Second of a two-part series.
Charlottesville’s City Council is on the verge of approving a five-year $159.9 million Capital Improvement Program — the largest CIP in at least a decade — that is mostly unchanged from what was proposed in early February.
The $27.86 million capital budget for fiscal year 2022 is part of City Manager Chip Boyles’ proposed $192.2 million budget. The council will hold a public hearing on the spending plan Monday and vote on it April 13.
The overall five-year plan would help to redevelop Friendship Court, advance other affordable housing priorities, renovate the city’s General District Court and fund the reconfiguration of Buford Middle and Walker Upper Elementary schools, among other projects.
The city’s CIP has been steadily increasing in cost since 2018 as long-awaited projects started nearing construction. That includes Friendship Court and the Belmont Bridge replacement. In fiscal year 2017, the five-year plan totaled $76 million — less than half of the current proposed CIP.
The current program, as outlined, would deplete most of the city’s debt service fund and require “significant revenue enhancements” to cover the increased cost. A placeholder figure of $50 million for the schools reconfiguration is driving most of the increase.
The City Council has discussed capital spending over the course of several meetings in the last year, weighing which projects to prioritize and fund and which to push off, and coming to terms with the fact the city doesn’t have enough money to pay for all of its priorities. The inclusion of the $50 million kickstarted public conversations about how to pay for the reconfiguration project and how doing so would affect other capital priorities.
Krisy Hammill, a senior budget and management analyst for the city, has emphasized at several meetings that the proposed CIP is not affordable and maxes out the city’s debt capacity within a decade. That’s assuming all of the projects come to fruition on the current timeline and contingent on a number of factors.
“There are needs that are not addressed and have not been brought up in this conversation,” Hammill told councilors at a March 25 budget work session.
To pay for the plan, city staffers have suggested a 10-cent real estate tax rate increase spread out over five years, starting in fiscal year 2023. But that increase mostly would cover the reconfiguration project, leaving little room for other projects that could arise in future years.
The council approves a five-year capital spending plan each year, but only dedicates funding for one year at a time. Further years are included as projections.
After $6 million for the General District Court project, one of the largest line items in the fiscal year 2022 proposed capital budget is $2 million for infrastructure improvements at Friendship Court. Over the five-year CIP, the city is looking to spend $15.89 million on those improvements and redevelopment of the subsidized low-income neighborhood.
Because of the pandemic, the Piedmont Housing Alliance is about a year behind schedule on the four-phase redevelopment of Friendship Court. PHA’s executive director, Sunshine Mathon, said they have a clear path now to start construction in June or July.
The first phase includes the construction of three new buildings containing 106 units along Sixth Street Southeast, including multi-family homes and a 71-unit apartment complex. The units will be a mix of affordable and market-rate.
Mathon said the city’s funding of the project helped the organization to secure outside funding through the federal Low Income Housing Tax Credit program, which will cover the bulk of the costs for the initial phases.
“But the city’s portion is really important, because just using phase one as an example, we would not have won those LIHTC credits without the city’s contribution,” he said.
The city’s funding also helps to cover the difference between the cost of construction and available subsidies from other sources. Additionally, the $2 million in the capital budget will support building public streets and half of a new public park in the heart of the community, Mathon said.
“What it shows is that City Council and city staff are committed to the transformation and investment in our communities, Friendship Court specifically, but also more broadly in the public housing redevelopment, as well,” Mathon said. “It clearly is a priority. … This is an example of them putting their money where their mouth is. It’s direct support for the resident vision for the transformation of their community.”
Affordable housing projects make up 23.2% of the capital budget expenses while transportation and access projects comprise 30.4%. The CIP includes $13.5 million to redevelop Charlottesville Redevelopment and Housing Authority properties.
Funding the projects
By the nature of the CIP, projects can be on the table for years until funding is actually allocated and construction can start.
For example, a version of the West Main Streetscape project has been included in the five-year plan since fiscal year 2009. So far, the city has spent $3.2 million and allocated $18.5 million for the project, which has been a focus of council conversations this budget cycle.
The four-phase project has been in the works since 2013 and would cost about $52 million to redesign the corridor from Jefferson Park Avenue to Ridge-McIntire Road. State funding would cover the entirety of the third phase while an extra $6.5 million is needed from the city for the second phase.
At the March 25 work session, Boyles said the Virginia Department of Transportation supports doing the first three phases all together, even if that meant a delay of the initial phases. Starting July 1, the city has six years to complete the project or risks losing state funding.
The proposed plan doesn’t include any additional funding for the West Main project.
“I hope we can leave the $18.5 million that’s already been allocated and find the $6.5 million so that we can get it all done,” Councilor Lloyd Snook said at the work session.
The city has about $3.4 million in a contingency fund, which could cover some emergencies. Otherwise, the other option is to look at other projects and reprioritize because “we are stretching our limits,” Hammill told councilors at the work session.
The projects in the CIP are numbers on a page until it’s time to issue bonds or cut a check, Hammill said. At that point, projects are under way, and the council can’t change course.
Ryan Davidson, a senior budget and management analyst with the city, said the urgency with this budget cycle has come from the fact that due dates are drawing closer and that could create timing and funding issues if they are not met.
“But you’ve got to make those decisions because these are long-term big projects that you’ve got to start moving through in order to hit dates that are your timing dates that are three or four years down the road,” he said.
Capital projects are paid for through cash or bonds. By policy, the city transfers 3% of its general fund budget to the CIP every year. For fiscal year 2022, that would be $7,135,841.
For fiscal year 2022, the city is expecting to sell about $20 million in bonds, nearly double the amount issued in 2016, according to budget documents. The city’s debt service payments are also expected to increase from $10 million in 2022 to $22 million in 2028 under the proposed CIP.
For fiscal year 2022, which begins July 1, the city has about $13.3 million on hand to pay down its debt. City policy dictates that no more than 10% of general fund expenditures can go toward debt service payments.
Hammill said the city doesn’t issue bonds until construction is ready to start.
“As we start paying the bills, we’ll just pay that out of our bank account, and then we will sell bonds to actually reimburse ourselves,” she said. “So we don’t really ever sell a bond until the project is well under way, or we know that all the money will be spent within 24 months, and that’s due to IRS regulations for tax-exempt bonds.”
If projects that are funded by bonds don’t use all the money allocated, Hammill said those funds go back to the city’s debt capacity. If it was cash-funded, the money goes into a contingency fund that can be reappropriated to other projects by the City Council.
Hammill said the city has historically paid off bonds faster than they were issued, but that has started to change in recent years.
“But now our CIP is so accelerated, and that’s not because we’ve added a whole bunch of new projects,” Hammill said. “It’s because the projects we’ve added are big-ticket items, and so when we’re issuing bonds, we’re issuing it a lot faster than we’re paying off the old debt.”
Hammill said one way the city can save or prepare for these bigger projects is to either put more money into the debt service fund or use more cash to pay for projects.
City spokesman Brian Wheeler said that slotting in the $50 million is also a way the city is preparing for schools reconfiguration, adding that two of the three city managers who worked on the fiscal year 2022 budget felt it was important to have that placeholder included.
“I think in the past, the city might not have taken that approach,” he said. “… If we allowed other major projects to be approved that took away that capacity, then I think you could make the argument we weren’t saving space for the school reconfiguration. So I think that’s a big shift this year — just getting a placeholder number there that can continue this discussion as we get more information. You could have kicked the can down the road and said, ‘well, we don’t need to talk about that now,’ but that’s not what we did.”