The Virginian-Pilot
                             THE VIRGINIAN-PILOT 
              Copyright (c) 1996, Landmark Communications, Inc.

DATE: Sunday, January 14, 1996               TAG: 9601140058
SECTION: LOCAL                    PAGE: B1   EDITION: FINAL 
SOURCE: BY ALEX MARSHALL, STAFF WRITER 
DATELINE: NORFOLK                            LENGTH: Long  :  180 lines

SOUND INVESTMENT OR SHAKY GAMBLE? THE CITY COUNCIL WILL DECIDE SOON IF NORFOLK WILL PAY MOST OF THE $60 MILLION TO FUND THE EAST OCEAN VIEW PROJECT.

The city is struggling to decide whether it should go it alone and pay to transform dramatically the upper end of East Ocean View.

And as the City Council ponders the question, it faces a difficult bottom line: Would this be a good investment of taxpayers' money?

The benefits could be dramatic, city officials say. The poor neighborhood is rich in an increasingly rare commodity: waterfront property. There are vistas aplenty in the 100-acre area flanked by the Chesapeake Bay and Little Creek Inlet. City officials envision the area becoming a desirable address that could pump taxes into the city coffers and perhaps serve as a seed for the greening of all of Ocean View.

But the risks are also huge. The project will cost at least $60 million - the bulk of it funded by Norfolk taxpayers. To make it happen, the city would be forced to borrow beyond what it has always felt prudent.

Under the most optimistic scenario, Norfolk taxpayers won't break even on the investment until the year 2023.

Meanwhile, the neighborhood languishes, its problems of crime, high vacancy and social problems made worse because of the announcement of redevelopment 2 1/2 years ago.

The council will sort out these issues in coming weeks, as it decides whether to continue with the project and what to put on the city's capital improvement program.

``There are going to be a lot of things on the table, and we have to decide which ones we can and cannot do,'' Mayor Paul D. Fraim said. ``One of those things is East Ocean View.''

Should Norfolk continue with the project, it could be plowing new financial ground.

The federal government has borne most of the costs of the dozen or so projects the redevelopment authority has overseen the last four decades.

``I don't think there has ever been one (before) where the city tried to take on the whole thing by itself,'' said David Rice, executive director of the Norfolk Redevelopment and Housing Authority.

The redevelopment of East Ghent, considered by the NRHA as perhaps its biggest success, cost $25 million, but the federal government paid two-thirds of the cost.

``I'm not aware of any other major city anywhere that has done redevelopment with local money,'' said R. Patrick Gomez, project director with the NRHA.

In October 1993, the City Council approved the project - and its price tag of $27 million to $35 million - with the expectation that private banks would fund the project based on the potential resale value of the land.

But in December 1993, city officials said banks would not fund the project without the full faith and credit of the city. The city did secure a Cenit bank loan of $9 million to begin the project, using city parking garages as collateral.

Without complete funding, the city said it would continue the project in phases, while devising a new funding plan. In December 1994, architect Andres Duany laid out the plan for a new neighborhood, one of winding streets lined with 19th-century style homes and apartments with big front porches.

Using the initial funds, the redevelopment authority has bought at least 35 properties and overseen the relocation of approximately 100 families. But now, the project has stalled until the authority and the City Council agree on a new funding plan.

On Jan. 2, the redevelopment authority presented the council with a preliminary funding plan that called for putting $5.75 million annually from the city's capital improvement budget for the next six years, a total of $34.5 million and a significant increase in taxpayer funding. The total cost of the project had grown to $60 million - brought down from a higher figure of $74 million by a number of assumptions.

Last week, city finance officials told the council that Norfolk was about to go above its traditional borrowing limit, which held annual debt payments to 10 percent of the city's operating budget.

This fiscal year, the city will spend 10.1 percent of its $465 million operating budget to pay off financing for roads, schools and other long-term projects in the city's capital improvement budget, officials predict.

Some council members believe adding more debt still makes sense.

Projects such as East Ocean View and the MacArthur Center Mall are really economic development projects, they say, and worthwhile investments. They believe the nature of the borrowing will probably satisfy the bond rating agencies, which now rate the city ``AA,'' excellent for a core city.

``We've started a great project and I don't think we can turn our backs on it,'' Councilman G. Conoly Phillips said of the Ocean View plan. ``Are we going to have to cut back on other things to do it, other capital needs, in order to fund East Ocean View? At this point, we don't know.''

One councilman, Paul R. Riddick, has said he doesn't believe East Ocean View is worth it.

``We can't strain the capital improvement budget for one project,'' Riddick said at last week's council meeting.

The city staff is now studying how much the city's debt service will expand if the city builds all the projects on the drawing board. Phillips, a member of the council's finance committee, predicts ``a bubble of four or five years'' where the city would exceed its self-imposed debt limit.

Of the two major projects on the horizon - the MacArthur Center and East Ocean View - it is the redevelopment project that is the biggest financial burden, Fraim said.

City officials predict the MacArthur Center will pay its own way in the first year through new tax revenues from shoppers. And because of federal support and creative financing, the city has to sell about $12 million in city-backed bonds for the mall project.

It will be 2023 before the estimated new tax payments from a more affluent neighborhood in East Ocean View offset the money the city invests in the area.

This projection assumes the project will stay within its budget of $59.5 million.

Earlier this fall the project was estimated to cost $74 million, said assistant city manager Sterling Cheatham. The price was lowered by assuming the project could avoid incurring several customary expenses.

Redevelopment officials budgeted under the assumption that:

The authority could manage the project without any additional costs, which allowed the authority to throw out the traditional estimate of an 8 percent administration fee.

The project wouldn't run up any unexpected costs. This allowed the authority to eliminate an $8 million contingency sum.

Land prices would not increase over the seven years it would take to buy all the property.

``We think they are accurate based on today's forecasting,'' Gomez said. ``Whether they will hold up five or 10 years down the road is anyone's guess.''

The estimates also assume that a new, attractive neighborhood can be built and sold, despite the uncertainties of the real-estate market, the local economy and the buying habits of the public.

Despite those risks, Gomez noted that the redevelopment project is predicted to triple the land's real estate value. It should also help bring new residents and investments to all of Ocean View, a five-mile stretch of beachfront property that has always had more than its share of crime and poverty.

The neighborhood laid out by architect Andres Duany, if built, could win the city acclaim, Gomez said.

But Gomez acknowledged the year 2023 was a long way off.

``That is a considerable period of time, but once that date is passed, it would generate a surplus and be a real boon to the city,'' Gomez said.

While the city ponders its choice, residents and property owners on the peninsula of land on the upper bay streets of East Ocean View, struggle to live and work there.

Since the redevelopment announcement, many long-term tenants have moved out, vacancy rates have risen and landlords and homeowners have slowed maintenance of property, say residents, landlords and real-estate agents.

Gomez said most of the neighborhood's problems existed before redevelopment was announced. But he said he hopes the recent schedule released for redevelopment, which outlines the clearance in six set phases, will make it easier for landlords to find tenants and plan for property maintenance.

Sydney L. Johnson, a landlord in East Ocean View, estimates he's lost $50,000 annually in rent since redevelopment was announced. Only four of his 11 units are full, he said. Two years ago all were rented.

Johnson, 76, stood outside a house on Pretty Lake Avenue last week wearing paint-scuffed blue jeans, work gloves and heavy boots.

``The decent people I had in here moved out because they figured the bulldozers were around the corner,'' Johnson said, as he prepared tools in his panel truck to fix a leaky roof.

``That was two years ago. Now you have to rent to whomever you can.''

Joan D. Gifford, president of Gifford Realty, said her firm no longer accepts listings from this portion of East Ocean View.

``Everything is too uncertain, and people don't want to rent there,'' Gifford said. ``It's a very sad, sad situation. I know that the city, the powers that be, are trying to resolve things as quickly as they can, but it's just a question of money, I guess.'' ILLUSTRATION: Color photo

RICHARD L. DUNSTON/The Virginian-Pilot

Sydney L. Johnson estimates he's lost $50,000 annually in rent since

redevelopment was announced.

Photo

RICHARD L. DUNSTON/The Virginian-Pilot

Though Valerie Foy still lives in East Ocean View, the area has

endured rising vacancy rates since the redevelopment announcement.

Residents and landlords also say that maintenance has slowed since

the project was announced.

Map

VP

EAST OCEAN VIEW

SOURCE: Norfolk Redevelopment and Housing Authority

by CNB