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Staff Report 2608-6683
CITY OF PALO ALTO Policy & Services Committee Special Meeting Tuesday, October 13, 2026 6:30 PM Agenda Item 2.Office of the City Auditor Presentation of the Below Market Rate Housing Program Audit Report. CEQA Status –Not a project. Staff Presentation 1 0 5 3 3 Policy & Services Committee Staff Report From: City Manager Report Type: ACTION ITEMS Lead Department: City Auditor Meeting Date: October 13, 2026 Report #:2608-6683 TITLE Office of the City Auditor Presentation of the Below Market Rate Housing Program Audit Report. CEQA Status –Not a project. RECOMMENDATION The Office of the City Auditor recommends the Policy & Services Committee accept the results of the Below Market Rate Housing Program Audit Report. BACKGROUND Baker Tilly Advisory, in its capacity serving as the Office of the City Auditor (OCA), performed a citywide risk assessment that evaluated a wide range of risk areas, including strategic, financial, operational, compliance, technological, and reputational risks. The purpose of the assessment was to identify and prioritize risks to develop the annual audit plan. OCA identified affordable housing and the Below Market Rate Housing program, or BMR program, as a potential area of risk and proposed the topic for the FY26 Audit Plan, which was approved by City Council. ANALYSIS The objectives of the BMR program audit were to: 1) Determine if the BMR program1, maximizes the retention of affordable housing stock in comparison to similar programs. 2) Determine if the program is administered in a timely manner that meets the needs of the community it is intended to serve. 1 The BMR program, as assessed in this audit, refers to the administration of below-market-rate units after broader housing policies, development requirements, agreements and development decisions result in these units. The BMR program does not include all below-market-rate housing in the City, only a portion of ownership and rental units meeting specific criteria. 1 0 5 3 3 3) Evaluate the administration of the program for adequate internal controls to safeguard the City from fraud, waste, and abuse. The BMR program itself does not directly create housing units but administers the program after broader City housing policies, development requirements, agreements, and development decisions result in those units. Once qualifying ownership units are ready to enter ongoing administration, the City partners with Alta Housing to oversee purchase and rental of applicable units in accordance with the relevant eligibility requirements. It is important to note that the BMR program does not encompass all below market rate housing units in the City, only a portion of them. The City has created a substantial number of BMR units over time, with 247 active ownership units. The audit assessed the BMR program’s retention policies, unit management, applicant processes, and internal controls. In addition, the audit team researched best practices related to the management and administration of below market and affordable housing programs and conducted benchmarking to compare the City’s processes with peer cities to identify strengths and challenges. The audit has three findings. The first finding noted that the BMR program administers, rather than creates, BMR units through broader City housing policies and through this role has visibility into factors that may affect continued affordability and long-term retention of BMR units. The audit noted that HOA-related costs and the long-term preservation of an aging ownership portfolio may create retention pressures that warrant continued attention from the City. We recommend the City strengthen its approach to preserving BMR ownership units by improving visibility into HOA, maintenance, and other retention risks and evaluating practical options to help address significant HOA-related costs. The second finding notes that while program administration is consistent, performance monitoring can be strengthened. The City has established a working administrative structure with Alta Housing that is commensurate with many of its peers. However, oversight practices are not yet fully formalized, and the City has limited summarized information on program performance, eligibility trends, appeals, complaints, rental waitlist practices, enforcement activity, turnover, vacancy timelines, and applicant demand. We recommend the City strengthen its oversight function by formalizing coordination, documentation and trend reporting related to Alta Housing’s administration of the BMR program. Finally, the audit found that a recently filled vacancy in the Planning and Development Services Department provides an opportunity for increased administration and participant support. While the City provides some participant supports comparable to peers, the City has not yet centralized or clearly communicated referral pathways for BMR participants who may need help with affordability, tenancy, ownership and/or housing-stability concerns. We recommend the City centralize referral-based participant support and strengthen BMR program administration. 1 0 5 3 3 A more detailed discussion of the audit’s findings and recommendations can be found in the attached audit report. OCA is aware of the City’s current budget deficit and implementation of some recommendations may not be feasible in the near term. FISCAL/RESOURCE IMPACT STAKEHOLDER ENGAGEMENT ENVIRONMENTAL REVIEW ATTACHMENTS APPROVED BY: September 22, 2026 City of Palo Alto Office of the City Auditor Below Market Rate Housing Audit Report Contents Baker Tilly Advisory Group, LP and Baker Tilly US, LLP, trading as Baker Tilly, operate under an alternative practice structure and are members of the global network of Baker Tilly International Ltd., the members of which are separate and independent legal entities. Baker Tilly US, LLP is a licensed CPA firm that provides assurance services to its clients. Baker Tilly Advisory Group, LP and its subsidiary entities provide tax and consulting services to their clients and are not licensed CPA firms. Table of Contents Executive Summary 1 Purpose of the Audit 1 Report Highlights 1 I. Background, Scope, and Methodology 5 II. Findings and Recommendations 11 Finding 1: The BMR Program Administers, Rather than Creates, BMR Units Through Broader City Housing Policies. Through This Role, the Program Has Visibility into Factors That May Affect Continued Affordability and Long-Term Retention. 11 Finding 2: Program Administration Is Consistent, but Performance Monitoring Can Be Strengthened 14 Finding 3: Senior Housing Specialist Role Provides an Opportunity for Increased Administration and Participant Support 31 1 Executive Summary Purpose of the Audit Baker Tilly Advisory Group, LP (Baker Tilly), in its capacity serving as the Office of the City Auditor (OCA) for the City of Palo Alto (the City), conducted a Below Market Rate (BMR) Housing Program Audit hereafter referred to as the BMR program, based on approved Task Order 4.35 as part of the City’s FY 2026 Audit Plan. The objectives of this audit were to: (1) Determine if the BMR Program 1 ,maximizes the retention of affordable housing stock in comparison to similar programs. (2) Determine if the program is administered in a timely manner that meets the needs of the community it is intended to serve. (3) Evaluate the administration of the program for adequate internal controls to safeguard the City from fraud, waste and abuse. Report Highlights (Page 13) The BMR program administers, rather than creates, BMR units established through broader City housing policies. Through this role, the Program has visibility into factors that may affect continued affordability and long-term retention. The audit objective asked whether the BMR program maximizes the creation and retention of affordable housing. The City’s process shows that housing creation occurs through broader policy, development requirements, and development activity, while the BMR program primarily administers qualifying units after they are created. Within that role, HOA-related costs and the long-term preservation of an aging ownership portfolio may create retention pressures that warrant continued attention. We noted the following observations: • The BMR program does not independently control housing production; broader City policy and development activity determine whether and how affordable units are created. • Regular HOA dues are considered when maximum affordable ownership prices are established, but dues may change after purchase. 1 The BMR program, as assessed in this audit, refers to the administration of below-market-rate units after broader housing policies, development requirements, agreements and development decisions result in these units. The BMR program does not include all below- market-rate housing in the City, only a portion of ownership and rental units meeting specific criteria. 2 EXECUTIVE SUMMARY • Significant HOA special assessments and major maintenance or repair needs may create unexpected costs that affect practical affordability and long-term retention. • The City has limited consolidated information on HOA-related and maintenance pressures across the BMR ownership portfolio, and peer interviews did not identify a common HOA-specific assistance model. • A portion of the ownership portfolio is aging and will require ongoing monitoring of deed restriction end dates, unit condition, and preservation options to ensure continued inclusion in the program. Key Recommendations The City should strengthen its approach to preserving BMR ownership units by improving visibility into HOA, maintenance, and other retention risks and evaluating practical options to help address significant HOA-related costs. This should include using existing City and Alta Housing information to identify significant HOA dues, special assessments, and maintenance pressures; evaluating whether existing assistance is sufficient and clearly communicated; exploring feasible additional preservation or repair support options; and continuing to monitor affordability restriction terms, unit condition, and other long-term portfolio risks. Finding 2: (Page 18) be strengthened. The City and Alta Housing have established a workable administrative structure for the BMR program, and several current practices are consistent with peers. The City receives quarterly invoices and activity reports from Alta Housing, which provide a useful foundation for contract and invoice oversight. However, oversight practices are not yet fully formalized, and the City has limited summarized information on program performance, eligibility trends, appeals, complaints, rental waitlist practices, enforcement activity, turnover, vacancy timelines, and applicant demand. We noted the following observations: • The Alta contract defines administrative tasks and responsibilities but does not include outcome-based performance expectations. • Program oversight has historically relied more on informal communication and issue- based coordination than consistently documented management practices. • The City does not maintain a formal complaint history for BMR program integrity concerns. 3 EXECUTIVE SUMMARY • Alta appears to administer eligibility decisions consistently at the transaction level, but the City has limited summarized information on denials, appeals, complaints, and applicant experience trends. • Palo Alto’s occupancy verification practices are generally aligned with peers, but subleasing monitoring and enforcement documentation could be more formalized. • Palo Alto maintains a central ownership waitlist and property-specific rental waitlists, but the City has limited visibility into rental waitlist practices which are specific to each property and maintained by the property owner/manager. • The City does not currently track a defined set of program-level performance metrics for the BMR program, including unit turnover, vacancy timelines, and applicant demand. Key Recommendations To strengthen the City’s oversight foundation, the City should further formalize coordination, documentation, and trend reporting related to Alta Housing’s administration of the BMR program. These steps would help the City preserve the benefits of its current contracted model while improving consistency, transparency, and follow-up on program activity. We recommend the City: • Continue to formalize City-Alta coordination and role clarity. • Continue the quarterly invoice and report review process, with clearer documentation of follow-up. • Maintain a formal complaint history for BMR program integrity concerns. • Use periodic eligibility and applicant-experience summaries to improve City visibility. To improve performance monitoring, the City should also define a core set of program metrics that can be used to assess service timeliness, unit utilization, applicant demand, waitlist activity, and portfolio risks over time. Establishing regular performance reporting would give the City better visibility into whether the program is operating efficiently and where additional management attention or policy direction may be needed. We recommend the City: • Work with Alta Housing to strengthen waitlist management to improve visibility into rental waitlist practices, including aggregating rental applicant income levels and family composition to determine equitable program access. • Establish core BMR performance monitoring reporting aligned with program goals. • Track turnover and vacancy-related metrics using existing systems and workflows where possible. 4 EXECUTIVE SUMMARY • Establish a basic written inspection protocol. Finding 3: (Page 34) A filled vacancy provides an opportunity for increased administration and participant support. Participant support is a service delivery issue because referral-based assistance can help BMR households remain stably housed after eligibility approval and placement. Palo Alto provides some participant support comparable to peers, including education, applicant support, homeowner assistance, and mediation access. However, the City has not yet centralized or clearly communicated referral pathways for BMR participants who may need help with affordability, tenancy, ownership, or housing-stability concerns. We noted the following observations: • Peer jurisdictions generally provide some form of light-touch participant support beyond eligibility review and placement. These supports are typically referral-based rather than intensive case management. • Palo Alto’s current participant support appears generally consistent with peers in terms of education, mediation access, and ownership-related assistance. • However, referral pathways for legal aid, emergency rental assistance, tenant protection, foreclosure prevention, fair housing, and other housing stability resources are not prominently or consistently communicated through City or Alta BMR materials. • Alta Housing reported that, aside from HOA affordability concerns, it was not aware of broader affordability complaints from BMR households. • City 311 data did not identify BMR-specific affordability or rental housing concerns, but this may reflect the absence of a dedicated BMR complaint or intake process. • The Senior Housing Specialist role provides an opportunity to connect recent administrative improvements with a light-touch participant-support function. 5 I. Background, Scope, and Methodology Objective The objective of this audit was to evaluate the effectiveness of the BMR program in delivering affordable housing and services to eligible households and assess the adequacy of internal controls to prevent fraud, waste, and abuse. Background How This Report Uses the Term “BMR Program” The audit scope refers to the creation and retention of affordable housing stock. Interviews with Planning staff clarified that these functions occur at different points in the City’s housing process. For purposes of this report, the BMR program refers to the administration of below-market-rate units after broader City housing policies, development requirements, agreements, and development decisions result in those units. The BMR program itself does not directly create housing units. Once qualifying ownership units are ready to enter ongoing administration, Alta Housing generally administers them on the City’s behalf. It is important to note that the BMR program does not encompass all below market rate housing units in the City, only a portion of them. This distinction is important when evaluating program performance. Housing policy and development activity determine whether and how affordable units are produced. The City then formalizes the requirements that apply to those units, and Alta Housing generally becomes directly involved when qualifying ownership units are ready for sale and long-term administration. Typical Ownership BMR Process Planning staff described the following as the typical process for ownership (for-sale) BMR units. The exact path can vary by project. THE STEPS TO THE BMR PROGRAM This flow applies primarily to ownership (for-sale) BMR units. 1 APPLICATION SUBMITTED Developer submits an application for a housing project. Developer -> City Application and project information 2 REVIEW & REQUIREMENT CHECK - City reviews the project for compliance. - For ownership, an affordable housing plan is generally required. - If information is missing, the City requests additional information through development review. City Planning <-> Developer Comments, requests, and additional information as needed 6 BACKGROUND, SCOPE, AND METHODOLOGY 3 AFFORDABLE HOUSING PLAN - Developer prepares a plan to meet applicable City requirements. - For ownership, the plan generally identifies the BMR units and applicable affordability levels. - Other compliance approaches may be available depending on the Developer <-> City Plan submittal, review, and confirmation of the proposed approach 4 AGREEMENT WITH THE CITY - City and developer establish what requirements will apply to the BMR units. - The agreement may address AMI/income eligibility, maximum affordable sales prices, maximum rents where applicable, occupancy requirements, and resale or other affordability restrictions. City <-> Developer Executed agreement governing the BMR units 5 UNITS ENTER BMR PROGRAM - When qualifying ownership units are ready to be sold, the City coordinates with Alta Housing. - This is the transition from development activity into ongoing BMR City -> Alta Housing Notice that units are ready for administration 6 ALTA ADMINISTERS THE UNITS - Apply affordable sales prices and income eligibility requirements. - Identify qualified purchasers from the waiting list and verify household eligibility. - Support ongoing compliance and administer resale restrictions and Alta Housing Manages qualifying ownership units over the long term RENTAL UNITS Rental affordable housing can follow a different and less standardized pathway than ownership BMR units. POSSIBLE PATHWAYS TO CREATION INCLUDE: - Rental affordable units created through applicable City policies or development requirements. - Units proposed as an alternative means of satisfying another housing requirement. - Other project-specific approaches reviewed and approved by the City. - Special circumstances in which the City and developer determine an appropriate approach based on the project. KEY PLAYERS & COMMUNICATIONS - Developer works with the City to identify the applicable pathway. - Planning and, as needed, other City departments review the proposed approach. - Communication and oversight depend on the project, applicable requirements, and the governing agreement. - Rental affordable units do not necessarily follow the same administrative pathway as ownership BMR units or enter the UNIQUE CIRCUMSTANCES Some projects may not follow the typical ownership or rental pathway. The process shown above is therefore intended to 7 BACKGROUND, SCOPE, AND METHODOLOGY Housing Production, Reporting, and Policy Creation The City also evaluates housing production through broader planning and reporting mechanisms, including the Regional Housing Needs Allocation (RHNA) and Housing Element framework. These mechanisms are separate from day-to-day BMR administration. However, information about BMR inventory, production, affordability, turnover, and preservation can still provide useful input when the City evaluates housing needs and future policy choices. Interviews did not identify a formal feedback process that specifically evaluates BMR program results and then determines whether individual policy tools should change. The relationship is better understood as: policy establishes requirements and tools; development activity produces affordable units; the City formalizes unit requirements; Alta administers qualifying units; and broader reporting and program information can inform future housing policy decisions. REPORTING & DATA City reports housing production and affordability information through the RHNA/Housing Element annual reporting framework and maintains related > POLICY CREATION BMR inventory, production, affordability, turnover, and preservation information can help inform future housing planning and policy decisions. > GOALS Increase housing supply; expand options across income levels; preserve existing affordable housing; promote equal housing opportunity; and support inclusive communities. Broader Housing Policy Context The BMR program represents one component of the City’s broader affordable housing strategy. The Comprehensive Plan and Housing Element establish broader housing goals and planning responsibilities, while City code and related development policies establish affordable housing requirements that are applied through individual development review. Affordable housing remains a significant regional need, and demand for affordable opportunities continues to exceed supply. The comparison below places the current BMR inventory within the City’s broader housing planning context. TABLE 1. BMR WITHIN BROADER HOUSING POLICY CONTEXT Comparison Measure RHNA or Housing Stock Total Current BMR Units Current BMR Units as a Share of Total Total 2023–2031 RHNA allocation 6,086 541 8.9% Lower- and moderate-income 2023–2031 RHNA allocation 3,465 541 15.6% 2020 total housing stock 29,298 541 1.8% 2020 occupied housing units 26,150 541 2.1% The BMR inventory shown above is therefore an output of broader policy and development activity rather than a direct measure of Alta Housing’s performance. Once units enter ongoing administration, the BMR program helps manage eligibility, sales, compliance, and long-term affordability requirements. 8 BACKGROUND, SCOPE, AND METHODOLOGY Ownership unit production has been uneven. The City has created a substantial number of BMR units over time, with 247 active ownership BMR units. However, production has been uneven and closely tied to development cycles. Ownership unit production peaked in earlier decades and experienced a complete pause during the 2010s, with modest increases resuming in recent years. Table 2 summarizes unit production by decade. TABLE 2. OWNERSHIP UNIT PRODUCTION TRENDS Decade Units Added Notable Properties / Notes 1970s (1974–1979) 43 Earliest cohort; Greenhouse I & II, Villa San Alma, Ponce Drive. Oldest units in portfolio. 1980s (1980–1989) 89 Peak production decade. Birch Court, Palo Alto Redwoods, Loma Verde, Barron Square, Abitare, Channing Place. 1990s (1990–1999) 26 Sharp decline from 1980s pace. Promenade, Jacobs Court, Loma Verde Townhomes; isolated scattered additions. 2000s (2000–2009) 74 Recovery era. 800 High Street, Echelon, Vantage, Arbor Real drove significant volume. 2010s (2010–2019) 0 Zero new ownership BMR units placed in the program. Represents a 10- year production gap. 2020s (2020–2025) 15 Gradual resumption. Villa San Alma, 28Fifty/Josephine Lane, Woodcrest, Caminian. Historical production trends provide context for the units available for ongoing BMR administration. They should not be interpreted as a direct measure of the BMR program’s day-to-day administration because the timing and volume of new units depend on broader City policy, development activity, and project-specific decisions. Scope and Methodology Our review scope focuses on evaluating the effectiveness of the BMR program in delivering affordable housing and services to eligible households and assessing the adequacy of internal controls to prevent fraud, waste, and abuse. This performance audit was conducted between October 2025 and August 2026 and consisted of four major phases, described on the following page. 9 BACKGROUND, SCOPE, AND METHODOLOGY PROJECT METHODOLOGY Project Phase Description 1. Startup and Management Phase 1 involved collaborative project planning with City management, including identifying interviewees, selecting documents for review, establishing timing and methods for sharing results, and defining reporting protocols. We held a kickoff meeting with designated City leadership to confirm expectations and discuss the overall project scope, logistics, deliverables, schedule, and progress reporting requirements. Roles and responsibilities of the audit team and City personnel were clarified. Throughout the engagement, we performed project management, including regular status updates and quality assurance reviews to ensure all deliverables met professional standards before submission. 2. Fact-Finding The second phase focused on executing planned activities such as interviews, document review, best practices research, and peer comparisons. We gathered current information and insights from City leadership and staff involved in BMR administration. Documentation Review: We requested relevant documentation, including but not limited to policies and procedures, program reports, housing inventory, applicant and waitlist information, budget, contractor information, and performance metrics. Interviews: We conducted interviews with staff from the City and Alta Housing to identify strengths, challenges, and opportunities for improvement in BMR management and administration. Based on the information collected during fact-finding, we developed End of Planning findings assessing BMR-related activities. These findings identified strengths and opportunities for improvement, providing a foundation for further analysis and recommendations. 3. Analysis Best Practices: We researched best practices related to management and administration of below market and affordable housing programs, including creation and retention of units, service delivery, and vendor management. We assessed the City’s alignment with best practices. Peer Benchmarking: In peer interviews, we compared the City’s BMR management to peers and identified strengths and challenges. The following peers were included in this analysis: ● City of Sunnyvale (Sunnyvale) ● Rise Housing Solutions (Rise) ● City of Mountain View (Mountain View) ● City of Menlo Park (Menlo Park) ● Bay Area Affordable Homeownership Alliance (BAAHA) ● City of San Mateo (San Mateo) 4. Reporting We communicated the results of our analysis, with findings and recommendations presented first in a draft report that was reviewed with City management to confirm the practicality and relevance of recommendations before finalizing the report. 10 BACKGROUND, SCOPE, AND METHODOLOGY Compliance Statement This audit activity was conducted from October 2025 to August 2026 in accordance with generally accepted government auditing standards, except for the requirement of an external peer review.2 Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings, observations, and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings, observations, and conclusions based on our audit objectives. Organizational Strengths During this audit activity, we noted the professionalism and responsiveness of the Planning and Development Services Department. We appreciated their participation in interviews, their provision of documentation, and their responses to follow-up requests. We would also like to thank Alta Housing for their participation and assistance in providing information and procedural walkthroughs. The OCA appreciates the support of the Planning and Development Services Department in conducting this audit activity. Thank you! 2 Government auditing standards require an external peer review at least once every three (3) years. The last peer review of the Palo Alto Office of the City Auditor was conducted in 2017. The Palo Alto City Council approved a contract with Baker Tilly U.S, LLP for internal audit services for October 2020 through June 2022 with an extension through June 2025. City Council appointed Kate Murdock, Audit Manager in Baker Tilly’s Risk Advisory practice, as City Auditor in May 2024. As a result of transitions in the Audit Office and peer review delays due to the COVID pandemic, an external peer review is targeted for 2026. It should be noted that Baker Tilly’s most recent firmwide peer review was completed in November 2024 with a rating of “Pass”. The scope of that peer review includes projects completed under government auditing standards. 11 II. Findings and Recommendations Finding 1: The BMR Program Administers, Rather than Creates, BMR Units Through Broader City Housing Policies. Through This Role, the Program Has Visibility into Factors That May Affect Continued Affordability and Long-Term Retention. The audit objective asked whether the BMR Housing Program maximizes the creation and retention of affordable housing stock. As described in the Background section, these are distinct functions. The BMR program does not independently control how much housing is produced; housing production results from broader City policy, development requirements, and development activity. The Program’s more direct role begins after qualifying units are created, when the City and Alta Housing administer eligibility, sales, compliance, resale restrictions, and other long-term affordability requirements. The audit therefore evaluated creation primarily as policy and process context, while focusing the finding on practical affordability and the City’s ability to retain BMR ownership units over time. HOA costs and special assessments may create practical affordability and retention pressures for some BMR homeowners. BMR ownership units are priced to meet established affordability requirements. Regular homeowner association (HOA) dues are considered when the City calculates maximum affordable sales prices, which helps account for recurring ownership costs at the time of purchase. Interviews nevertheless identified HOA-related costs as a potential pressure after purchase. Regular HOA dues can change over time, and significant special assessments for major building repairs or other common-area needs can create costs that were not anticipated when a household purchased the unit. These expenses are not controlled by the BMR program, but they may affect a household’s ability to remain in the unit or maintain it over the long term. The City has some existing resources that may assist homeowners with HOA assessments in certain circumstances, but interviews did not identify a consolidated approach for tracking HOA dues, special assessments, or major maintenance pressures across the ownership portfolio. Peer interviews also did not identify a common HOA-specific assistance model; peer support was generally broader, such as homeownership counseling, foreclosure prevention, legal assistance, and financial-risk monitoring. As the BMR ownership portfolio ages, understanding HOA and maintenance pressures can help the City identify whether additional preservation tools are warranted. BMR Stock Faces Future Retention Risk The long-term ability of the BMR program to meet community needs also depends on maintaining the availability and usability of existing units over time. Analysis of the City’s portfolio shows that the ownership stock is aging, with a portion of units approaching key points in their affordability lifecycle. The active ownership BMR units span entry dates from 1974 through 2025. Under the 59-year deed restriction, no units have expired as of April 2026. Although the time periods for deed restrictions generally renew each time a property is transferred, it is possible that some of the earliest properties – if they have remained with the 12 FINDINGS AND RECOMMENDATIONS original BMR owners – could have restrictions expiring in 2033, providing a planning horizon for City intervention. Table 2 summarizes the ownership portfolio by age band. TABLE 2. OWNERSHIP UNIT PRODUCTION TRENDS Decade Units Added Notable Properties / Notes 1970s (1974–1979) 43 Earliest cohort; Greenhouse I & II, Villa San Alma, Ponce Drive. Oldest units in portfolio. 1980s (1980–1989) 89 Peak production decade. Birch Court, Palo Alto Redwoods, Loma Verde, Barron Square, Abitare, Channing Place. 1990s (1990–1999) 26 Sharp decline from 1980s pace. Promenade, Jacobs Court, Loma Verde Townhomes; isolated scattered additions. 2000s (2000–2009) 74 Recovery era. 800 High Street, Echelon, Vantage, Arbor Real drove significant volume. 2010s (2010–2019) 0 Zero new ownership BMR units placed in the program. Represents a 10- year production gap. 2020s (2020–2025) 15 Gradual resumption. Villa San Alma, 28Fifty/Josephine Lane, Woodcrest, Caminian. Data provided by Alta Housing. Appendix A: Ownership Unit Age Distribution and Projected . The age distribution shows that a meaningful portion of the ownership portfolio is concentrated in older cohorts. Based on current cohort data, 43 ownership units are more than 45 years into their affordability lifecycle, and another 115 units are between approximately 27 and 45 years into their affordability lifecycle. This does not mean these units are immediately at risk of leaving the program, but it does show the importance of monitoring upcoming restriction end dates, unit condition, financing constraints, and other factors that could affect long-term affordability. At the same time, historical production patterns, including the absence of new ownership units during the 2010s, mean that there is no corresponding replacement cohort to offset potential future losses in the near term. This makes long-term preservation planning especially important because future unit expirations could reduce the City’s affordable ownership stock unless the City renews, replaces, or otherwise preserves those units. This emphasis is consistent with leading affordable housing preservation and shared-equity homeownership guidance. Local Housing Solutions, a local housing policy platform with tools for cities, recommends that jurisdictions maintain preservation inventories that include information such as property age, number of units, physical condition, and affordability expiration dates 3. Grounded Solutions Network’s inclusionary housing 3 https://www.localhousingsolutions.org/housing-policy-library/preservation-inventories 13 FINDINGS AND RECOMMENDATIONS guidance similarly emphasizes that legal documents alone are not sufficient to preserve affordability over the long term; proactive stewardship, ongoing monitoring, and homeowner support through connection to third parties are also important 4. National Housing Conference guidance on shared-equity homeownership also notes that resale restrictions require ongoing supervision and that home improvement support may be needed to maintain permanently affordable housing stock 5. These practices reinforce that meeting community needs is not only a matter of creating units. It also requires the City to understand whether existing units remain affordable, usable, financeable, and likely to remain in the portfolio over time. RECOMMENDATION Recommendation 1: We recommend the City strengthen its approach to preserving BMR ownership units by monitoring emerging affordability and condition risks and evaluating practical options to address HOA-related costs that may threaten long-term retention. We also recommend the City: • Establish a structured process for ongoing coordination with Alta Housing to capture and report information related to unit retention, turnover, and emerging risks to affordability. • Evaluate whether existing assistance, including the City loan program that may support HOA assessments in some circumstances, is sufficient and clearly communicated to BMR homeowners. • Explore feasible additional approaches for significant HOA or maintenance-related costs, such as financing or repayment assistance, targeted preservation or repair support, and referrals to financial, legal, or homeownership counseling resources. Consider legal authority, cost, staff capacity, and the absence of a single common peer model when evaluating options. • Continue monitoring affordability restriction terms, unit condition, and other portfolio risks that could affect long-term retention, and use this information to support future preservation planning. 4 https://inclusionaryhousing.org/designing-a-policy/affordability-preservation/the-need-for-stewardship 5 https://nhc.org/policy-guide/shared-equity-homeownership-the-basics/implementing-shared-equity Management Response Responsible Department(s): Concurrence: Agree Target Date: Q3, FY 2027 Action Plan: Department staff and Alta Housing have established monthly coordination meetings to ensure alignment on program objectives, enhance communication, troubleshoot challenges, share program data and trends, clarify roles/responsibilities, and discuss policy and procedural development. During a recent coordination meeting, Alta Housing trained Department staff on its Salesforce system, which serves as a centralized platform to support administering components of the BMR program, including waitlist management, applicant intake and eligibility review and access to recorded documents/household information. The system is expected to 14 FINDINGS AND RECOMMENDATIONS Finding 2: Program Administration Is Consistent, but Performance Monitoring Can Be Strengthened Overall, the City and Alta Housing have established a workable administrative structure and several practices that are consistent with peers. The main opportunity is to build on this foundation by making expectations, data summaries, and performance metrics more consistent and useful for decision-making. Program Administration Is Consistent PROGRAM MANAGEMENT Palo Alto’s program management framework reflects many elements of standard practice. Effective administration of a BMR housing program in a model that relies on a contracted administrator requires clear roles and responsibilities, structured communication, and sufficient City oversight to ensure that program activities align with policy goals and regulatory requirements. Best practices emphasize regular coordination, defined expectations, and visibility into administrator activities and data. Palo Alto administers its BMR program through a contracted model with Alta Housing, with the City responsible for program management direction, approvals, and overall program oversight. Interviews indicated that the City and Alta maintain a collaborative working relationship, and recent efforts have focused on strengthening coordination through more regular meetings, policy and procedure review, and clarification of roles and expectations. However, historically, oversight has relied more heavily on informal communication and issue-based coordination rather than structured and consistently applied management practices. For example, recurring program and unit affordability requirements, and improve response times for internal and external BMR program inquiries. Department staff continue to engage regularly with Alta Housing regarding programmatic concerns, including the effect of HOA fees and special assessments on BMR homeowners. Staff are evaluating whether existing resources, including applicable City loan programs, could help address financial hardship associated with these costs. Staff are also connecting eligible BMR homeowners with Rebuilding Together Peninsula’s CDBG-funded home rehabilitation and repair program, which may provide qualifying homeowners with no-cost home repair services. Department staff concur that structured coordination with Alta Housing benefits various aspects of the BMR program, including data collection and analysis, participant customer service, communication, problem-solving, and understanding of affordability terms. Department staff and Alta Housing will continue strengthening ongoing coordination. 15 FINDINGS AND RECOMMENDATIONS meetings were not previously standard, and oversight activities such as file review, performance evaluation, and expectations for reporting have only recently begun to be more clearly defined. Peer benchmarking indicates that while Palo Alto’s use of a contracted administrator is common, jurisdictions with stronger oversight models tend to implement more structured and proactive management practices. Peers such as Mountain View and Rise Housing Solutions emphasize recurring communication and active collaboration as key components of effective oversight. TABLE 3. PEER APPROACHES TO MANAGING PROGRAM ADMINISTRATORS Practice Palo Alto Cupertino (Rise Housing Solutions ) Mountain View Menlo Park Pacifica (BAAHA) Administrator Alta Housing Rise Housing Solutions HouseKeys Housing Inc. BAAHA Communication Cadence Historically ad hoc; moving to regular meetings Weekly standing calls Weekly meetings Biweekly check-ins + ad hoc Ongoing informal communication City Oversight Approach Contract oversight, policy review, approvals Defined roles, regular reporting, and invoicing Hands-on oversight, direct involvement, active management Collaborative program management with final City approval Advisory model with independent administrative role Access to Administrator Data No shared system; separate records City does not have access to the administrator’s system; Rise pushes reports to City management City has access to administrator system and internal tracking Partial system access Not specified Reporting Structure Quarterly reports and invoices Regular reporting tied to service model City pulls data directly; supplemental reporting Limited formal reporting; exploring expansion Not specified Note: Table 3 includes only jurisdictions that use a contracted BMR program administrator (Palo Alto, Cupertino via Rise Housing Solutions, Mountain View, Menlo Park, and Pacifica via BAAHA); fully in-house programs (Sunnyvale and San Mateo) are excluded because administrator management practices are not applicable. Palo Alto also demonstrates strengths in areas such as reporting and financial oversight. The City receives regular reports and invoices from Alta Housing and maintains clear approval authority over key program elements such as pricing and rents. Compared to some peers, where reporting is limited or still evolving, Palo Alto’s existing structure provides a solid foundation for transparency and accountability. While shared data systems vary widely across jurisdictions, Palo Alto’s approach of maintaining City-side records alongside administrator-managed systems is not uncommon. Several peers also operate with separate systems and rely on reporting or data sharing rather than full system integration. However, where feasible and 16 FINDINGS AND RECOMMENDATIONS consistent with data privacy and legal constraints, establishing shared or more direct access to administrator data systems could further enhance transparency, improve real-time visibility into program activity, and strengthen the City’s ability to monitor performance and address issues proactively. Overall, Palo Alto’s program management framework reflects many elements of standard practice but has opportunities to continue building on this foundation by further formalizing oversight practices and ensuring that management activities are applied consistently over time. These management practices provide the context for the more specific oversight areas discussed below, including the Alta contract, quarterly reporting, financial and structural controls, eligibility review, occupancy verification, and waitlist management. VENDOR OVERSIGHT Alta’s quarterly invoice and report provide a useful oversight foundation, but the reporting is primarily activity-based rather than performance-based. As part of this report, we reviewed the City’s current contract with Alta Housing, including the publicly available Approval of Professional Services Contract Number C25193814, Contract Exhibit A: Scope of Services, and Contract Exhibit B: Schedule of Performance, which is publicly available. The City’s contract with Alta Housing provides a clear foundation for vendor oversight by identifying Alta’s responsibilities across program outreach, ownership and rental program administration, compliance monitoring, and coordination with City staff. However, the contract primarily defines tasks and responsibilities. It does not require outcome-based performance metrics, which limits the City’s ability to evaluate vendor performance beyond task completion and general contract compliance. This distinction is discussed further in the performance metrics section below. Quarterly invoices and activity reports support invoice review, contract monitoring, and follow-up on open issues. The City receives a quarterly invoice and report from Alta Housing. The invoice identifies the reporting period, total amount due, staff roles billed, hours, and hourly rates, including BMR Administrator, BMR Manager, Alta COO, and Alta CEO time. The accompanying report provides activity-level detail on BMR sales, sales in process, upcoming sales, waitlist updates, inquiries and open issues, office visits, rental BMR activity, initial certifications and recertifications, workshops, and issues requiring future City input. For example, one report identified six homes in various stages of the sales process, a waiting list update resulting in 274 households on the list, 45 BMR-related office visits, rental certification and recertification activity, and an affordability issue requiring future City input. This reporting structure provides a strong foundation for vendor oversight. It gives the City regular visibility into services performed, supports review of billed hours and rates, and documents program activity that can be compared to Alta’s contractual responsibilities. This is different from a performance management dashboard; the quarterly report’s primary control value is that it supports invoice review, contract compliance monitoring, and follow-up on open issues. 17 FINDINGS AND RECOMMENDATIONS The City’s current quarterly invoice and report review process provides a strong foundation for vendor oversight and should continue as currently designed unless City staff identify concerns with invoice accuracy, contract compliance, or reported program activity. To further strengthen documentation of this existing control, the City could make its review process more explicit by documenting how staff compare reported activities to contract requirements and how follow-up items are tracked before payment approval. SYSTEMS AND CONTROLS The City’s BMR financial and structural controls appear reasonable, but the City does not maintain a formal complaint history to document any fraud, waste, abuse, conflict-of- interest, or other program integrity concerns over time. The BMR program appears to have strong controls over higher-risk financial activity. Alta does not generally handle participant payments or deposits, and major payments to Alta are processed through the City’s contract and invoice review process. This structure reduces financial control risk because Alta’s role is primarily administrative rather than custodial. In addition, Alta’s limited role in rental waitlist management reduces conflict- of-interest risk because property managers, rather than Alta, maintain rental waitlists and refer applicants for eligibility review. However, the City does not maintain a formal history or tracker of complaints related to fraud, waste, abuse, conflicts of interest, or other BMR program concerns. Interviews suggested that there was not a history of significant complaints or known control issues, but the absence of a formal record means the City has limited documentation to demonstrate that concerns were tracked, reviewed, and resolved over time. Overall, the City’s financial and structural controls appear reasonable, and no fraud, waste, abuse, or conflict-of- interest concerns were identified. The primary opportunity is to make complaint tracking more formal so the City can consistently document if and when concerns are received, reviewed, and resolved. ELIGIBILITY AND APPLICATION PROCESS Alta appears to administer eligibility decisions and certifications consistently at the transaction level, but the City has limited summarized information to assess trends in appeals, complaints, denial reasons, or applicant experience across the BMR program. Program eligibility and application processes should be clear, consistent, and documented so the City can confirm that affordable housing opportunities are provided fairly and in accordance with each property’s regulatory agreement and applicable program rules. Because BMR and inclusionary housing programs are locally administered, eligibility requirements often vary by jurisdiction, property, and affordability agreement. As a result, clear procedures, documentation, and reporting are important controls for ensuring that applicants are evaluated consistently and that the City can monitor whether the program is operating as intended. Alta Housing conducts applicant eligibility review and maintains certification records in its own database, including initial and ongoing certifications. The City does not approve individual eligibility decisions made by Alta. For ownership units, the City reviews and approves ownership document packages for completion during 18 FINDINGS AND RECOMMENDATIONS the sales process, including documents such as the deed, promissory note, and owner/occupancy agreement. These documents are reviewed by the City Attorney, Planning and Development Services Director, and signed by the City Manager or designee. The City also indicated that it began filing ownership sales documents annually in late 2025, which may improve tracking of completed ownership sales going forward. The City does not maintain a separate complaint resolution tracker. Interviews also indicated that appeals are not tracked in SpokeHS. Approvals and denials are tracked; however, denials are not differentiated by reason in the system. As a result, while Alta appears to administer eligibility decisions and certifications consistently at the transaction level, the City has limited summarized information to assess trends in appeals, complaints, denial reasons, or applicant experience across the program. Occupancy tracking is another core administrative control. Unlike eligibility trend reporting, the City’s baseline occupancy verification practices are generally aligned with peers, although the City could still strengthen how monitoring and enforcement information is documented and summarized. OCCUPANCY TRACKING The City’s current occupancy verification practices align with peer practices for ensuring that BMR units are occupied by eligible households. The City, through Alta Housing, conducts annual occupancy verification processes. For ownership units, this includes annual primary-residence certification using documentation such as utility bills and property tax records. For rental units, compliance is generally verified annually based on the requirements outlined in each property’s regulatory agreement. These processes establish a baseline level of oversight to confirm that units are occupied by approved households. Annual Occupancy Verification: Across peer jurisdictions, annual occupancy verification is a standard practice. Most programs conduct annual owner-occupancy certification for ownership units and annual income recertification for rental units where required by regulatory agreements. Some peers supplement this with additional approaches, such as random sampling, public records review, or follow-up verification when concerns arise. Overall, Palo Alto’s reliance on annual certification processes is consistent with peer practice, indicating that the City’s foundational approach to occupancy verification aligns with industry norms. Subleasing Monitoring: Peer jurisdictions generally monitor unauthorized subleasing through a combination of annual certification processes, documentation review, complaints, public records, and property manager input. Compared to peers, Palo Alto’s approach appears more limited and primarily reactive, particularly for ownership units, where monitoring is not actively conducted and issues are typically identified through incidental triggers such as complaints or document review flags. While this approach is not uncommon, it may be less likely to detect misuse in the absence of external reporting or clear indicators. Review and Enforcement: Peers’ reviews are most commonly triggered by annual compliance processes, irregularities in submitted documentation, complaints, or external indicators such as public listings or property manager concerns. Palo Alto follows a similar trigger-based approach, relying on annual certification and issue- based follow-up. This is consistent with peer practice, although some jurisdictions incorporate a broader range of triggers—such as systematic review of listings or public records—which may enhance early detection of potential violations. 19 FINDINGS AND RECOMMENDATIONS Enforcement responses vary across jurisdictions but generally include structured escalation steps such as out- of-compliance notices, cure periods, and, in more serious cases, investigation or legal action. In Palo Alto, rental unit issues are typically referred to property management. For ownership units, Alta sends annual logs or reports to the City summarizing enforcement actions identified, reviewed, and resolved during the prior 12 months, with City coordination when required. Peer practices confirm that clearer and more formalized enforcement pathways can improve consistency and strengthen program integrity. Overall, Palo Alto’s occupancy verification practices align with industry norms in conducting annual certification processes. However, compared to peer jurisdictions, the City’s approach to subleasing monitoring may be more reactive and less formalized. While the City meets peer standards, there is an opportunity to strengthen consistency and effectiveness by adopting more structured monitoring practices observed in stronger peer models, if that is a priority. WAITLIST MANAGEMENT Palo Alto currently maintains a central waitlist for ownership units, while rental units use property-specific waitlists, with lotteries run by the property managers. Publicly available waitlist tools are straightforward, useful, and transparent. An effective BMR waitlist process should support fair, transparent, and timely access to affordable housing opportunities. Waitlists and applicant pools should be structured so applicants understand how they enter the process, how they are prioritized or selected, and how they remain eligible for future opportunities. Because household income, household size, housing need, and interest can change over time, waitlists should also be maintained in a way that keeps applicant information current and reduces reliance on outdated applicant pools. We found that publicly available waitlist tools and information maintained by the City were straightforward, useful, and transparent. As shown in Table 4, peers use a mix of traditional ownership waitlists, continuous applicant pools, annual renewal models, property-specific rental lists, and unit-by-unit lotteries. Palo Alto’s split model—a City- administered ownership waitlist and property-managed rental waitlists—is not unusual, although it may spread responsibilities across different parties and systems. Several peers have moved away from traditional static waitlists where possible, especially for rental units, because long-running waitlists can become difficult to maintain, may include households whose circumstances have changed, and can create fairness concerns for new applicants who have limited opportunity to enter the system. 20 FINDINGS AND RECOMMENDATIONS TABLE 4. PEER APPROACHES TO WAITLIST MANAGEMENT Waitlist Element Palo Alto Sunnyvale Rise Housing Solutions * Mountain View Menlo Park BAAHA** San Mateo Ownership waitlist? Yes No Yes Yes Yes No Yes How are ownership units managed? City- administered ownership waitlist with live/work preference and ranking. The list was reopened after being closed for several years. No traditional waitlist. Ownership applications are maintained centrally on an ongoing, first-come, first-served basis. Waitlist opens each October for one month. Applicants renew annually, and existing lottery positions are honored within preference point categories. When a unit becomes available, applicants may opt into the opportunity drawing. Ownership uses a traditional chronological waitlist that was frozen in 2021 and is now reviewed annually. No traditional static waitlist. BAAHA maintains an active database and conducts a new lottery each time a BMR unit is offered. City maintains a first-in, first- out ownership waitlist tied to household size and City eligibility verification. Rental waitlist? Yes Yes Yes Yes Yes and No No No How are rental units managed? Rental units use property- specific waitlists, with lotteries run by the property managers. Rental units use property- specific waitlists maintained by each property. Same waitlist structure applies, depending on jurisdiction and offering. Same account and opportunity drawing process as ownership units. No standing waitlist for inclusionary rentals, which use a notification list and a new lottery for each vacancy. For 100% affordable projects, the developer maintains a waitlist. No traditional static waitlist. BAAHA maintains an active database and conducts a new lottery each time a BMR unit is offered. No standing rental waitlist. Lotteries are run for new and vacant inclusionary units. * Rise Housing Solutions administers and monitors the Below Market Rate (BMR) Housing Programs for the cities of Cupertino, Novato, Alameda, and San Leandro. ** BAAHA reports serving multiple locations, including Pacifica and East Palo Alto. As shown in Table 5, peers commonly use annual renewals, continuously open account-based systems, or unit- specific re-entry processes to keep applicant pools current. Palo Alto historically updated its ownership waitlist annually, but that practice stopped because it was administratively burdensome. More recently, the City reopened and refreshed the ownership waitlist, which is consistent with peer practices emphasizing periodic maintenance. For rental units, however, list maintenance is handled by property managers rather than Alta or the City. This is driven by regulatory agreements, which state that the developer, owner, or property manager will select tenants and maintain waiting lists for affordable units. While this approach is consistent with the BMR program’s management structure, it limits the City’s insight into rental trends that affect its applicants. 21 FINDINGS AND RECOMMENDATIONS TABLE 5. PEER APPROACHES TO WAITLIST CURRENCY Peer How waitlists or applicant pools are kept current Palo Alto Historically, the ownership waitlist was updated annually, but that practice stopped because it was administratively burdensome. More recently, the City reopened and refreshed the ownership waitlist. Rental waitlist maintenance is handled by property managers rather than Alta. An annual update request is sent to households on the ownership unit waiting list to ensure continued interest and up-to-date information. Sunnyvale Rental properties conduct annual eligibility review/recertification for applicants on their lists. Ownership applications are maintained centrally on an ongoing basis rather than through a traditional waitlist. Rise Housing Solutions Annual renewal, workshops, and marketing pushes help keep the list active and current. Mountain View The system remains open continuously, allowing applicants to join at any time. Mountain View also tracks how long it takes from account creation to obtaining a BMR unit. Menlo Park Ownership waitlist is reviewed annually to confirm continued eligibility and interest. Rental vacancies are handled through individual lotteries rather than a standing list. BAAHA / Pacifica Applicant pool is kept current by inviting households to apply at the time of each offering rather than relying on older waitlist positions. San Mateo Doorway functions as the active entry point for rental opportunities. Ownership waitlist is maintained through ongoing administration of for-sale opportunities. Peer practices also highlight several tools that can improve fairness and usability, including transparent lotteries, live/work preferences, annual renewal requirements, software-enabled applicant visibility, and outreach to broaden participation. Palo Alto already uses some of these practices, including a live/work preference and a visible ownership ranking structure. The primary opportunity is not to replace the City’s current approach, but to ensure that both ownership and rental waitlist processes are maintained consistently, remain current, and provide the City with enough visibility to assess whether applicants are being served fairly and efficiently. RECOMMENDATIONS The City should continue building on its current oversight foundation by formalizing coordination with Alta Housing, documenting key control activities, and obtaining periodic summaries that help City staff identify trends and follow-up needs. Recommendation 1: Palo Alto has opportunities to continue building on its current oversight of Alta Housing by formalizing coordination, clarifying expectations, and enhancing data visibility. • Continue implementing a consistent monthly meeting cadence with Alta Housing to support ongoing coordination and timely issue resolution. • Continue refining and documenting roles and responsibilities for both the City and Alta Housing, ensuring alignment with the contract and consistent application in practice. 22 FINDINGS AND RECOMMENDATIONS • Evaluate opportunities to establish shared access to administrator-managed data systems, where feasible and legally permissible, to improve transparency and support more effective oversight. Recommendation 2: The City should continue the quarterly invoice and report review process, with clearer documentation of follow-up. The City should continue its current quarterly invoice and report review process unless staff identify concerns with invoice accuracy, contract compliance, or reported program activity. Recommendation 3: The City should maintain a simple formal complaint history for the BMR program to document any allegations or concerns related to fraud, waste, abuse, conflicts of interest, or other program integrity issues. • Record the date, source, general issue type, responsible reviewer, resolution status, and outcome of each complaint or concern. • Include complaints received by the City, Alta, or other parties when they relate to BMR program integrity. • Review the complaint history periodically to identify any recurring issues or control concerns. Recommendation 4: The City should use periodic eligibility and applicant-experience summaries to improve City visibility. A simple periodic summary from Alta on eligibility and applicant experience trends could improve visibility without duplicating Alta’s database or creating a burdensome new process. • Continue to define the information Alta should summarize, such as approvals, denials, denial reasons, appeal requests, complaint themes, and resolution status. Build on information already captured in reports, such as denials due to over-income status. • Establish a reasonable reporting frequency, such as quarterly or annually, aligned with existing Alta reporting. • Assign City responsibility for reviewing the summary and following up on patterns, recurring issues, or items that may require policy or process clarification. Recommendation 5: The City should strengthen waitlist management to improve visibility into rental waitlist practices. The City should continue using its current waitlist approach while strengthening expectations for keeping waitlists current and improving visibility into rental waitlist practices. • City management should determine an appropriate schedule for refreshing or confirming the ownership waitlist, communicate that expectation to Alta, and document the schedule and process. • Work with Alta and property managers to define minimum expectations for rental waitlists and lotteries, including how lists are maintained, how households are selected, what documentation should be retained, and what information should be shared with Alta or the City when filling a BMR rental unit. 23 FINDINGS AND RECOMMENDATIONS • If the City experiences ongoing limitations in rental waitlist visibility or identifies inconsistencies across properties, it should consider whether a longer-term system change, such as a centralized rental applicant portal or lottery process, would improve transparency and consistency. Regulatory agreements state that the developer, owner, or property manager will maintain waiting lists for affordable units, so this recommendation depends on their cooperation and Alta’s capacity to aggregate such information. Management Response Responsible Department(s): Concurrence: Agree Target Date: Q3, FY 2027 Action Plan: Department staff strongly support continuing to work closely with Alta Housing to clarify roles and assess how to improve systems (i.e. waiting list management). Recommendation 1: Department staff and Alta Housing have established monthly coordination meetings to discuss program administration and to clarify roles/responsibilities. Through this process, Alta Housing has started training Department staff on its Salesforce system, which is used to support administration of the BMR program. Recommendation 2: Department staff will continue to review Alta Housing’s quarterly invoices and program reports and follow-up when concerns are identified regarding invoice accuracy, contractual requirements, or reported program activity. Recommendation 3: Department staff will work with Alta Housing to formalize a complaint/grievance history record for allegations or concerns involving fraud, waste, abuse or other BMR program-integrity matters. Currently, the City does coordinate with Alta Housing on programmatic concerns/complaints — but can use the Salesforce system to better track/organize the information. Recommendation 4: Department staff will work with Alta Housing to develop periodic eligibility and applicant-experience summaries using information already maintained through program administration. The summaries may include approvals, denials and denial reasons, appeals, complaint trends, and resolution status. Staff will establish a reporting frequency aligned with existing Alta Housing reporting. Recommendation 5: Department staff will work with Alta Housing to document appropriate schedule, process for refreshing or confirming the ownership waitlist. As a current practice, the City reaches out to all households on the ownership waitlist annually to update participant information and to confirm continued interest in the program. For rental units, staff will coordinate with Alta Housing and property managers to establish minimum expectations for waitlist and lottery administration, including record 24 FINDINGS AND RECOMMENDATIONS Performance Monitoring Can Be Strengthened PEER PERFORMANCE METRICS While performance tracking varies across peers, several peers track broader and more structured metrics that support oversight. Best practices in effective program management require a defined set of performance metrics that allow the City to monitor outcomes, assess administrator performance, and identify emerging risks. HUD’s Public Housing Assessment System guidance describes performance measurement as a management tool for evaluating essential housing operations, and HUD’s public housing dashboard tracks indicators such as occupancy trends, eligibility information, funding, and assessment scores 6. Currently, Palo Alto’s BMR program has limited formal performance metrics. The City receives quarterly reports and invoices from Alta Housing, but both City and Alta staff indicated that higher-level, decision-useful metrics are not consistently defined or tracked. Key information such as turnover rates, time to fill units, waitlist outcomes, and certain compliance or violation trends are not systematically tracked or reported. In some cases, data exists within systems or files but is not compiled into usable metrics, while in other cases, information (e.g., appeals, violations) is not consistently recorded in a centralized manner. Peer benchmarking shows that while performance tracking varies across jurisdictions, several peers track a broader and more structured set of metrics to support program oversight. It is important to note that OCA was unable to compare staffing levels and/or models across benchmarked BMR programs. There was significant variability with regards to internal versus contract staffing and program staff having other responsibilities beyond BMR program support. 6 U.S. Department of Housing and Urban Development. PHAS Indicator Calculations Worksheet Instructions. HUD Exchange. Accessed April 27, 2026. https://files.hudexchange.info/resources/documents/PHA-Indicator-Calculations-Worksheet-Instructions.pdf implementation will require their cooperation. 25 FINDINGS AND RECOMMENDATIONS TABLE 6. PEER APPROACHES TO PERFORMANCE METRICS Metric Category Palo Alto Sunnyvale Rise Housing Solutions Mountain View Menlo Park BAAHA San Mateo Compliance / Recertification KPIs (e.g., % completed, timeliness) No formal KPIs tracked Tracks compliance through audits (limited KPI structure) Tracks portfolio activity; limited formal KPI structure Tracks compliance activity; some structured metrics No formal KPIs Tracks compliance status (household- level) Tracks compliance through monitoring (limited KPI structure) Vacancy / Turnover KPIs (e.g., time-to-fill, vacancy duration) Not tracked Not tracked Tracks turnover volume (not time-to-fill KPI) Tracks vacancy activity (not formal KPI targets) Not tracked Not tracked Tracks days to close (ownership only) Waitlist / Applicant KPIs (e.g., applicants per unit, time to placement) Limited tracking Tracks applications centrally (limited KPIs) Tracks waitlist activity in system Tracks applicant activity, timelines, and drawing metrics Limited tracking Maintains active pool (no formal KPIs) Tracks inquiries (limited KPIs) Customer Service / Outreach KPIs Not tracked Not specified Not specified Tracks inquiries, outreach participation, and engagement metrics Not tracked Not specified Not specified Portfolio Risk KPIs (e.g., foreclosure, default risk, affordability stress) Not systematically tracked Tracks financial warning indicators Tracks foreclosures and portfolio risks Tracks tenancy patterns and demand indicators Exploring risk tracking Tracks compliance risks Tracks loan and affordability status Formal KPI Reporting Structure Limited to quarterly reports (not KPI-driven) Internal monitoring Structured reporting tied to service model City-driven dashboards and reporting Limited formal reporting Not specified Internal tracking systems Note: The table reflects whether formal KPIs are tracked, not whether underlying activities (e.g., compliance, recertification) are performed. All peers perform core functions such as compliance monitoring, recertification, and unit placement; however, few jurisdictions track these activities using consistent, program-level performance metrics. Palo Alto is consistent with peers in this regard. No peer jurisdiction was identified as maintaining a comprehensive, fully developed KPI framework across all categories. While no single peer tracks all possible metrics, stronger programs tend to track at least a core set of indicators, including metrics related to compliance, vacancy or turnover activity, applicant demand, and emerging risks. These metrics provide the foundation for understanding whether the program is operating effectively and where adjustments may be needed. 26 FINDINGS AND RECOMMENDATIONS Palo Alto’s limited KPI framework reduces visibility into program performance and may constrain the City’s ability to: • Evaluate how efficiently units are being utilized. • Identify bottlenecks or delays in service delivery. • Monitor trends in demand and access. • Detect emerging risks to affordability or compliance. The sections below highlight specific areas where more consistent metrics would improve visibility: turnover and vacancy activity, waitlist trends, and inspection practices. TURNOVER RATES Alta Housing does not systematically record key dates such as when a unit becomes vacant, when a new household takes occupancy, or the time elapsed between vacancy and re-occupancy. Based on interviews with Alta Housing, the City does not currently track turnover rates, vacancy duration, or time-to-fill for BMR units. Specifically, Alta Housing does not systematically record key dates such as when a unit becomes vacant, when a new household takes occupancy, or the time elapsed between vacancy and re- occupancy. The current system used for program administration (SpokeHS) does not capture this information, and staff indicated that compiling it would require significant manual effort. As a result, the City does not have a consistent way to assess how efficiently units are being filled or whether delays in placement are occurring. Best practices in housing program administration emphasize the importance of tracking vacancy and lease-up timelines to identify delays, improve coordination, and optimize utilization of available units. Peer benchmarking indicates that most jurisdictions similarly do not formally track turnover rates or time-to-fill metrics. However, there are notable exceptions: • Rise Housing Solutions tracks turnover activity within its Salesforce system across its portfolio. • Mountain View tracks turnover and vacancy activity internally using a City-maintained tracker and data pulled from its administrator, HouseKeys. These examples demonstrate that while not yet widespread, some jurisdictions have begun to track turnover- related information to improve oversight and program efficiency. Industry guidance on affordable housing and property management highlights the importance of minimizing vacancy periods and monitoring lease-up timelines as key performance indicators. For example, the U.S. Department of Housing and Urban Development (HUD)7 and affordable housing practitioners emphasize tracking vacancy rates and time-to-lease as standard operational metrics. 7 U.S. Department of Housing and Urban Development Office of Policy Development and Research. Collecting, Analyzing, and Publicizing Data on Housing Turnover, December 2024. https://www.huduser.gov/portal/portal/sites/default/files/pdf/Housing-Turnover-Report.pdf 27 FINDINGS AND RECOMMENDATIONS Palo Alto’s current approach is consistent with many peer jurisdictions in not formally tracking turnover metrics. However, compared to emerging practices and industry guidance, the absence of turnover and vacancy tracking limits the City’s visibility into how effectively units are being utilized. Without this information, the City may be less able to identify delays, assess service timeliness, or proactively improve placement processes to better serve eligible households. WAITLIST TRENDS Although Palo Alto provides useful public-facing waitlist information, the City does not yet routinely summarize waitlist activity as a performance metric. Useful measures could include ownership waitlist size over time, applicant refresh or renewal activity, applicants referred for available units, time from application or list placement to unit placement, and rental lottery or waitlist activity reported by property managers. Without periodic waitlist trend reporting, the City has less visibility into program demand, applicant movement through the process, and whether rental and ownership opportunities are being filled in a timely and transparent manner. This does not mean the current waitlist process is ineffective. Rather, it means the City lacks summarized information that would allow staff and decision-makers to evaluate how well the process is working over time. Waitlist trend metrics would also complement the City’s existing waitlist management practices by showing whether applicant pools remain current, whether certain unit types are difficult to fill, and whether demand indicators should inform future program or policy decisions. INSPECTIONS Palo Alto is largely in line with peers; it conducts routine inspections of ownership BMR units at resale but not during occupancy and does not conduct inspections of rental units. Property inspections are important for service delivery because they help confirm that BMR units remain safe, livable, and suitable for eligible households. They also help ensure that affordable units are reasonably comparable to market-rate units and continue to function as usable affordable housing over time. Even when routine inspections are not required, a clear inspection approach would clarify responsibilities among the City, Alta Housing, and property managers to identify condition issues and support participant confidence in the program. Palo Alto conducts routine inspections of BMR units at resale but not during occupancy. For ownership units, Alta Housing described conducting visual and termite inspections at resale. For rental units, Alta Housing stated that it does not conduct inspections and was not aware of routine City inspections. No clearly identified written inspection checklist or standard was identified for the City’s BMR inspection practices. Peer approaches to BMR inspections vary widely. Routine ongoing inspections of occupied BMR units are uncommon, and most peers inspect units at resale, through the development or permitting process, or when a complaint or issue is identified. San Mateo was the clearest exception, with City staff conducting on-site inspections for some units every other year and rotating between on-site inspections and file reviews for others. Inspection responsibilities also varied by peer, with inspections performed by City staff, contracted administrators, property managers, or some combination depending on the unit type and trigger. Several peers 28 FINDINGS AND RECOMMENDATIONS described at least some inspection criteria or review standards, including resale inspection checklists, review for compliance with BMR agreements, habitability standards, or HUD-based guidance. HUD’s National Standards for the Physical Inspection of Real Estate (NSPIRE) emphasize inspection standards that assess the condition of affordable housing and prioritize health, safety, and functional defects 8. HUD describes NSPIRE as a model intended to improve confidence that housing remains in compliance by accurately assessing unit condition and prioritizing resident health and safety. HUD’s Housing Quality Standards inspection checklist also provides a structured example of documenting whether a unit meets basic housing quality requirements 9. Palo Alto is broadly aligned with peers in not maintaining a routine ongoing inspection program for occupied BMR units. However, the absence of a clearly defined inspection role and written inspection standard may limit consistency when inspections do occur, particularly at resale or when issues are reported. A basic written protocol would improve documentation and clarity without requiring the City to adopt a more intensive inspection model. RECOMMENDATIONS Establishing a defined set of key performance metrics would help the City monitor program performance, identify trends and risks, and support data-driven decision-making for the BMR program. Recommendation 1: We recommend the City establish core BMR performance monitoring reporting aligned with program goals, including: • Developing and implementing a core set of performance metrics aligned with program goals, which may include measures related to compliance and recertification (e.g., completion rates), vacancy and turnover activity (e.g., time to fill), waitlist and applicant demand (e.g., applicants per unit, time to placement), and portfolio risk indicators; • Incorporating metrics into regular reporting to provide a clear, consistent view of program performance over time; and • Periodically reviewing administrator performance and overall program outcomes using these metrics to identify areas for improvement and ensure alignment with program objectives. Recommendation 2: We recommend the City track turnover and vacancy-related metrics, using existing systems and workflows where possible. To gain visibility into unit utilization and service timeliness, the City should leverage existing systems to minimize administrative burden, capturing a small number of useful lifecycle dates rather than creating a complex new reporting process. 8 U.S. Department of Housing and Urban Development. “National Standards for the Physical Inspection of Real Estate (NSPIRE).” Accessed April 27, 2026. https://www.hud.gov/reac/nspire. 9 U.S. Department of Housing and Urban Development. Inspection Checklist: Housing Choice Voucher Program. Form HUD-52580. Washington, DC: U.S. Department of Housing and Urban Development, 2024. https://www.hud.gov/sites/dfiles/OCHCO/documents/52580.pdf 29 FINDINGS AND RECOMMENDATIONS • Identify a practical method to capture key unit lifecycle dates—such as vacancy date and occupancy date—within existing systems (e.g., SpokeHS, Salesforce, or City-managed trackers), rather than creating a new standalone system. • Work with Alta Housing to determine whether minor adjustments to current data entry practices (e.g., adding fields, recording key dates during certification or placement processes) could support consistent tracking. • Where system limitations exist, coordinate with Alta Housing and property managers to establish a simple, standardized approach to capturing and sharing this information with the City. • Incorporate turnover and vacancy metrics into regular reporting to monitor timeliness, identify delays, and support ongoing process improvements. Recommendation 3: We recommend the City track waitlist and applicant trends in regular program reporting. • The City should continue using its current waitlist approach while adding summaries of ownership waitlist activity to regular program reporting if and when the waitlist is reopened. The City should consider tracking ownership waitlist size, list refresh activity, applicants contacted for available units, time to placement where available, and reasons units may be difficult to fill. • For rental units, the City should work with Alta Housing to improve visibility into rental waitlist practices, including aggregating rental applicant income levels and family composition to determine equitable program access. • If feasible, the City should explore options to work with Alta and property managers to identify a practical reporting approach for rental waitlist or lottery activity, including the number of applicants considered, households referred for certification, and units filled. Recommendation 4: Establish a basic written inspection protocol. To strengthen consistency in BMR unit inspections without creating a burdensome new inspection program, the City should establish a basic written inspection protocol. • Define when inspections or condition reviews should occur, such as at resale, in response to complaints, or when significant condition concerns are identified. • Clarify whether the City, Alta Housing, property managers, or another party is responsible for each type of inspection or condition review. • Develop a simple checklist or minimum review standard, drawing from existing resale practices, regulatory agreement requirements, and applicable habitability guidance. • Maintain inspection or condition review documentation in the relevant unit file to support future oversight and follow-up. 30 FINDINGS AND RECOMMENDATIONS Management Response Responsible Department(s): Concurrence: Agree Target Date: Q4, FY 2027 Action Plan: Department staff support improving performance monitoring and data visibility but must balance the scope/frequency of additional monitoring activities with staff capacity, existing contractual responsibilities, and the regulatory requirements applicable to the BMR program. Recommendation 1: Department staff will work with Alta Housing to identify a limited set of performance measures that can be produced with information already collected through existing reporting. Information may include certification or recertification completion, unit vacancies and turnover, ownership program waitlist activity, and identified compliance concerns. Staff will evaluate whether this information can be incorporated into Alta Housing’s existing reports or a simplified City monitoring summary. Recommendation 2: the Department will work with Alta Housing to determine which vacancy and occupancy dates can be captured consistently through existing systems like Salesforce. Staff will prioritize metrics that provide meaningful oversight without requiring a new standalone tracking system or duplicative data entry. Where Alta Housing does not directly manage a property’s lease-up/waiting list process, implementation will depend on cooperation of property managers — and information the City may request could be limited based on the executed regulatory agreement language. Recommendation 3: the Department will coordinate with Alta Housing to incorporate available ownership waitlist and applicant-placement information into regular program reporting if and when the ownership waitlist is reopened. For rental units, staff will work with Alta Housing to identify information that can reasonably be obtained from property managers regarding waitlist or lottery activity, applicant referrals, certifications, and unit placement. Rental unit waitlists are generally maintained by individual property owners or managers under the respective regulatory agreements. For Recommendation 4, the Department will evaluate development of a basic protocol identifying when a unit inspection may be appropriate, such as during an ownership resale, following a complaint, or when significant property-condition concerns are identified. The protocol will clarify the responsibilities of the City, Alta Housing, property owners, and property managers and will address documentation and follow-up requirements. Important note: the City’s BMR rental portfolio is not subject to a general annual inspection requirement comparable to the Housing Quality Standards inspection requirements applicable to certain HUD-assisted housing programs. Property owners and managers remain responsible for maintaining rental units in accordance with applicable regulatory agreements, lease requirements, building and housing codes, and state habitability standards. Department staff will continue to coordinate with Code Enforcement if a renter (including in a BMR unit) reaches out with habitability concerns. 31 FINDINGS AND RECOMMENDATIONS Finding 3: Senior Housing Specialist Role Provides an Opportunity for Increased Administration and Participant Support Participant support is a service delivery issue because referral-based assistance can help BMR households remain stably housed after eligibility approval and placement. Palo Alto provides participant support comparable to peers but has opportunities to improve visibility of available assistance. Beyond program administration and performance monitoring, another consideration is whether BMR participants have access to support that helps them remain successfully housed once they enter the program. While the BMR program is not intended to function as a full-service case management program, peer practices show that light-touch education, referrals, and problem-solving support can help households address affordability or tenancy issues before they result in displacement or loss of housing stability. Palo Alto also refers participants to various additional support programs. The table below provides an overview of supports across benchmarked cities. 32 FINDINGS AND RECOMMENDATIONS TABLE 7. PEER APPROACHES TO PARTICIPANT SUPPORT Peer Support Channel Examples of Participant Support Palo Alto Internal and through third- party referrals. Alta provides information and resources to applicants and homeowners, including financial literacy workshops, required homeownership education, and assistance related to trusts to avoid probate. The City also has a loan program that may assist with HOA assessments in some cases. The City also provides access to the Palo Alto Mediation Program/Mandatory Response Program and can identify referral pathways for legal aid, emergency rental assistance, tenant protection, foreclosure prevention, fair housing, and other housing stability resources. Sunnyvale Internal and through third- party referrals. Provides referrals to mediation, dispute resolution, foreclosure prevention, fair housing support, and tenant relocation resources. Staff may also intervene early when annual monitoring identifies financial concerns. Rise Housing Solutions Third-party referrals. Refers households to third-party resources for foreclosure counseling, landlord mediation, and tenant protection support. Mountain View Internal and through third- party referrals. Provides referrals through its Housing Help Center for landlord-tenant mediation, legal services, and rental assistance. Mountain View also assists households seeking to move from moderate-income units to lower-income units after a loss of income. Menlo Park Internal and through third- party referrals. Coordinates referrals to legal assistance and is exploring both internal legal assistance for households facing eviction and restarting a rental assistance fund. BAAHA Internal and through third- party referrals. Conducts deeper household-level review when financial or compliance concerns arise and partners with nonprofits for homebuyer education and counseling. San Mateo Internal and through third- party referrals. Refers BMR tenants to emergency rental assistance and third-party legal assistance. The City has also adopted a 4% annual rent increase cap for inclusionary rental BMR units. Peer practices indicate that most jurisdictions provide some form of participant support beyond eligibility review and placement. These supports are typically limited and referral-based, rather than intensive case management. However, they can help households address affordability, tenancy, or ownership-related issues before those issues threaten housing stability. Palo Alto’s participant support appears generally consistent with this peer model in terms of education, mediation access, and ownership-related assistance. Alta provides education, applicant support, homeowner assistance, and information about ownership-related resources, including support related to HOA assessments. In addition, the City has access to the Palo Alto Mediation Program for landlord-tenant disputes. Examples of resources that may be relevant to Palo Alto BMR households include the Palo Alto Mediation Program and Mandatory Response Program, Santa Clara County Homelessness Prevention System and Emergency Assistance Network, Project Sentinel, Law Foundation of Silicon Valley, Bay Area Legal Aid, and Community Legal Services in East Palo Alto. While some of these resources may exist elsewhere in the 33 FINDINGS AND RECOMMENDATIONS community, they are not prominently communicated through the BMR website or Alta BMR materials. As a result, it is difficult to determine from publicly available information what services are available to BMR households and how participants would access them. This suggests that, as the City considers practical affordability, it may benefit from more clearly connecting available referral pathways so BMR staff, Alta, and BMR participants understand what support is available when affordability or housing stability concerns arise. To assess whether affordability concerns were being reported by BMR participants, we requested information about affordability-related complaints. Alta Housing reported that, aside from concerns related to HOA affordability, it was not aware of broader affordability complaints from BMR households. We also reviewed 311 service request data for BMR-related issues. The review included keyword searches in the description field and did not identify any requests related to below market rate housing. A separate review of rental housing-related requests also did not identify BMR-specific concerns. A City staff member reviewed the City’s website for a BMR-specific complaint inbox or similar intake channel and did not identify one. While this may suggest that formal BMR-related affordability complaints are limited, it could simply reflect the absence of a dedicated process for collecting and monitoring BMR program affordability or tenancy concerns. Recent staffing changes have strengthened program management. The City recently refilled and retitled a position to serve in a Senior Housing Specialist role, which provides an opportunity to strengthen BMR program management. This position is already working to establish more systematic communication, monitoring, and reporting practices. This position also provides functional support to other housing programs in the City. Regular City-Alta communication, clearer roles, documented procedures, and summarized program information can help the City manage the program more consistently and identify emerging issues earlier. However, these administrative improvements have not yet been extended into a clearly documented participant-support referral model. The City has not yet centralized referral resources, defined how BMR participants with affordability, tenancy, ownership, or housing-stability concerns should contact the City or Alta for help, or developed routine contacts with pass-through service providers. As a result, the Senior Housing Specialist role provides an opportunity to connect administrative improvements with a light-touch participant-support function. RECOMMENDATION Recommendation 1: We recommend the City use the Senior Housing Specialist role to establish a light-touch participant support process that helps BMR households connect to appropriate external resources when affordability, tenancy, ownership, or housing- stability concerns arise. • Compile and maintain a participant resource guide for common issues, including mediation and dispute resolution, legal aid, tenant protection, fair housing, emergency rental and utility assistance, foreclosure prevention, homeownership counseling, HOA assessment support, and other housing stability resources. • Include referral information in City and Alta BMR materials and identify a clear contact path for participants who need help identifying appropriate resources. 34 FINDINGS AND RECOMMENDATIONS • Develop working contacts with key pass-through providers, such as the Palo Alto Mediation Program/Mandatory Response Program, Santa Clara County Homelessness Prevention System, Emergency Assistance Network agencies, Project Sentinel, Law Foundation of Silicon Valley, Bay Area Legal Aid, and Community Legal Services in East Palo Alto. • Coordinate with Alta and property managers so staff know when to provide referrals, when to document participant concerns, and when to elevate recurring issues to City management. • Periodically review the types of participant concerns and referrals provided to identify trends that may affect affordability, tenancy stability, or program design. Additional Observation Resale Restrictions Create Significant Price Differences Between Older and Newer Units The City’s ownership BMR program uses resale restrictions to preserve affordability over time. These restrictions limit the price an owner may receive when selling a BMR unit, generally tying resale value to the program formula rather than market appreciation. This approach is central to long-term affordability because it keeps units accessible to future eligible buyers, even in a market where unrestricted home values have increased significantly. However, interviews with Alta Housing and peer jurisdictions indicate that long-standing resale formulas can also create significant price differences between older and newer BMR units. Older units may have resale prices that remain far below newer BMR units because their prices have been governed by capped appreciation over a longer period. Newer units, by contrast, may enter the program at pricing levels based on current affordability assumptions or current income limits. Over time, this can lead to large price differences across the BMR ownership portfolio, even when units are part of the same general program. Alta reported that some program participants may try to “hold out” for older, lower-priced units because they can be substantially more affordable than newer BMR units. This can affect how applicants respond to available units and may make some newer ownership opportunities harder to place, particularly when HOA fees, unit condition, mortgage qualification, or other ownership costs are considered. Peer interviews also identified resale pricing, owner equity, and buyer affordability as common challenges in shared-equity and inclusionary homeownership programs. This dynamic reflects a policy tradeoff. Strong resale restrictions preserve affordability for future buyers, but they may also limit owner equity growth and create uneven affordability across different cohorts of units. Less restrictive resale formulas may provide more equity to owners, but they can also make units less affordable for future buyers. For this reason, affordable homeownership resources emphasize the importance of carefully designed resale formulas, ongoing stewardship, and regular review of whether pricing models continue to balance affordability, buyer access, and owner equity. 35 FINDINGS AND RECOMMENDATIONS AMI-based pricing models may be one option for the City to evaluate, but any change would require policy direction and careful analysis of affordability, owner equity, legal constraints, and long-term preservation goals. The key near-term need is for the City to better summarize resale pricing trends, price differences between older and newer units, and applicant response to available ownership units so that future policy discussions are informed by program-level data. Baker Tilly Advisory Group, LP and Baker Tilly US, LLP, trading as Baker Tilly, are members of the global network of Baker Tilly International Ltd., the members of which are separate and independent legal entities. Baker Tilly US, LLP is a licensed CPA firm that provides assurance services to its clients. Baker Tilly Advisory Group, LP and its subsidiary entities provide tax and consulting services to their clients and are not licensed CPA firms. City of Palo AltoOffice of the City Auditor (OCA) Policy & Services Committee Meeting Below Market Rate Housing Program Audit Presenter: Kate Murdock, City Auditor, Baker Tilly October 13, 2026 2 Objectives •Determine if the BMR Program maximizes the retention of affordable housing stock in comparison to similar programs. •Determine if the program is administered in a timely manner that meets the needs of the community it is intended to serve. •Evaluate the administration of the program for adequate internal controls to safeguard the City from fraud, waste and abuse. Audit Report Note: The BMR program, as assessed in this audit, refers to the administration of below-market-rate units after broader housing policies, development requirements, agreements and development decisions result in these units. The BMR program does not include all below-market-rate housing in the City, only a portion of ownership and rental units meeting specific criteria. 3 Background BMR program administers affordable units; it does not directly create them Ownership BMR units generally follow a defined handoff from development to administration but rental affordable units follow various pathways Alta Housing’s role begins primarily after qualifying ownership units enter the BMR program BMR administration is one component of the City’s broader housing strategy Ownership BMR production has been uneven and is driven largely by development cycles The City currently has 247 active ownership BMR units 4 Finding 1: BMR program administers, rather than creates, BMR units established through broader City housing policies. Through this role, the Program has visibility into factors that may affect continued affordability. Finding Recommendation •BMR program does not control housing production, broader City policy and development activity drive unit creation •HOA costs can affect affordability – while regular dues are considered in determining affordability; significant assessments may create affordability and retention risks •Limited consolidated information on affordability pressures across the BMR ownership portfolio •An aging ownership portfolio requires ongoing monitoring of deed restrictions, unit condition and preservation options Strengthen its approach to preserving BMR ownership units by improving visibility into HOA, maintenance and other retention risks and evaluating options to address significant HOA- related costs. Use existing City and Alta Housing information to identify significant HOA dues, special assessments, and maintenance pressures to evaluate the sufficiency and communication of existing assistance. Explore feasible additional preservation or repair support options and continue monitoring deed restriction end dates, unit condition and other long- term portfolio risk. 5 Finding 2: Program administration is consistent, but performance monitoring can be strengthened. Finding Recommendation •Alta contract does not include outcome-based performance expectations •Program oversight has lacked consistent documented management practices •City does not maintain a formal complaint history for BMR program integrity concerns •City has limited summarized information on program eligibility metrics and property-specific rental waitlist practices •City does not currently track defined program-level performance metrics for the program Formalize City-Alta oversight and coordination through clearer roles, documented invoice/report follow-up, complaint tracking and periodic eligibility and applicant-experience reporting Establish core BMR performance metrics and reporting to monitor service timeliness, unit utilization, applicant demand, waitlist activity, turnover, vacancies and portfolio risks Strengthen program administration and equity monitoring through improved waitlist visibility, analysis of applicant demographics and income and basic written inspection protocol 6 Finding 3: A filled vacancy provides an opportunity for increased administration and participant support. Finding Recommendation •Palo Alto’s current participant support is consistent with peers for education, mediation and ownership- related assistance •Referral pathways could be more consistently and prominently communicated through City and Alta materials, including: •legal aid •emergency rental assistance •tenant protection •foreclosure prevention •fair housing and other stability resources Use the Senior Housing Specialist to establish a light- touch participant support process that helps BMR households connect to appropriate external resources when affordability, tenancy, ownership, or housing- stability concerns arise. Questions? Baker Tilly Advisory Group, LP and Baker Tilly US, LLP, trading as Baker Tilly, operate under an alternative practice structure and are members of the global network of Baker Tilly International Ltd., the members of which are separate and independent legal entities. Baker Tilly US, LLP is a licensed CPA firm that provides assurance services to its clients. Baker Tilly Advisory Group, LP and its subsidiary entities provide tax and consulting services to their clients and are not licensed CPA firms. The name Baker Tilly and its associated logo is used under license from Baker Tilly International limited. The information provided here is of a general nature and is not intended to address the specific circumstances of any individual or entity. In specific circumstances, the services of a professional should be sought. © 2024 Baker Tilly Advisory Group, LP