Report Prepared by: Kimberly Nutt, Housing Program Supervisor/Housing Division, and Scott McBride, Development Services Director/Development Services Department
Title
SUBJECT: Public Hearing to Consider Adoption of a Resolution Authorizing and Adopting the Permanent Local Housing Allocation Plan and Adoption of Resolution Authorizing the Submittal of an Application to the Permanent Local Housing Allocation Program of the State of California Housing and Community Development
REPORT IN BRIEF
Authorizing and adopting the Permanent Local Housing Allocation Plan (PLHA), certifying that the public had adequate opportunity to review and comment on the plan, authorizing the submittal of the Five Year Permanent Local Housing Plan to the State of California Department of Housing and Community Development Department (HCD); authorizing the submittal of an application to the Permanent Local Housing Plan Program to HCD.
RECOMMENDATION
City Council - Adopt a motion:
A. Adopting Resolution 2021-113, a Resolution of the City Council of the City of Merced, California, authorizing and adopting the Permanent Local Housing Allocation Plan and certifying that the public had adequate opportunity to review and comment on the plan; authorizing the submittal of the Five Year Permanent Local Housing Plan to the State of California Department of Housing and Community Development; and,
B. Adopting Resolution 2021-114, a Resolution of the City Council of the City of Merced, California, hereby authorizes the submittal of an application to the Permanent Local Housing Plan Program (PLHA) to State of California Department of Housing and Community Development Department (HCD), and the execution of a Standard Agreement if selected for funding and any amendments thereto; and any related documents to participate in the Permanent Local Housing Allocation Program; and,
C. Authorizing the Finance Officer to make any Budget Amendments necessary for the implementation of the use of the Permanent Local Housing Allocation; and,
D. Authorizing the Finance Officer to use Pooled Cash if necessary, pending reimbursements from the Permanent Local Housing Allocation Program.
Body
ALTERNATIVES
1. Approve, as recommended by staff; or,
2. Approve, with modifications; or,
3. Deny the request completely; or,
4. Refer to staff for reconsideration of specific items as requested by Council; or,
5. Continue to a future City Council meeting (date and time to be specified in the motion).
AUTHORITY
Charter of the City of Merced, Section 200
CITY COUNCIL PRIORITIES
Fiscal Year 2021/22 Adopted Goals and Priorities, 4. Housing and Homelessness, ii.
DISCUSSION
The California Department of Housing and Community Development (Department) released a Notice of Funding Availability (NOFA) for approximately $304 million in funding for the Permanent Local Housing Allocation (PLHA) Program for Entitlement and Non-entitlement Local governments. The NOFA is funded from funds deposited in the Building Homes and Jobs Trust Fund (Fund) beginning in 2019.
Funding for this NOFA is provided pursuant to Senate Bill (SB) 2 (Chapter 364, Statutes of 2017). SB 2 established the Fund and authorized HCD to allocate 70 percent of funds collected and deposited in the Fund, beginning in calendar year 2019, to Local governments for eligible housing and homelessness activities. The intent of the bill is to provide a permanent, on-going source of funding to Local governments for housing-related projects and programs that assist in addressing the unmet housing needs of their communities.
The Entitlement and Non-entitlement formula allocation NOFA outlines threshold and application requirements, as well as defines the method in which funds will be distributed for Entitlement and Non-entitlement Local governments. The City of Merced is classified as an Entitlement community given our direct annual allocation from the Housing and Urban Development Department (HUD).
Ninety percent of the funds received will be allocated based on the formula used under Federal law to allocate CDBG funds within California, as specified in Title 42 United States Code (USC), Section 5306 and will be distributed to Entitlement Local governments and Non-entitlements local governments via a competitive grant program. Non-entitlement Local government allocations come from ten percent of the funds available and allocated equitably among Non-entitlement local governments. Allocations are distributed on an annual basis in response to an application defining the eligible planned use of funds for five years.
Eligible activities include:
(1) The predevelopment, development, acquisition, rehabilitation, and preservation of multifamily, residential live-work, or rental housing that is affordable to extremely low-, very low-, low-, or moderate-income households (up to 120 percent of Area Median Income (AMI), or 150 percent of AMI in High-cost areas, see appendix B for a list of High-cost areas), including necessary Operating subsidies.
(2) The predevelopment, development, acquisition, rehabilitation, and preservation of Affordable rental and ownership housing, including Accessory Dwelling Units (ADUs), that meets the needs of a growing workforce earning up to 120 percent of Area Median Income (AMI), or 150 percent of AMI in High-cost areas. ADUs shall be available for occupancy for a term of no less than 30 days.
(3) Matching portions of funds placed into Local or Regional Housing Trust Funds. Matching funds must be utilized as required by PLHA guidelines Section 301(a).
(4) Matching portions of funds available through the Low- and Moderate-Income Housing Asset Fund pursuant to subdivision (d) of HSC Section 34176. Matching funds must be utilized as required by PLHA guidelines Section 301(a).
(5) Capitalized Reserves for Services connected to the preservation and creation of new Permanent Supportive Housing.
(6) Assisting persons who are experiencing or at risk of homelessness in conformance with 24 Code of Federal Regulations (CFR Section 578.3), including:
• Rapid rehousing in conformance with federal rules contained in 24 CFR Section 576.104, except for legal services;
• Rental assistance with a term of at least six (6) months (rental arrears is not eligible);
• Street outreach, and other Supportive/case management services in conformance with federal rules contained in 24 CFR Section 576.101 that allow people to obtain and retain housing;
• Operating and capital costs for navigation centers and emergency shelters, and the new construction, rehabilitation, and preservation of permanent and transitional housing.
o This Activity may include subawards to Administrative Entities as defined in HSC Section 50490(a)(1-3) that were awarded California Emergency Solutions and Housing (CESH) Program or Homeless Emergency Aid Program (HEAP) funds for rental assistance to continue assistance to these households.
o Applicants must provide rapid rehousing, rental assistance, navigation centers, emergency shelter, and transitional housing activities in a manner consistent with the Housing First practices described in 25 CCR Section 8409, subdivision (b)(1)-(6) and in compliance with Welfare Institutions Code (WIC) Section 8255(b)(8). An Applicant allocated funds for the new construction, rehabilitation, and preservation of Permanent supportive housing shall incorporate the core components of Housing First, as provided in WIC Section 8255(b).
(7) Accessibility modifications in Lower-income (up to 80 percent of AMI) Owner-occupied housing.
(8) Efforts to acquire and rehabilitate foreclosed or vacant homes and apartments.
(9) Homeownership opportunities including, but not limited to, down payment assistance.
(10) Fiscal incentives made by a county to a city within the county to incentivize approval of one or more Affordable housing projects, or matching funds invested by a county in an Affordable housing development project in a city within the county, provided that the city has made an equal or greater investment in the project. The county fiscal incentives shall be in the form of a grant or low-interest loan to an Affordable housing project. Matching funds investments by both the county and the city also shall be a grant or low interest deferred loan to the Affordable housing project.
PLAN: The proposed plan must describe the manner in which the allocated funds will be used for eligible activities, describe the way the Local government will prioritize investments that increase the supply of housing for households with incomes at or below 60% of AMI, and describe how the Plan is consistent with programs set forth in the City’s Housing Element. The plan must be authorized and approved by resolution, ensuring the public had adequate opportunity to review and comment on the contents of the Plan.
For the five-year PLHA plan life, 2019 through 2023, the estimated allocation for the City of Merced is $3,112,314. That includes specific funding for 2019 of $518,719 and $806,250 for 2020.
In support of the Plan preparation, Staff has relied on several sample plans and direct technical support. Other plans reviewed included the City of Fresno, City of Modesto, City of Santa Cruz, and several HCD technical documents. It should be noted that each is very unique in terms of the prosed activities, allocations, as well as the other content and format of the plan document. HCD has provided guidance that they will provide review and offer technical assistance to update - complete if necessary. Additionally, technical support on the City’s plan preparation was directly provided by Self Help Enterprises (SHE). They are a partner with a prospective housing Developer, UPholdings. Additionally, SHE has been a responder to the City’s Housing Partner RFP.
The City of Merced’s proposed five-year plan activities include:
1) For the five-year period of 2019 through 2023, 95% of the funding would be pledged in support of providing financing for the development of rental affordable multifamily projects serving households with incomes at or below 60% of AMI in the City of Merced.
2) Five percent (5%) of each annual allocation would be used to cover administrative cost associated with the administration of the plan. Staffing and overhead cost directly related to carrying out the eligible activities are “activity costs” not subject to the cap on “administrative cost.”
The funding application and five-year plan are due by December 31, 2021. HCD will issue award letters on a rolling basis based on when the application is submitted.
The HCD program guidelines discuss the need to have 20% of the PLHA funds to be used in support of Affordable Owner - Occupied Workforce Housing (AOWH). During the drafting of the City’s plan HCD was consulted. HCD provided information that it is not necessary to include this within the plan for each jurisdiction. Their intent is for this requirement to be met naturally rather than make it a stipulation for each jurisdiction. They will monitor this and may reevaluate in the future. If meeting the AOWH target becomes a requirement, it can be met through Homeownership Opportunities such as Down Payment Assistance and Owner-Occupied Rehabilitation. Currently there is no proposed funding for either activity in the PLHA Plan.
The proposed five-year PLHA Plan does include one development project. City Council previously provided conditional commitment of PLHA funds in support of a project proposed by UPholdings. It should be noted that UPholdings is a development partner with Self Help Enterprises (SHE). That direction was provided at the regular City Council meeting of October 18, 2021, File ID 21-826. The funding amount included the first two years of PLHA funding, 2019 and 2020 in an amount of $1,324,969. That figure includes the 5% administrative overhead which would be utilized by the City. The project will consist of approximately 67 multi-family units ranging in size from one to three bedrooms. A portion of the units will also provide for permanent supportive housing services. UPholdings has site control, and the site has preexisting entitlements however they will be seeking a Density Bonus from the City. That request will be reviewed by the Planning Commission with a recommendation made to the City Council pursuant to Chapter 20.56.080 of the Zoning Ordinance. In addition to increasing the number of units or density prescribed by the General Plan the housing developer may also seek modifications from development standards. Those are memorialized by a Density Bonus Housing Agreement. Additionally, other instruments such as affordability deed restriction covenants will be recorded against the property ensuring affordability consistent with State requirements, 55 years.
There are currently no proposed development projects for years 3 through 5 of the Plan. Based on the current projections the three-year funding availability is approximately $1,787,345. As noted at the October 18, 2021, City Council Meeting the City has received numerous responses to our open Housing Partners Request for Qualifications. Based on conversations with those responders there are many projects which have site control and are fully entitled. There is also a known gap or need in funding for which these funds could support affordable housing production. Additionally, for years 2022 and 2023 the plan focus is going to transition to meet the Affordable Owner-Occupied Workforce Housing requirement for the entire five-year plan period.
The Plan provides flexibility by the Council to select future projects which need funding support. Those may be from the open Housing RFP as well as the annual Notice of Funding Availability (NOFA) process which is used to identify projects and activities as part of the Annual Action Plan process for the City’s Community Development Block Grant (CDBG) and Home Investment Partnership Act (Home) programs.
The PLHA Application is due to HCD no later than December 31, 2021. Afterwards the first two funding years for 2019 and 2020 are no longer available for local project support.
IMPACT ON CITY RESOURCES
The PLHA funding is not currently included in the Fiscal Year 2021-22 adopted City Budget. The approval actions by the City Council provides authorization to the Finance Officer to make any Budget Amendments necessary for the implementation of the use of the Permanent Local Housing Allocation funds including the use of Pooled Cash if necessary.
The PLHA requires the assistance in the form of a low-interest, deferred loan to the sponsor of the project. Such a loan shall be evidenced through a Promissory Note secured by a Deed of Trust with a Regulatory Agreement. These documents are typically prepared in concert with the City Attorney’s Office. Additionally, affordable housing projects have very low cash flow given the rent affordability to the prescribed income levels. Repayment of the loan is contingent on positive cash flow. If a project is sold, they request to refinance, or as payments are made the funding would be repaid which allows for the funds to reused as Program Income (PI). The PLHA Plan also addresses use of PI.
ATTACHMENTS
1. City Council Resolution 2021-113 including PLHA Five-Year Plan
2. City Council Resolution 2021-114
3. PLHA (NOFA)
4. Letter of Support from Leadership Council for Justice and Accountability
5. Presentation