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HomeMy WebLinkAbout2003-03-03 City Council (7)PMo C ty Manager’s Repor TO:HONORABLE CITY COUNCIL 9 FROM:CITY MANAGER DEPARTMENT: PLANNING AND COMMUNITY ENVIRONMENT DATE:MARCH 3, 2003 CMR:168:03 SUBJECT:APPROVAL OF A BUDGET AMENDMENT ORDINANCE IN THE AMOUNT OF $750,000 TO COMMIT FUNDS FOR HOUSING CONSTRUCTION COSTS FOR THE OPPORTUNITY CENTER FOR THE MID-PENNINSULA PROJECT ON ENCINA AVENUE REPORT IN BRIE The Opportunity Center facility, located on an 18,178 square-foot site at what is presently "known as 33, 39 and 45-49 Encina Avenue, will include a day use and service center of about 8,100 square feet for homeless adults and families and 89 units of permanent and transitional housing. On July 22, 2002, the Council approved an ageement providing an interim loan of $1,280,000 in Community Development Block Grant (CDBG) funds for predevelopment and site acquisition costs. In December, the Community Working Group (CWG) and the Housing Authority of the County of Santa Clara (Housing Authority) jointly submitted an application for $750,000 in supplemental funding for housing construction costs. A City commitment of this additional funding is a critical component of the developers’ March 18 application for State housing funds. Staff recommends that Council approve the attached Budget Amendment Ordinance (BAO) committing to $750,000 in additional project funding from the Residential Housing In-Lieu Fund. CMR:168:03 Page 1 of 6 RECOMMENDATION Staff recommends that the City Council: Approve the attached Budget Amendment Ordinance to appropriate $750,000 !n Residential Housing In-Lieu Funds, for the Opportunity Center project to be provided in the form of a loan for housing construction expenses. 2.Direct the City Attorney to prepare necessary loan documents before transfer of any funds. o Authorize the City Manager to prepare and execute documents approved by the City Attorney that are required to demonstrate the City’s commitment of funding for the Opportunity Center project necessary for the developers’ application for State funding. BACKGROUND Discussion of the history of the Opportunity Center project and the partnership between the Community Working Group, Inc. (CWG), the Housing Authority of Santa Clara County and Innvision to develop and operate the project was included in CMR:352:02 dated July 22, 2002. On that date, Council approved an interim funding ageement which provided the developers with a City loan of $1,280,000 from CDBG funds for pre-development, site acquisition and pre-construction expenses. On January 29, 2003, the Planning and Transportation Commission voted to recommend to the Council approval of a Planned Community (PC) zone application for the project. As recommended by the Commission, the Opportunity Center and Housing Project includes a 46,100 square-foot, 5-story mixed use building with a 8,100 square-foot drop-in service center for homeless individuals and families, 89 units of income-restricted rental housing, and 43 undergound parking spaces on an 18,178 square-foot site at 33-49 Encina Avenue. Complete legal control of the entire project site has now been achieved. CWG holds fee title to 33 and 39 Encina. The Housing Authority, utilizing its powers of eminent domain, secured control of 45-49 Encina under a court order of immediate possession that became effective in December 2002. The prospects for securing the project’s development funding improved significantly with the passage in November of Proposition 46, which authorized $2.1 billion in general obligation bonds for affordable housing development and progams. The largest share of Proposition 46 funding authority ($800 million) is allocated to State Housing and Community Development’s existing Multifamily Housing Progam (MHP) for rental housing construction. The State intends to conduct two MHP funding rounds per year over the next five years. Announcements of the first round of funding competitions for the MI-IP progam were punished in mid2January, with applications due on March 18. Pa~e 2 of 6 CMR:168:03 ~ The Housing Authority and CWG have decided to seek $5.5 million in MHP funding in the March funding round. If they are successful in the MHP competition, the developers will apply for an allocation of the 4%, non-competitive low income housing tax credits later in 2003. The MHP and tax credits are critical funding components, as together they make up about half of the project’s estimated $21 million development budget. The Opportunity Center project should score well and be competitive for an award, as the MHP pro~am selection criteria are currently structured. However, there is a significant amount of pent-up demand for affordable rental housing funding from projects such as Palo Alto Housing Corporation’s (PAHC) Oak Court family project. PAHC sought, and failed to win, the 9% low income housing tax credits in the last two years. The Opportunity Center project will rank lower in the criteria that measure readiness and the commitment of al! sources of funding compared to projects like Oak Court. Even though their private fundraising efforts are incomplete, the Housing Authority and CWG have decided to proceed at this time with the MHP application because progam regulations and project selection criteria could change in a manner that would be unfavorable to this project. Although PAHC will be applying in the March round for funding for Oak Court, unlike the tax credit competition, projects do not compete under a limited countywide funding cap. The ranking of projects for MHP funding is done on a statewide basis within general objectives to award at least 45% of funding to Southern California, 35% to Northern California and 10% to rural areas. At the time the Council approved the $1.28 million in CDBG funding, it was expected that the developers would apply for supplemental City funding. CWG had previously applied for $2,215,000 in City funds in December of 2001, but staff recommended that only the $1,280,000 in CDBG funds be ganted until further profess was made on site acquisition and planning entitlements. The additional $750,000 is being committed to the Opportunity Center project at this time; the funds will not actually be loaned to the developers until other development funding has been obtained and construction is scheduled to commence. The total $2,030,000 for the project ($750,000 in new housing funds plus $1,280,000 in CDBG funds) will then be combined into one permanent, long-term City loan, secured by appropriate legal documents against the entire property. The current, interim City loan is interest-free, with no payments required during the pre-development period. It is a joint obligation of both CWG and the Housing Authority and is secured by a deed of trust on 33 and 39 Encina. Prior to the start of construction, or earlier if necessary, the three parties intend to enter into permanent ageements for financing, construction and long-term occupancy and operation of the facility. While the terms of the City’s permanent loan have yet to be negotiated and are dependant upon the requirements of the other financing that is obtained to build the Woject, it is not likely that the City’s funding will be repaid in the foreseeable future. CMR:168:03 Page 3 of 6 RESOURCE IMPA CT The Residential Fund has a current available balance of approximately $1.6 million; allocating $750,000 to the Opportunity Center will reduce that balance to $850,000. The current balance in the Commercial Housing In-Lieu Fund is about $600,000; however, a fee payment of $328,000 is expected soon. Thus, after funding the Opportunity Center, about $1.8 million will still be available from the two housing funds combined for future housing development activities. The Opportunity Center’s financing is complex, involving multiple public and private sources, including at least six public entities and over nine different housing progams. The table below lists the current confirmed, and planned, funding for the projected $21.3 million in development costs. The developers have decided that the project cannot manage to make ongoing pa?anents on a bank mortgage and still maintain the extremely low rents affordable by the target population of formerly homeless households. Therefore, all permanent development funding is from gants, donations, and deferred payment loans. Additionally, CWG is devoting a portion of its fundraising campaign to raising three million dollars for an endowment for the ongoing operating costs of both the rental housing and the service center. An operating reserve for the housing units would help bring rents down to more affordable levels. The service center endowment would help cover common costs such as utilities, maintenance and insurance, so that the service providers pay little or no rent to locate at the center. The development costs are allocated between the housing component and the service center as follows: n "~0$~,834,00 18% Services Center $17,466,000 82% 89-Housing Units Opportunity Center - Projected Funding Sources for Development As of February 2003 Public Sources of Funding 1) City of Palo Alto 2) City of Palo Alto 3) Count5’ of Santa Clara 4) County of S an Mateo 5) County of San Mateo 6) HUD Mc Kinney Act 7) State HCD Program CDBG Residential Fund HOME HOME CDBG Supportive Housing Amount $1,280,000 $750,000 $500,000 $3OO,OOO $150,000 $4OO,OOO $5,5OO,OOO Status Under contract CMR: 168:03 Application recommended for approval b~/staff & CAC Under contract Under contract Under contract Confirmed Applying on 3/18/03 Page 4 of 6 Opportunity Center - Projected Funding Sources for Development As of February 2003 8) California Debt Limit Allocation Committee Total Public Sources Private Sources of Funding 1) Packard Foundation 2) Peninsula Community Foundation 3) Housing Trust of Santa Clara County 4) Misc. Private Donations 5) Major Donors Campaign 6) Capital Campaign Total Private Sources TOTAL ALL SOURCES Housing Tax Credits - 4% New Construction Will apply in summer of $5,168,000 2003 if MHP funds $14,048,000.00 Amount $1,000,000 $750,000 awarded Status Received $500,000 received $150,000 confimaed; $350,000 pending Received Tentative Commitments Underway. Funds not yet committed. $500,000 $700,000 $3,000,000 $1,300,000 $7,250,000 $21,298,000 POIJCY 1MPI,ICATIONS The actions recommended in this report implement existing City policies including furthering the Council’s "Top Five" priority of affordable housing. These actions also implement the Council adopted HUD Consolidated Plan and the 2002-03 Annual CDBG Action Plan. Below are the key milestones in the development process, assuming that the PC zone change is approved and the MHP funding application is successful. Should there be delays in the planning entitlements, or if the MHP application is unsuccessful, then the developers will need to reassess the timeline and the financing strategy. If these milestones are not met, the construction start is likely to be delayed until the spring of 2004, at the earliest. []Control of entire site achieved []PC Zone adopted by Council (assumed) []Application for MHP (Proposition 46 funds) submitted []MHP awards CMR:168:03 December 2002 By March 2003 March 18, 2003 June 2003 Page 5 of 6 Application for 4% housing tax credits Building Permit Subrnittal Approval of housing tax credits Council action on permanent funding & regulatory documents Close construction loan, Issue building permits, Start construction Completion and occupancy June 2003 Fall2003 September 2003 September 2003 April 2004 Februa13, 2005 ENWIR ONMENT A 1, REVIE~ City, staff prepared a Draft Environmental Impact Report (DEIR) on the project. The DEIR was circulated for public comments from December 13, 2002 to January 13, 2003. The Commission held a public hearing on December 18, 2002 to receive public comments on the DEIR. On January 29, 2003, the Commission voted to recommend that the City Council certify, the Final Environmental Impact Report. ATTACHMENTS Attachment A: Budget Amendment Ordinance PREPARED BY:~" ,~’-- ~THERI~S IEGEL Housing Coordinator DEPARTMENT HEAD REVIEW: _ ~ Director of Planning and Community Environment CITY MANAGER APPROVAL:~ ;ON Assistant City Manager Community Wor’king Group, Inc. Housing Authority of the County of Santa Clara Housing & Community Development, County of Santa Clara Office of Housing, County of San Mateo Pa.~e 6 of 6 CMR:168:03 ~ 0RD !N~A~C E NO ORDINANCE OF THE COUNCIL OF THE CITY OF PALO ALTO AMENDING THE BUDGET FOR THE FISCAL YEAR 2002-03 TO PROVIDE AN APPROPRIATION OF $750,000 FROM THE RESIDENTIAL HOUSING IN-LIEU FUND FOR A LOAN TO THE OPPORTUNITY CENTER PROJECT WHEREAS, pursuant to the provisions of .Section 12 of Article iii of the Charter of the City of Palo Alto, the Council on june 19, 2002 did adopt a budget for fiscal year 2002-03; and WHEREAS, the development of very !ow and low-income subsidized rental housing units implements the housing objectives stated in the City of Palo Alto’s Comprehensive Plan and Consolidated Plan and is a Council "Top Five~ priority; and WHEREAS, the ~Community Working Group, Inc. (CWG) holds fee title to 33 and 39 Encina Avenue, and the Housing Authority of the County of Santa Clara holds the right of possession to the parcel at 45 Encina Avenue, and these two entities (acting jointly as developers) are pursuing the development of 89 units of subsidized rental housing for very low and low income households over a service center for homeless persons and families the Opportunity Center Project on this site; and WHEREAS, on July 22, 2002, the City entered into an interim predevelopment funding agreement under which the City provided the developers with a loan of $i,280,000 for certain predevelopment and site acquisition costs for the Opportunity Center Project; and WHEREAS, the developers have completed the architectural design of the project, obtained Planning and Transportation Commission approval on January 29, 2003 of the Planned Community zone change, obtained almost five million dollars in financing commitments and are prepared to submit an application for the State’s Multifamily Housing Program (MHP), which is due by March 18, 2003; and WHEREAS, the developers must have commitments of all local government funding, including funding from the City of Palo Alto, to have a competitive MIiP application and such funding commitment can be documented by an adopted Budget Amendment Ordinance; and WHEREAS, the City has determined that an additional !oan amount of $750,000 for housing unit construction costs is needed to make the project feasible and that the City funds shal! be provided as a deferred payment loan pursuant to the terms of !oan and regulatory agreements to be later approved by Council, after all other required funding has been awarded and is firmly committed; and Whereas, $1,655,052 is available in the Residential Housing In- Lieu Fund; and Whereas, the appropriation of funds requested from the Residential Housing In-Lieu Fund is for a one-time cost and no future year ongoing costs are anticipated; and Whereas, City Council authorization is needed to amend the 2002-03 budget as hereinafter set forth. NOW, THEREFORE, the Council of the City of Palo Alto does ORDAIN as follows: SECTION i. The sum of $750,000 is hereby appropriated to non- salary expenses in the Residential Housing In-Lieu fund to be transferred to the Opportunity Center Project as a loan for the affordable housing project. No transfer shall occur except per execution of loan agreements prepared in a form approved by the City Attorney. SECTION 2. A note receivable of $750,000 wil! be established on behalf of the Opportunity Center Project, upon execution of the aforesaid loan agreements. SECTION 3. This transaction wil! reduce the Residential Housing in-Lieu Fund reserve from $!,655,052 to $905,052. SECTION 4. As specified in Section 2.28.080 (a) of the Palo Alto Municipa! Code, a two-thirds vote of the City Council is required to adopt this ordinance. SECTION 5. As provided in Section 2.04.350 of the Palo Alto Hunicipal Code, this ordinance shall become effective upon adoption. INTRODUCED AND PASSED: AYES: NOES: ABSTENTIONS: ABSENT: ATTEST: City Clerk 2 APPROVED AS TO FORM:APPROVED: City Attorney Director of Administrative Services City Manager Director of Planning and Community Environment Hayor