Updates from Letty – April 13, 2018 + FAQs

Blog posts are the personal views of Letty Hardi and not official statements or records on behalf of the Falls Church City Council  

Dear Friends,

City Council made several important decisions this week – we voted unanimously 6-0 for the Broad and Washington project and authorized the issuance of $24M worth of bonds for myriad of projects, including the final amount for the Mt. Daniel expansion, architecture and engineering for the library expansion, and tranche 1 of 3 bonds for a new George Mason High School.

This week’s blog post should be themed “just the facts, ma’am”. While I feel like a broken record about economic development, hearing from the community made me realize it may be beneficial to revisit FAQs and re-link to my archives to address common misconceptions I’ve continued to hear two years into my job. For longtime readers, I hope it’s a beneficial refresher and for new readers, I hope you read and click the links to see the empirical evidence yourself. Please share with friends and neighbors if you find this valuable!

Next week we have our final work session on the budget and will deep dive into opportunities to expand the senior tax relief program. Besides the social benefit of having a community of all ages, it also makes economic sense to have more balanced demographics, so I see many reasons to support expanding tax relief to help seniors stay in Falls Church. Also – note I’m having my final set of spring office hours next Monday at 9 am, The Happy Tart. If you’d like to discuss the Broad and Washington vote, budget, or other matters – I’ll be all ears then.


PS – If you have MEH students, I’ll be at the career fair today, so tell them to come say hello!


What Happened This Week:

(1) Broad & Washington Project

By a 6-0 vote, we approved the Broad and Washington project. While not perfect, this project has come a long way from 2015 and will bring many great things to Falls Church: a new class A office building to the city (the first one in nearly 10 years), 295 apartments, ground floor restaurants and retail, a new permanent home for Creative Cauldron, and a significant contribution to affordable housing. This is the first project in Falls Church with affordable provisions in perpetuity (ie, the affordability doesn’t expire after 20 years), plus a choice between the baseline policy of 6% of units to be affordable OR 5% of units, but with a different mix of units based on demand OR a choice for some/all units to be converted to cash for the Affordable Housing Fund, which has not seen new funding for many years. Affordable housing is typically one of the most expensive voluntary concessions (VCs) in development projects, so the perpetuity concession and the flexibility in converting units to cash both significantly up the game.

As I wrote about last week, there were several outstanding concerns re: the project. In the last round of negotiations that resulted in the final set of VCs – the term of the special expiration reverted back from 5 years to 3 years; commitment to LEED Gold with a performance bond; announcement of Kiddar Capital’s letter of intent to lease two floors of office – which gives us some certainty of usage; commercial usage square footage increased slightly, which boosted the final annual net fiscal impact numbers to $800K-1.1M. We spent a lot of time discussing the median cut to allow southbound N. Washington traffic to turn left on Park Place to access those businesses and the municipal parking lot for the nearby businesses. While I wish this could have been addressed much earlier after first reading last year (and it remains unresolved while we await VDOT approval of the median cut), we heard that it seemed likely to be approved well before the site plan phase.


Bottom line: because of large concessions to Creative Cauldron and affordable housing, the significant net fiscal impact, in addition to $2M+ capital contribution (ie, cash) for schools, libraries, and parks, a new office building with 311 new jobs/daytime workers that will bring further spinoff revenue to the city and hopefully jumpstarts other office projects in the city- I supported this proposal. Hopefully our approval sends a signal to developers that Falls Church is open for business and want to encourage a solid pipeline of projects with strong revenues, compelling uses, and significant benefits to community.

(2) FAQs

Based on concerns I’ve heard in response to the Broad and Washington project, I’m revisiting several FAQs about economic development:

Q: Why are you building more apartments? We don’t need more housing in the city.
A: Both of the newest buildings – West Broad and the Lincoln are 90+% occupied. The demand is there. There won’t be endless development of apartments because we’re constrained within 2.2 square miles and real estate trends are cyclical. I also think we’re not yet “maxing” out the amount of housing in the city. I also believe that given our location in Northern Virginia and the various accolades that are putting us on the map, we’re going to continue to experience population growth and therefore have housing needs. And to the point above, our city needs a more balanced demographic in order to be sustainable and independent, and small apartments have attracted a younger demographic to the city.

Q: Traffic is going to be terrible! We can’t have more development.
A: Yes this project will add some traffic, but to quote Monday night, it would be “a teaspoon in the large bucket” given that vast majority of traffic on our streets are cars coming/going through town. Did you know that nearly 1 million cars pass through the city each month? Only a small percentage of those are actually City of Falls Church residents. For the Broad and Washington project – the traffic consultant stated the the new project would add 3% to the total trips in the city.

Q: Ground floors are always vacant – why are we building more mixed use, only for them to be vacant?
A: While there are a handful of high visibility vacant spots, Falls Church has low vacancy rates, and much lower than our neighbors. Per the 2017 CAFR we reviewed in January, office has a vacancy rate of 8.3% (vs regional vacancy rate of nearly 20%). Retail vacancy rate is even lower at 2.3%. For new buildings, it often takes time for leases to be signed and a building to be fully occupied. One concession that Broad and Washington is offering – that I hope future projects will consider too – is a greater level of tenant improvement/fit out for their retail spaces (VC #3v). From the recent projects, we learned that a barrier to leasing space is the cost involved in building out the space. The Broad and Washington project will make it more affordable for a business to sign a lease in the building, therefore hopefully filling up faster too.

Q: There will be so many students in the building – why are we adding more students to our schools?
A: Contrary to common belief, only 8.5% of students (234) live in the new mixed use buildings, out of 2700 kids in FCCPS. Every year, the “where students live” chart comes out as a collaboration between FCCPS and the city. Pearson Square is the anomaly where the large condos turned apartments have a lot of pupils and offer clear lessons learned. The majority of kids live in existing neighborhoods or older developments, that are frankly still somewhat affordable. We can’t prevent the natural turnover that happens in neighborhoods – my own bus stop has ballooned over the years too.

Also of note is that there was relatively flat enrollment this year – only a 1.3% increase. Within that, we saw typical growth everywhere except a *decrease* in pupils living in older apartments – I suspect due to cyclical state department deployments, but I haven’t seen the analysis from the schools to confirm.

“Where Pupils Live” chart: https://www.boarddocs.com/…/Student%20Ratios%20per…

Q: How does this project help my tax rate?
A:  With every project we scrutinize the net fiscal benefit (which weighs operational costs against revenues). Broad and Washington will have some children, and we welcome them! (Between 41-61 pupils based on actual per unit ratios we’ve seen in other projects.) However the service costs are more than offset by revenues, resulting in a net fiscal benefit of $800k-$1.1M/year + additional capital contributions, $2.2M cash to the schools and additional to parks and library. That fiscal benefit is the equivalent of 2+ cents on the tax rate and allows us to provide school and city services without raising taxes as much as we might otherwise need to.

See here for the fiscal comparison of past mixed use projects in the past 15 years.

If you can’t get enough and want more reading, see last year’s set of FAQs

(3) $24M Bond Issuance

Also by a 6-0 vote, we authorized the issuance of $24M in bonds, which is one of the largest debt issuances in the City’s history. The $24M includes $11.2M for City Hall renovation, $6.5M for architecture and engineering for GMHS, $1M of the 8.7M for architecture and engineering for the library expansion, $1M for Larry Graves turf, and $1M for the firearm facility shared with Fairfax City. Because I believe it’s important for everyone to pay attention to this big responsibility of issuing debt – which has near term implications for your tax rate and far reaching implications to borrowing capacity and burden on future generations – I’m going to reiterate what I wrote last week.

There is some good news. This bond is actually $7M less than planned. Originally the GMHS bond was supposed to be $3M more, and $4M earmarked for acquisition of the Fellows Property has been pushed out until the legal proceedings progress. The FY19 budget includes the planned debt service for the original $31M bond. Note that this doesn’t mean we won’t need to bond the $7M in the future, so all this does is push out the amount of total capital debt (and therefore tax rate projections) shared since last summer. If we need to pay for less debt service this year, we’ll need to plan for that increased debt service (ie operating budget increases) next year. In general, I believe we should scrutinize all bond issuances so that we minimize the amount of the bond and bond only what’s needed at that point in time. While this decision already puts extra pressure on FY20+ budgets, a clear lesson learned from Mt. Daniel is that we should not prematurely take on debt and pay debt service before we need to!

The current budget implication is that with the bond being $7M less than planned, we won’t need to pay as much debt service in this year’s budget, about a penny less. 5.5 cents was the advertised tax rate for the current budget cycle, but only a maximum of 4.5 cents will be needed this year, although that penny of debt service just shifts out to FY20. WMATA remains the TBD right now while we await the General Assembly to respond to the Governor’s amendments, which will hopefully alleviate some of the burden to pay for Metro. (Remember, the current budget has a 2.5 cents “worst case” funding for Metro.)

(4) Other

You can see from this week’s agenda that we covered a number of other items that I won’t go into detail. Of note is the CIP, which is beginning to have a more forward looking view with a 10 year planning window. Included in that is a new request for $12M expansion at Thomas Jefferson Elementary in FY25. While we are about to start our big lift to build a new high school and other buildings right now, the quick important takeaway is that the work to build, maintain, renovate/expand city and school buildings is never done. When the GMHS project is complete, there will be other capital needs coming.


What’s Coming Up:

  • Next Monday, April 16 – Letty’s Office Hours – 9 am, The Happy Tart
  • Next Monday, April 16 – City Council Work Session – 730 pm
  • April 23 – City Council Meeting (final budget adoption) – 730 pm
  • April 27 – Campus Coordinating Committee meeting – 730 am, Central Office
  • May 7 – City Council Work Session – 730 pm