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HomeMy WebLinkAbout31 - NB-4 - Provide Direction on Proposal to Negot - 8/3/20211 CITY COUNCIL AGENDA REPORT MEETING DATE: AUGUST 3, 2021 ITEM NUMBER: NB-4 SUBJECT: PROVIDE DIRECTION ON PROPOSAL TO NEGOTIATE AND ENTER INTO A 35 YEAR AGREEMENT WITH CSCDA COMMUNITY IMPROVEMENT AUTHORITY (CSCDA CIA) TO CONVERT VIA A PROPERTY TAX WAIVER 580 ANTON BOULEVARD INTO WORKFORCE HOUSING DATE: JULY 26, 2021 FROM: FINANCE DEPARTMENT AND ECONOMIC AND DEVELOPMENT SERVICES DEPARTMENT/ PLANNING DIVISION PRESENTATION BY: CAROL MOLINA, FINANCE DIRECTOR FOR FURTHER INFORMATION CONTACT: CAROL MOLINA, FINANCE DIRECTOR (714) 754-5036 RECOMMENDATION: Provide City Council direction regarding potentially entering into a public benefits agreement with the California Statewide Communities Development Authority Community Improvement Authority (CDCDA CIA) to convert the 580 Anton Boulevard property into workforce housing at 80%, 100%, and 120% Area Median Income (AMI) of workforce affordability levels. BACKGROUND: The California Statewide Communities Development Authority (CSCDA) is a joint powers authority founded and sponsored by the League of California Cities ("League") and the California State Association of Counties (CSAC). CSCDA was created by the League and CSAC in 1988 to enable local government and eligible private entities access to low- cost, tax-exempt financing for projects with public benefits. The CSCDA Community Improvement Authority (CSCDA CIA), an affiliate joint powers authority, acquires capital projects through the issuance of tax-exempt governmental purpose bonds. Through CSCDA CIA’s Workforce Housing Program, government bonds are issued to acquire market-rate apartment buildings. These properties are then converted to income- and rent-restricted units for moderate income/middle income households, which are generally households earning 80% to 120% of Area Median Income (AMI). Annual rent increases are capped at no more than 4% and no existing tenants are displaced under the program. 2 CSCDA is comprised of more than 530 cities, counties and special districts, including the City of Costa Mesa, which has been a member since 2006. CSCDA has issued more than $65 billion through 1,700 plus transactions across diverse public benefit financing programs. However, the CSCDA’s Workforce Housing Program is relatively new. More information on the workforce housing program can be found at this link: https://cscda.org/workforce-housing-program/ The most recent acquisition and report can be found at this link: https://cscda.org/workforce-housing-program/ ANALYSIS: The City has been approached by a developer (Legacy Partners) and representatives of the CSCDA Workforce Housing Program to consider entering into a 35 year agreement and converting the property at 580 Anton with 250 units into “workforce housing”. A copy of the memo provided by CSCDA on this proposal is included as Attachment 1. The proposed breakdown of the units are 84 units at 80% AMI, 83 units at 100% AMI and 83 units at 120% AMI (total of 250 units) for a period of 15 to 30 years. The distribution of units within these categories and the term can be negotiated. If a property is acquired by the Authority, the City would execute a Public Benefit Agreement (Sample Agreement is included as Attachment 2) that records a regulatory agreement restricting rents, rent increases, and occupancy for residents earning between 80% and 120% AMI which equals $86,080 to $129,120 a year. Under the Public Benefit Agreement, the City, at its sole discretion, may force a sale of the property between Year 15 and Year 30 (the end of the life) of the bonds, and the City, along with certain other taxing agencies (including the County and School District) would receive a portion of the net sale proceeds. CSCDA, a public agency, would not be required to pay annual property tax , which would provide an annual operating cash flow that can be used to pay the bond debt related to the acquisition of the property. In this case, the project would involve an immediate reduction in property taxes from 580 Anton to all taxing entities for $868,559 per year, based on the Fiscal Year 2020/21 Property Tax Levy. The City would experience a reduction of property tax revenues in the General Fund. The FY 2020/21 estimated property tax reduction to the City is $123,666 and the Newport Mesa Unified School District/Coast Community College of $442,000 per year. Based on the information provided by the applicant and CSCDA website, the Authority is a public entity separate and apart from its members, and any debts, liabilities, and obligations incurred by the Authority will not constitute debts, liabilities, or obligations of its member agencies. Bonds issued for any particular project will be indebtedness solely of the Authority, and payable only from revenues of the project. No financial expenditures, liabilities, or obligations are created by joining the Authority or executing any public benefit agreement. 3 Treatment of Housing Units for RHNA Purposes In terms of compliance with the City’s RHNA allocation, the “low” and “middle income” categories under the CSCDA program are different than the State Department of Housing and Community Development (HCD’s) affordable housing categories. Additional analysis would be needed to determine the exact distribution, but most of the units will likely fall into the moderate income State HCD category. Even if all 250 units were deed-restricted affordable units, they could not be counted toward the City’s RHNA allocation because the units are existing and existing unit conversions are only counted under specific circumstances. In addition, a 55-year covenant for restricted rents is typically required in order to be counted as a deed restricted conversion unit for RHNA purposes (the proposal is a 15 to 30-year covenant). Lastly, the income limits used to describe a low, middle and moderate income unit under CSCDA’s program are higher than the State HCD’s income limits and therefore, would not meet the State’s criteria for counting certain units toward the City’s RHNA allocation. Affordability An affordability restriction is proposed to be placed on all 250 units. However, rent reductions for the majority of units would be relatively modest. See Table 1 below. Table 1 – Resident Rent Savings The 80% AMI units (84 units) would experience a 26 percent discount compared to current rental rates on average which is notable, while the 100% AMI (83 units) and 120% AMI units (83 units) would experience an approximately 10 percent discount on average compared to the current market rate. Depending on additional analysis, the City may want to negotiate to increase the number of 80% AMI units to maximize the affordable housing benefit of the proposal, however, that would likely impact the property’s cash flows and the ability to pay off debt. In addition, although more affordable housing in any category is desired, housing in the moderate income category in many cases can be achieved by the market. Therefore, City policy programs tend to focus on generating housing for families in low- and very low- income categories. 4 ALTERNATIVES CONSIDERED: Staff is currently working on the six-month strategic objectives and other priorities outlined by the City Council this past year. An alternative is to focus staff efforts on exploring the options for creating a Project Homekey Program for certain City motel properties. FISCAL REVIEW: If a property is purchased by the Authority, the property will be exempt from paying annual property taxes totaling $868,558 based on the Fiscal Year 2020/21 Property Tax Levy. Of that amount, the City’s General Fund property tax revenue amounts to $123,666, and the portion that would be eliminated for all educational entities combined, which includes Coast Community College and the Newport-Mesa Unified, totals $442,137 for FY 2020/21. The future years’ revenue loss would fluctuate based on the levies assessed by the County Assessor’s Office, but would gradually increase over time. As a point of reference, the City of Costa Mesa’s Secured Property Tax revenues increased approximately 6% on average for the past five years. The recurring annual loss of this revenue stream would continue until the property is sold. While a $124,000 loss in annual property tax revenue to the City is not a large amount, if the City’s participation in this program is expanded to other properties, the City could lose additional property tax revenue typically deposited into the General Fund to support public safety and other costs. Moreover, the impact to educational entities is even more significant approximating $442,000 or so per year. Under the terms of the public benefit agreement, if a property generates surplus cash flow through the proceeds of the sale of a property, after Year 30 or upon force of a sales after Year 15, the City will receive a portion of the surplus revenue, which may or may not exceed the cumulative loss of property tax revenue depending on the timing of the sale, the regional economy, the project’s cashflow performance, the remaining bonded indebtedness and closing costs for the sale. Further financial analysis is required to assess the total estimated fiscal impacts to the multiple entities that would experience property tax revenue loss over the 15 Year and 30 Year term; among other potential fiscal impacts associated with this proposal. LEGAL REVIEW: The City Attorney’s Office has reviewed this report and approves it as to form. CITY COUNCIL GOALS & PRIORITIES: Diversify, stabilize and increase housing to reflect community needs. Achieve long-term fiscal sustainability. CONCLUSION: Provide City Council direction to staff to provide a detailed review and recommended action for City Council consideration at the next available Council meeting regarding 5 potentially entering into a public benefits agreement with the California Statewide Communities Development Authority Community Improvement Authority (CDCDA CIA) to convert the 580 Anton Boulevard property into workforce housing. ________________________________ _________________________________ MINOO ASHABI JENNIFER LE Principal Planner Director of Economic and Development Services ________________________________ _________________________________ CAROL MOLINA KIMBERLY HALL BARLOW Finance Director City Attorney Attachments: 1. Memo Provided by CSCDA 2. Sample Agreement (provided by CSCDA) 3. Sample of Joint Exercise of Power Agreement (provided by CSCDA) 4. Sample Resolution (provided by CSCDA) 5. Fiscal Year 2020/21 General Levy Breakdown