HomeMy WebLinkAboutItem 5k. Reallocation of Affordable Housing Funds from THMA Palm Street Studios to HASLO Maxine Lewis Apartments Project (736 Orcutt Rd.) Item 5k
Department: Community Development
Cost Center: 4008
For Agenda of: 1/9/2024
Placement: Consent
Estimated Time: N/A
FROM: Timmi Tway, Community Development Director
Prepared By: Teresa McClish, Housing Policy and Programs Manager
SUBJECT: REALLOCATION OF AFFORDABLE HOUSING FUNDS FROM
TRANSITIONS MENTAL HEALTH ASSOCIATION (THMA) PALM STREET
STUDIOS TO THE HOUSING AUTHORITY OF SAN LUIS OBISPO
(HASLO) MAXINE LEWIS APARTMENTS AT 736 ORCUTT ROAD
RECOMMENDATION
Adopt a Draft Resolution entitled, “A Resolution of the City Council of the City of
San Luis Obispo, California, amending Resolution No. 11321 (2022 Series) and
Resolution No. 11411 (2023 Series) to re-allocate State and Local Fiscal Recovery
Funds within the Affordable Housing Fund from Transitions Mental Health
Association for the Palm Street Studios Project to the Housing Authority of San
Luis Obispo for the Maxine Lewis Apartment Project in the amount of $300,000,
and designate the Palm Street Studios Project as having first priority for future
consideration of affordable housing fund awards” as follows:
1. Reappropriate the allocation of Affordable Housing Funds in the amount of
$300,000 previously approved by City Council adoption of Resolution No.
11321 (2022 Series) for the property acquisition and rehabilita tion of 8
supportive housing apartments that will be dedicated to low-income persons,
located at 1118 Palm Street; and
2. Increase the allocation of Affordable Housing Funds in the amount of $300,000
to augment the previously awarded Affordable Housing Funds allocated in the
amount of $2,000,000 (that included State and Local Fiscal Recovery Funds in
the amount of $964,467) by City Council adoption of Resolution No. 11411
(2023 Series) for the rehabilitation and construction of the Maxine Lewis
Apartment Project (previously named the 736 Orcutt Road Apartment Project)
located at 736 Orcutt Road; and
3. Designate the Palm Street Studios Project as having priority for future
consideration of Affordable Housing Fund awards; and
4. Authorize City Staff to apply for up to $750,000 in affordable housing funds
through the Prohousing Incentive Fund program once the City receives final
confirmation of eligibility and designation as a “Pro-Housing City” to backfill
funding for 1118 Palm Street.
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REPORT-IN-BRIEF
HASLO is requesting an additional Affordable Housing Fund award of $300,000 to
supplement their previous award of $2 million for the Maxine Lewis Apartment Project
This request is being made in order to modify the project’s financial portfolio due to an
unforeseen funding gap, better leverage other funds, and close escrow for the project on
January 22, 2024. HASLO has indicated that the $300,000 request is being made
because this gap amount is critical to allow the project to move forward. The $300,000
that staff has identified for allocation to HASLO project was previously allocated using
State and Local Fiscal Recovery Funds (SLFRF) within the Affordable Housing Fund for
a THMA project on Palm Street; however, the funding for this project is not needed by
THMA at this time. THMA is in support of allowing the $300,000 to be reallocated to the
Maxine Lewis Apartment Project, and request that in doing so they will be considered as
first priority to receive consideration of future funding award when funds becom e
available, assuming the Palm Stret Studios project meets AHF award criteria at the time
of consideration.
POLICY CONTEXT
Housing and Homelessness is a Major City Goal to expand housing options for all, and
continue to facilitate the production of housing, including the necessary supporting
infrastructure, with an emphasis on affordable and workforce housing. This includes the
collaboration with local non-profit partners and the county, the state, and federal
governments to discover and implement comprehensive and effective strategies to
reduce chronic homelessness.
The City of San Luis Obispo 6th Cycle Housing Element includes Safety as Goal 1, and
Program 1.7 states “Continue to support local and regional solutions to homelessness by
funding supportive programs services and housing solutions.”
Additionally, providing financial assistance to affordable housing projects is a theme
supported throughout the Housing Element. Housing Element Goal 2 is Affordability,
which specifically states “Accommodate affordable housing production that helps meet
the City’s quantified objectives.” HE Program 2.9 states “Assist with the issuance of tax
exempt bonds, tax credit financing, loan underwriting or other financial tools to help
develop or preserve at least 20 affordable units annually through various programs.”
Goal 3 in the Housing Element is to conserve existing housing and prevent the loss of
safe housing and the displacement of current occupants, and includes Policies 3.3, 3.5
and Program 3.9 respectively that state:
1. “Encourage the construction, preservation, rehabilitation or expansion of
residential hotels, group homes, integrated community apartments, and single-
room occupancy dwellings;”
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2. “Encourage and support creative strategies for the rehabilitation and adaptation
and reuse of residential, commercial, and industrial structures for housing;” and
3. “Work annually with non-profit organizations, faith-based organizations, or the
Housing Authority of the City of San Luis Obispo to encourage rehabilitation of
residential, commercial, or industrial buildings to expand extremely low, very-low,
low or moderate-income rental housing opportunities.”
HASLO’s request for additional funding would enable the Maxine Lewis Apartment Project
to move forward and conserve and increase housing options available for low-income
persons experiencing homelessness, or at risk for homelessness. As such, it is
consistent with the policy basis identified when allocated the SLFRF within the Affordable
Housing Fund in April 2023, and remains in alignment with these goals and programs, as
discussed below in more detail.
DISCUSSION
Background
The City’s Affordable Housing Fund (AHF) receives funding from residential developers
to meet the City’s Inclusionary Housing Ordinance (IHO) requirements “in-lieu” of
providing actual affordable housing units within their projects. The fund also receives
funding from commercial developers through commercial linkage fees.
In June 2022, the City Council authorized a one-time use of American Rescue Plan Act
State and Local Fiscal Recovery Funds (SLFRF) by allocating $2,964,467 into the
Affordable Housing Fund in the 2022-2023 Supplemental Budget to support at-risk
populations via affordable housing fund awards to be made at the City Council’s sole
discretion1. In April 2022, an AHF award of $1.7 million was made to HASLO for the
Anderson Hotel and $300,000 was awarded to Transitions Mental Health Association
(THMA) for the Palm Street Studios2. In April 2023, $964,467 of SLFRF funds were
allocated to the Maxine Lewis Apartment Project as part of a total $2 million award from
the Affordable Housing Fund ($1,035,533 AHF + $964,467 SLFRF=$2 million)3.
Requests for AHF support are evaluated by staff and forwarded to the City Council for
consideration and action based on Council established and adopted award criteria, as set
forth in Resolution No. 9263 (2001 Series).
Overview of Requests
The Maxine Lewis Apartment Project includes the rehabilitation and construction of a 40 -
unit residential project – 39-units for low-income households and an exempt manager’s
unit, at the former Maxine Lewis Homeless Shelter site. The property was previously
1 Resolution No. 11333 approving the allocation of $13,564,467 in Sate and Local Fiscal Recovery Funds
in Accordance with the U.S. Treasury Final Rule
2 Resolution 11321 approving affordable housing fund awards to HASLO for the Anderson Hotel and THMA
for the Palm Street Studios
3 Resolution 11411 approving affordable housing fund awards to HASLO for the 736 Orcutt Rd. Project and
the 279 Bridge Street Family Apartment Project
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used to provide 49 shelter beds to serve unhoused community members prior to the
construction of the Homeless Services Center, located at 40 Prado. The Maxine Lewis
Apartment project was entitled by the City on August 24, 2022, and will serve those
experiencing homelessness, or at risk for homelessness.
In addition to funding commitments from the City, the Maxine Lewis Apartment Project
received financing commitments from the Housing Trust Fund, the County of San Luis
Obispo, and HASLO. The Maxine Lewis Apartment Project successfully competed and
received a tax credit award valued at over $10.3 million.
HASLO has indicated that they have a funding gap of $3.2 million for the Maxine Lewis
Project due several factors. First, there is a loss or delay of City and County Community
Development Block Grant (CDBG) funds totaling $937,086 that is unlikely to be resolved
ahead of escrow closing date. The potential issue with an interpretation that CDBG funds
cannot be used for this project has recently come to light, and more information can be
found in Attachment C, a letter from Congressman Carbajal to Secretary Fudge asking
the Secretary and The Department of Housing and Urban Development to look into the
issue. On December 18, 2023, HUD responded to Congressman Carbajal with a path
forward for the use of CDBG funds to be used to provide financing for the acquisition
structure needed for the project (Attachment D). This is good news for the project but will
not completely resolve the funding shortfall for t he project. Secondly, as with many
affordable housing projects, the project is impacted by interest rates that have increased
from 7.1% to 8.40%, and construction costs that increased by $1,417,655 mainly due to
changes in Federal Prevailing Wage Schedule updates. Additionally, tax credit pricing
decreased significantly, reducing tax credit equity by over $500,000, attributed in part to
bank failures in 2023.
In order to address the funding gap, HASLO is requesting additional funding assistance
in the amount of $300,000 from the City as a financial component that complements
additional financial commitment by HASLO of $981,000 in delayed developer fees. In
addition, it is staff’s understanding that HASLO will also be requesting that SLO County
commit to reallocating $1.94 million in SLFRF funds from another HASLO affordable
housing project outside the City that did not receive tax credit financing, to the Maxine
Lewis project4.
The Maxine Lewis Project is considered “shovel ready” but must close on al l financing
sources no later than January 22, 2024, so they may begin construction. Otherwise, the
tax credit award is forfeited. If that were to occur, HASLO could be assessed negative
points for two years on future tax credit applications because of th e inability to close on
pledged credits that lose value and could have been otherwise allocated to other
projects. If negative points were assessed, it would mean that HASLO would not be able
to apply for tax credits for two years. This could also harm joint venture HASLO projects.
4 HASLO staff anticipate the Board of Supervisors will consider this request at its January 9, 2024 meeting.
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TMHA’s Palm Street Studios received an Affordable Housing Award of $300,000 from the
City Council on April 19, 2022, for the acquisition and rehabilitation of a structure to
convert to six supportive housing apartments, add two separate one-bedroom accessory
dwelling units, and one small office. The source of the City’s $300,000 was American
Recovery Program Act (ARPA), funding.
The project is utilizing funding from the No Place Like Home grant and the San Luis
Obispo’s Housing NOW program that THMA launched in 2014 (initially called 50Now)
with HASLO to identify the 50 most vulnerable homeless individuals in the County and
place them in permanent housing and provide them with behavioral health treatment and
services. The property will be deed - restricted affordable for a minimum of 55 years,
available to TMHA clients who are low income. The project is impacted by similar
significant circumstances of inflation and construction costs increases and is delayed from
the original anticipated schedule. However, the project is expected to proceed in 2024
and THMA has generously agreed to support the reallocation of the previously awarded
$300,000 to the Maxine Lewis Apartment Project with the expectation to return to the City
Council in 2024 to request the allocation again, with potential for additional funds if
necessary, when and if additional City Affordable Housing Funds are available
(Attachment E). The Draft Resolution proposed for Council’s consideration includes a
provision that THMA’s Palm Street Studio Project would be first priority to receive
consideration of Affordable Housing Funds when available and the resolution authorize
Staff to apply for up to $750,000 in funding once HCD finalizes its designation of the City
as a “pro-housing city”.
The City’s AHF award to the Palm Streets Studios project was part of the City’s obligation
of American Rescue Plan Act (ARPA)5 funds, which must be obligated by December 31,
2024, and spent by December 31, 2026. Obligating those ARPA funds to HASLO now for
the 786 Maxine Project, which is “shovel ready” as discussed above, will help the City
remain in compliance with ARPA requirements in the event that the Palm Street Studios
project cannot meet those deadlines.
City Affordable Housing Fund and Prohousing Designation Status
There are no available funds in the City’s Affordable Housing Fund for additional award
allocations at this time. Revenues are dependent on building activity for new homes and
commercial space for which in-lieu fees and commercial linkage fees are collected as well
as any additional fund, such as SLFRF funds or other grant funds that may augment the
account balance. An opportunity identified for additional funds to support affordable
housing projects is the anticipated award of Prohousing Incentive Grant Funds. The City
of SLO has applied for the State’s Housing and Community Development’s (HCD)
Prohousing Designation Program6. HCD has confirmed that the City has been awarded
50 points under the program , and it appears that the City will receive Prohousing
designation (although the official announcement has not been made).
5 Further discussion of this funding source is provided below under Fiscal Analysis.
6 Notification of Prohousing Designation expected by December 22, 2023 per correspondence with HCD
staff.
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HCD has not yet released the Notice of Funding Availability (NOFA) for the Prohousing
Incentive Pilot Program, however, almost $26 million of available funding was allocated
to eligible Prohousing Designated communities in 2022. HCD staff have indicated that the
next NOFA is expected to be released in the new year. Based on the formula for awards
in the current Prohousing Incentive Program, including City population, regional and point
total, it would be expected the City will qualify for $750,000 in funds eligible to be used to
support affordable housing projects such as the Palm Street Studios project7. Once the
2023 NOFA is announced for the PIP Program, the City of SLO will be applying for the
maximum funding available and authority is requested in this report to allow for
application.
Award Criteria
The previous award for the Maxine Lewis Apartment Project in April 2023, was based
upon a recommendation to the City Council using adopted criteria in accordance with
Resolution No. 9263 (2001 Series) for the Affordable Housing Fund program including
eligibility, need, suitability, timing, financial effectiveness, and readiness . The requested
increase in funds for the project still aligns with the criteria consistent with the previous
award (Resolution 11411). It should be noted that the project has adhered to the timeline
previously specified and building permits have been issued.
Previous Council or Advisory Body Action
The Council approved Affordable Housing Fund award criteria in 2001 and funding
investment allocations specific for SLFRF in 2022, as discussed above in the Background
section. The project helps implement programs in the 6th Cycle Housing Element,
approved by City Council on November 17, 2020, and the Homelessness Strategic Plan
on March 21, 2023. The Human Relations Commission recommended CDBG funding in
the amount of $317,792 for the project on December 7, 2022 and the City Council
approved the recommended CDBG funds for the Project on January 17, 2023. Affordable
Housing Funds in the amount of $2 million were awarded to the project on April 18, 2023.
Public Engagement
This item is on the agenda for the April 18, 2023, City Council meeting and will follow all
required postings and notifications. The public will have an opportunity to comment on
this item at or before the meeting.
CONCURRENCE
The Finance Department concurs with the Affordable Housing Fund balance.
7 According to the 2022 NOFA Guidelines for the PIP Program, the base award amounts were
based on population estimates, were a community of less than 50,000 people would be award
$250,000. However, bonus awards are also provided based on the Prohousing Designation score,
multiplied by 10,000. In accordance with the 2022 NOFA Guidelines, the City of SLO would be
awarded up to $750,000 under the PIP Program.
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ENVIRONMENTAL REVIEW
The California Environmental Quality Act does not apply to the recommended funding
actions in this report, because the action does not constitute a “Project” under CEQA
Guidelines Sec. 15378.
FISCAL IMPACT
Budgeted: Yes/No Budget Year: 2023-24
Funding Identified: Yes/No
Fiscal Analysis:
Funding
Sources
Total Budget
Available
Current
Funding
Request
Remaining
Balance
Annual
Ongoing
Cost
General Fund $ $ $ $
State
Federal
Fees
Other: AHF 0 0 (201,810.02)
Total $ $ $ $
Although the cash balance in the Affordable Housing Fund is $3,426,243.12, the fund
balance is currently in deficit by $201,810.02 given total funding and transfer
commitments and anticipated expenditures, and therefore, new funding allocations are
on hold.
Due to expected timing of revenues and expenditures, however, it is anticipated current
funding commitments, as shown below, are secure. The requested reallocation of
$300,000 from the Palm Street Studios Project to the Maxine Lewis Apartment Project
does not impact the Affordable Housing Fund Balance.
Cash Balance – Commitments
Beginning Cash Balance $3,426,243.12
Current Year Revenues $478,946.86
Current Year Expenses ($103,500)
Annual Transfers commitments ($103,500)
Affordable Housing Project Commitments
Palm Street Studios (THMA) ($300,000)
Maxine Lewis Apartments (Orcutt Road
Apartments) (HASLO)
($2,000,000)
Calle Joaquin Homekey (PSHH/HASLO) ($400,000)
Bridge Street (HASLO) ($1,200,000)
Available Funds for Future Allocations ($201,810.02)
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The Affordable Housing Fund receives revenue from in -lieu fees, commercial linkage
fees, investment income, loan repayments, and one -time revenues from grants or
programs such as the SLFRF. Annual expenditures include our contracted Below Market
Rate Housing Administrator, Housekeys, ($150,000), and funds to the Housing Trust
Fund ($40,000) and Finance Department ($17,000) paid out quarterly. Funds in the
amount of $92,457.40, will be reimbursed into the Affordable Housing Fund to cover a
portion go the costs for the Below Market Rate Administrator contract services through
remaining funds available in the City’s REAP grant awarded through HCD. Future
revenue of approximately $750,000 is anticipated through the State Prohousing Incentive
Program in 2024, and the City expects several larger projects to contribute to the Fund
through linkage and in-lieu fees in 2024.
City funding for the 40-unit Maxine Lewis Apartment Project significantly assists in
leveraging additional funding to complete the project. It is anticipated that the additional
award of $300,000 will bring the City’s total project investment to $2,300,000, which would
equate to $57,500 per unit if the recommended request is approved, which is slightly
higher than previous awards.
The Affordable Housing Fund has been augmented with funding through the
congressional American Rescue Plan Act (ARPA) that approved $350 billion for state,
local, territorial, and Tribal governments in the form of the Coronavirus SLFRF, to provide
economic stimulus funding to the City of San Luis Obispo to reimburse lost revenue and
help support economic recovery efforts through a total of $13.5 million authorized and
programmed into the 2021-2023 financial plan. At the February 15, 2022, City Council
meeting, the Council directed staff to prioritize a portion of ARPA funding towards housing
and homelessness, and at the June 7, 2022 City Council meeting, the Council invested a
total of $2,964,467 toward affordable housing.
The funding was allocated in the 2022-2023 Supplemental Budget for at-risk populations
or extremely low and very low-income and/or homeless persons most impacted by
COVID-19. Funds were placed into the City’s Affordable Housing Fund awaiting
appropriation via an affordable housing fund award, to be made at the City Council’s sole
discretion. An AHF award for $2 million was made in April 2022 to HASLO for the
Anderson Hotel ($1.7M) and Transitions Mental Health Association for the Palm Street
Studios ($300k). In April 2023, remaining SLFRF funds within the Affordable Housing
Fund totaling $964,467 were awarded to HASLO’s Maxine Lewis Project. Reallocating
$300,000 from the Palm Street Studios Project to the Maxine Lewis project will not impact
the total SLFRF award balance and will ensure timely expenditure of these funds, in line
with ARPA requirements. Staff is confident that through additional revenues and grants
that the Affordable Housing Fund will have sufficient funds to meet its commitments and
that the projected case deficit will be short term.
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ALTERNATIVES
1. Council could decide not to authorize the reallocation of $300,000 in Affordable
Housing Award to the Maxine Lewis Apartment Project. This action is not
recommended because the project directly aligns with the Major City Goal for Hous ing
and homelessness and is consistent with the Housing Element of the General Plan
and the City’s Homelessness Response Strategic Plan. This action could also have
impacts on the ability of HASLO to complete other housing projects.
2. Council could decide to approve Affordable Housing Fund award for a different
amount. This is not recommended as a larger amount is not available in the
Affordable Housing Fund, and a smaller amount would not improve close the project’s
finance gap enough for the project to move forward.
3. Council could decide to allocate General Fund dollars to the project. This is not
recommended due to potential impacts to the fund and consideration of other City
budgeted priorities.
4. Council could decide to continue consideration of the proposed reallocation.
This is not recommended as the Maxine Lewis Apartment Project is expected to close
escrow and begin construction by January 22, 2024, or it will not be built due to timing
of financing constraints.
ATTACHMENTS
A - Draft Resolution approving funding for the Maxine Lewis Apartment Project
B - Request from HASLO for additional funds for the Maxine Lewis Apartment Project.
C - August 15, 2023 letter from Congressman Carbajal to Secretary Fudge regarding
CDBG eligibility criteria applied to HASLO Maxine Lewis project.
D - December 18, 2023 response letter from US Department of Housing and Urban
Development to Congressman Carbajal.
E - Email correspondence from THMA supporting the reallocation of funds to support
Maxine Lewis Apartments.
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R _____
RESOLUTION NO. _______ (2024 SERIES)
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF SAN LUIS
OBISPO, CALIFORNIA, AMENDING RESOLUTION NO. 11321 (2022
SERIES) AND RESOLUTION NO. 11411 (2023 SERIES) TO RE-
ALLOCATE STATE AND LOCAL FISCAL RECOVERY FUNDS WITHIN
THE AFFORDABLE HOUSING FUND FROM TRANSITIONS MENTAL
HEALTH ASSOCIATION FOR THE PALM STREET STUDIOS PROJECT
TO THE HOUSING AUTHORITY OF SAN LUIS OBISPO FOR THE
MAXINE LEWIS APARTMENT PROJECT IN THE AMOUNT OF $300,000,
AND DESIGNATE THE PALM STREET STUDIOS PROJECT AS HAVING
FIRST PRIORITY FOR FUTURE CONSIDERATION OF AFFORDABLE
HOUSING FUND AWARDS
WHEREAS, the City Council of the City of San Luis Obispo met in the Council
Chamber of City Hall, 990 Palm Street, San Luis Obispo, California, on April 19, 2022,
approving Resolution No. 11321 (2022 Series) for affordable housing fund (AHF)
assistance for the proposed project, Palm Street Studios by Transitions Mental Health
Association (TMHA), in accordance with the eligibility criteria established by the City
Council in Resolution No. 9263 (2001 Series); and
WHEREAS, the City Council of the City of San Luis Obispo met in the Council
Chamber of City Hall, 990 Palm Street, San Luis Obispo, California, on April 18, 2023,
approving Resolution No. 11411 (2023 Series) for AHF assistance for the proposed
project, 736 Orcutt Road Apartments (now called the Maxine Lewis Apartment Project),
by The Housing Authority of San Luis Obispo (HASLO), in accordance with the eligibility
criteria established by the City Council in Resolution No. 9263 (2001 Series); and
WHEREAS, the Maxine Lewis Apartment Project (previously known as ‘736 Orcutt
Road Apartments’) by The Housing Authority of San Luis Obispo (HASLO) has requested
additional AHF awards in the amount of $300,000, and the request meets the eligibility
criteria established by the City Council in Resolution No. 9263 (2001 Series); and
WHEREAS, the proposed project Palm Street Studios by Transitions Mental
Health Association (TMHA), has incurred unforeseen project delays due to unanticipated
financial circumstances due to outside factors, and supports the reallocation of previously
awarded funds in the amount of $300,000 to the HASLO Maxine Lewis Apartment Project
and requests designation of the Palm Street Studios Project as having first priority for
future consideration of City AHF awards as funds become available; and
WHEREAS, Housing Element policies and programs encourage and support the
preservation and rehabilitation of affordable housing in the City; and
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Resolution No. _____ (2024 Series) Page 2
R _____
WHEREAS, the City Council has duly considered all evidence, including the
testimony of the applicant, interested parties, and the evaluation and recommendations
by staff at the said meeting.
NOW, THEREFORE, BE IT RESOLVED by the Council of the City of San Luis
Obispo as follows:
SECTION 1. Findings. The City Council does hereby make the following findings
in support of the proposed AHF awards:
1. Eligibility: Use of the AHF for the requested purposes will increase or
improve the City's affordable housing inventory and promote General Plan
policies regarding housing, as follows:
The Maxine Lewis Apartment Project is eligible for Affordable Housing Funds
because it improves and preserves the City's affordable housing inventory
and implements several General Plan policies regarding housing. The
project will preserve the supply of affordable housing for extremely low, very
low, and low-income households with the construction of 40 units.
2. Need: There exists a substantial or overarching need for the types of units
to be assisted, as follows:
Below Market Rate housing is a critical need in the City and County of San
Luis Obispo. Rapidly rising rents have increased the financial burden on low-
income people and the median rental household in the County spends 38%
of its income on housing. The City’s 6th Cycle Housing Element, adopted in
2020, documents substantial unmet need. HASLO will use its affiliate non -
profit, San Luis Obispo Non-Profit Housing Corporation, as managing general
partner in the Limited Partnership ownership entity formed for purposes of the
LIHTC program. As property management agent, HASLO coordinates with
area non-profit service providers to accept homeless and other special high
need referrals and provides resident and supportive services.
3. Suitability: The projects to be assisted are appropriate for its location both
in terms of land use and design, as follows:
The Maxine Lewis Apartment Project is located 2.5 miles to County Services
and 1.7 miles to downtown SLO; 1,200 feet from the railroad safety trail, which
conveniently and safely connects pedestrians quickly to downtown; and less
than 3/4 of a mile away from a grocery store that offers fresh produce, meat,
and other staples.
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Resolution No. _____ (2024 Series) Page 3
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4. Timing: The project would better serve the City's needs if it was built
immediately as opposed to later, as follows:
The Maxine Lewis Apartment Project, has site control, building permits and
state tax credit award financing. If the project is not awarded funding now, it
may not be constructed, and HASLO may be unable to apply for state tax
credit financing for two-years in penalty. This would impact HASLO projects
countywide. The provision of below market rate rental housing units will
advance the City Major City Goal for Housing and Homelessness; implement
the City’s Homelessness Response Strategic Plan; and make progress on
state Regional Housing Needs Allocations (“RHNA”) for housing affordable to
residents or families in low or extremely low-income categories. The funding
request is for low- and below-income levels reducing the City’s current
remaining RHNA for these categories from 331 to 291 units.
5. Financial Effectiveness: But for the requested funding, the project would
not be economically feasible; or AHF funding "leverages" significant
additional funding from other sources, as follows:
Even with an increase in funding request, the project offers a highly effective
use of the City AHF. Funding for the Maxine Lewis Apartment Project would
constitute 10.2% of project funding. The project leverages Housing Trust Fund
($1,000,000), County and City funds ($420,541) and low-income housing tax
credits ($11.7 million).
6. Readiness: The project has all necessary City approvals and is ready to
proceed, as follows:
The Maxine Lewis Apartment Project does not need to obtain any further City
discretionary approvals, building permits are issued, and the project has
received tax credit financing award from the State.
SECTION 2. Environmental Determination. The project to award affordable
housing funds is exempt from environmental review per the California Environmental
Quality Act as it does not apply to the recommended actions in this report, because the
action does not constitute a “Project” under CEQA Guidelines Sec. 15378.
SECTION 3. Amend Resolution No. 11321 (2022 Series) to defund the AHF Award
for Transitions Mental Health Association (TMHA) for the Palm Street Studio Project in
the amount of $300,000; and
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Resolution No. _____ (2024 Series) Page 4
R _____
SECTION 4. Amend Resolution No. 11411 (2023 Series) to increase the AHF
Award to The Housing Authority of San Luis Obispo (HASLO) by an amount not to exceed
$300,000, for the Maxine Lewis Apartment Project located at 736 Orcutt Road, subject to
the following condition of approval:
1. Prior to release of any portion of the AHF award, the applicants shall enter into
an affordability agreement with the City.
For HASLO’s Maxine Lewis Apartment Project, it shall be for forty (40) for-
rent affordable housing units located at 736 Orcutt Road, for a term of fifty-
five (55) years, which will be recorded against the title of the property.
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Resolution No. _____ (2024 Series) Page 5
R _____
SECTION 5. Place the Transitions Mental Health Association’s (THMA) Palm
Street Studios Project as the first priority for future Affordable Housing Fund award
considerations as funds become available, on the condition that the Palm Street Studios
Project meets AHF award criteria at the time of funding consideration.
Upon motion of Council Member ___________, seconded by Council Member
___________, and on the following roll call vote:
AYES:
NOES:
ABSENT:
The foregoing resolution was adopted this _____ day of _______________ 2024.
___________________________
Mayor Erica A. Stewart
ATTEST:
____________________________
Teresa Purrington,
City Clerk
APPROVED AS TO FORM:
____________________________
J. Christine Dietrick,
City Attorney
IN WITNESS WHEREOF, I have hereunto set my hand and affixed the official seal of the
City of San Luis Obispo, California, on ______________________.
___________________________
Teresa Purrington,
City Clerk
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McClish, Teresa
From:Scott Collins <scollins@haslo.org>
Sent:Thursday, December 14, 2023 12:46 PM
To:Tway, Timothea (Timmi)
Subject:Maxine Lewis Project - Funding Request
Follow Up Flag:Follow up
Flag Status:Flagged
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Good AŌernoon, Timmi,
The Housing Authority of the City of San Luis Obispo (HASLO) faces a $3.2 million gap for the Maxine Lewis project, a
100% affordable housing project that is aimed at providing permanent housing to individuals facing homelessness or at
risk of becoming homeless within our community. The financial gap results from rising construcƟon costs and interest
rates, loss of anƟcipated CDBG funds, and reduced tax credit value. In order to close the gap enƟrely, HASLO is
requesƟng $300,000 from the City of San Luis Obispo ahead of the January 22, 2024, closing on the project. HASLO is
using other local sources of funding to make up the remaining difference (HASLO - $981,000 in delayed developer fees,
and SLO County - $1,946,000 in County ARPA funds). While this City of San Luis Obispo contribuƟon of $300,000 will
make the project financially viable, HASLO is requesƟng funds above the $300,000 to shore up our project conƟngency,
in case we experience unforeseen challenges with construc Ɵon.
We greatly appreciate the City’s consideraƟon of this request and on-going support for the Maxine Lewis project.
Sincerely,
ScoƩ
Scott Collins
Executive Director
HASLO | Housing Authority of San Luis Obispo
Office: 805.594.5323 Fax: 805.543.4992
scollins@haslo.org
Visit our website at www.haslo.org
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August 15, 2023
The Honorable Marcia L. Fudge
Secretary of Housing and Urban Development
US Department of Housing and Urban Development
451 7th Street, S.W.,
Washington, DC 20410
Dear Secretary Fudge,
I am writing to you today about the concerning news my office received from the Housing
Authority of San Luis Obispo (HASLO) about their Maxine Lewis Project (Project) no longer
being eligible for CDBG funding.
In early 2023, HASLO and SLONP, its affiliated non-profit, received CDBG awards for their
Maxine Lewis Project from both the City of San Luis Obispo and the County of San Luis Obispo
(County). This Project is a 40-unit development serving primarily those experiencing
homelessness within the area.
However, the County recently informed HASLO that their Project is not eligible, because CDBG
funds cannot be used when the affordable housing is created by a limited partnership. The
County came to this conclusion after the HUD Field Office informed them that because the
Project is constructed by a limited partnership, it was not an eligible use of funds.
HASLO disagrees with this interpretation of the rules regarding eligible uses of CDBG funding.
They contend the use of their affiliated non-profit entity, SLONP, as the controlling partner in a
limited partnership has always been an approved structure in the past. In addition, they argue that
this is how the majority of affordable housing is constructed in California. HASLO maintains
that HASLO/SLONP has undergone CDBG compliance audits for past projects, and that these
transactions have previously met HUD guidance.
After confirming that no legislative changes were made to the CDBG program funding
guidelines, HASLO believes the Project being declared ineligible is incorrect. HASLO noted that
the County attempted to schedule a time with HUD to discuss the matter but have been unable to
secure a date.
Page 383 of 605
Without this CDBG funding, HASLO’s Maxine Lewis Project is not financially feasible, and
they may have to return the tax credits they received to the State. HASLO stresses a resolution
needs to occur by September or the project is unlikely to move forward.
Given the significant potential impacts this loss of funding could have on this important local
project, I kindly ask that your office look into this issue further. I greatly appreciate your
assistance with this matter. Should you have any questions, please contact my Legislative
Assistant, Jesse Ebadi, at 805-6991439 or at jesse.ebadi@mail.house.gov.
Sincerely,
Salud O. Carbajal
Member of Congress
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U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
WASHINGTON, DC 20410-1000
ASSISTANT SECRETARY FOR CONGRESSIONAL
AND INTERGOVERNMENTAL RELATIONS
www.hud.gov espanol.hud.gov
December 18, 2023
The Honorable Salud O. Carbajal
U.S. House of Representatives
Washington, DC 20515-0001
On behalf of Secretary Marcia Fudge, thank you for your letter regarding the use of
Community Development Block Grant (CDBG) funds to develop 40 units of permanent supportive
housing, called the Maxine Lewis Project. The following information is from the Department of
Housing and Urban Development’s (HUD) Office of Community Planning and Development
(CPD).
Department staff held a conference call with the Los Angeles HUD Field Office on
October 4, 2023, to provide clarification of why this project is not eligible, as structured, for CDBG
funding. The city and county of San Luis Obispo have proposed to use $937,086 of CDBG funds to
provide a loan to Orcutt Road, LP, a for-profit entity, to acquire a 55-year leasehold interest in
property from the Housing Authority of San Luis Obispo County (HASLO), which holds title.
HASLO, in turn, is designating Orcutt Road, LP to construct, own and operate the project as
permanent supportive housing.
Based on information contained in the tax credit application to the state of California in
connection with this project, it appears that the CDBG funds may also be used to finance
construction costs for improvements to the property. The project as currently structured is not
eligible for CDBG funding because acquisition of real property with CDBG funds (pursuant to
24 CFR 570.201(a)) can only be carried out by the recipient, or other public or private nonprofit
subrecipient. Orcutt Road, LP, as a for-profit entity, cannot be a CDBG subrecipient as that term is
defined in 24 CFR 570.500(c).
However, insofar as the use of CDBG funds for acquisition of the real property is
concerned, an alternative structure would be eligible under the CDBG program regulations. Under
this alternative structure, the grantee or a non-profit subrecipient could use CDBG funds to acquire
the leasehold interest from HASLO and dispose of the property to Orcutt Road, LP, i.e., through
sale of the leasehold interest, as a disposition activity pursuant to 24 CFR 570.201(b). If sold in this
manner, the grantee or its subrecipient (as seller) could accept a promissory note in lieu of cash.
(The promissory note could have the same terms as originally envisioned). Thus, the CDBG funds
could still be used to provide financing for the acquisition activity that would result in Orcutt, LP,
obtaining a leasehold interest in the property. Of course, the sale would have to incorporate
requirements to ensure that the activity would meet the CDBG national objectives criteria at
24 CFR 570.208.
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With regard to any use of CDBG funds to finance construction of buildings or other
improvements, care must be exercised to ensure that such construction does not constitute
construction of permanent residential housing. Such use is prohibited at 24 CFR 570.207(b)(3). If
CDBG funds are used to finance facilities that are designed for use in providing shelter for persons
having special needs, however, they are considered public facilities and are not subject to the
prohibition of new housing construction described in 570.207(b)(3). Such facilities include shelters
for the homeless, convalescent homes, hospitals, nursing homes, battered spouse shelters, halfway
houses for run-away children, drug offenders or parolees, group homes for individuals with
intellectual disabilities, and temporary housing for disaster survivors.
The description of the proposed use of CDBG funds indicates that the funding will be
provided by two CDBG grantees. Generally, a CDBG grantee must use its funds within its
jurisdiction and for the benefit of its residents. However, the regulation provides an exception: the
city and county of San Luis Obispo may combine their CDBG funds to finance an activity located
within the city, if the county determines that the activity is necessary to further the purposes of Title
I of the Housing and Community Development Act of 1974, as amended, and that reasonable
benefits from the activity will accrue to residents within the jurisdiction of the urban county. The
county of San Luis Obispo must document the basis for such determination prior to providing
CDBG funds for the activity and sign a Memorandum of Understanding written in accordance with
24 CFR 570.309 and 24 CFR 570.200(e).
This activity must be documented in the county’s approved Consolidated Plan. If it is not, it
is necessary to prepare an amendment to the plan, including public hearings to ensure that residents
of both the city and county have an opportunity to comment on this activity. HUD’s Los Angeles
Field Office CPD Director, Mr. Rufus Washington can be reached by telephone at 213-534-2555 or
by email at Rufus.Washington@hud.gov to ensure your concerns are addressed.
I hope this information is helpful. Please let me know if I can be of further assistance.
Sincerely,
Dr. Kimberly A. McClain
Assistant Secretary for Congressional
and Intergovernmental Relations
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McClish, Teresa
From:Jill Bolster-White <Jbw@t-mha.org>
Sent:Wednesday, December 13, 2023 4:52 PM
To:McClish, Teresa
Cc:Tway, Timothea (Timmi)
Subject:RE: Palm St. Studios
This message is from an External Source. Use caution when deciding to open attachments, click links, or respond.
Hello Teresa and Timmi,
I support the use of TransiƟons-MHA’s allocaƟon of $300,000 in ARPA funds to be used for HASLO’s Maxine Lewis
project.
I am certainly hopeful that the City of San Luis Obispo receives the Prohousing incenƟve payment and is able to award
TMHA funds for our Palm Street Studios project, possibly in addiƟon to the $300,000 award to fill our current funding
gap.
Best,
Jill
Jill Bolster-White
Executive Director
she/her
Transitions-Mental Health Association
office: (805) 540-6505 fax: (805) 540-6501
jbw@t-mha.org
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From: McClish, Teresa <tmcclish@slocity.org>
Sent: Wednesday, December 13, 2023 3:04 PM
To: Jill Bolster-White <Jbw@t-mha.org>
Cc: Tway, Timothea (Timmi) <TTway@slocity.org>
Subject: Palm St. Studios
[EXTERNAL]
Hi Jill,
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Thanks again for our discussion this morning and your support for our request to reallocate funds from the
Palm St. Studio’s project. We would like to move forward with the request to City Council, at their Jan 9 th
meeting, to reallocate $300k of affordable housing funds from the THMA Palm St. Studios Project to HASLO’s
Maxine Lewis project and request that Council put the Palm St. Studios project first in position for affordable
housing funds in an amount potentially more than $300k as funds become available. As I mentioned, the City
is will hear formally about the state Prohousing designation on Dec 21st or Dec 22nd which will make us eligible
for Prohousing incentive funds up to $750k to be used for affordable housing, with applications accepted – as
we understand from HCD – “in the new year”.
The proposed reallocation will enable HASLO to proceed to close escrow in January and apply for tax credits
for Maxine Lewis. By asking Council prioritize new funds to be applied to the Palm Street Studios, though a
risk, we are confident that through generation of revenues into the City’s Affordable Housing Fund, automatic
eligibility to apply for Prohousing funds, and with Council’s prioritization, the Palm St. Studios will be able to
regain funding, and potentially additional funding, early in 2024.
As I mentioned, if you would send us (Timmi) correspondence (email is fine) that you are supportive of this
strategy at your earliest opportunity (we are working on this as a late agenda item) we will have an opportunity
to help keep both the Palm Street and Maxine Lewis projects moving forward.
Gratefully,
Teresa
Teresa McClish
pronouns she/her/hers
Housing Policy and Programs Manager
Community Development
E tmcclish@slocity.org
T 805.783.7840
slocity.org
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