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HomeMy WebLinkAboutR18-Redevelopment Agency RdYEl.ONENT AGENCY...&..ST FOR &...ISSION/COUNCIL A:ION _m: 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) . Set date for workshop for review and analysis of Redevelopment Agency Housing Program by the Mayor and Common Council. ~~~ 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 . STAFF REPORT . . . 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 951L . . . ""-~"----'-'--;-:'j: . . . . 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 . . . . 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. . 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. . 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). . Expressly permitted activities include: to land, including infrastructure; "acquisition of land; improvements acquisition, rehabilitation or -2- ')!"""- . . . . construction of structures; and the provision of subsidies necessary to provide housing for persons and families of low or moderate income. . 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. . 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: . 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 -3- ;,,--~-'- . . . . . 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. . 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: . 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. -4- . . . . . . . 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. . Priorities As indicated above, State law leaves the decision to the local community concerning how to allocate funds from the 20% housina set-aside. -5- . . . . In setting priorities, the following issues should be addressed: . 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. . 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 . -6- . . . . . . . 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. 638L -7- . . . . . 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. 585L .