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Home My WebLink AboutStaff Report 2509-5262CITY OF PALO ALTO CITY COUNCIL Monday, November 03, 2025 Council Chambers & Hybrid 4:30 PM Agenda Item 7.Approval of Budget Amendments in the Local Housing Trust Fund, Residential Housing In- Lieu Fund, Residential Housing Impact Fee Fund, and Commercial Housing Impact Fee Fund to Reflect Prior City Council Funding Commitments for the Development of 3001 El Camino Real 100% Affordable Multi-Family Housing Project; CEQA Status: Not a Project. City Council Staff Report From: City Manager Report Type: CONSENT CALENDAR Lead Department: Planning and Development Services Meeting Date: November 3, 2025 Report #:2509-5262 TITLE Approval of Budget Amendments in the Local Housing Trust Fund, Residential Housing In-Lieu Fund, Residential Housing Impact Fee Fund, and Commercial Housing Impact Fee Fund to Reflect Prior City Council Funding Commitments for the Development of 3001 El Camino Real 100% Affordable Multi-Family Housing Project; CEQA Status: Not a Project. RECOMMENDATION Staff recommend that City Council approve the following actions to reflect the prior $5,000,000 funding commitment to the 3001 El Camino Real 100% Affordable Multi-Family Housing Project: 1. Amend the Fiscal Year 2026 Budget Appropriation (Requires 2/3 Vote) for: a. The Local Housing Trust Fund (Fund 252) by: i. Increasing Grant Revenue by $1,900,000; and ii. Increase appropriation for Contract Services Expenses by $1,900,000; b. The Residential Housing In-Lieu Fund (Fund 233) by: i. Increasing appropriation for Contract Services expenses by $500,000; and ii. Decreasing the Fund Balance by $500,000; c. The Residential Housing Impact Fee Fund (Fund 293): i. Increasing appropriation for Contract Services expenses by $400,000; and ii. Decreasing the Fund Balance by $400,000; d. Commercial Housing Impact Fee Fund (Fund 234): i. Increasing appropriation for Contract Services Expenses by $2.2 million; and ii. Decreasing the Fund Balance by $2.2 million. EXECUTIVE SUMMARY On January 21, 2025, City Council awarded a conditional funding commitment of $5 million to the 3001 El Camino Real 100% Affordable Multi-Family Housing Project, which was also found to be a Local Housing Trust Fund qualifying project.1 The funding commitment sources were as follows: The remaining $1.9 million from the City’s 2022 Local Housing Trust Fund (LHTF) (Fund 252) program grant award from the State Department of Housing and Community Development (HCD); A corresponding $1.9 million in City Council designated Local Housing Trust Fund local matching funds from the Residential Housing In-Lieu Fund (Fund 233) ($500,000), Residential Housing Impact Fee Fund (Fund 293) ($400,000), and Commercial Housing Impact Fee Fund (Fund 234) ($1,000,000); and An additional $1.2 million from the Commercial Housing Impact Fee Fund (Fund 234). BACKGROUND Use a maximum of 70% of City and LHTF funds toward affordability levels at or below 60% of area median income (AMI); Use a minimum of 30% of City and LHTF funds toward affordability levels at or below 30% AMI; and Establish income and rent restrictions for no less than 55 years.2 3 The $1.5 million in grant funding, plus $1.5 million in local matching funds from Residential Housing In-Lieu Fund (Fund 233) were disseminated to the project.4 Therefore, there is a remaining balance of $1.9 million from the 1 City Council City Manager Report ID # 2409-3517; January 21, 2025: https://cityofpaloalto.primegov.com/viewer/preview?id=0&type=8&uid=2834b4e7-62e3-4bf4-b5a0- 76a52064282e 2 City Council City Manager Report ID # 14300; May 23, 2022: 3 City Council City Manager Report ID # 14281; May 23, 2022: 4 City Council City Manager Report ID # 2310-2167; November 27, 2023: https://cityofpaloalto.primegov.com/viewer/preview?id=0&type=8&uid=e6396253-ac8c-4d66-a41f- eaa569d4b79e. City’s 2022 LHTF program grant award and a corresponding $1.9 million remaining balance in City Council designated Local Housing Trust Fund local matching funds in the Residential Housing In-Lieu Fund (Fund 233), Residential Housing Impact Fee Fund (Fund 293), and Commercial Housing Impact Fee Fund (Fund 234). ANALYSIS Prevention System (HPS) units and 32 Rapid Rehousing (RHH) units. Subsequently, Charities Housing determined it would be unable to provide the 26 HPS units due to operational and financial constraints. However, the project is still able to provide at least 25% of the project units (32 units offered at 30% AMI) as Rapid Rehousing (RRH) units for transitionally homeless individuals, which would be allocated through the Countywide Rapid Rehousing program. c. Charities Housing needs to make minor adjustments in unit affordability levels based upon updated financials and the funding package prepared for the project across all project lenders. Table 1 summarizes these proposed adjustments. The maximum rent for each household remains at 30% of a household’s income. The average affordability for the project was 39.9% AMI when entitled in June 2023, went down to 38% AMI when City Council made its conditional funding award in January 2025, and the project currently proposes an average affordability of 40.39% AMI. Although 25 units would now be restricted at 60% AMI under the proposed affordability levels, City staff supports these minor affordability adjustments because the applicant has expressed that they are necessary for the purposes of funding the operation of the project and because more 2- bedroom and 3-bedroom units would now be restricted at 30% AMI than at entitlement and when City Council made its conditional funding award. Table 1: 3001 El Camino Real 100% Affordable Multi-Family Housing Project Unit Mix and Affordability Levels 15 22 12 25 20 12 12 15 20 10 15 20 0 2 6 0 5 6 0 7 4 0 7 4 5 0 4 15 7 7 23 7 4 22 7 4 0 0 2 0 8 15 0 3 4 0 3 4 0 1 1 2 1 1 The terms of the loan and other necessary documents for 3001 El Camino Real are still in the process of finalization, including review by HCD. However, according to the Affordable Housing Funding Guidelines, the typical loan terms included in the loan and other documents are a 3% interest rate, deferred, residual receipts, and a 55-year term loan. Underwriting and other LHTF-specific requirements are incorporated into the loan documents and the City’s regulatory agreements for the project. The promissory note contains the obligation to repay the $5 million with 3% interest per annum. POLICY IMPLICATIONS Program 2.1 Affordable Housing Development regarding partnering with a housing developer to provide housing for homeless, large families, and low-income persons; Program 6.2 Family Housing and Large Units due to the number of 3-bedroom units that City funding will assist; and Program 6.6 Fair Housing Impediments regarding the project being mixed-income project located in a high opportunity and resource rich area. FISCAL/RESOURCE IMPACT The budget actions would also further reduce the Commercial Housing Impact Fee Fund (Fund 234) balance by $1.2 million to $2.4 million.9 STAKEHOLDER ENGAGEMENT ENVIRONMENTAL REVIEW APPROVED BY: 9 After City Council made its conditional funding award of $5 million to the 3001 El Camino Real project, the corresponding amounts in Fund 233, Fund 293, and Fund 234 were committed for the project. These amounts already specified for 3001 El Camino Real are not included in recent reporting to City Council in the October 22, 2025, City Manager Report #2505-4745 of available fund balances for potential affordable housing at Lot T.