HomeMy WebLinkAbout0564.000~.
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November 15, 1990
ftIII 1I01lORAlIL!l C ITT COUNCIL
Palo Alto~ california
Attenticn~ Poli~y and Procedures committee
Informational Repol't on Housing~stance Programs for .£il.y
Employees
Members of the council:
Attached is an informational report on housing assistance programs
for City employees Which requires no cou~cil action.
At its February 20.. 1990 meeting, Council directed staff to
research the issue of housing opportunities for city e~ployees and
report bacX with suggestions for augmented or new employee housing
proqrams. Members of the Council expressed concern about the high
cost of housing i,n the Palo Alto area and the resulting iJDpact on
City employees who are forced. to live lon~ distances from the
worksite~ Additional concerns were raised about how this problem
would impact the ability of emergency services personnel to return
to the city in the event of a disaster, and how the high cost of
bouainq would impede our efforts to recruit and retain quality
employees. This report will review the -assistance programs
currently available to City e~ployees and then provide an analysis
of additional programs which are being utilized elsewhere in both
the public and private sectors.
!'liE PROSt.!!!!
ThE problem is clear and easily illustrated: housing prices in Falo
Alto are among the highest in the nation. Home prices have.
accelerated much faster than sala.ry increases resul tine; in the
inability of the averaqe employee to afford a house in the Palo
Alto area. According to the Housing Element of the Comprehensive
Plan, the lI'Iedian-priced house in Palo Alto costs $404,000. The
purchase of a $404,000 home .. ith a 20\ dovn pa}~ent ($80,000)
requires monthly payments of $3,220 (including taxes and insurance
and assu~in9 a 30 year fixed mortgage at 10\ interest). To qualify
for such a loan a family must earn at least $115,900. The median
salary for regular city e~ployees is $39,000.
This disparity has forced mo~e and more employees to seek
homeownership at great commuting distances from their jObs. With
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very taw exceptions {typically Ea.t Palo Alto, parts of Redwood
City and Mountain View}, affordable houalnq can be found only in
outlying areas, •. 9., South San Jose, the 84at b5y or the qrowing
cosaunities of the central valley ~here ne~ hOMes can be purchase~
for under $200,OOO~
Rents in Palo Alto are also among the higheat in the area~ The
median rent in Palo Alto is $889 per month with rentals of single
tamily homes starting at about $1500 per ~onth.
The inability of the averaqe city employee to buy a home in or near
Palo Alto has far reaching implications tor tile city as an
employer~
It will become increasi~1y acre 4ifficult to recruit and retain
qual ity employees in an area of such hiqh real estate costs.
Recruiting efforts for .088 positions in Utilities have long been
hampered by the inability of ."·"'eral clSl'ldidates to relocate to this
area. In the past six months alone, six qualifi~ candidates for
two ~ifferent technical positions in Utilities declined interviews
after they were provid:ec:! with information on the C05t of real
estate in this area.
While the effect on recruitllent and retention is of long-term
concern, there are other, more ilDDediate consequence to this trend.
hployees in the Public Wor-Jcs and Utilities departments are on
eall throughout the year to r •• pond fro. ho .. to prOble~s such as
downed trees and signs, flooded str •• ta and power outaqes~
Currently in the Public works OperatiGns DIvision, for example, of
the 30 employees norma11y on the call-back list only 5 live within
one hour of Palo Alto. The other 2S employees are not on the list
as their response time froa home would not be timely in the event
of an emergency ..
In addition to those who are subject to call-back throughout the
year th~re are 3 greater number of employees in these departments,
as well as the Police and Fire ddpartments, who must re~pond from
home following a major disaster to ~in the restoration of t.~e
most critical city service.. If the October 17, 1989 earthquake
had been of a larqer maqnitude and addItional bridges or roads were
destrcyed .. any of these employee. would not have been able to
return to their jobs tor an extended period of tiDe .. As it was,
many employees trom cities a8 close as Hayward and Fremont were
delayed due to bridge closures.
Another result of this trend is its impact on already congested
bridqes and freeways, As .ore employees taka to the highways for
longer periods of time the tr4ftic condition. in ~~e Say Area will
worsen ..
By all indications this trend will continue and more employees will
face lonqer commutes in the futUre.
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IIXSTIMq PROGRAMs
The city's %post extensive bousinq assistance program currently
available is. tr~e Basic Relocation Benefits package offered to new
Msnaqement employees (see attaCfuuent NO.1J. This plan assists the
new manager .. ·ith various travel and moving expenses. under the
optional benefits the City will assist by paying some disposal ~nd
purchase costs, extend an interest-fr~e bridge loan and provide
interest di:tferential payments up to $300 a month for 36 monti,s:.
city employees who meet the established ~inimum a~d maximum income
limits are eligible for participation in the City's beloW' market
rate rental and purchase programs administered DY the Palo Alto
Housinq Corporation (PAHC)~ These programs offer beth rental and
purchase opportunities. According to Sylvia Seman. Executive
Director of PARe. few city employees have availed themselves of
these opportunities. Most employees and their families make in
excess of the income limits and the average waiting time is 3-4
years.
The final housing assistance p,ogram available to employees is the
Public Employees Retire!llent System (PERS) Home Loan Progral!l~
Employees may apply for mortgages and receive a guaranteed interest
rate (the current market rate) for 60 days. Additionally, the
origination fee is set at one point~ These two features are
beneficial but do practically nothing to address the issue of
affordability in this area.
TpglT GROUPS
The ideal housing assistance prog,a::n would allow all city employees
the opportunity to purchase a home within a reasonable distance to
Palo Alto. For the purposes of ~.is report, the target area ~ill
be defined as anywhere on the peninsula within a 30 minute commute
to Palo Alto. This area is confined to the peninsula since we
should a~sume that the bridges would not be accessihle following
a major quake. The 30 minute commute was chosen somewhat arbitrari
ly and can be adjusted one w~y or the other. It should~ however,
take into consideration an acceptable response time for employees
to return to Palo Alto and begin the restoratior.. of interrupted
services. However. with a workforce of nearly 900 employees (40%
of whom currently live outside the target area). real lite
considerations require us to scale down programs such as this to
fit within certain budgetary constraints.
Short of a citywide program open to a]l employeas, the ~ext group
to focus on are those individuals who are subject to call-back and
those ~ho provide emergency services for the City in the event of
a disaster. This group ~ould consist of employees from the
Utilities. Public Works, Planning, Police and Fire departllents.
Some of these employees are rou~i~ely required to be on-call for
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response tG downed trees, power failures~ water leaks and other
such emergencies. The .majority of them: police officers,
tirefighters and select employees in ~Jblic Wo~ks, and Utilities,
must report to Palo Alto immediately followinq a m3jor disaster
such as an earthquake. In addition to these traditional emergency
services providers, building inspectors from the Planning Depart
ment "",auld be neeC!ed to inspect d~maqec1 buildings and bridqes.
There are many other employees from nearly every department who
would be called upon during a disaster to assist with the restora
tion of services. This group, however, is limited to those who are
dil"ectly involved in life saving efforts.
I f we examine these employee qroups by department and by which
service they provide, it is difficult to prioritize which is wost
critica.l. Utilities and PUblic Works have the most call-back
employeesi those w~o are oo-call throughout the year to respond to
problems relating to storms and other, sometimes annual occurren
ces. Although technically not on-call, the Police De~~rtment has
a number of eQployees that are calleQ upon to respond fro~ home to
crisis situations. Investigat.ors respond to the scene of major
crimes such as homicide and rape, the special Weapons and Tactics
Tea. (SWAT) and the Crisis Resolution ream (CRT) are called-in to
handle barricaded suspects and hostage incidents. Additionally,
the Animal Services Division of the Police Department has call
back Animal Control Officers that respond from home to problems
relatinq to animals.
The Fire, Utilities and Public Work~ Departments provide the most
iJam€cdiate and necessary re] iet in the event of a :IIlajor disaster
such as a larqe scale eart."'1quake. The threat of gas leaks,
explosions, large fires and collap~ed bul1dir~s outweigh the other
potential hazards such as traffic jams, lootinq and damage to city
property. It would he necessary, however, to field extra police
officers as soon as possible following a disaster to restore order
during a time of chaos.
The next and smallest group to be considered are newly hired
employees a Recruitment efforts are "iter.. limited to the i:r.mediate
area since many good. candidates from c-ther parts of the country are
unable to relocate here due to the high cost o;>f housinq. The
current management relocation plan does help a small segment of the
new employees who r.ead some minor assistance to make the transition
into this area. It does I however, fall short of addressing the
issue of affordability which faces most employees that move here
from other parts of the state or country. An enhanced relocation
plan extended to all ne'W hires 'Would not i!iddress the needs of
existing employees b~t would, over tim;!!, insure that the city
workforce of the futUre has the opportunity to live a reasonable
distance from Palo Alto.
The nueber of employees which may be included in a housinq
assistance plan will deper.<J dire.:::t.ly upon the amount .of money
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available to support such a program. Since the funding level is
an unknown factor at this time, this report will exan:;ine three
4ifferiint sized target groups each of which would require a
different budqetary commitment~ These groups are: 1) all
employees, 2) emergency services personnel and 3) newly hired
employees. The following breakdowns will review each group by the
number and types of employees, by where they currently reside and
by the benefits which WOuld be deri .... ed from their inclusion in a
hous Lng program.
• TARGET GROUP A
{All City Employees)
Total j of Employees
Total t CUrrently Livi~
Inside Target Area
a96*/100t
535/60'
Target Group Size 361/404
This group. being the largest, Iao'ould naturally require the most
!unCla to support. Even a modest program to assist this many
eaployees would require the City to issue bonds or borrow larqe
sums of money. The benefits derived from assisting-all city
e.ployees are many. certainly the improved ability to recruit and
retain quality employees is a ~ajor consideraticn. other benefits
include sborter response times for emergency personnel (see target
group B) ~ the reduction of commute times and., for those who
relocate to Palo Alto, a sense of enhanced community Involvement~
For eaployees, shorter commutes ~ean mor~ time with their families
and outside interests .
• This fi~~re reflects the total t of employees as of May 41
1990~ The total t of budgeted positions is 903.
TARGET GROUP B
(Eme~ency Services Personnel)
Total , of Employees
Total t Livir~ Inside
Tarqet Area
398/100t
20)/5U
Tarqet Group Size 195/49\
This group is smaller than Target Group A but would
substantial fundi~ to support a meaningful program ~
thIs group include sworn police p~rsonnel,
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still require
Employe.es in
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firefighters, buildinq inspectors and public works and utilities
eaployees responsible tor call-back response to damaged streets,
downed trees, qas leaks power outa'2o'& and problems with the
Reqional Water Quality Control Plant~ ot the 598 total employees
in these departments, 398 ot them are included in this group~ Not
included are clerical staff and others 'Who perform primarily
adDinistrative functions. Alth-ough im(X'rtant to the day-to-day
operation of their respective departments, they are not critical
to the immedi~te resumption of interrupted services~
The benefits which are described above for Target Group A yould
hold true for this smaller group. But e~phasis should be placed
on the importance of this group to tbe delivery of critical
services during emergency situations. The first few hours following
a disaster are critical as on-duty emergency services personnel are
stratched beyond their capabilities. CUrrently. almost half of
these nearly 300 em.ployees live more than 30 ninutes from Palo Alto
or in the East. Bay: 64 '.;:)r 1E\; live more than one hour fro'll Pale
Alto! The closer these people live to Palo Alto the faster they
can respond back to the workplace in an emergency and the less the
chances are they .... il1 be delayed b:a-r downed bridges or closed
freeways.
TARGET GROUP C
{Newly Hired Employees)
Total f of Newly Hired
Employees (1989)
Total • Living Inside
Target Area
Target Group Size
50/62'
31/38'
On tbe average t:'1e city of Palo ~lto hires 175 new employees a
year. The above figures reflect those who we~e hired in calendar
year 1989 and are still employed by the city. The distribution of
employees living within the target area closely matchss that of the
total workforce (Tarqet Group A). An assistance program aimed at
this group vould be the least costly since the target group is the
smallest. If the averages remain constant, the target group should
rarely exceed 67 employees in a given year. The group size yould
be even smaller if th~re we~e a one year eligibility period thus
excluding thOSE who do not complete probation or choose to leave
on their own. As stated earlier, a program assisting this group
would not address the problems faced by existing employees but it
would start a slow reversal of this trend and insure thet
eventually, a qreater percentaqe of employees would live close to
the City. The cost to support a program for this group would depend
on the type of assistar£e oft~red but, in any event, it would be
the least costly of the three qr~~ps ~onsidered.
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The,area of employer assisted housing is rapidly changinq and the
structure ot new programs seeD to be limited only by the designer's
iaaglnation~ Followinq Is a sununary of some proqra:as being
utillzeJ in botb the public and private sectors. For ~he sake of
illustration and cost analysis, the approximate required funding
level for each program and each target group will be determined
using the followinq scenario:
o Employee X wQUld like to purchase a $260,000 home
.0 Eaployee X earns $CO,OOO and 5pouse earns $30,000
o The X lamil:r has $10,000 for a dcwn payment
o To purchase this house the X family needs an
additional $49,41! for down payment ar~ closing costs
o Based on their combined incomes they just barely
qualify for the $206,798 first mort9age
~MQR1GAGE ORIGINATION AND GUARANTEES
Under this program the City would establish a banking relationshIp
with a lender in exchange tor special considerati~n to employees
applying tor first aortqaq$s~ Further, the city would guarantee
the employee's f"irst lDortqage if the loan was made by the
designated If!ndcr~ !:stablisbir.q a Joint Powers Authority ""'ith
other cities 'Or ca.bining efforts with local businesses could.
maxt.ize the ~buyin9 power-by increasing the size of the employee
pool~ Although a program such as this currently exists at the
University of Pennsylvania, it is unknown it local lenders
would be interested in such an arrangement~
This proqraa could provide a savings of approximately ~05' of
the amount of the first DOrtqaqe per annum. In the case of
a '$2:00.000 loan this would amount to $1000 per )'ear_ If enough
employees participated in the program there could be a slight
discount on the interest rate .. hieh could result in an
additional savings ot up to $1000-2000 per year~
Disadyantages
AltboUqh this program may save an employee a few thousand
dollars a year on their mortgage I it does not go far enou9h
to siqnificantly impact the affordability of housing in the
Palo Alto area as it does not help with the down payment. It
aay, however, assist the buyer who is on the borderline of
affording a home on his or her own. This prograa 6083 ~~
proviae the Z f .. i17 with outticlent a •• i.tanc. to purcba68
t.h. ho. ••
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This prograD may be structured so that ~~ere are no direct
coats other than some nominal administration fees~ To do so,
the City could use it's reserves to 911arllntee the loans.
Another option ~ould be for the City to deposit an amount of
eoney, from it's reserves, for which it would receive minimal
or no interest in order to have the bank proviC:e the loans.
The cost in this case is the lest 1nter~st on the d~P09ited
ROney~ If ~n employee defaults on the guaranteed mortq~qe the
city would work with the lender to secure its inve&tment by
& sale ot the property or perhaps a right of first refusal for
purchase and sale to another qualifying employee. This program
would be most effective with ~ larqer target group Which would
increas8 the overall groups' buying power~
Required PUn4inq.
Target Group A .•••••••...•• c ••••••• $O
Tarqet Group B •..........•••.••.... $0
Target Group c ..........••••••....• $O
-These figur~s do not reflect the loss of revenue if City
reserves are deposited with little or no interes'
DlREC'l' SUBSIDY
Under this program. the City 'Would provide direct payments to
e.ployees to subsidize their mortgage or rent payments. These
payments could vary from as little as $100 to $500 a ~onth. This
type of program is typically offered. as a differential to new
manaqement employees to offset the rise in housing costs
experienced when first lIovlnq into an expensive area. Many of
these programs last 3-5 years with decreasing levels of payments
each year.
Advantages
This prograa is easily administered and can assist employees
whether they choose to buy or lease housi.ng in the target
area.. It is easily tenllinated if the employee leav~s city
service and provides an attractive incentive tor recruitment
and retention.
The payments increase the employee IS initial affordabilit'j
by about one-third of their total amount because they are
regarded as compensation ~-nd therefore are treated as such by
lenders when applying qualifying ratios.
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pjsadvantageA
This progrim can be very costly to the City if a larqe nUll!ber
of emplayees were involved. There is no monetary return on
investment and it does not ~ssist with the down payment. This
prQ9r.. do.. cot provide the E taDily with oufficieDt
••• iatanQa to puroba.e the boae.
The cost of this program varies dependinq on the nuqber of
employees rec:elving assistance. and the iUlOunt of each payment.
This plan does not provide a monetary return of investment for
the City. For the sake of illustration, the following coats
will be based on a 60% participation rate tor each group and
monthly payments of $300 for 3 years. Bond funding would not
be appropriate for this alternative. The funds ~ould come
from city reserves.
Requirod FuDding.
Tarqet GrOl.1p A .......................... $2.3. million
Tarqet Group B .• 4444~ •••.•••••••••• 44$1.26 ~11lion
Target Group C •• 444~~ •••••••.••.••• 44$200,O~
.It should be noted that since this is an onqoing assistance
program these figures reflect ~nly the costs for the existing
work force and do not address new employees as they are hired.
If the averages hold true, each year's new employees would
cost an average of $430,OO~ over their three year period.
under this r·roqram. the City 'Would make direct loans t,:;,. employees
at a reduced interest rate to cover all or part of the down payment
and closing costs. The loans are secured by a second mortgage on
the property. There are a variety of ways to administer this type
of program. The loan could be repaid through payroll deduction or
it can be an interest only loan with the principal being p~id at
the time of sale4 Under another option, the principal can be
-forgiven-over a period ot time servinq as an incentive for
retention4
Adyantages
This program addresses one of the major hurdles facin9
prospective buyers in this area: the down payment. It provides
a direct dollar for dollar increasE in affordability.
a.pea4iD9 on the iDter •• t rate .tructur.~ tbls proqraa aa,
.ll~v the Z taaily to pureh ••• the hoae.
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pisadvantages
If "t.;e pr'oqram is large in scope, the amount of upfront
capital could be enormous. This would require a large loan
or commitment of city reserves and the money could be tied up
tor a lO!"'lq period of tiae. Also, if household income is
insufficient 50me lenders !!lay not approve. a first mortgage
mowinq tbat 'the doYn payment was bor-rowed.
This program would require a subst~ntial investment of capital
if the employee group size is Significant. It does, however,
provide a return on investment which is bull t intc-the
lnt.rest rate charged on the loans. The city could charge a
rate equal to, ~r in excess of, the current rate of return on
its investment portfolio. Tbe program could be structured in
such a way that all costs were recovered through the loan
proceeds. The following costs are based on a 60\ participation
rate and $50,000 maximum loans. It should be noted that the
these figures reflect invested funds rather than actual costs.
Requlre4 Fun4iDg
Tarq~t Group A ...•.•••••••..•••.••• $lO.85 million
Tarqet Group B.4~~ ............••••. $5.85 million
Target Group C~ •••••••............. $2 million per year
SHORP TERM INTEREST BUX-pawN
under this prograa the city would pre-arrange with a lender to pay
for part of the interest clue durinq tbe first 3-5 years of an
e.ploye.e's mortqaqe. The City'S portion of the buy-down is qreatest
in the first year of the loan thus increa.sinq the employee's
purcha.sinq power. The z'ate the employee is payinq increases
annually until, in the fifth year, he/she is paying the original
note rate. A more detailed description of this option vas provided
by Relocation Consultants, Inc. of Mountain View (see attachment
Iro. 2).
Mvantages
This program can drastically improve an employee's purchasing
power by reducinq the amount of interast paid in the first
few years of the loan.
pisadyantage
This option does not address the down payment and there is no
monetary return on investlDent for the City. 'rlLl. proqraa doe.
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Dot prov!4. the Z ~&aily vitb .uffi~i.nt a •• l.tanoe to purella.. tbe 11 __ •
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The cost per-employee depends on the number of years the
interest is paid by the city and the amount it pays. An
approximate cost per employee may be obtained by addinq up
the buy-down points as i!I percentaqe of the oriqinal loan
amount, i.e. a 3-2-1 plan costs almost 5' of the l~an amount.
The following costs are basad on a 3-2-1 plan fo~ the $206~OOO
loan required in the X family scenario.
Required Pundi"9'
Target Group A .•••..•••.•...•..... $2.68 million
Tarqet Group 8 ..•••..••••••••••••• $1.44 million
Tarqet Group c .....••••••••••••••• $220,OOO per year
Stu RHD EQUITY
There are various forms of shared eq~ity arrangements. The most
common version is where the City invests directly in a home with
the eaployee and..-both own a percentage of the property. When the
property is sold the city receives a portion of the appreciation
on tbe property commensurate with its percentage of ownership. A
detailed outline ot a shared equity arranqement between the City
of palo Alto and the X family vas prepared for inclusion in this
r~rt by the Equity Sharing Benefits Consulting Group, Inc. of
Redwood city (see attachment !fo. 3). Another form of equity sharing
is called a Shared Appreciation Kortqaqe (SAM) in which the City
loans funds to the employee for all or part of the down payment and.
closinq costs then defers principal and interest payments until the
house is sold or until such time the employee chooses to repay the
loan. The employee repays the principal, interest, and, a portion
of the appreciation on the property. The loan is secured by a
second mortgage on the home.
AdvantagB@
This progran assists 1ru.yers with the down payment and is
flexible enouqh to be tailored to the employee's individual
needs. The proqram can be structured in a way to protect the
City's initial investDent and, if home prices increas~ at even
a aode~ate rate, provi~e a profit which can be used to fund
future assistance efforts. '!'hi. proqr .... ..luld allow the Z
raaily to purah ••• the hou •••
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Disadvantage
It the progralll is larq8 in Bcope, the allOunt of uptront
capitel could b4 enoraous~ Funding would require ~ large loan
or bond issue by the City and the money could be tled up tor
• long period of ti~e.
~
This program may require a substantial investment. of capi.tal
if the employee group size is significant. It does I however,
provide a return on investment ba.sed on the rate of
appreciation on real estate in the area or, in tbe case of a
SAM, the rate of appreciation and the interest rate charged
on the loan. The following costs are based on the X family
scenario and a 60t employee participation rate.
Required Pun~iD9
Target Group A ...•••••••••.•••••••• $10.B5 .iIlion
Target Group B •... 4 ••••••••• ~~.~~~~$5.B5 .illion
Target Group c ..••••••••••.•••••••• $2 ~illion per year
CITY CQNSTBUGTED nOOSING
Another, more aggressive assistance proqram is the constructiQn of
new bousinq by th~ city for later sale or lease to employees. One
such venture which is currently underway in :tour states is t.ite Tax
exeapt Hoaeownership Proqram developed by the Smith Barney
invesbl.ent firm (see attachBent NO.4). Under this program t.~e city
could construct new-homes or cor.r30miniUlls using city bonds.
~loye9. would lease the units frOD the city for a period usually
less than 5 years. Following that period the employee exercises an
option to buy the unit using accrued equity, a portion of the rent
which had been set aside and a mortqaqe. The city would use the
proceeds fro. the sales to payoff the bonds and thus be out of the
pl"ogra ••
Under another version ot this plan the City could build cooperative
housing tor employees. The difference being that in a co-op
arranqeJaent the employees would each own a share ot the total
project as opposed to an individual condo.inium. In any event, if
an ellployee later decided to sell, the City would reserve the right
t~ purcbase the unit for sale to anot~er employee at an affordable
price.
Yet another versIon of the construction plan is the development of
apartments to bouse eaploye~.. Under all three alternatives the
financing could be accomplished using a bond issue.
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TO maintain t.he affordability of this program the City could donate
th. land tor the buildinq sites. At thi6 time, however l there are
few residential lots available for such a use. One alternative to
the land shortage 1. to explore the concept of creating a Joint
powers Autbori~y yith Burroundinq cities, the Palo Alto Unified
School District and/or other local school districts. The City of
Mountain view is currently revising its housing element and
reviewing various use options tor several p.earcels of city-owned
land. This land includes several acres of buildable property which
could be used .for a joint eaployee housing project. Th.e school
district may have surplus land which could be utilized for a joint
project. The creation of it. JPA would provide additionel benefits
and options in the area of finaneinq.
Mvantages
This option would create low-cost housinq for employe3s in or
near Palo Alto and financing could be structured to meet the
individual needs of employees4 The proqram could be desiqned
in such a yay that most of the City 1 s expenditures would be
recovered .. It affords the flexibility to build either separate
condoDliniWIIs, cooperative housing or apartments. It could
also be used for the purchase and renovation of eXis.ting
structures.
[)isadvantaaes
The OO114il19 costs would :be enormous and 'Would require a bond
issue or large loan. voter approval 'Would be required if
bonds were used. The sbortaq8 of available land woul~ require
A joint venture with other cities or the ~rcbase of private
land which would increase costs. The program could benefit
only as many eBlployees as there 'Were housing units built.
Because of the substantial capital requirements, bond use, and
~ra~fic issues there may be public opposition to such a plan~
The construction of new housing is a costly proposition. The
Palo Alto Bousinq corporatlonfs california Park project {low
inco:me rental housingl. for example, cost $3.5 million to
build (with the lar~ beinq donated by the city) and consisted
of .5 units. If the project was funded using the Tax-Exempt
Homeownership Program the project should pay for itself except
for the lost r~venue from the donated land.
PURCHasg OF EX!STING ROUSING
The city could, by itself or in combination with the school
district or surroundinq cities, purcba3e e¥istinq apart.ent
buildings, ho.es" duplexes or other Hulti-fa.ily dwellings and then
CJIR'564,O 13
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lease or sell them to e~ployees. If the City chose to sell the
units to employe •• the purchases could take the form of a lease
o?ti~n as described above under city constructed housin9~ It ~~e
units were leased to employees the rents could be established en
a slidinq ~ale which is determined by the family income.
Advantages
This option takes advantage of existinq housing stock and is
flexible to provide a coabination of leased or pu~chased units
based on employ~e needs and preferences. Many employees may
not want to live in a large employee CQIilplex. This option
provides for housing dispersed throuqhout the target area. If
the proc;raJII included other cities or school district employees
each complex could contain a mix of the different represented
groups ..
~dvanti!tgeR
~ with the other programs that provide significant henefits
to eaployees thiS program would require substantial capital
to support.
The establisgetlt of a revolving fund could facilitate the
onqoinq purcbase and. resale of units. As unit.s were purchased r
renovated and resold to employees the proceeds of the sales
could go back into the revolving fund. The initial capital
requirements would be contingent on the scope of t.he program.
A detena.ination would have to be made reqardin9i how man:;
employees WOuld participate in the program and wbether the
City 'Would purchase larqe apartment buildings or individual
condominiums, duplexes or other multi-family housing units.
!1OOEL PROGi!M
One existinq program which utilizes a revolving fund and a Shared
Appreciation J4ortqag-e is stanford University· s COIN III (Second
Mortqaqe Coinvestaent) Program (see attachment NO.5}. Under this
program the university will lend amploy&es up to SOl of the hODe
purchase price subject to a maximum loan amount of $275.000. The
loan is secured by a second deed of trust on the property. The
loans are available to faculty and specified staff for pu~chases
within a fifteen mile radius of Hoover Tower. To assist with the
affordability of this program and' to share in future appreciation
the University has e.stablished a two le.vel approach to the interest
charged on the loans. The current interest rate is set initially
.at e.ither 5' or fa depending on if the employee is a first tiae
buyer. The rate increases by one-third to one-halt a percent each
year until it equals stanford's first mortgage rate in effect at
CMR:564:0
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the time the loan w~s originated. To protect its investDent and
to share in the appreciation the University sets the stated
interest at 25' and defers that interest until the house is sold.
The difference betYeen the current interest and the stated interest
accumulates each year and i& payable at the tiDe of sale only to
the extent the house appreciates. This program was funded by a $300
.lllion bond issue and to-date has assisted approximately JOO home
buyerli.
,JOINT PRWECT WITH ~
Preliminary discussions with school aistrict.officials revealed an
intet'est on their part to explore the possibility of a joint
employee houBin; assistance pr09ram. They are faced with the same
set of problems brouqht on by the hi9h cost or h~~sing. A joint
venture such as this could solve some problems faced I:ly each
employer individually. With similarly sized workforces the two
emplny~r~ :ay be able tQ combine resources to establish an
effective assistance. program u611\9' a combination of the above.
mentioned options designed to target various work groups based on
their positions# their economic means, their interests and their
family requirements.
PALO ALTO HOUSING CORPORATION PROGRAMS
As Jaentioned earlier, the PAMe administers programs which could
benefit some city ei!IPloyees. Although many employees and their
fa_llies earn salaries which ~re in excess of the limits tor the
below markat proqrams, there is a segment of the yorktorce which
could avail themselves of these opportunities. If city e~ployees
'Were qiven priority on both purchase and rental waiting lists,
those who do me~t the income limits may be. more incl ined to
participate in the programs. This option may encounter some
resistance or, possibly, resentment by residents and others 'Who
work in Palo Alto and would otherwise quality for these programs.
Sylvia SeDan offe~ed 3 suggestion which coul~ provide tha
opportunity to establish a pilot prograD ai.ed at a small segment
of the workforce. Under the Rental Acquisition Program (RAP) the
PARe is in the process of purchasing an ~partment building called
Oak M.anor which is lxated on Los Roeles Avenue~ It consists of
thirty-three larqe two and thre"! bedroom apartlllents Bost of which
turnover each year. Once the purchase is complete and as units
become available preference could be given to rental by City
e~ployees. Given the fact that there are a li.ited number of units
ana many employees prefer-to own a home rather than rent an
apartaent# a system would have to be devised to determine which
employees would be interested and qualified for the pilot~ If the
occupants were chosen fro. Tarqet Group B, a small cadre of on
eall employ&es could be located in town to serve as first
CMR:564:0 15
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responders in the event of an emergency or disaster. perhaps a
blend of otilities p Fire, Polic& and ~~lic Works employees that
were interested in renting in Palo Alto could ~ cross-trained in
a number of critical areas to address the moat urgent need5 which
would moat likely arise following a major disaster. The rents for
the apartments could be established: accordinq to the employee's
ability to pay. This pilot program COQld be helpful in deterDining
the feasibility of a larger scale program while at the same time
provide sose direct be~efit in the event of a disaster.
OfBJR POSS11,' 'lflQATI058
Whether or not a bousinq assistance program is adopted 'We must face
the fact that many of our employees may continue to miqrate towards
aftordable co~ities 'Which, In most cases, means loraqer CO:!llDlutes.
The decision before council is whether the City should accept this
trend and ~dopt measures to mitiq~te the problemM that it presents
or spend millions of dollars on assistance programs in an effort
to relocate its workforce closer to Palo Alto. The fil'st
~lternative is relatively cost-free when compared to the amount of
aone.y required to s.u.pport an effect.ive housing assistance ~roqram_
It would, however, require a change in some long held ~anaqement
practices. FUrthe~ore, same e.ployees pre~er to live in outlying
areas and their decisions to do so may be based at least in part
on lifestyle factors in addition to economic reasons.
If, as an employer, the city accepts this trend as the inevitable
outcolle of factors beyond itts controlI' the nert step is to explore
way& to minimize the impact it has on the effective delivery of
services to the colDDunity.
Follovinq are measures which may help mitlqate some of the probleas
which have occurred as a result of the qradual migration of city
employees from the Palo Alto a~ea.
IELECOI!!!llTING
Telecommuting is defined as the dispersal of a .'orkforce among
decentralized locations such as worker's ~~mes and dispersed
vorksites. PUt in more simple terms, it means moving a portion of
the city workforce out of city ball ~nd int:o their hoaes or
satellite offices for a speei~ied nu&ber of days a ~eek.
Telecommuting has ~n ~rought to the forefront primarily in the
Loa Anqeles area where congested freeways and air pollution have
torced companies to comply with mandates to reduce the commuter
trip miles of their employees. Spurred on by the 1984 Olympics and
the efforts to keep the roads clear during the games, telecommutinq
has beeo.e an accepted practice in many of southern californiats
information based industries. Pacific Bell has approximately 1000
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e.ployees telecommutin9 at this time and the state of California
haa a pilot program un~erway which includes 200 state employees.
Adyanteae a
studies have shown a 20-40\ increase in productivity for
telecoamuters as ~ell as a decrease in sick leave usage~ A
larqe-acale proqram could decrease congestion on freeways and
ilDprove air quality~ .Just one telecomDJuter "Who lives 20
~inutes from work spends a total of 3 hours and 20 minutes a
week driving to and from the job site~ If that person worked
at home three days a week h~/she would save 2 hours a week of
driving "Which over a year period equat"es to about two full 40
hour work weeks behind th~ wheel of a car. As more workers
move out ot the traditior.al office environment the space
crunch in city Hall may be reduced~ TelecollUlluting also
provides an attractive incentive for recruitinq. Ne'tt employees
may be viliing to move to an outlying area if they would face
a long commute only 2-3 days a week. And altnough
teleco!llmutinq is not a replacement for childcare" it does
address issues such as latchkey children and other problems
which can arise when both parents are away fro. home for 10-
12 bours a day ..
IUo..gyantages
Telecollllilutinq does not work for all emF loyees. It is not
suited for field positions or those who have public contact~
Perhaps in the future with technological advances there may
be ways to serve the public from home. J.e. Penny's entire
customer service department take~ catalog orders from their
homes. But for now it should be limited to employees that do
need not be accessible to the public on a daily basis. Not
all e.ployees are suited for this program. They must have
demonstrated time manaqement skills and be able to work
independently. The proqraDI must be managed carefully to avoid
the specter of favoritism or isolationism.
The costs for a program such as this are minimal when compared
to housing assistance. The cnly costs are fer the equipment
needed to support the worker at home~ If the individual needs
a computer ~nd modem link to the City, the cost per employee
would be approximately $3000. In many cases the employee would
not need a co.puter or may already own a compatible systes.
ALTERNATIVE WORK SCffEQYl&.S.
Aside from the obvious economic eonside~ations, the opportunity to
coaaute at times other than the traditional rush hours (sam and
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Spa) may factor into their decision to buy a home tar away from the
vorksite. For example, one employee said it takes one hour to drive
from her home in San Jose to the Civic Center if she leaves after
7:00 AM. If she leaves at 6~30 AM she can travel the same distance
in about one half the time. In addition to alternative start times,
a schedule which requires an employee to work four dlS.fa a iateek
would reduce their commute trips by 20'. For so~eone that lives
45 minutes froEl wot"k: t,hat means a reduction of one and one balt
hours a week or 78 hours a year of drivinq time.
Future studies of flex-time, 10-4 plans, nine-day work weeks or
other types of alternative schedules, should be conducted on a
departllent by department basis with respect to their differinq
needs and commitments to the public.
These alternatives, coupled with the efforts of the new
'rransportation DeJaand Program may address sOlie of the problems
fac.ing employees and the City as an elllployer which have arisen
primarily because of the high cost of real estate this area.
smng.P¥
The absence of affordable housing in or near Palo Alto will
continue to be an issue of uppermost concern to the City as an
employer. Unlike some businesses, the City cannot move it's
operations to a lower cost area where four bedroom homes sell for
$170,000. As evidenced above, it is not economically feasible £or
the City of Palo Alto to institute an employer assisted housing
progra:a which allovs all employees the opportunity to buy a home
close to the city. The. programs Which do not require ertensive
funding do little to bridge the affordability gap and the expensive
programs must be limited to s.all target qroups. The City may also
focus on .easures directed at the mitigation of commuting problems
including encouragement of commute reduction programs,
telecommuting and alternative York schedules.
"F"""P'PM'.IQI!l!
staff recommends that council not engage in a larqe scale employer
assisted housing effort at this time due to the large investment
of tunds which would be required to establish a me~ninqtul progra~.
Additionally, the state of the economy and downturns in the local
real estate lIlarketp; combine to suggest that the ti.inq is not
appropriate for such a venture.
staff f~rther recomaends that Council approve the following:
1.
CMR:564:0
The Optional Relocation Benefits package for
management ewployees (Attachment 1) be updated
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new
and
revised as approprlate~ This policy has been in effect
since 1983.. The Disposal and PUrchase costs, Bridqe Loan
and Mortqage Interest Differential Payments sections nllile4
to be updated to reflect current practices and
conditions ..
2. A polIcy regarding relocation assistance mcrtgage loans
be established covering Council-appointed officers and
city depart~ent head&~ such loans to be in the form of
shared appreciation mortqaqes as discussed in this
report.
3. Direct staff to work with the Palo Alto Housing
corporation to establish a pilot program to provide for
City employee preference in specified affordable rental
},!ousing units" with such a program being tarqetecS ~t
e.ployee Group B, the emergency call-back group.
4.. Direct Btaff, within the context of service delivery
requirements, to further ~xplore and support the commute
mitigation efforts discussed in this report.
It approved, recommendations lj and 2) can be returned for Council
approval within 60 days. Recommendation 3), if feasible, would
requir2 at least several mo~th5 to develop and would be subject to
.eet-and-confer requirements with affected employee groups.
Recommendation 4) would be considered ae an onqoinq policy
quideline.
Respectfully submitted,
~~j~~/~
GREGORY MtINKS
Manager, Hu.an Resour.ces Develop_ent
'-dat}' tJ-. 7?~7X' ~k--~E«;' ROUNrk i,-:'
{D rctor of ;:,;::" Resources
~~:1 ( Asa~st~'t City M ~_r
~chments
QIR,564,0
•
AttacR.ent Mo. 1
L. BaiabUX.eHpt for R.locAtion Expanse
polIcy stot.Mot
Tb. City or Palo Alto vill provide a B~.lc Relocation Benetlta Package
tor all naw .anaq ... nt employees. In addition, upon the approval ot the
City IIanagar or d ... lgnated lOubordinata, R81o<:.tlon Benetits will be
available to non-_nag:e .. nt po.ltlon.~ Provi.ions of ·Optional Benefits·
or portions tbueof I are intended only tor rare instaneee and require the
approval of the City Manager.
PrOOld ure
QualifiCAtigD8
In order to qualify lor relocation benefit., thQ followinq conditlo~s
BU8t be a.tt
1.. The e.ploy .. .u.t qua 1 ity tor Movinq EXpens. Deductiona a& contaIned
in the Federal Tax ReguliltloNl for the year in which the llove
occurred.
Z. Actual relocation, or contrac:ts daaiqned to establi"h a fixed
_lc:11., .hall occur within six llonth .. of the initial date of
ellploy.ent.
3. Exl.till9 a.ployees prollOted to a covered podUon are not eligible.
4. Recordk_inq requirements vIll parallel those required tor expense
reiaburseaent for 'travel, conferences and _eating ••
5. Provisions of optional benefits {s contingent upon completion or one
year'. eaployaent vith the City. Failure to complete the tull on.
year te"," viII require repay.ent of thoae banefits on a pro-rata
ba.i, coaputed on the actual tiBe ot city service.
Ba.lp Pogk,s-
1. Eaplpywent trip -Actual and reasonable expenaea vill be provided
or reiabur8ed by the Cit.. tor travel coat., .sals and lodging for
cancUdat... aut at the local area. The 10<:81 ar •• 1& defined as all
citl .. or tovna located vithin a 100 .U. radius of the City ot Palo
Alto. Trav.l coats reiaburaeaant i. restricted to the lesser of
coa.on carrier ratea or the •• tablilOhed City rat. for autoaobile
u.e. Cost. tor .aals are restricted to the established City per
di_ rat ...
2:. En Rout' gpana •• -Direct coaaon carrier t.ransportation viii be
provided in tull for all t_ily aeaber.. Auto.obil. expenses are
liaited to two vehicl •• at the established city rate with a ainiaua
of 350 .Ha. per day to be traveled. Per di .... i8 allowed at
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e.tebli.h.~ City rate. for .-ploysa and spouse/mate .nd at 50' of
the .-ploye. rate for dependents. Travel days allowed are li.ited
to the actual aileaq. divided by 350 aU .. per ~ .. y. Lodqinq b
r.l~.ed in lull on an a~tu.l and reasonable bali. tor all t~.ily
.~r.a
3. HmJ,thg14 Good-Sbipunt -P".Ill coats will be pai4 tor the .hipment
of all personel it_ norJIally conlilider-ed -Housebole! Goods.· Items
excluded include recreational vehicle., firewood, buildinq
material., sand, boats, airplane., and p*rishable items such as food
or plant.. Shlpaent of up to two auta.obiles is peraitted. Storaqe
ot household goods viii be provided tor 30 days.
4. Pr0tel,tonal RelocAtion Ooyn •• lllnq -An aqency desiqnated by the
City vill provide help to the .-ploy •• in their relocation effort •.
Intoraatlon to be provided includ. •• itema such as financing, home
and rental locations, transportation, weather patterns, schools,
recreation, ate.
OptiOMl 89"fit.
1. Di'po.,l and PYrCha'. COlt, -The City will cover c08t~ that arise
in the ~iapo ... l and/or purchase ot uoidences:
... coots to break an existing lease vill be coverM up to II total
payaent of thre. tl ... the current I16ntl'l,ly rental rat. •.
b. ~al •• tate coaai •• lona up to 6' ot the &al •• price.
c. Non-recurrIng clo$ill9 co.t. on both pqrchase and aale (-Points·
on purcha •• ot r .. idenca Are specifically exc:luded).
2. Bridge Loan -'l'he city vill arranqe for a 90 day interest-free loan
up to 90' at an -..ploy .. 's equity in their current residence ••
detenlned by three indepenc1ent appraiaal.. The !llisUlFIIed Fair Market
Value viII be the average of the two hlqhest appraisals, providing
those appraisal. are within 5' ot each other.
3. MprtaDCl1l Xnt.erc.t piCeerenti,l Payment. -The City will pro'w-ic!e
Int.rut Rate Differential paYJl8J\ta under the quiddinea of tha
Federal Unifora Real Property A~.i.ition and R.location Policies
Act up to a ... xiaua of $300/aonth for 36 IIOnthe.
4. Ni'atlantlQUe I¥pIM. -The City will pay Miscallan.oua expenses
.. soci.ted with the relocation. TIle aaount .hall not exceed $1,000.
5. T •• poruv Livino !:mena. -tip to thirty (30) ~al''' teaporary living
-.pen ... vill be available under the following quidalines;
Tc1gina _ 100' of actual and re •• onable coat. tor all family _ rs.
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f.r pi •• -100\ of the established City rat •• tor ~ployee and
apouseimate and 50l of the established City rate for
dependents tor the first 15 days; 50' ot the
•• tabll.h.~ City rate tor eaploy •• and spouse/_at a
and 25t of the ... Ubliahad cay rate tor dependents
over the last ~5 days.
Car Btnt..l -Up to )0 4ays for a .11\4;18 vohicle 1. available
until such tiB~ as the employ •• 'a personal vehicle
aco ... availabla.
6. Bou.tbUOtina Ixptn.. The City will provide expenses or
ret.bur-.:nt tor one bousehuntinq: trip tor both eaployee and
spouse/mate. The trip 81>all be li.ihcl to a waxi __ of .even days.
Travel .xper~ ... Are li.ited to tha i •• aer of comaon carrier rates
Dr the established City rate tor automobile use. Lcx:Iqinq is
provided on an actual and reasonable basia. Per 01 .. expenses are
allowed accordinq to the .stablished City rete.. Expenses for
children are not covered.
Ragulatiqna and Guideline.
1. The city Kanager. or deoignatecl oubordinate, will inatitute and
revis. 1l!t.rnal procaduru to a .. ur. the efficient delivery of
service. to the new .. ploys. and .iniai •• coat. to the City. This
will include the deter.ination of ""et'bar direct City payaenta,
advance of funds or nploy_ reilllbUr ...... t i. lIOot appropriate for
a given progr ... lea.nt or .. ploy •••
2, The city Manager. or designated subordinate. "ill detel1lline the
appropriatene •• of inclusion of .pecific it ... in this proqrall that
arls~ as a re.ul~ of -grey areas.-
l. Expen.e. incurred by the eaployee during relocation which are not
covered are::
a. Poy.ents to friends for asslatance.
b. Autaaobll. repein.
c. Cost. incurred during the relocation but not directly relatad
to personal transportation or forwarding of bousehold
belongi ..... , i.e. uninsured 100_. during transit. entertainment
expeu •• , etc.
4. BUdq.t1ng of all Relocation Expen ••• will occur in the Peraonnel and
utilitie. Depert.ents.
5. Upon approval of the City Kanager,
section Rouaehunting Expenses
COUnselling .ay be provided before
otter of eBployaent vith the City.
provision of benefita under the
and Prof .... ional Relocation
an employee foraally accepta an
. -
o Attaclment 110. 2 <)
_ AFfORDAIlILl'rY ASliISTAIICZ
!'yptI. Dort .,. ... Iluy-DoVn of PI ... t ~ Intareat
Bov It ...... luI
"_.", .
Eaployer pro-arrange. with. tirat mortgage londor to pay tho
lend.r directly tor part ot tho intor.st d~. in the .crly yoars
of 0 10.n. TYPic.lly the bou9ht-down rat. in tho first ye.r
olqnltlcontly laprov.. the oaploy •• '. affordability. rho rat.
atter the firat yoar will ?O up annually until tho •• ploye. is
paylr.q tho originol note rate. rhe buy-down io usually paid up
front at cloaing. Ann~al pa~~t plans are alao aval1abl.~ but
U.ited.
ror tax purpos.s tho buy-down asy be conddnod incou to the
_loy ...
vari.U .....
Short t .... buy-downs h.ve replaced long t .... buy down as a eost
offective way to inprove affordabillty. Long t .... buy-downs .re
.~n.ive, about 6-8' of the orIginal loan &aQunt to deer ••• e the
intorast rato by l' over the 30 year lifo of the loan.
Many plans are available covering tho first 3 to 5 years of •
loan. Kowsv.r. tho 3-l-1 plan i. the aost populor.
A rou<Jh HU .. te r. to. add up the buy-down points as a , of the
or19inal loon ..aunt. (i •••• 3-2-1 plan coots. little leB8 than
51 of the loan uount.)
"'10" Advantag ..
> DIrect dollar-foc-dollar reduction of loan coato and
oorr •• pondinq inc ....... in .fforllabili ty.
> £aploye .. gets involved in detara1ning the lender the .. ploy ..
will u ....
> Up-front paYJIent .iqht be loot if e.ploy •• leaves during the
t>IIy-1Iolorn period. CaMual pa~.t plana n. not popular with
l.nders, .ince th.y incr ...... i.~ of llaflult.)
> ooea not belp with down paysent.
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Attae~t 110. 3 9
ILLUSTRATIVE MATERIALS
for
Greg Munks
CITY OF PALO ALTO
June 14, 1990
DE Equity Sharing Benefits Consulting Group, INC.
IS06 HoPKINS AVENUE • REDWOOD CITY, CAl.!FORNIA 94062· 4IS-364-1116
. i~
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City of Palo Alto • Illustrations
Fact Situations -+
Palo Alto Helps Employee Buy $260,000 Home -+
City's Return on Investment -+
Can Employee Buy Out City after 5 Years? -+
Flowchart of Employee's Interaction with the Program -+
City of Palo Alto • lliustrations
Fact Situations •
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City of Palo Alto Illustration
Fact Situation
On February 20, the Palo Alto City Council directed its staff to
develop recommendatioos fO!" providing housing assistance to City and
scbooI district w~pecially emergency workers, such as fue, police
and utility penonnel The housing program(s) wou.ld:
• make emergency workers more quicldy avallable in case of an
emergency .
• provide City and school employees with more of a sense of
community with the people they serve
• make Palo Alto a :narc altnlcti vc employer to both new :nd
existing employees, aiding in retention and recruiting.
Among the ~ to be considered W3S equity sharing.
Equity sharing offers the opportunity to maximize the City's assistance
to the employee, while minimizing the budgewy costs of the program.
The City presented The Equity Sharing Benefits eoo.,"Ulting Group. Inc.
with the following scenario: Employee has an income of $40,000, with a
working spouse earning approximately $30,000. The couple has SIO,OOO
avallable will! which to make a down payment.
Palo Alto would like to help the employee purchase a bome.costing
approximaIely $260,000. The employee should be able to buyout the City
after S years, assuming salBIy increases of about S'lfo per year.
City of Palo Alto • illustrations
Palo Alto Helps FmplQyee Buy $260,000 Home •
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-EQUITY ALLOCATION itifORT
under Equity Sbarlng Program sponsored by City of Palo Allo
for Employee
August IS. 1995
Employee will purchase residential property ~Home ~
for $260,000 under an EQuity Sharing agreement with City of Palo Alto
Down Payment:
lhe money for t.'u: down payment will come as follows:
Employee S 1 0,000.00
City of Palo Alto $49,41?S2
TOIal $59,417.52
Monthly Payments:
Each month $2,216.67 will be needed to cover the following outflows:
Mortgage Payment $1,891.67
Property Tax $216.67
Insurance $108.33
Other
Total 52,216.67
Each co-owner will contnbule 10 the monthly casb flow requirement as follows:
. Employee $2,216.67
Cly of Palo Alto $0.00
Tot&l $2,216.67
Fair Rental Value
It is agreed that the fair rental value of Home is SI,083.
Equity Allocation:
Based 00 the assumptions above. the equity sham of tl-Js property would
be fairly divided as follows:
Employee
Cly of Palo Alto
Total
74.71%
25.29%
100.00%
-..:"
;. ' ..
'"\ .r-..
·Phantom-Loan: -..<
In additiOll to the 25.29% equity interest In Home,
City or Palo Alto wiU also receive from E.mployee $34,392
out of Employee's sale proceeds. Interest on this loan is $286,60 per month,
based 011 an agRed interest rate or 10%. Interest payments are never made.
Inslead, Interest on this loan is built into the Equity AlIoc:atiOll calculation.
Proof
Because the Equity Allocation Formula lakes in all the various details of the
investment transaction and massages them into a single p"..rcentage, it can be
bard to tranSlate the massaged percentage back into its component parts.
Hm is how the down payment woold worlc, given the asswnplions 00 Page I:
_____ ~Emp~::::loy~ee"" City or Palo Alto
$59,418 Total Down Payment $59,418
_____ ~7~4 . .:;71""%::... Percentage .;:2:;.:S.~29:.:%:;-____ _
544,392 Share or Down $15,026
$34,392 Loan $34,392
S10,OOO Cash Required $49,418
And hm is how the mon1b1y cash flow would work:
Employee City or Palo Alto
------:::.;74'f. ;;:71~9t:7-By Equitr JWrentaF 25.2996
$1,656.11
$273,96
$2&6.60
52.216.67
CombiDed Cub OIIllaYI
Total
25.29% or Rent
Interest
Cash Outlay
$2,216.67
. " ...
SS60.S5
($273.96)
($286.60)
None
•
Owner A
Owncr B
Properly
Employee
City of Palo Allo
Home . Employcr City of Palo Alto
Monthly Cash Flow Requirement·
Mortgage Paymllllt
Property Tax
Insurance
Repairs
Utilities
Total
Down Payment Amount
E.plo,. •• •• Do .. Poymc.t
ClIy 0(1'110 AIto'. DowD hymCIJI
Fair Inleresl Rite
Fair Renta! Value
F (' $A'.O i !) SMN
All
amts
should
be
mnthlJ
10.00"
5.00"
100"
City of Palo Alto's Occupan..--y Share
Cash 0u1fl0w*
Employee's Cash Outflow
City of Palo Alto's Cash Outflow
Employee's Equity Share
City 0(1'110 Alto'. EquIty Share
t... frIB 0qI ct hlo .11,10 ." ~
Lender
Borrower
--
$1,891.67
$216.67
SIOS.3)
$2,216.67
$59417.52
5JO 000.00
$49417.52
0.0083
51.083.331
51,OU33
$0.00
$2,216.67
$2.216.67
$0.00
74.71%
25.29%
534,391.92
City of Palo Alto
Employee
•
6
----------~~ECALCULAllONS
-Purchase
Pwchase price of house
Points
$260.000
2.00" 4.136
Closing costs 0.008 -=~=-_____ -,2,,,,08=0
$266,216
Financial
Fizst Mortgage
Employee's Down PJyment
CIty 0( Palo Alto'I Down Paym<DI
80%
$266,216
$206,798
10,000
49,418
Employee income '40,000
Other lnc:ome 0" SO
Spouse $30.000
Family Income $70,000
Devotion \0 Housing 3 8"
Moothly available for Housing ----------,S"'2,":2""17=-
Taxes, Insuranc:e, etc. $325
Moo1hIy available for mor1ga8e .",S"'I,"'89.<,!2"--_____ _
Monthly Payment AdJustmcnu
Tu benefits Tu .......
Yielded \0 OwneriOc:cupanl 0"
Additional 0l8lgea 10 Occupant
SO
$0
Net (Un)lFavorable Adjustmmt -"$0=-_______ _
......
o
City of Palo Alto • lllustrations
City's Return on Investment •
---6115.'90
..
Retuna 10 Employelllneotor ... dcr Varloa ANa.ptlau obont
Appreciation of 1M V.derlyl ... Real Ealale
20%
RdumIO IS%
~
(lI<r_ 10%
....... l;';.';j'i<Q :: l!!!!~~~~~~:I~::=~+---;---+---i1
~ ~ ~ ~ ~ l~ I~ ~ I~
Rates or AppRdaIIoa or lIl111aly1na RoaI EsiaIe
~ty of Palo All.',
ROI
ne Eqairy SiIari ... Se ... n" Co ... 1ti01 Groap, Illc.
l
:,-\'-
"
LinkodKOI
49,418
49,418
49,418
49,418
49,418
49,418
49,418
49,418
49,418
260,000
260,000
260,000
260,000
260,(100
260,000
260,000
260,000
260,000
Fltat Mol'II_.. •••••••• Aft""«'
Loan Pero.nt_.. PaYMent Principe' Y • .,. Apprea.
34,392 25,29% 1,892 206,798 5 O. %
34,392 25.29% 1,892 206,798 S 2. %
34,392 25.29% 1,892 2OG,798 j 4,%
34,392 25,29% 1,892 206,798 5 6,%
34,392 25.29% 1,892 206,798 5 8.%
34,392 25.29% 1,892 206,798 5 10.%
34,392 25.29% 1,892 206,798 5 12. %
34,392 25,29% 1,892 206,798 5 14.%
34,392 25.29% 1,892 206,798 5 16,%
Tho Equity SbariQ8 BODOn,. Coo.uUlng Group, loc.
ESBCG Co ..... lllno
'KBCG AcI .... ftl .. '.tlo.
S.I. Prta«
260.000
287.061
316.330
347.939
382.025
418.733
4.18,209
500,608
546,089
PrOCl •• "_
49,637
56,480
63,882
71.87l
10,495
89.777
99,760
110.482
121.983
Ral
0.0"'"
2.71"
5.27'11>
7.78%
10.2S'II>
12.68'11>
IMG%
17.46'11> 0
19.81%
o
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City of Palo Alto • lllustra'tions
Can Employee Buy Out City after 5 Years? •
---11/15190
--:-~'::c'" :
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Buyer's Proceeds 0 0
Sale Proceeds
$260,000 home aIlcr 5)'1S.
Property SaJes Price
Las: M""PS< Payoff 199,116 199,116 199,116
S<llinB CooIa (7.596) 21,350 28,652 31,405
Net Proceeds m,m BUSH !I7,m
Distribution to Buxer
Buyer.mr. of Sol .. Pr!ce (1596) 272,441 285,418 312,1143
Less: Share of&ninB CooIa (75'"') ·20.434 -21.406 -23.463
Shan: of """'PIe _ {7S""} -149,211 ·149,211 -149.211
Lam rrom r ... _ -34.392 -34,392 -34.392
Net Proc ..... 10 BlIft' ".~IO IO.~~ I03.m
Buxer's Abilitx to Repurchase House
S260.0Q0 home aIlcr 5 )'IS.
p~ Sol ... (l'un:Io>.e) Pr!ce 364,663 3~2,O25 411,733
Do .... Payment;
• Boyer's proc:e<da -6.S~4iO -10.409 .105,176
• Avoided SeIIIna CooIa ........ --20,434 -21,406 ·23,463
• Savinp· 0 -5,142 -6,160 ·7,044
N ... Lean 270,078 274,051 281,449
l.tm-tD--VaI ... 1tItic 7.1<0 rn. 6".
Moothly Pa)'lDeot on Now Lean 2,370 2,405 2.479
Incn:ase in A-' IDoome RoquiRcIIO Make
N"", M""PS< I'aymeott 17,225 18,479 11.13~
Iocome me..... IS AmIuaI Perotllll8< of
Ourml Iocomq 4.5596 4.9 'l6 5.5 96
• SPinp over tbc period are assumed 10 be CIH' ,.,.. WI.Y'Ih oftfte new inti of pa.)ilMDtS.
t Aa.ma t'6t-1Ibird: of poeta¥ iDc:omt iI...a.bI.e b I!D1pp! ~
t AsAmes DDt i.Dau:Ie ,.-,.. at .. aIUCIaI raIL
6IJ~
·:I~
199,116
34,366 m.m
342.336
-25.675
-149.211
-34,392
l~l3BI
U'6
458.209
-133,058
·25.~1S
_ ·7,995
291,480
"""
2,558
23,986
6.15'"'
R.-ollWol eaze IPP' .,... D.we far iItUItnIIf"" p.II])08aI ouJy. No ~ is made Itbouf die prospec1J
01 q::;:a 'etj(w rar..,.~. ·AD ___ lo..lIud_
ne Equity SII:.riDI Be.cfit .. ConsultiDI Group, hlc.
/
•
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City of Palo Alto • Illustrations
Flowchart of Employee's Interaction with the Program •
--.... _ ...
'.
Em .... -
-.eoo -II
0....
City of Palo Alto Home-Buying Assistance Program
lP're-lBlIllbUity Staat!
I--<.~I .-hHra ................. .-00f'Itaata E98C(1
EIIBCCI .....
01_ tu.
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1----4~~ ._OUklo" .. pi ............ ...... ESBCG_I l~m .... --
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equ", Shlring .IIOqUfltion,
PIoj>8ring'"
He,.", Purot.ue
ProI erG CoM ()f
Equity Sharing
Program
AltomIn,.
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COUNTY OF SANTA CLARA
Tax-Exempt Homeownership
Program
,
February 1990
-,,-~
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• • • • -•
2-4 year tax-exempt, revenue bonds issued by the County
1 00% of units under lease purchase option with approval
for mortgage commitments
County owns and develops housing until the end of
lease period
At the end of lease period,
-Purchasers settle on their property using
mortgages and equity
-Bonds redeemed using above proceeds, and
the County is out of the program
, SMITHBMNEY
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-• Lower initial development and constmction costs due to
I
reduced financing costs, marketing expenses, and
I developers risk. • / • Future homeowner allowed to build at least $6,000-$8,000 ! in equity during lease period. -,
t • Lower mortgage payments.
! • No State allocation required.
• No house price limitation or income restrictions. -I
• Bonds are not subject to the Alternative Minimum Tax. • • Bonds are not subject to Sunset.
SMmJBABNEY
-._~~ .. ~_ ...-___ ~T---.~ .. ____ ·...,....._"._~'_" ... ~_.....,....-_.--------e."_~e~'_ ... __ .' ........ """.';:-"~'"' __ ""_7""M~ ..... -.,.,.~ .......... -----~---.'
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• Governmental or Non-Profit Sponsor
• Developer/Site Selection
/
/ • Short-Tenn Financing Mechanism
• Mortgage Commitment
• Alternate Financing Source
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• Marketing Plan
• Tenant Selection
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• Property Management
• Timetable
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SMITH BABNEY
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I _I $140,000
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~ ., '~~t'hl, ,,""\ 'l , ! f"'.\ ...... !n~q~~? "
l '1 • Y ~ : • , • ' "',' 10.55%
$11,200
$1,269
,./
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_____________ . __ ~ ______ .~_____..._.~_~....__. _________ __.L~~_
$140,000
8.50%
$12,600
$1,064
,
-$112,000 1_'
7 50% ~ ,_
• 0 **
10.55% ***
8.50%
$2,000
** $1,109"""",
$930
SMITHaM~
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TlIl\.Exempl
IIcmncONVnctship
Housing
SMlIHBARNEY -.c'
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mE SMIlJ{ BARNEY SINGLE·FAMILY HQMEQWNERSHIP PROGMM
Sgmm·o
The bomeowne ... hip program is structured around the sale of • tax exempt.
",,"cia! revenue bond issued by the County. The short-term bond issue will
be Cor app<oximatety 2-4 yean. The proceeds Crom the bond issue W11J
fiMRCe the rehab. CO~ction. or aCQuisition of existir.g homes an d I ~a5¢
ph2se of the projoci wesif<d). All or the p;oposcd units would be undcr
contract 10 bomebuye ... and permanent mortgage commitments arranged
before rehab, ronstr\Iction, or acquisition would begin. Houses .re tben
acquired or c:onstnJded under a turnkey arrangement with I bwlder.
Purchasers are required to put up a downpaymenl of at !east $1,000 and
must be approved in advance by • !ending instiMion for • mortgage ·before
the end of the COIISIrUction period .
... .1 the end of !be construction and/or lease period Ibe purellasers would
seale on tIleir propertie; using !be mortgages, !be "equity" generated in Ibe
program and a portion of the .rents paid The banda wouid then be paid off
using these mortgage proceeds and the County would be ou, of tile program.
The bomeownership program has the following major advantages compared
10 a conventional, f",-sale project.
•
•
The tax exempt, low interest financing can allow the purchaser
to bolld equity during the construction, rebab pbase and lease
phase [if dcsir.d).
The initial deulopmen' and construction coats for .. ell unit could
be 11 I 4 IS % below convenliooal COOlS be<au>e of a reduction
--In construction financing costs, low marketins expenses and a
mlnimaI risk fo< 1M contractor.
The "'" effect is 10 plO¥ide the bomebuycr with • far mN"e attractive home
ownership iovcstmeat opportunity !han with • conventional purellase. The
downpayment required is smaller and, more imponaDtly. tile rnortgqe
required at !be eDd of the construction period can be reduced This makes
. the homes more affordable 10 moderare income famili~
Homtowpcrsbip Pmgram Compoecn"
A. GovtmnwuaJ Non-Pro/ll Spnn .....
Itt order 10 qua.!i!y for the tax-exempt ftatus. the project mus' be 0WDCd by
the County or some other governmental 0< non·profit entity throogh 10 1M
o
purehase phase.
The sponsor would be given the overall polk)' making and adminislt3live
",~po'lSlbiliti .. for th~ program which would include:
• land and housing unit asscmt>ly, in<luding tIleir ownership during
tile construction and/or lease phase;
selection of • builder,
determination of the price structure;
selectiQn of the propeny manager, and
the overall scope of the program.
B. Contractor/SUe Selection
Proposals will t>e souciled from Io.aJ build"lll8 conlractOlS for th~
construction or rehab of the units. Prior 10 selecting. builder, the following
related activities would t>e carried out
•
•
•
lUI initial D"".arketing review will be conducted 10 estabijsb
potential hom. price ranges and desirable bousing types;
a site or silCS will be selected from all available sites; and
a comple~ zoning/legal analysis with tile assistance of the Qrunly
legal and housing departments WIll !:Ie completed.
DuriaI the development and marketiDg phases, final deeisions will be made
on the exact number of units to be collSUUtted. The primary lending
institutions respollSlble for tile mortgage will monitor the progress and
quality of the construction project.
l! the project invo]'os acquwtioll without rWb then the development phase
is obviously by-passed. .
Smith Barney will structure • financing mecbanWn thaI permits the
rebob, construction or acquisition phase to !aU place. The meehanism will
lihly tLke the fonn of short term, tax exempt bonds. The bonds may be
supported by the economic viability of the proj«t along with w'er backing
as may be recr~ired, such as a lener of credit from • major lending
institution or corporation.
.. '
•
· . .~
All economic .nal)"i, of .lternate structures will be prepared by Smith
Barney based on projected housing price.. lntereS! rales and the
dowopaymenl requ~e~nu.
D. Mortgage Qlmmltm •• '
A commitment for permanent fi'landng for the program in the f<>nn
of lIlOr1J38e com!l1itmeDU for the purchase, will be negotialed by Smilh
Barney and the County with Io<:aJ IeOOing inslitutions.
'W1ule it is assumed that the mortgages wm carry an inle,est rale equal
to the lending institution's preva:ling rate for residential mortgage .. the best
possible arrangemenl for the buyer will be soUghL This program <:an also
be used in conjunction with the tax-exempt single fanuly mortgage program.
AIthough the County's purcbaser selealon committee WIll have 10
appro-"e each tenant, final approval will rest with the leDding institution.
Eo A1tenuote So .... or FInancial!
Smith Barney in cooperation with the County, will explore alternate
sources of funding with the specific goal 0( maJcing the units more affordable
10 modorate or lower income people. Such funds could be used to buy
down the price Of interest rates on a .,.,naiI! number of bouses and/or
subsidize the program in "'her ways such as paying for • portiOD of the
land.
F. Markellne PI ••.
A marketing plan will be deveJopedand implemented It may be desirable
10 e51ab1isb cenail! priority groupi both in terms of advertising and ~
for purclwe such as Income leve~ first lime bomebuyers Of ament "'JUDty
residents. Fioal appr<JY31 for such criteria would be required by the C.ounty.
AdYerIisln& and produetion C05IS, if any, would be borne by the County Of
cIeoeIcpet aDd later refunded from the proceeds ot the bond sale.
C. Tea_I SeIedlon
A cxmunittee thai could include representatives from tbe lending institutions,
the property management firm, the opollSOr and appropriate jovemmental
representatives will be respomible for seIe<:tiDs the tenant>. Smith Barney
will DOC be represented on the committee but will provide advi"" to the
committe ..
o
'The Coonly and the lending institutior .. wl1J be r~"l. for e.tabu,bing
eJigibilily and in e"abli,hing procedures for applyins the criteria for
individual applicants. The crjteri~ at a minimum. s.hould ensure !nat 1br:
applicanf meets the various priorities estabtisllt'd and lhe bouseoold jn~
meets program ,tandards. Final approval. however, will rest Voith the /ending
institu tions.
H. Property MaDlger
Either the County or an expcrien<:ed property management fITm wm be
selected 10 ave,," the management oC the units during the Iu.se phase.
The projected rental (.~ ... m include a/lowan<cs for a management re. and
maintenance ~:lCpenses.
In order 10 ."""urage bomeownersbip respor.sibility, the occupant wilJ be
responsible for an maintenance and repairs DOl covered by a warranty. The
O<Qlpants wou Ie! also be expected to pay for an utiliI)' costs.
The property manageme .. t firm will collect rellIS, maintain common areas,
-prepare a unit in tbene"l of tulllOYer, bandle r.ntal delinquencies and
respond 10 "",,pant complaints and questions. The management firm wiIJ
be C1pOCIed 10 report on a regular basis 10 the sponsor on !he status oC tile
ur.its ",biclt would include physical condition. status oC rental payments, and
problem areas requiring special action. .
III addition. Sectiou 3 iDdudes a letter Crom MUD approving the concept as
an "equity" source for FHA mortgages and some De""Jll!per articles
describing til. ,u= oC this Smith Barney pro""", in otller areas.
Dmc!ablc
The bome purchase program is divided into I development pbase, a
marketing pIwe and a construction phase.
The deYelopment phase will last approximately three mouths. OI.lring this
period Smith Barney and the Counl)' will ideality the IIlO<SI appropriate
sponsoring entity. DegOtilte !he long and short Urm 5nancing commitment,
complete a fun le&:al analysis with bond counse~ prepare allernate ecooomie
aDd renl structure analyses. complete the siu and contractor selection,
establislt a tenanl selection committee, review supplemental funding sources
and dC'Ielop a marketing strategy.
The marketing pbase abould last one 10 !wi) months. The proCessional
manaaemenl group will work with the CoonI)' and !he ckveJoper in !he
implementation of the marketing strategy.
The COIIS1,uc:tion phase should last approximalely four 10 six months. This
. ~ ". ,
proposal provides for aCliviti .. up to the beginni", 0( the OOnstructiOD phase.
If .ny $Orvicco are required £Tom Smith Barney and its affiliate by the
spon5O< du ring the c:onslruction p1we, they will be negotiated at that time
and the COOts induded in the bond sate. In addition. in the even! outside
engineering oonsuJtaJlts. atlO<lleyS or appraisers are required they would be
retained lrJ the County with the costs re«Wered from tile bond sale.
A4yantal' or Ias: .. EBJDQt Venus TaxabIt fiP'odP'
'The use 0( tu-exempt bonds during Ihe relW>, construction or
acquisition period and during & lease phase c:ould sa"" approximately 5 -5
1/2% on the CO$( 0( funds during this period 0( time. This brings the cost
per unit down considerably from oonventionally constructed unilS and helps
maU an affordable housing program work.
'The use 0( this particular tu-exempt structure also provides the
foDowing advantages:
Lower inilial development and oonstruction costs due to reduced
financing and JlWketing expenses,. developer ~ and avoidance
0( sat.. tu on certain a:lI>'truction materials;
fuiUre ltnant builds up equity;
lower downpaymen! and JDOt1Sa8e payments;
DO stale aI1ocation ~~ired.
DO bouse price limitation or income restrictiom;
bonds are DO! subject to Ibe A1ltmative Minimum Tax;
provides affordabte bousins and also provides a vebide for a
rebab or new construction prognm.
Pmio,' Imes or 'bis Type Dope
at}' 0( dlarleston. West Vqinia -Sote UDdcrwriltr
€ity 0( Birmint;bam. AIab&ma -Sote Un<krwriter
Pi mt lu .. -, Prom$
Town of IsJjp (Long Island). New York -Sote Underwriter
Sbelby County, Termessee -Sole Underwriter
Riverside County, CtiifOl1lia -Sote UDdcrwriltr
•
o
If this program is do~ "'ith a partial County guawllee' and sold as
III unrated bond issue we would propose seJlin& !be hsu4 on an institutional
or priv;ote placement basis. If a letter of credit can be obtained then the
issue should be sold on a ro!all and Institutiollal basis.
• Sire of !be SUaran.cc depends of wholesale "3Iue of wets, funds available
within !be bond ItnJcture miruzs ouls1andi., amount of bond!.
Cof'l'<cO'ltC'~, __ 1'="CT .... r'OI'~
,.~ ......... ~c.o
!fa, II, 1919
t,. e.n C"ffort 1[0 pt"'"c-v;de 'tK>t:ot fl" .. owntrs:"'ip OPpC'lrtlJ~i titS to
:'tlQllies ~(".d auch ~e$ed ndtvelo".ee:nt to ~t.e{r citf-e!: iM tQ1..'rl5. "
rU.lmtr of conwnitfu Ire scarchrll9 for ~~n:s t('l ,us;s;t "r1oci"pal1.1
first-tt. ~t-vyet"1 to purch4sl!: the-if' OIJ:I P\or.e. Sfnce ::on)" ffrH
ti';:ae hcfte:wy~rs C!i1 _M~ ;tne .cont~ly aartS!"gc ~ .. )'aentl tart" "He tlot
~eft: .. ~"1e t" SlVt t:}O~g" ;IOney to co'l'er thdr dcnm".y:eq:t. the
tssfsUnce :r~tully utes the: for.l at prl)~:fding .. 11 Or' plrt CIt t:~
purch6s~r's r~q~ir~~ fnV!lt~nt (4~Pl1~~~l i: ~ht prape~,~.
-One of :,ht 2¥Ii!:1LieS to eC!:C'IOIP1!$b prGyi¢1"ng all I)t' ~ pnr':;I~ -of t~
c!'llInpe.ylP!ft! hs ~t:c; the is~ua~ce of te~-C'J::~: bond!; by t"'.~ ·1.,.::;:;(1
ISC'Yc:n-.JItI!nt t6 1t~~n::;e CCtlstl""u-ctfor. of 1':c:Jdnl l'nits It'hiC"~ olrE
slilse-q!JeI".!ly hued unde". ~ l~I:S~/purc'h5t pragrlA. hy tf,s l~c:
gt)'H"I'r.a.e~t .. ~ or all Df tho!: rut IIOnfu (l)l1e.cte~ b1 tlle :;)C~l
go.,er~~t 6rt tntn far_rhc! fo;" .. "~turc doWilP'J..Y'Pfnt _hi:. t~t t'l!n!!.l'!t
e::::erchu t~ .rIght to purthG:Se the.! unit, I" other programs. ux
tX'tlllpt !)·,nd.s !.!"t used by the local govu/u:;el!t tG c.c:n:!;t.'""oct tb'! u:!'\fts
wMeh ar:t S~s-i!.;; ... "tsrtly sclC: b oo.:buyrrs W'ft. ... tLlt tht luSt po,.ticn of
th~ prosraf;1 ... tn these-tyPES of progniil&.S. the lo(ei S'O",ernetetits 11~\"!:
ehouG t., su1>stcH:e t~ downpaYllltfit.S • .nd no leue fs neCt!!oG;"'Y,
Erfect{vc ;"'~diuely. J«fD' 'Will ~r"etr a ·r~d'enl. su.te Dr" lOCil
I!i0YtrnQfor U~'\C1 or fnstl"uRentJ1ft,f .. '",n~c!s is c sel !tr of .t pro~rt,j'.
te" pr'Ovi<i:!!. ,. CJift cf fu~ds itJ'picl!:11y ;11 the fQr-""c: of • credl"t or I:
9r"Ult) tJ) thE-~:""lt-s!'r ".1M fs s!:df(lg ir; fnslire.4 ,c:w,rtge~l!:. Thfs
U(t9tfon to t:t.e ufstlnsz DTOl'lfbftfOll sd Forth fn HUn ttend'boot ('HS .. 1
~rv"'l~ hr-tgri!:.ph 3-~ 0 h onl, for governICnt Iqencfes 0 ... Ins~"'~!10-
ul ftlu Io/1tI:re t~ (ul1dS iIr~ raised b)-til! trr~ts o~ tM i!g~n'cy
tllt'~dgh sucta !ctfons .$ tt\c; issUince of tu-eUtlp~ I)(Inds. !evinC)s
cruttd toy thr &gef\C1 hi C(lIlStrUCt1tl~ t~e units. &l'Id f:'l'1d1 ac~ueulzted
r"clIt leue p.e)"~:1tL i:"llInctlOn5 la ..... ni, •• bu_Oder or ether perty
fur.Ii'S ttl! ~lQ'l'Itl:lt thrO'Jgh t.'he. lecll COOl!('~ .. ftl ift (order ta $tl1 i
J\o&;n ~u14 ~rd1 be I cfr;:uaveetion ~f the: CI!:t,Ilt1ng ~cl'l;b!tton ll\~i
r.o!. ,no~"t"~~ The,.efore. C:ti:: t~y f"9re~leII:.1 i.'1 ~ro.'f ::~, GP.3iif:1II ::Ire~.·
tJ:t 1rlY'f)1V:'!JIIetit of I; g'c'HIern __ ntal ague," .!nzt: tile ICIeth~, i l ll:;'~S to
9~IIlIC"rat"! tbe fU:'o6! ft Is p~vvf4rfICl to tllt purc".l:;~"$. The a'i'!:r.c'C"~s h"";)'V't~ ... t CI" take t:h~ ft>t"C of 1I1rcct ,..,.tf'!:i~~Je~. cr wrl::::.tJl'
c~l'1fi!~::i.o" fl'GSii t!'oc I;~nc, uhblfshtl'1g I; fOl'~' link t:3 a non-pr,,"Ht
entity that ... 111 ope-rUe as in hstrU2t1tcl1ty t)f t~t i9~nc~·.
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rtt. D2p.tl'"wnt at Jlbtt3ln. and Urb,lf!! DC"'1c'fo~"t t;)r'Aud's the-tw:(,.
tmfu'/or-s 0: c3r=etilt,y r~develo~"t dvou,"/') hOR~~,.:;;ltfi>
OPpct'tvr\1tfe:o: .. I'd is: rudy to YOrt vit~ 11'11 IOCil ,gytrn:-~f;t !;
obt.llll then 'Wort"y 9ot.h~
rf YDU hl,VIt ~st''Oh.s N!lI ... .ttll!p U:f.s A:Jtti!r. ,TitHe 9'=t (a (otlc:~
with yovr local JilJO Ctfh:r.
srnUt"&ly •
. Jao>!' .E. Sc""nbt r 9t'·
Gar.erZ l l)eputy • .$$f stt:nt Set;r.tary
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IIraI .... lIop_ IIIIIl
I.aDds MIC g 'kid
Attachment No. 5
STANFORP SECONP MORTGAGE CO!NVESTMENT
pROGRAM; COIN ill
I. 0t!jecIIvft
SlInford', Second MongaJe Coinve<tmonl Ptogmn -COIN ill -continues & tradition
of eff<>m by 1he UniVersity 10 make qoality berne ownership affordable, and competitive
with dill available ucar ocher majcr universities. Specifi<:aIIy, ilS objective ..... threefold:
l.
2.
3.
R.
To pr'OIfide !be fuww:ial capacity and flexibility n_ ttl pe:mit flw:ulty
and e!iPble sralf 10 ob!ain boasinl 00 campus and in the local communities sur·
I'OUDdiIIg Stan!on!.
To ",.buain r-cboice by 1ndividu.aIJ IUDOIII aft'ordabIe bowing options, in
ordooc 11> mujmi.., personaI ~ and avoid !be climrti.on of normal mar!<et
mecbanjsmo (such u wouJd be !be cue if !be Univemty assiJned specific lk.'IlSing
uniI! to specific people).
To share Iinanci&J mum. and rioks betw_ r"OJ!Jyfstaf£ borrowers and lite
Ullivenily in III cqllitable way, and in suc •• manner dill future genc:nuions of
fllCllityfsW'f ~ b4ve access 11> !be beoefilS of lite Program.
A brief dcs<:ripcion of COIN ill is pnMdod OIl !he following pages. 1U Office of Real
EsIaIe Prognmu will scpply oddiliooal information and assist interested puties with 'PO'
cifi<: fi""nc;ol mal NodIing in d>iJ description of !be COIN ill Program should be
<:OQStt1Jed as ." ~ commitmeDI of lIlY kind 10 make • panicuIar Ioen, or as substitut
ing €a or supcneding !he forma! I'Io!mD documents. The Prosram is subject 10 cliange oc
discontinuation witho!lt 1IOdce.
A. EliJlhllii1
Stanford wiD proWIe 10 "" elilPOk bom>wcc • secood mortgage, seemed by •
boose DG 1he campus or in !he local community. The amount of a given mortgage
depends in part on !he price of !he house (see Section C).
COIN ill is available roc bousea dill will be owoe:-occupiecl ... prinQpaJ place of
resideDce and ... hich lie within • (!!teeD (IS) mile :alii", of Hoover Tower (!he
"local conmninity"). The:allius des<:n1les • poni.aI cin:le with its center ot Hoover
Tower. It is bordc:ed em !be west by High .... y 35. (See maop ana::hed as Exhibit
A.) As used heR:, !be rerm "boose" means I single family boose. I condominium.
or any 0Ib<l-for.saIe d .... lling suitable for boosing one family unit. Vacation bomes
and invest:Dent properties are not eIiIPOk for t.'1e COIN m i'mgrun. Eligibility 10
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apply fur.'1X:lm ill loan is Iimi~ 10 _ penoIlS ",ho are members of E!igibiliC)
Pool 1 (sec Exlu.1>it B) .
Then OR two calepies of eli"ll!c """"n. within tI>c Efi&;1>iIity Pool The first
include. membcss of Eligibility Pool I who !>ave lIOt pnMoosly "....".,.j • residence
wiIhin tI>c ~1ocjJ """""uni!)'" as cIefiDOd obov.. l'be$e peno!ls .,." e1i"lll. fOl" a
COIN • A" loon, cIos<:n"bed below. The """"'" set of e1igi:'1e persoDs include. those
IJII!ZDben at Eligibility Pooi 1 ",ho hive ~y owned • bouse within th. local
commuoil)' but who wi:;b 10 pun:hasc • .lifreront ""-as a primaf)I residence, and
"'.=It bcrrowC!s of IlV30 Loans wUhin, 10 rdinaDc:e their JDOrtgllges. The second COle..,., is eligible fur COIN "a" loaM.
B. T .... aDd CoIldilicN»
11>0 COIN m Pro""", is gov<:rnod by tI>c folJowiD. terms and cooditioos, ... bicn
:lie subjecllO change wi!hout prier lIOIio::e:
I. nm COIN ill LOAN IS NORMAIJ.. Y A SECOND MORTGAGE ~"ID IS
EVIDENCED BY A N07E SECURED BY A SEOOND DEED Of TRUST.
11>0 lkA'rovoer awst ob!lIin • first mortgaae from • -Stanford sourc<:. To qualify
",.. tI>c COIN loaD fur ~ purposes, !be bonower....... rneeI certain
crilillria lilal taJre into otalWlI!be 1aoal momhly paymoolS au boll! !be flISt and
00C0IId (COIN) mortpgOS, OIlIer housinJ tdaIed C'J1 b • illlS any oIhcr outstand
~ 11>0 COIN lou will cmy "am...,t iJJlI:roSI and "contingent
• , U described below.
2. '"CURRENT INTEREST' IS ntAT POItTION OF INI'EREST WH!CH
MUST BE PAID CURREN11.Y. FOR COIN "A" nm CURRENT INTEREST
RATE IS FrvE PERCENT (5'111) OF ORJ<iINAL PRlNClPAL DURING TIlE
FIltST YEAR OF nm LOAN, INCREASING BY ONE-nnRD OF ONE PER
CENT PEll YEAR. FOR OOIN," THE CURRENT INTEREST RATE IS SlX
PEllCENT (6'111) OF THE ORIGINAL PRINCIPAL INCREASING AT ONE·
HAU' OF ONE PEllCENT EAOi YEAR. FOR BOn! COIN A AND B, THE
aJRRENT INTEREST RATE wu.L cotfI'Ih'UE TO INCREASE ANNUALLY
UN1lL rr EQUALS STANFORD'S FIRST MORTGAGE RATE IN EFFECf AT
THE TIM!! nm COIN LOAN IS ORIOINATED. nmREAFTER. THE CUR
RENT INTI!REST RATE REMAINS OONSTAJIo'TFOR mEllEMAINDEROF nm LOAN 1l!R..'>t.
CUtrcaI ift_ is.:u.. ....m-lDOJIthly, and may be paid by payroll dDductioa at .he
boaower's option.
3. nm DIFFERENCE BETWEEN nm aJRRENT INTEREST AND TIlE
LOAN'S STATED INTEREST OF 25% PEll ANNUM NEED NOT BE PAID
ANN\JALL Y, BUT MAYBE DEFERRED AT mE BORROWER'S OPTION.
SUOi AMOUNTS AND AU. SUBSEQUENT IN'IERI!ST ACCRUING ON
THEM, IF DEfERRED, ARE "OONTINGE11fT 1N'I1!REST,' AND ARE PA Y
ABU: ONLY IF AND TO mE EX1'ENT nm HOUSE API'R.EOA TES.
'Eadl yar's coalingent inlCeSt is cokWaIal 011 tI>c.IWD at (a) the original principal
and (b) !be UDOWI13 oflCC1llDUlaled coolingeal ~ pteYiousIy iCCIU<d, ., the
nooo'. ,wed in_ ~ at 25'110 (less ClIIT01lt ~ paid during !be year).
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The. conti11aem in~ is recorded in a Ma.jmllm Continpot lnEereSr Accounl
("MCIA "). The amount o(!he MCIA is payable when !he loan is due (see s.cuon 4
0cJ0w). but bqed only on !he aptJteCialWn in value 0( die house (see Scclion 5
below).
4. nre LOAN. IN<l..UDING ORIGiNAL PRlNCIPAL. aJRRENT AND
CONTINGENT !N1eREST. rs DUE v.'HEN (I) 1HE BORROWER. CEASES TO
BE ELKllB~ OR (2} THE HOUSE IS NOT OCCUPIED BY niB BORROWER
OR (3) IS SOLD. WHlOlEVER OCCURS FlRST.
The bom>wcr ~ ID be eligible. and !he originlll !'riDcipa!. cunent and roo!io·
gem interest are d .... when !he l><xmwer ceases to be a bonafide Q,."...-occupanr. or
two yean after the bom>o. .... ceasc. '" bold an eligiblcpooilioo Allbc Univemty.
unless die deparIute is Ihrough ",tirmJen. or 100,-= diaability. (In cue 0( death
0( the: elillDle 1""""4 the surviving spouse will be eligible until mnaniage or
death.) AT THE DUE DATE. THE ORIGINAL PRINCIPAL AND CURRENT
IN11iREST ARE ABSOL1JiEL Y DUE AND PAY ABLE AND :\ltE NOT CON
TINOENT U!'ON THE SAlR PRICE OR FAIR MARKET VALlIE OF TIiE
HOUSE, OR ANY 01lfER. FACTOR. ContiJlpnt iDtemt is co.,,:oma.dy due and
payal>lc if and 10 1hc~, the pttI!>a1)I has appreciaJod (see Scctioo , below).
S. CONTINGENT U,1EIlEST WILL BE PA YAB~ ONI. Y TO mE EX
TENT OF TIiAT PERCENTAGE OF ANY APPRECIATION ON mE HOUSE
WHICH IS STANFORD'S COIN m SHARE-
Stanford'. COIN m share 0( apprecia!iou i. defiDed IS the ratio o(!he origin4l
COIN m Joon principa! to the original price 0( the bouse. adjllSkd for cettaiu 00_
irupo._ and for partial prepayments 0( principal and associaIed contingent
_ wiJiclI may have ocwmd A~ iJ ~ .. rIte diff= be
....... die crip.! purclwe price atId ihe fair IIIII!tet value o! the bouse whee the
loan is due.
If SIaIIfad·. original COrN m loan principal .... "N" pen:cnt o(!he purchase
price. (:OII!inreu' intaeSt will be coIIecIed only 10 die Cl<IeIIt 0( "N" times the
~ 0( the price 0( die house. """ aamplo. suppooe Slanford lent S60.000
OIl • $200.000 boU!e -!bat is. 30'1>. Now suppose die boU!e ha. appreciated 10
5210.000. and dial"" borne improvements or prep&ymalts have been made. Then
die ","rin~Xr in"""" payment will be die lesser 0( (l) die MCIA balance. or (b)
0.3 diD. K $3.000.
Stanford', COIN m slim: 0( ~ is based 00 rite fair market val"" of !he
house. r.. die euo 0(. sale. this normally ... ·Ill be die soDing price. When there is •
refinaociD& «cessation o(the bom>wer's e1ilibility. fair market value will be
deIcrmiDeCI by an~. die cost 0( which will be paid by the borrower.
Willi Stmford's prior wri""" approval. adjustments 10 Slanforcl', COIN m share 0(
~ation will be mode I<> talto ac:wan. 0( any significan. capital improvements
paid for by die borrower. &nd for ptq>8ymeDts 0( principal and associaIed contin
gentiu ........
C-AmouDt of COIN ill Loon
The priJx:ipa) amount 0( • COrN m lo&n ClUIlIO< exceed SO% of the purthlso price
01' fair moM value. whichever is "'"" SUbject 10 • maximum !olin amount 0(
3
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$27S,OOO. These guideline< are subjcc1 to <h.o.~ge 11 the sole discmion of the
Uaivmity, cIependii., upon !lu<:tuaIions in howin~ in the klcaI housing
!DIItcc. The lou OIDOWI' for oacb IDdividuai is Sll' to fund Ivailabilily. The
purpooo of !he JUide1ines i. ID = !hoi COIN ill is ~g thc objectiv<. of
aidiDr (oculI)' and SCDior staff 10 purchase ~ bousi.~ !hoi !bey otherwise
.......Jd DOl be oble to afford. COIN ill is J!OIlDleIIded to provide botlO .... " with an ........ny aancdve ilI.osmIC.: reIImI. .
SIanfcnI wi1I assess !he valtIC 0( Ibe """ .. and its IocaIioD rdAlive 10 COIN ill',
objccIives before ~ 10 aIIkc !be COIN m loan. To make un. usessme.~
!he Uaiveml)l reqwres In approisol by .li=sed appraise<. The borrower orders
and pays for un. appnisal
Doviadons from Ibe guidelines may be permiaecl only ill cxcq>!i0llal circumstllJlccs.
Such =epcions require Ibe approval o(!be Provost and !he VICe P=iden. for
~ lteaoun:es.
The bon owa must invest i~ !he property !be mjnjrnmn required do"", paymen~ as
shown ill Exbibit C. Fa. eumple, on • $350,000 _ 11 !he goide.!ine maximum,
thc COIN ill lou """""" woald be $17S,ooo,!he boIrower woald make. down
po".....' of $70,000 and die first 1IlOlIpp. woald be SlO!i,ooo.
In adcIiri<la ID the minimum required down the bouow1:r does incur odIer
COICI at.lac of eaaow incIudinJ.: witbou. ~ poin .. Oft the COIN loan and
"" the first UD1JI&e, Ippnisal ' .... dtIe iftsuraace, IR-II&id hazard insurance, plus
any ocber COlIS narmaJIy a<JOcia1ecl witb • c!osinl olesc<ow.
EXAMPLE OF MAXIMUM COIN III LOAN
AVAILABLE FOR VARIOUS HOUSE PRICES
PURCHASE PR1CEIFAIR MAXIMUM COIN ill
MARKET VALUE
$230,000
S3so,OOO
$450.000
$550.000
$600,000
AVAlLABLE.
5123.000
SI7',OOO
S22.5,OOC
$21',000
$27',000
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eXHIBIT A
MAP OUTLlNlNG THE "1!.MlLE RADIUS" FOR
Pl'JU'OSES 0' TIlE COIN m PROGRAM
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EXHIBIT B
HOtiSING ELl'.iIBILlTY $lATEMENT
(£LIGIBUurr POOl. f)
The folIowinJ caIOpricI of irldividual, iEligt1>le Persons") Ire elillDIe .,
pu:ebasc rcsi,,-," oa !be Stanford <:ampus:
L FACULTY:
II. $lAW:
L UNIVERSITY Sf AW: Senior Uempt Siaff assigned ., !he NAIll Curve
Rangc_
Z. U08m AL $lAW: Senior Exompt Siaff of dJe S12Dford Hospital
wbaoe posiliM1 have ...... deemod by !be Admin
isIrIIiYo Council .. be cquivaIeru of !be NNlI
CurveRaDge.
3. SLAC $lAn': PermaDoat Slaft; Senior Exompt Siaff assigned '0
!be NAIll Curve ReDae.
4. HOOVEllINSTlI'UTlON: Senior Resun:k FdJow. wbose appoirumenl
clams.,.. pMrlO Navember20, 1981; Senior
Feilows.
B. 0.. !be basis of. "JfOIIdhtber clause", graDtinJ ooatinuini eligibilily ., a111ho5e
sIaff membclIIliving "" """'"" who were oIigible f<lt ""-campus bousing .. !be
lime of pun:~ but wbose posilions an: DO lodger ~ elig11>le.
C. 011 !be basis of. specifIC exceptioo granted by !be Admjni .. ative Counctl (or its
~ body, !he ViCe Presidonts' Group~
m. EMEItm: 1bo5e wbo retire from !be Univ~ while cLusifled in categorie s
IIlId n above.
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EXHIBIT C
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MINIMUM REQUDtED DOWN PA YMENf
M'yimnm Lou Amou n ' MInI_ Down Payment
IO'AI $0 • $200.000
'$200,001 • $211,764
$211,765 • $250.000
·"$2S0.oo1 • $265,625
$265.626 -up
90'lIo
SI80.000
83 ..
$2ll,SOO
8O'J,
u.-Prke M",lmum Lou AmouDI
• $ 200.001 $ 180.000
20 1.000 180,000
1IJ2IX1J 180.000
203.000 180.000
204.000 180.000
205.000 180.000
206,000 180.000 m.ooo 180,000
2011.000 180.000
209.000 180.000
210.000 180,000
21l.ooo 180.000
211.764 180.000
$ 212,500
212,500
212,500
212,500
212,500
212,SOO
212,SOO
112,SOO
212,SOO
2!~
212,500
212,500
212,500
212,.500
212,500
212,500
212,SOO
House 1'rice Less $180.000
IS ..
House Price Less S212.soo
2()%
IIowIi Pa,,-I
Dollar AmouIIt
Down Pa)"IIWII1 as
lI&olH_J>ria
IO.~
10.4S
7
$ :z0.001
21.000
22.000
23.000
24.000
25.000
26.000
27.000
28.000
29.000
30.000
31.000
31,764
$ 37_<01
38.soo
39.soo
4O.soo
41.soo
42,500
43.soo 44.soo
45.soo
46,500
47.soo
48.soo
49.soo
so.soo
SI.soo
52,500
5).125
10.89
11.33 ll.n
12.20
12.62
13.04
13.46
13.88
14.29
14.69
U.OO
IS.~
15.34
15.68
16.01
16.34
~6.67
16.99
17.32
17.64
17.95
18.27
18.58
18.89
19.20
19.51
19.81
20.00
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