CITY OF ELK GROVE CITY COUNCIL STAFF REPORT AGENDA ITEM NO. 10.2 AGENDA TITLE: Provide direction on the expenditure of Affordable Housing Funds and, if desired, adopt a resolution authorizing the release of a Request for Proposals and/or Request for Qualifications for new multifamily affordable housing development (CEQA Exempt) MEETING DATE: PREPARED BY: DEPARTMENT HEAD: Sarah Bontrager, Housing and Public Services Manager Darren Wilson, PE, Development Services Director RECOMMENDED ACTION: Staff recommends the City Council of the City of Elk Grove provide direction on strategy related to the expenditure of Affordable Housing Funds, and, if desired, adopt a resolution authorizing the release of a Request for Proposals and/or Request for Qualifications for new multifamily affordable housing development. BACKGROUND INFORMATION: The City maintains an Affordable Housing Fund (AHF) in order to support the provision of affordable housing in the community. The AHF is generated primarily by fees on new residential and non-residential development. Currently, a fee of $4,132 per single-family unit and $2,479 per multifamily unit is charged on new residential units. New non-residential development pays a per-square foot fee that depends on the land use classification, ranging from $0.00 for office development to $1.95 for hotel uses. Repayment from existing loans is a secondary source of AHF 1
Page 2 of 8 revenue. In most years, repayments total around $200,000, but in June of this year, a project transfer led to a loan payoff of $2 million. Historically, the AHF has been used mainly to make low-interest loans to new affordable multifamily developments. Since the City s incorporation in 2000, the City has invested $69 million in the creation of about 1,700 rental units affordable to low- and very low-income households. All of the City s affordable housing projects have been developed by forprofit developers. Funded projects have made use of tax credit financing and City loans, but none have used State funding sources, such as the HOME Program, Multifamily Housing Program, Affordable Housing and Sustainable Communities Program, or CalHFA programs. AHF Uses. Eligible uses of the AHF include the following: 1. Loans or grants in support of the development of new residential housing units affordable to low-income households. 2. Loans or grants in support of the acquisition and rehabilitation of existing residential housing units, when such units will be affordable to low-income households. 3. Loans or grants in support of a homebuyer assistance program that provides gap financing to low-income households purchasing homes in Elk Grove. 4. Administration of the affordable housing fund, including funded projects or programs. 5. Other projects or programs approved by the City Council. AHF Status. In 2015 and 2016, the City set aside funding for two projects: The Bow Street Apartments, a 98-unit affordable apartment complex, financed in part by a $5 million loan from the AHF. The developer secured the necessary tax credit financing and the project is expected to be completed in mid to late 2018. A Homebuyer Assistance Program, continuing the program the City operated for several years using a now-expired CalHome grant. This activity is budgeted at $600,000 in FY 2018, and is expected to fund about 12 loans. 2
Page 3 of 8 As of the writing of this staff report, the AHF had a balance of approximately $5.75 million after accounting for commitments to the Bow Street Apartments and the Homebuyer Assistance Program. FY 2018 Budget Land Acquisition. As a part of the FY 2018 budget process, the Council approved a budget of $2.8 million for property acquisition, with the intent of purchasing two existing homes for use as permanent shared housing for homeless persons ($800,000) and acquiring land for future affordable multifamily development with the $2 million balance. The FY 2018 budget also includes funds for making a loan to developers in coordination with development of land acquired by the City. Staff s goals in recommending a land acquisition strategy were to: Inspire innovative development, such as mixed-use, transitsupporting, or special population projects. Direct investment to areas where affordable housing is most needed, and where it will fit well in the fabric of the community. Encourage usage of a wider range of funding sources to decrease the level of subsidy required from the City. Increase the required on-site social services component to do more to promote tenants ability to move up and out of affordable housing, thus freeing units for new households that need them. Affordable Housing Developer Outreach. On July 19, staff held an affordable housing developer outreach meeting to collect feedback on the City s strategies for promoting affordable housing development, including the land acquisition strategy. Several affordable and market-rate housing developers attended the meeting, including both for-profits and nonprofits; some of the developers had worked with the City in the past, and a few had not. Councilmembers Hume and Suen, who comprise the Affordable Housing Committee, were also in attendance. Highlights of the feedback received included: 3
Page 4 of 8 General agreement that the City should have a range of tools to inspire affordable housing development, including loans and targeted land acquisition. Desire for the City to move from a Request for Proposals (RFP) process that requires applicants to own land or have an option to purchase land, to an RFP or Request for Qualifications (RFQ) process that would allow the City to choose a developer partner and work with them on suitable land acquisition and project design. The view that the City s current process is working to create affordable housing units, and should not be significantly modified. Concern that implementing a City land acquisition strategy now will take too much time, causing missed opportunities to pursue tax credit financing in 2018. A request for the City to consider funding projects that are not tax credit-financed, such as those built in coordination with CalHFA s 80/20 program, where 80 percent of a complex s units are marketrate and 20 percent are affordable. A request for the City to evaluate its Community Facility District (CFD) payment process to allow for pre-payment of CFD fees, particularly for services. Concern that projects within Elk Grove will not be competitive for funding sources other than tax credits. ANALYSIS: Consistent with the eligible uses of the AHF (loans or grants in support of development or acquisition/rehab of affordable housing), there are two primary recommended strategies for allocating the unobligated AHF balance: Issue an RFP to solicit proposals for new affordable housing development projects. Staff has received funding inquiries from several developers in recent months, indicating that there is interest 4
Page 5 of 8 in developing new projects in Elk Grove. An RFP released in approximately September of 2017 could allow one or more selected developers to compete for tax credits in the March 2018 funding round, if they had secured land. Staff recommends proceeding with this option in the short term. Acquire land for affordable housing and solicit proposals from developers. This strategy would allow the City to select a location deemed advantageous (such as near services or schools) and ask developers to propose a project through an RFQ and/or an RFP process. Staff has a list of potential sites that could be brought forward to the Council at a later date. This strategy is likely to benefit smaller and/or nonprofit housing developers without the capital necessary to lock up land in hopes of later receiving loan funding. Regardless of whether the City proceeds with the first option above, staff recommends proceeding with this second RFQ and/or RFP option within the next 24 months. To summarize the options, the first option entails releasing an RFP now for land to be provided by the applicant. The second option entails releasing an RFQ and/or RFP within the next 24 months, with the possibility that the City acquire the land for development. As further explained below, staff recommends proceedings with both options. If the Council wishes to revisit the affordable housing strategy more broadly, it may also consider other project ideas or strategies. Recommended Process and Priorities Consistent with past practice and in light of timing considerations, staff recommends that the Council approve moving forward with an RFP to solicit new affordable multifamily projects this year. Using an updated set of priorities (as described below), the RFP process could move the City toward achieving the goals identified by staff as benefits of a City land acquisition process. Staff also recommends that within the next 24 months, the City move forward with issuing an RFP and/or RFQ for an affordable housing developer. This strategy will allow the City to work with the selected developer on location (if not already selected and purchase by the City), project type and design, and pursuit of alternate funding sources. By 5
Page 6 of 8 beginning work on the project in advance of the AHF s accumulation of $5 million in funding, a project could be ready to proceed when the AHF fund balance allows. Priorities In the event that the Council elects to release an RFP to solicit new affordable multifamily projects now, staff recommends identifying the following requirements: In line with the City s Regional Housing Needs Allocation, at least 58 percent of the project s affordable units must be targeted to very lowincome households (those earning 50 percent or less of the area median income). The majority of the rental units created in the City in the past decade have been low-income units (affordable to those earning at or below 60 percent AMI), which rent for roughly $780- $1,100 per month depending on unit size. Very low-income and extremely low-income populations have much more limited housing options in Elk Grove. The developer must have a successful background in the provision of housing to extremely low-income and very low-income households, including the associated service component. The project location must meet the criteria for a 9% tax credit project. Generally, this would be a project near services, shopping, and transit resources. The project must offer a repayment schedule that provides for meaningful loan repayment at the earliest point during the loan term. The project must be deed-restricted to provide affordable rents and occupancy for a minimum of 45 years. In addition to baseline requirements, staff recommends utilizing an evaluation process that rewards projects based on the following priorities: Innovation in design or project type, such as a mixed-use development or a project containing permanent supportive housing. 6
Page 7 of 8 Inclusion of on-site social services providing resident support for no less than 15 hours per week. Such services may include up to eight hours per week of after-school programming and/or senior activities. Usage of funding sources in addition to or in lieu of tax credit financing and/or a per-unit subsidy of less than $35,000. Commitment to performing annual income recertifications and adjusting unit affordability accordingly. In effect, this means that a household initially living in a 30% AMI unit and whose household income rises to 50% AMI would have their rent adjusted to the 50% AMI level, and the next available unit would be made available to a household earning 30% AMI. Commitment to working with the City to address homelessness, including implementing a policy moving homeless Elk Grove households to the top of the waitlist for any vacant unit for which they are qualified. Next Steps In the event the Council elects to pursue the proposed short-term RFP strategy, staff anticipates making the RFP available in September of 2017. Once proposals are received, staff and the Affordable Housing Committee evaluate the proposals and determine which developer(s) should move forward to the loan application stage. Following underwriting of the loan, the Affordable Housing Committee makes a recommendation to the Council on approving, denying, or requesting more information on a given loan application. If approved, the developer would receive a loan commitment from the City that could be used in securing other financing. As stated above, a further RFP and/or RFQ would be released within the next 24 months, with the goal of funding a project in three to four years, or as the AHF balance allows. ENVIRONMENTAL REVIEW: The California Environmental Quality Act (Section 21000, et. seq. of the California Public Resources Code, hereafter CEQA) requires analysis of agency approvals of discretionary projects. A project, under CEQA, is 7
Page 8 of 8 defined as the whole of an action, which has a potential for resulting in either a direct physical change in the environment, or a reasonably foreseeable indirect physical change in the environment. No environmental analysis is necessary at this time, as this action is the preliminary allocation of funds and is not associated with the approval of any specific project. Specifically, State CEQA Guidelines Section 15378(b)(4) specifically excludes from the definition of a project government funding mechanisms or other government fiscal activities, which do not involve any commitment to any specific project. Any future projects implemented with AHF loans and/or grants will be reviewed for compliance with CEQA, as necessary. FISCAL IMPACT: The costs of supporting affordable housing under any of the presented options are anticipated to be fully covered by the AHF, which exists for the sole purpose of funding housing affordable to low-income households. The AHF also allows for funding of administration, which covers the cost of staff time to implement an RFP/RFQ process and/or acquire land. The City planned for $2 million in land acquisition related to affordable apartment construction in the FY 2018 budget, and included additional funding for loans to development in the budget. Since the overall AHF budget is not changing, and since any payout of a loan to development would not be anticipated prior to FY 2019, a change in strategy does not require a formal budget amendment at this time. ATTACHMENT: 1. Resolution 8
ATTACHMENT 1 A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF ELK GROVE AUTHORIZING THE RELEASE OF A REQUEST FOR PROPOSALS AND/OR REQUEST FOR QUALIFICATIONS FOR NEW MULTIFAMILY AFFORDABLE HOUSING DEVELOPMENT WHEREAS, the City of Elk Grove (City) City Council has created certain fee programs, consistent with the General Plan and state housing laws to provide funding to facilitate the development of affordable housing by, among other things, offering lowincome homebuyer assistance programs and providing loans to developers of affordable housing development projects to assist in construction financing; and WHEREAS, those fee programs are known as the Affordable Housing Fund (AHF); and WHEREAS, Chapter 16.88.030 and 16.89.030 of the Municipal Code outline the eligible usages of the AHF, including loans or grants in support of the development of new residential housing units affordable to low-income households; and WHEREAS, the City Council on April 9, 2014, adopted Affordable Housing Loan Program Guidelines for the application process for affordable housing project developers; and WHEREAS, the current unobligated AHF balance is approximately $5.75 million; NOW, THEREFORE, BE IT RESOLVED that the City Council of the City of Elk Grove hereby authorizes the release of a Request for Proposals (RFP) for new multifamily affordable housing development to compete for tax credits as early as the March 2018 funding round; and NOW, THEREFORE, BE IT FURTHER RESOLVED that the City Council of the City of Elk Grove hereby authorizes the release of an RFP and/or Request for Qualifications (RFQ) within the next 24 months for new multifamily affordable housing development, the location of which may be selected and the land purchased by the City in advance, provided that the purchase of the land would be subject to further City Council approval(s). PASSED AND ADOPTED by the City Council of the City of Elk Grove on this 23 rd day of August 2017. STEVE LY, MAYOR of the CITY OF ELK GROVE ATTEST: APPROVED AS TO FORM: JASON LINDGREN, CITY CLERK JONATHAN P. HOBBS, CITY ATTORNEY 9