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HomeMy WebLinkAboutMINUTES - 04021991 - IO.3 I.O.-3 TO: BOARD OF SUPERVISORS �� L Contra FROM: COSta INTERNAL OPERATIONS COMMITTEE 'Q 0 March 25, 1991 Count�� DATE: C0;' SUBJECT: SUBJECT: STATUS REPORT ON THE STUDY OF SHARED EQUITY/SHARED APPRECIATION AFFORDABLE HOUSING SPECIFIC REQUEST(S)OR RECOMMENDATION(S)&BACKGROUND AND JUSTIFICATION RECOMMENDATIONS: 1 . Request the Housing Trust Fund Task Force to review the materials which have been developed by the Community Development Department or at their request relating to this subject and provide our Committee with their comments and recommendations. 2. Request the Deputy Redevelopment Director to do a pro forma analysis for the Oakley Redevelopment Project showing how the tax increment (housing set-aside) from that project area could be used to secure bonds, the proceeds of which would be used to provide a source of equity for a $1 million/$5 million shared equity/shared appreciation equity pool and return to our Committee on June 10, 1991 with the details of how such a proposal might work. BACKGROUND: On December 18, 1990, the Board of Supervisors approved a report on this subject from the 1990 Internal Operations Committee and requested the Deputy Redevelopment Director to return to our Committee in March with responses to several issues which had been raised by the 1990 Internal Operations Committee. On March 25 , 1991, our Committee received and reviewed the attached memoranda from Jim Kennedy on this subject. From all of CONTINUED ON ATTACHMEA P S YES SIGNATURE: RECOMMENDATION OF COUr'2�. SC OR RECOMMENDATION OF B ARD COMMITTEE APPROVE SIGNATURES: ODER SUNNE WRIGHT McPEAK ACTION OF BOARD ON April 2, 1991 APPROVED AS RECOMMENDED X OTHER X In addition to approving the above recommendations, the Board also approved the following: 3. No commitment is being made to implement the program or to hire or work with any firm if a program is established, including Warren Street Equities mention in the report. 4. The Redevelopment Agency is to brief the Oakley Project Area Committee on this and other redevelopment issues. VOTE OF SUPERVISORS I HEREBY CERTIFY THAT THIS IS A TRUE UNANIMOUS(ABSENT ) AND CORRECT COPY OF AN ACTION TAKEN AYES: NOES: AND ENTERED ON THE MINUTES OF THE BOARD ABSENT: ABSTAIN: OF SUPERVISORS ON THE DATE SHOWN. CC: County Administrator ATTESTED April 2, 1991 Community Development Director Deputy Redevelopment Director . PHIL BATCHELOR,CLERK OF THE BOARD OF SUPERVISORS AND COUNTY ADMINISTRATOR County Counsel BY DEPUTY M382 (10/88) the available potential sources of available funding for the 20% equity subsidy that is required in order to make this type of program workable, it appears that the Redevelopment Agency may be the most viable. While all of the housing set-aside for the Pleasant Hill/BART Redevelopment Project is committed, the Oakley Redevelopment Project appears to be a feasible mechanism for securing the sale of bonds which would be used to finance the equity subsidy. We are, therefore, asking that such a proposal be outlined in more detail and returned to our Committee in June so we can see exactly how such a proposal might work. We will continue to explore various options for funding a shared equity affordable housing program and will report back to the Board after we receive the report from the Redevelopment Agency staff on the Oakley proposal. CONTRA COSTA COUNTY COMMUNITY DEVELOPMENT DEPARTMENT DATE: March 22, 1991 TO: Internal Operations Co Supervisor Rob c der Supervisor nne . McPeak FROM: Jim nedy Dep ty Directoelopment SUBJECT: Sup tal Staff Report on Shared Equity Proposal One of the prospective sources of equity funds would be proceeds from the sale of bonds secured by redevelopment agency tax increments. The law firm of Jones Hall Hill and White are of the opinion that such a bond issue would be tax exempt and legal under State Redevelopment Law and federal tax law, under restrictive conditions. With respect to federal tax law, the key determination is whether the bonds would be "mortgage subsidy bonds," as defined. If they are "mortgage subsidy bonds," they would be subject to the restrictive first time homebuyer, income limits and purchase price limits of such bonds. The Warren Street Equity proposal was conceived as a program for a higher income group than the typical first time homebuyer under County bond programs. Jones Hall Hill and White is of the opinion that bonds secured by redevelopment agency tax increments would be tax exempt IF the redevelopment agency interest is that of a true equity partner where any return on equity is realized only upon sale of the property. Requiring a homeowner to repay at a date certain, as the Warren Street Equity proposal is designed, would result in the interest of the redevelopment agency being more of a "loan" rather than equity. A loan could be made only pursuant to rules governing mortgage subsidy bonds. hs/ra53:iocomm.mem CONTRA COSTA COUNTY REDEVELOPMENT AGENCY DATE: March 25, 1991 TO: Internal Operations Committee Supervisor Roberti roder Supervisor S e/McPe k FROM: Jim Kenned , Deput,Y/Direct - edevelopment SUBJECT: Shaded Eq ' y Affordable Housing - A Proposal by Warren- reet Equities I. Background On December 18, 1990 the Board of Supervisors, acting upon a recommendation of the Internal Operations Committee, adopted the following: A. Requested the Community Development Department staff to explore various alternatives for providing the 20% equity subsidy necessary to make a shared equity/shared appreciation affordable housing program workable (as proposed by Warren Street Equities) . Sources such as the County Employee Retirement Association, Union Pension Funds, Redevelopment Agency set-aside and other possible sources of funding should be identified and explored; B. Requested staff to explore the feasibility of issuing a portion of the County's 1991 Single Family Mortgage Bonds as taxable securities in order to provide a more flexible source of mortgage money for use in conjunction with a shared equity/shared appreciation housing program; C. Requested staff to research the ability of Redevelopment Agency tax increments (housing set-asides) to be used to capitalized with tax exempt bonds, a fund for equity shares; D. Requested the Deputy Director Community Development to report back to the Internal Operations Committee in March, 1991. II. County Objectives Before considering any specific financing technique, the County must carefully define its objectives. Any program should be driven by those objectives, not by a particular technique. County objectives, in the context of this proposal, might be defined along the following lines: A. To provide a financially responsible investment vehicle for the County, or other public funds; B. To provide a mechanism to use County/public funds to efficiently assist first time home buyers. These two objectives should be kept in mind when evaluating program proposals and ultimate program design. III. Sources of Equity Funds A number of prospective equity sources have been evaluated. None of the sources evaluated present immediately available funds. A. County Employees Retirement Funds. The Retirement Board, has both legal and fiduciary limitations that preclude the use of the funds in the manner proposed; B. Pension Funds. Unions utilized their pension fund to finance. the construction of development projects that create jobs for their membership. At this time, unions are not using their pension funds as potential equity sources. A recent amendment to the Taft/Hartley Act does allow for employers and unions to include in their collective bargaining agreement, an amount for the creation of housing trust funds through the collective bargaining process. A Boston Massachusetts union - Hotel, Restaurant, Institutional Employees and Bar Tenders Union, Local 26 - is the first collective bargaining union to negotiate new contracts, including a housing trust fund. This may be an emerging area; C. Redevelopment Agency Housing Set-Asides. Most, but not all, redevelopment agencies are required to utilized 20% of their tax increments to "increase and improve the community's supply of low and moderate income housing. " Low and moderate income is 120% of the area median income, or less, as established by the U. S. Department of Housing and Urban Development. The moderate income level in Contra Costa County is currently $52,900. Discussions with Redevelopment Agency staff around the county indicate that there is some interest in the proposed equity share/shared appreciation concept, although the agencies contacted indicate that they have programmed all, or substantially all of their funds, for projects targeted to a lower income level than that contemplated by the proposers of this concept. The ability of Redevelopment Agency tax increments to be used to capitalize with tax-exempt bonds, a fund for equity shares, is still being evaluated. A major bond counsel 2 in San Francisco is still doing the necessary due diligence with respect to issuance of an opinion that such an issuance of tax-exempt bounds would, in fact, be legal. IV. Housing Trust Fund Proceeds The County has established a Housing Trust Fund Task Force that will be evaluating potential means of generating housing subsidy funds that could potentially be used for equity shares. The Trust Fund does not exist at this time. The likelihood that equity sharing for above-moderate income households would be a priority or even included in any proposed use of Trust Fund proceeds is speculative, given the overwhelming housing needs of very-low and low income households within the County. A special case may exist for an employee home ownership assistance program aimed at assisting County employees to achieve home ownership. San Mateo County has recently established such a program utilizing Housing Trust Fund proceeds. San Mateo County determined that the high cost of home ownership was impacting the County (and other employers) in a number of adverse ways, including employee retention costs increasing as employees left the county for lower cost areas; productivity decreases while absenteeism increases as employees commute from ; further away; recruitment costs increased as the county was required to offer higher salaries to compensate for higher. housing costs. Materials on this program are included for your information. V. Feasibility of issuing Taxable Bonds Because the targeted group for the affordable housing program proposed by Warren Street Equity is above the income limits for tax exempt single family mortgages, the issuance of taxable bonds would be required. Because the County did not have available resources in sizable quantity to pursue structuring of a shared equity/shared appreciation program, it was suggested that a very small program be pursued by issuing taxable bonds as an adjunct to the County's upcoming 1991 Single Family tax-exempt bonds. This has been explored with our financial advisors and is not feasible. The issuance of taxable bonds would, in effect, be a separate set of securities and require totally different and separate documentation. There would be no ability to realize economies of scale or to overlap the two programs in any meaningful way. In order to do a stand-alone taxable financing, a scale of at least $20 million would be required. 3 VI. Conclusions The County does not possess the financial resources necessary to make this program workable at this time. The concept has merit and should be further pursued in terms of feasibility and prospective funding sources. The following observations are provided that may help frame future consideration of this concept: A. A shared equity/shared appreciation program should provide for a dispersed mortgage portfolio. Limiting the program to specific new home developments would be a major disadvantage in terms of County investment and housing objectives. In terms of investment objectives, the financial risk to the County is much lower if homes are disperse around the County rather than concentrated in a few developments. Concentration means that ultimate resale prices and thus the County's ability to recover its investment depend not on Countywide price trends, but on marketability of these particular sites. Moreover, the availability of County assistance in the first place may artificially inflate the prices in those developments. In addition to the financial risk, there is a significant difference in political risk when comparing the concentrated vs. the dispersed mortgage portfolio. The program basically makes the County a joint venture partner with the homeowner. In a Countywide program this is likely to be seen as attractive assistance. In a geographically concentrated program should any future problems occur with respect to a particular subdivision (e.g. constructiondefects, nearby environmental problems, relative lack of appreciation, deficiencies in the condominium owners association, etc. ) may be translated into political feed-back to the County and the demand that the County solve the problem. B. Issuance of taxable bonds provides mortgage money that is equivalent to market rate financing. There is no financing advantage to locking in interest rates with a taxable bond issue when current rates are at their lowest rate in five years. Locking in current rates may be advisable if a substantial increase in market rate mortgage rates were to be anticipated. In terms of efficiency in assisting first time homebuyers, it would be more desirable to improve the terms of the first mortgage through the use of some existing program such as tax-exempt financing (with the understanding that this was not the target group for it, the proposer) or through the use of homebuyer counseling programs such as the Community Homebuyer Assistance program. 4 VII. Recommendations A. Continue to evaluate the sources of revenue for a shared equity/shared appreciation program through the established Housing Trust Fund Task Force. B. Structure the County's 1991 tax-exempt bond issue to provide for a second mortgage program should the resources be identified. C. Direct the Deputy Director - Redevelopment to explore the feasibility of the County establishing a housing assistance program for its employees, such as the pilot program in San Mateo County. SRA 11/a(ordhsb.mcm 5