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FROM:
City of Palo Alto
City Manager's Summary Report
Ho..':mtABLE CITY COUNCIL
PolIcy and Services Committee
CITY MAl'iAGER DEPARTMENT: Planning and
Community Environment
AGENDA DATE: February 7, 1995 CMR:t29:9S
SlTBlECl': Palo Alto Housing Corp<ll'lltion Funding
This staff repc;r1 forwards 10 Council follow-up action on previous reqtl<lsts by the Palo
Alto Hoosbla Cuponlioo (P ARC) fcc changes in City funding of P ARC and fcc
coosullalioo with !he DepartmeoI of Hoosing and Urban Development (HUD) on rules
and regulatioos changes.
RFfflMMENPATIQNS
A recommendalioII is made by staff, and with roncurrence from P ABC, tbat no further
effort be e1<pCllded 011 issues relaled 10 HUD funding and reporting requirements. There
are no rec:omroendatio So!" cbanging Ihe City"s funding of P ABC at this time. Slaff and
P ARC ~ tbat COOtimcd effo<1s should be made 10 seek alternate sources of funding
f<>r P ABC adminis!ration 10 supplemeJ]( City funding.
POUCY IMPI.ICADQNS
Slaff is not CCCOIDIlIeIIdin any changes in CUITe1lI City policy related 10 P ABC and
PAHC funding.
The attacbed staff R!pO«t cf.scnsses CiI} fuoding of P ABC and related issues of utilization
of HUn funds ihrougll the Comruunily Developmenl Block Gran! (CDOO) program. The
hpl.rs
RpOrt Dotes !he importance {)( P ARC in administering aDd developing affordable hOUSing
ill Palo Alto.
meg IMPACT
NoDe at Ibis time. The City will continue to fund specifIc P ARC programs from CDBG
funds II1Id administration {)( the Below Market Rate (BMR) prograDl from Housing
Reserv~ Funds.
EvaIuaOOa of PARC fuDdlng does not eoostiture a project under CEQA; therefore, no
IS r I menr is required.
PREP Alt£D BY, James. E. GillilaDd. Assistant Planni.'Ig Official
DEPARTMENT HEAD RE\-'IEW: ~f../duk <2
TH R. SCHRFlBER "
DirecIor {)( Planning aDd
Community Envi.TOOment
~~_OV""~ BERN M. TROJNY
Assist2.nt C· anager
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City Manager's Report (In-Depth)
SUBJECT: Palo Alto Housing Corporation FundIng
RECOMMENDATIONS
This staff report forwards to Council follow-up action on previous requests by the Palo
Alto Housing Corporation 0' ARC, for changes in Ci!)~ funding 0( P AHC and foe
consultation with Department 0( Housing and Urban Development (HUD) 00 rules and
regulations cbanges.
Preyjoos cQupdl Actions: On Sqlterober 14. 1992, the City Council referred to the
Policy and Services ~ttee • cliscus.,ion on City funding 0( PAHC and the
relationship betwoen P ARC and !he City. By letter dated Angust 28, 1992 (attached).
PARC had requested that the City fund PAHC from a more consistent source than the
fluctuating rei:i1oorscments for specific programs. Specifically. PARC requested funding
from sources not constrained by CommuniI)' Development Block C-ran! (CDBG)
regulations. The Council encouraged staff and P ARC 10 coororr.ate discussion with HUD
on issues of concern to P AHC reganfmg !he application of federal regulations 10 CDBG
funded actiWies. The Council also expressed coocern for adding any addi:ional
competition for City general funds_
PAHC fyrxli!!i: Prior to 1981. 0eneraI Funds were used by the City 10 support PARC
operations. Between 1981 and 1991, CDBG was the source of City f.mds foe PARC
support. HUD. in a 1991 audit of Ihe City', CDBG program, determined that not all
P ARC funded ... "!hities were eligible for federal funds. and thaI proper oversight 0(
PAHC wa5 nol being condi1cted by the City. To comply with InTO'. findings, Ciiy .fatf
implemented changes in !he conlractua! and repo.""1ing relationsbip be.:ween the City and
PARCo
These cbauges shifted PARC funding from amr.J.Ol, lump sum payments 10 reimbursement
. for specific programs or projects. Prior to FY 1991-1992, PARe received approximately
$100,000 in City funding !rOO! COBG. Beginning with FY 1991-1992, the IOIaI annual
City funding of PAHC has fluctuated, but has averaged in excess of $100,000 compared
10 !he IOta! PAHC current armual budget of about $285,000. City funding presently
comes from two sources: CDBG arx! tIoosing Reserve Funds. COOO funding ha.
averaged between $50,000 and $60,000 and has reimbursed PARC for operation of a
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Housing lnf<lnll3tion and Referral program. CDBO-incomc-eligible BMR recipienlS.
prepar2tion 0( a housing booklet, predevelopm<lnl COllis for the Barker Hotel and •
downtown SRO. and other specific activity COllIS. •
Since the majority 0( BMR recipienls are not CDBO-income-eligible, primary fuoomg for
administration 0( the BMR program was shift<=<! 10 the Housing Reserve Fund.
Commercial-IndustrlaI account. Reimbursemelll has been based on actual time spent and
has fluctuated between $40,000 and $50,000. However. for 1994-95, it appears that
reimbl.rsernent will be lower. since the number 0( sales and re .... les has declined .
. POllCY IMPLICATIONS
A1 this time staff is not recommending any changes in current portey reJated 10 P ARC
and PARC funding. PARC provides many valuable services for the City, including
administering City housing programs and services, .dvocali"g for affordable housing.
ma naging almost 300 rental unils and developing new, affordable housing. By limiting
. its opera600s 10 Palo Alto. PARC has also limit<=<! its housing deveJoplNnt opportunities
and, therefore. its po!e!lllaI fuoomg resources. While City staff has an important role in
the City'. housing efforts, it is more effective and efficient 10 utilize nonproli! agencies
10 provide housing servi= and develop housing. It is impor'.anI t1Ja1 nooproli! boosing
O£ganizatioos. especially FARC, remain viable and available 10 carry out their wO£k
w;!hin Palo Alto.
PARe. like any oCher 00!IprOO! organization. needs • consisle!ll and dependable base 0(
funding. Due 10 federal regulations and the difficulty 0( developing housing in the Palo
Alto area, it has been difftcult for P ARC 10 develop a dependable funding base that is
independent of City sources. M staff and PARe work 10 develop IOOre coosistent
t.mding sources, policy issues may arise which will be forwarded 10 Council for review
and action.
PhglS'iorn; with!!l..!:Q: The attached January 18. 1m letter from Marlene Prendergast,
Executive DireclO< of the Palo Alto Housi"g Corporation, outlines the issues with federal
regulations and the PARe Board's action to move forward and devote energy 10 wO£king
locally with the City 011 P ARC funding issues.
HUD has been going through several reorganization changes during !he last year. These
include the elinlination of the RgK>oal offices. implementation 0( new programs, and
major changes 10 the preparation of plans and applications for HUD programs. The
City's HUD rep<esentatlve retired ill swnmer 1994 and • replacement has no( beell
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1l8lDCd. W>th til<: recetlI poliIical changes in Wasbing1on, D.C., lhe future 0( HUD .... d
many HUD programs is UllCCrWn.
SIsff COOCUi$ with P ARC IhI:I 1M majority 0( lhe HUD issues are 00 Iooger relevan! and
mat it is moo: productive to devote our efforts locaDy to f~'lding • more ronsis!ellt
funding soor~ for PARCo
It is recoom.-ended 1hat the City COIlIinue to fund specific PARC programs (rom CDBG
funds and ad!Ilinistration of the BMR program from Housing Reserve Funds. This does
00( represent any change from current fund"mg.
ENVIRONMENTAL ASSJCS.SMFNf
Evaluation 0( P ARC fundIng does not constitute a project onder CEQA; therefore. 00
assessmenI is required.
STEPS FOUpwING APPROVAL
SIsff will cooUnue to work with P ARC to seek allefllBte funding sources which can
supplement CDBG and City Housing Reserve Funds. .
ATIACHMENTSlFFfIIRITS
P AHC letter dated Augus! 28. 1992
P ABC Iette, dated January 18, 1995
cc: Palo Alto Housio.g Corporation
Paa< 5 0($
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V ..... William brier
C.iIy MozIqer
CRy of Palo Aho
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Palo Alto Housing Corporation
AuiUS! 21. 1992
)I.E: Ciry FUWlCia! Suppo."t of dI, Palo Af>~ Ho"'ir .. CO~Q
[lea: Bill:
AT'l'ACHMElI'r 1
Our Iene< 10 you of July 20, 1992 <l1Clos<d • Iener to the C"Y Council of lb. same dat,
0IIIllnin& our ...... 1<>< C.iIy final>...4aI S<.'l'port of pARC', .. ~viti .. in fi&f!to(lIl. CU.ITent
mte,p,...,ious 0( COBG funD .. ,. " .... IJIlklratedllla 11: ... issu .. wuld 1>< discu.ssed in
1l>. p<>r><y Illd Services CGromiuee m.odns of "'u:us:~. 1991.
O:y smr. n<:O!IUIl<1ldations 'Wh respect \0 I!le Cii)1P ARC re!.oonship and funding ......
giveR ill CMR.:368.;92 of July 30:. 1992 > There was ins\iff~i!mJ time Ibt us 10 prodcce I
_ ""PO'" to Staff. repcrt prio< 10 11:0 PoT><y and Se:-& .. CGtrunin .. meeting of
A:aJUSt .... 50 out representariv~ lave an ora! pr~nwloll at tnM time. The Com:.mIttee asked
1hat cur comments be submiC:ed in writing for further Council cons'id~
Enclos<d is I summa.')' of Ill. priru:ipal poiDtS .... Yokeilll the August' _,. Underlying
_ position .... two basIc prio<;ipl .... FItS!. tha til. Ion,..."" ,eJallonship betweeJ11!o •• Cii)
and lb. Housin, CocpomiOll pertainin, to 10 .. , snd mod.rale-inoom. b,,",ing bas b<ee bighly
beneficlaI in COI"T}"" out the Ciry's housing ,o>ls. aNI sbould 1>< continued. Stcondly, CDS(;
t.mc!i.oj: 01 PARCs ... or!< I<>< Ill' C'lIy lias beoom .. under CUrT.., imerpretations of CDBG
rules, enren>e!y runned alld tllerd'on odIer .. .., simple< Noami mecbocisms are ll<Cessory.
k is lpJI"'ent ilia City Staff and PARe h.av. differing views ''lara''', Ih ... fuoo"" matten.
W.1ill4cmood Ill .. III, poncy anJ Servkos Committee felt the City SIlIff aNI FARC shoWd
meet to LeU. KCCmmOdatiM of@.e differences ~pressed. We ha .... e. always stressed
~ 10 our dealing ,.ith the City an-d' we are um::omforub!e with I situatio:a cbat m;y
appear 10 be tcn~mL Acrordingl,. we 'i!g~ )O\l to CQ1]VeM lFtnt C1tyfPARC
meeting prior 110 consider-Iliac cf I!! is wbjea by the fuD Council in its Sep:.emller 14 ~l.
If you can arnII&t sudl iii session durinl the next two we~b. 'We ... ould appreciate it 'Itt)
muc:i.
cr;-:-Xe.aneth R.. Schreiber
lames E. Gilliland
540 COW?,,, Street. Suite 0, Palo Alto. C.r.fornia 94301. (415) 321·9709
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SUMMARY OF PALO ALTO HOUSING CORPORATION RECOMMFNDA TIONS
TO PALO ALTO COUNCIL POLICY AND SERViCF.& roMMfITE.E MEETING
OF AUGUST 4, 1992 REGARDING CITY FINANCIAL SUPPORT
Of HOOS' ,Q CORPORATION ACTIYIT1ES
I. Foe lb. F;,aI ) .... 1992-93, PAHC slIouid be fur.ded 00 • contractual basis ., • flat
$100,000, '" be paW in 11 equal moolhl) i".lall", .....
2. Th. PABC .:or.t"1CI1O< 1992·93 o1louId be amended '" lIlis eff ..... iodulfm,. D."'.cope
of $OrV_ dIZ • ill r~e P ABC', pl&ninC ar.d administratiV' activlti .. , includ"lnl
plarmiDSIO<. r:ew 511.0, II:quiring lb. 8Mler Hotel, seeking ,i.e; fu< o!her _
construction, CId' seekins properJes for aequ!sitioa under 1lHAP.
3. All. ",_Don 10< !his oltmiativ. SOI1r<:, of C;,y fullamg, "ABC would receive DO
CDBGfUucfm& ($21,000) fu< its Infonn>tio. an;! bferral Servic.s, IKl< lOy Housing It"""". funds ($40,000) for .. BMR1Oiscount Program services. Further,PABC woold
request DO edll'Jnistrallvo fUDiIs (S36,OOOl from 11;. CDBG pool fa< its acrivili .. reJallDg OJ
acquidrJon 0( Ill. Barter ll<>teI .!Id devolDpmtnl of. Dew SRO. Th. 10<21 poIentiai P ABC
fi.'1l<fllll fer all oflb." lCW~nts if $1&4,000, or $4,000 more Ihiill L.e fi .. sum requested
abov •.
4. All. pen.")' _, Howin: 11.",,,,,,. ~JD<h s!>oold be usable for PAHCplarmiD, and
admi:Jistmlv. I<:tivllies, ilY.:Mmg adm!r.lstr>Uo. of lb. BMRIDistoullI program.
S. All. polio} l113tter, lb. CooDCiI o1loo1d penni! Ill ...... of limds from the
CommercIalJIDdustrial Aecoum of dte Reusing Reserve to lCq,uk~ ex.istlng, noosing lhat
...... ill be or ~ bousin& fix-lowlmoderate mcome residents, primariI, working
indMc!ll.iI. !)( families (perltaps "" • c.s< by .... basis}.
6. Staff.e;>ort CMIt:361:92, lOp of page J, .. ise; lb. question 11>at P ABC could be preduded
from being e!i,ibl. to useII:)' federal funds ad",]nistered !hrougillh. C"lI)' if PAHe
p,,,,1ded """,in consul'Jng sorvlc" '" Ill. c;,y, whidi alI'eodl} would resull ill I ""'fie!
c.f inta"est situatIon.
ID funberance of earli ... C<>Il1lC~ tfu-ection, Ill. PorJey an;! Services Committee abould
request til. Coomci to tfJr<Ct City Staff and PARC repr_ves joiDdy to ..... "iIh lOp
HUD staff in San Francisco. and it ~ecessary 1:0 i:ontact our cocgres.sional" representatives,
10 QISCU$S. Ihts md' other retevanr COBG questioos.
7. P AHCIStaff should continue 10 loot few alternative sources of fu>l.ding OD an ODi'lln,g basis.
•. City Staff and P ARC sIlould explore alternative metMds 0( fun<nngllle = of BMR
sates .. IS appropr.ate. 'ARC .h:s reservations aboul charging fees 10 buyers and/or sen~
to rus. fUD<h.
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YaJo. Alto Housing Corporation
Janua,y .I!, 199~
):"" Schreiber
DirecIor of Planning and Community Environment
C"IIJ of PaJo Alto
r.O.Bo .. 10250
P-41o A1!O. CA 94303
Re: JruD Issu .. and P ARC FuOOlng
Dear ""'"
ATTACIlHENT 2
00 SePtember 14, 1992, L\c Palo AIt.o Housing Corporatioo (pAHq asked the City (»unci!
for funditlg from I more rerIa!lte source than COSO and 10 have its consulting contract
relnstaled. The (»unci! did DOl make • decisioo at thai time, but .""",ted the nexus sh>dy !O
bell' det.ennL.., .. helller P ARC administrative and overhead expenses could be paid oul of the
Housing Reserve., encouraged P ARC and City staff 10 cooralllate discussiOlU with "lOp level"
HUD offidals about certlin i.sues. and expressed concel'll for additiooal competition for the
General Fund.. The Cooncil spo •• 10 the irnpo.unl philosoplUcal relationship betwee.9 ill.
City and PARe and the lmporta.r..e of keeping PARe in "".mess.
Since theA, PARC has ",Ofked \0 improve compfumce .. illl the CDllO system of funding and
lI<X:OUotability. The. ... is an arni<:ab!e and productive working reJatiooslUp "it." the City staIf
and some conseRSUS about issoe. thai PARe and the City must co"enue 10 work on. J believe
!hat the (»uncil remains supportive of PARC, its efforts and its .. istence. Over the two year
period PARe bas continued 10 struggle .nL\, but has 01", become resigned 10, most of the
iruD difficulties. More im~1\tly, we baYecontinued to strUggle.nth the ~IDding issues for
the PARe organization. Those remain very real.
limo ... !hat City staff is requL0e6 10 return 10 the Council Policy and Se"ke. Committee "itll
!he issue of P ARC funding. Given that, J recommended 10 the P ARC Board !ha! P ARC put
!he general HUD issues 10 rest. devol< energy 10 wOfking locally with the ClIy "" the funding
issoe., and report this cOOclusioo to the Cour.cil Committee. There .. ill likely be. rew", 10
the CO'Jocil in the future as <erIai. issue> are re;o!ved 0( become more problematical. A.t its
meedng of lai1uary II, 1995, !he Board generolly coocurred with thai recommer.dation, based
on the following summary of the HUD and funding issues.
]tema1nln& HUD Is;ues
A. Activities of Spe<iaJ Sub-re<ipieots.
In 1992, there was • fear thai scm< of the .Clivi" .. P ARC had unde11aken were 00(
eflgible CDIlG activities. lbe City Attorney opined that PARe qualified as. 1.ocal
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DovelopmenlCorporation (LDC) and, under Illat definition, "'. were able to qualify as.
JpCCial sul>-Rcipier.l and the activltie.; in question were deemed elig:ble for funding. ThI-.n:
• .ave l><ca n<> Woes regaramg Illi. in r4-o yean. It appears 10 be • distinction withoul a
ditre.~ for PARCo k .. 'ould DOt be ... fuI,., ope. the subject.gain with HUD.
HUD ruled !!Iat the: City must put oul lU'l". for general c01\SlIlting 00 boo';ng issues
and ll1al if P ARC .rid -.su1t 00 general issues and/or specifi<: projects, we would have •
conflict 0( interest 10 reeeh'e feeler.>! fund, ourselves. Thi. appear$ 10 be kgaily and logically
correct. . For the: past twa )ears, "'e bave 001 consuJled OIl specifi<: proie<.'t5 or the
Comjlret.ensive P1.an on • cooll"l!ctWll basis. Neither tie curren! P ARC staff or the: City wish
10 lIave PARC do so. The City cootinues to Joo!;: to pA.lie inrormall~ 00 ad boc que.\ioos for
our inplll The CiIy ..,w has r housing coordinator 10 fulfil some 0( tll;, role. P ARC
continues 10 coo suit on BMR ilegotiations under the part of oor annual contract paid for by
City funds.
C.. Landba nkin~.
Under BUD rules. tlle City =not accumulate more \han 1.5 times ru O!'.nuaJ COSO
aIlo!menl This reqolrement to spend does nOl work ..... n with the cost ollanc! acquisition and
developmeni in Palo Alto. J. fac1, acquloition of sizeable properties bas become almost
impossible and the: process ol seeking soIuilor1$ to that problem eculd involve discussions ",ilb
HUD persoruw:L
D. Relocation •
. PARC has .rlS3greed will!, and argued strenuously abcul, ~ttain aspects 0( relocation
law. However, it is slahltory". regulatory" and enfort:ed Jlationwide. W. bave worked .. ith it ..,w with l'Ium Tree Apartments. the: Barker Hotel, and 3053 Emerson Street. PARC staff is
now cooversanl on !he requirements. W. canlive will! iI test by being alert to proper ways 10
CO«1p1yand/or lVcid it.
Eo Funding of PAHC AdnUnlsIration and Overhead rrom CDBe
rARC used 10 be funded oot o(!he administrative portion o(!he CDBG f"ods {up 10
20'1(,0( the: City's IOCll grant is allowed for administratioo}. Two yea.'"5 ago. Council approved
n.nd"mg o(in-hoo .. staff for admini'I .... tioo. While thaI .. as unfonun.te for our fuoomg
soum: issues. the: additional boosing expertise is bclpfullo our cause within the City.
F. i'rorram Income
Housing projects purchased wiL'l CDBG funds are required 10 return a pro-ral:! sIlare 0(
any suq>lus income'" the c;ry '" CDOO ·progra.'1l income'. Deductioo 0( depreciation
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npense prior 10 calculating program income is an-ed. Proeram j"""me owed fr<>m projccts
lIIitlt • surplus car.no!. be used 10 assist proj eeLS that ~ operaD ng willl • deficit.
Without question, iI is • painful exp..-nence 10 retu", money .. beo it bas beeo 50
.rune.lt 10 get. and wll<en ce:taln propertle< are in financial trouble. HO'OIever, ROO Iw made
it very ckar Iha! <:al<:u!ation acro •• variooJS properties is DO! .no ... ed. Through Ille efforts 0(
PAHC staifiD ac<:otJofing, and cl Ill. PAHC auditor, we ben eve it would !>eber..ficiallO
ex.pioR with City staff more realistic and heJpful .... y. 10 worT< withi. !he program income
requirements.
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FunOlllg currently comes !rom COBG for housing services .. 'ld capi!al projects, CDBG,
HOME andfor Housing R<serv .. for PARe staff efforts 00 ce!'..un development projects, and
Housin, Ites<lr;es fix BMR administration. There appears to be nothing new on the ooruon,
and a probable major IfoseallO all feden.! rJoding in the new Congr.!.S.
It is still ~ Iha! CDBG is DO! reliable nor SlJificien! to keep PARe in business. rt is project
specific an<! involves a fief"" compefition. It is DO! ,,,,,.era] funding for admWstralive
e;(pense.s.. It is likely Iha!: otber concel'tls about fund"mg: ... ill emerge from the nexus studi~
when they are complet.ed. The Ger.el<ill'und is theoretically aVaIlable but certainly no! an ea."Y
sour<:e cl funds.
I beEeve that I'AHC Iw increaSed its credibmry and account:>bmry since Ill. If:fficult days of
1991-92. Weare valuable to tile City in bousing advocacy, development and services.
P AHCJCIIy staff relationship is going wen. Staff is .suany ",-... pthe 10 seeking solutiofls, as
lOng as we are doing our job.
r. ccnclusion. \be PARe Boanl has decided not Ie belabor old issues thaI liave be<:cme moot
or irrelevant with I1Ie passage 0( lime. I suggest tlla! we mutually report to Ibe Policy and
Services Committee that boIlt P AHC and c;ry sta.'f will c""ficue to wode on the issaes of
PAHC fuOOmg. with theexpeetatioo Iha! fu= issues will Rris< for the Council',
C<lfIsidera6on.
Sir.cerely.
PALO ALTO HOUSING CORPORATION·
<'C: IOChard Rosenbaum, P AHC-Council fjaisoo
PIlylli. Ca.ssel, I'AHC-PIallning Commission Lwson
Jim Gilliland, Plannl"g
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