SR-407-002-04 (4)
F:RMDShare\Airport\STAFFREPORTS2004\FinalStaffreportsbox\HTFGuideline
Council Meeting:January 11, 2005 Santa Monica, California
TO: Mayor and City Council
Chairperson and Redevelopment Agency
FROM: City Staff
SUBJECT: Revisions to the Consolidated Rental Housing Trust Fund Guidelines
INTRODUCTION
This report recommends that the City Council/Redevelopment Agency approve
revisions to the Consolidated Rental Housing Trust Fund Guidelines (“Trust Fund
Guidelines”) regarding subsidy limits and terms.
BACKGROUND
The City has five housing trust funds: the Citywide Housing Trust Fund; the TORCA
Housing Trust Fund; the Redevelopment Housing Trust Fund; the HOME Trust Fund;
and the CDBG Trust Fund. The revenue sources for these housing trust funds are
developer fees, condominium conversion taxes, redevelopment area tax increment, and
federal grants. These City housing trust funds, together with federal and state housing
programs, and private equity, facilitate the development of affordable housing
throughout the community.
The administration of these housing trust funds is governed by the Trust Fund
Guidelines adopted by the City Council/Redevelopment Agency in November 1998.
The purpose of the Trust Fund Guidelines is to establish parameters for the terms of the
subsidies provided to affordable housing developments. The Trust Fund Guidelines are
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amended periodically to reflect changes in the housing market and the affordable
housing sector, and to facilitate affordable housing development. The most recent
revisions to the Trust Fund Guidelines occurred in May 2000 and April 2001, and
involved increasing the subsidy limits and other adjustments to the loan terms.
At the Housing Commission’s December 16, 2004 meeting, staff presented the
proposed revisions to the Trust Fund Guidelines regarding the aggregate subsidy limit,
developer fee, and other technical adjustments contained in this report. The Housing
Commission unanimously supported the proposed revision to the aggregate subsidy
limit and urged the Council/Agency to consider the other proposed revisions that are
intended to facilitate affordable housing development.
DISCUSSION
Staff recommends two primary revisions to the Trust Fund Guidelines regarding the
following items: 1) aggregate subsidy limits, and 2) developer fees.
Subsidy Limits
The Trust Fund Guidelines establish both per unit and per development subsidy limits
subject to the approval of the City Manager/Executive Director. Subsidies above either
the per unit limit or per development limit require approval of the City
Council/Redevelopment Agency.
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The following table shows the existing and proposed Trust Fund Guidelines subsidy
limits:
PROPOSED
EXISTING SUBSIDY LIMITS
LIMITS
Acquisition and New
Rehabilitation Construction
Zero & One Bedroom Units $ 144,000 $ 156,000 No change
Two or More Bedroom Units $ 168,000 $ 180,000 No change
Per Development $ 4,500,000 $ 5,400,000 <= 50 Units
Recent experience with affordable housing development in Santa Monica suggests a
need to revise the aggregate subsidy limits for administrative approval. The typical new
construction affordable housing development in Santa Monica contains 40 – 45 units
with a total development cost of approximately $14 - $15 million or approximately
$350,000 per unit (two such developments are currently under construction). Such a
development currently requires a City subsidy of $6 - $6.5 million, or $145,000 -
$150,000 per unit, and this City financing leverages the remaining $8.5 - $9 million from
private equity, bank financing, and State funding programs.
The Trust Fund Guidelines establish both per unit and per development (aggregate)
subsidy limits for administrative approval. Staff requests that Council revise the
aggregate subsidy limits for administrative approval (not the per unit subsidy limits) to
reflect a limit on the number of units per development, rather than a fixed dollar limit.
The limit proposed is fifty units per development. A City subsidy in a development
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containing more than fifty units would require City Council/Redevelopment Agency
approval. Under the revised guidelines, the maximum subsidy that the staff could
administratively approve would be $9 million for new construction developments (50
units x $180,000/unit) and $8.4 million for acquisition/rehabilitation developments (50
units x $168,000/unit).
This proposed revision to the Trust Fund Guidelines is consistent with the City’s Zoning
Code, which exempts affordable housing developments of fifty units or less from
discretionary review. The recommended approach to the aggregate subsidy limit is also
consistent with the intent of the Trust Fund Guidelines, which is to reflect typical
affordable housing developments in Santa Monica. Finally, the proposed revision
facilitates affordable housing development by reaffirming existing City policy, expediting
the funding approval process, and removing some uncertainty associated with
affordable housing development and financing.
Affordable Housing Developer fees
Developer fees are earned by affordable housing providers for each development they
complete, and are included in the per unit subsidy provided to the development. As in
the subsidy limits discussed above, the developer fee differs when the development is
for acquisition and rehabilitation, as opposed to new construction. The Trust Fund
Guidelines generally limit the developer fee for new construction to $10,000 per unit.
This developer fee has been in effect since November 1998. The City
Manager/Executive Director has the discretion to allow a higher fee. Staff proposes
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applying a simple inflation adjustment (Consumer Price Index, or CPI) to the existing
developer fee set in November 1998, which results in a twenty percent increase.
The fixed-dollar developer fee has the effect of not properly compensating an affordable
housing developer for smaller developments. Each affordable housing development,
regardless of the size, requires services involving land acquisition, design and
entitlements, public and private funding, construction, and leasing the units. To address
this issue, staff proposes a tiered developer fee schedule as follows:
DEVELOPER FEE
# of Units Existing Proposed % Increase
1- 20 $10,000/unit $14,000/unit 40%
21 - 30 $10,000/unit $13,000/unit 30%
31 - 50 $10,000/unit $12,000/unit 20%
51 or more $10,000/unit Negotiated n/a
This fee schedule reflects a twenty percent inflation adjustment applied to the typical
affordable housing development of 31 -50 units ($10,000 + 20% = $12,000), while
allowing a higher per unit fee for smaller developments to address the ‘fixed cost’ issue
discussed above.
The current developer fee for acquisition and rehabilitation developments is $7,800 per
unit for developments of seven units or less. Staff proposes applying the twenty percent
inflation factor resulting in a fee of $9,400 (rounded to nearest $100) for acquisition and
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rehabilitation developments of seven units or less. No changes are proposed for
acquisition and rehabilitation developments of more than seven units.
Other Technical Revisions
Minor technical adjustments to certain loan terms in the Trust Fund Guidelines are
proposed. The table below outlines these revisions:
Existing Proposed
Subject Rationale
Guidelines Revision
50% to borrower
Simplifies residual
and 50% split
Residual receipts formula and
50% to borrower among all public
maintains mechanism to
Receipts Loan
and 50% to City lenders on a pro
Payments encourage operational
rata (of funding)
efficiency
basis
Two years plus
one-year extension,
Two years, plus Consistent terms for all
except Citywide
Predevelopment one-year extension, five trust funds, plus
Housing Trust
Loan Term
plus six-month additional six-month
Fund, which is two
extension extension for flexibility
years plus two-year
extension
Due diligence
Due diligence The existing limit is
acquisition
acquisition seven years old and
Working Capital
expenses not to
Loan/Grant expenses not to new limit reflects current
exceed $10,000 are
exceed $25,000 due diligence costs
allowed
No City Manager
Allows 20% Guidelines represent
discretion above
City Manager
discretion above maximum administrative
Discretion proposed subsidy
subsidy limits approval
limits
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FINANCIAL/BUDGETARY IMPACT
There is no budgetary impact to the housing trust funds from the recommended
revisions to the Trust Fund Guidelines. However, the long-term financial impact would
be an increase in subsidies as a result of the increase in the developer fee .
RECOMMENDATION
It is recommended that the City Council/Redevelopment Agency approve the revisions
to the Consolidated Rental Housing Trust Fund Guidelines discussed in this report
regarding subsidy limits and terms.
Prepared by: Jeff Mathieu, Director, Resource Management Department
Ron Barefield, Housing Administrator
Jim Kemper, Senior Administrative Analyst
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