sr-112685-11aC/ED:HD:CR:wp
City Council Meeting: 11/26/85
TO: Mayor and City Council
FROM: City Staff
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Santa Monica, California {'~A 2-
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SUBJECT: Recommendation to Approve Revised Program Guide-
lines for the Pico Neighborhood Housing Trust Fund,
to Authorize the City Manager to Negotiate and Ex-
ecute an Agreement with Pico Neighborhood Associa-
tion, and to Authorize the City Manager to Execute
a Contract with Community Corporation of Santa
Monica for Earnest Funds
INTRODUCTION
This report transmits revised program guidelines for the con--
timed implementation of the Pico Neighborhood Housing Trust Fund
(PNHTF) Program. The report also recommends that the Council
authorize the City Manager to negotiate and execute an Agreement
between the City and Pico Neighborhood Association (PNA)
delineating responsibilities for the operation of the Program.
The report further seeks Council authorization to execute a con-
tract with Community Corporation of Santa Monica (CCSM) for the
disbursal of "earnest money" funds from the Trust Fund.
BACKGROUND
On September 2g, 1983 the City Council approved the program
guidelines for the Pico teighborhood Housing Trust Fund Program.
The PNHTF Program grew out of a neighborhood planning process
conducted by PNA and was designed to facilitate the acquisition,
rehabilitation, construction, and operation of affordable rental
housing by non--profit sponsors.
(1 - I'[
WOV 2 8 19985
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In Fiscal Year 1983-84 the Council appropriated $583,908 in Com-
munity Development Block Grant (CDBG) funds to establish the
Trust Fund Program. This same amount in CDBG funds and federal
Rental Rehabilitation funds was also appropriated to the Trust
Fund Program in FY 1984-85 and FY 1985-85.
The program procedures provide for City staff administrative re-
view and approval of applications for Trust Funds loans. Each
project application is extensively reviewed by staff in order to
assure that the project meets the minimum program requirements
and is financially feasible. To date, Community Corporation of
Santa Monica (CCSM) with the support of Pico Neighborhood As-
sociation (PNA) have acquired a total of 56 units, at an average
per unit cost of approximately $12,000. CCSM has successfully
leveraged Trust Funds with other federal and private sources.
The following table summarizes the project loans funded to date:
Site Address # Units/°s Afford. Loan Amount Project Type
Completed:
2017-23 20th 12 80°s $125,500 acq & rehab*
2525--33 Kansas 20 75% 231,400 acq & rehab
2625 Kansas 16 70°s 189,070 acq & rehab
1843-45 17th 8 75°s 110,000 acq & rehab
Pending:
1827 19th 6 75% 136,311 new constr.**
1937 18th 6 75% 128,860 new constr.
1808 17th 6 75a 131,485 new constr.
1629 Michigan 4 75% 63,721 new constr.
Totals: 78 $1,116,347
*acquisition and rehabilitation
**new construction (modular construction type)
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DISCUSSION
Current Program Guidelines
The PNHTF Program currently provides twenty-five (25) year de-
ferred principal and interest loans to non-profit housing
development corporations. The Program Guidelines are designed to
conform to the federal CDBG and Rental Rehabilitation Program
regulations. The Program's target benefit group are persons or
households with incomes at or below eighty percent (80%) of the
area median. Program funds can be used on eligible projects in
the Pico Neighborhood only. The Program Guidelines authorize the
City Manager and staff to review and approve loan applications
within the parameters approved by the City Council. The follow-
ing will detail the revisions recommended to the current guide-
lines which will enhance the efficiency and effectiveness of the
program.
Revisions to Program Guidelines
There are three. areas where program revisions are recommended,
(1) the program procedures and requirements, (2) the use of
funds, and (3) the loan terms and security terms.
(1) Program Procedures
The principal change in the program procedures is the addition of
an annual agreement between PNA and the City detailing the roles
and responsibilities of each in the implementation of the Pro-
gram. Consistent with the neighborhood planning process that
resulted in the program design, PNA has been significantly in-
volved in decision-making concerning the use of program funds.
However, clarification is needed regarding what the role of PNA
is in reviewing or approving specific projects and what criteria
should be used by PNA in proposal reviews. This lack of clarity
resulted in delays in PNA's review and approval of all project
loan applications in the past fiscal year, which significantly
delayed the City's use of CDBG and Rental Rehabilitation funds.
It is recommended that the City Council authorize the City Man--
agar to negotiate and execute an Agreement with PNA that details
specifically the role of PNA in the implementation of the pro-
gram. This Agreement will include the following provisions:
(1) PNA and the City will work jointly on an annual program plan-
ning meeting with residents of the Pico Neighborhood to discuss
housing needs and opportunities and decide on the program areas
that should be targeted for PNHTF assistance. This meeting will
be held in the first quarter of each fiscal year in which funding
is approved.
(2) PNA and the City staff will meet every other month with Com--
munity Corporation of Santa Monica to discuss pending projects
and program issues.
(3) PNA will review each loan application within a thirty (3H)
day period, to ensure that all projects assisted with PNHTF funds
will meet the program criteria for low and moderate income bene-
fit, long-term affordability, and improvement of the housing
stock in the Pico Neighborhood. This Agreement has been dis-
cussed extensively with PNA and reflects their comments and
concerns.
d
The program guidelines have been also been revised to clarify the
steps involved once an application fox Trust funds has been sub-
mitted to the City. The guidelines detail the roles of the
various City Departments involved in loan application review and
fund disbursal, including the Department of Community and
Economic Development, the Finance Department, the City Attorney's
office, and the City Manager's office. All the steps necessary to
approve and process a loan project application have been spelled
out in the guidelines, thus clarifying for all parties concerned
the procedures to be used. This clarification will enable City
staff to review and process loan applications more efficiently.
(2) Use of Funds
The second major area concerns the eligible uses of program
funds. Currently funds may be used for deferred subordinate
loans to (1) acquire and rehabilitate rental housing, and (2)
purchase or lease of land and/or buildings for new construction.
When the Pxograrr~ was originally approved, the majority of oppor-
tunities and federal and state resources existed for leveraging
acquisition and rehabilitation projects. However, with the
elimination of the Section 8 Moderate Rehabilitation Program, and
the limited availability of other rental housing subsidies,
greater flexibility in the use of Program funds is required.
It is recommended that eligible uses of funds include:
1) acquisition and rehabilitation of existing rental
housing
2) new construction of rental or limited equity coopera-
tive housing
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3) acquisition and rehabilitation of short-term occupancy
rental housing
4) interim loans for site acquisition or construction.
The expansion of the eligible uses fox loan funds will provide
the flexibility necessary to effectively take advantage of the
public and private resources which are available for the develop-
ment of affordable rental and ownership housing.
(3) Loan Terms
The financial mechanism currently used in the program is a de-
ferred payment second or third trust deed loan, with simple
interest at 19°s for a period of twenty--five (25) years, and an
optional extension of ten additional years. In exchange for the
program loan, the borrower agrees to maintains 75% Qf the units
available for occupancy by low and moderate income households for
the life of the loan. The maximum per unit loan amount is
$15,999 unless there is significant benefit to low and moderate
income households.
The revisions recommended at this time include: (1) extension of
the term of the loan to thirty--five (35) years, (2) increase in
per unit loan amount, and (3) clarification of affordability,
management and maintenance requirements.
1. Extension of Loan Term:
In order to obtain the maximium benefit of the available Program
funds it is recommend that the term of the deferred loan, and
the regulatory restrictions be extended to thirty--five {35)
years. At the end of-the thirty--five (35) year term the loan
ti
amount plus simple interest of 10% per annum is due and payable.
In lieu of payment, the borrower and the City may agree to an
extension of the regulatory term for fifteen (15) years. As most
acquisition and rehabilitation projects have a useful life of
between twenty-five and thirty years, and most new construction
projects have a useful life of between forty and fifty years, the
term and extension proposed will allow the City to ensure that
the property provides affordable housing for the useful life of
the property.
2. Increase in Per Unit Loan Amount:
The second revision to the loan term's is an increase in the per
unit loan amount to $20,0gg per unit for acquisition and
rehabilitation projects, and $25,~0g per unit for new construc-
tion project. Due to the increased costs of construction,
materials and land, and also due to lack of rental subsidies
available, the gap between affordable rent levels and the total
development costs has widened in the past three years, thus
requiring a larger loan to make projects feasible.
3. Clarification of Affordability, Management, and Maintenance:
Finally, revisions clarifying affordability, property management
and maintenance requirements are included in the revised guide-
lines. The Pico Neighborhood Association has been particularly
concerned with the long-term affordability of these housing units
in the event that fixed rent subsidy programs are no longer
available, such as Section 8 Moderate Rehabilitation, and the
management and maintenance of the housing purchased through the
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prograrr~. PNA's concerns have been reflected in the revised pro-
gram guidelines. The revised program guidelines will require
borrowers to provide a more detailed rr~ananagement and maintenance
plan at the time of application for review by the City and PNA,
with information on tenant selection procedures, eligibility,
screening, and efforts for the training of tenants to handle :r,an-
agement and maintenance functions of the property. In addition,
the borrower must submit a project loan package which demon-
strates that affordable rents can be maintained for the life of
the loan, particularly in cases where the senior financing is a
variable rate rr~ortgage.
Earnest Fund Contract with Comrr~unity Corporation of Santa Monica
In the past the City has authorized a portion of the budgeted
Program funds to be disbursed as "earnest money" funds to CCSM.
These funds are provided under contract to CCSM in a lump sum to
be deposited into an interest-bearing account and used to pur-
chase options on buildings or vacant land to be acquired for af-
fordable housing development activities. The "earnest money"
funds will be returned to the City at the end of the contract
term.
In order to fully implement the Pico Neighborhood Housing Trust
Fund Program for Fiscal Year 1985-86 it is necessary to approve
and execute a contract with Community Corporation of Santa Monica
(CCSM) to use the "earnest money" component of the Trust Fund.
The contract includes all appropriate provisions of federal,
state and local law applicable to CDBG activities, as well as the
R
standard City requirements regarding grants management, political
activities and equal employment opportunity.
The award of this contract to CCSM will not prohibit the City
from accepting applications for loan funds from other eligible
borrowers. As in past years a "Notice of Fund Availability" will
be published in the local media. Eligible borrowers include non-
profit housing development corporations or other non-profit agen-
cies with the capacity to develop and operate affordable rental
housing. Pico Neighborhood Association has approved the release
of "earnest money" funds to Community Corporation of Santa Monica
for use in FY85--86. The contract amount will be $30,000.
FINANCIAL AND BUDGETARY IMPACT
The Fiscal Year 1985-86 budget appropriated the following funds
to the Pico Neighborhood Housing Trust Fund:
CDBG $857,500 19-720-264-000-930
Rental Rehab
$198,500
20-720-264-134-930
TOTAL:
$1,056,000
It should be noted that $321,500 of the CDBG funds and $151,500
of the Rental Rehabilitation funds appropriated in the FY 1985-86
budget were carried over from FY 1984-85.
The approval of the contract for earnest money requires the ex-
penditure of $30,000 from account number 19-720-264-000-•930.
There are no further financial or budgetary impacts as a result
of the actions recommended in this report.
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RECOMMENDATION
It is recommended that the City Council:
1. Approve the revised program guidelines for the Pico Neighbor-
hood Housing Trust Fund, as described in this report and as
attached.
2. Authorize the City Manager to negotiate and execute an Agree-
went by and between the Pico Neighborhood Association and the
City of Santa Monica for the implementation of the Pico
Neighborhood Housing Trust Fund, as described in this report
within thirty days.
3. Approve the attached Contract by and between Community Cor-
poration of Santa Monica and the City of Santa Monica for
"earnest money" funds, and authorize the City Manager to ex-
acute the Contract.
Prepared By: Ann Sewill, Housing Program Manager
Candy Rupp, Housing Development Analyst
Department of Community & Economic Development
Attachments: 1. Pico Neighborhood Housing Trust Fund Revised
Program Guidelines
2. Grantee Contract by and between Community Cor-
poration of Santa Monica and the City of Santa
Monica for "earnest money" funds
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