HomeMy WebLinkAboutR18-Redevelopment Agency
RdYEl.ONENT AGENCY...&..ST FOR &...ISSION/COUNCIL A:ION
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Dept:
GLENDA SAUL
Subject: COMMON COUNC I L WORKSHOP ON HOUS I NG
PROGRAM
Redevelopment Agency
Date: June 26, 1985
Synopsis of Previous Commission/Council action:
None
Recommended motion:
(MAYOR AND COMMON COUNCIL)
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Set date for workshop for review and analysis of Redevelopment Agency Housing
Program by the Mayor and Common Council.
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Signature
Contact person:
GLENDA SAUL
Phone: 383-5081
Supporting data attached:
YES
Ward:
1-7
All
FUNDING REQUIREMENTS:
Amount: $
N/A
Project:
No adverse Impact on City:
.Cil Notes:
Date:
July 1"I~!!S.
Agenda Item No. :#fJ go
. CIA- OF SAN BERNARD. - REQU.ar FOR COUNCIL AC""ON
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STAFF REPORT
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75-0264
At two successive Redevelopment Committee meetings, brief discussions were
held regarding a concept paper (attached) developed by the Agency's housing
consultant and staff regarding the twenty percent (20%) set-aside program for
housing. Briefly, as the Mayor and Common Council are aware, 20% of all tax
increment revenues must be set aside for the purpose of providing affordable
housing. If the fund for this program is revolved as staff is suggesting, the
funds could then be used to provide and attract upscale housing throughout the
City, in keeping with the direction the Mayor and Common Council has
previously provided staff.
Setting a date for a workshop to review and analyze the proposed program will
allow for an in-depth discussion of its various components and how together,
or in various combinations, they can be employed to meet the housing needs of
the City.
June 1985
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CONCEPT PAPER.
For Discussion Purposes Only
Proposal for s Ilevolvina Loan Fund to
Support Low and Moderate Inco_
Bous1D& in San Bernardino
This concept paper discusses the use of San Bernardino's 20% housina set-aside
funds from tax-increment revenues for the establishment of a -revolving loan
fund- to support certain activities which will ultimately result in an
increase in the stock of affordable housing in San Bernardino.
AssUllptions
For purposes of discussion, this proposal assumes that there will be
approximately 1 million dollars a year to contribute to this revolving loan
fund and that loans will be made at below-market-rates (probably between 5% to
10% simple interest) in order to encourage activities beneficial to the
community which would otherwise not go forward. Further, it is assumed that
the loans will be secured by the value of the property.
Funding for the revolvina loan fund is assumed to come from the 20% housing
set-aside generated by tax-increment revenues from redevelopment projects.
S_ry of Ilecaaendations
Three overall goals are proposed for the revolving loan fund:
Goal #1:
Addition of Affordable Housing
Consistent with the requirements of State law governing the use of
tax-increment 20% set-aside funds, the primary goal of the revolving loan fund
should be to add to the stock of affordable housina in San Bernardino. This
goal can be realized through two (2) methods:
a)
Creation of new units through supportina infill and new project
development, and;
b)
upgrading the existing stock of affordable housina to meet local
housina code requirements, with priority given to units presently
vacant.
Goal #2:
Disbursement
Affordable
throughout
associated
housing supported by the revolving loan fund should be disbursed
the community to the extent possible in order to avoid problems
with concentration of lower income families in certain areas.
Goal #3:
Rapid Payback
To the extent possible, given the programs selected, the funds should revolve
as quickly as possible. An average of five to seven year loan term is
suggested, although individual loans could be shorter or longer, given
specifiC circumstances. Once the goal of creation or upgrading of affordable
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housing is accomplished, the repayment of the loan plus interest can provide a
future source of financial support for either affordable or market rate
housing.
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Four potential programs are described which could be implemented through a
revolving loan program. They include:
a) An acquisition/rehabilitation program directed to assist non-profit
and/or private developers to acquire vacant houses, rehabilitate
them and sell or rent them to low and moderate income families;
b)
an infill housing program supported by
loans for buildina housing on vacant
neighborhoods;
short-term construction
lots within existing
c) a rental housing subsidy loan program which provides a loan to a
developer which is used to subsidize rents in 20% of the units to
affordable levels for low and moderate income families, thereby
qualifying the project for tar-exempt financing, and;
d) a mobile home park assistance program to enable mobile home
residents to purchase and upgrade their park through establishing a
cooperative corporation.
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There are numerous other programs which could be supported by such a revolving
loan fund, including land assembly and land banking, development loans secured
by second deeds of trust, and many others. There are also several different
ways of administering such a loan fund, including direct administration by RDA
staff, contractina with a private lender, contractina with a non-profit
community development corporation, or establishina a public non-profit HDC
(Housing Development Corporation). The cost of administration of the
revolvina loan fund would be paid for from interest earned on the loans.
Before embarking on such a program, the City might consider using initial 20%
set-aside funds to undertake an overall housing strategy study. Such a study
would include an independent review and assessment of the housing situation in
San Bernardino, including a delineation of the City's housina needs and the
resources available locally and from outside sources to meet those needs.
Based on this information, an overall strategy would be developed together
with suggestions for specific programs to implement that strategy.
S_ry of the Law
The 2~ housina set-aside provisions of the California Health and Safety Code
are quite broad, as long as the overall objective of supporting housing for
families of low and moderate income is met. It is a local agency decision as
to whether the funds are to be used for construction or rehabilitation, or
some combination. It is also a local decision as to whether funds are made
available as a grant or a loan (or some combination thereof), support
ownership or rental housing, and what proportion of the funds will support low
versus moderate income housing (less than 80% and between 80% and 120% of
median income, respectively).
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Expressly permitted activities include:
to land, including infrastructure;
"acquisition of land; improvements
acquisition, rehabilitation or
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construction of structures; and the provision of subsidies necessary to
provide housing for persons and families of low or moderate income.
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Since the provisions are so broad, it is appropriate for the Redevelopment
Agency to establish its own internal policies concernina how these funds are
to be used so that specific activities can be encouraged. The remainder of
this concept paper presents suggestions for these policies.
Ilevolving Loan versus Grants
It is reco_ended that the fund be established as a revolvina loan fund and
that the fund provide loans at between 5% to 10% interest which would be
secured by liens or trust deeds on the properties involved. In appropriate
cases, security can be further increased through personal loan guarantees by
individuals desiring financing from the fund.
It is further reco_ended that the fund make relatively short-term loan
co_itments, with an average five (5) to seven (7) year loan term and no
minimum loan term. It might be possible to revolve the fund commitments even
more rapidly, i.e., every two (2) to three (3) years.
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The advantages of such a revolving loan fund are considerable. If correctly
structured, the fund can leverage additional private capital. In appropriate
situations, interest should be payable over the loan term, rather than accrued
and deferred in order to increase monies available for reinvestment. If
invested appropriately, the fund itself should grow significantly so that,
within ten (10) years, the value of the fund will exceed the total
contribution significantly (see attachment -A-). Finally, on a conceptual
basis, it is substantially easier to justify loans versus grants in
circumstances where there are likely to be more applicants than funds
available.
Should situations arise in which grants or loan/grant combinations are
necessary, grant funds should be sought from other sources (Foundations, CDBG,
UDAG, Rental Rehabilitation, General Revenues, etc.) so that the sanetity of
. the loan fund is preserved.
Potential Fund Investments
Rather than leave the revolving loan fund open-ended, it is reco_ended that,
instead, the Redevelopment Agency define a certain specific number of loan
programs for which funding will be made available to eligible projects. In
addition, general overall priorities should be established so that a balance
of affordable housing activities is achieved from loan co_itments. These
priorities are discussed in the following section.
The following programs are suggested for potential loan fund investments:
1.
Acquisition/Rehabilitation Program:
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Given the fact that there are a significant number of vacant, boarded-up
sinale-family houses in certain areas of San Bernardino, a number of
which have been repossessed by Federal agencies, funding could be made
available for non-profit agencies and private developers to negotiate
for and purchase some of these homes with the agreement to rehabilitate
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them within a short period after purchase and either rent or resell
them. In the case where rehabilitated homes are to be rented,
rehabilitation funding could be made available through the City's Rental
Rehabilitation program. The homes would either be sold or refinanced
within three (3) years in order to pay back the revolvina loan fund. In
the case where the houses are resold after rehabilitation, financing for
rehabilitation would be secured by the developer from private sources.
Resale to owoer occupants could be encouraged through some forgiveness
of a portion of the interest due on the acquisition loan. Prior
agreements would assure that rent levels and/or sales prices were
affordable to families at or below 120% of median income.
2.
Will Housing Program:
Another appropriate use for the revolvina loan fund would be to make
short-term construction loans for building housing on vacant lots within
existing neighborhoods. Developers would apply directly for these loans
and would have to secure a commitment for take-out financina prior to
loan approval. Where there were existina substandard blighted
structures on these sites, additional funds could also be made available
for demolition. With or without demolition, the economic viability of
the project would need to be clearly ascertained prior to loan approval.
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Given the intricacies of construction financina, it is recommended that
an arrangement be negotiated with a local bank which makes construction
loana. Funds for the loan could be deposited with the bank in an
interest-bearina account, and progress inspections made by the bank
prior to release of payments. While this arrangement will involve
additional loan fees, it is preferable to direct oversight of the
construction loan by the Redevelopment Agency. Construction loans for
infill housing could be made at 10% interest, which is approximately 6%
below current rates.
If demand for this program is substantial, an alternative method would
be to negotiate with a local lender an interest-rate subsidy program for
construction loans, whereby the lender would make the loan under its owo
fee structure and underwriting standards, and the City would provide a
subsidy payment to reduce the effective interest rate to 10%. The
advantage of this technique would be substantial leverage. The subsidy
would be secured by a lien on the property, in subordinate position to
the construction loan, and be repaid with interest from the proceeds of
the take-out financing.
Additional steps could be taken concurrently by the City to provide
further incentives for infill (please see RConcept Paper: City of San
Bernardino Infill Housina Program), such as fee waivers, fast-trackina
of proposed infill projects, building code modifications and other such
incentives.
3.
Rental Housing Subsidy Loans:
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A third program for the revolving loan fund would be a Rrental housing
subsidyR loan program. This is an innovative concept pioneered by the
San Francisco Foundation in supportina the construction of affordable
housing in Marin County through a non-profit housing development
corporation.
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This concept works as follows. A developer is proceeding with the
development of a market-rate rental housing project. Construction
financina has already been arranaed privately. The fund provides the
developer with a five (5) year loan with interest accrued and deferred
until the end of the loan term, repayable to the non-profit HOC. In
return, the developer agrees to reduce the rents on 20% of the units to
be affordable to 80% of median income. This arranaeJlent makes the
project an 80/20 project and qualifies it for tax-exempt financina,
further reducing the costs of the project to the developer. In return,
the developer agrees to pay a significant interest rate on the loan.
The amount of the loan and the interest rate are calculated so that,
after five (5) years, the total amount due is sufficient to constitute
the downpayment on the purchase of the 20% affordable units. The
non-profit can then elect to purchase the units, thereby preserving
their affordability over the lona term, or recapture the initial
investment plus interest accrued and use it to support other affordable
housing activities.
A variation of this model could be adopted for San Bernardino, either
with or without the participation of a non-profit. Without the
non-profit, the original investment plus interest, would be returned to
the fund at the end of the five (5) year term. In addition to earning
interest on the investment, the financing subsidy loan also creates a
five (5) year rent subsidy which, unlike most rent subsidies, is paid
back with interest.
4.
Mobile HOlle Park Assistance Program:
A forth program for the revolving loan fund would be a mobile home park
assistance program. Mobile home park residents are generally low to
moderate income families who own their units and rent space in a mobile
home park. As rents have increased, and as parks are sold for other
purposes, park residents have increasinaly become concerned with
maintaining the affordability and stability of their living
arrangements. Where possible, park residents have jointed together,
sometimes in conjunction with residents of other parks, and formed stock
cooperatives or limited equity cooperatives which purchase the park from
the current owner. The purchase price might also include funds for
rehabilitation of park improvements or infrastructure. The revolving
loan fund could provide some temporary financial assistance to assist
park residents in acquisition and rehabilitation and perhaps also help
to arranae for attractive financing, including arrangina for tax-exempt
borrowing rates for the cooperative.
There are numerous other uses for a revolving loan fund, of course. It is
recommended, however, that consideration be given to limitina the number or
programs to a small number, such as the above four, so that program
administration does not become overly complex. It is also recommended that
the fund not become involved in direct ownership or management of units.
Administration of the fund is discussed further below.
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Priorities
As indicated above, State law leaves the decision to the local community
concerning how to allocate funds from the 20% housina set-aside.
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In setting priorities, the following issues should be addressed:
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a)
What should the percentage of funds allocated to support low versus
moderate income families7 (Suggestion: 30% low; 70% moderate)
b) What should be the allocation between rental and owner-occupant
programs 7 (Suggestion: 40% rental; 60% owner-occupied)
c)
What should be
construction7
construction)
the allocation between rehabilitation and
(Suggestion: 30% rehabilitation; 70%
new
new
Instead, perhaps it would be easier to consider fund allocations in light of
the four programs proposed above. In this regard, and of course dependina on
demand, the allocation tight be: 20% acquisition/rehabilitation, 25% infill
housing, 35% rental housing subsidy, and 20% mobile home park assistance.
These would not necessarily have to be year-by-year allocations. Depending on
the flow of funds generated by the 20% set-aside, it might be more appropriate
to Rphase-inR these prograas one at a time over, say, a three (3) year
period. The phase-in could relate to immediate needs and priorities as
determined by the Mayor and Common Council.
Initiation and Proar_ Adain1stration
The Revolvina Loan Fund program should be reviewed conceptually and approved
in concept by the Mayor and Common Council. The Mayor and Common Council may
wish to add additional priorities and/or requirements to the program, such as
locational preferences or consistency with other City revitalization and
redevelopment policies.
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It would be appropriate to consider the programs supported by the revolvina
loan fund as part of an overall housing strategy for San Bernardino. The
results of the study would be included in an update to the housing element and
thereby incorporated into part of the City's General Plan. Therefore, it is
recommended that the City consider funding a study intended to review the
housina situation in San Bernardino, identify major needs and appropriate
local and outside resources to meet those needs, and formulate an overall
housina strategy of which the revolving loan fund would be a principal part.
Present and future housina programs could then be reviewed in light of the
overall strategy, and priorities established. The strategy itself could be
re-evaluated periodically and progress toward goals ascertained.
Administration of the fund will require staff time to discuss the program with
potential applicants, review and prioritize proposals, brief the Mayor and
Common Council periodically, take appropriate corrective action when
necessary, and other duties as required.
There will obviously be significant costs associated with the administration
of the revolvina loan fund. The costs of administration should be paid for
out of the fund, and preferably from interest earned on the funds invested.
The administrative structure could take many forms, includina direct
administration by RDA staff, contracting with a private lender, contracting
with a non-profit community development corporation, or establishing a public
non-profit housing development corporation. The first method is the simplest,
and the last method is the most complex but has significant advantages in
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terms of flexibility, the ability to attract additional outside capital,
administer other affordable housina programs, earn development fees, and yet
remain under the City's control. A housina strategy study could ascertain
whether the establishment of a public non-profit HOC was appropriate in San
Bernardino, given the requirements of the revolving loan fund and other
potential programs which the HOC might administer.
Conclusion
This concept paper is intended as a discussion piece regarding the use of the
funds from the 20% housina set-aside to support affordable housina in San
Bernardino. It can be further expanded at your request. If the Redevelopment
Agency is interested in implementing the loan programs described above, the
specifi~s of each program can be developed in further detail for subsequent
review.
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ATTACIIMENT
FUND PROJECTIONS FOil. THE
1l.EVOLVING LOAN FUND
Fund Projections
Assumptions:
That 1 million will be contributed to the fund at the
beginning of each year.*
That there will be a 5% loss reserve.
That costs for administration of the fund will be
approximately $50,000 per year, growing to $100,000 in year 10.
Beginnina Endina
Fund Interest Admin. Loss Fund
. Year Balance Contribution Earned Fee ll.eserve Balance
1 -0- $1,000,000 $ 80,000 $ 50,000 $ 50,000 $ 980,000
2 $ 980,000 1,000,000 158,400 50,000 57,920 2,030,480
3 2,030,480 1,000,000 242,438 50,000 163,646 3,059,272
4 3,059,272 1,000,000 324,742 50,000 219,201 4,ll4,8l3
5 4,114,813 1,000,000 409,185 75,000 276,199 5,172,799
6 5,172,799 1,000,000 493,824 75,000 333,331 6,258,292
7 6,258,292 1,000,000 580,663 75,000 391,948 7,372,007
8 7,372,007 1,000,000 669,760 75,000 452,088 8,514,679
9 8,514,679 1,000,000 761,174 100,000 513,793 9,662,062
10 9,662,062 1,000,000 852,965 100,000 575,751 10,839,276
*The Agency anticipates that, within the next two (2) years, approximately 1
million dollars per year will be available for the revolvina loan fund from
20% of tax-increment revenues.
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