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HomeMy WebLinkAboutItem 4.1 - 3298 CalCHA Program (2) Page 1 of 4 STAFF REPORT CITY COUNCIL DATE: June 22, 2020 TO: Honorable Mayor and City Councilmembers FROM: Linda Smith, City Manager SUBJECT: California Community Housing Agency (CalCHA) Middle-Income Rental Housing Program Prepared by: Kristie Wheeler, Assistant Community Development Director EXECUTIVE SUMMARY: The City Council will receive a report regarding an opportunity for the City of Dublin to become a member of the California Community Housing Agency (CalCHA) joint powers authority for the production, preservation, and protection of essential middle -income rental housing. STAFF RECOMMENDATION: Receive the report and direct Staff to return with a Resolution authorizing the City to become a member of CalCHA and authorizing the City Mana ger to enter into purchase option agreements with CalCHA for essential middle-income rental housing created within City limits. FINANCIAL IMPACT: There are no financial expenditures, liabilities, or obligations created by joining CalCHA or executing a Purchase Option Agreement for a property. If a Purchase Option Agreement is exercised between year 15 and year 30 (the end of the life of the bonds), Staff would need to analyze the fiscal impacts associated with that acquisition at that time. Should a property acquired through the CalCHA Program generate surplus cash flow through a one-time sale, the City would receive such cash, which could be used at the City’s discretion, including for the purpose of affordable housing. DESCRIPTION: The California Community Housing Agency (CalCHA) Middle-Income Rental Program provides affordable housing targeted at moderate and middle-income households earning between 81-120 percent of the area median income (AMI). There is currently a limited number of Federal, State or local subsidies or programs that produce or preserve below market rate rental housing for households in this income category. The program is managed by a joint powers authority called CalCHA, which was formed by Kings County and the Housing Authority of Kings County. Additional cities, counties and Page 2 of 4 other local government entities may join CalCHA if they wish to participate in CalCHA’s program. Catalyst Housing Group (Catalyst) is currently representing CalCHA and is the Asset Manager of projects under contract with CalCHA. Under the program, CalCHA issues revenue bonds to acquire either new or existing apartment complexes. It then coverts the projects into income- and rent-restricted units for moderate- and middle-income households. The revenue bonds are issued as limited obligations of CalCHA and not of the participating members and are payable solely out of the revenues and receipts derived from the project being financed. In addition, CalCHA grants the participating jurisdictions an option to purchase the property at an amount equal to the remaining debt. At the February 4, 2020 City Council meeting, the City Attorney provided an overview of various affordable housing opportunities that the City is pursuing, including an opportunity presented to the City by Catalyst to join the CalCHA program (Attachment 1). The City Council directed Staff to further analyze the program and consider joining CalCHA. ANALYSIS: Catalyst has developed a financing model to create affordable housing for middle - income households and proposes to use Essential Housing Revenue Bonds issued by CalCHA to finance the acquisition or development of middle-income housing in Dublin. The proposed financing model would reduce project financing costs and eliminate property tax burden. This enables Catalyst to charge lower rents and target middle - income households. To utilize these bond funds, a public benefit is needed. Public benefit is achieved through the execution of a regulatory agreement that restricts the use of the property, and by granting all surplus project revenues to the City. The regulatory agreement that restricts use of the property would: • Restrict occupancy to low-income, median-income, and moderate-income households; • Limit annual rent increases to a maximum of four percent of a tenant’s rent; and • Prevent displacement of existing residents that do not meet the income eligibility requirements. The City’s participation in the project is required to create a public benefit. In order for Catalyst to use the proposed financing model in Dublin, the City would need to: • Become a member of CalCHA for the limited purpose of financing or refinancing specific projects in Dublin; • Approve CalCHA’s issuance of tax-exempt bonds for the acquisition of existing rental properties or development of new housing as a means to preserve and protect middle-income rental housing within the City; Page 3 of 4 • Enter into a Purchase Option Agreement with CalCHA for any project that is acquired or developed; and • Accept any surplus cash or sales proceeds generated by the property to ensure its use as a public benefit. To formalize the City’s participation in the project and ensure that these public funds are used for a public benefit, the City would need to enter into a Purchase Option Agreement for each property. The terms of the Purchase Option Agreement include: • Purchase Option: Grants the City the right to purchase the property 15 years after the acquisition of a property or at any time thereafter for the remaining term of the 30-year bond. The City can transfer the option to an affordable housing provider with approval from the owner. Entering into this agreement does not obligate the City to purchase the property at any time. • Option Price: The future acquisition price would be the sum of the amount sufficient to pay all project debt, encumbrances, amounts due to other parties to the transaction, and transaction costs. • Surplus: Any surplus cash would be held by the trustee and then used to pay project financing costs and/or distributed to the City upon acquisition/transfer of ownership. • Terms of Conveyance: The City would purchase the property in as-is condition with all faults. Under the CalCHA arrangement, the City is not a direct party to the real estate transaction nor financial transaction. The bonds issued by CalCHA for the project would be the sole responsibility of CalCHA, and the City would have no financial, legal, or moral obligation, liability, or responsibility for the project or the repayment of the bonds. In addition, the City would have no responsibility for managing or maintaining the property unless it chooses to exercise its options and acquire the property. Staff has worked with Catalyst on a set of deal terms in order to recommend City participation in the program, including the draft Purchase Option Agreement and Regulatory Agreement. The proposed deal terms are included as Attachment 2 and are summarized below. • The City would have the authority to review the selection of the original and any replacement property management company, the agreement between CalCHA and Catalyst, and the Regulatory Agreement between CalCHA and the Trustee for the Dublin properties. • Properties acquired by CalCHA with existing below market rate units in the City’s Inclusionary Housing Program would continue to be subject to the City’s Inclusionary Zoning Regulations and Guidelines as provided by the regulatory agreement with the City. Page 4 of 4 • Rent for units affordable to low-income households earning up to 80 percent area median income (AMI) and middle- and moderate-income households earning up to 120 percent AMI would not exceed 35 percent of monthly income limit for Alameda County. • Preference for vacant units would be consistent with the City’s Inclusionary Guidelines, provided that Catalyst maintains the ability to meet all Fair Housing requirements. • The City would be allowed to review and audit project financial records. Catalyst has agreed to all of the proposed terms with the exception of indemnification and/or liability insurance protecting the City against liability for CalCHA projects. Staff is continuing to work with Catalyst to adequately address our concerns. Although it is unknown how many, if any, properties would be acquired through the program, joining CalCHA would bring this new and innovative mid dle-income housing tool to Dublin allowing properties that are currently market -rate to be converted to housing affordable to middle-income households. If the City Council wishes to proceed with this proposal, Staff should be directed to return with a Resolution authorizing the City to become a member of CalCHA and authorizing the City Manager to enter into Purchase Option Agreements with CalCHA for essential middle-income rental housing created within City limits. STRATEGIC PLAN INITIATIVE: Fiscal Years 2020-21 and 2021-22 Strategy 3: Create More Affordable Housing Opportunities, Objective D: Seek opportunities to preserve the stock of housing that is affordable to moderate and middle-income households. NOTICING REQUIREMENTS/PUBLIC OUTREACH: None. ATTACHMENTS: 1. February 4, 2020 City Council Staff Report 2. City of Dublin CalCHA Deal Terms Page 1 of 6 STAFF REPORT CITY COUNCIL DATE: February 4, 2020 TO: Honorable Mayor and City Councilmembers FROM: Linda Smith, City Manager SUBJECT: Update on Housing Legislation and Affordable Housing Opportunities Prepared by: John Bakker, City Attorney EXECUTIVE SUMMARY: Staff will provide an update on important housing legislation and on various affordable housing opportunities being pursued. The legislative update includes a discussion of new laws that became effective on January 1, 2020, including: SB 330 (the Housing Crisis Act of 2019), AB 1486 (strengthening the Surplus Lands Act), and AB 1487 creating the Bay Area Housing Finance Authority). The legislative update also includes an update on pending legislation, including SB 50’s status, and efforts to regulate development impact fees. The legislative update will be followed by a description of various opportunities that Staff is pursuing to facilitate the development of affordable housing, including an opportunity to join a joint powers authority that acquires apartment complexes and converts them to affordable rental housing. STAFF RECOMMENDATION: Receive the report and provide appropriate direction. FINANCIAL IMPACT: None. DESCRIPTION: This report has two parts. The first is a discussion of important new laws and pending legislation related to housing. It is followed by a discussion of opportunities that Staff is pursuing to facilitate the development of affordable housing. Housing Legislation Update 2019 Housing Legislation. One of the key issues in the 2019 legislative session was housing. The year started off with a flurry of bills designed to address the housing crisis. SB 50 garnered a lot of attention, including from the national media. Ultimately, Page 2 of 6 SB 50 failed to make it out of the Senate Committee on Appropriations, and it became a two-year bill (see below). Nonetheless, several important bills were enacted into law and became effective on January 1, 2020; they are summarized below. SB 330, Housing Crisis Act of 2019. The Housing Crisis Act of 2019 (SB 330) declares a statewide housing emergency and suspends certain existing restrictions on housing development projects and expedites the permitting of housing in affected cities and counties. Dublin is among the affected cities to which the Act applies. The law is an attempt by the Legislature to address California’s housing crisis and to facilitate the construction of additional housing units. Below is an explanation of key requirements in SB 330, which in general will remain in effect until January 1, 2025. SB 330 prohibits an “affected” city or county from enacting new, or enforcing existing, policies on land where housing is an allowable use that does any of the following: Change the land use designation or zoning to a “less intensive use” than what was allowed on January 1, 2018. A “less intensive use” is anything that would limit the intensity of housing allowed, including a reduction in height or density, or increased setback requirements or maximum lot coverage requirements. Impose a moratorium on housing development, with very limited exceptions. Enforce design standards established on or after January 1, 2020, that are not objective. Limit the number of permits for housing that can be issued, such as so -called growth-control” ordinances. This type of limitation will remain permissible if the limit was first approved by voters prior to January 1, 2005, and the affected county or affected city is located within a county for which at least 50 percent, and a minimum of 550,000 acres, of the county area is agricultural land. The Housing Crisis Act of 2019 also makes a significant change to the Housing Accountability Act (HAA). The HAA currently prohibits an agency from disapproving a housing project or approving the project at a lower density if the project complies with the applicable, objective standards and criteria in place when the project application is determined to be complete, unless certain specific findings can be made. SB 330 amended the HAA to allow developers to lock in the standards and criteria that were in effect at the time of submittal of a simplified “preliminary application.” Finally, in order to streamline the processing of proposed housing development projects, SB 330 prohibits a jurisdiction from holding more than five hearings on a proposed project if the project complies with the applicable, objective standards and criteria in place at the time it is “deemed complete.” Public hearings, workshops or similar meetings held by the planning commission or governing body all count toward the five hearing maximum. AB 1486, Surplus Lands Act Amendments. The Surplus Lands Act requires local agencies to offer surplus lands to agencies for open space, recreation, and affordable Page 3 of 6 housing. AB 1486 strengthens the Act for the purpose of making public land potentially available for affordable housing development. Among other things it: Expands the agencies subject to the Act. Broadens the application of the Act to include nearly all “disposals” of real property. Adds new oversight provisions. The provisions require local agencies to submit reports demonstrating compliance with the Act to the California Department of Housing and Community Development (HCD). If HCD determines that an agency has failed to comply, the Attorney General or third parties may bring lawsuits seeking a penalty of up to 30 percent of the final sales price for the first violation. While AB 1486’s changes are significant, the Surplus Lands Act still does not require an agency to sell property for affordable housing. It merely gives those receiving notices of availability an opportunity to negotiate in good faith with the seller. Ultimately, a local agency can elect to sell the property at its fair market value, even in the face of an affordable housing provider offering to purchase the property for less than its fair market value. AB 1487, Bay Area Housing Finance Authority. AB 1487 implements a suggestion of the CASA Compact. The CASA Compact was the work-product of the Committee to House the Bay Area, which was convened by the Metropolitan Transit Commission MTC) and the Association of Bay Area Governments (ABAG). AB 1487 creates the Bay Area Housing Finance Authority within the nine -county San Francisco Bay Area to be jointly governed by MTC and ABAG’s Executive Board. With voter approval, the Authority may levy parcel taxes, business license taxes, and special business taxes based on number of employees. A ballot measure authorizing one of the levies can be placed on the ballot of as few as four of the Bay Area counties. The Authority can also levy commercial linkage fees on new commercial development projects “for the purpose of addressing the need for additional housing development necessitated by” commercial development. However, it can only do so if the voters first approve a parcel tax or a general obligation bond. Authority revenue must be used for construction of new affordable housing, affordable housing preservation, tenant protection programs, planning and technical assistance, and infrastructure to support housing. Other 2019 legislation of interest. The Legislature passed a number of other housing bills of lesser importance to the City. Among these are: AB 881 incorporating a number of amendments to the section addressing accessory dwelling units. It requires ministerial approval of detached ADUs that are less than 800 square feet, no taller than 16 feet, and having at least four -foot Page 4 of 6 rear and side yard setbacks. It also prohibits the application of lot coverage requirements, lot size restrictions, and owner-occupancy requirements on ADUs. AB 1483 requires the posting of “housing development related” information on city and county websites. The information includes things such as a schedule of fees, an archive of impact fee studies, zoning ordinances that apply to each parcel, and information required of applicants for land use projects. AB 1482 adds significant tenant projections. The protection includes a cap on rent increases to existing tenants at the consumer price index plus five percent, not to exceed 10 percent, in any 12 -month period. AB 1482 also adopted a statewide just cause eviction requirement (prohibiting landlords from evicting tenants for no reason). 2020 Housing Legislation. 2020 is shaping up to be another year in which housing remains high on the list of agenda items for the Legislature. As noted above, SB 50, which would override City land use regulations near transit stops and in “jobs rich” areas, faces a January 31 deadline to pass out of the Senate. The bill’s author, Senator Weiner, has made changes in an effort to eliminate opposition, including adding a provision that delays implementation for two years and providing a mechanism for local agencies to satisfy the requirements with an alternative land use plan that offers the same level housing development potential as SB 50 would. As of the date of this report, the bill is poised to receive a Senate floor vote before the January 31 deadline. Development impact fees are expected to be a focus of legislative attention. Toward the end of last year’s legislative session, HCD delivered a report requested by the Legislature that addressed the effect that development impact fees have on housing development in California. The report led Assembly Member Grayson to amend AB 1484 in a manner that would impose significant new requirements on development impact fees. It did not move in the last session, but Staff understands that either AB 1484 or another bill is likely to address some of the issues raised by the HCD report. Such legislation could have a significant impact on the City’s development fee programs—the Eastern Dublin Traffic Impact Fee, the Downtown Traffic Impact Fee, and the Public Facilities Fee being the most prominent—and, therefore, Staff is monitoring developments closely. It is also notable that ABAG has begun the 2022 -2030 Regional Housing Needs Allocation (RHNA) process. Staff will provide a report to the City Council on the status of the RHNA process and Housing Element Update at its February 18, 2020 meeting. Affordable Housing Opportunities Consistent with prior direction from the City Council, Staff is pursuing various opportunities for affordable housing. Page 5 of 6 CalCHA Middle-Income Rental Program. Staff has been presented with an option for the City Council’s consideration that provides affordable housing targeted at moderate and middle-income households earning between 81-120 percent of the area median income (AMI). There is currently limited Federal, State or local subsidies or programs to produce or preserve below market rate rental housing for moderate and middle -income households. The program is managed by a joint powers authority called the California Community Housing Agency (CalCHA). CalCHA was formed by Kings County and the Housing Authority of Kings County. Additional cities, counties and other local government entities may join CalCHA if they wish to participate in CalCHA’s programs. Under the program, CalCHA issues revenue bonds to acquire either new or existing apartment complexes. It then coverts the projects into income - and rent-restrict units for moderate- and middle-income households. CalCHA has used the program to acquire rental projects in Santa Rosa and in Fairfield. The revenue bonds are issued as limited obligations of CalCHA and not of the participating members and are payable solely out of the revenues and receipts derived from the project being financed. In addition, CalCHA grants the participating jurisdictions an option to purchase the property at an amount equal to the remaining debt. To participate in this new program, the City would need to become a member of the CalCHA. The City’s membership would be limited solely for the financing or refinancing of specific projects but would not create any liability for the City. If the City Council is interested in considering the CalCHA program further, Staff can return at a future meeting for the City Council to consider joining CalCHA. Staff would analyze the program in more detail at that time. Staff understands that it can be advantageous to join CalCHA before an acquisition is being pursued because it allows CalCHA to commit to sellers that it can close a transaction quickly. City Efforts to Facilitate Development of Affordable Housing. The City has funding available for affordable housing projects. The City is eligible to receive nearly 8,000,000 in revenue from the County of Alameda Measure A -1 Affordable Housing Bond. In addition, the City has approximately $13,276,800 available in its affordable housing fund, derived from in-lieu fee revenue under the Inclusionary Zoning Regulations and revenue from the commercial linkage fee. Staff is in the midst of identifying projects on which to deploy those resources. Identifying available, suitable land is the first step, and Staff is attempting to find sites that will allow it to further leverage the City’s affordable housing monies. It is expected that the City will partner with a non-profit affordable housing developer to pursue any project. Three sites are under active consideration for potential affordable housing projects. The first is an approximately 1.33-acre parcel at the end of Regional Street in Downtown that is near the West Dublin/Pleasanton BART station. The developer of the adjacent mixed-use St. Patrick Way project is required to dedicate that site to the City pursuant Page 6 of 6 the approved Community Benefit Agreement. The second site is an Alameda County Surplus Property Authority-owned site in the Transit Center adjacent to the Dublin/Pleasanton BART station. The County is developing a second BART garage on a portion of the property, and the remainder is suitable for affordable housing. The third opportunity is associated with Avesta’s proposed independent senior housing and assisted living project at 5751 Arnold Road. In accordance with the City Council’s direction when it initiated a General Plan Amendment study for that project, Staff is in the midst of discussions with the Developer to identify a potential site for affordable housing on that property. Finally, Staff also anticipates issuing a notice of funding availability seeking proposals from affordable housing developers. Proposers may be able to identify other sites within the City that would be suitable for affordable housing projects. STRATEGIC PLAN INITIATIVE: Strategy 3: Pursue efforts to help strengthen the City’s infrastructure and technology. Strategic Objective 3d: Develop a special needs affordable housing project. NOTICING REQUIREMENTS/PUBLIC OUTREACH: None. ATTACHMENTS: None. June 9, 2020 Jordan Moss Catalyst Housing Group 21 Ward Street, Suite 2 Larkspur, CA 94939 Re: California Community Housing Agency Middle-Income Rental Program Dear Mr. Moss, We appreciate the opportunity to review your proposal for the City of Dublin to join the California Community Housing Authority (CalCHA) Joint Powers Authority (JPA) for the purpose of acquiring market rate properties within the City for conversion to income/rent restricted rental housing for middle-income households. City Staff have reviewed the draft documents that you provided, including the Purchase Option Agreement, Regulatory Agreement, and draft Resolution. The following are the deal terms that Staff would propose for participating in the program. These deal terms are subject to further discussion and negotiation. A. The City will join CalCHA for the limited purpose of participation in projects located within the City of Dublin and not any other projects undertaken by CalCHA outside of the City, as permitted by Section 12 of the JPA Agreement. B. The City shall have the authority to review: 1. The selection of the original and any replacement property management company and the management agreement with that company for properties located within the City of Dublin ; and 2. The original and any changes to the Regulatory Agreement between CalCHA and the Trustee for properties located within the City of Dublin. If the City determines that the management of a property within the City of Dublin is deficient in any manner, the City may provide notice of the deficiency to CalCHA, and the City and CalCHA shall meet and confer in good faith to discuss the alleged management deficiency and attempt to reach agreement upon one or more appropriate remedies to address the alleged management deficiency. After any future exercise of an Option to Purchase, the City shall not be obligated to continue the contracts with any management companies. C. The City shall have the right to review the agreement between CalCHA and Catalyst prior to its execution of an Option Agreement or thereafter. D. The Purchase Option Agreement shall provide the City with strong due diligence rights to inspect all aspects of the project and to have the right to cancel the purchase in the City’s sole discretion after conducting due diligence. E. The resolution of the City will approve the issuance of bonds for future projects, and the form of the Purchase Option Agreement, subject to the later approval of specific projects by the City Manager. The bonds shall be consistent with industry standards and other CalCHA projects, and City shall have the right to review and comment upon the actual financing transaction and bond documents prior to bond issuance. For new construction projects, the bond documents shall include the following requirements: CalCHA shall contract with a development manager with experience developing similarly sized rental projects and an experienced general contractor; CalCHA shall obtain any payment and performance bonds and guaranties which may be required; and a system for the appropriate disbursement of bond proceeds for construction costs shall be included, with controls consistent with industry standards. F. CalCHA shall state that any bonds issued by CalCHA are not the obligations of the CalCHA members, including the City, as discussed in the May 2019 opinion letter from CalCHA legal counsel. G. The City will be provided indemnification and/or liability insurance protecting the City against liability for CalCHA projects, in a form reasonably acceptable to the City Manager. H. For properties acquired by CalCHA with existing below market rate units in the City’s Inclusionary Housing Program, such inclusionary units shall continue to be subject to the City’s Inclusionary Zoning Regulations and Guidelines as provided by the regulatory agreement with the City. I. Except for new or existing units within the City’s Inclusionary Housing Program, which shall comply with the City’s regulatory agreement for that property, rent for low-income households earning up to 80% area median income (AMI) and moderate- and middle-income households earning up to 120% AMI shall not exceed 35% of monthly income limit for Alameda County. J. CalCHA shall provide preferences for vacant units consistent with the City’s Inclusionary Guidelines, subject to compliance with applicable fair housing laws. K. The Purchase Option Agreement shall provide that all project revenues in excess of earnings, as determined in accordance with customary industry standards (“Excess Revenue”), be deposited in an Excess Revenue Fund. Upon the commencement of the Option term (15 years), the amounts in the Excess Revenue Fund (if any) shall be used to pay project debt and fees, charges and expenses of project debt. Thereafter, the amounts in the Excess Revenue Fund shall be transferred to the City periodically. The City may use those disbursements of Excess Revenue for any purpose in City’s discretion. The City shall be allowed to review, copy and audit the project financial records. Please let us know if you have any questions or comments. Sincerely, J. R. Bergdoll Jim Bergdoll Senior Planner Cc: Linda Smith, City Manager Jon Goetz, Assistant City Attorney Jeff Baker, Community Development Director Kristie Wheeler, Assistant Community Development Director