Rancho Palos Verdes City Council
   

September 18, 2007 RANCHO RANCHO PALOS VERDES CITY COUNCIL AGENDA-EXPENDITURE OF AFFORDABLE HOUSING FUNDS September 18, 2007 RANCHO RANCHO PALOS VERDES CITY COUNCIL AGENDA-EXPENDITURE OF AFFORDABLE HOUSING FUNDS September 18, 2007 RANCHO RANCHO PALOS VERDES CITY COUNCIL AGENDA-EXPENDITURE OF AFFORDABLE HOUSING FUNDS

TO:                HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL

FROM:          DIRECTOR OF PLANNING, BUILDING AND CODE ENFORCEMENT

DATE:            SEPTEMBER 18, 2007

SUBJECT:     EXPENDITURE OF AFFORDABLE HOUSING FUNDS

Staff Coordinator:  Gregory Pfost, AICP, Deputy Planning Director

RECOMMENDATION

Direct Staff to pursue a combined program of actions to expend its surplus affordable housing funds, including: 1) continue to evaluate the development potential of an affordable housing component as part of the RDA’s Crestridge site; 2) implementation of a rental subsidy program managed by a non-profit housing agency; 3) purchase of existing residential units for the conversion to affordable housing units; and 4) a “silent second” loan program for qualified (low income) first time homebuyers. 

EXECUTIVE SUMMARY

In December 2004, the Council directed Staff to pursue two programs to utilize its affordable housing funds: 1) a contribution toward development of an affordable housing component as part of a proposed development by Laing Urban on the Redevelopment Agency’s property, which is located on the corner of Crestridge and Crenshaw, and adjacent privately owned property (collectively the “Crestridge project”); and 2) implementation of a rental subsidy program managed by a non-profit housing agency. 

As the Council is aware, progress on the Crestridge project has been suspended, since Laing Urban has terminated its purchase agreement with the owner of the adjacent property, and it is still unclear whether a project that uses both properties utilizing some City assistance will occur.  Given the lack of progress on the Crestridge project, the City has reached a critical point where it needs to consider alternative programs to which it would like to focus its affordable housing resources.  As shown in the attached Affordable Housing Fund Status Report, deadlines for expending such funds are approaching relatively quickly (earliest is June 2008).  To avoid losing these funds and potentially risk financial penalties to other non-housing Redevelopment Agency funds, it is important to begin discussion as to what program(s) the City shall focus its resources upon. To that end, this report serves to provide information to the Council on the status of the City’s affordable housing funds and programs that the Council may consider for expenditure of these funds.

BACKGROUND

Why is there a need for Affordable Housing and what is the City's obligation to provide for it?

In a report entitled "California's Deepening Housing Crisis", authored by the California Department of Housing and Community Development (HCD), it is projected that California's population will increase by around 600,000 persons annually over the next decade.  Unfortunately, housing production within the state has not kept pace with past population increases, nor is it expected to keep pace with projected future population increases.  This disparity leads to an increase in demand for housing, higher housing costs, and subsequently a greater demand for affordable housing. 

HCD's mission is "to provide leadership, policies and programs to preserve and expand safe and affordable housing opportunities and promote strong communities for all Californians".  One of HCD's goals is to increase the supply of housing, especially affordable housing.  To help meet this goal, HCD is charged with administering state housing law.  State housing law affects all cities and counties within the State by requiring each to prepare and adopt a General Plan Housing Element.  According to State law, the City's Housing Element "shall consist of an identification and analysis of existing and projected housing needs and a statement of goals, policies, quantified objectives, financial resources, and scheduled programs for the preservation, improvement, and development of housing". 

So, regardless of individual opinion of HCD's mission statement and implementation goals, and whether the City should be required to increase its housing stock while also providing for affordable housing, it is still incumbent upon the City to comply with State housing law.

To satisfy State requirements, the City's Housing Element must include certain components, one of which is an assessment of housing needs, as prescribed by State housing law.  The assignment of a City's housing construction need has always been one of the most difficult aspects of housing law.  Currently, based upon population projections, existing housing supply, economics and other factors, the State determines the total construction need for each region - meaning how many new housing units need to be constructed in the region to meet the region's need over the next planning period (typically 7 years).  In our region, HCD provides the construction needs number to the Southern California Association of Governments (SCAG), who is then responsible for disaggregating that number amongst all of the cities and counties in the SCAG region.  This process is called the Regional Housing Needs Assessment (RHNA).   

State housing law requires cities and counties to update their Housing Element every 5 years.  In compliance with State law, the City of Rancho Palos Verdes adopted an updated Housing Element in August 2001.  The next updated Housing Element is due to the State by July 1, 2008.  Staff is in the process of meeting this requirement. 

The City's Housing Element "needs analysis" is based upon the RHNA that was provided by SCAG.  The City's share of the regional housing need as allocated by SCAG for the January 1, 2006 through June 30, 2014 planning period is as follows:

RHNA Construction Need for RPV


Income Category

Number of Housing Units

Very Low

16

Low

10

Moderate

11

Above Moderate

23

Total

60

It is important to note that it is not the City's responsibility to actually develop and build these units.  State law only requires that a City show that there is adequate sites for these units, that the City assist in the development of housing to meet the needs, and remove governmental constraints where appropriate and legal.  

It is also important to note that, at this time, there are no penalties for a city not reaching its RHNA target.  However, based upon the continuing housing crisis in the State and previously proposed legislation, Staff would expect that in the future, there may be legislation that would penalize a City for non-compliance.

How are affordable income levels derived and who fits into these income levels?

According to the U.S Department of Housing and Urban Development (HUD), affordable housing means that families should devote no more than 30% of their income to rent or mortgage payments and utilities. 

The different levels of affordability are based upon a percentage of County median income, as follows:

                        Very Low Income Level        =          0-50% of Median Income
                        Low Income Level                 =          50-80% of Median Income
                        Moderate Income Level        =          80-120% of Median Income
                        Above Moderate Level         =          +120% of Median Income

According to HUD, the 2007 median family income for a four-person household in Los Angeles County is $56,500.  Based upon this figure, it is determined that for a four-person household, the maximum income for a "Very Low Income" family is $37,000, a "Low Income" family is $59,200, and a "Moderate Income" family is $67,800.  Housing cost per affordability level is then considered.  For example, a "Very Low" income family of four making $37,000 is not expected to pay more than $925/month in housing costs ($37,000 max. income x 30% housing costs = $11,100/12 months = $925/month).  During the preparation of the City's Housing Element in 2000 a survey was conducted of existing rental units in the City and it was found that only about 10% of the total rental units surveyed had monthly rents of less than $1,000.  Subsequently, in this example, a Very Low Income family would most likely not be able to find a rental unit in the City.  If they could, the survey showed that of the rental units less than $1,000, 24% of those were studio units, while 76% were one-bedroom units.  For a family of four, this would lead to overcrowding.  Additionally, as this survey was completed in year 2000, it can be assumed that rents have increased significantly over the past 7years, thereby leading to a greater affordability gap.  A subsequent survey will be prepared as part of the updated 2008 Housing Element.

When speaking of "Affordable Housing", there is a myth that the people who need and live in affordable housing will not fit into respected neighborhoods.  It is important to identify who these people really are.  Households earning lower incomes can have a variety of occupational and educational backgrounds.  In an example presented by HCD in their report entitled, "Myths and Facts About Affordable and High Density Housing", it states that a starting elementary or high-school teacher in the City of Mountain View (Santa Clara County) with a gross monthly income of $3,200 (annual income of $38,400) can afford to pay $960 a month in rent, which qualifies as "Low" Income if she lives alone and "Very-Low" Income if she supports two children.  Another example is that of a starting air-traffic controller in San Diego County, with income barely higher than $31,000 a year, would also qualify for affordable housing.  Other occupations, such as librarians, sheriffs' deputies, nurses, fire fighters, who are vital members of our communities, also fit into persons/families that need affordable housing.

What is the Current Status of the City's Affordable Housing Fund Programs?

To help meet the affordable housing needs of the City as delegated by SCAG through the RHNA and identified in the City's General Plan Housing Element, the City has established two affordable housing fund programs.  Below is a discussion of each program and its current fund status.

Redevelopment Agency 20% Affordable Housing Set-aside Fund:

Per State law, the Redevelopment Agency has set-aside twenty percent (20%) of its gross annual tax increment into the Agency’s Low and Moderate Income Housing Fund. The purpose of this Fund is to increase, improve and preserve the City’s supply of low and moderate-income housing.  In carrying out the housing set-aside requirements, the Agency may expend these funds on a number of different programs, including acquiring real property.  

Once the unexpended and unencumbered funds in this Fund exceed $1 million, the RDA has up to 1 year to either transfer the excess funds (funds over $1 million) to the County Housing Authority or come up with a plan on how it intends on expending the excess funds. If the Agency does not transfer the funds to the County, but instead comes up with an expenditure plan, the excess funds must be spent on a program within the City within 2 years of adoption of the expenditure plan.  In summary, the Agency would have a maximum of 3 years to expend excess surplus funds once the $1 million Fund threshold is exceeded.  If the excess surplus funds were not spent within 3 years, at the end of the third year, the Agency could face penalties that would affect the expenditure of other Agency funds.  The Agency's Housing Fund balance has exceeded the $1 million threshold and has until June 30, 2008 to spend the excess funds.     

In March 2000, the Agency purchased the Crestridge property for $702,392 with RDA set-aside funds.  Under state law, once purchased, the Agency has up to 10 years to initiate activities to provide affordable housing on the property.  As such, the Agency must utilize the property for the purpose of affordable housing prior to March 2010.

City's In-Lieu Affordable Housing Program:

With the adoption of the revised Development Code in May 1997, the City established several affordable housing programs.  One of these, contained in Section 17.11.140, has provisions for the establishment of an in-lieu affordable housing fee to be applied to new residential development projects in lieu of constructing affordable housing units within a project.  Currently, through the In-lieu Program, the City collected $256,683 from the development of the Seabreeze Tract in June 1998 and $596,494 from the Oceanfront Estates Tract in March 2000 for a total estimated August 14, 2007 balance, plus interest, of $1,106,634. 

According to State Law, the City must expend these funds within a maximum of 10 years from the date they were received.  Accordingly, the Seabreeze Tract funds will need to be spent by June 2008 and the Oceanfront Estates Tract funds will need to be spent by March 2010. 

In addition to residential projects, the Development Code also requires non-residential projects to pay an in-lieu fee towards the development of affordable housing if the project exceeds certain thresholds.  Thus far only one approved project has triggered this requirement, that being the Long Point Resort project.  Based upon that project's estimated number of employees, it is estimated that the Long Point Resort developer will have to provide an in-lieu fee amount of $931,910. According to the Long Point Resort's conditions of approval, this fee would need to be paid prior to issuance of a certificate of use and occupancy for the resort.

DISCUSSION

Based upon the background information noted above, Staff feels that it is important that the Council begin discussion as to what the City shall do with its affordable housing resources. In addition to owning an approximate 19-acre parcel (purchased for $702,392 in 2000), the City and Agency currently have funds totaling $2,678,951 ($1,572,317 in RDA Set-aside Account and $1,106,634 in In-lieu Fund Account, both as of August 2007).  Below, Staff has provided a list of the types of programs that the City could expend these funds on, along with recommended actions.

What types of projects or programs can the City spend affordable housing funds?

Funds from the Redevelopment Agency's Housing Fund and the City's In-lieu Housing Fund can be spent on the following types of projects:

  • Land acquisition and Development of New Affordable Units:  The City could use its funds towards the purchase of land as well as the on-site and off-site improvements associated with the development of new affordable housing units.  As these affordable units would be new construction, they would count towards meeting the City’s RHNA.  This program would require the City to work with a for-profit or non-profit developer.

As noted above, in 2000, the City’s Redevelopment Agency purchased a vacant 19-acre parcel on Crestridge Road for the specific purpose of developing new affordable housing units.  Although negotiations with the initial developer fell through, the City Council gave permission in September 2002 to Crestridge Estates LLC, who owns the neighboring 9-acre parcel, to submit a proposal utilizing both their parcel and the City’s parcel.  The proposed project would have included new for-sale condominiums for senior citizens (a portion of which would be affordable units), a new senior center for the Peninsula Seniors, and a public passive park.  This application is currently incomplete.  More importantly, the most recent proposed developer of the proposed project, Laing Urban, has withdrawn from the project.  The current property owner is in the process of assembling a new development team to take over the project.  City Staff has met with the property owner and a potential new developer.  It is anticipated that the Council’s ad-hoc committee (Councilmen Clark and Wolowicz) will meet with the proposed development team some time in the near future and has requested certain financial information from the developer for City Staff to review and evaluate prior to such a meeting.

  • Existing Building Acquisition: The City could purchase existing residential units with the purpose of either renting or selling such properties to families with an affordable income.  A covenant with re-sale restrictions would be placed on the property to ensure that the property would be re-sold to persons/families with an affordable income.  Provided that the units are sold/rented to such families, there would be no restrictions on using the RDA’s Funds.  Depending upon the number of units purchased, the City may want to work with a non-profit agency to manage the units.  Staff has been in contact with a non-profit affordable housing agency (Jamboree Housing Corporation) that has expressed interest in working with the City on such a program.  Attached is a Preliminary Proposal (for discussion purposes only) that provides an example of how such a program might work.
  • Rental Subsidy:  Funds could be used to make up the difference between what a very-low, low or moderate-income family could afford and the actual rental rate for units in existing apartment complexes.  Under this option, City Staff would work with a non-profit agency that would be responsible for on-going implementation of the program.
  • Building Rehabilitation Program: The City may use funds to provide financial assistance for the rehabilitation of private, non-profit and for-profit rental properties.  For any units that would fall into this program, affordability restrictions would need to be placed on the property.  The City/Agency may establish its own rehabilitation program or may contract with the Los Angeles County Housing Authority to carry out a rehabilitation program.
  • First time Homebuyers Program/Silent Second: The First-Time Homebuyers Program (FTHB) is a down payment assistance program for low and very low-income homebuyers.  Qualified buyers are eligible to receive down payment assistance for the purchase of a primary residence.  Typically, a second mortgage, which is secured by a recorded deed of trust, is held by the City or Non-profit and is repaid from the proceeds of a sale or refinance (if the unit is sold to someone who is not within the eligible income categories).  It is referred to as a “silent” second because no debt service or interest payments are made to the City/Agency during the term of the agreement.  As the Council may recall an affordable housing unit was created in the Seagate Condominium complex as a result of the purchase of said unit from a developer in the City currently constructing a 13-unit subdivision on Palos Verdes Drive West.  The developer has been having difficulty in finding an affordable family that can afford to qualify for the unit, even at its affordable price.  This program could provide assistance in getting a family into that unit, and into future units where this may occur with future developers complying with the City’s inclusionary housing requirements.

Staff's Recommended Expenditure Plan:

In considering what program(s) to spend available funds on, it is imperative to consider the following restrictions and deadlines associated with the expenditure of such funds:

RDA Property:

  • 03/2000 Purchased property for $702,392
  • 03/2010 RDA must utilize property for affordable units

RDA 20% Set-aside Funds:

  • Current (08/14/07) Balance = $1,572,317
  • 06/30/2006        RDA must have plan to spend excess surplus funds over $1 million
  • 06/30/2008        RDA must spend excess surplus funds over $1 million
  • Restriction on Expenditure of Funds for Senior Project = spend funds in same proportion as # of low-income households with member under 65 bears to the total # of low-income households per Census.  For RPV, 50.34% of funds to be spent on under 65 years, while 49.66% of funds to be spent on over 65 years.

In-lieu Fees:

  • Current (08/14/07) Balance = $1,106,634
  • 06/2008 Seabreeze Tract portion must be spent (approx. 30% of total or $331,990)
  • 03/2010 Oceanfront Estates Tract portion must be spent (approx. 70% of total or $774,644)

Based on the information noted above, the City has reached a critical point, whereas by June 2008, the City needs to expend at least approximately $904,307 ($572,317 of excess surplus from RDA 20% Set-aside Fund + $331,990 Seabreeze Tract portion of In-lieu Fund).  If these funds are not expended prior to June 2008, the City risks losing the funds and possibly incurring other penalties to non-affordable housing RDA funds.

Given the critical point that has been reached and the lack of progress resulting from the Crestridge project, Staff is recommending that the City Council direct Staff to expand its options of programs in utilizing its affordable housing funds.  Specifically, Staff is recommending that the Council authorize Staff immediately to move forward with a combined program to utilize its affordable housing funds for a variety of programs, including: 1) implementation of a rental subsidy program managed by a non-profit housing agency; 2) purchase of existing residential units for the conversion to affordable housing units; and 3) a First Time Homebuyers/Silent Second program for qualified (low income) first time homebuyers.  In addition, Staff will continue to evaluate development of the Agency’s Crestridge property either in combination with a development of the neighboring property or as a stand-alone project.  In the latter case, the City/Agency would seek proposals from developers who would be willing to enter into a Disposition and Development Agreement to the Agency’s satisfaction in which the developer would purchase the Agency’s property and develop it with a project that would include providing a specified number of affordable housing units.

If the Council directs Staff to move forward with this combination of programs, Staff would take the following steps towards expenditure of the $904,307, which needs to be spent prior to June 2008:

  • Coordinate with a non-profit, such as Jamboree Housing Corporation, to set up and implement the purchase of existing units for the purpose of providing affordable housing with implementation of such program by January 2008.  The City Council would review and approve any future agreements to implement such a program.
  • Release an RFQ to find a reputable affordable housing developer to move forward in the development of only the RDA’s parcel, with the intent of releasing an RFP a month later to those qualified firms.  Staff estimates that this process could be completed by January 2008.
  • Prepare a First Time Homebuyers/Silent Second Program to assist affordable buyers in purchasing a home, for implementation of such program in January 2008.
  • Receive and evaluate materials from the entity that wishes to develop both the Agency’s parcel and the neighboring parcel.

Additional Alternatives:

In addition to Staff's recommended alternative, the Council could also consider the following additional alternatives:

A.        Do not implement an affordable housing program at this time.  The Council could opt to forward its excess surplus funds to the L.A. County Housing Authority.  However, there may be penalties placed upon other non-affordable housing Agency funds. 

B.        Given the complexity and policy implications related to any decision on the expenditure of affordable housing funds, the Council may wish to hold a separate workshop to discuss this issue in further detail.  Due to the upcoming holiday season and the timeframe within which some of the funds need to be expended, Staff does not recommend this option.  It may be more beneficial to conduct a workshop following the receipt of proposals that would implement the options that are discussed above.

FISCAL IMPACT

There are various fiscal impacts to both the RDA's 20% Set-aside Fund as well as the City's In-lieu Affordable Housing Fund depending upon the actions taken as addressed in this report.

Respectfully submitted:                               
Joel Rojas, AICP                                          
Director of Planning, Building                     
and Code Enforcement

Reviewed,
Carolyn Lehr
City Manager

ATTACHMENT

Jamboree Housing Corporation Preliminary Proposal