There are more than 700 housing trust funds across the country, used by cities to help build more affordable housing. Richmond’s had one since 2012, and redirects $1 million annually into its fund from the city’s tax abatement program. How does it work, and is it enough?
In our housing series Where We Live WCVE’s Megan Pauly has more:
On the wall at former Richmond Vice Mayor John Conrad’s Main Street office is a framed 1997 Fortune magazine cover. Ted Turner is pictured, sitting on a horse at his Montana ranch - and the headline is: “The Business Life.”
Conrad says it was colleague Viola Baskerville’s dream to make the magazine’s top 10 list of “best cities” in 1994, a year when the city had one of the highest murder rates in the U.S.
Conrad: And sure enough - three years later - in 1997, Richmond was number 10.
Conrad attributes much of that success to an ordinance he introduced: a tax abatement program designed to incentivize development.
Conrad: It was a budget-revenue neutral proposal. It didn’t cost the city any because it didn’t deprive the city of any existing revenue. And that was a great advantage because we couldn’t afford to give up any revenue.
He says it inspired hundreds of millions of dollars in large real estate investments in the city. Conrad and other city leaders were doing everything they could to keep people from moving out of the city.
Koziol: We've got to remember from 1950 to roughly 2000, the city of Richmond lost population every year for a wide variety of reasons.
That’s Brian Koziol, Director of Research and Policy at Housing Opportunities Made Equal.
Richmond’s population has been growing – to more than 225,000, an 11 percent increase from 2010. That changing dynamic is what led Koziol to start digging into the effectiveness of the program.
Koziol: And so tax abatements, basically are a tax credit given to individuals that renovate or rehabilitate an existing structure.
Here’s an example of how the program works. Let’s say a couple - we’ll name our homeowners Bob and Sally - have a house that’s at least 20 years old and they’d like to remodel their kitchen.
They can contact the city for a real estate evaluation before work on the new kitchen begins, and after the project is complete. They have to pay a non-refundable $125 application fee, and the kitchen has to increase the home’s value by at least 20%. If the approved, they’ll get a tax break on the upgrade for 7-10 years.
Koziol: So let's say they put an addition on and the city of comes out, assesses the value. Let's say it's $100,000. They do the work. The city comes back out and assesses it and says, hey, it's worth $140,000 now for the next 10 years, you only have to pay taxes on $100,000. So we're forgoing that $40,000 of tax capture.
For the first seven years of the program, Bob and Sally wouldn’t pay any taxes on the $40,000 addition. In the eighth year, they’d pay just 25%, 50% in the ninth year…and 75% in the final year of the program. That’s if the home is in an enterprise zone. If it’s not, the program only goes up to seven years.
And there are a lot of Bob and Sallys in the city. Richmond’s Assessor Richie McKeithen:
McKeithen: I put city council on notice that I’m going to need a facilitator for the rehab program because we’re now getting over 400 applications a year.
He says there are about 6,800 current abatements projects. Although - that figure doesn’t just include homeowners. Developers can also use the credits for rehab projects, and some new construction. In that case, there is a requirement that 30% of units be reserved for residents making 60% of area median income and below. And those credits are limited to certain areas.
McKeithen: The real popular one was the re-adaptive use, when old tobacco warehouses and things are now turned into lofts.
So how does this all relate to affordable housing? When the credits expire and people start paying their full assessed property taxes, a portion of that revenue goes into the city’s affordable housing trust fund. CEO of Richmond’s Association of Realtors Laura Lafayette says all of it should go into the fund.
Lafayette: That's money that they haven't collected for seven years. So my argument is if you've lived without it for seven years, if you haven't collected it, then why do you need to collect it now? Put it to a good use. And we're not talking about taking a housing abatement fund and you know, funding cemeteries, something not related at all. We're talking about taking abatement dollars that were generated from real estate and turning it back into a real estate investment.
And that’s what Richmond’s 2014 affordable housing strategy called for: to find a dedicated funding stream, like expiring tax credits. But – what if the city could be receiving more revenue by modifying the program?
Fasulo: Maybe tweaking the number of years or tweaking the percentage of abatement…
That’s Fabrizio Fasulo, Director of VCU’s Center for Urban and Regional Analysis. He’s in the early stages of researching tax abatement for the city.
Fasulo: At this point we are really just collecting data - so we haven’t done an analysis at all. We’re collecting data on the city of Richmond and we’re doing a little bit of literature review to understand the landscape of this type of program at the local level.
Koziol: We're basically subsidizing Bob and Sally's new kitchen.
Brian Koziol with Housing Opportunities Made Equal says his analysis shows existing abatements are more prominent in affluent areas of the city like Richmond’s West End.
Koziol: We have to ask ourselves, why are we incentivizing further investment in upper middle class white neighborhoods to the detriment of the rest of the city?
He’d like to see the city expand tax breaks for low-income residents to help offset the costs of rising real estate values. Ira Goldstein agrees. He’s a Philadelphia-based housing expert who worked on an affordable housing study of the Richmond area. He’s seen similar trends with that city’s tax abatement program.
Goldstein: I think the constructive conversation needs to be: if this was about stimulating real estate markets...has that been done and is it time to sort of time to move on into markets that have not yet been stimulated?
Richmond does currently have a tax relief program for seniors or disabled households making $50,000 and below.
Next week we’ll look into a tax credit program that the city doesn’t have control over: the federal low-income housing tax credit program help up as one of the greatest creators of affordable housing in the country.
Megan Pauly, WCVE News.