Our regular readers of a certain age may remember the fund-raising campaign years ago in which television star Sally Struthers (Gloria in “All in the Family”) looked imploringly into the camera and asked, “Are you willing to spend 70 cents a day in order to feed or clothe an impoverished Third World child?”
It was a hard pitch to resist.
If the Alameda County Board of Supervisors goes along Tuesday, voters in the City of Alameda essentially will be asked a similar question this November: “Are you willing to pay an additional 50 bucks or so a year in property taxes in order to help your neighbors who’re being squeezed by rising rents stay on the island?”
It’s a pitch that supporters of affordable housing hope will be equally hard to turn down.
At issue is the proposal to put a measure on the ballot authorizing the County to sell $580 million in general obligation bonds and use the proceeds, primarily but not exclusively, to help finance development of new rental housing for lower-income households.
Of the total bond proceeds, $460 million will be dedicated to rental housing programs. According to materials prepared by the County Housing & Community Development Department, these programs will target the homeless, seniors, veterans, and disabled people as well as the “working poor.” The majority of new rental units financed by the programs are expected to go to “very low” income households (i.e., those with incomes between 30 percent and 60 percent of the area median), but “a portion of the funds may be allowed to subsidize units for households at or below 80 percent of AMI.”
Two separate pools of money will be created: one, totaling $225 million, will be allocated among the Alameda County cities based on assessed property value and total population; the other, totaling $200 million, will be allocated among five regions in the County based on their average poverty rates and average Regional Housing Needs Allocations. The remaining $35 million will be used to set up a “regional housing and housing innovation fund” available on a countywide basis.
Procedurally, application for the funds will be made by the developer, not the city. Although the final rules haven’t been issued, the criteria for selecting recipients will include consideration of other sources of financing obtained for the project. In particular, the project must “include a financial contribution from the city” in which it is located. If the application is approved, the funds will be disbursed to the developer in the form of a long-term, low-interest loan.
The bonds will be repaid through a new parcel tax. The tax rate statement prepared for the upcoming Supervisors’ meeting estimates the average annual tax rate will be $11.60 per $100,000 of assessed value. According to a “fact sheet” distributed by the County HCD, tax rates in the $12-14 range would result in a property tax increase of between $48 and $56 for a “typical” homeowner.
So what’s in this proposal for the City of Alameda?
Let’s start with the numbers. The staff report shows that $10,370,727 will be allocated from the city-based pool for projects in Alameda. (We suspect this number would have been higher had a different formula – like one based on each city’s individual RHNA number – been used). It also shows that $49,803,134 will be allocated from the region-based pool for projects in the “Mid County” region, which includes Alameda.
And how many new rental units for lower-income households will these funds yield for the City? Quite a few, according to Victoria Johnson, director of housing and community development for the Alameda Housing Authority. “With assured access to $10 million in County funds,” Ms. Johnson told us, “Alameda will be in a position to leverage about $30 million in other sources and to develop approximately 100 permanently affordable rental units.”
Ms. Johnson explained to us how the County bond program would benefit projects being undertaken by AHA and non-profit developers. We’ll get to them in a minute, but first we need to digress to discuss the mechanics of affordable-housing finance.
These days, the primary instrument for financing affordable housing projects is federal income tax credits issued by the Internal Revenue Service and distributed by a committee chaired by the State Treasurer. The developer obtains these credits from the State, then sells them to investors and uses the cash for the project.
The credits come in two varieties. The so-called “9 percent credits” – we can explain why they’re called that, but do you really want to know? – can be used to cover two-thirds of the cost of an affordable housing project. In Alameda, the 32-unit Stargell Commons project now under construction is being financed with 9 percent credits, and the 31-unit senior apartment building planned for the Del Monte warehouse site will use them as well. In addition, the Housing Authority is applying for 9 percent credits to finance a 20-unit project on the site of the old Island High School.
Unfortunately, the availability of 9 percent credits is limited and the competition for them is intense. Accordingly, the developer will need to fall back on the other variety, the so-called “4 percent credits.” These credits will cover only a third of the cost of a project, and they are tied to the issuance of tax-exempt “private activity” bonds: To obtain the credits, a developer first must apply to the State to issue bonds in an amount equal to 50 percent of the “aggregate basis” of the project; if the application is approved, the 4 percent credits are granted automatically.
Sale of the tax credits, whether of the 9 percent or 4 percent variety, isn’t enough to get a project fully funded. The developer must find other sources to pay the rest of the costs. A construction loan from a bank is one possibility. (The Island High project financing plan includes a loan from U.S. Bank). In addition, the federal, state, and county governments have a variety of programs providing funds for affordable housing projects.
For example, in 2014 the Legislature established the “Affordable Housing and Sustainable Communities” program, which earmarks a portion of the State’s cap-and-trade revenues for “preserving and developing affordable housing for lower income households.” Last year, the AHSC program awarded $121.9 million in grants and loans to 28 affordable housing and “transit-friendly” projects across the State.
Also in 2014, the Alameda County Board of Supervisors voted to spend a portion of the County’s “boomerang funds” – i.e., the property tax increment payments that formerly went to the redevelopment agency and now go directly to the local government – to support housing projects targeting very-low income households. Last year, the Board upped the minimum annual commitment for this purpose from $2 million to $5 million.
But what if, between selling tax credits and tapping existing programs, a non-profit developer can’t raise enough cash to pay the total cost of a proposed affordable housing project? Simply put, it won’t get built. And this is where the County bond proposal comes in. The County bond funds (together with the required matching funds from the city) can be used to make up the shortfall. As Linda Gardner, the County’s HCD director, put it, “we’ll fill the gap” between the cost of the project and other sources of funding.
The AHA’s Ms. Johnson cited a couple of AHA projects that would benefit from the County bond program.
One is the Island High project. If AHA is unsuccessful in its application for 9 percent credits, it will have to settle for the 4 percent credits that cover only one-third of the cost of the project. In that case, the County bond funds could go toward paying the rest of the tab.
In addition, AHA wants to renovate the 46-unit Rosefield Village complex of duplexes and cottages. Nine percent credits are not available for renovations; only 4 percent credits are. Combining the County bond funds with 4 percent credit/tax-exempt bond financing could get this project off the ground, Ms. Johnson said.
Besides providing financial aid for affordable housing projects already planned, the County bond funds also could make possible other projects previously deemed unfeasible.
Dan Sawislak, executive director of Resources for Community Development, a prominent local non-profit developer (and “partner” with AHA in numerous projects), told us that RCD had been forced to reject otherwise worthy projects because they weren’t able to arrange sufficient “local” financing to go with the cash raised through the sale of tax credits. If County bond funds become available, this may change. “The more local sources you can combine with state sources, the more affordable housing projects will be built,” Mr. Sawislak said.
But there is, as we hinted, one possible hitch: The County bond program requires a matching contribution from the city in which the project is located. Ms. Gardner of the County HCD told us the amount of the match had not yet been set, “but it will be less than 100 percent.” And both AHA’s Ms. Johnson and Debbie Potter, Community Development Director for the City, expressed confidence that this requirement would not pose a problem.
We hope they’re right, but we are compelled to interject a skeptical note.
When the City’s redevelopment agency was dissolved, about $5 million was transferred to AHA to be used to fund affordable housing projects. But most of this money already has been spent: $1.2 million to purchase the Island High site; a $2 million construction loan for Stargell Commons, and $1 million and $700,000 loans for “design and pre-development expenses” for, respectively, the Island High site and the Del Monte senior apartment building.
Ms. Johnson told us that, “as funds are repaid they will be returned to the dedicated Housing Asset Fund and re-loaned.” So be it, but it doesn’t seem that right now AHA is sitting on a lot of cash that could be used to make the matching contribution required to get County bond funds.
As for the City itself, there are two existing accounts designated for affordable housing that could provide matching funds. But neither is rolling in dough.
One account collects the grants received by the City annually from the federal H.O.M.E. program, which amount to only about $150,000 a year. The other is the Affordable Housing Fund, which takes in the housing impact fees paid by commercial developers, the amount of which varies each year. As of June 30, 2015, the balance was only $448,862.
But there are other potential sources for the City to rely on. Council was told last November that, over the next 10 years, the City could expect to receive about $16 million in “boomerang” funds, which staff suggested could be used to set up a “housing trust fund.” Upon further inquiry, it turned out that the City already had budgeted much of the boomerang funds to pay General Fund operating expenses. Nevertheless, there still may be some money left over to make matching contributions.
In addition, as our Council members will be the first to tell you, the unrestricted balance in the General Fund is substantial – a projected $20.9 million at the end of this fiscal year. Part of this “surplus” could be used to provide matching funds for the County bond program, assuming Council hasn’t spent it on something else – say, another new fire station? – before then. In a sense, it may represent the City’s ultimate ace in the hole.
Beginning with our column on alternatives to rent control, we have been arguing that it makes far more sense for the City to try to increase the supply of affordable housing by backing projects built by AHA and non-profit developers like RCD rather than by doling out density bonuses to for-profit market-rate developers like Catellus, Lennar, and Tim Lewis Communities. Why should the City promote the construction of a type of housing it does not need in order to get the type of housing it does need?
The response from the pro-development crowd was: That’s the only way the City is going to get any new affordable housing, because no developer will be willing or able to build it unless the developer can make a bunch of bucks by building pricey market-rate housing at the same time. We weren’t persuaded by that argument then, and we are even less persuaded now.
Putting together a financing plan for affordable housing projects undoubtedly is complicated, but the situation is improving. State funding for the AHSC program has gone up since the program was established, and it may increase even further this year depending on the outcome of negotiations between the Governor and Legislative leaders. Likewise, the County Board of Supervisors has upped its annual commitment to use boomerang funds to support affordable housing. But the biggest boost of all will come if two-thirds of County voters approve the affordable housing bond measure with its $460 million devoted to rental housing programs.
Of course, we don’t ever presume to tell anyone how to vote. But if the Board of Supervisors puts the affordable housing bond measure on the November ballot, we’d urge our readers to give it a close look. Sure, you may not like tax increases as a matter of principle, but if you agree that there is a shortage of affordable housing in Alameda and elsewhere in the County – and it’s hard to argue otherwise – $50, or even $100, a year seems like a small price for homeowners to pay to help solve a community problem. Or maybe you’d rather just turn it over to the Inner Ring and its hangers-on and let Those Who Know Best tell us what to do. Perish the thought.
Editor’s note: The Merry-Go-Round thanks Ms. Gardner of the County HCD and Ms. Johnson of the AHA for their willingness to answer our questions about the affordable housing bond proposal and its impact on Alameda and to send us supporting documents. We also thank Laura Thomas of Renewed Hope, whose comment on an earlier column prompted us to look into the County bond proposal.
Affordable-housing finance: NCLT article on funding affordable housing projects; How Is It Built_ – California Housing Consortium; Article on financing affordable housing; How Low Income Housing Tax Credits Work _ LIHTC; Housing Policy article on 4% credit; CRS article on LIHTCArticle on housing bonds
County boomerang fund program: County HCD background info on boomerang funds
City of Alameda boomerang funds: 2015-11-04 staff report
HOME program: HOME program
Affordable housing fund: Affordable housing fund