Report Prepared by: Scott McBride, Director of Development Services, Housing Division of Development Services Department
Title
SUBJECT: Approval of an Affordable Housing Funding Plan and Authorization of Conditional Letters of Commitment Subject to Review by the City Attorney
REPORT IN BRIEF
Approval of an Affordable Housing Funding Plan, authorizing Conditional Letters of Commitment consistent with the Council Direction in a form subject to review by the City Attorney, and authorizing the City Manager or Deputy City Manager to execute all related documents to implement the Affordable Housing Funding Plan and Conditional Letters of Commitment.
RECOMMENDATION
City Council - Adopt a motion:
A. Approving of an Affordable Housing Funding Plan; and,
B. Authorizing Conditional Letters of Commitment consistent with the approved Affordable Housing Funding Plan in a form subject to review by the City Attorney; and,
C. Authorizing the City Manager or Deputy City Manager to execute all related documents to implement the Affordable Funding Plan and Conditional Letters of Commitment.
Body
ALTERNATIVES
1. Approve, as recommended by Staff; or,
2. Approve, subject to conditions other than recommended by Staff (identify specific findings and/or conditions amended to be addressed in the motion); or,
3. Deny; or,
4. Continue to a future 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. Policy Direction.
DISCUSSION
Background
The City Council received a comprehensive overview of the Affordable Housing Resources at the April 5, 2021 meeting. The information included an overview of the City’s Housing and Urban Development (HUD) resources under both the Community Development Block Grant (CDBG) and Housing Investment Partnership (HOME) programs. Additionally, information was shared on assets of the Housing Successor Agency. The City of Merced chose to be the Successor Agency to the former Merced Redevelopment Agency for housing assets only. The Presentation from April 5, 2021 is attached to this item for reference.
As part of the direction provided by the City Council, specific actions have been implemented. An example is the funding swap of HUD 108 Loan Guarantee Funds for CDBG Program Income (PI) in support of the community center facilities within the Childs and B project. Additionally, a change in funding commitment for the proposed Gateway Terrace II project replaced previously expended HUD funds and any outstanding financial gap with Successor Agency funds. The City is continuing to work with the Central Valley Coalition for Affordable Housing on the various agreements and associated instruments that will be necessary for implementation of this action. When prepared the item will be agendized for City Council consideration.
In May 2021 the City issued a Request for Qualifications (RFQ) to solicit interest from potential Affordable Housing Development Partners. This is considered an open RFQ and all interested parties are encouraged to submit letter of interest.
The result of this RFQ has generated interest from the following groups:
• Central Valley Coalition for Affordable Housing
• Linc Housing
• Meta Housing
• Richman Group
• Sierra Saving Grace
• UPholdings
• Visionary Home Builders
These groups have engaged in seeking out project sites, performing due diligence, and in some cases have executed letters of interest or purchase contracts for locations within the City to develop affordable housing.
The purpose of the Affordable Housing Funding Plan is to identify specific project needs and utilizing the available financial resources the City currently has control over to support these specific partners allowing them to proceed forward. These are not formal or enforceable commitments but will provide a level of assurance of potential support. They are conditional in that in every case, additional funding will be necessary beyond potential City support. Those are likely to include sources such as Affordable Housing Tax Credits (both State and Federal), Affordable Housing Bonds, and funding provided by the State of California Department of Housing and Community Development (HCD) through both competitive and non-competitive opportunities.
The State has recently announced the intent to issue a “Super NOFA” (Notice of Funding Availability) in early 2022. To better position our potential Housing Partners, having an executed conditional funding commitment will enable them to seek other funding sources. Formal commitment will be accomplished through the execution of funding or loan agreements and other security instruments. Those will require separate specific council action.
In addition to the available program funding information provided in April 2021, the City Council has also discussed the use of ARPA (American Rescue Plan Act) funding in support of affordable housing. Public comments will be received through a series of community engagement opportunities. Given the timing for those there is no specific ARPA pledge being proposed however several proposed projects are in need of additional funding and would potentially be candidates for consideration.
The Affordable Housing Funding Plan includes other sources and programs in addition to the ones discussed in April 2021. There are other competitive and non-competitive or over the counter programs that HCD has recently announced. Those include programs such as Homekey, which allows for the conversion of existing structures to provide for permanent supportive services to those experiencing homelessness. This is a competitive program. Additionally, there is a non-competitive or over the counter program under the Permanent Local Housing Allocation Program (PLHA). The Plan contemplates these sources, but no specific amount is provided for the Homekey program since it is specific to the clientele being served and the project location. Separate Council Resolutions are required before an application can be submitted so these amounts would be contemplated at that time.
There may potentially be other competitive programs where the City Council may be asked on a project specific basis to pledge support. Currently none of the responders have requested this type of assistance, but it is likely. An example of something similar is the Affordable Housing Sustainable Communities (AHSC) programs by the Strategic Growth Council. The City utilized this source in support of the Childs and B project. The Council had to adopt a specific resolution pledging support and allowing the application to go forward.
The City’s potential support is to fill a gap in the project need. It is likely that in many cases the gap may exceed the available City resources available. In that scenario other sources may need to be sought or approaches to reduce the overall project costs may also be an option.
Overview of Funding Opportunities
The following financial resources are available utilizing funds that the City has access too. They may require some program amendments, budget amendments, and appropriations but they could be available to within a six to nine-month period.
Housing Successor Agency - $1,180,361
Community Development Block Grant (CDBG) - Currently there are $0 that are available to be used towards project development activities. The City does have the flexibility to prepare a Substantial Amendment to the HUD Annual Action Plan specific to the CDBG allocation. Currently there is $1,917,332 in listed Capital Improvement Projects (CIP). This could be reduced to $742,500 for CIP activities. This reduction would still accommodate off-site improvements at the Childs Ave. and Canal location. Should direction be provided this would increase the available CDBG amount for affordable housing to $1,086,200.
Housing Investment Partnership (HOME) - $3,135,810 towards project development activities.
Home American Recovery Program (HOME-ARP) - this is a onetime allocation due to COVID 19 - $1,690,462. Use of the HOME-ARP funds will require approval of a HOME-ARP Plan by the City Council and subject to HUD review and final approval. HUD requires that the plan be implemented through a Substantial Amendment to the 2021 Annual Action Plan. These funds are limited to specific types of targeted populations. The program requires that not less than 70% of the funds be used towards those experiencing or likely to become homeless.
Total Potential City Funds available - $7,092,833
State Eligible Funding
The following funding programs are potentially available in support of affordable housing projects. Several other programs are available, but these are ones specifically mentioned by the housing partners which responded to the RFQ.
Homekey - This is a competitive program managed by HCD. The amounts are based on a per door basis and the specific clientele being served by the project. The program is designed to allow for the conversion of existing hotels, motels, and commercial structures to provide temporary and permanent supportive housing. An application specific resolution will be required for each project. Additional information on this program is attached.
Permanent Local Housing Allocation Program (PLHA) - HCD has posted the amounts that jurisdictions are eligible to request. This is the ongoing funding under SB2. Merced has 2019 and 2020 funding, $518,719 and $806,250 currently available. An application specific resolution will be required. Additional information on this program is attached. This program is very broad but intended to increase the housing supply for moderate- and lower-income families.
Affordable Housing Funding Plan Recommendations
Staff is recommending the following funding allocations. Several partners have provided conceptual project budgets or pro forma’s including ideal or requested source of funds.
In evaluating the request Staff has taken several factors into consideration:
• Land Use Entitlements
• Site Control
• Environmental Review (CEQ / NEPA)
• CDBG/HOME Eligibility based on Census Tracts
• Other Financial Sources Secured and developer experience
o Tax Credits
o Bonds
o Non-Competitive Grants
§ PLHA/HCD Funds
o Competitive Grants
§ No Place Like Home
§ Homekey
Entitled Projects
• Central Valley Coalition for Affordable Housing - Gateway Terrace II
Housing Successor Agency $1,180,361 - consistent with prior Council Direction.
This would support a 50-unit project focused on low and very low-income families. There is additionally 10 units for permanent supportive housing focused on Veterans. The project is fully entitled but requires additional funding sources.
• Meta Housing - Devonwood Project
HOME $1,900,000. This would support a 156-unit project focused on low and very low-income families. The project is fully entitled but requires additional funding sources. NEPA review is outstanding.
• Richman Group
The developer currently has a fully entitled multifamily site under contract, 220 units. They are considering Multi Family Housing Program Funding (MHP) - a State Source as well as other funding sources. The target group is likely to be varied from low to moderate income. NEPA review is outstanding. No specific commitment is recommended until the project pro forma can be evaluated. Initial discussion has indicated a gap of approximately $6 to $8 million.
• Visionary Home Builders
The developer has two sides under site control. One will require land use entitlements. The project is likely to have 108 units targeted to the low and very low levels. The second is entitled consisting of 128 units. NEPA review is outstanding for both. No specific commitment is recommended until the project pro forma for each can be evaluated. Initial discussion has indicated a gap of approximately $6 million, it’s unclear if that’s for each project or combined.
Seeking Entitlements
• UPholdings - Mercy Village Phase 1
HOME $1,235,810 and HOME ARP $454,652 - total of $1,690,462. This would support a 161-unit project focused on extremely low, very low, and low-income families. The project will also have a permanent supportive component. It will also include a clinic serving the public. The project is not entitled but is being scheduled for Planning Commission and Council consideration before the end of the year. Their initial draft pro forma identified the need for over $6 million in local funds potentially leaving a funding gap.
• Sierra Saving Grace
The developer is seeking sites for a transitional housing project.
Homekey Projects
• UPholdings
PLHA Funding $1,324,969 - the developer currently has an existing motel site under contract for conversion to permanent supportive housing. It’s approximately 102 units. UPholdings has the potential option of swapping funding with Mercy Village if one source is better suited for project support or combining both sources for one project if necessary.
• Linc Housing
The developer is currently seeking properties for a potential project. Linc is also a responder to the In-Fill Housing RFP but did not request any additional funding.
• Visionary Home Builders
The developer is currently seeking properties for a potential project.
Based on this recommendation the Council will conditionally commit $4,915,431 which includes HOME, HOME ARP, and PLHA funding. That funding would support approximately 474 affordable units.
After this commitment there are remaining uncommitted funds in the amount of $2,322,010. Those are in CDBG, HOME, and HOME ARP. Staff is recommending returning as other projects become more defined so that additional funding considerations may be made. The Council at its discretion may also make other modifications to the recommended allocations.
Next Steps
To provide the support necessary to seek additional funding sources, specific conditional letters of commitment will need to be drafted to support each developer and project. These letters shall be subject to review by the City Attorney and should follow the direction provided by the Council. The letters may be prepared in a manner that lists a “to not exceed” amount which is consistent with Council direction.
It should be noted that these allocations do not limit future Council actions. They do not commit future year HUD resources - CDBG and HOME, nor do they commit other HCD funding sources.
Each project which does not currently have land use entitlements will need to obtain land use entitlements. The use of any HUD funding such as CDBG, HOME, and HOME-ARP will also require project specific environmental review under the National Environmental Policy Act (NEPA).
Additional next steps would be those typically involved in any development project such as preparation of construction and improvement plans which are reviewed prior to any permits being issued. As well as the execution of agreements and other security instruments to implement the use of City funds.
IMPACT ON CITY RESOURCES
None
ATTACHMENTS
1. Presentation from April 5, 2021
2. City of Merced Housing Partner RFQ
3. Affordable Housing Funding Plan Overview
4. Central Valley Coalition for Affordable Housing RFQ Response
5. Linc Housing RFQ Response
6. Meta Housing RFQ Response
7. Richman Group RFQ
8. Sierra Saving Grace
9. UPholdings Statement
10. UPholdings RFQ Response
11. Visionary Home Builders RFQ Response
12. HCD Homekey NOFA
13. HCD PLHA NOFA
14. Presentation