[Archived] Question #15: What would it cost to provide funding for one new affordable housing development project annually?

Question A:

What would it cost to provide funding for one new affordable housing development project annually? If we were to commit to a base allocation of $8 million to support one affordable housing development project annually, what other funding, besides General Fund dollars, is available to make this happen?

Response:

The cost to provide funding for one new affordable housing development project annually would vary by project. The cost to provide funding for the Church of the Resurrection project would be $8.4 million. This project would require an additional $4.3 million, currently included in the unfunded Supplemental CIP. $4.1 million of funding is currently available in Housing’s projected FY 2018 budget. The table below shows loan amounts for three recent City -supported tax credit projects. The increasing subsidy amount reflects components of deeply affordable units (40% and 50% AMI) being included to meet housing need and to meet VHDA LIHTC priorities and make funding applications more competitive. 

*Housing Trust Fund (HTF), City dollars and City allocation of federal funds

If the City were to commit a base allocation of $8.0 million annually, the additional funding requirement would be approximately $4.0 million in addition to what is currently included in the FY 2018 proposed budget.

Typically, Housing has approximately $4.0 million available annually for affordable housing. These include a combination of General Fund dedicated real estate tax revenue (0.6 cents on the real estate tax rate)¹; federal HOME Investment Partnership Program (HOME) monies; and Housing Trust Fund (HTF) dollars, which are comprised of developer contributions and loan repayments.

In the proposed FY 2018 budget, the following monies are anticipated to be available for affordable housing development:  

Within the Housing Trust Fund allocation of new funds (the $2.0 million amount above), an estimated $250,000 is currently earmarked to provide a project-based rental subsidy for the FY 2018 City-supported Low Income Housing Tax Credit (LIHTC) development². This earmark would result in approximately $3.8 million of monies available for an FY 2018 City-supported LIHTC project, meaning an additional $4.3 million would be needed to achieve the hypothetical $8.0 million total referenced.  Given that a $4 million amount funded each year is over 1-cent on the real estate tax rate, another option would be not to provide additional funding which would mean a 80 to 90 unit project every other year instead of annually.  

It is noted that the LIHTC development in Housing’s pipeline for FY 2018 (the 113-unit Church of the Resurrection project) would need City gap funding of $8.4 million, plus rental subsidy dollars if a voucher allocation is not provided by the Alexandria Redevelopment and Housing Authority (ARHA). $400,000 of the $8.4 million has already been provided as a predevelopment loan. If the full FY 2018 $3.8 million cited in the previous paragraph was applied to the Church of the Resurrection project, an additional $4.3 million would be needed from General Fund dollars or some other source. The $4.3 million is not funded in the City Manager’s Proposed FY 2018 Budget, but is included as part of a list of unfunded capital projects in the unfunded Supplemental CIP.        

In the event the $4.3 million requested for the Church of the Resurrection redevelopment is not funded in the FY 2018 budget, to remain on track with its Housing Master Plan 2025 target (new affordability in 2000 units by 2025) Housing will try to advance its planned FY 2019 pipeline project on an accelerated basis through the development review process in order to have a City-supported project potentially ready to compete in the FY 2018 LIHTC cycle. The pipeline project is an 82-unit affordable housing development in the Bradlee area that is anticipated to need approximately $4.1 million in City loan support. This amount is within Housing’s on-hand FY 2018 budget. A Concept One plan has been submitted although no public outreach has occurred yet. The Alexandria Housing Affordability Advisory Committee (AHAAC) is anticipated to consider a predevelopment loan for the pipeline project later this Spring.  

If the pipeline project were to advance, it is possible that Church of the Resurrection might proceed in 2019 if the parties were amenable to the delay and a commitment to consider funding in a future City budget was provided.   

Based on Housing’s five year projections, it is estimated that approximately $4.0 million will be available annually for affordable housing development from federal HOME funds, HTF and non-debt service dedicated revenue (based on the continuation of the 0.6 cents dedication for affordable housing). This leaves a gap of $4.0 million to reach the $8.0 million target each year.

Question B:

What are the options to create a local rental subsidy program for families making 40% or less of area median income and what would they cost? If we were to create a local rental subsidy program of $250,00 need to support ten units for extremely low income households annually, would all $250,000 need to come out of General Funds, or is there state and federal funds that we can use for this purpose? 

Response:

The FY 2018 proposed budget includes $250,000 from the Housing Trust Fund for potential local rental subsidies. The amount of subsidies that could be provided would depend on the type of unit, household size, and level of subsidy.

The City’s plan is to work with ARHA to seek to secure from ARHA a limited allocation of housing choice vouchers annually which can be project-based in tax credit developments for which the City is providing support. This practice is routine in many Virginia jurisdictions, and helps safeguard affordable housing funds for development and preservation purposes, while using voucher resources to create deep affordability. In 2017, the priorities established by VHDA for tax credit projects provide a significant competitive advantage for developments where 10% of the units are deeply affordable (40% AMI and below) through a local rental subsidy or vouchers.

As outlined in the response to Question 1, above, there is an estimated $2.0 million anticipated in new Housing Trust Fund (HTF) dollars annually. In the FY 2018 budget a portion of HTF dollars ($250,000) has been reserved as a potential allocation for a local rental subsidy program for a City-supported tax credit project based on calculations staff has done regarding the cost to cover the difference between an affordable rent and a deeply affordable rent among different unit types and household sizes. While the actual amounts vary, as a rule of thumb, approximately $5,000/year would be needed to deeply subsidize a unit that is affordable at 50% AMI to be affordable at 40% AMI. For LIHTC purposes, at least five years of funds must be dedicated when the rental subsidy is pledged. The Office of Housing has planned for HTF to fund the local rental assistance subsidy as there are limitations on what sources can be used:  federal Community Development Block Grant (CDBG) and HOME Investment Partnership Program (HOME) funds cannot be used for project-based rental subsidies. In addition to the voucher allocation initiative with ARHA, the Office of Housing will continue to work with its non-profit partners to identify potential federal and state resources for rental subsidy. Some nonprofit developers have already indicated their willingness to use competitive state and national housing trust fund awards, if received, to additionally lower rents if their cash flow permits due to a lessened borrowing/debt requirement. 

¹For FY 2018, the 0.6 cent designated real estate tax is estimated to provide $2.3 million for affordable housing, of which $1.4 million is planned for debt service on affordable housing bonds (including a $4.4 million issuance approved in the FY 2017 budget for the Church of the Resurrection project and reallocated to the Carpenter’s Shelter development due to timing), $130,000 is planned to fund one Beauregard corridor affordable housing coordinator position, and $759,000 is available in cash.

²The City plans to work with ARHA in the coming months to seek to secure from ARHA a limited allocation of project-based housing choice vouchers from ARHA for future Alexandria LIHTC projects beginning in 2018. Due to ARHA’s limited budget authority, in FY 2017 ARHA was not able to provide a voucher allocation, so the City opted to provide funds to create project-based rental subsidies for two LIHTC projects (Carpenter’s Shelter and Lacy Court) since the deeply affordable component is needed to make projects competitive for tax credits.

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