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SR 12-13-2022 5H City Council Report City Council Meeting: December 13, 2022 Agenda Item: 5.H 1 of 4 To: Mayor and City Council From: Andy Agle, Director, Community Services Department, Housing and Human Services Subject: Annual Report on Low-Mod Housing Income Asset Fund Recommended Action Staff recommends that the Redevelopment Successor Agency: 1. Receive the Annual Report on the Low- and Moderate-Income Housing Asset Fund for Fiscal Year 2021-22 and authorize the City Manager to post the report on the City's website by December 31, 2022; and 2. Direct the City Manager to present the independent audit of the Low- and Moderate-Income Housing Asset Fund to the Council upon completion of the independent audit of the City’s Annual Comprehensive Financial Report (ACFR) and authorize the City Manager to post the results of the audit on the City's website after presentation to City Council. Summary The City provides financial assistance to support the acquisition, rehabilitation, and new construction of housing affordable to lower income households, a local strategy that supports the Council’s priorities of Addressing Homelessness and Equitable and Inclusive Economic Recovery. City funding to support the investments comes from a variety of sources (e.g., voter-approved Measure GSH funds, loan repayments, and development impact fees), and is accounted for in various funds. The Low- and Moderate-Income Housing Asset Fund specifically accounts for the housing assets of the former Santa Monica Redevelopment Agency. State law requires the City to report annually on the Low- and Moderate-Income Housing Asset Fund (Fund) of the former Santa Monica Redevelopment Agency (RDA) and requires an independent audit of the Fund, which will be completed as part of the City’s annual audit process. 5.H Packet Pg. 256 2 of 4 Discussion The City as Housing Successor assumed the housing functions of the former RDA on January 10, 2012. The transfer of the functions included the transfer of formerly designated RDA low- and moderate-income housing assets together with any funds generated by former RDA housing assets. The funds must be maintained by the City in a separate Fund and expended in accordance with Health and Safety Code Section 34176.1. Allowable expenditures include the development of affordable housing, monitoring and preservation of housing subject to affordability restrictions and covenants, and homeless prevention and rapid rehousing services for homeless individuals. Senate Bill 341, which is codified in Section 34176.1 of the California Health and Safety Code and which became effective on January 1, 2014, requires the City, as the Housing Successor, to prepare and post the report on its website that contains information regarding the Fund for the previous fiscal year (Attachment A), after Council's review and receipt. The report includes the following information: • the balance in the Fund as of the close of the Fiscal Year 2021-22 was $13,553,164 with $439,409 in deposits from City-Agency loan repayments, interest income, residual receipts, and $946,815 in expenditures for the development of affordable housing. The balance is currently set aside as part of the adopted Housing Element strategy to focus the City’s affordable housing efforts towards City-owned sites. The use of City-owned land for affordable housing provides multiple benefits including maximizing the value of the City’s Housing Trust Funds as most of the City’s Housing Trust Funds loaned to affordable housing organizations are used to acquire land. By contributing land that it already owns, the direct cost of acquiring land is eliminated and the City can stretch its Housing Trust Funds further to increase the supply of affordable housing. The balance in the Fund may be needed by affordable housing organizations for pre-development costs and/or closing the construction gap for affordable housing developments on City- 5.H Packet Pg. 257 3 of 4 owned sites, such as the former site of Parking Structure 3 or the forthcoming Request for Proposals for the City-owned sites near Wilshire Boulevard and 14th Street. Based on the six most recent new construction housing developments that the City funds, the average City subsidy for pre-development costs and closing the construction gap was $106,768 per affordable residence and an average City subsidy for land acquisition was $156,145 per affordable residence. Given this average subsidy, the balance in the Fund could provide subsidy to approximately 127 affordable residences on City-owned sites while it would support only 52 homes if private land must be purchased; • $121,748 of the balance in the Fund has been encumbered by loan commitments to non-profit affordable housing organizations for the production and preservation of affordable housing; • the former RDA’s replacement housing and inclusionary housing obligations have been satisfied; • obligations related to development or disposition of real property acquired by the former RDA prior to February 1, 2012 have been met; • the senior housing test has been met, with 25 percent of assisted residences deed-restricted to seniors within the previous 10 years; and • currently there are no excessive accumulated funds (often called “excess surplus”) that need to be encumbered. Additionally, to ensure that the monies in the Fund are spent in accordance with the law, Section 34176.1(f) requires an independent financial audit of the Fund within six months of the end of the fiscal year. The independent audit of the Fund is conducted as part of the yearend audit by the City’s independent auditor and is included as part of the City’s Annual Comprehensive Financial Report (ACFR). Staff is working to complete the ACFR and will post the results of the independent audit of the Fund on the City’s website upon issuance of the financial statements. Environmental Review 5.H Packet Pg. 258 4 of 4 The adoption of the annual report is not a project within the meaning of the California Environmental Quality Act (CEQA)(Public Resources Code section 21000 et seq.) because the report will not cause either a direct physical change in the environment, or a reasonably foreseeable indirect physical change in the environment. Financial Impacts and Budget Actions There is no immediate financial impact or budget action necessary as a result of the recommended action. Prepared By: Natalie Verlinich, Senior Development Analyst Approved Forwarded to Council Attachments: A. Attachment A - 2021-22 LMIHAF Annual Summary Report 5.H Packet Pg. 259 Santa Monica Housing Successor Page | 1 Attachment A ANNUAL REPORT REGARDING THE LOW AND MODERATE INCOME HOUSING ASSET FUND FOR FISCAL YEAR 2021-2022 PURSUANT TO CALIFORNIA HEALTH AND SAFETY CODE SECTION 34176.1(f) FOR THE SANTA MONICA HOUSING SUCCESSOR This Housing Successor Annual Report (Report) regarding the Low and Moderate Income Housing Asset Fund (LMIHAF) has been prepared pursuant to California Health and Safety Code Section 34176.1(f). This Report sets forth certain details of the Santa Monica Housing Successor (Housing Successor) activities during fiscal year 2021-2022 (Fiscal Year). The purpose of this Report is to provide the governing body of the Housing Successor an annual report on the housing assets and activities of the Housing Successor under Part 1.85, Division 24 of the California Health and Safety Code, in particular sections 34176 and 34176.1 (Dissolution Law). This Report conforms with and is organized into sections I. through XI. inclusive, pursuant to Section 34176.1(f) of the Dissolution Law: I. Amount the City received from City-Agency loans This section provides the total amount of funds received from repayment of City-Agency loans during the Fiscal Year pursuant to Section 34191.4(b)(3)(A). Fiscal Year 2020-2021 was the final year that the City received payment pursuant to 34191.4(b)(3)(A) from the repayment of City-Agency loans. II. Amounts Deposited into LMIHAF This section provides the total amount of funds deposited into the LMIHAF during the Fiscal Year, distinguishing between amounts deposited pursuant to 34191.4(b)(3)(B) and 34191.4(b)(3)(C), amounts deposited for other items listed on the Recognized Obligation Payment Schedule (ROPS), and other amounts deposited. Pursuant to 34191.4(b)(3)(B) and 34191.4(b)(3)(C) $0 was deposited into the LMIHAF during the Fiscal Year, of which none of the funds deposited into the LMIHAF were held for items listed on the ROPS. Other amounts deposited into the LMIHAF during Fiscal Year were $439,409 from residual receipts (affordable housing loan repayments) and interest income. III. Ending Balance of LMIHAF This section provides a statement of the balance in the LMIHAF as of the close of the Fiscal Year. Any amounts deposited for items listed on the ROPS must be distinguished from the other amounts deposited. At the close of the Fiscal Year, the ending balance in the LMIHAF was $13,553,164 of which $0 was held for items listed on the ROPS. 5.H.a Packet Pg. 260 Attachment: Attachment A - 2021-22 LMIHAF Annual Summary Report [Revision 2] (5406 : Annual Report on Low-Mod Housing Income Asset Santa Monica Housing Successor Page | 2 IV. Description of Expenditures from LMIHAF This section provides a description of the expenditures made from the LMIHAF during the Fiscal Year. The expenditures are to be categorized. The following table provides the description of expenditures from the LMIHAF by category. Expenditure Description Amount Monitoring and preserving the long-term affordability of units subject to affordability restrictions or covenants entered into by the redevelopment agency or housing successor. Includes expenditures for administration of affordable housing activities. $ 362,857 Homeless Prevention and rapid rehousing services $ 0 Development of affordable housing pursuant to 34176.1(a)(3)(A) $ 583,958 Total LMIHAF Expenditures $ 946,815 V. Statutory Value of Assets Owned by Housing Successor This section provides the statutory value of real property owned by the Housing Successor, the value of loans and grants receivables, and the sum of these two amounts. Under the Dissolution Law and for purposes of this Report, the “statutory value of real property” means the value of properties formerly held by the former redevelopment agency as listed on the housing asset transfer schedule approved by the Department of Finance as listed in such schedule under Section 34176(a)(2), the value of the properties transferred to the Housing Successor pursuant to Section 34181(f), and the purchase price of property purchased by the Housing Successor. Further, the value of loans and grants receivable is included in the reported assets held in the LMIHAF. The following table provides the statutory value of assets owned by the Housing Successor. Description Amount Statutory Value of Real Property $ 11,060,000 Value of Loans and Grants Receivable $ 140,404,014 Total Value of Housing Successor Assets $ 151,464,014 VI. Description of Transfers This section describes transfers, if any, to another housing successor agency made in previous fiscal years, including whether the funds are unencumbered and the status of projects, if any, for which the transferred LMIHAF will be used. The sole purpose of the transfers must be for the development of transit priority projects, permanent supportive housing, housing for agricultural employees or special needs housing. The Housing Successor did not make any LMIHAF transfers to other Housing Successor(s) under Section 34176.1(c) (2) during the Fiscal Year. 5.H.a Packet Pg. 261 Attachment: Attachment A - 2021-22 LMIHAF Annual Summary Report [Revision 2] (5406 : Annual Report on Low-Mod Housing Income Asset Santa Monica Housing Successor Page | 3 VII. Project Descriptions This section describes any project for which the Housing Successor receives or holds property tax revenue pursuant to the ROPS and the status of that project. The Housing Successor does not receive or hold property tax revenue pursuant to the ROPS. VIII. Status of Compliance with Section 33334.16 This section provides a status update on compliance with Section 33334.16 for interests in real property acquired by the former redevelopment agency prior to February 1, 2012. With respect to interests in real property acquired by the former redevelopment agency prior to February 1, 2012, the time periods described in Section 33334.16 shall be deemed to have commenced on the date that the Department of Finance approved the property as a housing asset in the LMIHAF; thus, as to real property acquired by the former redevelopment agency now held by the Housing Successor in the LMIHAF, the Housing Successor must initiate activities consistent with the development of the real property for the purpose for which it was acquired within five years of the date the DOF approved such property as a housing asset. The following table provides a status update on the real property acquired by the former redevelopment agency prior to February 1, 2012 and transferred to the Housing Successor. Property Address Date Acquired DOF Approved Transfer Date Status as of June 30, 2021 1725 Ocean Avenue 4/11/2000 10/2/2013 The property was developed with 160 affordable apartments. 1751 Cloverfield Bld. 10/3/2003 10/2/2013 The property was developed as congregate housing and emergency shelter providing 55 affordable beds. 2018 19th Street 6/26/2009 10/2/2014 The property was sold. All sales proceeds were deposited in the LMIHAF. IX. Description of Outstanding Obligations under Section 33413 This section describes the outstanding inclusionary and replacement housing obligations, if any, under Section 33413 that remained outstanding prior to dissolution of the former redevelopment agency as of February 1, 2012 along with the Housing Successor’s progress in meeting those prior obligations, if any, of the former redevelopment agency and how the Housing Successor plans to meet unmet obligations, if any. There are no outstanding inclusionary or replacement housing obligations pursuant to Section 33413. The former Redevelopment Agency’s Implementation Plan is posted on the City’s website at: http://www.smgov.net/uploadedFiles/Departments/HED/Housing_and_Redevelopment/RDA/Attach%20A %202009%205%20Yr%20Implementation%20Plan%20-%20FINAL.pdf 5.H.a Packet Pg. 262 Attachment: Attachment A - 2021-22 LMIHAF Annual Summary Report [Revision 2] (5406 : Annual Report on Low-Mod Housing Income Asset Santa Monica Housing Successor Page | 4 X. Income Test This section provides the information required by Section 34176.1(a)(3)(B), or a description of expenditures by income restriction for the period beginning January 1, 2014 and whether the statutory thresholds have been met for 2019, and every five years thereafter, from January 1, 2014, through the end of the latest fiscal year covered in the report. This information is next required to be reported in the Fiscal Year 2023-24. XI. Senior Housing Test This section provides the percentage units of deed-restricted rental housing restricted to seniors and assisted individually or jointly by the Housing Successor, its former Redevelopment Agency, and its host jurisdiction within the previous ten years in relation to the aggregate number of units of deed-restricted rental housing assisted individually or jointly by the Housing Successor, its former Redevelopment Agency and its host jurisdiction within the same time period. The following table provides the Housing Successor’s Senior Housing Test for the ten-year period from July 1, 2012 through June 30, 2022. Description Amount Number of Assisted Senior Rental Units 126 Number of Total Assisted Rental Units 514 Senior Housing Percentage 25% XII. Excess Surplus Test This section provides the amount of Excess Surplus in the LMIHAF (defined as unencumbered funds exceeding one million or the aggregate amount deposited in the fund over the preceding four fiscal years, whichever is greater), the length of time that the Housing Successor has had excess surplus, and the Housing Successor’s plan for eliminating the excess surplus within three fiscal years. This report calculates the excess surplus per the Health and Safety Code definition, which states that “the ‘excess surplus’ shall mean an unencumbered amount in the account that exceeds the greater of one million dollars ($1,000,000) or the aggregate amount deposited into the account during the housing successor’s preceding four fiscal years, whichever is greater”. The following table provides the calculation of the Excess Surplus test. Description Amount LMIHAF Balance $ 13,553,164 Less Encumbrances $ (121,748) Unencumbered balance $ 13,431,416 Less the greater of $1,000,000 or the aggregate amount deposited into the account during the housing successor’s preceding four fiscal years, whichever is greater $ (16,500,171) Excess Surplus $ None 5.H.a Packet Pg. 263 Attachment: Attachment A - 2021-22 LMIHAF Annual Summary Report [Revision 2] (5406 : Annual Report on Low-Mod Housing Income Asset Santa Monica Housing Successor Page | 5 XIII. Inventory of homeownership units This section provides an inventory of homeownership units that were assisted by the former Redevelopment Agency or Housing Successor that are subject to covenants or restrictions or to an adopted program that protects the investment of moneys from the LMIHF pursuant to Section 33334.3(f) and includes any losses of units to the portfolio, funds returned to the Housing Successor, and whether an outside entity has been contracted to manage these units. The Housing Successor does not have any homeownership units that were assisted by the former Redevelopment Agency or the Housing Successor. 5.H.a Packet Pg. 264 Attachment: Attachment A - 2021-22 LMIHAF Annual Summary Report [Revision 2] (5406 : Annual Report on Low-Mod Housing Income Asset