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SR-414-003 (6) ~ 1 Lj/t/-Ot)3 (!e/ IlA-:2 JUL 2 5 1989 C/ED:HSG:JG:wp Redevelopment Agency Meeting: 7/25/89 city council Meeting Santa Monica, California TO: Chairperson and Redevelopment Agency Mayor and city Council FROM: City staff SUBJECT: Recommendations to (1) Adopt Resolutions Allocating Funds to the Downtown and OCean Park lea) and 1 (b) Redevelopment project Low and Moderate Income Housing Trust Fund, (2) Approve Earnest Money Agreements with Community Corporation of Santa Monica for the City-wide Housing Acquisition and Rehabilitation Program (CHARP) and the Pica Neighborhood Housing Trust Fund (PNHTF), (3) Approve an Agreement with the pico Neighborhood Association for the Operation of PNHTF, and (4) Approve Revisions to the Program Guidelines for CHARP and PNHTF. INTRODUCTION This report transmits for adoption resolutions allocating funds to the Downtown and Ocean Park lea) and l(b) Redevelopment Project Low and Moderate Income Housing Trust Fund for use in the city-wide Housing Acquisition and Rehabilitation Program as approved in the Fiscal Year 1989-90 Budget. The report recommends approval of standard Agreements with community Corporation of Santa Monica for the use of CHARP and PNI:iTF "earnest money" funds, and a standard Agreement with the Pico Neighborhood Association (PNA) for PNHTF Program operation. The report also recommends that revisions be made to the Program Guidelines for both the city-wide Housing Acquisition and Rehabilitation Program (CHARP) and the Pico Neighborhood Housing Trust Fund (PNHTF) to ensure the efficient operation of the Programs. - 1 - (Je/~A-,2 JUL 2 5 1989 BACKGROUND The city-wide Housing Acquisition and Rehabilitation Program (CHARP) and pico Neighborhood Housing Trust Fund (PNHTF) were created in 1983 to preserve and expand the stock of affordable housing in Santa Monica for low and moderate income households. Since Fiscal Year 1983-84, a total of one hundred fourteen (114) uni ts have been assisted with CHARP funds, and a total of one hundred thirty two (132) units have been assisted with PNHTF funds. The Redevelopment Agency and ci ty Council have appropriated $525,412 for CHARP and $510,624 for PNHTF in the approved Fiscal Year 1989-90 Budget. In order to utilize redevelopment tax-increment funds for affordable housing development, resolutions finding such development to be of benefit to the redevelopment projects must be adopted by the Agency and the city Council at the start of each fiscal year. It is also necessary at this time to execute an Agreement with Community Corporation of Santa Monica (CCSM) for the use of $75,000 from CHARP as earnest money deposits. No resolutions of benefit are necessary for the PNHTF Program, as it is funded with federal Community Development Block Grant (CDBG) and Rental Rehabilitation Program funds. However, at the start of each fiscal year it is necessary to execute (1) an Agreement with CCSM for the use of $25,000 from PNHTF as earnest money deposits, and (2) an Agreement with the pica Neighborhood Association (PNA) defining its role in the PNHTF Program's operation. - 2 - The Agency and city first adopted Program Guidelines for the CHARP and PNHTF Programs in 1983, and have revised them periodically since then to both account for changing market condi tions and to ensure the efficient implementation of the programs and the city r s housing policies. Further revision of the Guidelines is necessary at this time to ensure continued participation in the programs by non-profit housing developers, and to comply with new federal regulations relating to lead-based paint hazard abatement and disabled accessibility. DISCUSSION Resolutions of Benefit california redevelopment law allows local Redevelopment Agencies to use tax-increment funds outside of the redevelopment project area which generated them if the expenditure of such funds will be of benefit to the project. Under the provisions of this law, increasing and improving the supply of affordable housing for low and moderate income households outside the project area is considered to be of benefit to the redevelopment projects. State law requires that the Redevelopment Agency adopt resolutions each year formally determining that the use of tax-increment funds in this manner will benefit the redevelopment projects. In addition, the city council must concur in this determination. Therefore, in order to utilize the new redevelopment tax-increment funds appropriated to CHARP in the FYS9-90 budget, the attached resolutions must be adopted by the Redevelopment Agency and city Council. - 3 - California redevelopment law also requires that 20% of all tax-increment funds received by the Agency annually be used to assist low and moderate income housing activities. This allocation to the CHARP Program, in addition to the Agency' s lease payment for the public housing development at 175 Ocean Park Boulevard and other approve housing-related expenditures for FY89-90, will satisfy the "20% set-Aside" requirement for this fiscal year. Agreement for CHARP "Earnest Money" Funds In addition to adopting resolutions of benefit for the CHARP Program, it is necessary at this time to approve and execute an Agreement with Community Corporation of Santa Monica (CCSM) for the use of the $75,000 "Earnest Money" component of CHARP. These funds are to be used (1) for deposits on properties to be purchased for affordable housing projects, and (2) as a revolving fund for reimbursable development expenses which cannot be obtained on a contingency basis. The proposed "Earnest Money" Agreement is in the standard grantee contract form used in the Community Development Program. It is the same Agreement used in previous years, and it includes all appropriate provisions of state law applicable to redevelopment agency activities, as well as the usual city requirements relating to accounting procedures, political activities, and equal employment opportunity. - 4 - Agreement for PNHTF "Earnest Money" Funds Similar to the CHARP Program, it is necessary at this time to approve and execute an Agreement with CCSM for the use of the $25,000 "Earnest Money" component of PNHTF. These funds are to be used only for deposits on properties to be purchased for affordable housing projects. The proposed "Earnest Money" Agreement for PNHTF, like the Agreement proposed for CHARP, is in the standard grantee contract form used in the community Development Program. It is the same Agreement used in previous years, and it includes all appropriate provisions of Federal law applicable to the use of CDBG funds, as well as the usual city requirements relating to accounting procedures, political activities, and equal employment opportunity. Agreement with Pica Neighborhood Association Along with the Agreement for PNHTF Earnest Money funds, it is necessary at the beginning of each fiscal year to execute an Agreement with the pica Neighborhood Association (PHA) detailing PNA's role in the operation of the PNHTF Program. The proposed Agreement is the same as that used in previous years. PNA's role in the operation of the PNHTF Program includes reviewing each loan application submitted, meeting with City staff on a regular basis, and annually assessing the housing needs of the pico Neighborhood. Both the Agreement for Program operation and the - 5 - PNHTF Earnest Money Agreement were reviewed by the PNA Board on July 13, 1989. Revision of CHARP and PNHTF Program Guidelines Both the CHARP and PNHTF Programs provide thirty-five (35) year deferred payment loans to eligible borrowers for the acquisition, rehabilitation, and/or new construction of affordable housing units for low and moderate income households in Santa Monica. PNHTF funds may only be used within the pica Neighborhood of Santa Monica. A Regulatory Agreement restricting the rent levels, occupancy, management, and disposition of each assisted property is recorded to secure each program loan. The proposed revisions to the Guidelines would increase the development fees allowed project sponsors from one and one-half percent ( 1.5%) to three percent (3 %) of the total development cost of the assisted project, and increase the maximum per unit loan amount under the PNHTF Program from $35,000 to $40,000. These revisions would not affect any of the project review and approval processes currently in place, and the Program Guidelines would remain unchanged in all other respects. 1. Increase in Allowable Development Fee Increasing the development fee allowed by the Programs is necessary at this time to (1) more adequately reimburse project sponsors for the costs involved in developing affordable housing projects, and (2) make the Programs comparable to similar - 6 - affordable housing programs in California and throughout the nation. The costs involved in initiating and carrying-out affordable housing developments have increased dramatically in recent years as projects have become more complex, often inclUding multiple public and private funding sources and the syndication of low income housing tax credits. The actual cost of sponsoring an affordable housing project is currently between 10% and 15% of the total development cost of a project. While the proposed three percent (3%) development fee would still not actually cover the cost of packaging and developing a project, it would come significantly closer to doing so. In recognition of the substantial costs involved in packaging and developing affordable housing projects, other public agencies allow much higher development fees to the sponsors of proj ects which they assist. For example, 5-10% development fees are allowed in the city of Chicago and in Saint Paul, Minnesota, a 4-5% fee ($5,000 per unit) is allowed by the national Local Initiatives Support Corporation (LISe), and a 4-6% fee is allowed by the City of San Francisco. These public agencies also provide operating support to local non-profit corporations, as the City of Santa Monica does, but allow higher development fees to both (1) more adequately cover the cost of developing affordable units} and (2) provide an incentive to local non-profit developers to develop as many affordable units as possible. staff is proposing that the development fees allowed by both the - 7 - CHARP and PNHTF Programs be increased to three percent (3%) for these reasons. 2. Increase in PNHTF Maximum Per Unit Loan Amount Increasing the maximum per unit loan amount under the PNHTF Program is necessary at this time to compensate for increased project costs resulting from new federal regulations relating to (1) lead-based paint hazard abatement, and (2) accessibility for disabled households. The U. S. Department of Housing and Urban Development (HUD) has recently adopted extensive regulations regarding the inspection, testing, and abatement of lead-based paint hazards in housing rehabilitation projects assisted with federal CDBG funds. These regulations have significantly increased the cost of acquisition and rehabilitation projects assisted by the PNHTF Program, as extensive inspection and abatement procedures are now required to mitigate the hazardous effects of lead-based paint used in buildings constructed prior to 1978. For example, the cost of a thirty-two (32) unit acquisition and rehabilitation project currently being carried-out by CCSM at 2020 Cloverfield Boulevard has been increased by approximately $80,000 by these regulations, or $2,500 per unit. In addition, recent revisions to section 504 of of the federal Rehabilitation Act of 1973 have increased the number of accessibility modifications required in rehabilitation projects assisted by the PNHTF Program. Staff estimates that these new - 8 - $3,000 per unit. requirements will increase project costs between $2,000 and The PNHTF Program Guidelines specify a maximum project loan amount of $35,000 per unit. In order for non-profit development corporations to comply with the regulations described above in their development of affordable housing units in the Pico neighborhood, staff is recommending that the maximum per unit loan amount be increased to $40,000 at this time. FINANCIAL/BUDGETARY IMPACTS The Fiscal Year 1989-90 budget includes an appropriation of $525,412 for the City-wide Housing Acquisition and Rehabilitation Program. This appropriation is reflected in the following accounts: Funds Requiring Resolutions of Benefit 16-720-264-000-942 18-720-264-128-942 18-720-264-129-942 Downtown Fund Ocean Park l(a) Fund Ocean Park 1(b) Fund Subtotal Funds Not Requiring Resolutions of Benefit 16-720-264-731-942 16-720-264-000-942 16-720-264-128-942 16-720-264-129-942 Vitale Gilpin Fund Earnest Fund Repayment Earnest Fund Repayment Earnest Fund Repayment Subtotal TOTAL $98,866 $164,400 $60,806 $324,072 $126,340 $37,500 $27,375 $10,125 $201,340 $525,412 The approval of the CHARP Earnest Money Agreement with CCSM will result in the expenditure of $75,000 from the following accounts: - 9 - TOTAL $37,500 $27,375 $10,125 $75,000 16-720-264-000-942 18-720-264-128-942 18-720-264-129-942 The Fiscal Year 1989-90 budget includes an appropriation of $510,624 for the pico Neighborhood Housing Trust Fund. appropriation is reflected in the following accounts: This TOTAL $364,624 $146,000 $510,624 19-720-264-000-930 19-720-264-134-930 CDBG Rental Rehab The approval of the PNHTF Earnest Money Agreement with CCSM will result in the expenditure of $25,000 from account number 19-720-264-000-930. No further financial or budgetary impacts are anticipated as a result of the actions recommended in this report. RECOMMENDATIONS It is recommended that the Redevelopment Agency: (1) Adopt the attached Resolution of the Redevelopment Agency of the City of Santa Monica allocating $98,866 into the Downtown Redevelopment Project Low and Moderate Income Housing Trust Fund to provide funds for CHARP, and finding the provision of affordable housing to be of benefit to the Downtown Redevelopment project. (2) Adopt the attached Resolution of the Redevelopment Agency of the City of Santa Monica allocating - 10 - $164,400 into the Ocean Park Redevelopment Project 1 (a) Low and Moderate Income Housing Trust Fund to provide funds for CHARP, and finding the provision of affordable housing to be of benefit to the Ocean Park Redevelopment Project l(a). (3) Adopt the attached Resolution of the Redevelopment Agency of the City of Santa Monica allocating $60,806 into the Ocean Park Redevelopment Project 1 (b) Low and Moderate Income Hous ing Trust Fund to provide funds for CHARP, and finding the provision of affordable housing to be of benefit to the Ocean Park Redevelopment Project l(b). (4) Approve the execution of an Agreement by and between the Redevelopment Agency of the City of Santa Monica and Community Corporation of Santa Monica for $75,000 in CHARP Earnest Money funds. (5) Approve the revision to the Program Guidelines for the City-wide Housing Acquisition and Rehabilitation Program as described in this report. It is recommended that the City Council: (6) Adopt the attached Resolution of the City Council of the city of Santa Monica finding the use of funds in the Downtown Redevelopment Proj ect Low and Moderate Income Housing Trust Fund to be of benefit to the Downtown Redevelopment Project. - 11 - (7) Adopt the attached Resolution of the city council of the city of Santa Monica finding the use of funds in the Ocean Park 1 (a) Redevelopment proj ect Low and Moderate Income Housing Trust Fund to be of benefit to the Ocean Park l(a) Redevelopment Project. (8) Adopt the attached Resolution of the City Council of the City of Santa Monica finding the use of funds in the Ocean Park 1 (b) Redevelopment proj ect Low and Moderate Income Housing Trust Fund to be of benefit to the Ocean Park l(b) Redevelopment Project. (9) Approve the execution of an Agreement by and between the City of Santa Monica and Community Corporation of Santa Monica for $25,000 in PNHTF Earnest Money funds. (10) Approve the execution of an Agreement by and between the city of Santa Monica and the Pico Neighborhood Association for the implementation of the pico Neighborhood Housing Trust Fund. (11) Approve the revisions to the Program Guidelines for the pico Neighborhood Housing Trust Fund as described in this report. Prepared by: Jack Gardner, Senior Development Analyst Candy Rupp, Housing Program Manager Department of Community and Economic Development : benefit - 12 -