Financial Tools

Staff has considered regional partnerships to leverage County funds further such as community land trust. For now, the County is holding off on these investments. The County would consider revisiting if investing County funds in affordable housing projects via these organizations would provide greater leveraging than what the County can receive by lending funds directly.

(Community Land Trusts provide a model of homeownership whereby the land ownership is separated from the building structure. Under the community land trust model, a non-profit is established that holds title to the land while allowing the building to be purchased by individual households, generally with some income restrictions and other provisions governing the resale of the property. Given that in Arlington the land values are generally the greater share of a house’s value, removing the land value from the cost would greatly reduce the cost of homeownership.)

Challenges Addressed: Desire for new approaches
                                          Re-thinking existing tools

Staff reviewed the impact on finance tools available, subsidy of affordable component with market-rate component, and total County commitment. Staff also examined the considerations of mixed income approaches. While financing can be more challenging in mixed-income communities, they continue to be more desirable from a political and social equity standpoint, so the County will continue to assess feasibility when appropriate.

Challenges Addressed: Project cost
                                          Re-thinking of existing tools

This would entail reviewing whether a regional CDC or RDA could provide lower cost/more competitive financing options for affordable housing projects. Staff discussed the possibilities of this with Fairfax and Alexandria, the two Virginia jurisdictions most likely to partner on such an effort. Since both jurisdictions already have Housing/Redevelopment Authorities, there is no interest in duplicating this approach with a regional organization.

Challenges Addressed: Project cost
                                          Desire for new approaches

Understand impact on total and net present value of County contributions by evaluating participation in other areas of the capital stack. This could include conventional hard-pay debt, construction/bridge financing, etc.  

Given that issuing hard-pay loans would require significantly more resources from the County and would likely still require gap financing, we are not pursuing this strategy at this time.

 Challenges Addressed: Project cost
                                           Re-thinking of existing tools

AHIF has historically been used to provide low-interest loans to developers as gap financing. This strategy explores using AHIF to also provide interest-rate write downs and/or for debt reserves to lower the cost of first-trust financing and reduce the size of a county gap loan. Staff found that making the AHIF loan larger is more efficient than writing down first loans prior to closing.

Challenges Addressed: Project cost
                                          Desire for new approaches

This would entail setting aside a portion of funds for new projects and a portion of funds for asset management needs. This includes an evaluation of the fiscal impact of future asset management needs, ongoing cost, and how we address that cost/challenge. Would we consider allowing developers to “buy out” remaining affordability? Build year 25 (and recapitalization) into Arlington deals?

Recent capital needs review effort suggests owners would be managing and planning for these costs. Reserves are meant to fund these needs. Development partners manage their own portfolios and often plan for LIHTC resyndications after year 15 to address comprehensive renovation needs. However, continued dialogue with staff is needed to ensure the long-term viability of properties within the CAF inventory.

Challenge Addressed: Cost of recapitalization

The program was repealed by the County Board in 2020, with potential for future revenues to be captured for affordable housing. It was not seen to be a significant inducement for redevelopment by developers and there were negligible benefits. However, there was a significant negative fiscal impact on County tax revenues. Furthermore, all properties older than 25 years were eligible for the tax exemption, so many hi-rise multifamily properties built in the Metro corridors in the 1990s or early 2000s would (soon, if not already) be eligible for this tax benefit, if it were still in place.  Potentially, rehabilitation of these properties, along with application for the Multifamily Partial Property Tax Exemption, would have a significant negative impact on the County’s budget over time.

Challenges Addressed: Re-thinking existing tools 
                                          Cost of recapitalization

Staff reviewed several green financing opportunities, including establishing a Green Bank for Arlington projects and state financing opportunities (such as a proposed $10M revolving loan program for renewable and energy efficiency projects). After review of several existing green financing models and associated resources, staff determined there wasn’t much new money available in this area for affordable housing. If the federal or state governments start investing more resources in green financing for affordable projects, staff could revisit.

Challenges Addressed: Project cost 
                                          Desire for new approaches 
                                          Cost of recapitalization 

Continue seeking institutional partnerships to grow development potential and available sites such as schools and libraries. Also, inventory existing affordable housing sites that have development potential.

Via Institutional Partnerships and other avenues, staff will continue to seek these opportunities when possible.

Challenges Addressed: Desire for new approaches
                                          Limited opportunities

This includes analyzing the impact of the Transit Oriented Affordable Housing (TOAH) fund on County funds and exploring options to amend and/or expand the concept, opportunities to reallocate existing tax revenue through tax-increment financing (TIF) districts, and property tax reductions for affordable properties to reduce operating expenses/ increase cash flow.

The County Board in 2023 agreed to commit future Columbia Pike TIF/TOAH revenues to the AHIF budget, specifically to help support the Barcroft property, including ongoing debt service. The County’s ability to explore new tax incentives is limited by state code. There hasn’t historically been traction to use tax tools for affordable housing in Arlington because (a) there is limited evidence that tax incentives are a strong inducement for affordable housing creation/preservation, and (b) tax related incentives can have substantial negative impacts on the County’s budget. Staff will revisit periodically to see if there are new opportunities going forward.

Challenges Addressed: Project cost
                                          Desire for new approaches
                                          Re-thinking of existing tool

This tool proposes creating a new revenue stream for affordable housing. The County could consider advocating for this if there is significant community support.

Challenge Addressed: Desire for new approaches

Staff reviewed a revenue bond model with PFM, a prominent financial consultant, in 2017. Staff then revisited this idea (with a focus on general obligation bonds) during the AHMP Review in 2020-2021. Given the challenges of a revenue bond model with an affordable housing portfolio (i.e., not enough loan repayments to sustain) and tradeoffs of general obligation bonds versus AHIF, staff does not recommend pursuing bonds at this time.

Challenge Addressed: Desire for new approaches

This involves developing a streamlined process to enable “quick strike” acquisitions, which may include identifying funding streams (e.g., County LOC), determining standard loan terms/financing structures, and developing loan document templates with CAO that could be executed within 60-90 days.

The Barcroft acquisition exemplified the County’s ability to execute financing quickly. Currently, there are funding limitations, but the County does evaluate opportunities for Out of Cycle Funding as they arise.

Challenges Addressed: Project cost
                                          Desire for new approaches
                                          Re-thinking of existing tools
                                          Limited opportunities

Staff engaged a consultant to analyze how the AHO has performed over time to achieve the County’s affordable housing goals and to compare the value of cash contributions and the provision of on-site units. Staff is also considering other options, such as using affordable housing contributions to secure a master lease in nearby MARKs properties in return for density. If this can be developed as a viable option, staff will then determine whether changes are politically feasible.

View the report here.

Challenges Addressed: Re-thinking of existing tools
                                          Limited opportunities

While the targeted audience would be owners of MARKs, this program would provide an infusion of resources to allow aging properties to make capital repairs and improvements. Staff found that MARKs owners find it more efficient to deal with third parties, such as Arlington Community Foundation, instead of having to involve the County. This is likely due to the County reporting and tracking requirements, and affordability restrictions, among other County requirements. The County will help make these connections going forward if approached by MARKs owners.

Challenges Addressed: Desire for new approaches
                                          Cost of recapitalization