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SR-10B (4) ~o .:4t q b 2 ~ 1013 F \HOUSING\SHARE\WPFILES\STAFFRPT\TEFRASR WPD Council Meeting December 9, 1997 Santa Momca, callfof1ft:c 0 9 1937 TO Mayor and Members of the City Council FROM City Staff SUBJ ECT Recommendation to Conduct a Public Hearing and Adopt a ResolutIon Approving the Issuance of Tax Exempt Bonds for an Multi-Family Project to be Owned by Community Corporation of Santa MOnica INTRODUCTION ThiS report recommends that the City Council conduct a public hearing on, and adopt a Resolution approving, the Issuance of tax exempt bonds by the CalifornIa StatewIde Commumtles Development AuthOrity (CSCDA) to assist In the finanCing of a 17-umt affordable family project In the City of Santa Monica BACKGROUND As documented In the City's Draft 1998-2003 HOUSing Element Update, sources of funds for affordable hOUSing. including State and federal funds, have declined slgmflcantly In recent years In order to continue to respond to the community's need for affordable hOUSing the City must explore alternative methods of finanCing The Draft 1998-2003 HOUSing Element Update, which was adopted In concept by the City CouncIl In Aprrl, '1997, contains a new program to. ;'Assess Alternative Affordable HOUSing I=lnance Programs" (please see Program 2 e) Among the alternative finance programs speCifically referenced In Program 2 e are MultIfamily Tax Exempt Bonds .. I 1013 DEe 0 9 1f"17 .~~t This proposed project Involves pnvate activIty bonds This flnancmg structure reqUires an allocation of authority to Issue bonds by the State of California's Debt Limit Allocation Committee (CDLAC) Once the bond authonty IS allocated and the bonds are Issued, they will be purchased by Bank of Amenca Commumty Development Bank (Bank) The Bank will hold the bonds for ItS own account and will not offer bonds for sale to the general public This private placement of the bonds With the Bank allows the bond proceeds to be advanced over time as the project IS developed, much like a construction loan, and reduces the costs Involved In selling the bonds ThiS finanCing structure also allows for an automatic award of Four Percent Low Income HOUSing Tax Credits (Tax Credits) conditioned upon Issuance of the tax exempt private activity bonds These Tax Credits will be sold to a sophisticated Investor (I e , a partnership Involved In the bUSiness of tax credits). and the proceeds of the sale of the credits will be used to provide addItional fmanclng (more particularly, equity) to the project It IS Important to note that the City IS not ISSUing bonds Instead, the City CounCil approves the Issuance of bonds for the project by the California Statewide Communities Development AuthOrity (CSCDA) Established In 1987 as a Callforma JOint Powers AuthOrity, CSCDA IS a publiC agency Jomtly sponsored by the League of Cahforma CIties and the California State ASSOCiation of Counties offering a broad range of tax exempt financmg programs to assist local agencies to achieve economiC, financial and SOCial goals CSCDA charges prospective borrowers (In thiS case, CCSM) a fee to review proposed bond finanCing, ensure that the proposed finanCing meets all CSCDAgUldelrnes, 2 ensure the project satisfies the public benefit reqUirements for tax exempt bonds, and to recommend the project for approval for bond allocation by CDLAC This condUIt financing relationship with CSCDA offers two Important advantages First, the City does not have to establish Its own authority and mechamsm for Issuing tax exempt multi-famIly revenue bonds but Instead can rely upon CSCDA's expertIse In dOing so Secondly, although applicable Federal tax law for tax-exempt bonds reqUIres that CSCDA secure approval of the bond Issuance by the local elected body (In this case the City Council) because the project IS located In the City, the City bears no frnanclal or legal responsibility for these bonds nor do the bonds pose any risk to the City'S credit ratmg The City's financial adVIsor, Public Resources AdVISOry Group (PRAG), has reviewed the tax exempt bond flnancmg structure for thiS project and has provided a letter contained In Attachment A attestmg to the absence of risk on the City's part In havmg the City CounCIl approve the Issuance of these bonds The process of obtaining a bond allocation IS a competitive one presided over by the Callforma Debt Limit Allocation Committee (CDLAC) For the subject project, an applicatIon must be submitted by CSCDA to CDLAC by December 15, 1997, and the meetmg to determine which project will receive allocations will occur on January 21, 1998 Assuming the project receIves the tax exempt bond allocation and the bonds are Issued promptly thereafter, construction would likely begin In early spring, 1998 3 Required by the federal Tax Equity and Fiscal Responsibility Act of 1984 m connection with the Issuance of tax exempt bonds, the public heanng IS Intended to Inform the public that the tax exempt bonds are proposed to be used for a project located In the City and to provide the public with an opportunity for comment The proposed project Will be a three-story, 17 -umt wood frame bUilding containing 9 three- bedroom and 8 two-bedroom umts to be constructed on a vacant parcel located at 1438- 1444 16th Street between Colorado Avenue and Broadway As a family-oriented project, the bUlldmg Will contain a community room and an outdoor play area for children The project Will mduce a bond Issuance In the amount of approximately $1 9 million Affordable housing for famllres IS one of the most Significant needs Identified In the City's Draft 1998-2003 Housmg Element Update In fact, Program 2 h speCifically states, "FaCIlitate the Development of Housing for Families With Children" Therefore, thiS project Will serve to carry out the goals and programs of the City's Draft Housing Element The project team mcludes Community Corporation (CCSM) of Santa MOnica, CCSM Counsel, Bank of America Community Development Bank, the law firm of QUInt & Thlmmlg LLP, servrng as City Bond Counsel. the City's finanCial adVisor (PRAG), CSCDA, and, City of Santa MOnica City Attorney staff and Housing DIVISion staff BUDGET/FINANCIAL IMPACT Approving the Issuance of bonds for thiS project has no fmanclal or budgetary Impact 4 RECOMMENDATION It IS recommended that the City Council conduct a public hearing and adopt the attached resolution approving the Issuance of tax exempt bonds for the purpose of provldmg fmanclng for a multifamily rental housmg development to be owned by Commumty Corporation of Santa Monica Attachments A - Opinion of City's Financial AdVisor Concerning Risk to City In Approving Issuance of Bonds B-Resolutlon Approving the Issuance of Bonds by CSCDA for the Purpose of Providing a Loan to Frnance a Multifamily Rental Housmg Development to be Owned by CCSM Prepared by Jeff Mathieu, Director, Resource Management Department Robert T Moncnef, Housing Manager Johanna Gullick, Housing Coordmator Tad Read, Semor Development Analyst Linda Moxon, Deputy CIty Attorney 5 Attachm.ent A Public Resources Advisory Group 3550 Wilshire Boulevard . SUite 1630 . Los Angeles. CA 90010 November 4, 1997 . (213) 380-9344 Mr Robert Moncnef Housmg Manager CIty of Santa MOllIca 1685 Mam Street Santa Momca., CA 90407-2200 Dear Mr Moncnef As you are aware, Pubbc Resow-ces AdVISory Group serves as the CIty of Santa Momca' s general financial advISOr WIth the responsIbility of advIsmg the Dtrector of Fmance on capital fmancmg matters, mcludmg ways to enhanc:c: or mamtam the City'S lugh crecht ratmgs We have been retamed by the Housmg Depart:meot to revlCW the financmg plan for the Commumty Corporatlon of Santa Momca 1428-1 '!'!'! 16th Street Project (the "ProJect"), wmch plan mcludes ISSuance of Multifamily Housmg Revenue Bonds (the "Bonds''), and to advISe the CIty of the potentIal unpact, 1f any, of the fmancmg on the Clty'S credIt ratmgs or lts ability to access the capItal markets m the future The City will contnbute certatn fimds to the Project but will have DO CODtmwng financIal obbgatlon to the Project and no responsIbility for repayment of the Bonds We are of the DplDlOll that the proposed ISSuance of Bonds will not unpact the CIty'S lugh cn:d1t ratmgs and will not unpact Its ability to access the capital markets for future borroWIng needs Sumnuuy of the ~ f1nalr.Jn~ Commumty Corporatlon of Santa Momca ("CCSM''), a not-for-profit developer of affordable housmg, des1RS to borrow funds at tax-exempt mterest rates m order to finance construction of a 17 umt apartment buildmg to be located lit 1428-1444 16th Stn:cl Use oftax.-cxcmpt financmg IS cntical to the econna:uc pfOjCCbODS for the Project SlDCC the tax-exempt bonds provlde access to tax credit based eqwty wluch IS estunated to be as much as 23% of the ProjOCt's ultunate cost. The proposed ISSuer of the tax- exempt Bonds is the Califonua S!~!~ Commumucs Development Authonty r'CSCDA"), a Jomt Powers Authonty o~t!~g under State law, of wluch the City IS a member The CSCDA lS bemg requested by CCSM to ISSue the Bonds ~-11:~ the Clty does not currently hav..: a fmancmg structure m place to serve as a condwt ISSuer of Mulufanuly Housmg Revenue Bonds The Bonds Ire cxpccted to be purchased by Bank of Amenca Commumty Development Bank (the "Bank'') The Bank mteDds to bold the Bonds for Its own account and they WIll not be offered to the general pubbc Any transfer of the Bonds wtll reqwre the pnor consent of CSCDA and w1l1 only be pem1!~~ If the transfcrcc is a qualified soplusUcated mvestor The Bonds wdl not obtam a credJt rating The Bonds will be l'Cpaad solely through Project rental mcome There IS no letter of credJ.t or other guarantee of repayment of the Bonds The Bonds WIll be ISSUed to proVIde construcbon fmancmg for the Project Land acqWSltlOD and other Project costs have been funded ""th a loan from the City's Housmg Department (the "SMHD Loan'') which w1l1 be repaid from PrOject rental mcome after payment of debt ServIce on the Bonds The amoWlt of Bonds nutIally ISSued for the PrOject will be reduced m the year foJloWUlg completIon by the proceeds obtamed by CCSM from the sale of tax credits created by the Project and from the SMHD Loan The ablhty of the Project to repay the Bonds at the projected rent levels depends on obtammg tax credits ill the amoWlt projected If CCSM falls to reahze the expected level of proceeds from the sale of tax cred1ts. the amount of Bonds outstandmg after complebon wdl be lugher than projected and the Project may bave wfficulty repaymg Public Resources Advisory Group the Bonds on tune or m full Another situatIon wiuch could create cash flow dIfficulties for the Project woald be the f;ulure ta generate the project levels of rental Income from the bwldmg Even lfthc Project runs anta fmanclal difficulty m repaymg the Bonds, tlus Situation would not have a negatIve IIIlpact on the financial condauon of the City or IQ1pact the City'S ability to access the capital markets The Bonds are solely obligations of the Project and the City has no fmanclal obligation for their repayment Investors m the Bonds will recogmz.e the absence of City responsibility and tlus fact will be clearly !:t!!!~ In all documents related to the Bonds ConcluslOll We are of the OPWQI1 that the proposed ISSUance of Bonds wdl not unpact the City'S lugh credIt ratIngs and will not unpact Its abllJty to access the Capital markets for future borrowmg needs Tlus conclUSion IS based on the fact that the Bonds are revenue bonds expected to be repaid solely from the rental mcome of the ProJcct The City WllI have no contJnwng fmanclal obhgatlon to the ProJect and no responsibility for repaymellt of the Bond$ Please do not hesitate to contact the undersigned 1f you have any questions conc:ermng tlus letter Smcerely, vi tnr/'1'/ /(;1,..., Wesley CH1gh ~ ~ ..... Co-Presldent cc Mike Ilt!nm~ Joh'lnna Gullick Jeff Mathieu Attachment B RESOLUTION NO. 9226 A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF SANTA MONICA APPROVING THE ISSUANCE OF BONDS BY THE CALIFORNIA STATEWIDE COMMUNITIES DEVELOPMENT AUTHORITY FOR THE PURPOSE OF PROVIDING A LOAN TO FINANCE A MULTIFAMILY RENTAL HOUSING DEVELOPMENT TO BE OWNED BY COMMUNITY CORPORATION OF SANTA MONICA WHEREAS, the California Statewide Communities Development Authority (the "Authority") is authorized by Chapter 7 of Part 5 of Division 31 of the Health and safety Code of the state of California, as amended, (the "ActU) to issue its bonds to make loans from the proceeds for housing purposes specified in the Act; and WHEREAS, Community corporation of Santa Monica, a California non-profit public benefit corporation, (the "CorporationU) has requested that the Authority use its powers under the Act to issue tax-exempt bonds (the uBondstl) for the purpose of providing a loan from the Bond proceeds to the Corporation to enable the Corporation to finance a multifamily housing rental development located in the city of Santa Monica (the "Project"); and WHEREAS, a portion of the housing units in the Project will be rented to persons and families of very low income as required by the Act and the Internal Revenue Code of 1986, as amended (the "Cade"); and WHEREAS, the Bonds will be considered to be "qualified exempt facility bonds II under Section 142 (a) of the Code, and Section 147(f) of the Code requires the "applicable elected representative" to approve the issuance of the Bonds by the Authority following the holding of a public hearing with respect thereto; and WHEREAS, the Authority has determined that the city Council of the City is the "applicable elected representative" with respect to the Bonds; and WHEREAS, notice of said publlC hearing has been duly given as required by the Code, and the City Council has heretofore held such public hearing at which all interested persons were given an opportunity to be heard on all matters relative to the location, operation and financing of the Project and the Authority1s issuance of the Bonds and the Authority'S loan of the Bond proceeds to the Corporation, and a copy of all written and a transcript of all oral 1 testimony received at the hearing has been made available to the City Council; and WHEREAS, it is in the pUblic interest, for the public benefit, and in furtherance of the public purpose of the city that the City Council approve the issuance of the Bonds by the Authority for the aforesaid purposes. NOW, THEREFORE, BE IT RESOLVED by the City Council of the city of Santa Monica as follows: section 1. The City council of the city of Santa Monica hereby approves the issuance of the Bonds by the Authority under the Act and the Code for the purpose of providing funds to the Corporation to enable the Corporation to finance the Project. Section 2. This Resolution shall take effect immediately upon its adoption, APPROVED AS TO FORM: --., ~ .... ~ ~ "'""- ~, ,/ "_ 1-.... -i "'....._ ...- n - r"- _ MARSHA JONES MOUTRIE City Attorney I , 2 . Adopted and approved this ~ day of December , 1997. ~~~;: ~ Mayor I hereby certify that the foregoing Resolution 9226 (CCS) was duly adopted at a meet1ng of the city council held on the 9th of December , 1997 by the following vote: Ayes: Councilmembers: 0' Connor. Fe1nste1n. Genser. Rosenste1n, Holbrook Noes: Councilmembers: None Abstain: Councilmembers: None Absent: Councilmembers: Greenberg, Ebner ATTEST: M~. City'Clerk tJ 3