The County of Santa Clara
California

Report
95553

Under advisement from May 9, 2017 (Item No. 13a): Receive report from the Office of Supportive Housing relating to the adopted policy for leveraging and aligning resources to assist in the long-term build out of the County Housing production plan. (Office of Supportive Housing)

Information

Department:Office of Supportive Housing (Office of the County Executive)Sponsors:
Category:Report

Body

FISCAL IMPLICATIONS

There are no fiscal implications associated with the recommended action

REASONS FOR RECOMMENDATION

Under advisement from the May 9, 2017 Board of Supervisor’s meeting (Item No. 13a), this report describes how the County leverages and aligns resources to support the development of supportive housing and affordable housing, especially for individuals and families with extremely low incomes.

The County’s Supportive Housing Program Guidelines and the Board-approved Notice of Funding Availability (NOFA) include a leveraging provision.  As part of their NOFA application, developers are required to propose the maximum use of available non-local funds to achieve the highest reasonable financial leverage of capital resources.  The Board has approved 2016 Measure A Affordable Housing Bond (Housing Bond) funding for 16 new construction and three acquisition and rehabilitation projects.  As reported on December 18, 2018 (Item No. 39), the 19 Housing Bond-funded projects are projected to receive $651,097,104 in non-Housing Bond funds.  This represents a projected leveraging ratio of 2.78.  Once the developments are placed into service, the Office of Supportive Housing (OSH) will report on actual leveraging ratios.

Administration, through the OSH, also aligns local resources by actively coordinating with developers, cities, the Santa Clara County Housing Authority (Housing Authority), Destination: Home, Housing Trust Silicon Valley (HTSV), the Santa Clara Valley Transportation Authority (VTA), and other agencies.  To the extent possible, the OSH’s goal is to coordinate a countywide development pipeline.  Activities include coordinating with local jurisdictions on the timing of their NOFAs, tracking the deadlines for non-local funding, issuing guidelines with similar or mutually reinforcing policies and requirements, strategically using public and private funds to help developers acquire sites, and streamlining applications and templates (e.g., ground leases).  For example, in Fall 2017, the County and Housing Authority coordinated with the City of San José so that through the City’s NOFA, developments could be considered for capital funding from the County and for rental subsidies from the Housing Authority.  Through this effort, the three agencies worked on aligning priorities, which resulted in the agencies mutually supporting nine new developments.

The Housing Bond presents a unique opportunity for Santa Clara County jurisdictions to meet their extremely-low-income (ELI) housing production goals as defined in their Housing Elements.  OSH will continue to work with each of the cities to align priorities.  For example, through this partnership over the last few years, the City of San José adopted an Affordable Housing Investment Plan Update on April 9, 2019, which allocates 45% of all funds to extremely low-income housing.  The cities of Palo Alto, Milpitas, Mountain View, Santa Clara, and Sunnyvale have adopted or are working on affordable housing investment plans. 

CHILD IMPACT

The recommended action will have no/neutral impact on children and youth.

SENIOR IMPACT

The recommended action will have no/neutral impact on seniors.

SUSTAINABILITY IMPLICATIONS

The recommended action will have no/neutral sustainability implications.

BACKGROUND

Generally, about one-third of a project’s total development costs are funded from local public sources.[1]  However, depending on the volume of production, the affordability levels, and the availability of other sources, more local funding may be used.  The remaining two-thirds of developments costs typically come from State programs, Federal programs, and private sources.  Attachment A provides a list of federal and state resources, a description of funding sources, and award histories for Santa Clara County projects.  This report focuses on equity and permanent financing sources, but also describes the role of short-term acquisition and/or pre-development loans or grants.

Local Funding

For the County, non-Housing Bond sources include, but are not limited to, Community Development Block Grant (CDBG), Home Investment Partnerships Program (HOME), the Stanford Affordable Housing Fund, commercial linkage fees, and the County General Fund.  For example, the County allocates about $1,500,000 in CDBG and HOME funds each year toward housing development.  Before the Housing Bond was available, the County committed $16,070,000 in General Fund dollars to support Renascent Place.  And the County has allocated $8,982,395 in General Fund dollars to support the development of affordable housing for persons with intellectual and/or developmental disabilities (I/DD).

Cities have various funding sources to support affordable housing developments.  These sources include, but are not limited to, CDBG and HOME funds, annual loan repayments from previously funded loans, inclusionary housing in-lieu fees, General Fund, and affordable housing impact fees.  For the 19 Housing Bond-funded developments, cities contributed over $116,000,000.

State Funding 

Since the passage of the Housing Bond, the State has increased the number of and expanded its housing development programs. These programs are summarized in Attachment B, the California Department of Housing and Community Development’s (State HCD) NOFA schedule.  Developers applying for County funds are also required to apply for all applicable State programs, several of which are particularly aligned with the County’s priorities.

The Veterans Housing and Homelessness Prevention Program (VHHP) was created in 2013 from a restructuring of the Veterans Bond Act of 2008.  Approval of Proposition 41 on June 3, 2014, allowed the restructuring of the Veterans Bond Act of 2008 and authorized $600 million to fund multifamily housing for veterans.  This program aligns with the County’s efforts to reduce veteran homelessness.  To date there have been four rounds of funding; two Santa Clara County housing development have been approved for a total of $12,971,568.

The State created the Supportive Housing Multifamily Housing Program (SHMHP) in November 2018 from recaptured Proposition 46 and 1C funding.  The program requires applicants to develop permanent supportive housing (PSH).  On June 28, 2019, the non-profit developer Resources for Community Development received an official award from State HCD for an award of $7,107,082 for the Quetzal Gardens development located in the City of San Jose.  Additional funding is expected for other eligible projects in the near future.

In July 2016, the State created the No Place Like Home program (NPLH), dedicating $2 billion in bond proceeds for the development of PSH for persons in need of mental health services and who are experiencing homelessness, chronic homelessness, or are at-risk of chronic homelessness.  The County would receive $95 to $100 million over the next five to ten years from NPLH.  The OSH is preparing recommendations related to the County’s initial allocation of $30,741,871.

The Affordable Housing Sustainable Communities Program (AHSC) was created as part of the State’s efforts to reduce greenhouse gas emissions.  While the program does not specifically require the development of supportive housing, it is an important resource for underserved communities because the program funds both housing development and related infrastructure improvements.  To date, there have been four rounds of funding; five Santa Clara County projects have been approved for a total of $62,110,685.

Federal Funding

The primary federal program for affordable housing is the Low-Income Housing Tax Credit program (LIHTC).  Depending on whether a project utilizes the 9% or 4% components of the program, low-income housing tax credits typically provide enough equity to cover 30% to 50% of the total development costs of a project.  The LIHTC program can cover a greater percentage of total development costs, but in Santa Clara County, this typically occurs when land costs are not included.  Attachment C summarizes the LIHTC program.  While Attachment C was prepared for the County’s Housing Task Force in October 2015, it effectively summarizes the program and provides useful examples.  For the 19 Housing Bond-funded developments, tax credit equity is expected to cover nearly $286,000,000 of total development costs.

Private Sources & Debt Financing

Loans from the County and other government agencies are typically structured as residual receipt loans.  The residual receipt loans subsidize the project to deepen affordability levels and create housing opportunities for the poorest members of the community.  Generally, the more ELI or supportive housing units in a development, the less hard debt can be supported.  There have been exceptions; for example, the County’s support for the renovations of Markham Plaza I and II include loans that must be repaid over 15 to 20 years.

Debt financing still plays an important role in most, if not all, developments because some developments’ rental revenues are able to repay hard debt, which usually come in the form of bond repayment obligations and/or loans from banks.

In California, developments using the 4% LIHTC program must be paired with tax-exempt private activity bonds. Proceeds from the sale of the bonds must be repaid, typically over 30 years using the project’s rental revenueOf the 19 Housing Bond-funded developments, five (5) have used the 4% LIHTC program and are using a combined total of $54.4 million in tax exempt bonds as part of the permanent financing. 

Loans from banks are another important financing tool.  For example, Renascent Place’s financing includes a $16 million residual receipt loan from the County and a $4.3 million permanent loan from Union bank with an APR of 4.450% amortized over 15 years.  The project moved forward prior to the Housing Bond.  Even Housing-Bond funded projects will utilize some commercial loans. While loans from banks have higher interest rates, they can be a necessary financing tool when public agencies have insufficient capital funds and/or are trying to maximize the total number of units produced with a limited pool of local public funds.

While the County currently has substantial capital funds to invest in affordable and supportive housing, allowing certain projects to use commercial loans enables the County to use Housing Bond funds for more developments.  However, Administration is considering strategies to refinance supportive housing developments in order to reduce those developments’ debt-burden, increase operating income, and to increase repayments of residual receipt loans.

Other Leveraging Opportunities and Coordination Efforts

Project Based Vouchers (PBV)

While not included in the development financing, a critical component to ensuring the financial feasibility for developments with PSH units is the operating subsidy provided through Housing and Urban Development-Veteran Affairs Supportive Housing (HUD-VASH) or Section 8 PBVs administered by the Housing Authority.  PBVs are especially important for developments with PSH and/or a high number of ELI units because PBVs: a) ensure that residents have a manageable rent burden; b) help a property meet its operational needs; and, c) can be used to support debt financing.

Since 2015, the Housing Authority has committed 1,188 new PBVs for new or renovated PSH apartments.  Annually, these 1,188 PBVs would contribute about $16 million as operating subsidies.  The Administration is scheduled to return to the Board with a report back on PBVs with a more detailed description of the importance and use of PBVs. 

Private Loans & Grants

Typically, corporations, foundations, and other private organizations provide low-interest loans or grants to Community Development Financial Institutions (CDFIs).  Through the CDFIs, the private funds are used as acquisition and pre-development loans.  These loans are typically repaid from permanent financing sources (e.g., Housing Bond) so that the CDFIs can maintain a revolving loan fund such as HTSV’s TECH Fund.  While these loan funds are important in establishing a pipeline, they cannot be effective if there are insufficient permanent financing sources.

In addition, privately sourced revolving acquisition and predevelopment loan funds do not typically prioritize ELI and supportive housing.  Thus, to create a pipeline of developments with supportive housing units, the Board approved nearly $17,000,000 to establish a revolving acquisition and predevelopment loan fund through HTSV.

In rare instances, corporations, foundations, and other private organizations have provided permanent loans or grants to support affordable and supportive housing.  The most recent example was when the County, using a $1,500,000 grant from Google, provided a residual receipt loan to Palo Alto Housing Corporation for its Eagle Park development in the City of Mountain View.

Another notable exception to the private sector’s approach to supporting affordable housing broadly are Cisco and Destination: Home.  Using Cisco’s donation of $50,000,000 and other in-kind donations, Destination: Home is increasing the capacity of and helping developers acquire land to construct apartments with substantial supportive and ELI housing units.  Within the last 12 months, Destination: Home has provided $9,700,000 in predevelopment and acquisition funding at six sites to support 472 new units of supportive and ELI housing. Destination: Home also identified a cohort of mission-aligned supportive housing development partners through a request for qualifications and provided $1,350,000 in grants to increase the project management capacity of these organizations to produce over 1,000 new PSH and ELI units by 2023. Lastly, the organization funded a senior planner at the City of San Jose to streamline all housing applications from the cohort of new supportive housing developers, with the goal of decreasing approval times by at least 25%.

Publicly Owned Land & Other Public Agencies

Leverage opportunities also include increasing the availability of land for affordable housing. Local agencies can do this by changing policies to make affordable housing development easier, by deciding to use existing governmentowned properties for affordable housing, and by creating policies that require that affordable housing be included in real estate transactions.  For example, the Board directed Administration to including supportive and affordable housing in plans for the Civic Center and properties on East Santa Clara Street near Valley Health Center Downtown.  Administration is also actively working with VTA Real Estate staff on a development partnership that would expedite the production of housing on VTA-owned parcels.  This partnership would align with VTA’s recent action to add an affordable housing component to its Joint Development Policy.

Per the Board’s direction, Administration is also working with school districts, community college districts, and hospital districts to determine how those agencies may provide land and/or funding to support housing development.  For example, as part of the County’s efforts to redevelop 231 Grant Avenue in Palo Alto into housing for teachers, five school districts have pledged a total of $3,000,000.


[1] Other federal programs include the Community Development Block Grant (CDBG) and Home Investment Partnerships (HOME) programs, but those funding amounts are allocated by formula and the programs are typically administered by cities or counties. Thus, OSH considers CDBG and HOME to be local programs.

Meeting History

Aug 13, 2019 9:30 AM Video Board of Supervisors Regular Meeting

Added to the Consent Calendar at the request of Supervisor Ellenberg.

RESULT:RECEIVED