CITY COUNCIL STAFF REPORT
MEETING DATE: May 18, 2016
PREPARED BY: Rebecca Garcia, Housing Manager
APPROVED BY: City Manager
PDATETitle
HOUSING PROGRAM UPDATE
END
RECOMMENDATION(S)
RECOMMENDATION
1. Receive Housing Program Update;
2. Adopt Below Market Rate Program Resolution;
3. Authorize City Manager to Amend Nyanda & Associates HouseKeys Below Market Rate Agreement; and
4. Authorize City Manager to enter into an agreement with Rebuilding Together for a Rehab, Blight Busters Program.
BODY
COUNCIL PRIORITIES, GOALS & STRATEGIES:
Ongoing Priorities
Maintaining Fiscal Responsibility
2016 Focus Areas
Enhancing Our Services
Participating in Regional IssuesREPORT NARRATIVE:
During the May 18, 2016 City Council meeting, the Housing Team will provide an update on the City's Housing Program and discuss:
• Purpose and History of the City’s Support for Affordable Housing
• Housing Program Updates
• Below Market Rate (BMR) Program Update
• Five Year Proforma
Morgan Hill's primary housing mission is to continue the City's legacy to improve, preserve, and create safe, quality, rental and ownership housing in Morgan Hill for residents at all income levels. Historically, the City has built a model Program with one in every ten units being restricted. The City has produced more affordable ownership housing per capita than any other City in the State. In the absence of redevelopment, this successful program will be challenged to identify opportunities to both support administrative costs of the BMR Program, as well funding sources to deeply subsidize the production of affordable rental units at very low and extremely low affordability levels. In FY 15-16 the Housing Division continued to evaluate and respond to the effects of the elimination of the Redevelopment Agency and the resulting loss of $4 million in annual affordable housing funding to support the rehabilitation and development of affordable housing in Morgan Hill.
State law requires each local government in California to adopt a Housing Element as part of its General Plan demonstrating how the community plans to meet the existing and projected housing needs of people at all income levels. The Regional Housing Need Allocation (RHNA) is the number of new homes that a city is "assigned" to produce in a Housing Element cycle. It is determined in collaboration with the Association of Bay Area Governments (ABAG) based on State population projections and local conditions.
Past RHNA Housing Accomplishments for the 2007-2014 Housing Element Cycle
|
Income Level |
RHNA unit Goal |
Permits Issued |
% of RHNA Met |
Units + or - |
|
Very Low (0-50% AMI) includes 30% AMI for reporting purposes |
317 |
82 |
26% |
-235 units |
|
Low (50-80% AMI) |
249 |
139 |
56% |
-110 units |
|
Moderate (80-120% AMI) |
246 |
260 |
106% |
+14 units |
|
Above Moderate (120% +AMI) |
500 |
1,076 |
215% |
+576 units |
|
TOTAL RHNA |
1,312 |
1,557 |
117% |
+245 |
Current and Future RHNA Housing Goals for the 2015-2022 Housing Element Cycle
|
Income Level |
RHNA unit Goal |
Permits Issued To date |
% of RHNA Met |
# of units to go |
|
Very Low (0-50% AMI) includes 30% AMI for reporting purposes |
273 |
0 |
0% |
273 |
|
Low (50-80% AMI) |
154 |
13 |
8% |
141 |
|
Moderate (80-120% AMI) |
185 |
5 |
3% |
180 |
|
Above Moderate (120% +AMI) |
316 |
333 |
105% |
+17 |
|
TOTAL RHNA |
928 |
351 |
38% |
-577 |
As a result of the elimination of redevelopment agencies statewide, in 2012 the Housing Program accepted secondary responsibility to serve as the "successor" to the former Morgan Hill Redevelopment Agency’s housing functions and administer its legacy housing assets. This responsibility corresponds to activities which include monitoring projects funded by former RDA dollars, servicing of contracts and loans, including development loans and down payment assistance, re-syndication restructure for continued reinvestment in affordable rental units, and collection and review of residual receipt income. The Housing Team continues to look for opportunities to implement the City's Housing strategy through the provision of various housing functions, services, programs, and development. Below are some highlights of the Team's work program that further the City’s housing strategy and goals.
Structure of Morgan Hill’s Housing Strategy 2015-2023
The EAH Morgan Hill Family and Transitional Age Youth (TAY) Scattered Site Project
The City has partnered with EAH to build this project with a loan commitment of $4.5 million. EAH submitted their application for 9% tax credits, to the California Tax Credit Allocation Committee (TCAC), on March 2, 2016 as planned. The application process for 9% tax credits is very competitive; final project awards will be made in early June 2016. If the project is awarded tax credits, construction will commence in early of 2017.
EAH and the City also jointly applied for the 2016 Cap and Trade Affordable Housing Sustainable Communities (AHSC) Grant in March of 2016 as another potential option to bridge the financing gap and potentially obtain transportation improvement dollars directly for City projects, with awards announced in September 2016. In the event an AHSC award is given to EAH and the City in September, EAH would submit a non-competitive 4% tax credit application and a private placement tax exempt bond application to the California Debt Limit Allocation Committee (CDLAC) to round out the funding sources for the project. Should EAH not receive an award from its March TCAC application and EAH and the City not receive an invitation to submit a full AHSC application, EAH will submit a new 9% TCAC application in the end of June 2017. The project will be developed on three non contiguous sites 1.) 40 Dunne Avenue/14 affordable multi-family apartments (located on the south side of East Dunne Avenue between Monterey Road and Church Street) 2.)16873 Monterey Roads/8 units (located at the southwest corner of Ciolino Avenue and Monterey Road) 3.) 16170-80 Monterey Road/19 units (located on the east side of Monterey Road and west side of Keith Way, north of East Edmundson Avenue). All City entitlements and construction plans have been completed for the project.
Home Repair Rehab Program
The City entered into an agreement March 20, 2014 with the Housing Trust of Silicon Valley (HTSV) for $360,000, ($200,000 for BMR Rehab loans, $100,000 for grants, $60,000 for administration) to provide a low-income Housing Rehabilitation Program for the rehabilitation of older BMR homes, and to provide Senior home repair grants. Nineteen senior rehab projects (grants) have been completed. The $200,000 BMR loan portion was not utilized due to owners with older BMR homes (i.e., in need of repair, but with less time remaining on their affordability restrictions) being willing to finance repairs themselves or wait until the restrictions expire to avoid adding additional years to their restrictions. The HTSV is no longer able to administer the Program as they have chosen to focus on multifamily affordable housing development. As a result the $200,000 has been returned to the City's Housing Fund.
It is recommended that the $200,000 continue to be used for the existing Senior Home Repair Grant Program utilizing the services of the nonprofit provider, Rebuilding Together, who has been providing home repair service for twenty-four years. The program scope will be expanded to add a small scale Blight Busters program to assist with necessary neighborhood clean-up projects, on an "as-needed" basis. On occasion, Code Compliance and Housing Teammates are challenged to identify a solution to cleaning-up a residential area or need help bringing a low income home into compliance with health and safety rules. This Program will be utilized sparingly with referrals to Rebuilding Together by City Housing teammates, in collaboration with Morgan Hill's Building and Code Compliance. The agreement would be for $200,000 for a two year term ($100,000 for grants, maximum $7,500 each, $40,000 for administration, $60,000 for Blight Busters). This would collectively spend down the Senior Housing Trust fund which was established by a gift from a community donor some years ago.
Urban Housing Communities (UHC) Affordable Housing Project
UHC competed in the RDCS process and was awarded 39 building allocations in 2015 for the site located at the Northeast Corner of Monterey Road and Bisceglia Avenue for the construction of a multifamily rental affordable housing project, incorporating Transitional Age Youth Units. UHC is currently discussing lending opportunities with the HTSV for a 24 month, $2,280,000 bridge loan to acquire the land. Staff continues to talk to UHC regularly. It is anticipated that $4.5 million would be needed to finance the UHC project.
Once a funding plan is developed, Council will be requested to review a plan that is sensitive to the limited housing revenue that is anticipated, and the reality that the Housing Fund can only lend as it receives the annual Supplemental Educational Revenue Augmentation Funds (SERAF) payments to be paid to the City over a five year period of time. These dollars can be used to develop new affordable housing units and preserve housing assets. The calculated repayment amount for the Morgan Hill Successor Agency is $1,177,918 for FY 2015-16, and $703,250 for FY 2016-17, both of which are part of the $6,000,000 total repayment plan.
It is important to note that additional analysis and Council discussion will be necessary prior to deciding if funds should be appropriated for this project in relation to other Council affordable housing priorities. The five Year pro-forma provided later in this report includes funding UHC or a similar project. However, if all assumptions are correct, all housing funds would be depleted unless additional revenue is generated or service level reduction in other areas is implemented. T
EAH Village Avante Rehab preservation project
The City held a Tax Equity and Fiscal Responsibility (TEFRA) hearing to facilitate tax credit financing for the older affordable rental housing units, now called "Park Place," planning for a late fall (October/November 2016) start of construction of the major rehab. EAH plans to temporarily relocate families from their units for a period of about 6 weeks to accommodate total reconstruction. A relocation plan is being developed to implement the project. As part of the development, the City agreed to re-subordinate an existing loan for a project. In addition, the Housing fund is anticipating a $350,000 loan repayment, 19% of the subordinate debt. There will likely be no residual receipt revenue from "Park Place" for the next five years.
Community Development Block Grant
The County of Santa Clara administers U. S. Department of Housing and Urban Development (HUD) grants from for the Community Development Block Grant program (CDBG) and the Home Investment Partnership program (HOME) as part of a Joint Powers Agreement to serve the Unincorporated Areas of the County and the Urban County small cities with a population of less than 50,000 people, such as Morgan Hill. The CDBG and HOME-funded programs and project activities for 2015 served clients from all over Santa Clara County, including Campbell, Los Gatos, Los Altos, Los Altos Hills, Monte Sereno, Morgan Hill, Saratoga, and unincorporated sections of Santa Clara County. The following services were provided:
• Next Door Solutions to Domestic Violence provided 356 individuals and their children with emergency shelter and support services.
• Project Sentinel provided services designed to reduce or eliminate the incidence of illegal housing discrimination to 850 callers, investigated 42 fair housing violation allegations, conducted outreach to 20 social service providers, and distributed 1100 pieces of multi-lingual literature for public access.
• Community Solutions, La Isla Pacifica Shelter, provided emergency and short term housing, food, counseling, and life skills workshops to 31 very low income women and their children in Morgan Hill and the unincorporated area.
• Senior Adults Legal Assistance (SALA) provided free legal assistance and Community
• Education to 85 seniors in Morgan Hill to improve and/or stabilize elders’ lives.
• The Galvan Park project installed security cameras for increased health and safety measures as well as installed new playground equipment. In 2016, $77,000 will be allocated for the completion of the Galvan Park project.
Affordable Housing Sustainable Communities Grant (AHSC)
HCD announced the availability of $120 million in funds made available from the State Cap & Trade proceeds. Staff submitted a joint application with EAH Developers for $9,489,122 for the EAH family scattered site project, and two capital projects, extending Monterey Road Streetscape improvements from Dunne to Watsonville Road, creating complete streets, and adding a separated bicycle route, median improvements from Dunne to the Tennant/Edmundson crossing (median already exists in the two blocks south of Tennant/Edmundson) and completing the Butterfield Linear Park with pedestrian pathways from San Pedro to Tennant). Grant awards are to be recommended late June of 2016.
Homelessness: Homelessness continues to be a regional priority. The next Homeless Census will occur in January of 2017. The Council adopted the 2015-2020 Community Plan to End Homelessness in Santa Clara County, June 17, 2015, and recently adopted the County of Santa Clara Housing Task Force Affordable Housing Resolution, February 3, 2016. The Resolution adopted by City Council declares homelessness a crisis and is a call for local municipalities to consider a menu of strategies for implementation within their own communities. Morgan Hill continues to incorporate special needs units with services within developments, such as the Transitional Age Youth (TAY) units.
FY 15-16 Below Market Rate (BMR) Program Accomplishments
Upon the sudden dissolution of the City's previous BMR Administrator, Neighborhood Housing Services of Silicon Valley (NHSSV), the Council adopted a Transition Plan on July 15, 2015 to contract with Nyanda and Associates, LLC, A California Limited Liability Company d/b/a HouseKeys, to provide the continued administration of the BMR Program for $272,000. The key objective of the BMR Program has been to identify the true cost to deliver on-going services, and appropriate administration of BMR assets. The BMR Program has undergone a significant transition period. The BMR expertise that HouseKeys has provided has created an invaluable partnership in continuing and fine tuning the implementation. The program continues to thrive and develop. The BMR portfolio has grown over the last 9 calendar months, with a total of 500+ owner occupied units. It warrants the need to focus on asset management, monitoring and compliance to maintain the integrity and sustainability of the Program. In the past nine months the Program has contracted for the sale of 17 home sale transactions, 19 Escrow/Closings, held 17 new homebuyer education workshops for 455 registrants, refined and restructured processes, and provided the County Assessor with accurate value information on all units based upon their individual appreciation formula. The first nine months focused on three major efforts:
1.) How to deal with the abrupt need to transition the Program in the wake of NHSSV’s demise, and avoiding service interruption to the existing pipeline of new homebuyers and developers.
2) Assessing the true cost of sustaining a BMR Program Administration Operation of the City's size. The true cost of the program is nearly $850,000 annually, with approximately $350,000 offsets by fees. As it was apparent that the original $75,000 contract with NHSSV was not sufficient for the magnitude of the City's portfolio, the contract with HouseKeys will require an increase to $500,000 for each of the next two years to continue to provide full services.
3) Nyanda & Associates, LLC formed HouseKeys in 2015 and teamed up with the City of Morgan Hill in a public-private partnership called the Model City Initiative to incubate ideas and craft a solution to preserving and reducing the cost of the BMR Program. As a "Charter" member, Morgan Hill partnered with HouseKeys to not only preserve the continuity of the BMR service, but also to use it as a test bed to evaluate and demonstrate sustainable program strategies and best practices for other BMR communities. The intent is to build a model of best practices around affordable homeownership that could be adopted in whole or in part by other cities. This initiative would allow cities to maintain their autonomy, while still collaborating to preserve and improve their respective programs with the goal to ultimately share the overhead costs of the BMR program with other jurisdictions, thereby reducing each City's overall administrative costs over time. With a 40-year program that has over 500 BMR properties spread out in over 45 subdivisions, Morgan Hill has one of the region’s oldest, largest and most active affordable housing portfolios.
Below are the highlights of the successful 9 month transition of the program:
• Re-qualified existing buyers who were no longer able to benefit from NHSSV's first mortgage lending, including updating financial information
• Rebuilt New Buyer Pipeline (239 applications) to assist developers with closing on time
• Re-Drafted/Re-Recorded the NHSSV Affordable Housing Agreements that were no longer valid
• Held 3 Lotteries for potential new homeowners
• Created New Morgan Hill BMR Website - www.HouseKeys.org <http://www.HouseKeys.org> to disseminate information
• Assisted 5 Development Projects that needed onboarding to City process and sale of units (Stonebridge, Madrone Plaza, Loden Place, Paseo Seville, Tilton Park)
• Recorded Nine (9) BMR Properties with Notice Of Defaults (NOD)
• Held 17 BMR Educational Orientations at City Hall with 455 Registrants
• Assisted with 17 BMR Home Sale transactions
• Escrow/Closings: 19 (closed two on behalf of previous Administrator)
• Set Up Program hosted onsite in Morgan Hill with 3 new Full Time Staff located next to Housing Division
• Updated BMR Rental Guidelines to assist with the Diamond Creek Project
• Conducted ongoing monitoring and compliance; worked alongside staff to cure defaults and foreclosures
• Identified and qualified New Lenders to facilitate Purchase Transactions and familiarize their legal teams with the Program's 45 year affordability restrictions
• Responded to the County Tax Assessors request for a detailed description of each BMR Home in the City to ensure accurate property tax assessments
• Rehabbed and sold 2 defaulted units
BMR Program Administration Costs and Anticipated Revenue
When HouseKeys was launched in July of 2015, staff anticipated a certain level of program cost based on start-up and staffing. These costs were offset by a contract fee that is paid by the City of Morgan Hill and program revenue earned from processing fees charged to new home developers for providing processing and underwriting of new BMR buyers, and to BMR owners who refinance and sell their homes. The positions required to operate a BMR Program include a part-time Program Manager, full-time Asset Manager, full-time Program Processor and full-time Program Underwriter. The level of need and cost is dependent on the market over time, with both transaction revenue and activity being determined by housing and interest rate cycles. There are three considerations in determining program staffing needs, 1) pipeline Growth - New Construction Units needing New Buyers over a 12-month period, 2) Asset Management - Transaction, Case and Loss Mitigation activity associated with existing Properties and Owners, and 3) Program Development - Program Policy and, Infrastructure to sustain the program. In an effort to build on the extensive work that has been done and to continue service delivery, staff is recommending the Council approve adopting a resolution amending and extending the Nyanda and Associates HouseKeys Agreement for a term of two years, with an annual contract amount of $500,000. While the total program cost is $850,000, the revenue generated by the sale and resale of homes offsets the cost by $350,000; therefore, the City’s contract request is $500,000.
|
BMR Program Budget |
|
Asset Manager |
FT |
$55,681.60 |
|
Processor |
FT |
$62,150.40 |
|
Underwriter |
FT |
$60,673.60 |
|
Program Manager |
PT (1/2) |
$78,000.00 |
|
Real Estate Attorney |
FT |
$83,200.00 |
|
Benefits and Payroll |
|
$148,526.40 |
|
Communications Consultant |
¼ time with Benefits |
$39,000.00 |
|
Real Estate Project Manager |
¼ time with Benefits |
$39,000.00 |
|
Software Developer |
¼ time with Benefits |
$39,000.00 |
|
Non Personnel |
Overhead, Space, Computers, Phones, etc. |
$244,768.00 |
|
Total BMR Program Cost |
|
$850,000.00 |
|
New Construction Income |
15 Units |
$150,000.00 |
|
BMR Resale Income |
10 Units |
$150,000.00 |
|
Acquisition Income |
3 Units |
$50,000.00 |
|
Total Offsets |
|
$350,000.00 |
|
Net Budget (Contract Request of the City) |
|
$500,000.00 |
Overhead breakdown
|
|
Monthly |
Yearly |
|
Insurance (e.g. GL, E&O, Employed Lawyers Liability) , License and Broker Association Dues |
$2,500 |
$30,000 |
|
IT Services |
$2,500 |
$30,000 |
|
Operations Vendors |
$6,000 |
$72,000 |
|
General and Admin |
$2,500 |
$30,000 |
|
Communications |
$1,500 |
$18,000 |
|
“Overhead” |
|
$180,000 |
Projected Housing Funding 5 Year Pro-forma
The revenue needed to fund the City’s housing programs is directly aligned with the health of two funds: The Housing In-lieu Fee Fund (Fund 236) and the Successor Agency Housing Fund (Fund 255). The Successor Agency Housing Fund will receive program income from the Agency’s legacy projects and assets, as well as one-time ERAF and SERAF repayments; the calculated repayment amount for the Morgan Hill Successor Agency is $6,000,000, of which $1,177,918 was received in FY 2015-16, and $703,250 in FY 2016-17. The remaining balance will be paid to the City over a five year period of time. It is anticipated that $500,000 in housing in-lieu fee revenue for eligible BMR units will be received based on the $150,000 current fee.
Projected Housing Funding 5 Year Pro-forma
|
|
15-16 Year End Projection |
16-17 Recommended |
17-18 Recommended |
18-19 Forecast |
19-20 Forecast |
20-21 Forecast |
|
|
|
|
|
|
|
|
|
Beginning Balance |
5,613,653 |
6,726,631 |
3,713,003 |
2,613,110 |
1,481,543 |
806,261 |
|
|
|
|
|
|
|
|
|
Revenues |
3,842,270 |
2,852,758 |
2,127,817 |
1,649,260 |
2,144,849 |
1,658,334 |
|
|
|
|
|
|
|
|
|
Expenditures |
(2,729,292) |
(5,866,386) |
(3,227,710) |
(2,780,827) |
(2,820,130) |
(2,859,185) |
|
|
|
|
|
|
|
|
|
Ending Balance |
6,726,631 |
3,713,003 |
2,613,110 |
1,481,543 |
806,261 |
(394,590) |
Note:
The $4.5 million EAH loan commitment is included in expenses.
This assumes funding the next $4.5 million Affordable Housing Project.
The Successor Agency Housing Fund will receive program income from the Agency’s legacy projects and assets, as well as one-time ERAF and SERAF repayments, the calculated repayment amount for the Morgan Hill Successor Agency is $6,000,000, of which $1,177,918 was received in FY 2015-16, and $703,250 in FY 2016-17, the remaining balance will be paid to the City over a five year period of time.
KMA BMR In-lieu Fee Report
The purpose of the Affordable Housing Program is to further affordable housing through a variety of options; including rental and ownership, construction of new units as part of the project, and/or payment in-lieu of fee generating revenue to allow the City to produce the unit elsewhere. It has been a decade since the current $150,000 in-lieu fee has been evaluated. One of the work products for FY 15/16 was to have an analysis done on the appropriateness of the City's housing in-lieu fee. A report has been prepared by Keyser Marston & Associates, and will be discussed with the City Council and Development Community at a workshop scheduled for June 15, 2016. The purpose of this review is to estimate the cost of providing on-site BMR units relative to the current in-lieu fee; and to recommend potential program changes that are more closely aligned with the cost of providing BMR units on-site, off-site and with the fees of other jurisdictions.
Below Market Rate Program Resolution
The Below Market Rate Resolution included as an attachment will formalize the BMR fee schedule, development standards, provide authority to the City Manager to approve and execute program guidelines, to authorize the appointment of the administrator to act on behalf of the City, and to execute the assignment and assumption of the City's option to purchase a BMR property in order to complete an acquisition and resale of a BMR home.
COMMUNITY ENGAGEMENT: Inform
ALTERNATIVE ACTIONS:
As an alternative to the staff recommendation, the City Council may choose to not adopt the BMR Resolution, to not approve the Nyanda and Associates, LLC, A California Limited Liability Company d/b/a HouseKeys agreement, and/or to not approve the Rebuilding Together agreement.
PRIOR CITY COUNCIL AND COMMISSION ACTIONS:
On July 15, 2015 City Council adopted a resolution to authorize the City Manager to enter into an agreement with Nyanda and Associates, LLC, A California Limited Liability Company d/b/a HouseKeys as a Below Market Rate Housing Services provider. On February 3, 2016 the City Council adopted the SCC Housing Task Force Affordable Housing Resolution on Homelessness.
FISCAL AND RESOURCE IMPACT:
The current Nyanda and Associates, LLC, A California Limited Liability Company d/b/a HouseKeys BMR agreement is effective through July 15, 2016. The amended contract with an increase of $500,000 for each of the next two years is included in the FY 16-17 and 17-18 recommended budget in Housing Fund 255. The Rebuilding Together agreement is scheduled to become effective July 1, 2016 and is included in the FY 16-17 and 17-18 recommended budget in Housing Fund 236 and 235.
CEQA (California Environmental Quality Act):
Not a Project
LINKS/ATTACHMENTS:
1. Below Market Rate Program Resolution
2. Nyanda & Associates HouseKeys Below Market Rate Agreement, Exhibit A, B, C
3. Rebuilding Together Agreement
4. Draft Below Market Rate Ordinance
5. Exhibit D Fee Schedule
6. Exhibit E Development Standards