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HomeMy WebLinkAboutMINUTES - 01112000 - C31 TO: BOARD OF SUPERVISORS IOC-01 ,.. ''�= Contra FROM: { Sta 1999 INTERNAL OPERATIONS COMMITTEE �. County ryA......{y DATE: December 13, 1999 SUBJECT: AFFORDABLE HOUSING/INFILL DEVELOPMENT SPECIFIC REOUEST(S)OR RECOMMENDATION(S)&BACKGROUND AND JUSTIFICATION RECOMMENDATIONS: 1. CONCLUDE that Contra Costa County and its cities are effectively using all available Federal, State and local redevelopment funds to the maximum extent possible. 2. AGREE that there should be no change in the current policy on financial support levels and that the County must continue to leverage its funds with available funding sources. 3. RECOGNIZE that Contra Costa County's supply of affordable housing is in jeopardy because of market rate conversions. 4. NOTE that the restructuring of Federal and State housing program policy as well as the uncertainty of funding creates great uncertainty with respect to formulating and implementing local projects and programs. 5. CONCLUDE that Contra Costa County is unable to meet the need for affordable housing and needs the existing Federal and State programs that are now in place. 6. AMEND the County's 2000 Legislative Program to take a position in support of Federal and State proposals for additional housing assistance that will make more affordable housing available in this County. CONTINUED ON ATTACHMENT: -/—YES SIGNATURE: RECOMMENDATION OF COUNTY ADMINISTRATOR RECOMMENDATION OF BOARD COMMITTEE APPROVE OTH X:1 A& SIGNATURE(S): (/UAYL-E B. KEMA JQH A ACTION OF BOARD ON January 1APPROVED ECOMMENDED OTHER VOTE OF SUPERVISORS y-� 1 HEREBY CERTIFY THAT THIS IS A TRUE /2 UNANIMOUS(ABSENT d&9?e ) AND CORRECT COPY OF AN ACTION TAKEN AYES: NOES: AND ENTERED ON THE MINUTES OF THE BOARD ABSENT: ABSTAIN: OF SUPERVISOR N THE DATE SHOWN. ATTESTED Contact: IL BATCHELOR, ERK OF THE BOARD OF cc: County Administrator SUPERVISORS AND COUNTY ADMINISTRATOR Community Development Director Jim Kennedy, Redevelopment Agency Peg Kovar, 1078 Hacienda Dr.,Walnut Creek, 094598 DEPUTY .. ...................... ....... _ IOC-01 7. DIRECT the Community Development Director and Deputy Director - Redevelopment to work with and through the City/County Relations Committee to schedule a City/County Workshop in order to share experiences in developing affordable housing and to explore steps that various jurisdictions can take to increase the supply of affordable housing in the County. 8. REFER to the Mobile Home Advisory Committee the issue of whether and to what extent existing land that is designated in the General Plan as "multi- family" but is, in fact, being used for mobile home parks should be redesignated to the "mobile home park" designation. 9. REMOVE this item as a referral to the 1999 Internal Operations Committee. BACKGROUND: The 1999 Internal Operations Committee has worked very hard during 1999 to explore every possibility for increasing the supply of affordable housing in Contra Costa County and ways of maintaining the supply that we have currently. Staff in the Community Development Department, particularly Jim Kennedy and Kathleen Hamm, have been extraordinarily good about researching various ways of producing and preserving affordable housing. They have prepared a number of excellent reports for our Committee as well as the Finance Committee. We have looked at ways in which we might use redevelopment funds to increase the funding that is available for housing. Attached are copies of a report from Jim Kennedy dated August 5, 1999 on possible incentives for infill development and a report from Kathleen Hamm dated December 1, 1999 on preservation of existing affordable housing in the County. Also attached are reports dated December 10, 1999 from Jim Kennedy and December 14, 1999 which we requested from staff. We have, regretfully, concluded that without additional financial resources there is very little that can be done by the County on its own to improve the pool of affordable housing in the County or even to maintain the present supply of affordable housing. We have agreed on the above recommendations. We believe it is important to work with the cities to see whether there are some joint actions that we could take. In addition, it is important to support any proposals at the Federal and State that would provide additional financial resources. -2- CONTRA COSTA COUNTY COMMUNITY DEVELOPMENT DEPARTMENT DATE: December 14, 1999 TO: Board of Supervisors • Supervisor John Gioia • Supervisor Gayle B. Uilkema • Supervisor Donna Gerber • Supervisor Mark DeSaulnier • Supervisor foe Canciamilla FROM: Kathleen K. Hamm Affordable Housing Program Manager SUBJECT: Preservation of Existing Affordable Housing in Contra Costa County This memorandum is in response to a request from the Internal Operations Committee to the Community Development Department for information concerning the potential loss of affordable housing for very-low income families and seniors due to the expiration of existing rent and occupancy restrictions. This issue is addressed in the County Housing Element which establishes the preservation of existing affordable housing as a County goal. In reviewing the preservation issue, it must be emphasized that the full magnitude of this problem is not readily known due to the lack of a comprehensive affordable housing data base containing affordability restrictions and terms, target population, and ownership structure for individual projects. The Preservation Problem "At-risk units" are defined as affordable multifamily rental housing developments which are at risk of conversion to market rents due to the expiration of existing rent and occupancy restrictions typically imposed on a project by some form of public financing. Major categories of at-risk projects are described in Attachment A. Projects most vulnerable to conversion include multifamily developments located in high cost/high rent areas and those which are owned by a profit-motivated entity. Developments owned by non-profit affordable housing providers or with rents subsidized at levels above the surrounding market generally represent a low risk of conversion. Units At-Risk in Contra Costa County Based on available information, it appears that the County is at risk of losing an estimated 766 units of affordable housing over the next decade. Approximately half of these units are currently occupied by low-income senior and disabled populations. At-risk projects include developments financed 1 through the project-based Section 8 and tax-exempt bond programs and are listed in the following table. (See also Attachment A, Section II.) Project Location Risk Level Affordable Target Units Population Lakeshore Apts. Antioch Medium/low 54 Families Clayton Gardens Concord Medium 130 Seniors/disabled Clayton Villa Concord Medium 79 Martinez Senior Martinez High 100 Seniors/disabled Apartments East Santa Fe PittsburgMedium 19 Seniors/disabled Woods Manor PittsburgHigh 77 Families Pleasant Hill Pleasant Hill Medium 101 Seniors Village St. Johns Apts. Richmond Medium 156 Families_ Cedar Point San Ramon Medium 50 Seniors Total Units 766 Preservation Strategies and Programs HUD has developed and Congress has funded three initiatives to address the need to preserve federally-assisted affordable housing and assist low-income households displaced as a result of conversion of at-risk units to market rate. These initiatives are described in Attachment A, Section III. The federal initiatives generally follow one of two approaches: • financial incentives are provided to owners to remain in the federally-assisted programs and maintain project affordability; or, • in the event of project conversion to market-rate, the impact on low-income residents is mitigated by providing tenant-based rent subsidies. The major sources of financing for affordable housing development at the state and local level include tax-exempt bond authority allocated by the California Debt Limit Allocation Committee (CDLAC) and Low-Income Housing Tax Credits (LIHTCs)allocated by the California Tax Credit Allocation Committee (CTCAC). CDLAC has established a priority for preservation projects in the allocation of bond authority,while CTCAC reserves 10 percent of each year's allocation of LIHTCs for this purpose. The preservation of John F.Kennedy Manor in Richmond was accomplished earlier this year by using a combination of federal incentives and LIHTCs. The County Community Development Block Grant (CDBG), HOME Investment Partnership Act (HOME) and Redevelopment Agency affordable housing programs emphasize long-term affordability in the allocation of funds(40 to 60 years). In addition, funds are made available in the form of deferred or residual receipts loans,providing the County with substantial potential leverage to negotiate for extended affordability at the end of the loan term. CDBG and HOME funds may also 2 be used to assist affordable housing developers to acquire and/or rehabilitate existing multifamily rental housing for purposes of preserving affordability. Tax-exempt financing to acquire and rehabilitate affordable housing developments, including those subject to expiring federal subsidies and affordability restrictions, can also be an effective approach to preservation. For example, the preservation of the Crescent Park Apartments in Richmond was accomplished by this method in 1994. The County Agency has also been active in efforts to extend the affordability of tax-exempt bond developments by working with project owners to refund bonds at favorable tax-exempt rates in exchange for extended affordability. Over 400 units of affordable housing have been maintained through this method. Finally, it is noted that the majority of at-risk units are located within Contra Costa cities. While specific information concerning preservation activities in the cities is not currently available, cities such as Concord and Richmond have active affordable housing programs with acquisition and rehabilitation components. In addition to the above County programs, the Board of Supervisors may wish to convene a workshop with the cities to address the issue of preservation and identify ways in which jurisdictions can work together to maintain Contra Costa's existing affordable housing stock for the County's low-income populations. cc: Clerk of the Board Dennis Bang,Community Development Director Jim Kennedy,Deputy Director—Redevelopment 3 (+r f G Attachment A PRESERVATION OF AFFORDABLE HOUSING IN CONTRA COSTA COUNTY Section Y—At-Risk Units and Affordable Housing Preservation At-risk units are defined as affordable multifamily housing developments which are at risk of conversion to higher market rents due to the expiration of existing rent and occupancy restrictions typically imposed for specified terms by public financing sources. Major categories of at-risk projects include the following. Section 8 Project-Based Units--Twenty-five years ago, the federal government created the Section 8 Program to provide affordable housing for very-low and low-income households through the provision of tenant-based and project-based Section 8 certificates and vouchers. The tenant-based program provides rental assistance vouchers that may be used by eligible households to obtain housing in the private market. The voucher pays the difference between the allowable market rent and an affordable rent defined as 30 percent of the household's gross monthly income. Therp oject- based component of the program provides rent subsidies tied to specific multifamily properties in an effort to maintain the availability of affordable rental housing in identified market areas. In order to receive project-based Section 8 assistance, project owners were required to enter into contracts with the federal government through which they agreed to participate in the program for a minimum of 20 years and rent the units to very-low income households at Section 8 rents. When Section 8 contracts expire, either HUD or the project owner can choose not to renew. Section 8 rents are based on fair market rents (FMRs) estimated by the U.S. Department of Housing and Urban Development(HUD)and are intended to reflect average market rents in specific metropolitan areas and counties'. In smaller local market areas, Section 8 FMRs may be above or below actual market rents. In the case where Section 8 rents are above market rents, property owners have little financial incentive to leave the program. However, in response to federal budget constraints, HUD has shifted from renewing contracts for an additional 20 years to annual renewals. This has led to substantial confusion and uncertainty among project owners and residents concerning whether or not the Section 8 certificates will continue to be available to assist residents and support the project over the long run. In contrast to the above situation, Section 8 rents are often below market rents in high cost local housing markets such as those in portions of the Bay Area and Contra Costa County. For example, in Contra Costa County rents in the first quarter of 1999 averaged$9292 compared to FMRs ranging from $586 for a one-bedroom to $861 for a two-bedroom apartment. Project-based Section 8 projects with expiring contracts are most at-risk of leaving the program and converting to market 1 pair market rents for the Oakland DMSA apply to both Contra Costa and Alameda County, 2 Data on average rents not available by unit size. 4 rate rents in areas where actual market rents exceed the maximum allowable FMRs under the Section 8 program. In this situation, the profit-motivated project owner is unlikely to renew the Section 8 contract, resulting in a decline in the affordable housing inventory. Nationwide, three million households are currently assisted through the Section 8 Program, including approximately 1.5 million in developments with project-based Section 8 certificates. HUD estimates that during the next five years,two-thirds of all project-based Section 8 contracts covering over one million subsidized housing units will expire. Based on experience to date, HUD estimates that approximately 10 percent will convert to market rate, resulting in a loss of 100,000 affordable units nationwide. Section 8 Moderate Rehabilitation Units — The Section 8 Moderate Rehabilitation Program was created by Congress to assist in the maintenance of affordable housing through the provision of project-based Section 8 certificates to provide rents at levels necessary to support debt required to undertake rehabilitation of the property. Participating project owners were required to enter into contracts with HUD to ensure that the rehabilitated units remained affordable to and occupied by low-income households for the duration of the Section 8 contract (ten to 15 years). Initially, contracts could be renewed at the discretion of the administering local Housing Authority.However, this program has now been discontinued by Congress with the result that these units are also at risk of conversion. Expiring Below-Market Units in Tax-Exempt Bond Financed Developments—Federal law requires that multifamily rental housing projects financed with tax-exempt bonds reserve a portion of the units developed for low-income households. Developers utilizing these bonds must either provide 20 percent of the units developed to very-low income households (incomes at/below 50 percent of the area median income or AMI)at affordable rents or reserve 40 percent of the units for households with incomes at or below 60 percent AMI. The units must remain affordable for the term of the bonds or 15 years,whichever is longer. Once the term expires, the project owner is free to rent the units at market rents. Projects with maturing bond issues and expiring regulatory agreements represent another major category of at-risk affordable housing projects. Low-Income Housiniz Tax Credit Projects—Federal law requires that multifamily housing projects financed with Low-Income Housing Tax Credits (LIHTCs) must remain affordable to very-low income households for a minimum of 15 years. Projects funded in the early years of this program may be at risk of conversion to market rate in the near future. However,over the last ten years many states including California have emphasized longer terms of affordability in the allocation of LIHTCs among competing projects. Consequently,the majority of affordability terms for projects funded under this program are typically 55 years from the date the project is placed in service. Other Affordable Housing?Developments with Expiring Affordability Restrictions Affordable housing developments financed with federal, state and local government funds are typically required to remain affordable to and occupied by a specified target population for minimum terms defined in housing program enabling legislation and regulations. 5 Programs to develop affordable housing funded with federal resources through HUD have the following target populations and affordability terms: • Section 202 Housing for Seniors--multifamily rental projects funded through this program must be occupied by very low-income senior households and rents may not exceed 30 percent of a tenant household's monthly income. Projects are developed and owned by non-profit organizations and required to remain affordable to and occupied by the target population for 40 years. Risk of conversion to market rate low. • Section 811 Housing for Disabled Populations—affordability requirements same as Section 202 Program with target population of very-low income households with at least one disabled member. Projects are owned/developed by non-profit corporations. Risk of conversion to market rate low. County Programs to provide financing for the development of affordable housing include the following. • Community Development Block Grant Program—housing must be affordable to and occupied by lower-income households upon initial occupancy only; funds provided to County through HUD. Although federal regulations do not require a specific term of affordability,the County CDBG program currently requires projects to remain affordable for a minimum of 40 to 60 years. • HOME Investment Partnership Act Program—housing must be affordable to and occupied by very-low and low-income households; funds provided through HUD.Federal regulations require maintained affordability for a minimum of 30 years. Again,the Contra Costa HOME program emphasizes longer-term affordability,requiring projects to remain affordable for 40 to 60 years. • Redevelopment Agency(RDA)Housing Set-Aside Funds—housing must be affordable to and occupied by very-low, low and moderate-income households for a minimum of 15 years according to state law. However, in order for affordable units to count toward an Agency's production requirements,units must remain affordable for the life of the Redevelopment Area development plan. For example, in the County's five redevelopment areas units must remain affordable until 2025 to 2030 (depending on the specific area) in order to satisfy the requirements for production count. Given that the majority of County-funded projects(CDBG,HOME,RDA)are developed and owned by non-profit organizations and that the County programs require long-term affordability as a condition of funding,the near-term risk of conversion for the County-funded projects is relatively low. In addition,County funds are provided to project sponsors in the form of a subsidized loan with financial terms dependent on the financial needs of the project(e.g., zero to low-interest,payment deferred). The majority of County loans are either deferred payment or residual receipts(payment from net cash flow only) with the balance due at the earlier of expiration of the loan term or sale/transfer of the property.This approach provides the County with potentially significant leverage in preserving affordable units at the end of the loan term through renegotiation or extension of the 6 CONTRA COSTA COUNTY COMMUNITY DEVELOPMENT DEPARTMENT DATE: March 27, 1998 TO: Internal Operations Committee Supe * r Donna Gerber pervi r Jim Rogers FROM: nnedy, Deputy Director Redevelopment Kathleen K. Hamm, Principal Planner - Housing SUBJECT: Progress Report on Proposed County Policies to Require Developers to Provide Affordable Housing or Pay an In-lieu Fee for Affordable Housing Development The Board of Supervisors requested that the Community development Department prepare a report containing the following: o summary of County experience with Development Agreements incorporating an affordable housing requirement; o current assessment of the 1992 recommendations of the Housing Trust Fund Task Force; o identification of procedures to adopt and implement a County ordinance requiring Developers to include an affordable housing component in proposed developments or pay in-lieu fees to a County mass-transit oriented affordable housing trust fund; a proposed policies and ordinance to establish an Inclusionary Housing program in Contra Costa County; and o identification of resources to cover the cost of analysis and report preparation. A copy of the Board's action on this issue is attached for your information (Attachment A). The following is an interim report reflecting progress achieved, issues identified, and steps required to meet the intent of the Board's direction. I. Summa of Coun experience with Development Agreements with affordable housing components. The County has entered into development agreements containing affordable housing requirements for the following: Stonecastle Homes; Weideman Ranch; Dougherty Valley; and Cypress Lakes. Three of the agreements require developer contributions of$400 to $3,333 per unit developed to a County Affordable Housing Trust Fund. The Dougherty Valley agreement requires that 25 percent of all units developed must be affordable to very-low, low and moderate- income households`. To date, no units have been constructed under these agreements and no fees have been paid. (See Attachment 13 to this report for a summary of each agreement and the current status.) If. Assessment of the 1992 recommendations of.the Housing Trust Fund Task Force. The 1992 recommendations of the Housing Trust Fund Task Force were not implemented due to the severe recession that affected the.nation and California. The 1992 recommendations were accepted by the Board of Supervisors on April 21, 1992. A summary of the Task Force 'Deport is included as Attachment D. A copy of the full report is included as Attachment E. The recommendations of the Housing Trust Fund Task Force represented a carefully crafted compromise approach that: A. balanced the financial responsibilities for contributions to a Housing Trust Fund . by including both "countywide" sources of revenue(General Obligation Bonds and Solid Waste Franchise Fees) and a narrowly assessed source (inclusionary program with an in- lieu fee component); and B. balanced the affordable housing needs of households with a range of income levels by recommending the use of trust fund revenues for the development of additional rental. housing affordable to very-low/low income households as well as the provision of improved homeownership opportunities for low/moderate income households. The balanced approach that was recommended reflected an assessment that countywide sources requiring voter approval (e.g., General Obligation Bonds require 2/3 voter approval) would need to appeal to a broad segment of the population. In addition, all communities could find some element of benefit that could work in their locale. The compromise approach of providing for a wide breadth of financial responsibility and a wide geographic/programmatic element reflected a politically prudent course at the time. This approach may be equally prudent today. The response to a recent briefing of the City/County leery-low, low, and moderate income households are defined annually by the State Department of Housing and Community development in accordance with California Health and Safety Code Section 50075.5 and 50105. Very-low income households are defined as households with incomes at or below 50 percent of the Area Median Income for Contra Costa County adjusted for household size ("AMI"), low-income households have incomes at/below 80 percent AMI, and moderate income households have incomes at/below 120 percent AMI. Housing is considered to be affordable so long as the total charges for rent, utilities and related housing services do not exceed 30 percent of a householdts gross monthly income at the maximum income levels for each income category. ti 2Housing Trust Funds are separate funds established by jurisdictions to provide resources for the development of affordable housing opportunities within a specified geographic area typically coincident with the boundaries of the jurisdiction providing the resources. Examples of financing sources for a housing trust fund include general obligation bond financing, special fees, and taxes. 3An inclusionary housing program is a program which requires all new residential developments to include a specific percentage of housing units affordable to and occupied by very-low, low and/or moderate income households. A provision frequently included in inclusionary housing programs allows developers to pay a specified fee in lieu of producing the required percentage of affordable housing units. yi Relations Committee by Supervisor Rogers suggests more support for a broad-based collaborative approach such as General Obligation Bonds. Ill. —modures to Adopt and Implement a County Ordinance to Require Developers toInclude Affordable Housing in Proposed Developments or Pay In-Lieu Fees to a County Mass-'Transit Oriented Affordable Housing Fund. A proposed scope of work required to fully respond to the Board's prior directive to explore procedures required to establish an inclusionary affordable housing program similar to the Dougherty Valley model with the addition of an in-lieu fee component (the "inclusionary program") is included with this report as Attachment C. Staff has reviewed the County's General Plan and determined that current Plan policies and goals are adequate to support an inclusionary housing program under which developers would have the option of producing the required affordable housing units or paying specified fees into a County Affordable Housing Trust Fund. Consequently, such a program would not require a General Plan Amendment. Goals and policies in the Housing Element of the General Plan which are supportive of an affordable housing ordinance with an in-lieu fee component are contained in Attachment F to this report. In contrast, staff has concluded that current General Plan goals and policies are not adequate to support an inclusionary program which would require payment of in-lieu fees to a housing trust fund with resources limited to the provision of subsidies for affordable housing development near mass-transit (e.g., BART). Consequently, such a program would most likely require a General Plan Amendment. Due to the General Plan issues and additional complexities of an inclusionary program with in- lieu fees paid into a mass-transit oriented trust fund, staff recommends that the Community Development Department be directed to. o limit the scope of the current analysis to the more general inclusionary housing program with in-lieu fees paid into a Housing Trust Fund to support affordable housing development throughout the County; and o continue to consult with Supervisor Rogers and other interested members of the Board concerning issues and options with respect to the development of affordable housing at locations near mass transit. As previously stated, a detailed work program for the development of an inclusionary ordinance is included as Attachment C to this report. As identified by County Counsel, analysis of the following issues and questions, including appropriate documentation, must precede the actual adoption of such an ordinance in order to justify the imposition of an affordable housing or in lieu fee condition of approval for development projects. A. Is there the required "nexus" or connection between an identified legitimate government interest and the requirements which would be imposed by a County ordinance implementing an inclusionary program with:an in-lieu fee option and is that interest advanced by such an ordinance? [See Nollan v. California Coastal Commission, 483 U.S. 825(1987).] B. if the required nexus exists, is there a. "rough proportionality" between the condition to be imposed on the developers (by ordinance)and the development's impact? [See Dolan v. City of Tigard 512 U.S. 374, (1934).] A response to this issue requires a determination of the specific percentage of affordable housing required for the project and/or a determination of a per unit in-lieu fee amount based on the project impacts which the inclusionary requirement or fee is intended to mitigate [see Ehrlich v. City of Culver City (1996) 12 Cal. 4th 854]. C. For purposes of in lieu fee requirement, can all the statutory requirements for a development fee be met under Government Code Section 66000 et seq? This analysis requires the'following determinations. 1. Identification of the fee purpose and use. With respect to an inclusionary program, the fee purpose and use would potentially involve the production of affordable housing to meet the needs of very-low, low and moderate-income households in Contra Costa. 2. Determination that there is a"reasonable relationship"between the fee's use and the type of development upon which the fee is imposed. This analysis would require the establishment of a relationship between new housing development and the need for additional affordable housing. 3. Determination that there is a "reasonable relationship" between the amount of the fee imposed and the cost of mitigating the impact of the proposed development. This would require demonstration of a quantitative relationship between the amount of a proposed in-lieu fee and the increased demand or need for affordable housing resulting from new housing development. Based on discussions with County Counsel, to support such an ordinance, a nexus analysis and documentation to support the statutory fee requirements(Government Code Section 66000 et seq), which establish a reasonable, quantifiable relationship between the proposed inclusionary requirements and in-lieu fee conditions of approval and the need for additional affordable housing created by new housing development, should be prepared. Attachment G provides a brief summary of inclusionary ordinances enacted by selected jurisdictions in California. IV. Budget Issues. The proposed initial funding source for this activity is $40,000 contributed as a condition of approval by the developer of Subdivision 8000(Kaufman and Broad/CA Meadows"). As directed by the Board, these funds have been paid into a Community Development Department trust account to support the study of affordable housing issues. a Approval of Final Development Plan for SD958000 by Board of Supervisors on August 15,, 1997 - condition number 68. ti C 21 EXHIBIT 4 REVENUE SOURCES ELIMINATED IN FIRST PHASE EVALUATION") HOUSING TRUST FUND CONTRA COSTA COUNTY Sales Tax: County already collects state-mandated maximum rate. Excess Bond Reserves: Based on a general understanding of recent IRS rulings, future excess reserves, if any, could not be used to fund Trust Fund activities. Sale of County Land Assets: County has dedicated Asset Management Revenues to generate funds for General Fund. Asset base reportedly limited. UDAG Loan Repayments: Reportedly, no such funds are available. Housing Preservation/Condominium Conversion No significant amount of on-going demolition or Fee: conversion activity predicted at this time. Special Property Tax Levy: Expressly prohibited by State law without voter approval. Voluntary Contribution of Mortgage Impound By law, these funds must be placed in an interest Account Interest: bearing account to the benefit of the borrower. Voluntary Contribution of Interest on Sale Escrow Judged infeasible due to growing political awareness and Tenant Security Deposits: that interest on these funds should accrue to the depositors. Also extremely complex to administer, Current County Housing Funds: Existing Housing Resources such as Community Development Block Grant allocation and HOME Funds do not represent net new housing funds. Tax Increment Housing Set Aside Funds: Not net new housing revenue source. Legal (and potentially political) obstacles to pooling City/County funds, without complex distribution scheme. Transient Occupancy Tax: Limited revenue potential. �tf Includes revenue sources used in other communities with Housing Trust Funds. Source: Keyser Marston Associates, Inc. May 1992 1127bNo001.038 rL C's� G G 16 ? N 'S6 N N �� w.p� o � �► O � ✓ W w %� ORto to w � � + N O o as tt► to gin. m fi f7 �C 4 7 2 � .y' N 6 G N 7 w N+ N fip y t1 � ._�.SS D ty b �• os 5 1W N W N N fi CL rte+'fi ip N d SN- j •9 p�G� '9 N ae E�� �N N ,'� b �'.« O �� �►.6 ? tl a 616 N i6 rtsi fi' n r i` S N" "re { fi r : 16 ^ N off+� 7 a � � 01 10 n to to N 1 loan in exchange for additional years of affordability. In cases where owners elect not to extend project affordability,repayment of the loans provides the County with funds which can be used to develop additional affordable units. Section II-At-Risk Units in Contra Costa County Based on available information,it appears that the County is at risk of losing an estimated 766 units from its affordable housing stock over the next decade, including: • seven projects with expiring Section 8 contracts containing 662 affordable units; and • two tax-exempt bond projects with maturing bond issues and expiring affordability restrictions containing 104 affordable units. None of the projects funded with County CDBG, HOME or Redevelopment Agency resources is in danger of converting to market rate within the next decade. As previously indicated, County housing programs emphasize long-term affordability with most projects owned by non-profits which have as their mission the provision of affordable housing.There is no information currently available concerning projects funded through other programs with expiring affordability restrictions(e.g., City Redevelopment Agency and tax-exempt bond programs). Projects with ExWring Project-Based Section 8 Contracts According to information provided by the California Housing Partnership (CHP), there are approximately 3,500 affordable housing units in 44 developments funded in part with project-based Section 8 certificates and therefore potentially at risk of being lost from the County's affordable housing inventory through conversion to market rents. CHP further analyzed the projects in an effort to determine the level of conversion risk. Projects with additional long-term affordability restrictions imposed by other funding sources (e.g., HOME, CDBG, LIHTCs), projects owned by non-profit affordable housing organizations, and projects with existing Section 8 contract rents at or above market rents are assumed to have a relatively low risk of conversion. In contrast,projects owned by profit-motivated or limited dividend corporations with current rents below market are viewed as having a medium to high risk of conversion.Based on this assessment,seven projects containing 662 units are assumed to have a significant risk of conversion to market rate: • Woods Manor located at 850 East Leland Road in Pittsburg—high risk, 77 units/family. • Clayton Gardens located at 4220 Clayton Road in Concord--medium risk, 130 units/seniors and disabled populations. • Clayton Villa located at 4450 Melody Drive in Concord—medium risk, 79 units, • East Santa Fe Apartments located at 425 East Santa Fe Avenue in Pittsburg—medium risk, 19 units/seniors and disabled. • Martinez Senior Apartments located at 90 F Street in Martinez—high risk, 100 units/seniors and disabled, 3 Data on tax-exempt bond projects includes only those bonds issued by the County.Projects financed with bonds issued by Contra Costa Cities may include additional at-risk affordable units. 7 • Pleasant Hill Village located at 100 Boyd Road in Pleasant Hill—medium risk, 101 units/seniors. • St. Johns Apartments located at 121 West McDonald Avenue in Richmond—medium risk, 156 units/family. Of these units,just over half serve senior and disabled populations. The Section 8 contracts for all of the medium to high-risk projects expire in 1999. Assuming all project owners agree to continue in the program,HUD is currently renewing Section 8 commitments for one year at a time. According to OHP, owners of two projects containing 80 units affordable to senior and disabled households prepaid their HUD mortgage, opted out of the Section 8 program and, presumably, converted the units to market rate in 1998/99 (Deliverance Temple I and II located on Potrero Avenue in Richmond). Tax-Exempt Bond Projects with Expiring,�Affordability Restrictions The County is an active issuer of tax-exempt bonds to finance multifamily rental housing which includes an affordable component. An assessment of the County's inventory indicates that two projects containing 104 units have maturing bond issues and regulatory agreements that will expire prior to 2010. Therefore, these projects are also at-risk of conversion to market rate. • Cedar Point in San Ramon-medium risk, 50 affordable units out of 248 total/seniors and family. • Lakeshore Apartments in Antioch—low/medium risk, 54 affordable units out of 268 total/family. Through a variety of refunding or restructuring methods, the County may be able to extend the affordability terms of these projects. This would typically occur when the financing is within a few years of maturing (June of 2008 for Cedar Point and December of 2007 for Lakeshore) Section III— strategies and programs designed to maintain project affordability and assist residents of converted units HUD Initiatives HUD has developed and Congress has funded three initiatives to address the need to preserve affordable housing and assist low-income households displaced as a result of the conversion of at- risk units to market rate. These initiatives are: the Multifamily Assisted Housing Reform and Affordability Act (MAHRA) Program("Mark-to-Market"), the Emergency Initiative to Preserve Below-Market Project-Based Section 8 Multifamily Housing Stock("Mark-Up-to-Market"); and the provision of additional funding for tenant-based Section 8 certificates. These programs are summarized in the following. • MAHRA or Mark-to-Market Program—passed by Congress in 1997,this program addresses the need to restructure rents and financing for affordable housing developments with project-based Section 8 certificates where the Section 8 contract rents exceed market rents in the surrounding 8 area. HUD estimates that half of all project-based Section 8 properties have rents above market resulting in excess rent payments of up to $1 billion per year nationwide. These projects were originally funded with debt set at the level necessary to develop the project. In order to enable the projects to obtain required financing, projects were awarded project-based Section 8 contracts with rents set at levels required to service the debt. The projects were provided with additional security through the FHA insurance program funded through HUD. As previously stated, about half of the project-based Section 8 developments involve Section 8 rents which exceed current market. While the payment of contract rents in excess of market provides an incentive for project owners to remain in rather than opt out of the Section 8 program, it creates an image of unnecessary federal expenditures and results in a substantial budget problem for HUD. The obvious solution is for HUD to lower the rents to market when renewing Section 8 contracts for these projects. However, if HUD lowered the rents to market and provided no other assistance, the projects would not be able to service their debt and would likely go into default, resulting in tenant displacements and losses to the affordable housing stock and the FHA insurance fund. In order to reduce the Section 8 rents to market levels without incurring massive defaults,project debt must be restructured to a level supportable by the market. The Mark-to-Market Program permits HUD to renew Section 8 contracts with property owners at the lower market rents in exchange for partial restructuring of federally insured financing on the properties(e.g., interest rate write-down, debt forgiveness). Participating projects must remain affordable for an additional 30 years. While the need to restructure the debt will result in liabilities to the FHA insurance program, HUD estimates that this approach will be a net savings to the Department, freeing up resources potentially available for other affordable housing initiatives in the future while preventing existing affordable housing projects from going into default. The Mark-to-Market Program is initiated through Participating Administrative Entities (PAEs) designated by HUD. The California Housing Finance Agency(CHFA)was recently designated as the PAE for the state. However,this program has yet to be initiated in California as HUD and CHFA are still negotiating the terms of the HUD contract. Additional problems relate to the complexity of the recently approved federal regulations. • Mark-Up-to-Market Program -- This program was developed to deal with Section 8 projects owned by for-profit entities which have contract rents below the current market. These projects are generally identified as having the greatest risk of conversion to market rate and subsequent loss from the affordable housing stock. Under this program, HUD is authorized to offer owners of developments with expiring project-based Section 8 contracts renewals at rents comparable to current market rents. Eligible projects must be in good condition and the owner must commit to continued participation in the program for five years. The Mark-Up-to-Market Program was authorized by Congress and the Administration as part of the FY 2000 HUD appropriations bill in October of this year and will remain in effect through June 30, 2000. • Expanded Section 8 Program — In addition to providing rental payment assistance for low- income households renting housing on the open market, HUD has proposed the expanded use of Section 8 vouchers to assist residents in properties which chose to opt out of the project-based 9 C'.3/ Section 8 program. In the specific case where project sponsors have opted out in order to raise rents to higher market levels, HUD has approved the use of enhanced or"sticky vouchers" to assist low-income households in maintaining their residence in the property. Sticky vouchers raise the allowable Section 8 subsidy for qualified households to the level required to meet the new market rents, effectively protecting the resident from the threat of displacement. If the household voluntarily chooses to relocate, the Section 8 voucher goes with the resident and the payment provided by the voucher reverts to the maximum permitted under the regular Section 8 program. Congress and the administration recently approved an additional 60,000 Section 8 vouchers for use nationwide. State Initiatives • State Department of Housing and Community Development(HCD)Acquisition/Rehabilitation Program — The FY 2000 budget signed by the Governor includes $2.5 million for predevelopment loans and technical assistance for at-risk units and $6 million for the Multi- Family Housing Program to acquire and rehabilitate rental housing. Although resources are clearly limited when viewed on a statewide basis, the latter program establishes a priority for preservation projects. • Tax-Exempt Bond Authority-The California Debt Limit Allocation Committee(CDLAC)has established a priority for preservation projects in the allocation of tax-exempt bond authority. The County has used authority allocated by CDLAC to acquire, rehabilitate and preserve a variety of affordable housing projects,including projects with expiring federal subsidies as well as privately-owned projects without federal subsidies. • Low-Income Housing Tax Credits-The California Tax Credit Allocation Committee (CTCAC) reserves 10 percent of each year's allocation of Low-Income Housing Tax Credits(LIHTCs)for preservation of at-risk units. Local/County Initiatives • The County Housing Element establishes preservation of the County's affordable housing stock as a major goal. • As previously discussed,the County CDBG,HOME and RDA programs emphasize long-term affordability in the allocation of funds (40 to 60 years). In addition, funds are provided in the form of deferred or residual receipts loan,providing the County with leverage to negotiate for extended affordability at the end of the loan term. CDBG, HOME and RDA funds may also be used to assist nonprofits and other affordable housing developers in acquiring and/or rehabilitating existing affordable rental housing for preservation purposes. 10 + The County actively seeks to extend the affordability of projects financed with tax-exempt bonds by restructuring or refunding existing bonds to maintain project financing at favorable tax- exempt rates in exchange for extended affordability terms. Over the past few years, the County has increased the term of affordability on 435 rental units through this restructuring/refunding strategy. H/kkh/preservl.doc 11 y•; CONTRA COSTA COUNTY COMMUNITY DEVELOPMENT DEPARTMENT DATE: December 10, 1999 TO: INTERNAL OPERATIONS COMMITTEE * Supervi or Gayle B. tilkema, Chair * perviso John Gioia, Member I M: Jim Ke y, pu hector- Redevelopment In l Develo ent and Affordable Housing The following responds to the additional questions of the Internal Operations Committee at its October 11, 1999 meeting. I. STATUS REDEVELOPMENT HOUSING SET-ASIDE: CITY AND COUNTY REDEVELOPMENT AGENCIES. The Redevelopment Housing Set-Aside represents the single largest source of affordable housing funds in the State of California, and it's one of the few sources that is growing. As we reported in October: * Statewide, the housing set-aside funds are increasing at an annual rate in excess of$500 million; * The statewide housing set-aside funds aggregate balance is approximately$1.5 billion, of which 1/3 is reported as unencumbered; * In Contra Costa County, the aggregate fund balance of the sixteen redevelopment agencies is $34.6 million, of which $10.1 million (29%) is reported as unencumbered (6/97). Annual revenues for the housing set-aside amount to approximately $13.5 million. In response to the Internal Operations Committee request, the staff requested each of the sixteen Redevelopment Agencies to submit copies of reports and documents that had already been prepared to comply with other legal requirements. No generation of new data was requested to minimize production requirements. Information requested included: ' Page 2 I. The Annual Report of Financial Transactions, including Schedule HCD (housing) for the Fiscal Year ending 6130198; 2. Adopted Redevelopment Agency Budgets for the last three years; 3. The Statement of Indebtedness filed with the County Auditor in September, 1999; Twelve of the sixteen redevelopment agencies responded and are included in this report. A thirteenth agency responded after the cut-off for inclusion in this report, and will be included in a supplemental report. Two agencies did not respond, while one agency affirmatively responded by suggesting the submittal of reports would not significantly increase knowledge of city accomplishments, but rather suggested a staff meeting that would lead to more useful reports and initiatives. A summary of this data is presented in Table 1, Staff draws the following conclusions from examining data received: * Funds are being expended at a rate comparable to receipt of revenues; # No Agency in the County has "Excess Surplus" funds (an accumulation of unexpended funds); * Each community designs its housing assistance programs to fit local needs; * Many of the activities are undertaken in partnership with the County's CDBG and/or HOME Program; Most of the activities are highly leveraged using a broad variety of private and public funds including low income housing tax credits, tax exempt bonds, Federal 202 Funds, AHP, bank leans, and County Funds - CDBG/HOME; All but one agency supports a portion of its administrative function from housing set-aside funds; * RDA's welcome opportunities to financially partner on projects. Policy direction from the County is not desired. More information sharing amongst the staffs/policymakers may prove beneficial; II. USE OF REDEVELOPMENT FUNDS OUTSIDE OF PROJECT AREAS Redevelopment Funds may be used outside of the redevelopment area from which they were generated under limited conditions. The general rule is that the project/facility(school, road, facility) must serve the redevelopment area and that the redevelopment contribution is H:memos\121091nfiilAfford.doc r9 t rn vy, m ro ro ro r ry w ra yd n i m py ! pki rKt pi y Gytr' m r@� ISD M N O• t� p' 0 H p Ob' Ci W tD ct r ° d ®a d N I M M N 0 i4 iv irk I Q� m N N I W p N p N 1�yt p p >b N W I \ W H• W I V V °(f W !°'t V W Qi CJ W • iA • 1 W 6 pi p W I O W N QV1 '@,9 N .ro 'A7 691 V N i• I tD !] O 1 O V O 0 O III"Ytt V tA ct O M O O W N 1 L9 & W rt N W H % O 4 O w W W I I (p� H N I N M Li 1•t M 49 M iM tri 1 h' F•S [y f) N I iD. 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Independent of the benefit finding, RDA funding must also be 1) linked to blight removal, and 2) found to be the only reasonable means of financing available. To my knowledge, the cities of Clayton, Concord, San Pablo and San Ramon have spent redevelopment funds on library improvements, while Pittsburg and the County have funded fire district improvements. Redevelopment Housing Set-Aside funds are somewhat more flexible with respect to the benefit findings. The general interpretation is that any housing activity within a community (city or unincorporated), whether inside or outside the project area, is presumed to be of benefit and therefore eligible for housing set-aside funding. Precedent also exists for funding projects outside of the community as well, however that has legal and political limitations. III. MOBILE HOME PARKS The County General Plan does have a land used designation for mobile home parks. All properties with a mobile home land use designation are currently developed as mobile home parks. Some mobile home parks have a land use designation other than mobile home(usually multi-family). The preservation of existing mobile home park uses may be promoted by changing the underlying general plan land use to mobile home. The development of new mobile home parks may be facilitated by: a) designation of additional vacant land as mobile home; and b) exempting new mobile home parks from the County's mobile home rent control ordinance. IV. AFFORDABLE HOUSING SPECIAL REVENUE FUND The County has established an "Affordable Housing Trust Fund" which is funded solely by one time contributions related to the defeasance, refunding or sale of residual assets from County single family bond programs. The County has exhausted all known assets from this source and the County is no longer able to issue single family bonds due to changes in state allocation procedures. The current status of this fund is set forth on Table 2: HAmemo9\121091nfillAfford.doc k , CONTRA COSTA COUNTY COMMUNITY DEVELOPMENT DEPARTMENT DEC 0 2DATE: December 1, 1999 TO: Supervisor John G' ' �� KE FROM: Kathleen K. Hamm 1 - Affordable Housing Program Manager SUBJECT: Preservation of Existing Affordable Housing in Contra Costa County This memorandum is in response to your September 27, 1999 request to the Community Development Department for information concerning the potential loss of affordable housing for very-low income families and seniors due to the expiration of existing rent and occupancy restrictions. This issue is addressed in the County Housing Element which establishes the preservation of existing affordable housing as a County goal. In reviewing the preservation issue, it must be emphasized that the full magnitude of this problem is not readily known due to the lack of a comprehensive affordable housing data base containing affordability restrictions and terms, target population, and ownership structure for individual projects. The Preservation Problem "At-risk units"are defined as affordable multifamily rental housing developments which are at risk of conversion to market rents due to the expiration of existing rent and occupancy restrictions typically imposed on a project by some form of public financing. Major categories of at-risk projects are described in Attachment A. Projects most vulnerable to conversion include multifamily developments located in high cost/high rent areas and those which are owned by a profit-motivated entity. Developments owned by non-profit affordable housing providers or with rents subsidized levels above the surrounding market generally represent a low risk of conversion. Units At-Risk in Contra Costa County Based on available information, it appears that the County is at risk of losing an estimated 766 units of affordable housing over the next decade.Approximately half of these units are currently occupied by low-income senior and disabled populations. At-risk projects include developments financed through the project-based Section 8 and tax-exempt bond programs and are listed in the following table. (See also Attachment A, Section 1I.) 1 Project Location Risk Level Affordable Target Units Population Lakeshore A ts. Antioch Medium/low 54 Families Clayton Gardens Concord: Medium 130 Seniors/disabled Cla on Villa Concord Medium 79 Martinez Senior t "fez .`' < High ' 100 11 Seniors/disabled Apartments '' East Santa Fe Pittsbur Medium 19 Seniors/disabled Woods Manor PittsburgHigh 77 Families Pleasant Hill Pleasant Hill Medium 101 Seniors Village St. Johns Apts. Richmond Medium 156 Families Cedar Point San Ramon Medium 50 Seniors Total Units 766 Preservation Strategies and Programs HUD has developed and Congress has funded three initiatives to address the need to preserve federally-assisted affordable housing and assist low-income households displaced as a result of conversion of at-risk units to market rate. These initiatives are described in Attachment A, Section III. The federal initiatives generally follow one of two approaches: • financial incentives are provided to owners to remain in the federally-assisted programs and maintain project affordability; or, • in the event of project conversion to market-rate, the impact on low-income residents is mitigated by providing tenant-based rent subsidies. The major sources of financing for affordable housing development at the state and local level include tax-exempt bond authority allocated by the California Debt Limit Allocation Committee (CDLAC) and Low-Income Housing Tax Credits(LIHTCs) allocated by the California Tax Credit Allocation Committee(CTCAC).CDLAC has established a priority for preservation projects in the allocation of bond authority,while CTCAC reserves 10 percent of each year's allocation of LIHTCs for this purpose.The preservation of John F. Kennedy Manor in Richmond was accomplished earlier this year by using a combination of federal incentives and LIHTCs. The County Community Development Block Grant(CDBG), HOME Investment Partnership Act (HOME) and Redevelopment Agency affordable housing programs emphasize long-term affordability in the allocation of funds(40 to 60 years). In addition, funds are made available in the form of deferred or residual receipts loans,providing the County with substantial potential leverage to negotiate for extended affordability at the end of the loan term. CDBG and HOME funds may also be used to assist affordable housing developers to acquire and/or rehabilitate existing multifamily rental housing for purposes of preserving affordability. Tax-exempt financing to acquire and 2 rehabilitate affordable housing developments, including those subject to expiring federal subsidies and affordability restrictions, can also be an effective approach to preservation. For example, the preservation of the Crescent Park Apartments in Richmond was accomplished by this method in 1994. The County Agency has also been active in efforts to extend the affordability of tax-exempt bond developments by working with project owners to refund bonds at favorable tax-exempt rates in exchange for extended affordability. Over 400 units of affordable housing have been maintained> through this method. Finally, it is noted that the majority of at-risk units are located within Contra Costa cities. While specific information concerning preservation activities in the cities is not currently available, cities such as Concord and Richmond have active affordable housing programs with acquisition and rehabilitation components. In addition to the above County programs,the Board of Supervisors may wish to convene a workshop with the cities to address the issue of preservation and identify ways in which jurisdictions can work together to maintain Contra Costa's existing affordable housing stock for the County's low-income populations. cc: Board of Supervisors Dennis Barry,Community Development Director Jim Kennedy,Deputy Director—Redevelopment Beth Lee,Project Area Manager-Redevelopment Kara Douglas,Housing Planner 3 Attachment A PRESERVATION OF AFFORDABLE HOUSING IN CONTRA COSTA COUNTY Section I—At-Risk Units and Affordable Housing Preservation At-risk units are defined as affordable multifamily housing developments which are at risk of conversion to higher market rents due to the expiration of existing rent and occupancy restrictions typically imposed for specified terms by public financing sources. Major categories of at-risk projects include the following. Section 8 Project-Based Units—Twenty-five years ago,the federal government created the Section 8 Program to provide affordable housing for very-low and low-income households through the provision of tenant-based and project-based Section 8 certificates and vouchers. The tenant-based program provides rental assistance vouchers that may be used by eligible households to obtain housing in the private market. The voucher pays the difference between the allowable market rent and an affordable rent defined as 30 percent of the household's gross monthly income. Therp oject- based component of the program provides rent subsidies tied to specific multifamily properties in an effort to maintain the availability of affordable rental housing in identified market areas. In order to receive project-based Section 8 assistance, project owners were required to enter into contracts with the federal government through which they agreed to participate in the program for a minimum of 20 years and rent the units to very-low income households at Section 8 rents. When Section 8 contracts expire,either HUD or the project owner can choose not to renew. Section 8 rents are based on fair market rents (FMRs) estimated by the U.S. Department of Housing and Urban Development(HUD)and are intended to reflect average market rents in specific metropolitan areas and counties'. In smaller local market areas, Section 8 FMRs may be above or below actual market rents. In the case where Section 8 rents are above market rents, property owners have little financial incentive to leave the program. However,in response to federal budget constraints,HUD has shifted from renewing contracts for an additional 20 years to annual renewals. This has led to substantia confusion and uncertainty among project owners and residents concerning whether or not the Section 8 certificates will continue to be available to assist residents and support the project over the long run. In contrast to the above situation, Section 8 rents are often below market rents in high cost local housing markets such as those in portions of the Bay Area and Contra Costa County. For example, in Contra Costa County rents in the first quarter of 1999 averaged$9292 compared to FMRs ranging from $686 for a one-bedroom to $861 for a two-bedroom apartment. Project-based Section 8 projects with expiring contracts are most at-risk of leaving the program and converting to market 1 Fair market rents for the Oakland PMSA apply to both Contra Costa and Alameda County. 2 Data on average rents not available by unit size. 4 rate rents in areas where actual market rents exceed the maximum allowable FMRs under the Section 8 program. In this situation, the profit-motivated project owner is unlikely to renew the Section 8 contract, resulting in a decline in the affordable housing inventory. Nationwide, three million households are currently assisted through the Section 8 Program, including approximately 1.5 million in developments with project-based Section 8 certificates. HUD estimates that during the next five years,two-thirds of all project-based Section 8 contracts covering over one million subsidized housing units will expire. Based on experience to date,HUD estimates that approximately 10 percent will convert to market rate,resulting in a loss of 100,000 affordable units nationwide. Section 8 Moderate Rehabilitation Units — The Section 8 Moderate Rehabilitation Program was created by Congress to assist in the maintenance of affordable housing through the provision of project-based Section 8 certificates to provide rents at levels necessary to support debt required to undertake rehabilitation of the property. Participating project owners were required to enter into contracts with HUD to ensure that the rehabilitated units remained affordable to and occupied by low-income households for the duration of the Section 8 contract (ten to 15 years). Initially, contracts could be renewed at the discretion of the administering local Housing Authority. However, this program has now been discontinued by Congress with the result that these units are also at risk of conversion. Expiring Below-Market Units in Tax-Exempt Bond Financed Developments—Federal law requires that multifamily rental housing projects financed with tax-exempt bonds reserve a portion of the units developed for low-income households. Developers utilizing these bonds must either provide 20 percent of the units developed to very-low income households(incomes at/below 50 percent of the area median income or AMI)at affordable rents or reserve 40 percent of the units for households with incomes at or below 60 percent AMI. The units must remain affordable for the term of the bonds or 15 years,whichever is longer. Once the term expires,the project owner is free to rent the units at market rents. Projects with maturing bond issues and expiring regulatory agreements represent another major category of at-risk affordable housing projects. Low-Income Housing Tax Credit Projects—Federal law requires that multifamily housing projects financed with Low-Income Housing Tax Credits (LIHTCs) must remain affordable to very-low income households for a minimum of 15 years. Projects funded in the early years of this program may be at risk of conversion to market rate in the near future. However,over the last ten years many states including California have emphasized longer terms of affordability in the allocation of LIHTCs among competing projects. Consequently,the majority of affordability terms for projects funded under this program are typically 55 years from the date the project is placed in service. Other Affordable Housing Developments with Exyiring Affordability Restrictions Affordable housing developments financed with federal, state and local government funds are typically required to remain affordable to and occupied by a specified target population for minimum terms defined in housing program enabling legislation and regulations. 5 ... y A Programs to develop affordable housing funded with federal resources through HUD have the following target populations and affordability terms: • Section 202 Housing for Seniors—multifamily rental projects funded through this program must be occupied by very low-income senior households and rents may not exceed 30 percent of a tenant household's monthly income. Projects are developed and owned by non-profit organizations and required to remain affordable to and occupied by the target population for 40 years. Risk of conversion to market rate low. • Section 811 Housing for Disabled Populations—affordability requirements same as Section 202 Program with target population of very-low income households with at least one disabled member. Projects are owned/developed by non-profit corporations. Risk of conversion to market rate low. County Programs to provide financing for the development of affordable housing include the following. • Community Development Block Grant Program—housing must be affordable to and occupied by lower-income households upon initial occupancy only; funds provided to County through HUD. Although federal regulations do not require a specific term of affordability, the County CDBG program currently requires projects to remain affordable for a minimum of 40 to 60 years. • HOME Investment Partnership Act Program—housing must be affordable to and occupied by very-low and low-income households; funds provided through HUD. Federal regulations require maintained affordability for a minimum of 30 years. Again, the Contra Costa HOME program emphasizes longer-term affordability,requiring projects to remain affordable for 40 to 60 years. • Redevelopment Agency(RDA)Housing Set-Aside Funds—housing must be affordable to and occupied by very-low, low and moderate-income households for a minimum of 15 years according to state law. However, in order for affordable units to count toward an Agency's production requirements,units must remain affordable for the life of the Redevelopment Area development plan. For example, in the County's five redevelopment areas units must remain affordable until 2025 to 2030 (depending on the specific area) in order to satisfy the requirements for production count. Given that the majority of County-funded projects(CDBG,HOME,RDA)are developed and owned by non-profit organizations and that the County programs require long-term affordability as a condition of funding, the near-term risk of conversion for the County-funded projects is relatively low. In addition, County funds are provided to project sponsors in the form of a subsidized loan with financial terms dependent on the financial needs of the project(e.g., zero to low-interest,payment deferred). The majority of County loans are either deferred payment or residual receipts(payment from net cash flow only) with the balance due at the earlier of expiration of the loan term or sale/transfer of the property. This approach provides the County with potentially significant leverage in preserving affordable units at the end of the loan term through renegotiation or extension of the 6 loan in exchange for additional years of affordability. In cases where owners elect not to extend project affordability,repayment of the loans provides the County with funds which can be used to develop additional affordable units. Section PI—At-Risk Units in Contra Costa County Based on available information,it appears that the County is at risk of losing an estimated 766 units from its affordable housing stock over the next decade, including: • seven projects with expiring Section 8 contracts containing 662 affordable units; and • two tax-exempt bond projects with maturing bond issues and expiring affordability restrictions containing 104 affordable units. None of the projects funded with County CDBG, HOME or Redevelopment Agency resources is in danger of converting to market rate within the next decade. As previously indicated, County housing programs emphasize long-term affordability with most projects owned by non-profits which have as their mission the provision of affordable housing. There is no information currently available concerning projects funded through other programs with expiring affordability restrictions(e.g.,City Redevelopment Agency and tax-exempt bond programs). Projects with Expiring Project-Based Section 8 Contracts According to information provided by the California Housing Partnership (CHP), there are approximately 3,500 affordable housing units in 44 developments funded in part with project-based Section 8 certificates and therefore potentially at risk of being lost from the County's affordable housing inventory through conversion to market rents.CHP further analyzed the projects in an effort to determine the level of conversion risk.Projects with additional long-term affordability restrictions imposed by other funding sources (e.g., HOME, CDBG, LIHTCs), projects owned by non-profit affordable housing organizations, and projects with existing Section 8 contract rents at or above market rents are assumed to have a relatively low risk of conversion. In contrast,projects owned by profit-motivated or limited dividend corporations with current rents below market are viewed as having a medium to high risk of conversion. Based on this assessment,seven projects containing 662 units are assumed to have a significant risk of conversion to market rate: • Woods Manor located at 850 East Leland Road in Pittsburg--high risk, 77 units/family. • Clayton Gardens located at 4220 Clayton Road in Concord—medium risk, 130 units/seniors and disabled populations. • Clayton Villa located at 4450 Melody Drive in Concord—medium risk, 79 units. • East Santa Fe Apartments located at 425 East Santa Fe Avenue in Pittsburg—medium risk, 19 units/seniors and disabled. • Martinez Senior Apartments located at 90 F Street in Martinez—high risk, 100 units/seniors and disabled. 3 Data on tax-exempt bond projects includes only those bonds issued by the County.Projects financed with bonds issued by Contra Costa Cities may include additional at-risk affordable units. 7 • Pleasant Hill Village located at 100 Boyd Road in Pleasant Hill—medium risk, 101 units/seniors. • St.Johns Apartments located at 121 West McDonald Avenue in Richmond—medium risk, 156 units/family. Of these units,just over half serve senior and disabled populations. The Section 8 contracts for all of the medium to high-risk projects expire in 1999. Assuming all project owners agree to continue in the program,HUD is currently renewing Section 8 commitments for one year at a time. According to CHP, owners of two projects containing 80 units affordable to senior and disabled households prepaid their HUD mortgage, opted out of the Section 8 program and, presumably, converted the units to market rate in 1998/99 (Deliverance Temple I and If located on Potrero Avenue in Richmond). Tax-Exempt Bond Projects with Expiring Affordabilily Restrictions The County is an active issuer of tax-exempt bonds to.finance multifamily rental housing which includes an affordable component. An assessment of the County's inventory indicates that two projects containing 1.04 units have maturing bond issues and regulatory agreements that will expire prior to 2010. Therefore,these projects are also at-risk of conversion to market rate. • Cedar Point in San Ramon-medium.risk, 50 affordable units out of 248 total/seniors and family. • Lakeshore Apartments in Antioch---low/medium risk, 54 affordable units out of 268 total/family. Through a variety of refunding or restructuring methods,the County may be able to extend the affordability terms of these projects. This would typically occur when the financing is within a few years of maturing(June of 2008 for Cedar Point and December of 2007 for Lakeshore) Section III—strategies and programs designed to maintain project affordability and assist residents of converted units HUD Initiatives HUD has developed and Congress has funded three initiatives to address the need to preserve affordable housing and assist low-income households displaced as a result of the conversion of at- risk units to market rate. These initiatives are: the Multifamily Assisted Housing Reform and Affordability Act(MAHRA) Program("Mark-to-Market"), the Emergency Initiative to Preserve Below-Market Project-Based Section 8 Multifamily Housing Stock("Mark-Up-to-Market"), and the provision of additional funding for tenant-based Section 8 certificates. These programs are summarized in the following. • MAHRA or Mark-to-Market Program—passed by Congress in 1997,this program addresses the need to restructure rents and financing for affordable housing developments with project-based Section 8 certificates where the Section 8 contract rents exceed market rents in the surrounding 8 fire' area. HUD estimates that half of all project-based Section 8 properties have rents above market resulting in excess rent payments of up to $1 billion per year nationwide. These projects were originally funded with debt set at the level necessary to develop the project. In order to enable the projects to obtain required financing, projects were awarded project-based Section 8 contracts with rents set at levels required to service the debt. The projects were provided with additional security through the FHA insurance program funded through HUD. As previously stated, about half of the project-based Section 8 developments involve Section 8 rents which exceed current market. While the payment of contract rents in excess of market provides an incentive for project owners to remain in rather than opt out of the Section 8 program,it creates an image of unnecessary federal expenditures and results in a substantial budget problem for HUD. The obvious solution is for HUD to lower the rents to market when renewing Section 8 contracts for these projects. However,if HUD lowered the rents to market and provided no other assistance,the projects would not be able to service their debt and would likely go into default, resulting in tenant displacements and losses to the affordable housing stock and the FHA insurance fund. In order to reduce the Section 8 rents to market levels without incurring massive defaults,project debt must be restructured to a level supportable by the market. The Mark-to-Market Program permits HUD to renew Section 8 contracts with property owners at the lower market rents in exchange for partial restructuring of federally insured financing on the properties (e.g., interest rate write-down, debt forgiveness). Participating projects must remain affordable for an additional 30 years. While the need to restructure the debt will result in liabilities to the FHA insurance program, HUD estimates that this approach will be a net savings to the Department, freeing up resources potentially available for other affordable housing initiatives in the future while preventing existing affordable housing projects from going into default. The Mark-to-Market Program is initiated through Participating Administrative Entities(PAEs) designated by HUD. The California Housing Finance Agency(CHFA)was recently designated as the PAE for the state. However,this program has yet to be initiated in California as HUD and CHFA are still negotiating the terms of the HUD contract. Additional problems relate to the complexity of the recently approved federal regulations. • Mark-Up-to-Market Program— This program was developed to deal with Section 8 projects owned by for-profit entities which have contract rents below the current market. These projects are generally identified as having the greatest risk of conversion to market rate and subsequent loss from the affordable housing stock. Under this program, HUD is authorized to offer owners of developments with expiring project-based Section 8 contracts renewals at rents comparable to current market rents.Eligible projects must be in good condition and the owner must commit to continued participation in the program for five years. The Mark-Up-to-Market Program was authorized by Congress and the Administration as part of the FY 2000 HUD appropriations bill in October of this year and will remain in effect through June 30, 2000. • Expanded Section 8 Program — In addition to providing rental payment assistance for low- income households renting housing on the open market, HUD has proposed the expanded use of Section 8 vouchers to assist residents in properties which chose to opt out of the project-based 9 Section 8 program. In the specific case where project sponsors have opted out in order to raise rents to higher market levels, HUD has approved the use of enhanced or"sticky vouchers"to assist low-income households in maintaining their residence in the property. Sticky vouchers raise the allowable Section 8 subsidy for qualified households to the level required to meet the new market rents, effectively protecting the resident from the threat of displacement. If the household voluntarily chooses to relocate,the Section 8 voucher goes with the resident and the payment provided by the voucher reverts to the maximum permitted under the regular Section 8 program. Congress and the administration recently approved an additional 60,000 Section 8 vouchers for use nationwide. State Initiatives • State Department of Housing and Community Development(HCD)Acquisition/Rehabilitation Program — The FIS 2000 budget signed by the Governor includes $2.5 million for predevelopment loans and technical assistance for at-risk units and $6 million for the Multi- Family Housing Program to acquire and rehabilitate rental housing. Although resources are clearly limited when viewed on a statewide basis, the latter program establishes a priority for preservation projects. • Tax-Exempt Bond Authority-The California Debt Limit Allocation Committee(CDLAC)has established a priority for preservation projects in the allocation of tax-exempt bond authority. The County has used authority allocated by CDLAC to acquire, rehabilitate and preserve a variety of affordable housing projects, including projects with expiring federal subsidies as well as privately-owned projects without federal subsidies. • Low-Income Housing Tax Credits-The California Tax Credit Allocation Committee(CTCAC) reserves 10 percent of each year's allocation of Low-Income Housing Tax Credits(LIHTCs)for preservation of at-risk units. Local/County Initiatives • The County Housing Element establishes preservation of the County's affordable housing stock as a major goal. • As previously discussed,the County CDBG, HOME and RDA programs emphasize long-term affordability in the allocation of funds (40 to 60 years). In addition, funds are provided in the form of deferred or residual receipts loan,providing the County with leverage to negotiate for extended affordability at the end of the loan term. CDBG, HOME and RDA funds may also be used to assist nonprofits and other affordable housing developers in acquiring and/or rehabilitating existing affordable rental housing for preservation purposes. 10 The County actively seeks to extend the affordability of projects financed with tax-exempt bonds by restructuring or refunding existing bonds to maintain project financing at favorable tax- exempt rates in exchange for extended affordability terms. Over the past few years,the County has increased the term of affordability on 435 rental units through this restructuring/refunding strategy. H/kkh/preservl.doc 11 CONTRA COSTA COUNTY COMMUNITY DEVELOPMENT DEPARTMENT DATE: August 5, 1999 TO: Internal Operations Committee Supervisor Gayle Uilkema, Chair 5upervis ioia FROM: Z1c nn y, ep Director=- Redevelopment RE: nti or Infill Devel(opment/Smart Growth Infill development has been suggested as an alternative to sprawl development. Infill development is considered one of a number of"Smart Growth" techniques. Smart Growth principles assume a region will experience growth and suggests a variety of approaches that influence the manner and pattern of that growth. The following is in response to the direction of the Internal Operations Committee at its May 10 and July 12, 1999 meetings. The material is highly summarized and includes recommendations that the Committee may wish to consider as it completes its discussion. I. INCENTIVES TO ENCOURAGE INFILL DEVELOPMENT/SMART GROWTH, Incentives for encouraging Infill Housing/Smart Growth may be grouped into two major categories: I. financial incentives, and 2. planning/regulatory incentives. Each of these will be treated separately. A.) Financial Incentives The County administers three major sources of funding for affordable housing-Community Development Block Grants(CDBG), HOME Partnership Funds and County Redevelopment Agency Funds. The first two are federal funds, administered by the County on behalf of the County and its smaller cities. The annual grant amounts for CDBG and HOME are approximately $3.9 million and $2.6 million respectively. The Redevelopment Agency HArnemos\TnflStCth.doc I funding is derived from local property taxes. The County currently administers five redevelopment project areas. Each of the five redevelopment projects represents an infill opportunity. The Redevelopment Agency has annual tax increments of approximately $6.5 million, which it utilizes for area infrastructure and community improvements and affordable housing. Approximately$2 million is available for affordable housing purposes. All but three cities in the County also have redevelopment agencies and project areas established. Typically, these affordable housing funds are used to finance development costs(including predevelopment expenses, land acquisition and construction) related to the development of housing affordable to very low and low income households. This financial assistance is typically provided in the form of loans which have accommodating repayment features. The funds may also be used to guarantee or supplement loans from other sources. Most affordable housing projects are financed from multiple sources, of which the local funds (Redevelopment, CDBG/HOME) represent a small portion- typically 25-35%. The Beard may wish to consider adding affirmative encouragement/priority to projects in infill settings to the allocation criteria fir these,funding sources. The Redevelopment Agency may also indirectly assist the development of infill projects by financing area infrastructure that is not directly related to a specific housing project. Areawide infrastructure improvements, such as that accomplished around the Pleasant Hill BART Station, or in the forth Broadway area of Bay Point are examples of the utilization of this technique. With varying degrees of emphasis, this is the standard approach of the County's Redevelopment Agency and most redevelopment agencies. All redevelopment activities undertaken by the County and most by the cities occur in infill locations. The Committee also explicitly mentioned four financing concepts that will be examined more expansively below: I. Land Banking: Land banking is a technique in which public resources are utilized to purchase and hold property for future development purposes. Land banking in its purest sense i.e. purchasing without expectation of development in the foreseeable future, is generally inconsistent with federal regulations or State law. For example, State Redevelopment Law requires properties purchased using redevelopment housing set asides to be utilized for the development of housing within five years. With findings, this five-year period can be extended. The required findings suggest that steps leading to development must occur. The County, as well as the cities, do engage in a form of land banking when they acquire properties in advance of specific development activity. An example includes the acquisition of H:\mcmos\InflStGth.doc 2 Area 4 at the Pleasant Hill BART Station, and the Rodeo Senior Housing site. Each of these properties was assembled in advance of having an identified developer. A developer was subsequently identified and a plan of finance developed. It is not unusual for a significant time period (five years or more), to fully develop and implement a plan of finance given the complexity of multiple funding sources. The utilization of public funds to land bank sites for developments that are not income-targeted is generally precluded. In some circumstances the County may own or control development sites that may have infill housing potential. An example is the former Oak Park Elementary site in the City of Pleasant Hill. 2. Brownfield Development: A subset of the infill development realm are those sites that were formerly utilized for industrial purposes that have now become available for alternative uses. To the extent these sites are subject to contamination due to their prior use, they represent a challenged resource. Redevelopment agencies are empowered to utilize their funding for brownfield conversion. The development of brownfield sites is a long-term endeavor and generally entails identification of the responsible party. Some limited amount of brownfield activity is a natural part of infill development in existing communities. Sites that are significantly contaminated should generally be avoided until the property owners have proceeded to clean up activities. A current example of brownfield conversion is the County Redevelopment Agency's negotiated option for the Siino property in Bay Point. This former wrecking yard was cleared approximately ten years ago. A small amount of residual contaminants exist on the property. The property,owner will be asked to clean the sites to the specifications of regulatory agencies prior to the Redevelopment Agency purchasing the property. The underlying General Plan land use designation for the site is residential. The Agency would intend to hold the property, solicit development proposals and ultimately transfer the site to a housing developer. (This is another example of a limited land banking approach.) 3. Financing Through Tax-Exempt Bonds: The County has been among the more active issuers of multi- family tax-exempt bonds to finance affordable housing. The current environment for securing the limited authority for HAmemosuntlStC,th.doc 3 multi-family housing bonds is very competitive. The State Treasurer has suggested that these resources be directed in a fashion that would be supportive of Infill Development/Smart Growth. County staff has long concurred and publicly stated this to the State Treasurer. The Board may wish to support this initiative of the Treas-urer. 4. Transferring Housing Funds or Obligations Between Jurisdictions: This concept suggests that housing resources may be used in a more optimal fashion if permitted to flow between jurisdictions. The concept also suggests that some locations may be more efficient (cost-effective) to deliver affordable housing in infill housing resources. There are significant regulatory and political limitations associated with this concept. On the regulatory side, State Housing Element Law requires that each jurisdiction affirmatively address its housing needs, including a fair share of the region's needs. Shifting responsibility for this obligation is not possible under current Housing Element Law. Furthermore,jurisdictions that carry a significant portion of the existing affordable housing stock, are reticent to continue to be recipients of additional affordable housing; at least until other more affluent communities exhibit fair share responsibility. Housing rights advocates have severely limited State legislative efforts to accomplish the transfer of housing needs, obligations and resources. B.) Planning and Regulatory Tools 1. Areawide P-1 Rezonings: The County, through its Redevelopment Agency, has initiated a program of areawide P-1 rezonings to facilitate development in these infill settings. The North Richmond Redevelopment Area and the Oakley Redevelopment Project Area have already been subject to the P-1 rezoning programs. Bay Point and Rodeo are in line. These rezoning programs include detailed design/development standards thatVallow conforming projects to proceed to permitting in an expeditious fashion. The program also significantly reduces fees associated with conforming projects. Further utilization of the areawide P-I rezor»rrgprogram is occurring and recommended. H:\memos\InllStGth.doe 4 2. Minimum Densities: The County General Plan does specify minimum density of development in the absence of overriding considerations This is done to avoid underutilizing the scarce amount of development potential. Not all communities specify such minimums. 3. Development Agreements. The negotiation of vesting development agreements has provided the County with an opportunity to obtain additional consideration that may facilitate public policy goals. The payment of additional fees for homeless programs, affordable housing or other community projects have been incorporated into negotiated development agreements. General Plan Policy does exist to encourage this. Attempting to accomplish too many contractual concessions in negotiated Agreement can limit the effectiveness of such a program by reducing the private incentive. 4. Inclusionary Housing. Inclusionary Housing with an in-lieu fee component has been suggested as a tool for encouraging the development of infill and affordable housing. The 1998 Internal Operations Committee, after much study, concluded that there was little opportunity for an inclusionary program to be utilized in the unincorporated County at this time because a.) most housing developments had vesting tentative maps or approved Development Agreements, therefore would not be subject to the requirement; or b.) would be smaller projects which are generally exempt from inclusionary requirements. The amount of in-lieu fee generation was estimated to be fairly small.A countywide (cities and County) inclusionary program would make, the most sense because, most of the housing growth is occurring in cities. Redevelopment project areas are subject to an inclusionary housing requirement, i.e., 15% of all housing produced in a HAmetnos\InflStGth.doc 5 project area must be affordable. Six percent of the requirement is targeted to very low income and 9% is targeted to moderate income. Most agencies do not require every project to meet inclusionary requirements, but rather measure compliance on an area basis. 5. Density Bonus. State Law requires that jurisdictions provide a density bonus or other equivalent consideration, to developers undertaking housing projects directed to lower income populations. The County has utilized this technique in the past and continues to market its availability. State Density Bonus Law targets very low and low income households. In large part due to this targeting requirement, the density bonus provision tends to employed only in projects where targeting is already occurring due to financial assistance. 6. Mobile Homes: The preservation of existing mobile home parks and the creation of new mobile home developments has been suggested as a methodology for achieving infill/affordable housing goals. The County General Plan does have a land use designation for mobile home parks. Some existing mobile home parks have an underlying land use designation for an alternative use. A program for preserving the existing resource by changing the underlying general land use designation could be Pursiied. To my knowledge, none of the sites with a mobile home park designation in the General Plan are vacant. The Board may want to consider the designation ref additional vacant properties as mobile home park sites in its General Plan discussions. Additionally, the Board may want to encourage new mobile home parks by considering exempting them from the mobile home rent control ordinance. Additionally, discussions about the General Plan could include the designation of additional vacant properties as mobile home park sites. 7. Transfer of Development Rights: Oftentimes employed in circumstances where open space preservation is a goal, a Transfer of Development Rights Program would permit the sale of development rights from H:jnemos\TnflStGth.doc 6 properties designated for limited or open space use to be sold to developers of sites where housing is encouraged. This technique has been used in limited settings. It has not been very effective in settings where multiple jurisdictions exist. 8. Transit-Oriented Development: The development of housing in close proximity to transit is a subset of the infill development realm. The County has been a leader in encouraging transit-oriented development at the Pleasant Hill BART Station. The emerging transit village at the Pittsburg/Bay Point Station is another example. The County has employed a variety of techniques to encourage transit-oriented development, including the utilization of a master planning approach (Specific Plans); by utilizing master environmental documents; using the redevelopment resource to accomplish land assemblage; by financing required public infrastructure upgrades; by financially assisting developers of affordable housing projects; and by helping to resolve conflicts between builders and local interest groups. Such undertakings have not been easy and represent a highly staff-intensive approach, which may be a sign of things to come as the shift to infill sites occurs. (See Section III, p. 14). The Board may wish to consider encouraging additional transit-oriented development by s7ipporting amendments to a successive Measure C."to allow financing of such prgjects, e.g.,parking structures, housing developments. (See discussion in section II, pp. 13-14.) 9. Mixed Use: Mixed Use Developments are oftentimes used as an example of Smart Growth that should be encouraged in infill locations. The provision of housing in close proximity to commercial services and jobs can be an effective mechanism for reducing trip generation rates and otherwise providing for healthier communities. The Specific Plan's in the County's Redevelopment Project Areas employ the use of mixed land use designations. Financing mixed-use projects can oftentimes be a significant challenge. 10. Housing Element Compliance: The State Department of Housing and Community Development is charged with the task of issuing locality \\BICDI\APPL\IIOM+-USKAR\meinos\liiiIStGth.doe 7 compliance with State Housing Element Law. The process of determining compliance tends to be skewed to process rather than production. Amendments to State Housing Element Law to make it a more significant tool for actually achieving the production or preservation of affordable housing is to be encouraged. The discussions regarding housing element reform have been going on for at least two decades without meaningful change. The County will, along with other communities in the ABAG Region, be required to update its Housing Element by June 30, 2001. 11. Development Incentives for Infill Development As Suggested by the Development Community: The Building Industry Association and the Contra Costa Council are currently developing position papers on the Smart Growth issues, Representatives have been invited to your August 9 meeting. The development community has a wide variety of perspectives on what local government can do to encourage infill housing development. Many of the tools suggested above have been suggested by the development community. The Board may wish to consider the development community's suggestions, which are summarized as follows: a) Create a planning framework that encourages infill development: • identifying specific infill sites or districts; • specifying design and development standards upfront; • address neighborhoods' needs comprehensively; and • localities should collaborate with other agencies whose activities are affected by infill development e.g. school districts, etc. b) Review the regulatory framework to insure that infill housing is encouraged, not discouraged: • Provide flexible development standards, • Allow development of mixed use; • Offer density bonuses; \\BICDI\APPLII-IOUE-\JSKAR\memos\II1tIStGtll.doc 8 . �'J�• afr,� • Flexible interpretation of building codes and housing codes; • Fee modifications and waivers; • Reduce development standards, e.g. adjust parking requirements; and • Development fees that encourages infill and discourages sprawl, e.g. establish a surcharge calculated according to distance from a community core c) Provide high-priority processing of development approvals and permits for infill development; Define a separate review process for infill development; • Assign people to assist developers in identifying and negotiating approvals; Make the approval process more efficient and certain by designating "by-right zones;" Establish thresholds for smaller projects that can be rapidly permitted; • Employ self certification to insure compliance with regulatory requirements; • Grant waivers or otherwise employ flexibility in design and development standards; and • Prepare master environmental documents enabling conforming projects to proceed without additional environmental review d) Make public investments and provide public services in neighborhoods targeted for infill development: • Couple infill development strategies with strategies - to promote reinvestment by existing residents and owners including housing rehabilitation and neighborhood infrastructure upgrades; and • Deliver adequate public services to infill neighborhoods \\BICDIlAPPL\HOMEUSKAItlmemos\IntlStGth.doe 9 e) Provide potential developers with current and accurate information on vacant land parcels f) Prepare master environmental impact reports g) Assist infill developers with land acquisition and assemblage h) Gain community acceptance for infill housing projects by: • educating the community about the public benefits of infill and the tradeoffs between infill development and sprawl; • Disseminate factual information on higher density and affordable housing; • Establish strong written policy statements that developers can use to support the approval of controversial infill projects; Help to resolve conflicts between builders and local interest groups; and • Work with environmentalists and transit advocates to gain support for infill housing i) Help individual projects succeed by • leasing space in new projects for city/county offices; • helping with funding applications; and • sharing studies and market information 12. Housing for Seniors: Developing housing for elderly is expected to be a growing aspect of the development industry over the next two to three decades. Age cohorts, nationally and in this county, suggest an increasingly older population with housing demands attuned to their special needs. From a development perspective, senior housing projects are similar to other housing developments; one major distinction is that development standards for parking can be, and often are, modified to reflect the lower demands of this population. Many of the housing finance programs that exist for affordable housing also can be employed for \\BICDt1ADPL\HOMEUSKAR\memosUntlStGth.doe 10 senior housing. There are also unique sources of public financing for affordable senior housing. To some developers, this rapidly expanding housing market for seniors may appear to be a potential niche market, however, housing for seniors is unlike other residential development in that it almost always involves some recognition of the health care needs of frail, elderly people. The special services they require, which increase as they age-in-place, introduce a major management component to senior housing development. Some specialists compare housing for seniors with hotel development from an administrative and management standpoint. When assessing the housing needs of seniors, one must acknowledge that elderly people are notoriously resistant to moving from their present homes. Addressing senior horsing needs may be most efficiently addressed with strategies that recognize this desire to stay in place. Some elderly people will find it necessary to move for a variety of reasons. This often occurs as their health begins to decline. The development community has recognized this opportunity and today housing for seniors provides not only living space but support services. Housing for seniors tends to occur along a continuum of care. a.) Independent Living Facilities which are apartment projects in which the senior population is capable of caring for their own needs; b.) Congregate Care Housing allows elderly people in relatively good health to maintain social and functional independence while having access to common support services such as meals and housekeeping; c.) Assisted Living Facilities are designed and staffed to provide for residents who require some type of support for daily living, including bathing, dressing, medication, meal preparation and other functions; d.) Nursing Homes provide an extensive package of services, including health maintenance. Specialized knowledge is necessary to deal with complex government regulations and multi-party management requirements frequently encountered in housing for seniors. This has tended to push the development of housing for seniors from the general homebuilding industry to firms and organizations that specialize in developing and managing housing for seniors. \\BICDI\ADPL\I-IOMEUSKAR\membs\tntiStGtli.doe 11 .11.1..1 _..........111.1...... _ C From a planning and siting perspective, the following characteristics are relevant: a.) Community and site characteristics-Developers look for sites in desirable neighborhoods near a variety of facilities and services. Residents will be attracted to areas that are appealing and provide a secure environment. Access to public transit is an asset. Sites where services are within close walking distance are also very desirable. Topography is important - flat sites are preferred. b.) Planning and Design - The site plan and building designs need to appeal to healthy residents who enjoy a variety of indoor and outdoor experiences as well as being supportive of frail residents who can easily become distracted or disoriented. Balancing these needs is both an architectural and operational challenge. Developers strive to achieve a non- institutional appearance while providing for a secure environment. c.) Services - Social activities are needed to avoid isolation and loneliness. Additional services to maintain daily lives are also very desirable aspects. d.) The development of senior housing projects tends to be less subject to community opposition than housing for non-seniors. A balanced program of public financing to address both non-senior and senior housing needs is appropriate. Pursuing only senior housing needs will result in an inability to fully address housing needs as set forth in policy documents that are subject to outside review, such as the Housing Element. II. HOUSING TRUST FUND CAPITAL SOURCES A housing trust fund would be a new dedicated source of revenue to finance affordable housing projects and programs. In 1992 a report of the Housing Trust Fund Task Force was accepted by the Board of Supervisors. Unfortunately, the recommendations of that Housing Trust Fund Task Force were not implemented because the County and the nation began to suffer from a severe economic and real estate recession. It was not viewed to be prudent to implement a housing trust fund under those sets of conditions. \\BICDI\ADPL\HOMCUSKAR\»iemos\liiiIStGth.doe 12 Nonetheless, the work of the Housing Trust Fund Task Force is still of value. In evaluating potential sources for funding a housing trust fund, the process employed three types of criteria. First, the source must represent a significant net new source of revenue; second, that it would appear legally feasible to utilize the revenue source; and third, that the impacts of the capital source were appropriate. Attached as Exhibit A is a further discussion of the evaluation criteria. Seventeen different revenue sources were evaluated as part of the Housing Trust Fund Task Force work (see Exhibit B). The Task Force ultimately recommended that the County pursue establishment of a housing trust fund, using three revenue sources: 1) General Obligation Bond. This would be a countywide revenue source with the potential to provide substantial revenue. Implementation requires two- thirds vote of approval; 2) establish an inclusionary housing program with an in-lieu component. Such a program could directly increase the supply of affordable housing and be implemented in the unincorporated area by action of the Board of Supervisors; 3) Franchise Fees on solid waste. This would represent a countywide revenue source with potentially substantial revenues on an ongoing basis. This revenue source would also likely require two-thirds votes approval. (Subsequent court decisions relegated this revenue source as infeasible for affordable housing purposes.) The recommendations of the Housing Trust Fund Task Force represented a careful balance of countywide revenues and developer-derived revenues. Furthermore, the Housing Trust Fund Task Force Report suggested that the program to be financed include a balance of rental housing, home ownership housing, housing rehabilitation and senior housing. It also suggested administrative and institutional structures for consideration. The major source of revenue that continues to be discussed is either a General Obligation Bond, or inclusion of affordable/infill housing in the Expenditure Plan of a renewal of Measure C. Each of these methods continues to be discussed, albeit, they do present significant challenges. These include 1.) General Obligation Bonds are subject to the two-thirds voter approval. This super majority requirement makes it very difficult to obtain the necessary authority. There have been discussions by a wide variety of interests who are discussing possible legislation to reduce the super majority requirement to either fifty percent or sixty percent voter approval. The Board may wish to take a position on this wiper majority requirement. 2.) The renewal of Measure C for transportation, open space and affordable housing purposes was suggested by the 1998 Internal Operations Committee. Others have made similar suggestions. SCA \\BICD1\ADPL\HfSMEUSKACtUnemos\InilStGth.doe 13 3, as it currently exists before the State Legislature, would not permit the renewal of Measure C with the inclusion of direct financing of affordable housing and open space. SCA 3 seems to limit the use of proceeds from a half-cent transportation sales tax to transportation project or mitigation associated with those projects.A more expansive authorization under SCA 3 to allow the direct financing of infill housing and affordable housing is something the Board may wish to consider. To the extent that housing trust funds approaches employ a fee-based system, they would be subject to complying with the statutory fee requirements contained in Government Code Section 66000et seq related to nexus. The statutes require establishing a reasonable, quantifiable relationship between the proposed fees and the need for affordable housing created by the development project. As identified by County Counsel, the analysis would have to precede the actual adoption of an ordinance establishing the fee or the condition of approval for a development project. (A summary of the County Counsel opinion on this matter may be found on page 3, Section III of Exhibit C.) In a report to the 1998 Internal Operations Committee, the Community Development Department estimated the cost of a nexus study to range from $15,000 to over$100,000. The Board may wish to pursue a nexus.study, but should do so only upon determining a preferred approach or fee requirement. III. PUBLIC EDUCATION The emphasis on infill development smart growth connotes, can only be accomplished if significant education has occurred at three levels: A. Policy makers and elected officials need to have an understanding of the issues; B. Technical staff need to both reorient their approaches and implementing ordinances to accommodate an infill/smart growth approach; C. Citizens and neighborhood representatives who will be asked to accept the infill development need to be educated and sensitized to the issues. The process of education will not occur overnight, nor will it occur very efficiently on its own. The Board may wish to consider providing,funding for public education from its diseretionary,funds•in FY 2000 to begin this educational process,first, with the cities and their elected officials; then with technical staff and market participants; and third, with citizen groups No endeavor of this sort should be undertaken unilaterally by the County, but, rather should be accomplished in partnership with the cities. A significant amount of work IABICDIWPPLWt)MEIJSKARImcitgoslltIBtGth.doc 14 needs to be done to flush out a work scope for such an endeavor. The County could benefit greatly from prior work done in other areas. IV. LEGISLATIVE SUGGESTIONS The foregoing has suggested a variety of ideas that could result in a legislative program. To recap, the following legislative changes might be considered by the Board.- A. Reform State Housing Element Law to promote the actual production and preservation of affordable housing, rather than its current emphasis on process and paper compliance; B. Support the State Treasurer in his efforts to directSlate Affordable Housing Resources(private activity bonds for multi:family housing and single-family housing, low-income housing tax credits) and infrastructure financing in a way in which it would promote infill development rather than sprawl development; G Support re form of CE OA to facilitate the processing of infill applications meeting specified standards; D. Support modifications to SCA3 to broaden the types of activities that could be directly financed under half-cent sales tax programs; E. Support efforts to modify the super majority requirement for General Obligation Ronde to a simple majority vote; and F. Support the renewal of Measure C within the County, with the inclusion of open Space financing and infill housinglaffordit A housing as direct allowed activities. V. FISCAL REFORMS It has long been understood that an essential aspect of addressing the state's housing needs would come through the State Legislature addressing the need for adequate funding of local government. The state should stabilize local revenues, reduce reliance on sales tax and provide fiscal incentives to encourage balanced land use planning. The Bay Area Alliance for Sustainable Development has suggested the following: A. State Law should be modified to provide local governments with an adequate and stable tax revenue, \\BICDI\ADPL\I-IOMEVSKAR\memos\IiiflStGtli.doo 1$ B. Local governments should be encouraged to work together to determine how to allocate and share tax revenues; C. The State Constitution and the State statutes should be revised to insure stability in financing for local governments and schools that realign responsibility with revenues; D. Enact fiscal incentives for local jurisdictions to accommodate affordable housing and achieve jobs-housing balance, and decrease the fiscalization of land use decisions by modifying state and local statutes to allow an equitable across jurisdictional boundary sharing of revenues gained from growth. The County Board of Supervisors has had a long-standing interest in the need for structural reform to local government finance in California. The smart growth principles are merely the latest manifestation of the need for such reform. Continuing to Work with the County ,rupervisors'Association, League of Cities and other interest groups to accomplish this needed.structural reform .should continue to he part of the County's legislative agenda. X J s Cc: Finance Committee Claude Van Marter Dennis Barry Kathleen Flamm Jim Jakel, Contra Costa Council Guy Bjerke, Building Industry Association 1\BICDI\APPLIHONM\JSKAR\rneiiios\Int1StOth.doe 16 1� } ..♦r2 FIRST CUT EVALUATION CRITERIA HOUSING TRUST FUND CONTRA COSTA COUNTY Significant Net New Source of Revenue: * Trust Fund revenue mechanisms must not represent a transfer of funds available to support general fund or other County activities. The mechanism must not limit the County's future ability to support on-going activities. • The mechanism must generate significant levels of revenue to support Trust Fund goals. Legally Feasible Revenue Source: • The County must have the legal authority to collect the revenue source. • Alternatively, the cities can collect these revenues and dedicate them to a County- wide fund. • The revenue mechanism can be legally used for Trust Fund activities, although demonstrating a nexus, or reasonable relationship, between the revenue mechanism and its use might be required. Impacts: • The economic sectors that bear the burden of the mechanism and the degree of impact on those sectors is identified. • An economically progressive mechanism shifts the progressivity of the burden towards those with greater ability to pay. A regressive mechanism, on the other hand, further burdens those populations the Trust Fund is designed to help. • The measure should not negatively impact the competitive position of the jurisdiction, by either discouraging population growth or economic activity. Source: Keyser Marston Associates, Inc. December 1991 11275\0001.021