AFFORDABLE HOUSING COMMISSION TOWN OF CHARLESTOWN 4540 SOUTH COUNTY TRAIL CHARLESTOWN, RI 02813 The Honorable Town Council Town of Charlestown 4540 South County Trail Charlestown, RI 02813 The Honorable Town Council: Re: ChurchWoods Senior Rental Housing Project and Shannock Village Cottages Rental Housing Project: Funding Modification. Washington County Community Development Corporation (WCCDC), applicant Advisory Opinion: modification of committed use of Town affordable housing bond funds and securing access to Federal and Rhode Island funding programs The above-referenced projects have received conditional commitments from the Town for both acquisition and initiative grant funding from the Town s Affordable Housing Bond. The initial application for the 11-unit Shannock Village Cottages Rental Housing Project envisioned the use of federal USDA Rural Development Sec. 515 funding, which was later restricted to rehabilitation projects, and is no longer available for new construction. The 24-unit ChurchWoods Senior Rental Housing Project was initially envisioned as an elderly rental housing project (all residents aged 62 and over) utilizing federal HUD Sec. 202 funding, which has also ceased funding new construction. In response to the loss of these two federal funding programs, WCCDC combined the two applications for the purposes of federal funding and management efficiency, and developed a financial plan utilizing federal 9% Low Income Housing Tax Credit Allocations 1 to underwrite in part all 35 proposed units. Federal LIHTC regulations limit 1 LIH Tax Credits are distributed in block grants to the states for allocation by the designated housing agency. There are two separate programs a 9% grant, which funds up to 9% of qualified construction/rehabilitation costs, and is highly competitive; and a 4% grant, which funds up to 4% of qualified costs, and is less competitive. The tax credit certificates are purchased by individual investors or more commonly by syndicators, at a market-determined discount. The sale of the tax credits provides a source of private equity yields to the developer a little less than the 9% (or 4%) of the qualified construction costs, which reduces the mortgage and sources needed, including debt financing, thereby making makes it possible for low-income rents to be operationally feasible. Investors can deduct the full face value of the tax credit certificate spread out over 10several years as a credit against their federal income taxes, and must remain in the Limited Partnership (to be formed) through year 15.. The nonprofit sponsor becomes the majority General Partner and is responsible for day-to-day operations of the project and its
age restrictions to 55-and-over, so the ChurchWoods project is now configured as a senior housing program, wherein income-eligible households must have at least one person aged 55 or older. Both projects have received Master Plan approvals from the Planning Commission. Rhode Island Housing Mortgage and Finance Corp. (RIHMFC or RIH) is the housing agency designated by the state to oversee the allocation of certain federal housing funds, including the Low Income Housing Tax Credits. As recently as November 28, 2012, RIH was supportive of both applications utilizing the revised financial plan which included the tax credits, issuing a letter of eligibility for the comprehensive permit applications to go forward. In February, 2013, RIH denied predevelopment funds to the ChurchWoods project, stating that the tax credit allocations would no longer be permitted to be utilized for the construction of age-restricted housing. This departure from prior policy was made by RIH alone, while the Charlestown projects were being reviewed and vetted by RIH. Without the ChurchWoods units, the Shannock Village project is arguably too small to attract willing investors or to support the legal cost of compliance with the LIH Tax Credit requirements. The new policy has had a devastating domino effect on both projects access to funding controlled by RIH: the resulting construction funding gap renders all other funding applications less viable. There is no discernible change in the USDA or HUD funding priorities, nor is there any indication that these programs will soon revert to funding new construction. Absent the discovery of any other federal sources, it is apparent that RIH is virtually the only funding source for these projects. It is equally apparent that RIH is resistant to funding age-restricted housing at this time, no matter what we deem our housing priorities to be. ANALYSIS Despite the disheartening recent funding reversals, be assured that the WCCDC has given no indication that they have any intention of abandoning either project. They are convinced, as we are, that the joint efforts of the applicant and the Town have resulted in two superior proposals that now deserve to be considered in their own right. In our opinion, the applicant WCCDC has few, very limited, options at this time. Nevertheless, it is our opinion that, while the decision of what to do next properly resides with the applicant, it is looking to the Town for guidance as to what will be both feasible and also acceptable to the Town. In assessing the current options that we have identified, we have tried to make clear the steps we believe will be necessary for each. The Town Council should evaluate each option and let the applicant know whether it considers the option to be preferred, acceptable, or unacceptable to the Town. performance. At the end of year 15, it will have the right of first refusal to purchase the property, and continue its use as affordable housing for a minimum of another 15 years. AHC ChurchWoods/Shannock Funding Modification Advisory Page 2
1) Withdraw from both projects and move on: terminate agreements to purchase both parcels of land, and withdraw both projects bond funding applications. This would release all unexpended bond funds back to the Town for other affordable housing project applications. a) The Town Council would have to agree to accept the reports and studies generated by the initiative grant funds already expended as satisfaction of the initiative grant obligations. 2) Modify the ChurchWoods project as RIH has suggested, substituting non-age restricted units for some or all of the age-restricted units, and move forward on both Shannock Village and a modified ChurchWoods with a joint application for 9% LIH Tax Credits. a) This would require the consent of the Town Council to amend the elderly housing condition of the bond commitment, and would also require the Planning Commission s approval of the modified Master Plan. 3) Set aside the ChurchWoods property for future use and proceed immediately with Shannock Village Cottages: Offer the ChurchWoods land purchase agreement, together with all of the related studies and reports, to the Town for direct acquisition utilizing Affordable Housing Bond funds. Proceed aggressively with the Shannock Village project, assembling additional sites or units for the construction or rehabilitation of non-age-restricted LIH rental units, as necessary to submit a competitive application for 9% LIH Tax Credit Allocation in the October, 2013, round. A Building Homes RI application is also due August 2, 2012. a) This would require the consent of the Town Council to de-obligate the acquisition funds committed to WCCDC, in consideration of the WCCDC s assignment of its interests in the Purchase and Sales Agreement for the ChurchWoods property, and in the related predevelopment reports and studies. b) It would require the vote of the Town Council to acquire the ChurchWoods property for the full purchase price of $390,000, for the purpose of constructing affordable housing (some form of restriction documentation will be required. 2 ) c) It would defer the actual ChurchWoods construction to a time when funding is again available for age-restricted housing. d) It would also require the WCCDC to relinquish a minimum of $15,000 from its unexpended initiative grants, to free up the bond funds necessary to acquire the ChurchWoods property 3. 2 A determination of how the Town should take title to the land will require evaluation of the bond and Charter provisions that control the use of bond funds and the purchase and disposition of real estate interests, and should consider that if it is to be conveyed to a separate entity before the land is placed into use for housing, such a conveyance may require a referendum. 3 The agreed purchase price for the ChurchWoods property is $390,000. The Town has approved an acquisition funding grant to WCCDC in the amount of $325,000. The remaining $65,000 was to have been paid by WCCDC out of other income sources. If the Town is to acquire the property instead, it will need to have $65,000 of uncommitted bond funds available to it. Only AHC ChurchWoods/Shannock Funding Modification Advisory Page 3
e) It would also require the Town Council to modify the Shannock Village acquisition bond grant conditions to acknowledge and approve the restructured financial proposal, including the additional sites which have been identified for the expansion of the project, although no further acquisition funds would be available for the added sites. 4) Set aside the ChurchWoods property for future use and proceed cautiously with Shannock Village Cottages: Offer the ChurchWoods land purchase agreement, together with all of the related studies and reports, to the Town for direct acquisition utilizing Affordable Housing Bond funds. Proceed cautiously with the Shannock Village project, assembling additional sites or units for the construction or rehabilitation of non-age-restricted LIH rental units, as necessary to submit a competitive application for 9% LIH Tax Credit Allocation in the next available round. a) All of the requirements from the preceding option would apply. b) In addition, either an extension of the purchase agreement, or RIH s agreement to place the parcel in its Land Bank, would be required. 5) Set aside both ChurchWoods and Shannock Village Cottages properties for future use: Offer both the ChurchWoods and Shannock Village Cottages land purchase agreements, together with all of the related studies and reports, to the Town for direct acquisition utilizing Affordable Housing Bond funds and general funds. a) This would require the consent of the Town Council to de-obligate the acquisition funds committed to WCCDC for both properties ($600,000 total,) in consideration of the WCCDC s assignment of its interests in the Purchase and Sales Agreements and in the predevelopment reports and studies for both projects. b) It would require the vote of the Town Council to acquire the ChurchWoods property for the full purchase price of $390,000, for the purpose of constructing affordable housing (some form of restriction documentation will be required.) c) It would require the vote of the Town Council to acquire the Shannock Village Cottages property for the full purchase price of $325,000, for the purpose of constructing affordable housing (some form of restriction documentation will be required.) d) It would also require the WCCDC to relinquish all remaining unexpended initiative grants, to free up the maximum available bond funds which have been committed to both projects in order to acquire both properties. $50,000 remains uncommitted at this time. WCCDC will have to relinquish at least $15,000 from its unexpended initiative grant(s) to make the ChurchWoods acquisition possible. AHC ChurchWoods/Shannock Funding Modification Advisory Page 4
e) It would require a minimum of approximately $23,000 in appropriations from non-bond Town funds, in accordance with the provisions of the Home Rule Charter. 4 f) It would defer both projects until the funding process is perceived to be more favorable. There may be other options or considerations, and we are ready and willing to review them so that these two projects may yet come to pass. RECOMMENDATIONS Of all of the preceding options, the only totally unacceptable one is the first, that is, to give up and walk away. We include it only to point out that another, less committed housing partner could, and perhaps would, do so. It is indicative of the positive relationship between the Town and the WCCDC that this is not even being considered. It is the unanimous recommendation of the Affordable Housing Commission that these two specific parcels be preserved for use as affordable housing, no matter what; their unique placement within the growth centers, their cultural and environmental suitability, the investment already made toward their development for that use, all call for a reasoned response to the abrupt termination of funding opportunity. We should move forward in every possible way, while we seek out new funding sources, and work to improve the funding climate. Option #2, modifying the ChurchWoods proposal to enlarge it while reducing the number of senior housing units, is in our opinion the least acceptable option. The Town has a clear and compelling need for LIH rental units for the elderly, supported by the census data and market studies presented, and called for in the Comprehensive Plan and the Affordable Housing Plan. It is logical to conclude that this need will only increase as our demographics reflect the aging of the baby boomers. To tie up this parcel with housing that will preclude the development of elderly housing for the next 30 years is not in the Town s long-term interest. It would be best to have an approved funding plan to begin this project and make rental housing available right now. If we must wait, however, perhaps we will find a way to refocus the units on the elderly (age 62) utilizing the time-tested HUD-202 model and not merely the senior housing (age 55) required to qualify under the current tax credit model. 4 The total acquisition cost for both parcels is $715,000. With $600,000 already committed for acquisition of both parcels, and a remaining $50,000 in uncommitted bond funding, a total of $650,000 is available for acquisition. Of the $100,000 in initiative grants committed to these projects, about $42,000 has not been expended. Repurposing all of this to acquisition results in a total of $692,000 in available affordable housing bond funding. A minimum of $23,000 will be needed to accomplish the acquisition of both parcels, plus whatever legal and other expenses may arise. Again, the impact on this expenditure by Charter budgetary and land acquisition provisions needs to be determined by the Town Solicitor. AHC ChurchWoods/Shannock Funding Modification Advisory Page 5
Options #3 and 4 will preserve the ChurchWoods parcel for use as affordable housing while continuing to pursue currently available funding for the Shannock Village project, all the while utilizing only our affordable housing bond funds. Choosing between them will largely depend on the applicant s ability to restructure the Shannock project and still be able to submit funding applications for the fall deadlines. It will also depend on RIH s willingness to work with the applicant and the Town, and to fund the modified proposal, including taking the parcel into the RIH Land Bank when needed. Option #5 is arguably a last resort option, when present funding opportunities have been exhausted, as it is complicated somewhat by Charter budgetary constraints for the general fund contribution. We respectfully recommend that the Town Council: assess the foregoing options, identify those which are unacceptable, rank those which are acceptable in order of preference, and communicate this assessment to the WCCDC, so that they may determine for themselves the best course of action; ask the WCCDC to advise the Town of its intentions as soon as possible; and direct the Town Administrator to facilitate the preparation and/or review of documents necessary to accomplish the objectives of the chosen option, calling upon staff, the Town Solicitor, Bond Counsel and the Affordable Housing Commission, as needed, to work together and with the applicant WCCDC to bring the matter back before the Town Council with recommendations for specific action. We also respectfully recommend that when the funding application for Shannock Village Cottages is submitted, it should be accompanied by a strongly worded brief from the Town in support of the application. We thank you for your consideration, and stand ready to give any further advice or review of this matter that the Town Council may deem necessary. Sincerely, Evelyn J. Smith, Chairman cc: Town Administrator Town Solicitor Town Planner Washington County Community Development Corporation Affordable Housing Commission members AHC ChurchWoods/Shannock Funding Modification Advisory Page 6