SR-407-004-01 (2)
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MAY 13'IM
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City Council Meeting:
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Santa Monica, California
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TO:
Mayor and City Council
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FROM:
city staff
SUBJECT:
Recommendation to Transfer HUD Rental Rehabilitation
Funds to New Capital Account for Supplemental Fund-
ing to Housing Trust Fund proj ects and Authorize
City Manager to Approve Use of Funds
INTRODUCTION
This report transmits a recommendation'regarding the transfer of
U. S. Department of Housing and Urban Development (HUD) Rental
Rehabilitation Program funds from the Pico Neighborhood Residen-
tial Rehabilitation Loan Program to a new capital account for the
Rental Rehabilitation Program in order to increase the opportuni-
ties for utilization of these funds. The report also recommends
that the City Manager be authorized to approve the use of these
funds for projects which meet specific program criteria.
BACKGROUND
In 1984 HUD began awarding Rental Rehabilitation Program funds to
cities on an entitlement basis. In Fiscal Years 1984-85 and 1985-
86 the City was awarded a total of $298,500 under the Rental
Rehabilitation Program. $100,000 of these funds were programmed
in the Pico Neighborhood Residential Rehabilitation Loan Program
for use as loans to private for-profit or non-prOfit borrowers
for rehabilitation of rental units. The remaining $198,500 was
programmed in the pico Neighborhood Housing Trust Fund to be used
in conjunction with Community Development Block Grant funds to
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make deferred payment loans to eligible non-profit borrowers for
acquisition and rehabilitation of eligible projects in the pico
Neighborhood.
The following discusses the federal Rental Rehabiliation Program
requirements and the status of the program in Santa Monica, and a
recommendation to transfer these funds to a new account for use
citywide.
DISCUSSION
Use of Rental Rehabilitation Proqram in Santa Monica
The HOD Rental Rehabilitation Program funds can be used by
localities to subsidize rehabilitation of rental units by non-
profit or for-profit property owners. The funds can only be used
for one-half of the eligible rehabilitation costs on a project.
Each property must be occupied primarily by lower-income
households.
city staff have worked on a number of potential projects with
non-profit and for-profit borrowers over the past two years, but
to date none of the projects have been feasible. The primary
difficulty in using these funds is that the HUD Rental
Rehabilitation program requires that the program funds be
leveraged with private funds, but does not provide a long-term
rental subsidy to ensure that the loan of private funds can be
paid. Therefore, the program is difficult to market to private
owners and lenders, and difficult for tenants to accept.
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The HUD regulations require that the funds be recaptured if a
locality has not obligated a significant portion of the Rental
Rehabilitation Funds wi thin approximately two years.
On April
18, 1986, after extensive efforts by City and local applicants to
identify feasible projects meeting the difficult program require-
,
ments, the city received notice that fifty percent (50%) of the
FY 84-85 allocation, or $75,750 would be recaptured as specified
in the HUD Program Regulations. HUD also indicated that addi-
tional recaptures would be made later in the year if the City was
unable to utilize the remaining funds promptly. However, if the
City uses all of the Rental Rehabilitation funds currently com-
mitted additional funds would very likely be available as needed.
Recommended Changes
In order to utilize the remaining award of HOD Rental Rehabilita-
tion funds to avoid recapture, it is recommended that the remain-
ing funds be utilized to supplement funding to pico Neighborhood
Housing Trust Fund (PNHTF) and Citywide Housing Acquisition and
Rehabilitation Program (CHARP) projects. In order to implement
this change the $100,000 currently budgeted in the Pico Neighbor-
hood Residential Rehabilitation Loan Program shall be transferred
to a new capital account to serve as supplemental funding to ex-
isting housing trust fund projects. In order to expend funds in a
timely manner, and to preserve the City's goals of providing
long-term affordable housing for lower income households while
conforming to the HUD program requirements,
the Rental
Rehabilitation program funds can be used for necessary substan-
,
tial rehabilitation items on properties that are also approved
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for loans from the citywide Housing Acquisition and Rehabilita-
tion Program (CHARP) or the pico Neighborhood Housing Trust Fund
(PNHTF). There are several projects throughout the city that have
been approved for CHARP loans that would currently qualify for
Rental Rehabilitation assistance.
It is further recommended that the city Council authorize the
city Manager to approve the use of HUD Rental Rehabilitation
funds for proj ects that meet both the HUD requirements as out-
lined above, and the CHARP or PNHTF program criteria, with the
following additional requirements to ensure that the funds are
targeted to the properties most in need:
(1) Increase of Housing Opportunities - In competitively
selecting projects for commitment of funds, priority
shall be given to those projects which rehabilitate
previously uninhabitable units or otherwise add new
units to the housing stock, and involve substantial
rehabilitation to major building systems.
(2) Targeting - Funds will be used where possible for
projects in the pico Neighborhood, however otherwise
eligible projects in other areas of the City are also
eligible to receive fund commitments.
(3) Timeliness - projects that are ready to proceed with
rehabilitation and can utilize Rental Rehabilitation
funds in a timely manner will be given first priority.
(4) A feasibility analysis will be conducted on each
project to ensure that the rents will remain affordable
to lower income households for the term of the City's
CHARP or PNHTF loan.
(5) The maximum Rental Rehabilitation loan shall be
$10,000 per unit.
The HUD Rental Rehabilitation funds will be provided to appli-
cants as deferred principal and interest loans with the same
terms as the CHARP loans, as modified according to any applicable
HUD regulations. The loans will be secured by a Promissory Note
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and Deed of Trust, which shall be recorded in subordinate posi-
tion to any other city loans on the project.
Rehabilitation opportunities for Private Property Owners
As described above, the original $100,000 in BUD Rental
Rehabilitation funds that was budgeted in the Pico Neighborhood
Residential Rehabiliation Loan Program was also to be available
to for-profit private property owners with rental property in the
,
Pico neighborhood. No eligible properties have been identified to
date. However, as the city has been contacted by some owners with
specific circumstances that may meet the program requirements, it
would be desirable to have some subsidy source to assist property
owners with rehabilitation costs. The Housing Authority of the
County of Los Angeles is operating a program targeted to private
property owners with the HUD Rental Rehabiliation Program funds,
and has indicated a willingness to make funds available to prop-
erty owners in Santa Monica. Therefore, the City is working with
the Housing Authority of the County of Los Angeles (HACoLA) to
negotiate a Cooperation Agreement to administer this rehabilita-
tion program within the City's jurisdiction. Upon finalization
of the cooperation Agreement it will be brought to the City Coun-
cil for review and approval. This will provide property owners
with eligible projects in Santa Monica with another opportunity
for financial assistance for rehabilitation activities.
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FINANCIAL/BUDGETARY IMPACTS
This report recommends that $100,000 be transferred from Account
Number 01-200-264-l34-713 to a new account, titled Rental
Rehabilitation Program, Account Number 20-720-264-134-955.
RECOMMENDATIONS
It is recommended that the city council:
1. Authorize the transfer of $100,000 from the pico Loan Program
account number 01-200-264-134-713 to a new account number
20-720-264-134-955,
titled
Rental
Rehabilitation,
for
,
supplemental funding for City Housing Trust Fund projects.
2. Authorize the city Manager to approve the use of program funds
in accordance with the criteria described in this report.
Prepared By: Candy Rupp, Housing Development Analyst
Ann Sewil1, Housing Program Manager
Department of Community & Economic Development
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