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HomeMy WebLinkAboutStaff Report 5.A 02/25/2019DATE: TO: FROM: SUBJECT: • - • •;rium February 25, 2019 Honorable Mayor and Members of the City Council through City Manager Sue Castellucci, Housing Administrator City Council Discussion and Direction Regarding Petaluma Ecumenical Properties Request for Additional City Housing Funds for Affordable Housing Development at 951 Petaluma Blvd. South RECOMMENDATION It is recommended that the City Council discuss and provide direction regarding Petaluma Ecumenical Properties request for additional City housing funds for affordable housing development at 951 Petaluma Blvd. South BACKGROUND The affordability of housing in Petaluma has long been of interest to Petaluma City Councils. City programs have done much to provide housing for every income level, with emphasis on first-time homebuyers, very -low and low and moderate -income residents, and the homeless, all when funding was more plentiful. Petaluma's housing policies and goals are found in the Housing Element 2015-2023, (a chapter of the City's General Plan) and the Community Development Block Grant Consolidated Plan 2015-2020. To accomplish those goals, the housing funds are used to provide services vital to the low income community and to address their housing needs. Petaluma's In Lieu Housing program has been in existence since 1984. Over the last 35 years, utilizing redevelopment and in lieu funds, 1,523 housing units have been built, which include affordable apartments and for -sale properties. Petaluma has also partnered with The Committee on the Shelterless (COTS) to complete the Mary Isaak Center homeless shelter, which houses 100 homeless individuals every night. The Housing Commercial Linkage program started in 2004 and has been used for Petaluma's First Time Homebuyer program (FTHB). The funds are utilized to help a FTHB purchase an affordable housing property. Funds are also allocated for the Housing Land Trust of Sonoma County to administer the First Time Homebuyer program. The City of Petaluma, through the partnership with an affordable housing developer, can apply for funding from the HOME program, which is administered through the California Housing and Community Development Department. Petaluma has seven affordable housing properties that have received HOME funds. In 2010, Logan Place Apartments was the last development that received HOME funds in the amount of $3,950,000. In April of 2017, Petaluma issued a Request for Proposal for the development of affordable housing on the property at 951 Petaluma Boulevard South with submissions due on May 8, 2017. Three proposals were submitted, and staff reviewed all submittals. Interviews were held with all the proposers during the last week in May. During the interview process it was communicated that the land would be the City's contribution to the development of the project. At the June 5, 2017 City Council meeting, it was reported out of closed session by the City Attorney that Council directed staff to work with Petaluma Ecumenical Properties (PEP) on their proposal to develop the property at 951 Petaluma Blvd. South. On October 17, 2017 an Exclusive Negotiating Agreement (ENA) was entered into between the City of Petaluma and PEP. There was an amendment to the ENA on February 28, 2018 approving a 180 -Day extension. The Development, Disposition and Loan Agreement was executed August 20, 2018. Currently, the City has contributed to this PEP project $1,300,000 in land cost; $18,000 from rent payback through the ENA process; $12,000 from rent payback through the DDLA process, and $60,000 of In Lieu Housing funds allocated in FY 2018-2019. The total amount of City contribution to this PEP project to date is $1,390,000, with another $36,000 committed from rent payback as specified in the DDLA under Section 4.20 which ends on July 1, 2020, DISCUSSION PEP is requesting additional funds for their affordable senior project at 951 Petaluma Blvd. So. in the amount of $1,500,000. The request is attached to this report. While the proforma from March 2018 showed no gap in financing, PEP met with housing staff in December to discuss the need for additional funds for a $1,500,000 financial gap due to construction cost increases and the elimination of applying for HOME funds. Staff's initial response was that due to the transitions of new Councilmembers and City Manager, the request would be best managed following the City Council's goal setting activity, evaluated through the annual RFP process, and finalized during the budget process in May. However, PEP is submitting an application with the Affordable Housing Program on March 4, 2019, and the application is strengthened if PEP can identify an additional source of funds. PEP will also submit a 4% tax credits application to the California Tax Credit Application Committee (TCAC). The 4% TCAC application is due July 1, 2019. Other funding sources for the project include the Multi -Family Housing Program, SB 3 funds, with the application due in the Fall of 2019, and $1,000,000 of HEAP Funding that PEP has applied for from the County of Sonoma. No funding sources have been committed at this time. The City's current housing fund balances are indicated below, with the estimated balance as of 6/30/2019. In Lieu Housing Fund The In Lieu Housing Fund is a combination of in lieu fees paid from developers and excess cash payments received from affordable housing propelties.s- The breakdown is as follows: HOME Funds There is a balance in the Home Funds Account of $750,000 as of 12/31/2018. This fund accumulates Excess Cash from affordable housing properties that have a HOME loan. These funds can be used for construction of affordable housing. In 2012, the City allocated $135,000 toward the construction of the Logan Place Apartments. Commercial Linkage Fund The Commercial Linkage Housing Fund was established for non-residential developments to pay a fee for the workforce who cannot afford to live in the city where their job is located. This fund is for workforce housing projects. Fund Balance Fees Category 1,481,454 Fund Balance In -Lieu Excess Cash Fees Non -restricted Fund balance 2,498,689 1,481,454 1,386,288 1,112,401 Restricted — DOF Payback 1,700,000 1,700,000 Fund Balance 6/30/18 4,198,689 Revenues: 3,086,288 1,112,401 Com'1 Linkage Fees 0.00 0.00 FY 19 Activity through 12/31/18 Revenues: Expenditures -Allocated FY 18-19 190,329 In Lieu Fees 43,864 43,864 Excess cash from Park Lane 866,142 $ 1,291,125 866,142 Excess cash from Madrone 3,322 3,322 Expenditures -Allocated per Reso 2019-018(1,553,492)__433,492 1,120,000 -Payback 1,700,000 1,700,000 Estimated Non -restricted balance $1,858,525 $ 996,660 $ 861,865 HOME Funds There is a balance in the Home Funds Account of $750,000 as of 12/31/2018. This fund accumulates Excess Cash from affordable housing properties that have a HOME loan. These funds can be used for construction of affordable housing. In 2012, the City allocated $135,000 toward the construction of the Logan Place Apartments. Commercial Linkage Fund The Commercial Linkage Housing Fund was established for non-residential developments to pay a fee for the workforce who cannot afford to live in the city where their job is located. This fund is for workforce housing projects. Fund Balance Fees Non -restricted Fund balance 1,481,454 1,481,454 Fund Balance 6/30/18 1,481,454 1,481,454 FY 19 Activity through 12/31/18 Revenues: Com'1 Linkage Fees 0.00 0.00 Expenditures -Allocated FY 18-19 190,329 190,329 Estimated Non -restricted balance $ 1,291,125 $ 1,291,125 There are several options available for the City Council to consider. 1. Approve the request for the full amount and direct that funds be taken from the in lieu fund balance, or from a combination of in lieu and HOME funds. 2. Approve funding support in an amount less than the full request, which could include $750,000 from Home Funds, 3. Recommend that PEP delay the project until sufficient funding from non -City sources has been identified and committed. If this alternative is chosen, the City can amend the Development Disposition and Loan Agreement to allow for an extension of the construction and financing deadlines. 4. Utilize the $1,700,000 of restricted funds that are in the In Lieu Housing Fund that have been requested to be returned to the Successor Agency per the State Controllers report dated February 20, 2015. This alternative will need to be further vetted by the City Attorney's Office concerning whether City commitment of the funds may entail City liability. FINANCIAL IMPACTS Funding options and impacts of each are noted below: Commercial Linkage: Available fund balance in the Commercial Linkage Fund is $1,291,125. The funds in the Commercial Linkage Housing Fund are typically used for workforce housing programs and/or developments. The PEP project is senior housing and is not a good fit when considering the City's previous priorities for use of the funds. If Commercial Linkage funds are used, the impact is that funds would not be available for the City's First Time Homebuyer program or available to be used for a non -age restricted affordable housing or workplace housing development in the future. The City allocates approximately $50,000 annually to Housing Land Trust of Sonoma County to administer the First Time Homebuyer program. In Lieu Funds: Available non -restricted fund balance in the In Lieu fund is $1,858,525. The balance is a combination of In Lieu fees of $996,660 and excess cash from properties managed by Burbank Housing in the amount of $861,865. The In Lieu Housing Fund can be utilized for the development of affordable housing. If $1,500,000 of these funds is allocated it would leave the City's housing program with a very minimal fund balance. The impact of allocating nearly all of the current balance will affect the ability to fund nonprofit agencies that rely on the In Lieu fees to support portions of their programs that serve the low-income community. The City allocates approximately $300,000 annually to local non -profits such as Petaluma People Services, COTS and PEP. Additionally, each housing fund contributes to the staffing and administrative costs to administer Petaluma's housing programs, and this account contributes $150,000 annually. While it is difficult to estimate projected annual income, $3,500,000 is expected to be generated over the next 4 years if all projects that were deemed to be complete applications by I/1/19 get entitled and pull building permits. However it's likely the receipt of funds will not occur prior to FY 21, Home Funds: Available fund balance in the HOME fund is $750,000. These funds could be used to fill the financial gap on this project. The impact of use of these funds is minimal as these funds can't be used for anything other than construction of affordable housing. 0 DOF Payback funds that are in the In Lieu Housing Fund If the City successfully negotiates for a return of these fees, available funds are estimated to be $1,700,000. Currently, these funds are sitting in the In Lieu Housing Fund and are restricted so the unrestricted balance of $1,858,525 would not be reduced. These funds are intended to support affordable housing and could be used on the PEP project. Attachments 1. PEP Request for Additional Funding Aft' Housing Building community from the heart Petaluma Ecumenical February 12, 2019 Properties dba PEP Housing ATTACHMENT #1 Corporate Office 951 Petaluma Boulevard South a Petaluma, CA 94952 Phone: (707) 762-2336 e Fax: (707) 762-4657 Email: pep@pephousiiig.org pephousing.org ® �vww.pephousing.org Sue Castellucci, Housing Administrator ....providing affordable City of Petaluma housing to seniors and 11 English Street veterans in Northern California Petaluma, CA 94952 Board of Directors: Arthur Cooper President Richard Rodkin Vice President Sean Pryden Treasurer Mary Savage Secretary Mary Stompe Assistant Secretary Herb Lee Sid Lipton Anna Rose Dear Ms. Castellucci, As you are aware, we are working on a 54 -unit senior and veteran's housing project for 951 Petaluma Blvd. S. in Petaluma. We are writing to request additional City funding for the project. With the wild fires of 2017, construction costs have skyrocketed. Additionally our experts have advised us to substantially change the foundation of the buildings due to the proximity to the Petaluma River, adding another $350,000 to our construction costs. Finally, our original proforma included HOME funding but due to proposed significant cuts in HOME funding, we have decided to rework our proforma and we applied for HEAP funding instead. George (trip) Spragens At the current time, we are looking at an unfunded balance of $1,966,660. However, we Joseph Tinney will agree to defer our developer fee leaving an unfunded balance of $1,500,000. Based on Ben Pryden the City's contribution to other recent affordable housing projects, this request is in line with Harry Coffey total City support given to other projects. Thank you so much for your consideration. We look forward to housing 53 seniors and senior veterans in the near future. Sincerely, Mary Stor Executive Tax Ill # 94-2565270 PEP Housing is a non-profit corporation dedicated to providing limited—income seniors access to duality cffbrdable housing with supportive services and advocacy. 1014 US 6-