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HomeMy WebLinkAbout2001-05-07 City Council (4)City of Palo Alto City Manager’s Report TO:HONORABLE CITY COUNCIL FROM: DATE: SUBJECT: CITY MANAGER MAY 7, 2001 DEPARTMENT: PLANNING AND COMMUNITY ENVIRONMENT CMR:226:01 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 The Finance Committee recommends that the City Council authorize and direct the City Manager, or his designee, to execute the necessary documentation to amend the December 22, 1989 promissory note between.the City of Palo Alto and Palo Alto Senior Housing Project, Inc. to forgive the entire $20,000 principal balance due, and to extend the due date for the $6,000 in accrued interest to June 1, 2004 with no additional compounding of interest. BACKGROUND On December 22, 1989, Stevenson House was provided with a $20,000 loan in, Community Development Block Grant (CDBG) funds through the City;s Non-profit Rehabilitation Loan (NPRL) program. The $20,000 loan and $6,000 in accrued interest was due in full on December 22, 1999. Stevenson House has requested that the City either forgive the loan in its entirety or defer payment for an additional ten-year period. Staff had recommended to the Finance Committee that the City Council authorize the City Manager, or his designee, to execute the necessary documentation to forgive the entire principal and interest balance of $26,000 due on the promissory note. Both this option and the option recommend by the Finance Committee are permitted under CDBG program regulations. BOARD OR COMMISSION REVIEW AND RECOMMENDATIONS The Finance Committee discussed Stevenson Houge’s request at its April 3, 2001 meeting. The Finance Committee heard testimony from JoAnn Revis, President of the Board of Directors of Stevenson House, and from Trina Lovercheck, Spokesperson for CMR:226:01 Page 1 of 2 the CDBG Citizen’s Advisory Committee (CAC). The Finance Committee agreed with the Citizens Advisory Committee that some repayment of the loan was warranted since the funds had been provided under the specific condition of the promissory note. The Finance Committee recommended forgiving the $20,000 principal balance, but requiring the repayment of the $6,000 in interest, with no additional compounding. The Finance Committee suggested a two to three-year timeline for Stevenson House to repay the $6,000 in interest. ATTACHMENTS’ City Manager’s Report of April 3, 2001 (CMR: 180:01) PREPARED BY: APPROVED BY: C~inator i~c~ ~ r~, RDannG~~~.~g and Community ~.EnvIronment CITY MANAGER APPROVAL: Assistant City Manager cc: CDBG Citizens Advisory Committee Genie Dee, Executive Director, Stevenson House CMR:226:01 Page 2 of 2 City of Palo Alto City Manager’s Report TO: ATTENTION: FROM: HONORABLE CITY COUNCIL FINANCE COMMITTEE CITY MANAGER DEPARTMENT: PLANNING AND COMMUNITY ENVIRONMENT DATE:APRIL 3, 2001 CMR: 180:01 SUBJECT: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 ~’acility 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 27, 2000, Attachment B). TheNPRL 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 e~d 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 the City’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 tothe 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 after 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 income households." ENVIRONMENTAL REVIEW Not a project under the California Environmental Quality Act (CEQA) CMR: 180:01 Page 3 of 4 PREPARED BY: DEPARTMENT HEAD REVIEW: (~..~ZS~ G. EDWARD GAWF¯Director of Planning ~ Environmem CITY MANAGER APPROVAL: EMILY Assistant City Manager Attachment A: Attachment B: Attachment C: Attachment D: July 12, 2000 Letter from Suzanne Bayley July 27, 2000 Letter from Stevenson House Non-Profit Facility Rehabilitation Program Guidelines July 9, 1979 Staff Report CO: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 Planning 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 (NPFRL) #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 $26,0O0 Since demand for payment of this note was not made earlier, interest will only be assessed through the December 22, 1999 due date if your paYment is received by July 31, 2000. Please send your check to the attention of the undersigned. If you have any questions, please feel f~ee to contact meat 650/329-2428. Very truly yours, ~" CDBG Coordina~cr~~ 250 Hamilton Avenue P.O. Box 10250 Palo Alto, CA 94303 650.329.2441 650.329.2154 fax ATTACHMENT B Suzanne Bayley CDBG Coordinator City of Palo Alto P.O. Box 10250 Palo Alto, CA 94303 Stevenson House to-friendship July 27, 2000 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 In .the past years; we have: ¯Replaced the roofs on all three of our buildings, one with CDBG funds granted by the City; ¯Replaced both our boilers; ¯Removed for reroofing 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 eiders; Thank you for your consideration of this request. Sincerely, -- ~EExeen~ t~veee Director A communihyfor 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 loan fund to meet various rehabilitation needs of .non-profit organizations throughout the p~ogram year. The funds will be loaned to eligible organizations at 3% interest with either a fully amortized of deferred payment. Themethod of repayment will be determined by the organizations ability to repay the loan.. Review of loan applications and loan decisions will be made by a City Manager appointed Loan Committee. This Committee will bw 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 l or more years of exi.stence who serve primarily ~ow and moderate .income persons (80% of county median), or elderly and disabled members of the community~ .The organization must own 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. B.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 loan amount shall be $I0,000. Program funds will provide 3% interest loans, for a maximum term of .lO 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 mee~s program guidelines, and is unable to refinance the loan, without adverse impactto p~ogram services. Upon sale or transferof 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 secured by a Deed of Trust. E.I00% of the rehabilitation loan must be. used to cover code deficiencies. REHABILITATION PROCESS I.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. A report describing the improvements required tobring the prdp~rt~ up .to code will be presented to the organization. ¯ 4.Staff will prepare work write-up Specifying the work to be done. 5.Competitive bids will be received via the-City’s-Purchasing Services Procedures. All applicable Federal Labor Standards and Contract Compliance procedures will be followed. 6.The program manager will prepare and presentthe loan application based upon the accepted bid and proper .verifications to the Loan.Committee. :8. 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. 9.The program staff will prepare required federal reports for funds disbursed. A.TTACHMENT’D 5uly 9, 1~79 " ’HONORA3LE CITY. COUNCIL . Palo Alto, California ",~" ’Repayment of Community DevelopmentBlock Grant (CDBG).Funds on keel Estate Improvement Projects Members of the Council: Background .... . .. In the last three CDBG program years, the-City has allocated Federal funds to projects involving capitalimprovements to. real estate. These projects include renovation of the Downtown Senior Center, elimination of arhhitectural barriers at Community Association .for Retarded .(C.A.R.), new/facilities for theSenior Day Care Program,an~..a work activity program facility, atC.A.R. In.thesoand. similar situations, CDBG funded improvements have significantly increased the value ofthe property; This staff report recommends a procedure .that will.preclude or minimize a substantial windfall upon anyfuture saleof the.property:when a .property’s. use is altered from that which was origihally intended. This procedure would (1) return a. substantlal revenue which tha.City would use to augmeDt other CDBG programs upon a property sale or change in . use, or .(2) guarantee that the funded program will .continue for-a period of time commensurate with the amount of the.grant, This procedure being recommended by Staff will not apply to ~he Housing Improvement Program (low interest rahabilitatio~--~oans). ¯That:program already uses a loan.repayment program. Al~o~ thes’e recommeD~atlons. ~ot apply to the Rental Housing..Ac~uisltion Program;. there, a ~ promlsso~9-~o~e ~cured’~a~s~cond~deed-0f ~r~s{’is ’requlrid for the CDBG .Real.Proper~y Loan Procedu£e -. The rationale behind the proposed procedure is to assure that funds allocated to-CDBG projects continue to be U~ed for the purposes for .,~hi~h~..t~., ~w~r~o~.~ig~t!~=~l ..... .Under the-.propose~ procedure, whenever an eligible.grant request is- approved for improving (not repairing) ~eal. estate, the ~ecipient~must agree to the following: CM~; 340:9 (2) carry out the program (or othe~ eiigible CDBG activity if ~pproved by City Manageror a designee) for a specific period of time. related to. the amount of the grant; or should the property be sold before th~ time period elapses, thexeclpient will repay the City that pro-rated balance of the CDBG grant obligation plus interest at 3% per annum for 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 ire 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 grantee 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 not the oWner and is unable to provide ¯security such as a second deed of-.trust or_other similar guarantee, .the obligation to the City is less ~ecure0 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 10an pr6cedure. : It is imp.orient ~onote that it is not-intended that the .City "make money’’[ from the loan and interest repayments; r4~ther, it- is the City’s intent to assure that the promised projects and iservicea are -provided to eligible res.i.dents ~" . Consequently, ¯ item #i above provides for. an. amortization period Which allowsloan repayments to..be .relieved as long as the original (or .similar)-program is in .operation for a"given period of time. " Example of Loan Procedure -,. ~ ...." The following table represents a recommended amortlza’~i0n ’and repayment schedule° .~he annual repa.yment is calculated by multiplying the loan amount by .ithe.-appropriate annual repayment factor. Amount of Grant $25,000 to $50,000 "$50,000 to ~75,000...... ~75.~..~,~$1o~u~o~ $i00,000 tO $150,000 $150,000 ~o $200,000 Above $200,000 Amortization Period 5 year@.- 10.years 20 years 25 years 30 years ~nnual repayment factor -.Promissory Note Secured. by Deedof Trust or ot~er acceptable ,security 0@218355 0.I17231 ~IDB3757 0.067216 0.057428 0.051019 Annual repayment factor - Promissory. N~te Alone 0.243891 0~142378 ’~JI~9795 0.094393 0.085811. 0.080586 7 /9/79’ 2