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File #: 2018-5691   
Type: Consent Calendar Item
Body: City Council
On agenda: 7/10/2018
Title: Recommendation to Amend the Inclusionary Housing Program Guidelines to (a) Modify Available Preference Points, Including Adding a Preference for Eligible Alameda Unified School District Employees; and (b) Revise Underwriting Standards; and Direct Staff to Prepare a Proposed Amendment to the City's Inclusionary Housing Ordinance to Clarify the Appeal Process. (Housing 266)
Attachments: 1. Exhibit 1 - Guidelines, 2. Exhibit 2 - Memorandum of Understanding (MOU)

Title

 

Recommendation to Amend the Inclusionary Housing Program Guidelines to (a) Modify Available Preference Points, Including Adding a Preference for Eligible Alameda Unified School District Employees; and (b) Revise Underwriting Standards; and Direct Staff to Prepare a Proposed Amendment to the City’s Inclusionary Housing Ordinance to Clarify the Appeal Process. (Housing 266)

 

Body

To: Honorable Mayor and Members of the City Council

 

From: Elizabeth D. Warmerdam, Acting City Manager

 

Re: Recommendation to Amend the Inclusionary Housing Program Guidelines to (a) Modify Available Preference Points, Including Adding a Preference for Eligible Alameda Unified School District Employees; and (b) Revise Underwriting Standards; and Direct Staff to Prepare a Proposed Amendment to the City’s Inclusionary Housing Ordinance to Clarify the Appeal Process. (Housing 266)

 

BACKGROUND

 

Former Redevelopment Housing Funds.

 

This item is related to the continuing efforts of the City to implement changes resulting from the dissolution of redevelopment in 2012. To preserve funding for affordable housing projects and programs within the City, staff of Community Development Department, City Attorney’s Office and the Housing Authority (Authority) have been working with the State Department of Finance to ensure former redevelopment tax increment funds earmarked for affordable housing (Housing Funds) continue to flow to the City. Certain of those Housing Funds flow through the Alameda Unified School District (AUSD) pursuant to a 1991 Pass-Through Agreement.  The Department of Finance (DOF) determined in 2016 that this pass-through should continue.  Therefore, a Memorandum of Understanding (MOU) was negotiated between AUSD and the Authority (which acts as the implementer of affordable housing production and programs for the City of Alameda) to establish a process to utilize those Housing Funds.  See Exhibit 1 (MOU). As part of implementing the MOU, the City is being requested to amend its Inclusionary Housing Program Guidelines to provide a preference point to eligible AUSD employees who compete for affordable housing which is available through the City’s Inclusionary Housing Program.

 

City’s Inclusionary Housing Program

 

In 2003, the City Council adopted the Inclusionary Housing Ordinance which requires that each market-rate residential project include at least 15% of the units with deed restrictions ensuring affordability for very low-, low- and moderate-income households. AMC Section 30-16 Inclusionary Housing Requirements for Residential Projects currently requires that all residential projects with five (5) or more units provide at least 15% of the units with deed restrictions to ensure that the units are affordable to very low-income (4%), low-income (4%), and moderate-income (7%) households.  Residential projects with nine (9) units or less may pay a per-unit fee in lieu of providing the deed-restricted units.  Any project with 10 or more units must construct the deed-restricted units.

 

To enforce AMC Section 30-16, developers must enter into an Affordable Housing Agreement with the City which defines the requirements, details marketing guidelines, and includes the Inclusionary Housing Program Buyer Selection Guidelines (Guidelines).   Staff, developers and the public rely on the Guidelines for the rules and regulations of Inclusionary Housing Program implementation. Developers rely on the Guidelines for establishing the sales/rental price of the inclusionary units; staff uses the Guidelines for determining buyer/renter income and evaluating other underwriting criteria; and the public knows how the Inclusionary Housing Program operates based on the Guidelines.

 

The Guidelines have not been updated in the last 15 years and, as a result, need to be revised based on lessons learned and current best practices for implementing Inclusionary Housing programs. Proposed revisions to the Guidelines include two primary goals.  First to revise and update the underwriting standards (discussed below).  Second, to establish a limited preference for eligible AUSD employees competing for moderate- income affordable units which become available through the Inclusionary Housing Program.

 

Additionally, staff proposes returning to the City Council with a draft ordinance amendment which would provide for a revised appeal process.

 

DISCUSSION

 

As noted above, staff is requesting City Council approval of revisions to the Guidelines as follows:

 

Preference Points

 

The current preference point system is as follows:

 

1.                     Living/Working in Alameda. Applications from qualified households with a household member who lives or works in Alameda receive one preference point per household.

 

2.                     First-Time Homebuyers. Applications from first-time homebuyers receive one preference point per household (a first-time homebuyer is someone who has not owned a house in the last three years).

 

3.                     Large Housholds. Applications from large households, defined by a family size that is one person more than the number of bedrooms in the unit, receive one preference point (e.g., a four-person household would receive a preference point for a three-bedroom unit).

 

(Note: Maximum of three preference points per household.)

 

The following revisions are proposed: 

 

1.                     Living/Working in Alameda. Retain the existing preference point for households with a member who lives or works in Alameda (including qualified City and AUSD employees).

 

2.                     AUSD Employee. As discussed in greater detail below, add a new preference point for qualified AUSD employees who compete for moderate-income units.  There is a cap on the number of moderate-income units for which this preference point could be used.

 

3.                     First-Time Homebuyer. Eliminate the preference point for first-time homebuyers and establish a threshold program requirement that all members of the household be first-time homebuyers.

 

4.                     Large Households. Eliminate the third preference point for larger households as it was confusing to the public and in some instances made it more difficult for single heads-of-households to qualify for an inclusionary unit.

 

(Note: Maximum of two preference points per household.)

 

As described above, AUSD and the Authority have entered into an MOU to facilitate continued availability of Housing Funds within the City of Alameda. Consideration to AUSD to pass through those Housing Funds to the Authority is designed to both (a) allow AUSD to retain preferences intended to accrue to AUSD eligible employees by the terms of the 1991 Pass-Through Agreement; and (b) to compensate AUSD for administering the procedures set forth in the MOU.

 

The City’s cooperation in awarding a preference point to eligible AUSD employees competing for moderate-income units available pursuant to the Inclusionary Housing Program is an integral part of the implementation of the MOU. The City is neither a third-party beneficiary nor a party to the MOU, but the MOU will enable approximately $30 million in Housing Funds to be made available to produce affordable housing within the City of Alameda. Availability of the Housing Funds are tied to the expiration of the Business and Waterfront Improvement Project (BWIP) Redevelopment Project Area which ends in 2041. Earlier termination of the AUSD preference point could occur if City Council in its discretion chooses to delete the provision allowing for preferences points for AUSD employees; however, if such action is taken, AUSD will have no further obligation to pass through the Housing Funds.

 

 As part of the MOU, the Authority has agreed to provide a preference point for eligible AUSD employees competing for very low- and low- income units in projects the Housing Authority develops that benefit from these Housing Funds.  The number of available preference points in this category is limited to competition for one unit for each $200,000 of Housing Funds contributed to the specific affordable housing project capped at a maximum of 30% of the affordable units in the project.  Additionally, AUSD will receive a development fee equal to five percent of the total Housing Funds utilized in developing these very low- and low-income housing projects. For affordable housing projects developed without Housing Funds, there is no development fee paid to AUSD. 

 

Underwriting Criteria Amendment

 

In addition to revising the preference points, staff recommends updating the Guidelines, including staff’s Operations Handbook, to summarize the underwriting guidelines that staff uses for evaluating applications.  These documents will detail areas such as minimum down payment, maximum allowed gift, the first-time homeownership counseling (education) requirements, and many other details that have been used for underwriting applications to qualify households for inclusionary units, but have not been clearly spelled out.  Adopting the standards below for the key program underwriting criteria will provide transparency for applicants, improve program administration and facilitate developer pro forma analysis regarding setting the purchase price for inclusionary units.

 

Underwriting Criteria

Underwriting Standard

Minimum Down Payment

3% Borrower’s own funds

Maximum Down Payment / Minimum Loan Amount

50% of the purchase price

Maximum Allowed Gift

10% of the purchase price, funds must be sourced

Interest Rate Used for Unit Pricing

Interest rate assumption for purposes of pricing unit to be the current CalHFA rate plus 0.75%

Earnest Money Deposit

To be no more than 3% of the contract price

First Time Homebuyer Counseling

Required for all adults who will be on title (and therefore, on the loan)

Asset Test

Clarifies that retirement accounts are not included

 

Proposed Amendment to Inclusionary Housing Ordinance for Appeal Process

 

The appeal process for the Inclusionary Housing Program is currently described in Alameda Municipal Code (AMC) Section 30-16.12(b) and requires a hearing before the Planning Board.  It is most likely that the appeal process was included consistent with the rest of the Zoning Code sections; however, the most common reason for disqualification is having a projected annual income that exceeds the maximum allowable income for the particular inclusionary unit.  This type of review is not typically a function of the Planning Board.  Therefore, staff recommends that the appeal process for a prospective purchaser be revised as follows:

 

1.                     Disqualification is issued by the City or its program administrator on behalf of the City.

 

2.                     An applicant may appeal the decision and provide additional/new information.

 

3.                     Staff will review the appeal and any new/additional information and issue a new determination.

 

4.                     If the second determination is also a disqualification, then the applicant may petition to a Hearing Officer for a binding decision.

 

The proposed change in the appeal process provides consistency in the evaluation of disputes and appeals by using a third-party hearing officer to review the file and render a binding decision.  Cases can be heard efficiently and a final determination can be concluded.

 

The change in the appeal process must be approved by ordinance.  If directed by Council tonight, staff will prepare the required amendment and return to City Council for a first reading of the ordinance.

 

Conclusion

 

The City has the opportunity to continue to receive funds for production of affordable housing through the 1991 Pass-Through Agreement.  These funds are anticipated to amount to $30 million over the next 28 years. A limited preference for eligible AUSD employees in competition for moderate-income units available pursuant to the City’s Inclusionary Housing Program is required to obtain those funds.

 

 The City’s Inclusionary Housing Program has been in effect for 15 years.  During that time, staff has gained significant experience in administering the program and is recommending that the Council approve the changes to the preference point system, the underwriting standards and the appeal process in order to better implement the program.

 

FINANCIAL IMPACT

 

There is no financial impact on the General Fund to revising the Inclusionary Housing Program Guidelines, preference point system and appeal process. 

 

MUNICIPAL CODE/POLICY DOCUMENT CROSS REFERENCE

 

The proposed revisions to the Inclusionary Housing Program Buyer Selection Guidelines, including the preference point system and appeal process, are consistent with the City’s Inclusionary Housing Ordinance AMC Section 30-16.  If the City Council agrees that the appeal process should be revised, that portion of the Municipal Code will need to be amended.

 

ENVIRONMENTAL REVIEW

 

Approval of the proposed revisions to the Inclusionary Housing Program Buyer Selection Guidelines is not considered a project pursuant to Public Resources Code section 21065 and California Environmental Quality Act (CEQA) Guidelines section 15378.  Therefore, no environmental review is required.

 

RECOMMENDATION

 

Amend the Inclusionary Housing Program Guidelines to (a) Modify Available Preference Points, Including Adding a Preference for Eligible Alameda Unified School District Employees; and (b) Revise Underwriting Standards; and Direct Staff to prepare a proposed amendment to the City’s Inclusionary Housing Ordinance to clarify the Appeal Process.

 

Respectfully submitted,

Debbie Potter, Community Development Director

 

By,

Lisa Fitts, Management Analyst, Housing Authority of the City of Alameda

 

Financial Impact section reviewed,

Elena Adair, Finance Director

 

Exhibit:

1.                     Program Guidelines

2.                     Memorandum of Understanding