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HomeMy WebLinkAbout05-02-2017 Item 09 TEFRA Hearing regarding the Housing of SLO Issuance of a Tax-Exept debt obligation to finance 46 affordable housing units at 3680 Broad St Meeting Date: 5/2/2017 FROM: Michael Codron, Community Development Director Prepared By: Jenny Wiseman, Acting Housing Programs Manager SUBJECT: TAX AND EQUITY FISCAL RESPONSIBILITY ACT (TEFRA) HEARING REGARDING THE HOUSING AUTHORITY OF SAN LUIS OBISPO ISSUANCE OF A TAX-EXEMPT DEBT OBLIGATION TO FINANCE CONSTRUCTION OF 46 AFFORDABLE HOUSING UNITS AT 3680 BROAD STREET RECOMMENDATION 1. Conduct a public hearing under the Tax and Equity Fiscal Responsibility Act (TEFRA) of 1982 and pursuant to the requirements of the Internal Revenue Code of 1986; and 2. Adopt a resolution (Attachment A) allowing the issuance of a tax-exempt loan by the Housing Authority of San Luis Obispo to finance construction of 46 affordable housing units at 3680 Broad Street. DISCUSSION Previous Council Approval On April 19, 2016, the Council held a Tax and Equity Fiscal Responsibility Act (TEFRA) public hearing regarding the issuance of a tax-exempt bond to finance the construction of 46 affordable dwelling units in the City and approved Resolution No. 10707 (Attachment B). The Housing Authority of San Luis Obispo (HASLO) then applied and successfully obtained Low Income Housing Tax Credits in the Summer of 2016 to move forward with the project. However, with the recent Federal Administration changes, the value of those tax credits decreased and caused investors across the Country to freeze or cancel investments into affordable housing projects. Due to this, HASLO was forced to postpone construction of Iron Works until the spring of 2017. Since TEFRA hearings expire after one year, HASLO has requested the City Council hold a new TEFRA hearing so they can finally close escrow on or near May 15, 2017, and begin construction. Background & Request for TEFRA Hearing The Housing Authority of the City of San Luis Obispo (HASLO) is requesting that the Council hold a public hearing regarding the issuance of a tax -exempt bond to finance the construction of Iron Works Apartments, 46 affordable housing units located at 3680 Broad Street. Although there is no financial participation (or liability, direct or indirect) by the City in approving the issuance of this “conduit” financing, Council conduct of a public hearing and approval of the reissuance is required under federal regulations for tax-exempt financing. Packet Pg 99 9 The Housing Authority is committed to providing much needed additional affordable housing in the City of San Luis Obispo. The primary funding source for this project will be low income housing tax credits awarded by the California Tax Credit Allocation Committee (TCAC). These tax credits are then purchased by investors who become a limited partner. California statue does not allow Housing Authorities to be a party in these partnerships, so the Housing Authority will hold its interest through its related entity San Luis Obispo Non-profit Housing Corporation (SLONP). SLONP will serve as the sole Managing General Partner for Iron Works Apartments. The partnerships have a 15 year compliance period over which the tax credits are earned. After the 15 years, the limited partner has the option to seek a buyer for its interest. The project will feature an affordability requirement for a minimum of 55 years. Project Summary 1. Iron Works Apartments will consist of 100% of the units to be rented to households at 60% Area Median Income and below for a minimum of 55 years. The project consists of 46 units: 12 one bedroom units, 19 two bedroom units, and 15 three bedroom units. 2. Estimated total development costs are projected to be $14.9 million. Of this, it is anticipated that roughly $10 million in tax exempt bond financing will be utilized to finance the project development. 3. The issuance of the Bond requires that the Council conduct a public hearing regarding the financing of the Project under the Tax Equity and Fiscal Responsibility Act of 1982 (“TEFRA”), and pursuant to the requirements of the Internal Revenue Code of 1986. The TEFRA public hearing allows Council to adopt a resolution approving the issuance by the Authority of the Bonds, in order to maintain purchase and rehabilitate the three housing facilities. No City Liability for the Financing There is no City liability in approving the issuance of conduit financing. The bonds are payable solely from the payments by the Borrower on a loan made to it (the “Borrower Loan”) by the Authority from the proceeds of the Bonds. The rental payments by tenants in the Project are the source of revenue used by the Borrower to repay the Borrower Loan. The City has no financial, legal, or other obligation, liability or responsibility for the Project or for the repayment of the Bonds or the repayment of the Borrower Loan. The documents for the Bonds clearly provide that the Bonds are payable solely from payments on the Borrower Loan made by the Borrower. Outside of holding this hearing and adopting the required resolution, no other participation or activity of the City with respect to the bonds will be required. City’s Conduit Financing Policy While the Council is not obligated to approve this request, it would be consistent with past City actions regarding the Project. Under the City’s debt financing and management policies, consideration of a request for conduit financing is generally a two-step process: 1. First asking the Council if they are interested in considering the request and establishing the ground rules for evaluating it. Packet Pg 100 9 2. And then returning with the results of this evaluation and recommending approval of appropriate financing documents if warranted. Given the Council’s prior approval for this TEFRA hearing in April 2016, and past successful approval to conduit financing to HASLO; staff recommends that the Council find HASLO capable for achieving the public purpose of providing affordable housing financed partially through tax exempt bonds. City’s Past Experience with Conduit Housing Bonds The City has approved eleven “conduit” housing bond issues in the past as reflected in the following summary. There have been no financial difficulties with any of these bond issues. 1. 1985. 168-unit apartment development on Southwood Drive (refinanced in 1993). 2. 1998. 30-unit development (all affordable for seniors and persons with disabilities) on Brizzolara Street. 3. 1999. 122-unit apartment development by the De Vaul Ranch Company, of which 26 units will be affordable: 24 for “very-low” and 2 for “moderate” income households. 4. 2002. 19-unit senior apartment development at 433 Pacific Street (Pacific and Carmel). 5. 2005. 40 affordable one-bedroom units for seniors as well as one manager’s unit in an existing historic single-family residence at 2005 Johnson Avenue (“Del Rio Terrace”). 6. 2009 and 2011. 8-unit housing project at 1468 East Foothill Boulevard for the University Board of the Santa Barbara Presbytery. 7. 2012. 120-unit apartment project affordable to low and very-low income households located at 1550 Madonna Road. 8. 2013. 19-unit apartment project affordable rental apartment facility for seniors located at 433 Pacific (“Carmel Street Apartments”). 9. 2013. 40-unit affordable rental apartment facility for seniors located at 2005 Johnson Avenue (“Del Rio Terrace”). 10. 2016. Rehabilitation of 55 affordable rental units located at 1092 Orcutt Road, 1102 Ironbark, and 1363 Pismo Street. 11. 2016. 46-unit affordable apartment development at 3680 Broad Street (“Iron Works”). Next Steps After the TEFRA public hearing and adoption of the Resolution of the Council approving the issuance of the Bonds, HASLO can move forward with closing escrow on or near May 15, 2017 Packet Pg 101 9 and begin construction on Iron Works shortly thereafter. There will be no further actions required by the City. FISCAL IMPACT There are no fiscal impacts to the City associated with this matter. As noted above, the City has no liability, directly or indirectly, for the financing. ALTERNATIVES 1. Do not approve the issuance of bonds by the Authority. The project has already received a TEFRA approval which has expired, all necessary entitlements, as well as multiple City loan commitments, and will close escrow shortly. Due to lack of liability for repayment of the Bonds by the City, this option is not recommended. 2. Defer consideration of the request. Due to the critical need for tax exempt bond financing to construct the apartments, this option is not recommended. Attachments: a - Draft Resolution b - Resolution No. 10707 (2016 Series) Packet Pg 102 9 R ______ RESOLUTION NO. ______ (2017 SERIES) A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF SAN LUIS OBISPO, CALIFORNIA, APPROVING THE INCURRING OF A TAX EXEMPT OBLIGATION BY THE HOUSING AUTHORITY OF THE CITY OF SAN LUIS OBISPO FOR THE PURPOSE OF PROVIDING FINANCING FOR THE DEVELOPMENT OF IRON WORKS APARTMENTS WHEREAS, the Housing Authority of the City of San Luis Obispo (the “Authority”) is authorized by Chapter 1 of Part 2 of Division 24 of the Health and Safety Code of the State of California, as amended (the “Act”), to incur indebtedness and to make loans for housing purposes specified in the Act; and WHEREAS, Iron Works Apartments, L.P., a California limited partnership (the “Borrower”) intends to develop Iron Works Apartments, a 46 unit affordable housing project to be located at 3680 Broad Street (referred to in this Resolution as the “Housing Facility”); and WHEREAS, such assistance will involve the issuance by the Authority of debt obligations (which may be in the form of a loan evidenced by a note or tax-exempt revenue bonds, and referred to in this Resolution as the “Bonds”) in the approximate amount of $10,000,000, and a loan of the proceeds of the Bonds to the Borrower; and WHEREAS, a portion of the housing units in the Housing Facility will be rented to persons and families of low or very low income as required by the Act and the Internal Revenue Code of 1986, as amended (the “Code”); and WHEREAS, the Bonds will be considered to be a “qualified exempt facility bonds” under Section 142(a) of the Code, and Section 147(f) of the Code requires that the “applicable elected representative” with respect to the Authority approve the issuance by the Authority of the Bonds following the holding of a public hearing with respect thereto; and WHEREAS, the Authority has determined that the Council of the City is the “applicable elected representative” to approve the issuance by the Authority of the Bonds because the Housing Facility will be located within the City; and WHEREAS, notice of a public hearing by the Council regarding the financing of the Housing Facility has been duly given as required by the Code, and the Council has held the public hearing at which all interested persons were given an opportunity to be heard on all matters relative to the location, operation and financing of the Housing Facility, including the Authority's issuance of the Bonds and subsequent lending of the proceeds thereof to the Borrower to pay costs of the acquisition, construction and development by the Borrower of the Housing Facility; and WHEREAS, the City will not be a party to any of the agreements or other documents related to the Bonds and the financing of the Housing Facility, the City will have no liability or Packet Pg 103 9 Resolution No. ______ (2017 Series) Page 2 R ______ responsibility related to the repayment or administration of the Bonds, and the issuance of the Bonds and the financing of the Housing Facility will not impose any legal, financial or moral obligation on the City; and WHEREAS, it is in the public interest, for the public benefit and in furtheranc e of the public purpose of the City that the Council approve the issuance by the Authority of the Bonds for the aforesaid purposes. NOW, THEREFORE, BE IT RESOLVED that the Council of the City of San Luis Obispo does declare, determine and order as follows: SECTION 1. Approval of Issuance of Bonds. The Council of the City of San Luis Obispo hereby approves the issuance by the Authority of the Bonds for purposes of the Code. SECTION 2. Environmental Determination. The Council of the City of San Luis Obispo has determined that the above action will not have a significant impact on the environment, as defined by §15061(b)(3) of the California Environmental Quality Act and is exempt from environmental review. Upon motion of _______________________, seconded by _______________________, and on the following roll call vote: AYES: NOES: ABSENT: The foregoing resolution was adopted this _____ day of _____________________ 2017. ____________________________________ Mayor Heidi Harmon ATTEST: ____________________________________ Carrie Gallagher City Clerk Packet Pg 104 9 Resolution No. ______ (2017 Series) Page 3 R ______ 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, this ______ day of ______________, _________. ____________________________________ Carrie Gallagher City Clerk Packet Pg 105 9 RESOLUTION NO. 10707 (2016 SERIES) A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF SAN LUIS OBISPO, CALIFORNIA, APPROVING THE INCURRING OF A TAX EXEMPT OBLIGATION BY THE HOUSING AUTHORITY OF THE CITY OF SAN LUIS OBISPO FOR THE PURPOSE OF PROVIDING FINANCING FOR THE CONSTRUCTION OF IRON WORKS APARTMENTS WHEREAS, the Housing Authority of the City of San Luis Obispo (the "Authority") is authorized by Chapter 1 of Part 2 of Division 24 of the Health and Safety Code of the State of California, as amended (the "Act"), to incur indebtedness and to make loans for housing purposes specified in the Act; and WHEREAS, the Authority has expressed an interest in establishing a California limited partnership (the "Borrower") and in assisting the Borrower to develop Iron Works Apartments, a 46 unit affordable housing project located at 3680 Broad Street (referred to in this Resolution as the "Housing Facility"); and WHEREAS, such assistance will involve the issuance by the Authority of debt obligations (which may be in the form of a loan evidenced by a note or tax-exempt revenue bonds, and referred to in this Resolution as the "Bonds") in the approximate amount of 10,000,000, and a loan of the proceeds of the Bonds to the Borrower; and WHEREAS, a portion of the housing units in the Housing Facility will be rented to persons and families of low or very low income as required by the Act and the Internal Revenue Code of 1986, as amended (the " Code"); and WHEREAS, the Bonds will be considered to be a "qualified exempt facility bonds" under Section 142(a) of the Code; and WHEREAS, Section 147(f) of the Code requires that the "applicable elected representative" with respect to the Authority approve the issuance by the Authority of the Bonds following the holding of a public hearing with respect thereto; and WHEREAS, the Authority has determined that the City Council is the "applicable elected representative" to approve the issuance by the Authority of the Bonds because the Housing Facility is located within the City; and WHEREAS, notice of a public hearing by the Council regarding the financing of the Project has been duly given as required by the Code; and R 10707 Packet Pg 106 9 Resolution No. 10707 (2016 Series) Page 2 WHEREAS, the Council has held the public hearing at which all interested persons were given an opportunity to be heard on all matters relative to the location, operation and financing of the Housing Facility, including the Authority's issuance of the Bonds and subsequent lending of the proceeds thereof to the Borrower to pay costs of the construction by the Borrower of the Housing Facility; and WHEREAS, the City will not be a party to any of the agreements or other documents related to the Bonds and the financing of the Housing Facility, the City will have no liability or responsibility related to the repayment or administration of the Bonds, and the issuance of the Bonds and the financing of the Housing Facility will not impose any legal, financial or moral obligation on the City; and WHEREAS, it is in the public interest, for the public benefit and in furtherance of the public purpose of the City that the Council approve the issuance by the Authority of the Bonds for the aforesaid purposes. NOW, THEREFORE, BE IT RESOLVED that the Council of the City of San Luis Obispo does declare, determine and order as follows: SECTION 1. The Council of the City of San Luis Obispo hereby approves the issuance by the Authority of the Bonds for purposes of the Code. SECTION 2. Environmental Determination. The City Council has determined that the above actions will not have a significant impact on the environment, as defined by §15061(b)(3) of the California Environmental Quality Act and are exempt from environmental review. SECTION 3. This Resolution shall take effect immediately upon its adoption. Upon motion of Council Member Christianson seconded by Council Member Ashbaugh and on the following roll call vote: AYES: Council Members Ashbaugh, Christianson and Rivoire, Vice Mayor Carpenter and Mayor Marx NOES: None ABSENT: None R 10707 Packet Pg 107 9 Resolution No. 10707 (2016 Series) The foregoing Resolution was adopted this 19th day of April 2016. cl== O? Mayor an Iarx A TTT7Orr. Interim City Clerk ristine Dietrick t Attorney Page 3 IN WITNESS WHEREOF, I have hereunto set my hand and affixed the official seal of the City of San Luis Obispo, California, this day of ( Lee PiTcU, MMC Interim City Clerk R 10707 Packet Pg 108 9 Tax and Equity Fiscal Responsibility Act (TEFRA) Hearing Regarding the Housing Authority of San Luis Obispo Issuance of a Tax -Exempt Debt Obligation to Finance Construction of 46 Affordable Housing Units at 3680 Broad Street May 2, 2017 Recommendation 1. Conduct a public hearing under the Tax and Equity Fiscal Responsibility Act (TEFRA) of 1982 and pursuant to the requirements of the Internal Revenue Code of 1986. 2. Adopt a resolution allowing the issuance of a tax- exempt debt obligation by the Housing Authority of the City of San Luis Obispo to develop 46 affordable housing units at 3680 Broad Street. 3/17/2015 1 Background a TEFRA Hearing held on in April 2016 has expired. ■ $10 million Bond approved by State in 2016 ■ Tax Credit Market Uncertainties ■ Housing Authority has requested City Council hold a new public hearing for the "issuance" of the tax- exempt bonds for construction ■ TEFRA hearing required under federal regulations for tax-exempt financing ■ No financial participation by the City Project Summary ■ Iron Works Apartments ■ Construction to begin June 2017 ■ Awarded $5.5 million in low income housing tax credits 46 affordable units deed restricted for 55 years ■ 12 one -bedroom units ■ 19 two-bedroom units ■ 15 three- bedroom units a 4,000 square feet of commercial space ■ Estimated total development costs of $15 million ■ $10 million in tax-exempt bond financing will be utilized to finance the project development. 3/17/2015 2 Past TEFRA Experience ■ City has approved eleven similar resolutions allowing tax-exempt conduit financing since 1985 ■ Request is consistent with past Council action and General Plan Housing Element policies ■ No financial difficulties with past projects Recommendation 1. Conduct a public hearing under the Tax and Equity Fiscal Responsibility Act (TEFRA) of 1982 and pursuant to the requirements of the Internal Revenue Code of 1986. 2. Adopt a resolution allowing the issuance of a tax- exempt debt obligation by the Housing Authority of the City of San Luis Obispo to develop 46 affordable housing units at 3680 Broad Street. 3/17/2015 3 :i ... ... .......... .. .. ... ..