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HomeMy WebLinkAbout2001-04-03 City CouncilCity of Palo Alto City Manager’s Report TO: ATTENTION: HONORABLE CITY COUNCIL FINANCE COMMITTEE FROM:CITY MANAGER DEPARTMENT: PLANNING AND COMMUNITY ENVIRONMENT DATE: SUBJECT: APRIL 3, 2001 CMR: 180:01 PROPOSED FORGIVENESS OF CITY OF PALO ALTO’S NON- PROFIT REHABILITATION LOAN IN THE AMOUNT OF $20,000 TO PALO ALTO SENIOR HOUSING PROJECT, INC. DBA ADLAI E. STEVENSON HOUSE RECOMMENDATION: Staff recommends that the City Council forgive the entire $20,000 principal balance and accrued interest on the non-profit facility rehabilitation loan that was made on December 22, 1989 with Community Development Block Grant (CDBG) funds to Palo Alto Senior Housing Project, Inc. for improvements to Stevenson House. BACKGROUND Palo Alto Senior Housing Project, Inc. is the not-for-profit owner/operator of Adlai E. Stevenson House, a 120-unit, low-income senior residential facility located at 455 E. Charleston Road in Palo Alto. In 1989, the organization expended approximately $135,000 to renovate the facility’s congregate kitchen and dining area. The City of Palo Alto provided $40,000 to help leverage the cost of the project. $20,000 was provided as a CDBG grant, and $20,000 was provided as a 10-year deferred loan at three (3) percent interest through the Non-Profit Rehabilitation Loan (NPRL) program. The $20,000 principal balance of the loan, along with $6,000 in accrued simple interest, was due in full on December 22, 1999. (See attached letter dated July 12, 2000, Attachment A). Stevenson House has requested that the City forgive the amount due, or defer payment for an additional ten year period based on the continuing unmet CMR:180:01 Page 1 of 4 rehabilitation needs of the facility, and the organization’s desire to maintain the lowest .possible .rents .for the .elderly tenants.. (See attached letter dated July 27i 2000, Attachment B): ~ " The NPRL program was established to meet various facility rehabilitation needs of non- profit organizations. (See attached Non-Profit Facility Rehabilitation Program Guidelines, Attachment C). It was administered in the Planning and Community Environment Department under the umbrella Housing ImProvement Program (HIP) that provided low-interest loans to low-income single family homeowners for home rehabilitation. HIP and NPRL were initially capitalized with allocations of CDBG funds and maintained through a revolving loan fund. Six loans were made through the NPRL program, and the Stevenson House loan is the only outstanding loan in the program. Both of the loan programs have been inactive for the past eight years. DISCUSSION On September 15, 2000, staff from Planning and Administrative Service Departments reviewed the Stevenson House request. Staff supports the request to forgive the loan and the accrued interest because Stevenson House provides 120 units of permanent, affordable housing for 135 low-income seniors, and fills a critical need in the community. It appears unlikely that Stevenson House’s ability to repay the loan will change in the near future since the facility is 32 years old, and the need for repairs, rehabilitation and capital improvements will continue to increase as the facility ages. Average rents for the studio and one-bedroom units are currently $432 and $515 per month respectively. Forgiving the loan will assist Stevenson House in its mission of keeping the rents as low as possible for the income eligible senior residents, while maintaining the facility in good condition. The nine-member CDBG Citizens Advisory Committee (CAC) also considered, the Stevenson House request at its regularly scheduled meeting of February 15, 2001. The CAC did not concur with the staff recommendation of forgiving the loan and accrued interest. The CAC voted unanimously to support forgiveness of the principal balance due, but to demand repayment of the $6,000 in accrued interest that was due as of December 22, 1999. CMR:180:01 Page 2 of 4 ALTERNATIVES TO STAFF RECOMMENDATION Other options available to the City Council include extending the term of the loan for an additional period of time, and re-evaluating the agency’s ability to repay at the end of that period. RESOURCE IMPACT Under the CDBG program regulations, the Department of Housing and Urban Development (HUD) allows the local jurisdiction to set policy relating to the repayment. or granting of funds. If repaid, the loan proceeds would be treated as CDBG Program Income and added to theCity’s Letter of Credit with HUD. The funds could then be allocated to other CDBG-eligible activities in the annual CDBG allocation of funds process. If the loan is not repaid, the additional funds would not be available for other activities. POLICY IMPLICATIONS The CDBG policy relating to the repayment of funds on real estate improvement projects is outlined in the attached staff report dated July 9, 1979 (see amortization schedule, page 2, Attachment D). Converting the $20,000 loan to a grant alter 10 years is consistent with this adopted policy. Policy H-12 of Palo Alto’s adopted Comprehensive Plan calls for the support of agencies and organizations that provide shelter, housing, and related services to very low, low and moderate-income households. "The City should work with nonprofit housing organizations and the local development community to ensure that all affordable housing, including family housing and units for seniors on fixed incomes, remains affordable over time. , Palo Alto is committed to providing continued support to local groups that serve the housing needs of lower incomehouseholds." ENVIRONMENTAL REVIEW Not a project under the California Environmental Quality Act (CEQA) CMR:180:01 Page ~ of 4 PREPARED BY: DEPARTMENT HEAD REVIEW: " G. EDWARD GAWF Director of Planning and Coirlmunity Environment CITY MANAGER APPROVAL: Assistant City Manager Attachment A: July 12, 2000 Letter from Suzanne Bayley Attachment B: July 27, 2000 Letter from Stevenson House Attachment C: Non-Profit Facility Rehabilitation Program Guidelines Attachment D: July 9, 1979 Staff Report cc:Genie Dee, Executive Director, Stevenson House CDBG Citizen’s Advisory Committee CMR: 180:01 Page 4 of 4 Cityo 2alo Alto. Department of Planning and Community Environment July 12, 2000 ¯ Plarming Division Genie Dee Executive Director Stevenson House 455 E. Charleston Avenue Palo Alto, CA 94306 Re’.Palo Alto Senior Housing Project, Inc. Non Profit Facility Rehabilitation Loan (N-PFRL) #6 $20,000 10-Year Loan Dated 12/22/89 Dear Ms. Dee: The intent of this letter is to inform you that theabove referenced Non- Profit Facility Rehabilitation Loan #6 was due and payable on December 22, 1999. Demand is hereby made for payment in full as follows: Unpaid principal balance Unpaid interest @ 3 % per annum Total due and payable $20,000 6,000 $26,000 Since demand for payment of this note was not made earlier, interest will only be assessed through the December 22, 1999 due date ifyour payment is received by July 31, 2000-. Please send your check to the attention of the undersigned. If you have any questions, please feel free to contact me at 650/329-2428. Very truly yours, CDBG Coordinator@~ 250 Hamilton Avenue EO. Box 10250 Palo Alto, CA 94303 650,329.2441 650.329.2154 fax Suzanne Bayley CDBG Coordinator City of Palo Alto P.O. Box 10250 Palo Alto, CA 94303 Stevenson House A bridge to friendship July 27, 2000 ATTACHMENT B RE:Palo Alto Senior Housing Project, Inc. Non-Profit Facility Rehabilitation Loan (NPFRL) #6 $20,000 10-Year Loan Dated 12/22/89 Dear Suzanne: We received your letter of July 12th regarding the above loan: We would like to inquire as to Whether it would be possible for the City to forgive this loan. If this is not possible, we would like to request an extension of the loan term for an additional ten years. This is due to the extensive capital improvement needs of our facility. three years; we have: In the past ¯Replaced the roofs on all three of our buildings, one with CDBG funds granted by the City; . ¯Replaced both our boilers; ¯Removed for reroofmg and purchased our solar system; ¯Retrofitted windows and doors in one of our buildings {the first phase of a seven- year retrofitting project, funded by Los Altos CDBG funds). In addition, our board has recently approved application for a HUD Capital Improve- ment Loan of $134,000 for other urgent improvements. This loan, if granted, will be at 5-7% interest, double the interest on the above loan. Given these major financial requirements to maintain our facility, it would be most helpful if the City is able to assist us. This loan, and other support from the City over the past 32 years, have helped us to maintain Stevenson House as an important community resource for low-income elders. Thank you for your consideration of this request. Sincerely, "L/Executive Director A community for active older adults 455 E. Charleston Road * Palo Alto * CA * 94306-4231 Phone (650) 494-1944 * Fax (650) 493-7437 ATTACHMENT c CITYWIDE NON-PROFIT FACILITY REHABILITATION PROGRAM GUIDELINES DESCRIPTION This program will establish a revolving !oan fund to meet various rehabilitation needs of non-profit organizations throughout the p~ogram year. Th~ funds will be loaned to eligible organizations at 3% interest with either a fully amortized ow deferred payment. The method of repayment will be determined by the organizations ability to repay theloan. Review of loan applications and loan decisions will be made by a City Manager appointed Loan Committee. This Committee will b~ comprised of the existing three-person Housing Improvement Program Loan Committee plus an additional fourth member designated by. the City Manager. ELIGIBILITY OF NON-PROFIT ORGANIZATION .Non-profit organizations with 1 or more years of exi.stence who serve primarily low and moderate income persons (80% of county median), or elderly and disabled members of the community~ .The organization mustown or have the right to encumber the property to be rehabilitated, .. ELIGIBLE LOAN USES A.Code conditions or code work requiring immediate correction to prevent rapid deterioration of this structure. Code correction necessary to correct immediate health and safety danger to building occupants, Code problems identified by.a Building DePartment inspection that left uncorrected could jeopardize, continued operation or use of the facility. LOAN TERMS AND CONDITIONS A~ The maximum Ioanamount shall be $I0,000. ~rogram funds will provide 3% interest loans, for a maximum term of-I0 years. Payment of the loan may be deferred for up to lO years on both interest and principle. This repayment may be extended if the organiza- tion still meets program guidelines, and is unable to refinance the loan, without adverse impactto p~ogramservices. Upon sale or transfer of the property the loan shall be due and payable with the funds returned.to the Non-Profit Facility Rehabilitation Account, to be used for additional loans. D.All loans will be securedby a Deed of Trust. E.I00% of the rehabilitation loan must be used to cover code deficiencies. .~" REHABILITATION PROCESS Non-profit organizations will be encouraged to submit loan applications throughout the year. Upon receipt of an appl~cation, the rehabilitation program staff will inspect the .property to prepare a scope of rehabilitation and accurate cost estimate. .:3.A report describing the improvements required tobring the prdp~rtY up .to code will be presented to the organization. - 4.Staff will prepare work write-up specifying the work to be done. Competitive bids will be received via theCity’s Purchasing Services Procedures. All applicable Federal Labor Standards and Contract Compliance procedures will be followed. The program manager will prepare and present the loan application based upon the. accepted bid and proper .verifications to the Loan.Committee. Upon approval.by the Loan Committee,the program manager will execute the necessary documents with the owner. Progress and final payments based upon work comPleted and inspected will :be paid; from the loan escrow account bythe City Controller only Upon written approval of the owner and the improvements advisor. The program staff will prepare required federal reports for funds disbursed. A~TACHIKENT’D HONOrAbLE CIr. OUNCIL " Palo Alto, California ~. .. ’Eepayment Of Community Development Block Grant (CDBG).Funds on keel Estate Improvement Projects .... Background ¯ .. In the last three CDBG prog~a~ years~"the.C~tY’has a~located Federal funds to proj.ects involving capital.Improvements to. real estate.. These projects include renovation of the Downtown Senior Center, elimination of architectural barriers at Community Assoclatlon.for Retarded.(C.A.R.), ’ . new.facilities for theSenior Day Care Program,a~d..a work activityprogram facility, atC,A.R. In,theseand. similar situations, CDBG. funded ~improvements have.signiflcantly increased .the value ofthe property~ This staff report recommendsa procedure .tha~ will.preclude or m~n~mize a substantial windfall upon anyfuture saleof theproperty~when a property’s, use is altered fromthat whlch, was"orlgihally intended.. This procedure would <i) return a. substantlal revenue.which the City would use to aug~eDt other. CDBG p.r6grams upon a property sale orchange in " use, or .(2) guarantee that the funded program will .ontinu~ for-a period. of time commensurate, with theamount ofthe.grant. .i- .. ’This procedure being recommendedby ~taff will no~ apply to ~heHouslng.. "Improvement Progra~ (low interest rehabilitati0~-~oans). ¯That:program already.uses a loan¯repayment program. Al~o,i thes’e recommendationE ’.~_~o~ a~p!y to¯the Rental Housing-Acqulsition Program;¯ there, a promissory .note s~cured:~~a.~6c6~d-~eed-~f ~rdst is required ~or ’the p~rc~na~e.of_ ~~ .proper~y. " ...... . CDBG ¯Real¯Property Loan Procedure . .... : ".. " The rationale behindthe proposed.procedure is.to assure that funds¯¯ ...,.allocated toCDBG.projects continua to be ¯ Under. the.propose~ procedure,, whenever an. ellgible.grant request is approved for improving (not repairing) real estate, the ~ecipient.~ust. agree to the following: CM~; 3~0:9 " ~"’ carry out ~the program (or ~thereiigible’CDBG activity if - ~pproved by City ManaEeror a designee) for a specific period of time¯related to the amount~ of the grant; or should the property.besold before th~ time period elapses, thexeclpient will repay the City that pro-rated balance of " the. CDBG gran~ obligation plus interest at 3% per annumfor owners and 7% per annum when the. recipient is not the property owner. In all cases, the above obligatlon(s) will be secured by a promissory note, and where t~e recipient is. the owner, the obligation will also be secured by a deed of trust or other form o~. security acceptable to the " City Manager. The 3% rate-of Interest on obligations where the g~antee is the owner of the property is consistent with the rate of interest. charged for the ¯City’s rehabilitation program. In these cases, the obligation is secured by a second deed .of trust. In situations where - the grantee is hot the oWner and is. unabie to provide security such as a second deed of...trust or_other similar guarantee,-the’obligation to the City is less secure. Because the risk is greater, staff recommends the . " higher 7% re.re, which is. still quite reasonable in the market, place. ". The above is essentially a 10a~’ pr6cedureo . It is important ~o note that " it is not-intended that the .City¯ "make money" from the loan and interest repayments; rather, it-is the City’s intent to assure that the promised projects and iservicaa are ¯provided to eligible res.idents: ¯consequently, ¯ item #i above .provides for. an. amortization period Which allowsloan repayments to..ba .relieved as long as .the original (or slmilar).program is in .opera~ion for a"given period.°f .time.... ........ mple of Loan Procedure ...-~., ~ : The following table represents a £ec0mmended amortiza’~ion:and repayment - schedule...The annual¯ repa.yment is calculated by multiplying ’the ¯loan .. amount by .itha..appropriate annual .repayment factor. .. ’ " ¯"""~nnual repayment ’--..’" "factor -"Promissory Note Secured by ~" Annual "Deed of Trust or repayment factor - Amortization ’ot~er acceptable Promissory. Amount of Grant Period security (3%). N6te Alone .(7%) $25,000 to $50,000 5 year,s_".. 0.218355 0.243891 $50,000 to $75,000 10.years 0.117231"’0~142378 .. ...... ~ 75’~ D0D ~"~5"~ $ i 0D;DDD .....[~I~ "years. .....¯°I) ~D~3757 ""D;TD9795 $i00,000 tO $15.0,000 20 years.0.067216..0.094393 $150,000 t.o $200,000 25 years . 0.057428 ..0.085811 . Above $200,000 30 years 0.051019 0.080586 7 i9179"