Considering the cost of preservation

Editor’s Note: I just want to say that I love historic buildings and historic downtown areas like Old Town Winchester. Beautiful architecture and historic monuments can be priceless. This post should not be interpreted as “anti-rehabilitation of historic buildings” or “anti-preservation of American history.” What I did not understand until recently is what goes on behind the scenes of historic building rehabilitations and renovations. I did not know how much projects like that really cost, and I never knew who paid for them. I also never fully appreciated the expanding Historic zone and what that means for property owners and taxpayers. This article is a compilation of what I have learned about the use of historic tax credits in the City of Winchester.

Background information and how it all starts

Let’s say someone owns a house next door to historic Winchester and maintains it well. The property will appraise at a much higher value than if the building were permitted to fall into disrepair. The homeowner does not get tax credits for his continual upkeep on the house, nor does he get a break on his income taxes for maintaining his home. In fact, should he make improvements, he will have to pay higher property taxes.

His neighbor, on the other hand, lives in the Historic district and cannot afford to maintain or chooses not to maintain his historic house. The home falls into disrepair and is basically not suitable for habitation. The tax reassessment on his home will be lower. Unlike antique, well-kept cars that are exempt from higher property taxes in the City, antique well-kept homes have to pay the same property taxes as everyone else unless they qualify for real estate tax abatement. In fact, they have to pay the same tax rates while having to deal with extremely restrictive zoning ordinances and powerful local committees like the Board of Architectual Review.

Finally, the delapidated old house becomes a public nuisance due to vermin infestations and an unstable structure. The City labels it a “blight” and notifies the owner that he must submit a suitable spot blight abatement plan within a certain amount of time. The owner cannot afford to perform the necessary repairs or he chooses not to. Eventually it is likely that the property owner will either sell the property or lose it to the government who condemns the property and acquires it through eminent domain.

Sometimes it is cheaper and faster to simply demolish the old structure and build something completely new rather than attempt to renovate or rebuild using the old materials. In fact, it is probably always cheaper and faster. But suppose the government really doesn’t want to demolish the house. Let’s say it is very special to local preservationists and historians. Maybe it housed a famous person. Whatever the reason, the local government tries everything in its power to prevent demolition of the building.

This means that the more expensive route must be taken which involves acquiring the property and then rebuilding and renovating the house. Someone has to pay for it, and in order for someone in the private sector to take on a project of such magnitude and risk, typically the rewards need to be pretty lucrative. When purchasing a building in such bad disrepair, who knows what you might find as you sift through the mess, right? The investor must have the financial capital to pay a construction company to perform the work. When it comes to private sector work, most construction companies have learned that it is wisest to ask for certain costs to be paid upfront just in case the investor files for bankruptcy before the job is completed. Normally in the private sector, people would not be interested in these expensive projects except perhaps for reasons of philanthropy or personal interest in historic buildings and such. So, how do you attract someone to participate in such a project? Money.

Where the money comes from is a little complicated. We start with the government who doesn’t have the cash on hand to fund such projects but really wants to see them happen. Why they want to see them happen is also complicated–generally, though, it comes down to lobbyists. But the government has a pretty steady cash flow from income taxes, especially taxes paid by large, well-established corporations that likely aren’t going anywhere. What if the government can promise a corporation that if they rehabilitate an historic building, they won’t have to pay their $500,000 yearly income tax bill for the next 10 years? That is a lot of money the corporation gets to keep in their pockets…and the corporation will also have a valuable piece of property when it is all said and done.

But the average property owner in Frederick County is never going to pay $5M in income taxes, therefore such tax credits would not be worth the upfront cost of rehabilitating an historic building. This is where consulting firms like Brian Wishneff & Associates come in to find the big third-party investors who can actually use $5M in tax credits. As was previously discussed in the article on the Snapp Foundry building, John Willingham’s partnership was able to pay for the construction on the property with cash received by selling millions of dollars in tax credits. And until last month’s important court ruling, such a transaction was not taxed by the government as a sale.

The tax credit does not equal government spending per se, but it does mean reduced government revenue. The people directly profiting from this program are the developers and third-party investors. If government spending is not adjusted to account for the tax credits, the government will have to go further into debt or raise revenues elsewhere (ie. taxation). The average Virginia citizen is not eligible for tax credits for maintaining or rehabilitating his home or business (unless he plans on spending gobs of money “green-ifying” the property.) The average Virginia citizen is not eligible for real estate tax abatement. Historic tax credit programs are not designed for the average person. It is a market geared toward huge corporations and wealthy developers, which is understandable considering the cost to rehabilitate old buildings is very high.

Putting historic tax credits to work in Winchester

In April The Winchester Star featured an article celebrating $86.5M of private investment in the City of Winchester. (The number touted was $100M when adjusted for inflation.) What it failed to reveal was the amount of tax credits funnelled into the City for rehabilitation costs, nor did it mention the loss of real estate tax revenue thanks to the City’s tax abatement program. The idea behind the tax abatement program (which is like a local form of tax credits) is that the City will see a return on its initial investment (the loss of potential real estate tax revenue) through the revitalization of the area that is so dependent on the rehabilitation of that particular building. In other words, by giving up five years of real estate tax revenues now, the City will be so markedly improved by the rehabilitated property that new tax revenues in the form of increased sales and higher area assessment values will more than make up for the initial cost of abated real estate taxes.

But are the benefits of these rehabilitation projects worth the cost? Can monetary value be placed on aesthetics and historicity? Does the City really see a return on its investment? Do the tax credits encourage extravagance rather than efficiency and innovation? These are questions not answered by this post, but hopefully the information within it can help readers come to rational conclusions.

9 Court Square

According to Karen Helm, executive director of the Old Town Development Board, the watershed project for downtown investment seems to have been Farmers & Merchants Bank-Winchester’s renovation of seven buildings at 9 Court Square in the mid-1990s (The Winchester Star, April 12, 2011). The “Wilbur M. Feltner Building,” located just south of the Old Courthouse Civil War Museum, was dedicated in honor of the F&M Bank President and current trustee emeritus at Shenandoah University.

In 1994, Mr. Feltner announced plans to renovate the property.

According to a FY 1995 SEC document, on April 11, 1995, F&M Bank-Winchester acquired from the County of Frederick property located at 9 Court Square consisting of land and buildings in exchange for 2 parking lots of equal value:

In order to expand our downtown F&M Bank-Winchester operation, we traded property with Frederick County, Virginia, and acquired the historic Frederick County Court Square offices. These offices are now being renovated, along with a city parking lot located on North Cameron Street. We also acquired the vacant Solenberger Hardware Store building and lot. This lot, along with the city parking lot, is being made into an employee parking lot.

In the same document, a letter written to shareholders, customers and friends stated:

The land transactions that we had with Winchester and Frederick County are now complete and the renovation of 9 Court Square, which is due for completion around Labor Day, will afford us the additional space we need since we have outgrown most of our banking departments. We anticipate moving F&M Bank-Winchester’s Trust and Credit Card Departments to the new location.

The project was completed in 1997. As reported by The Winchester Star and Don Swofford FAIA, historic tax credits played a key part in the rehabilitation project of 9 Court Square, which is now valued at $3.2M. How big of a part remains to be seen–it probably requires a few phone calls. Maybe later.

On April 1, 2011, the Feltner Community Foundation announced that it would donate the 9 Court Square buildings to Shenandoah University, making it the University’s largest-ever property gift. For more information, see Shenandoah University’s article here.

Lewis Jones Knitting Mill Building

The former knitting mill building at 126 North Kent Street is now the corporate headquarters for OakCrest Builders Inc. and OakCrest Properties LLC.

In August 2005, OakCrest Cos. owner James Vickers purchased the property for $1.1M. The project development began in October 2005 and was completed in February 2007. According to Mr. Vickers, the cost of the renovation including land acquisition was $6.5M. OakCrest received $2.5M in tax credits, according to an article in The Winchester Star (Erica Bush, April 23, 2007). Frazier Associates provided full architectual services and assistance with the historic tax credit applications for the financing part of the project. Howard Shockey & Sons was the general contractor.

According to the City’s Revitalization Marketing presentation, the old assessed value of the property was $574,700 and after a $4.2M renovation, the new assessed value is $2,756,400. Along with historic rehabilitation tax credit incentives, the EDA provided below-market land conveyance.

Handley High School

The school recently went through a massive renovation project that cost about $72M. Depending on the source you look at, the project received anywhere from $2M to $5M to $10M in historic tax credits.　

On November 24, 2010, Danielle Nadler reported for The Winchester Star that according to Winchester Public Schools Executive Director Kevin McKew, the project received $2,026,279 in historic tax credit funding. (This may refer to the cash received from the sale of tax credits to third-party investors.)

According to a 2010 convention document posted by the National Federation of Urban-Suburban School District (Charlottesville, Virginia), the project received $5M in historic tax credits.

TV3 Winchester reported the same number on October 4, 2009:

The project was funded through municipal bonds provided by the city and $5 million in historic tax credits.

However, according to an article in The Roanoake Times on October 3, 2010, that number was much higher:

In 1895, Judge John Handley left $1.6 million in a trust to the city of Winchester for education. John Handley High School opened with money from that gift almost 30 years later.

The historic school just completed a $72 million renovation and expansion project following a capital campaign, [Montgomery County school board member Joe] Ivers found in his research.

The school district hired a director of fundraising for three years to tap into its alumni base. It collected about $8 million, said Winchester schools Superintendent Ricky Leonard.

Mostly, the project was funded with $50 million from a bond on the city that required a property tax increase and about $10 million in historic tax credits.

The general contractor for the project was Howard Shockey & Sons.

George Washington Hotel

Like the Snapp Foundry rehabilitation, this project deserves an article all to its own. Maybe one will be posted soon. In the meantime, here is a summary…

According to the City of Winchester, the hotel renovations were completed in April 2008 for a total cost of $20.5M. The general contractor was G.W. Development LLC. For at least the next five years, if not ten years, the hotel’s increase in assessed value ($8.3M) will be exempt from real estate taxation. To help finance the project, developers received historic tax credits, New Market Tax Credits, and an EDA Business Development Grant.

A simple phone call to the Virginia Department of Historic Resources revealed that $5.3M in state historic tax credits were issued to the developer.

Based on information from the National Park Service (which involved a more complex phone call adventure), the final submitted rehabilitation cost eligible for the federal historic tax credit program was $21,542,325. The program issues tax credits for 20% of the cost, so that means the project received about $4.5M in federal historic tax credits.

According to the US Department of the Treasury, the New Market Tax Credit Program permits “individual and corporate investors to receive a tax credit against their Federal income tax return in exchange for making equity investments in specialized financial institutions called Community Development Entities (CDEs).”

The credit totals 39 percent of the original investment amount and is claimed over a period of seven years (five percent for each of the first three years, and six percent for each of the remaining four years). The investment in the CDE cannot be redeemed before the end of the seven-year period.

In turn, CDEs make loans and equity investments in commercial enterprises located in qualifying low-income rural and urban census tracts (Source):

“It’s a shallow subsidy if you just take it in the simplest form,” explains Joseph Flatley, CEO of Massachusetts Housing Investment Corp., which has closed several deals in which NMTCs were applied. “But it can be used within a leverage structure that can cover a significant portion of the project. For example, if you have a project with a million-dollar gap between what it costs and what it’s worth, NMTCs can fill that gap by 25 percent. So it’s a valuable tool.”

How many New Market Tax Credits were actually allotted for the project is not clear. Since the process is much more complicated and involves additional parties, an accurate figure is difficult to come up with at this point.

In addition, the City gives up a minimum of $280K in real estate tax revenue. That very conservative estimate is based on the 2009 property tax rate and 5 years of real estate tax abatement. It is not clear how long the real estate tax abatement lasts for the property. It is also not clear what the cost of the EDA Business Development Grant was for the project.

Lovett Building

The Lovett Building was built in 1900 and is located at 163-165 North Loudoun Street. Renovations on the building were completed in April 2010 by OakCrest Companies. The Lovett Building’s first floor now has office/retail space and one apartment, and the second and third floors have apartments. They are beautiful but a bit pricey: $900 per month for a one bedroom, one bathroom, 705 sq. ft. apartment.

According to Brian Wishneff & Associates’ official website, the cost for the Lovett Building project was $1M and the sale of historic tax credits reaped $300K.

James Heffernan reported for The Northern Virginia Daily (March 14, 2009):

OakCrest purchased the property in July 2005 for $525,000, and will put an estimated $600,000 into renovations.

The project will also take advantage of approximately $240,000 in historic tax credits through the Virginia Department of Historic Resources.

It is odd how OakCrest purchased the property for $525,000 and yet the City of Winchester’s “old assessed value” was $203,700. Anyway, according to the City, the new assessed value is $602,900 and the renovation and related costs were $295,000. It is not clear why the City’s numbers are not matching up to the numbers from the Wishneff group or The Northern Virginia Daily article.

In addition to the historic tax credits, this property became eligible for the City’s property tax abatement program.

Snapp Foundry Building

On June 29, the Winchester Watchdog wrote an exhaustive article, which has been recently updated, regarding the rehabilitation of the old Snapp Foundry building on North Cameron Street. The general contractor for the project was Howard Shockey & Sons.

To summarize, approximately $10M in tax credits went into the project. The property’s $2.5M increase in value is exempt from real estate taxes for a number of years. The City has a contract with the property owner for 15 years, paying $40,000 per month in rent for the Department of Social Services office.

Solenberger Co. Building

Prior to renovations, the City assessed the 142 North Loudoun Street property’s value at $372,600. According to an article in The Winchester Star by Vic Bradshaw (July 16, 2010), “Old Town Investments bought the [former Jno. S. Solenberger Co. hardware store] building in 2004 for $365,000, according to city records.”

Then, in July 2010, Shenandoah University paid $550,000 to Old Town Investments LLC for the property.

On February 24, 2011, Brian Wishneff & Associates reported that they had been “engaged by Shenandoah University to manage the tax credit process for its renovation of the historic Solenberger Building in downtown Winchester, Virginia into graduate student housing.” They list the sponsoring group as Shenandoah University and the estimated cost of the project at $3.5M. Apparently $1.3M in cash payment from the sale of historic tax credits has been received.

Howard Shockey & Sons Inc. was selected as the building contractor for the project. According to Shockey project manager Steve Knight, as reported by the Martinsburg Journal, the project would cost in excess of $2M and the University housing would be expected to open in August 2011.

In addition to historic tax credits, the property is eligible for the City’s property tax abatement program.

And last but not least…

Old Taylor Hotel

A full article about the hotel’s progress is available (click here), but this is an excerpt of the latest developments:

In January 2011, talks begin between City Council and Erik Wishneff regarding options for financing the renovation.

In March, according to The Winchester Star, a public-private partnership is proposed between the EDA and Taylor Hotel LLC for the $3.7M hotel rehabilitation project (which includes land acquisition) that could be partially funded with Community Development Block Grant money (at least $890,000 of it). Translation: taxes. The alternative–demolition–is estimated to cost $600,000.

After a closed meeting during their March 22 work session, City Council votes to forward an ordinance “to authorize the City Manager to execute the proposed agreement with the Winchester EDA for the redevelopment of the Taylor Hotel property and to take necessary acction to secure the I08 Loan in furtherance thereof, and allocate additional funding in the amount of $650,000.00 as a grant to the EDA to be used for the redevelopment of the property.” (Councilor John Willingham abstained from voting.)

According to The Winchester Star, the partnership would lease the pavilion and open space (what is currently the middle of the building) to the city for $42,500 annually until the commercial loan to be obtained to finance the property’s redevelopment is paid down to $600,000. Then the leased area would be conveyed to the city. The city would have to provide a $650,000 grant to the EDA for the project which would likely come out of reserve funds. Also, the partnership “will receive a Vacant Business Development Grant from the EDA – a refund of a portion of its tax payments. That money will be used to reduce debt.”

According to a March 26 article in The Winchester Star:

The $3.7 million project cost includes property acquisition, and [Jim] Deskins [executive director of the EDA and economic redevelopment director for the city] said that price might be renegotiated because the project has been scaled down from Wishneff’s initial plans.

The Wishneff group, which could not be reached for comment Friday, would provide $1.15 million for the project.

The city’s CDBG money would add another $1 million, and the city government would provide a $650,000 loan to the EDA to be used for the development.

The remaining $900,000 would be borrowed by a partnership to be formed between the EDA and the Wishneff group, with each side responsible for half of the loan.

According to the agreement, the Wishneff group would be responsible for any cost overruns.

On April 12, 2011, City Council hears the first reading of O-2011-11. According to City Attorney Anthony Williams, minor adjustments were made to this ordinance.

In May, City Council votes 8-0 to approve the public-private partnership for the rehabilitation of the Taylor Hotel. On May 16, The Northern Virginia Daily reported that according to the agreement “the developer, Wishneff LLC, and the EDA each will hold a 50 percent stake in the project.”

On June 30, The Winchester Star reports on another company expressing interest in purchasing the property should the Wishneff-EDA deal fall through:

Harry Gormas and Hunter Hurt, the architect who previously designed plans for the building for Lafayette Plaza LLC, have submitted a letter of intent to buy the historic structure if that deal fails and said they’re prepared to submit a backup contract.

Mr. Hurt is a member of the Board of Zoning Appeals and a past member of the Board of Architectural Review.

Presently, the Brian Wishneff & Associates website lists the Taylor Hotel as a current project with an estimated cost of $8M and a cash payment from sale of HTC of $2M. The website still lists Lafayette Square LLC as the sponsoring group.

So far it appears that at least $1.65M in tax dollars will go to the project — $1M in Community Development Block Grant money and a $650,000 loan from the City to eventually be repaid by the EDA. The EDA will also be responsible for repaying $450,000 in debt towards the project. Oddly enough, it appears that to pay down the loan amount, the EDA will issue the partnership (between Taylor Hotel LLC and the EDA) tax refunds. Perhaps that is an inaccurate interpretation, but the financing of the project is still as clear as mud.

Preservation through prosperity–is it real?

The Virginia Department of Historic Resources has a lovely PDF file titled “Prosperity through Preservation” that no doubt was incorporated on the local tour conducted this spring. The claim that rehabilitation projects create jobs resonates throughout the country. For example, Renee Kuhlman wrote for Forum News (April 2010):

Preservationists have made the point for years that rehabilitation projects create jobs at the local level and that state tax incentives make these projects economically feasible. Now new studies are supporting their arguments and lawmakers are paying attention.

“Historic preservation projects create jobs, especially in the manufacturing, retail trade, services, and construction sectors. In FY 2008, projects approved for federal tax credits had average budgets of $4.58 million and generated 55 jobs each,” claims the Advisory Council on Historic Preservation.

Richard Moe, president of the National Trust for Historic Preservation, wrote in 2009:

Nationally, there is overwhelming evidence that rehab tax credits are job-creators. Studying projects in Missouri, economist Donovan D. Rypkema found that 6.3 more jobs are created through rehabilitation than through manufacturing. Rutgers University also examined the impact of Missouri’s historic preservation tax credits and found that between 1998 and 2001, the state garnered 6,871 jobs and $60 million in tax revenues (including $25 million in state and local taxes) — an astonishing four-to-one return on the state’s investment in the tax-credit program.

But rehabilitation is typically not cost effective which is why most major historic building projects require massive tax credit incentives to encourage private investment. Without those tax credits, private investors would likely have put their money into some other venture, creating jobs there instead. What these folks are claiming, however, is that job numbers are created by tax credits rather than just shifted from one sector of the economy to another.

One can’t help but wonder if this isn’t all some fabulous example of the broken window fallacy. The idea that neglected, delapidated properties can be used to “create jobs” and boost the economy is one that stands on a rather shaky foundation. Based on this reasoning, it is better for the economy if someone allows their building to fall into ruin so that it can go through a massive, expensive renovation rather than spend the considerably smaller amount of money just maintaining the property every year. And common sense tells us that this simply isn’t true.

The Millwood Debate

Everything you could possibly want to know about it and then some…

The Winchester Watchdog hasn’t touched this because it didn’t look like it was needed. Various local media outlets have rigorously covered the debate, and citizens have actively engaged in the debate through local online and public forums. However, when readers request more information the WW typically will oblige.

One local resident asked, “Has anyone ever looked into the relationships that members of the planning commission and decision makers have with the University and Board of Trustees?”

Looking at relationships is very tedious and time consuming. And just because there appears to be a relationship on paper, it doesn’t mean there is one in reality. That being said, however, sometimes things will catch your eye and make you go “Hey, wait a minute…”

TABLE OF CONTENTS

Lead Story (Page 1)

Key players in Millwood plans (Page 2)

List of the individual “Decision Makers” (Page 3)

Government and University Ties (Page 4) UPDATED

Public Debate (Page 5)

Local coverage and discussions on Millwood Proposal (Page 6)

Well, folks, it looks like this Millwood plan has been in the works for nearly a decade. Shenandoah University just had to wait for a more sympathetic City Council. According to Planning Director Tim Youmans, a previous effort to close the stretch of road in 2002 was met with opposition by the City Council, which approved a resolution specifically against it on December 10 of that year. But things changed in September 2009 with a Memorandum of Understanding between the City and Shenandoah University leaders. According to The Winchester Star, two of its points called for them to “work together on examining and improving traffic flow around the intersection and creating a new entrance to the city and university from Millwood Avenue.” Vic Bradshaw reported on May 13, 2010 in an article titled “Committee wants to study closing Millwood near SU“:

Creating a new entrance to Winchester and SU from Millwood and improving the traffic flow around Jubal Early and Millwood were two of the five projects city and SU officials had in mind when they signed a memorandum of understanding Sept. 21.

And on May 14, 2010, J.R. Williams reported for The Northern Virginia Daily:

Exploring the issue was among items in a memorandum of understanding between the city and the university recently approved by City Council. […]

City Planning Director Tim Youmans said using the stretch of Millwood solely for entrance to the university has been discussed.

“That’s just one idea,” he said, but the study will provide guidance. “City council said, before we go out and take action to close it, they wanted to have this traffic study done.”

The Traffic Study

On March 2, 2010, the Winchester-Frederick Metropolitan Planning Organization (Win-Fred MPO) Technical Advisory Committee (TAC) held a meeting that included a discussion on the Fiscal Year 2011 Unified Planning Work Program (UPWP) draft. During the discussion, Jerry Copp, VDOT maintenance manager for the Edinburg residency, reported that

he has attended several meetings with the University and the interim Winchester City Manager in regards to [the portion of Millwood Avenue located in front of Shenandoah University.] He stated that the University is proposing relocating the Millwood Avenue entrance. Mr. Copp stated that he received a letter from the Winchester City Manager requesting VDOT to perform a study. Mr. Copp stated that the cost of the study would be in the range of $75,000 and he has not been successful getting the approval from VDOT to perform the study.

It was obvious from the meeting minutes that MPO member Jim Deskins really wanted to see this study go forward, and considering that he has been working with SU President Tracy Fitzsimmons to increase the presence of Shenandoah University in Old Town Winchester, it’s no surprise. Mr. Deskins is also Executive Director of the Economic Development Authority for the City of Winchester.

During the TAC meeting, Mr. Deskins stated that the City is concerned with safety issues in the area and several other critical issues, not just related to Shenandoah University. His motion to forward a request to the Policy Board approving the use of local technical assistance funds to begin the RFP [Request for Proposal] process for the Millwood Avenue Study was approved by the committee. (A Request for Proposal is basically an invitation to companies to bid for a job, such as studying traffic patterns of a particular location.)

During the May 11, 2010 TAC meeting, Chris Price of the Northern Shenandoah Valley Regional Commission stated that the Policy Board requested that the TAC review the RFP and make a recommendation to them in May. He also stated that the deadline in the RFP would be changed.

At the May 19, 2010 Policy Board meeting, Mr. Price informed the group that the TAC had reviewed the RFP and recommended approval. Mr. Dehaven (who appears to be on the Project Steering Committee) requested that the Project Steering Committee lead the Study. Visitor Richard DeBergh asked how the project would be funded, and Mr. Price referred to the FY 2011 UPWP. He said that the study is a work task in the UPWP with a budget of $75,000. The RFP can be viewed here. Originally the consultants were tasked with only developing two scenarios: no improvements or access changes versus closure of Millwood Avenue.

On June 16, 2010 Mr. Price gave an update on the Study to the Policy Board. Thirteen proposals had been received and would be reviewed on June 30th by the Project Steering Committee who would decide on which consultants to interview.

A long discussion took place during the July 13, 2010 TAC meeting over the selection of Gorove/Slade since they were not the low bidder. According to Chris Price, the reason the Project Steering Committee chose that particular company was because “their presentation had the strongest stakeholder participation process and they made a point to recognize the University as a unique animal and thus needed to be treated as one.” He also discussed Gorove/Slade’s relevant project experience and references.

During the July 21 Policy Board meeting, Mr. Price gave an overview of the consultant selection process for the Study. Four of the proposals were submitted by local firms, and the lowest cost proposal was not interviewed due to errors and the scope of work did not conform to the request. John Willingham stated he would like the Board to use local firms as often as possible but the recommended firm was the leading selection. Richard Shickle expressed his concern in regards to the consultant selection process and subsequently voted against the motion approving Staff’s recommendation of Gorove/Slade Associates. Mr. Riley also voted against the motion.

The study was completed near the end of 2010, and a final draft can be viewed here at the Win-Fred MPO website.

One thing made perfectly clear was that “Safety was stressed by all stakeholders as the primary focus.” Considering that the entire reason for the Study was to determine the short- and long-term traffic impacts associated with the proposed closure, let’s look at that, shall we?

According to the Study, “the potential closure of Millwood Avenue could impact traffic flow on the commuter route between the I-81 Interchange or arterial streets east of the City and downtown Winchester.” Also, “the amount of traffic that uses Millwood Avenue between Jubal Early Drive and Apple Blossom Drive is significant, representing 44% of the traffic traveling into the City on Millwood Avenue. A slightly less percentage is seen in the reverse movement from downtown towards the East. The evening split is not as high to downtown, which is likely due to the influence of retail-based traffic on overall traffic patterns.”

When looking at key intersections, the Study found that “the potential closure of Millwood Avenue could lead to increases in delay at these key intersections, since a significant amount of drivers travelling toward downtown use the section under the study.”

During commuter peak hours, a Level of Service grade of “E” is considered to be at capacity and “F” is considered unacceptable:

Well, what about pedestrians?

According to the Study,

The amount of pedestrians crossing the area along the stretch of Millwood Avenue under consideration for closure was not collected, as observations indicate that few pedestrians cross in this area.

What about car accidents?

The crash data shows that the vast majority of crashes occur at intersections, with rear end collisions representing the majority of accident types. No pedestrian or fatal accidents were among the police reports provided by the City.

The highest intersection crash rates were at Millwood Avenue/Pleasant Valley Road with 3 crashes per million entering vehicles and Jubal Early Drive/Pleasant Valley Road with 2 crashes per million entering vehicles. According to the Study, “transportation engineers consider a crash rate over 1.0 a concern and over 2.0 as a significantly high rate where further study is needed.”

The principal crashes at these intersections are rear end collisions. This is typical at signalized intersections, where rear end collisions are a large percentage of the total crashes. Rear end collisions are generally caused by following too closely or by driver distraction. Speed certainly plays a factor in rear end collisions as the higher the speed, the larger the following distance that is required to stop without collision and the greater the potential severity of the crash.

Left turn crashes are the next highest crash type at these intersections. Failure to yield was noted in many of the crash reports as the reason for the crash. The skewed geometry of the Millwood Avenue/Pleasant Valley Road intersection could be a factor in the very high crash rate at this intersection. Skewed geometry results in longer turning distances, so turning vehicles are in the path of oncoming traffic longer and turning drivers may misjudge the appropriateness of the gap in oncoming traffic for making the turn. For this reason, along with others, skewed intersection geometry should be avoided.

Most crashes in the study area occurred at the intersections outside of the immediate area of the Millwood Avenue section contemplated for closure. The crash history showed nine total crashes during the 2006 to 2009 period at Millwood Avenue/Apple Blossom Drive with a rate of 0.5.

Based on the computer simulation, the intersection at Hampton Inn & Millwood Ave will be far worse under the proposed closure, now and in 2035. The intersection at Jubal Early Dr & Apple Blossom Dr will presumably be better under the proposed closure, but that assumes the closure will include signal timing improvements at the intersection in conjunction with the addition of the free-flow right-turn lane. Also the 2035 projection assumes that the signalized intersections in the study area would be retimed in order to account for future projected growth. How much better would the intersections be if the City kept Millwood Avenue open while still improving signal timing and adding a free-flow right-turn lane?

Common sense tells us that the more cars you cram in an area with less alternatives, the more congested remaining intersections and roads will get. Perhaps the authors of an editorial piece in The Winchester Star put it best when they wrote:

Blocking Millwood, we admit, will reduce confusion – and, perhaps, accidents – at the I-81 “chokepoint” near the Bob Evans Restaurant by funneling all traffic onto Jubal Early. On the other hand, the elimination of Millwood as an option – a safe option, may we add, comparatively accident-free – means all 36,000 cars passing through that intersection each day will be obliged to travel on Jubal Early where more accidents have occurred. What’s the advantage, in terms of safety and traffic flow, to placing all such vehicles onto Jubal Early?

There seems to be this false dichotomy in the Study that either something is done with Millwood and improvements are made elsewhere or nothing is done with Millwood and no improvements are made elsewhere. Obviously this was done on purpose by the folks who commissioned the Study in the first place.

How about keeping Millwood open and making needed improvements to intersections on Jubal Early, Apple Blossom, and Pleasant Valley? But that would mean Shenandoah University would not be able to acquire public land for its private use.

Changing Tactics

As was already shown, the stated primary purpose of the traffic study was safety. This was confirmed in public news and discussion. For example, Christopher Bean of Stephen City, (maybe the same Christopher Bean who is Director of Shenandoah University’s Libraries?) wrote in a Letter to the Editor of The Winchester Star on February 11, 2011:

The primary reason for considering the relocation of Millwood Avenue is traffic safety. No amount of directional signage or speed limit signs is going to alleviate the problem with this very confusing and dangerous roadway.

And on April 6, 2011, Alex Bridges reported for The Northern Virginia Daily:

“The overall takeaway from all this, we’re looking beyond just a delay and level of service for vehicles,” said Tim Youmans, Winchester’s planning director. “We’re basically saying we want to create a safer situation, and certainly the traffic light at the Hampton Inn-Beltone location provides for the safe pedestrian-bike movement for the university students and what will hopefully be a growing number of people using the Green Circle trial.”

On April 22, 2011, The Winchester Star published an article titled “SU plans gateway entrance to school,” but Jim Vickers, the chairman of SU’s Board of Trustees, was adamant that safety was the number one priority:

While aesthetic improvements are envisioned, Vickers said the SU trustees’ main concern is vehicular and pedestrian safety.

[…]

“The driving point, the major concern, always has been safety for pedestrians and cars,” he said. “That’s a concern for the university and the city.”

But the traffic study clearly showed that pedestrian safety is not a problem on that stretch of Millwood Avenue. Vehicular safety is also not a problem on that stretch of road. In fact, it is a much safer alternative to taking Jubal Early Drive.

The SU President, however, thinks otherwise. On June 11, 2011, Alex Bridges reported for The Northern Virginia Daily:

SU President Tracy Fitzsimmons spoke to local media at her office Friday afternoon and released new renderings by architectural firm Van Yahres Associates that depict how the area targeted for closure may appear should the city approve the proposal.

Officials have expressed concerns about the safety of pedestrians walking from the Vickers Communication Center to the area of the Ohrstrom-Bryant Theatre.

“That’s the part of Millwood Avenue that’s really a raceway,” Fitzsimmons said.

In addition to solving the traffic and safety issue, the architectural firm sought to create “a more aesthetically pleasing, inviting, beautiful entrance to Winchester and the university,” Fitzsimmons said.

“You should first be welcomed to the city,” Fitzsimmons said. “When you get to the entrance of the university you should be welcomed to the institution.”

And in a Letter to the Editor of The Winchester Star on June 20, 2011, SU Trustee CJ (Carol) Borden wrote:

Safety of SU students is my main concern. SU now has students who live across Millwood Avenue from the main campus, and with the converging of roads, it is an unsafe area for SU students to cross over to the main campus.

In addition, entering Winchester from I-81 onto Route 50W, from the viewpoint of a stranger to the area, is not an attractive entrance, and definitely not a welcoming one. By closing Millwood, a much more attractive entrance could be designed.

As became increasingly clear in the local news this spring and summer, the focus was less on safety and more on asthetics. Yes, safety remained a “goal” (although there is no evidence that safety has ever been a problem on that stretch of Millwood Avenue), but now the big push is for a “grand entrance” to the City, and particularly for the University.

As reported by TV3 Winchester on June 30, 2011:

[Vice President for the Advancement of SU, Mitch] Moore says having a more attractive entrance and allowing the University to prosper allows the city to prosper as well.

Even a City Planning Commissioner felt the need to comment on the motives behind the Millwood proposal. Alex Bridges reported for The Northern Virginia Daily (July 2, 2011):

Planning Commission Chairman Nate L. Adams III questioned the motive and need to close the section of Millwood Avenue just to improve the entrance to the city. [SU Board of Trustees Chairman Jim] Vickers acknowledged the university could do so without closing Millwood, but he said the result would be less appealing.

It is obvious what has happened here: the City and the University have planned to close Millwood for nearly two years and they simply wanted to find justification that was palatable enough for the public to accept.

Pages: 1 2 3 4 5 6

Local coverage and discussions on Millwood proposal

This is not an exhaustive list by any means. If readers come across additional coverage, they are asked to submit it via comment or email.

City planning group considers options for closing avenue – The Northern Virginia Daily (May 14, 2010)

Regional planners to study road closure – The Northern Virginia Daily (May 20, 2010)

Deal sought for traffic study – The Winchester Star (July 22, 2010)

Open Forum: At the (Malfunction) Junction – The Winchester Star (September 18, 2010)

Our View: Starting point – The Winchester Star (September 18, 2010)

The Millwood Avenue closure debate – The Pibbster’s Pub (September 18, 2010)

Letters to the Editor: Endorses closing of Millwood – The Winchester Star (September 29, 2010)

Proposed changes to Millwood Avenue are being studied – The ‘Doah (November 11, 2010)

Setting record straight on Millwood – The Winchester Star (November 27, 2010)

Review of Millwood Avenue closure plan near completion – The Northern Virginia Daily (December 31, 2010)

Millwood Avenue study to be posted – The Winchester Star (January 4, 2011)

Report recommends Millwood closure – The Northern Virginia Daily (January 13, 2011)

Consultant: Part of Millwood Ave. should be closed – The Winchester Star (January 13, 2011)

City hashing out road-closing plan – The Northern Virginia Daily (January 20, 2011)

MPO stance on road expected soon – The Winchester Star (January 20, 2011)

Consultant proposes closing short stretch of Millwood – The ‘Doah (January 25, 2011)

Letters to the Editor: A matter of safety – The Winchester Star (February 4, 2011)

Open Forum: A Millwood solution – The Winchester Star (March 17, 2011)

Millwood Avenue report to be presented – The Winchester Star (April 4, 2011)

City officials concerned over Millwood proposal – The Winchester Star (April 6, 2011)

No action on Millwood Ave – The Northern Virginia Daily (April 6, 2011)

SU plans gateway entrance to school – The Winchester Star (April 22, 2011)

Our View: ‘Win-win’ . . . – The Winchester Star (April 23, 2011)

Students can help close Millwood Avenue – The ‘Doah (April 24, 2011)

Millwood Avenue proposal goes to Winchester City Council – The Northern Virginia Daily (April 27, 2011)

Area business wary of proposed Millwood Avenue closing – The Northern Virginia Daily (April 28, 2011)

SU’s President Speaks Out on Millwood Avenue Proposal – TV3 Winchester (June 1, 2011)

Opinion: Setting the record straight on Millwood – The Northern Virginia Daily (June 2, 2011)

SU: We’ll pay for Millwood work – The Winchester Star (June 3, 2011)

SU Proposing a Relocation of Millwood Avenue – TV3 Winchester (June 10, 2011)

SU president: Close part of Millwood Avenue – The Northern Virginia Daily (June 11, 2011)

SU shares vision for Millwood – The Winchester Star (June 11, 2011)

Letters to the Editor: Disgusted with SU about gateway, City’s entrance confuses drivers – The Winchester Star (June 20, 2011)

Businesses worry about Millwood effect – The Winchester Star (June 29, 2011)

SU Makes Case for Millwood Relocation – TV3 Winchester (June 30, 2011)

SU pitches Millwood plan to city officials – The Northern Virginia Daily (July 1, 2011)

Letters to the Editor: Rest of the story – The Winchester Star (July 6, 2011)

Ongoing discussion: Millwood closure – Winchester-Live.com (September 21, 2010 – Present)

Tax credits and taxpayers: Funding the Snapp Foundry building

Note: Scroll below for updates interspersed throughout the article. Last update July 8, 2011.

Several readers have recently asked about the $40K/month rental situation of the Department of Social Services office at 24 Baker St. that was mentioned in Winchester Watchdog’s very first newsletter. This article provides a basic timeline of events regarding the Our Health Community Campus on North Cameron Street, and it includes information about the companies involved in the property sales, renovation and rental income.

One reader forwarded correspondence from Councilor Evan Clark regarding the Social Services’ rent of the renovated Snapp Foundry building. According to that correspondence, the contract negotiations “began well before John [Willingham] was elected.” The City “had several options to choose from and the former location needed millions of dollars to be ADA compliant, and even then it was not big enough.” He also wrote that “the old building needed HVAC plumbing, electric and I think a roof. Long story short, the other options sucked. They were more expensive, and they were too small.”

The Frederick/Winchester Health Department is located at 10 Baker Street which is owned by the same company that owns 24 Baker Street: North Cameron Properties LLC (NCP).  

Council member John Willingham’s 2010 Statement of Economic Interests states that “North Cameron leases space to City of Winchester” and the “City of Winchester leases [illegible] of this space to Virginia.” Mr. Willingham owns “33% of it in an LLC which has majority ownership of NCP.” That LLC is probably OTSS.

Based on the City of Winchester’s Proposed Annual Budget for Fiscal Year 2011, the projected revenue from the Health Department Rent Reimbursement is $252K. This is an increase from the FY2010 Amended Budget amount of $121,500. And during FY2008 and FY2009, the yearly rent reimbursement amount was $12K. (The rent reimbursement may include the Environmental Health office on 107 N. Kent St.)

According to his 2011 economic interest disclosure forms, Mr. Willingham holds a 25% interest in NCP as a developer and owner. He is listed as the sole agent on the company’s state business license.

Mr. Willingham’s 2011 Statement of Economic Disclosure also states that the Social Service’s “annual lease is $480K and covers all expenses” but “annual income cannot be estimated as first year of lease.”

[update]2002

The City of Winchester receives “a $924,000 Community Improvement Grant from the Virginia Department of Housing and Community Development.” (Yup, that’s money taken from Virginia taxpayers.) One specific contract activity financed by the grant was the “construction of a 30,950 sq. ft. Our Health facility.”[end of update]

2003

Phase I, the construction of the $4.2 million Our Health, Inc. facilities at 301 – 329 N. Cameron is completed.

The registered agent for Our Health Inc.’s business license is J. Sloan Kuykendall III at 210 S. Cameron St. On the business license, John Bork is listed as the Secretary, John Capehart is listed as the COB, Hunter Gaunt MD is Vice-Chair, and Sharen Gromling is named Executive Director.

The registered agent for Our Health Community Enterprise, Inc.’s business license is William A. Truban Jr. at 103 N. Braddock St. John Capehart is the President, Don Butler is Secretary, William P. Hottel is the Treasurer, and Susan Jones is named Director.

2005

According to a June 2006 City newsletter, between June 2005 and June 2006 the City “continued active partnership with Our Health and plans to relocate the Winchester Department of Social Services to the new Phase II health and human services campus on North Cameron Street (when complete.)”

2006

John A. Willingham was appointed to the City of Winchester’s Planning Commission in December. (He resigned two years later when he started as a City Council member.)

2007

Phase II Expansion project of health care campus begins some time this year.

On October 27, 2007 in a Geneology.com forum, Mr. Willingham wrote:

My investment group is working on acquiring the property on 415 North Cameron Street which formerly housed the Snapp Foundry. As part of the acquisition we are trying to obtain photos of the site, building, etc for the purposes of rehabilitating the site and obtaining historic tax credits. If anyone has any photos they can share please let me know via my email address: johnwillingham1@yahoo.com. we have one photo circa 1940 or so from the handley library archives. any help is appreciated in advance.

On December 18, 2007 the Planning Commission was presented with a request for the rezoning of .926 acres of land at 401 N. Cameron St., 403-415 N. Cameron St. and 10 Baker St. It was basically an extensive proffer amendment. Mr. Willingham and Planning Commissioner Nate Adams recused themselves from the discussion. Mr. Willingham recused himself because he owned the land in question through his company OTSS LLC. It is not clear why Mr. Adams recused himself from the discussion.

Originally the property was zoned for a 24-unit townhouse development, but Mr. Willingham instead wanted to reuse the existing structures for office space. Part of his rezoning request was that the property be included in the National Historic District “which could open up the rehabilitation efforts to some available tax credits.” The request was approved 5-0-2.

Mr. Willingham also owns (or is at least the registered agent for) Cameron Development Inc., Willingham Enterprises, Cameron Ventures LLC, Cameron Lender 1 LLC, and Cameron Lender II LLC. Cameron Development Inc.’s business license lists three Vice Presidents: John Willingham and Erik M. Wishneff and Brian Wishneff of Brian Wishneff & Associates.

According to Winchester’s online tax records, it appears that the properties at tax map# 173-1-L-11- (lot consolidation L-11,12,13) were sold by Dogwood Development Group LLC (Ray F. Smith Jr of McLean,VA) on 12/15/2008 to NCP for $1. It is difficult to say exactly what happened there. Perhaps that was the lot consolidation. Or perhaps the tax assessment website is not accurate. It is not clear.

2008

According to City Council meeting minutes (January 8):

During 2007, the city worked diligently to explore the feasibility of relocating Social Services which has outgrown the aging office building it occupies on Boscawen Street. Former City Manager Ed Daley worked with community partners and others to promote the Department’s co-location with other service providers at the Our Health Campus. When completed, the project will rehabilitate over 30,000 square feet of vacant property, and contribute significantly to the revitalization of North Cameron Street.

From IRS 990 forms, it appears that it was during this year that Our Health Inc. partnered with North Cameron Properties LLC.

For Our Health Inc.’s IRS 990 forms (2007-2009), click the picture below:

[update] During their June 19th meeting, the Board of Architectual Review [BAR] discussed NCP’s request to recognize exterior changes submitted to the Department of Historic Resources [DHR] and Secretary of the Interior for the Snapp Foundry building. The request was tabled until a copy of the submittal was presented to the Board. Mr. Willingham was not present at the meeting. Here is an excerpt of the minutes:

[Zoning & Inspections Administrator Vince] Diem explained that he asked the applicant to come and bring a copy of what he has submitted to the DHR and the Sec, of the Interior but they are not present.

[BAR member Lawrence] Belkin felt that anyone that is planning to make changes in the historic district should have to come before the local BAR because they would know and understand the landscape and surroundings.

Mr. Diem explained that there is nothing in the Ordinance that requires the applicant to come to the BAR first.

[BAR member Mark] Lore agreed with Mr. Belkin that DHR will only look at the standards not at the streetscape. He felt that the Board still has a role in the decision making. He asked what would happen if its something that the local community would have issues with.

Mr. Belkin stated that this could become a trend, that if someone felt that the local board wouldn’t grant a favorable verdict that they could take this route. He felt that the local Board should be the first notified as it is the most important.

[BAR member Lawton] Saunders explained that it is done this way for tax credit reasons. He didn’t feel that the Board understood the phases of which this process takes, its very lengthy. The DHR will not make a final decision until the work is done. If there is something that they don’t like they will make them change it.

Mr. Belkin stated that its still not a good idea to by-pass the local BAR. [He then motioned for the request to be tabled. The motion carried 6-0.]

On July 3rd, the BAR considered NCP’s request again. By the time Mr. Willingham’s turn came around, however, only three BAR members remained at the meeting: Lawrence Saunders, Mark Lore, and Tom Rockwood. Planner Will Moore presented the plans that had been sent to DHR and the Secretary of the Interior. Without a quorum present, the Board could not act on a Certificate of Appropriateness [COA], but Mr. Saunders suggested that they could grant conceptual approval and have the applicant come back for a COA. Mr. Lore motioned to grant a conceptual approval of the design details with the condition that Mr. Willingham come back before the Board for materials and colors. The motion carried 3-0.

Then July 17, 2008, the Board of Architectual Review again considered NCP’s request. BAR members Belkin and Lore were absent from the meeting. Here is an excerpt of the minutes:

Mr. Saunders stated that he was unclear as to what they needed to do. At the last meeting a conceptual approval was given to allow for the building permit.

Mr. Diem was also unclear as to why a final approval was needed. He stated that he is unaware of any new material being submitted.

Mr. Saunders stated that the conceptual approval was enough for Lafayette Plaza to get what they needed in order to start their work. He suggested granting a Certificate of Appropriateness for the general design scheme and reserve the decision for the colors and materials at another time.

It was moved by P Farris, seconded by T Rockwood, to grant a Certificate of Appropriateness for BAR-08-55 for the conceptual design, stipulating that all subsequent details related to renovation be submitted for approval.

Motion passed unanimously 5-0.

It is not clear if “all subsequent details related to renovation” were ever submitted for approval. [end of update]

Mr. Willingham ran uncontested for City Council this year. He was elected as the Fourth Ward representative.

2009

In January, Mr. Willingham officially began his position on City Council.

Renovation of the health care campus was completed during this year.

On August 18, during the Finance and Administration Committee meeting, Interim City Manager Robert Noe presented a motion to forward to Council a resolution regarding contract with OTSS, LLC/North Cameron Properties LLC for the Department of Social Services new offices. Mr. Willingham recused himself from the discussion. Councilor Les Veach moved to send the resolution forward to Council. The motion was seconded by Councilor Milt McInturff then approved 6-0-1 with Councilor Willingham abstaining. (As a side note: on the 2009 IRS form for Our Health Inc., Milt McInturff is listed as a Director.)

On September 8, the City Council was presented with a motion to adopt a resolution regarding contract with OTSS, LLC/North Cameron Properties, LLC. Mr. Willingham recused himself from the discussion. Mayor Elizabeth Minor moved to approve the resolution, the motion was seconded by Vice-Mayor Michael Butler, and it was unanimously approved by voice-vote.

On November 5, at a Board of Architectual Review (BAR) meeting, Mr. Willingham requested approval for sign installation and parking lot lights at 401 North Cameron St. Here is an excerpt of the minutes:

[BAR member Lawrence] Belkin stated that the building looks brand new. There does not seem to be anything historical about it. He asked what part of the structure made it eligible for tax credits.

Mr. Willingham explained that the facade on Cameron Street is identical to the original building, everything else is new.

In Mr. Belkins opinion, this example shows why it is problematic to allow DHR to make all the design decisions within the historic district where tax credits are concerned. They were only interested in the Cameron Street facade not the Baker Street side. He felt this board would have handled the situation differently.

[update thru 2010 section] On December 23, according to The Winchester Star, the Department of Social Services moves into the building at 24 Baker St.

2010

In January, the Winchester-Frederick County Health Department moves into 10 Baker St.

In the spring, the Child Advocacy Center and the Clarke, Frederick, Winchester Foster Family Division move into 411 N. Cameron St.

Project Financing

According to Rebecca Layne’s article for The Winchester Star, “Health Care Agency Continues to Grow, Consolidates Campus” (June 10, 2010):

The Phase II construction, renovation, and relocation of the agencies cost about $10 million and covers about 34,000 square feet in building area. The property was financed by the sale of historic tax credits and through the New Market Tax Credit and Lending Program. […]

North Cameron Properties LLC and Our Health Community Enterprises Inc., a for-profit affiliate of Our Health, are the owners of the foundry building, which was built in 1890. Its assessed value is $3.1 million.

Howard Shockey & Sons, Inc. was the general contractor for the Phase II portion. Phase I of the project was the construction of the $4.2 million facilities at 301-329 N. Cameron – completed in 2003. Phase III will include Our Health officials advocating a one-stop shopping health-care model across the state and throughout the nation. The total Our Health campus contains 60,000 square feet of space.

According to The Summit Studio, Our Health’s Phase II involved:

$6,500,000 renovation of the 63,000 square foot historic Snapp Foundry into Winchester Health department including clinic and lab; Department of Social services, Legal Aid, and workforce training.

LEED Silver Certified project

Historic tax credit project that also received new market tax credit funding

It is not clear exactly how many local, state, and federal tax dollars have actually gone into this project.  [update] It is also not clear how much the project cost: $6.8M or $11.2M? One possibility is that the initial estimated costs were inflated in order for the project to be eligible for more tax credits, but the final cost was actually much lower which meant that most if not all of the construction costs were covered by cash received from the tax credit sales. [end of update] Local taxpayers are definitely footing the Social Service department’s $480,000/year rent, and state taxpayers are footing the Health Department’s $252,000/year rent (at least a portion of this is for 10 Baker St.) Also, Our Health Inc. has requested $25,000 in funds from the City for Fiscal Year 2011.

[update]

More detailed information about the health campus financing can be found here although it is not clear who exactly was involved: Brian Wishneff & Associates or Enterprise Community Investment or both? [end of update] Enterprise Community Investment included the project in its portfolio and wrote:

The project will be financed using a combination of debt and tax credit equity, with Enterprise providing $10 million of New Markets Tax Credit (NMTC) allocation. U.S. Bancorp Community Development Corporation is the New Markets and federal historic tax credits investor, and the Prudential Insurance Company of America is the state historic tax credit investor. United Bank is providing a mini-perm loan and a bridge loan to the project.

Veronica Gorley Chufo (“Investment Paying Historic Dividends” – January 25, 2008) wrote:

The Historic Rehabilitation Tax Credit Program, managed by the Department of Historic Resources, allows property owners to receive a state tax credit of 25 percent of eligible expenses for approved restoration work on certified historic structures.[…] “Virginia has one of the most progressive tax-credit programs in the nation,” Historic Resources spokesman Randy Jones said.

According to Preservation Virginia (APVA),

Placement on the Virginia Landmarks Register and the National Register of Historic Places not only allows a structure to be recognized for its historic and architectural significance, but enables the owner to apply for rehabilitation tax credits. The rehabilitation tax credit program provides a wonderful incentive for restoration by providing a tax credit on approved restoration work.

Rehabilitation Tax Credits provide a dollar-for-dollar reduction on income taxes for property owners who rehabilitate historic buildings. Credits can be obtained through the State of Virginia and federal government. The amount of the tax credit depends on the rehabilitation costs. The federal program provides a 20% tax credit on eligible rehab costs. The state tax credit provides a 25% tax credit on eligible restoration costs. The state and federal tax credits can be combined if the taxpayer qualifies for both programs given a 45% tax credit on eligible expenditures.

The New Markets Tax Credit is over 30% (sometimes as high as 39%) for companies and individuals who invest in commercial projects in qualifying commercial districts. The terms for real estate are up to 25 years and for equipment seven years or useful life. It was created by Congress in 2000 with the intent to stimulate business development in low- and moderate-income communities.

[update] In addition to the tax credits, the increase in property value due to the rehabilitation (nearly $2.6M) is exempt from real estate tax for a number of years. [end of update]

How do tax credits work?

Hopefully this is explained correctly. If not, please post a comment below explaining the problem.

Okay, you’ve heard about people receiving food stamps and selling them to buy cigarettes, right? For example, they might sell $1 food stamps for 25 cents each. The person who buys the food stamps can now purchase food for only 25% of the actual cost. The store is reimbursed the full cost of the food stamps by the government. And ultimately the taxpayers have subsidized someone’s cigarette purchases. It’s insane, but it happens all the time.

Well, tax credits work in a somewhat similar manner. The government might issue someone $100 in tax credits. This means that when April 15 rolls around, he can subtract $100 from the amount he owes in taxes. Tax credits are much more financially lucrative than deductions. Just think about the Earned Income Tax Credit. That’s one of the heftiest forms of wealth redistribution in the country.

Anyway, so Joe Shmoe takes his tax credits and sells them to John Doe for 25 cents on the dollar. When John Doe’s tax bill comes around on April 15, he deducts $100 cash from the amount he owes. He has just kept $75 in his pocket thanks to those tax credits.

Is the government actually handing out cash? Not necessarily. In this case the government is simply reducing its potential tax revenue. But remember, John Doe’s neighbor Bob Smith is still paying 100% of his own tax liability costs. So some people are having to carry more of the tax burden than others. And if spending is not cut to compensate for the tax credits…well…you get the idea.

Now, let’s look at these building development tax credits. The government awards a tax credit of $10M for a renovation project, for example. The developer needs cash now in order to pay construction costs. So he sells the $10M tax credit for $5M to a large corporation who makes its money in keeps more money in its pocket thanks to the tax credit market.

That large corporation can now subtract $5M from its tax liability, and the developer has $5M in cash to renovate his property.

[update] Andrew Shahidi, writing for BKD Insights, described the way the tax credit is used as a financing source  (February 2010):

A developer would invite an investor looking for tax credits to invest in the project to receive the credits. The investor makes a capital contribution, and the developer can then use the monies to pay for construction-related activity. Once work is complete and the building is placed in service, tax laws require the investor to remain a partner/member for a fixed amount of time (five years for the HRTC and 15 years for the LIHTC). However, once that mandatory period is complete, the investor typically exits the partnership or limited liability company.

Tax credits are purchased as a fraction of each dollar of credit received by the investor. Prices throughout the years have ranged from 60 cents of capital contribution per $1 of credit to $1 or more per credit dollar. Furthermore, most deals that qualify for federal investment tax credits also may qualify for various state investment tax credits, which may enhance the economics of the overall transaction. [end of update]

From an accounting perspective, tax credits are like government spending although cash may not actually be flowing out of the government coffers. Some people just see it as a revenue reduction (like taking a pay cut). But to balance the budget, in order to offset the tax credits the government must do at least one of two things: raise taxes and/or cut spending.

In the background of all this there is someone potentially pocketing a lot of money, at least in the form of a renovated, valuable property–the developer. And, potentially, it can be an especially lucrative investment when one has over $730K a year in rental contracts with government agencies and a partnership with a non-profit that owns over $4.5M in unrestricted net assets and received over $2M in public funds between 2005 and 2008.

June 27, 2011

Note: This was brought to my attention by a County resident who has been outspoken about the TDR ordinance and the Comprehensive Plan for some time.

According to the Comprehensive Plan document, the draft was “guided by the Planning Commission through the efforts of the Comprehensive Plans and Programs Executive Committee (CPPC), and with the assistance of many others.”

The [CPPC] members collaborated with a large group of citizen volunteers to form working groups whose goal was to update the various chapters of the Comprehensive Plan.

The working groups and the CPPC could justifiably be considered “advisory agencies” and their members “officers.” Virginia state law defines an advisory agency as

any board, commission, committee or post which does not exercise any sovereign power or duty, but is appointed by a governmental agency or officer or is created by law for the purpose of making studies or recommendations, or advising or consulting with a governmental agency.

and an officer as

any person appointed or elected to any governmental or advisory agency including local school boards, whether or not he receives compensation or other emolument of office. Unless the context requires otherwise, “officer” includes members of the judiciary.

According to Virginia’s Conflict of Interest law (§ 2.2-3115):

B. Nonsalaried citizen members of local boards, commissions and councils as may be designated by the governing body shall file, as a condition to assuming office, a disclosure form of their personal interests and such other information as is specified on the form set forth in § 2.2-3118 and thereafter shall file such form annually on or before January 15.

[and]

F. In addition to any disclosure required by subsections A and B, in each county and city and in towns with populations in excess of 3,500, members of planning commissions, boards of zoning appeals, real estate assessors, and all county, city and town managers or executive officers shall make annual disclosures of all their interests in real estate located in the county, city or town in which they are elected, appointed, or employed. Such disclosure shall include any business in which such persons own an interest, or from which income is received, if the primary purpose of the business is to own, develop or derive compensation through the sale, exchange or development of real estate in the county, city or town. Such disclosure shall be filed as a condition to assuming office or employment, and thereafter shall be filed annually with the clerk of the governing body of such county, city or town on or before January 15. Such disclosures shall be filed and maintained as public records for five years. Forms for the filing of such reports shall be prepared and distributed by the Secretary of the Commonwealth to the clerk of each governing body.

Translation: Members of the Comprehensive Plan working groups and the executive committee are officers of advisory agencies and are required to submit a disclosure form of their personal interests including real estate holdings.

However, according to County Administrator John Riley, members of the Comprehensive Plans working groups were not required to disclose their economic interests including local real estate holdings.

Perhaps that can be remedied. And wouldn’t it be wonderful if the County would save everyone the headache by posting such disclosure statements online for public perusal, especially considering such forms are public documents anyway?

But just in case the County does not do this, and does not make such statements of economic interest readily available upon request, the Winchester Watchdog has taken on the project of figuring out as many of these interests as possible.

Check the “Good Ol’ Boys” post for more information as it becomes available.

The Tyranny of Historic Zoning

I am sure most of my readers are well aware of how I feel about zoning laws. In the name of…well, I’m not sure what their reasonings are…the government uses zoning to control what people can and cannot do with their private property.

This particular rant comes about because I recently found out that in order to build a small fence around my front yard, I must ask permission from my local government and pay a permit fee. I find this to be rather oppressive. In interpersonal relationships, we call this coersion and abuse. In government-citizen relationships, we call it zoning and city code.

Several weeks ago a Winchester business owner told me about a city meeting he attended this spring where a father was drilled to the nth degree over a railing and gates he wanted to put up to protect his young daughter from strangers passing through his property. I remember expressing disgust over this, but then the City (and the County) went on to do more obnoxious things and the man’s story was filed away in the dusty back part of my brain. My own personal fence issue brought his situation to the forefront of my attention again.

Because this man’s property has been zoned “Historic District” (something he has no control over, by the way), any time he wants to do anything to his property, he must submit a plan to the Board of Architectual Review (BAR) for approval. In order to install a railing on his front porch and gates at each end of his property, this City resident had to take time out of his day to stand before six board members and ask permission. After explaining to the board that the gates are for security and that people have been walking through his yard and skateboarding on his porch, he described his plan to install solid cedar gates. Here is an excerpt of the minutes from that meeting:

[BAR member Tim] Brandyke was concerned with the weight of the driveway gate. Even cedar would be heavy with panels that size and will sag over time.

Everything sags over time.

He suggested rollers on the bottom of the doors or some sort of support on the back side of the gate.

[The property owner] explained that the driveway slants. He did not think rollers would work there but the supports were a good idea.

[BAR member Tom] Rockwood was concerned about putting railing up on a porch that did not have it there to begin with. He asked if there were any historic photos of the house.

Seriously, what the hell? Pardon my French.

[The property owner] stated that he had not seen any pictures of the house but he was sure that the concrete porch was not original to the house.

Like any of that should matter. It is HIS HOUSE!

Mr. Brandyke stated that he had no issues with the railing whether it was there before or not;

Oh thank you, your Highness.

however he suggested using a wider turned baluster. He asked that once the type of railing was decided on that it be brought back for review and approval.

Chairman [Patrick] Farris moved, seconded by [Don] Crigler, to grant a Certificate of Appropriateness to BAR **-*** with the following comments:

The north gate handle will be black metal (if any), the south gate design can be either of the ones submitted and metal posts are acceptable. Conceptual approval of the porch rail was given. The applicant must return with samples and dimensions of balusters for final approval. Motion passed unanimously 6-0.

Well, wasn’t that gracious of them?

I spoke with someone who attended another BAR meeting where a property owner was informed that she had to remove her newly installed windows and replace them. Here is an excerpt of the minutes:

[The property owner] stated that she was not aware of the historic designation when she replaced all the windows and threw the originals away. The train noise is an issue; the vinyl windows mitigate the noise and vibration.

Well, who cares about her noise problems? All that matters is that her property looks the way the government says it must look!

Collectively that [sic] Board was concerned with property owner awareness.

Personally, I am concerned with government high-handedness.

Chairman Farris suggested that more be done to educate the public such as sending letters to local contractors and real estate offices. In regard to the train noise, he explained that the Board is not responsible for noise in the district; they could only speak to materials and design.

Maybe the City police can issue the trains with citations for violating noise ordinances.

Mr. Crigler stated that 2/2 windows would be the appropriate design for this house. She would need to replace at least the ones that can be seen from the street.

Is anyone irritated yet or is it just me?

The Board unanimously voted that the property owner’s vinyl windows fronting the street are to be replaced with wooden windows to match the original. I was told that the lady was given a year to comply.

 

“Zoning makes business activities and housing more expensive, but the greater cost of zoning is moral. In essence, zoning grants a cadre of public officials and favored private citizens the free exercise of state power to force their designs on the use of someone else’s property. This process trivializes the individual’s basic right to self-determination.”

~ James D. Saltzman, The Freeman August 1994

 
Recommended reading: Economist and author Thomas Sowell’s 1992 article in Forbes magazine.

What lies beneath the agenda to control growth

A permanent solution to a temporary non-problem

Conservationists, preservationists, agriculturalists and their supporters in local government have been pushing, successfully, for increased government intervention in the real estate market that will likely result in artifically-inflated rural land values and increased traffic congestion in government-designated Urban Areas.

The Conservation Easement Authority (CEA), for example, pushes for tax dollars to be spent locking up land in perpetuity under easements and PDRs (purchase of development rights) which will decrease supply of available land for development, effectively causing prices to rise. For years the CEA has been chock-full of folks who have only one thing in mind: locking up land and giving their agricultural companies special privileges. For example, until 2011, Jim Lawrence of the Valley Conservation Council served on the CEA. Other CEA members include Diane Kearns and John Marker of the Preservation of Rural Life in Frederick County, John Gavitt–a Potomac Conservancy donor and former board member of the Lost Rivers & Cacapon Land Trust, and Shenandoah Valley Battlefields Foundation member C. Robert Solenberger. The Frederick County farmers on the CEA take advantage of tax incentives and receive imaginary, yet sellable, housing development rights courtesy of the TDR program. And let’s not speak of the burden on County services courtesy of their migrant workers and the amount of subsidies these farmers receive from the USDA (courtesy of taxpayers). That is for tomorrow’s newsletter.

The scare tactic used by these special interest groups to justify permanent prevention of land development is that as human populations grow, land is lost forever: Say good-bye to farmland, forests and open spaces.

Except in catastrophic events like meteors hitting the earth or tectonic plates shifting or nuclear facilities exploding, land is not “lost.” Residential development does not permanently encumber land. As we have seen in Detroit, a quarter of the city is nothing more than vacant lots, and the government has spent millions of dollars demolishing tens of thousands of buildings over the years.

There is no rural land crisis in Frederick County. As of November 2009, 7600 acres of Frederick County land was in some form of preservation that prevents further subdivision. The Virginia Outdoors Foundation alone, as of May 2011, holds 23 easements in Frederick County for a total of 4,564.76 acres and two easements in the City of Winchester for a total of 115.27 acres. Also, in the last 15 years, the number of cattle has increased 13% and acreage dedicated to forage has increased 38%. Frederick County is still the number one apple producing and peach producing county in Virginia. 89% of the County is Rural.

The state of Virginia also has no land crisis. According to the Department of Conservation and Recreation’s Virginia Conservation Lands Database, as of August 2009 nearly 15% of Virginia’s land is “currently protected.” The former governor’s goal of preserving 400,000 acres of land was reached, and the current governor has set a new goal of preserving an additional 400,000 acres by 2014. Of the nearly 3.7 million acres preserved in Virginia, 95% is held by the government (federal, state, or local).

And if we look at this from a national level, there is no farmland crisis in the United States. As Randal O’Toole wrote in his November 18, 2009 policy analysis for the Cato Institute titled “The Myth of the Compact City,” less than 40% of the billion acres of America’s agricultural land is used to grow crops, and only about 100 million acres or so of America’s land is occupied by “urban areas.”

Samuel R. Staley, PhD, wrote a January 2000 policy brief published by Reason Public Policy Institute that exposed the fallacy of the argument that residential pressures are destroying agricultural lands. He pointed out that 74% of the decline in cropland had nothing to do with urbanization but rather from “structural changes in the agricultural industry.” In fact, he found that cropland acreage remained stable despite reductions in the amount of land in farms, and agricultural activity was at all-time highs. And most farmland conversion is not to residential development but rather to non-urban uses such as forests, pasture, range land and recreation.

Local government goals are “anti-family”

When I say, “anti-family,” I don’t mean the government is actively trying to hurt families, but rather local government is trying to make it less attractive for families with children to move into the area. Welcome to New Urbanism where children are expensive nuisances.

Take a look at the Comprehensive Plans for the City and the County. Who are they trying to help? Agriculturalists, preservationists, conservationists, retirees, and young professionals. There is nothing in there about helping families with school-aged children. Parents with school-aged children tend to prefer living outside of cities. Young professionals and some retirees may like to live, shop, work, and play in the same area, but parents of children aged 5 to 17 do not. Nearly 19% of Frederick County residents are school-aged whereas only 14% of Winchester City residents are between the ages of 5 and 17 years. If parents liked the city, they’d move there.

As the county government continues to discourage new development of cul-de-sac suburbs segregated from commercial and industrial uses, the style preferred by families with children due to increased privacy and protection from traffic and the general public, many middle class families will be forced to seek such housing elsewhere or settle for a neighborhood with a less desirable design. Also, suburban schools are less expensive per student, and parents typically consider them to be better than city schools.

Besides, most people who live in cities wish they didn’t. According to a 2009 Pew Research Center Study, more than half of all city residents in America would prefer to live in a place other than the city. Apparently mixed-use zoning and high density housing do not appeal to most people.

The City of Winchester is focusing on attracting retirees and young professionals (translation: people with no kids). Do you really think families with children want to live in Cottage Housing? Of course not, and so it is no surprise that Winchester’s Zoning & Inspections Administrator is excited about this style of residential development. Meanwhile, the County of Frederick is focusing on squeezing all future residential growth into 23,000 acres, much of which is adjacent to the City. The idea, they claim, is that educating kids packed in closer quarters will somehow save the County schools money. The County wants higher density housing (which means smaller housing) in the Urban Areas. But when you look at the percentages of children per type of housing (single family, townhouse, multifamily, etc.), townhomes and multifamily housing (ie apartments) are less likely to have children in them than single-family detached units.

It appears that the County of Frederick wants to encourage more squished housing and mixed-use zoning because the hope is that fewer people with school-aged children will find Frederick County as attractive as they did in the past.

On October 12, 2005, the Board of Supervisors voted to adopt the Development Impact Model (DIM) created by TischlerBise. The model effectively doubled the projected fiscal impact of residential development on County services. The DIM is used by the County when it considers land use planning policies and rezoning applications.

According to the Rural Areas Subcommittee and the Preservation of Rural Life in Frederick County, in 2008 (the year for coming up with permanent, costly solutions to temporary non-problems) the magic DIM number was $24,000. That was the projected financial burden of each single-family detached unit on County services. Recognizing that rural character, view sheds and tranquility probably would not be considered sufficient reasons by the general public to lock up land in perpetuity while restricting private property rights in general, the local government and preservationist groups pushed the DIM as the reason why residential development in Rural Areas must be managed (that’s Big-Government-speak for “controlled”).

In the Urban Areas, real estate developers of entire neighborhoods were often required to pay up to $24,000 in proffers to the County government per each new single family home constructed. $19,000 of it was for “school construction costs.”

In the Rural Areas, if Mr. Joe Schmoe builds a house on his 5-acre plot, he is supposedly creating a $24,000 burden on the local government that cannot be recovered through proffers. (But don’t worry, the local government is looking into Impact Fee requirements.)

With tighter restrictions on well and septic systems thanks to the Rural Areas Subcommittee and the Board of Supervisors, can you imagine what effect a $24,000 Impact Fee would have on new housing development in Rural Areas? Of course, this is exactly what the local government wants. The government and it’s cronies do not want Mr. Schmoe to be able to afford to live in the Rural Area unless it is in a specially-designated “Community Center” with clustered housing–tiny lots smashed together and surrounded by massive preservation tracts so as not to ruin the rural character for the special landowners who believe their view sheds and tranquility are more important than private property rights and free private markets.

Thank you, Mr. J.P. Carr and Mr. Stephen L. Pettler Jr.

On May 27, 2010, these two Development Impact Model Committee members wrote a letter to Planning Director Eric Lawrence pointing out what appeared to be a serious flaw in the DIM:

In a nutshell, every penny of the school proffer dollar paid to the county should go to capital improvements to schools, in other words “bricks and mortar.” Right now the amount collected by the County from proffers is insignificant, but in a few years it should cover a significant portion of budgeted school construction costs. For example, if proffers for 600 single-family homes in the amount of $18,494 are collected annually, the total revenues to the county would be over $11 million.

In the stated example, 600 homeowners ultimately pay the proffers through increased new home prices at the time they purchase their homes. Those homeowners are paying to compensate for the impact of moving into their new home in the County up-front and in full.

However, as you [Eric Lawrence] state in your letter, the County does not have a fixed source of tax revenue to fund capital improvements to schools, it merely utilizes a portion of on-going collected tax revenues to pay the capital costs of construction. A homeowner who buys a house with a school proffer incorporated in the price of the home immediately begins paying residential real estate taxes to the County. Those taxes, in part, go toward the funding of capital improvements to schools in addition to the up-front proffer money they’ve already paid to offset the impact to school capital costs. The specific amount paid by any given homeowner toward school capital costs through taxes may be hard to figure (and a reason for this exercise), but revenue from real estate taxes does get allocated to the capital construction costs of schools. As a result, a person buying a new home with a school proffer incorporated into the price is paying twice to mitigate impacts to the school system’s capital budget caused by occupancy of the new home.

According to your letter, the County does not specifically apply a fixed percentage of residential real estate tax revenue toward school capital costs. There is no mechanism to calculate the tax dollars a property owner pays toward capital improvements, there can be no way the DIM can calculate a “credit” for the taxes paid by the property owner to off-set the “debit” paid by way of the proffer on the property. Persons purchasing a new house with a school proffer are paying the proffer without an offset to account for their ongoing payment of real estate taxes.

This situation creates an imbalance where a new homeowner pays the impact cost up front, but still gets an annual bill for the principal and interest cost of school construction via taxes. There has to be an offset in the model or in the taxes that person pays. Otherwise, the DIM does not accurately account for impacted to the County’s capital budget, which is the point of the model to begin with.

Additionally, we note that the scenario regarding school proffers can be applied to any capital costs for which the DIM calculates an “impact” that is off-set by a proffer and for which a portion of taxes collected by the homeowner also funds on an on-going basis.

As we understand the function of the DIM Oversight Committee, it is to determine whether the inputs used in the model are accurate and appropriate. It is our belief that unless the inputs include credits for real estate tax revenues the inputs are faulty.

Well, well, well…

And just so you know, that $24,000 behemoth projection (which is from 2008’s DIM) is over a 20-year-span. If a homeowner with school-aged children pays $1,200 in real estate taxes every year, he would cover the fiscal impact of his new home. Last year, beneath the DIM Oversight Committee’s chart of projected impacts per dwelling unit was this note:

The projected capital expenditures depicted above do not include a credit for future real estate taxes.

This year’s DIM is $17,134 per single-family detached unit. So, any advocates of increased land-use controls still touting the $24,000 number are a good $7,000 too high in scare value. And this new number STILL does not incorporate a “credit” for real estate tax revenue.

Children = suburban sprawl = bad

By pushing the flawed DIM as the reason for curbing growth in the County, the government is exposing what they truly believe the problem is: children. Children are a “fiscal negative” because they cost so much to educate and don’t produce anything of monetary value…and supposedly their parents’ tax payments aren’t enough to offset the costs.

Interestingly enough, with area private schools costing families anywhere between $6,300 – $7500 a year to educate each child (oftentimes less with each additional child enrolled), it would be cheaper for the City of Winchester and the Frederick County government to give a family $7500 each year rather than educate their child in a local public school. Yes, that’s right–the government would save money if it paid families to send their children to a local private school…anywhere from $3,000 to $6,000 a year per child in savings!

But see, if the local government were to provide vouchers, the demand for alternative education would grow. Private schools would have to expand. New private schools would open up to meet the growing demand. And the local governments’ fingers would be out of the pot. Previous public school system employees would apply for employment at private schools, the federal government’s No Child Left Behind monstrosity would be out of the loop, and the governments’ school boards wouldn’t have big piles of cash to play with anymore. (And wouldn’t that be a total bummer for the Winchester School Board members who would like to see term-limits for board members abolished?)

Obviously this idea is radical, so radical that it will likely be relegated to the dustbin of radical ideas, but it is not a new idea. In fact, Milton Friedman, a 1976 Nobel winner for economics, suggested such a thing in 1995. People around the country still suggest it. But government-funded-and-dictated education is too important for Big Government lovers to let go of… It is all about control: like controlling what you do with your land, they want to control how your child is educated. And now the government is lying to you by claiming that children are too damn expensive for the County which is why they need to increase government control over land. When will people say, “Enough is enough?”

May 21, 2011