRHA redevelopment and Friendship Court] are going to take us to places and help us in ways that none of those other projects could do, and so it’s very important but I don’t think we’re looking at any of these projects in a fiscally sustainable way.”
Mathon said this approach was first discussed with city leadership in the spring of 2019. Phase 1 is being built atop a buried creek called Pollocks Branch.
“The site costs for doing work on Friendship Court continued to go in the wrong direction because of the soil conditions there being far worse than we originally anticipated,” Mathon said. “The proximity to the underground creek just caused site work to increase significantly and so we were trying to search for some additional source to cover that delta.”
Chris Engel, the economic development director, said these discussions occurred with Mike Murphy was interim city manager, before former city manager Tarron Richardson began work in May 2019.
This section of the discussion took place before Engel had a chance to give his staff report.
“What you’re going to hear about next in the performance agreement is a way to use the increment without the borrowing and it’s a mechanism that works and we’ve used it in a couple of cases,” Engel said. “This case is a little different in that it involves not a commercial interest, but commercial and residential, primarily residential but it can be helpful in funding something.”
Mathon said he believed this mechanism was in keeping with common practices. He gave a quick overview of how he believes capital budgeting works.
“The city has prioritized in terms of how it uses dollar on an annual basis out of its general revenue fund to pay for its priorities and it bonds a whole number of different items for infrastructure, schools, to pay for things it can’t afford in the short term,” Mathon said.
In this case, the $5.545 million the city is spending on the project will be paid for through the sale of bonds. All localities are evaluated by ratings agencies to determine their creditworthiness at paying bond holders over time. Charlottesville has a AAA bond rating which affords a lower interest rate. There are limits to how much a locality can borrow without jeopardizing that rating, and so the additional $3 million was above the city’s capacity. Hence the need to find a different way forward.
Walker said she was also concerned about the lack of details about phase 4. Mathon said it may take Piedmont Housing another year to begin to plan because of physical distancing protocols caused by the pandemic.
“In the schematic diagram that is included in the performance agreement, Phase 4 continues to be a bit of a placeholder because we are working in a co-design process with the residents,” he said. “Our focus on the last nine months, and COVID has complicated this of course, and has slowed down the process even further but our focus has been on the one hand preparing them and the community for start of construction and on the second hand we’re deep in the throes of final design of phase 2 so that we can apply for tax credits for LIHTC in March 2021 in a few months.”
Council reached consensus to move the loan to the consent agenda for the November 2 meeting.
Before we go, let’s hear one last time how the tax increment financing would work from Chris Engel.
“Essentially what the performance agreement does is use the tax increment that’s created by the project… PHA pays real estate tax that is assessed on the new project. And we would then transfer, the city would set aside as has been discussed, that amount to the [Charlottesville Economic Development Authority] and the EDA would grant back to PHA in this case 100 percent of the incremental taxes created by the project.”
The agreement has a 40 year term, but ends as soon as the EDA has granted a total of $6 million back to Piedmont Housing.
Walker voted for the agreement but said she still did not support it.
There will be a budget work session on capital financing in November, and interim City Manager John Blair said they could have a more full discussion about potential financing arrangements.
Councilor Michael Payne said he supported the agreement.
“I do think the timing is critical on these projects,” Payne said. “I do think that this has something that has helped made the project actually be able to come together and keep together the tight timelines for LIHTC applications and other funding sources and I do think that this is a real critical way to make sure able to be a a shovel-ready project that is able to happen.”
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