Title
A. RESOLUTION NO. 2018-001 OF THE HOUSING AUTHORITY OF THE CITY OF CHULA VISTA APPROVING MULTIFAMILY MORTGAGE REVENUE BOND POLICIES
B. RESOLUTION NO. 2018-056 OF THE CITY COUNCIL OF THE CITY OF CHULA VISTA ADDING CHAPTER 19 (HOUSING AUTHORITY FEES) TO THE MASTER FEE SCHEDULE AND ESTABLISHING FEES RELATED TO HOUSING AUTHORITY BOND ISSUANCES
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RECOMMENDED ACTION
Recommended Action
Authority adopt resolution A and Council adopt resolution B.
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SUMMARY
The Chula Vista Housing Authority’s Multifamily Mortgage Revenue Bond Program (“Bond Program”) has been utilized since 1993 to support the development of affordable housing in the City of Chula Vista (“City”). In accordance with new requirements set forth in California Debt Limit Allocation Committee (“CDLAC”) Regulation Section 5031(c), governing the issuance of debt for Bond Programs, issuers, such as the Housing Authority, must submit to CDLAC for their approval bond issuance and post-compliance policies. Tonight's action is the adoption of such policies for the administration of the Housing Authority’s Bond Program.
ENVIRONMENTAL REVIEW
Environmental Notice
Environmental Notice
The activity is not a “Project” as defined under Section 15378 of the California Environmental Quality Act State Guidelines; therefore, pursuant to State Guidelines Section 15060(c)(3) no environmental review is required. Notwithstanding the foregoing, the activity qualifies for an Exemption pursuant to Section 15061(b)(3) of the California Environmental Quality Act State Guidelines. This activity is also exempt from review under the National Environmental Policy Act as no federal funding is involved in this action.
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Environmental Determination
The Director of Development Services has reviewed the proposed activity for compliance with the California Environmental Quality Act (CEQA) and has determined that the activity is not a “Project” as defined under Section 15378 of the State CEQA Guidelines because it will not result in a physical change in the environment; therefore, pursuant to Section 15060(c)(3) of the State CEQA Guidelines, the activity is not subject to CEQA. In addition, notwithstanding the foregoing, the Director of Development Services has also determined that the activity qualifies for an Exemption pursuant to Section 15061(b)(3) of the California Environmental Quality Act State Guidelines. Thus, no environmental review is required. This activity is also exempt from review under the National Environmental Policy Act as no federal funding is involved in this action.
BOARD/COMMISSION RECOMMENDATION
With the current vacancies on the Housing Advisory Commission, the Commission was unable to consider the Bond Program Policies due to a lack of quorum.
DISCUSSION
Federal and state legislation authorizes issuance of mortgage revenue bonds (“Bonds”) by local governments to finance the development, acquisition, and rehabilitation of multifamily housing rental projects by a private property owner/developer. The Chula Vista Housing Authority is an issuer of these tax-exempt mortgage revenue Bonds for eligible multifamily housing rental projects in the City of Chula Vista (City).
The Chula Vista Housing Authority’s Multifamily Mortgage Revenue Bond Program (Bond Program) has been utilized since 1993 to support the development of affordable housing in the City. Since inception, the Bond Program has issued over two hundred million dollars in tax-exempt bonds to provide below-market rate financing for affordable housing developments. As of June 2017, approximately $155,200,000 of multifamily mortgage revenue bonds are outstanding. Since its inception, the Bond Program has provided financing for development of 2,343 total residential units of which 1,521 units were for lower income households.
With interest on the Bonds exempt from federal and state taxation, Bonds provide below market financing for qualified rental projects. The Bond Program is able to provide below-market rate financing because interest earnings on bonds issued for eligible projects are excluded from federal gross income and is therefore exempt from federal income taxation. Tax exempt bonds generate a lower interest rate than comparable taxable bonds; therefore, allowing borrowers to borrow at a lower rate. Additionally, projects issuing Bonds are eligible for allocations of federal 4 percent low-income housing tax credits. Equity from the sale of tax credits can provide a significant portion of the financing necessary to develop affordable housing (approximately 30 percent of the development cost).
Under federal and state law, to be eligible for bond financing, multifamily housing projects must set aside at least 20 percent of their units at affordable rents by households earning no more 50 percent of Area Median Income (AMI) ($45,450 for a family of four during 2017). Alternatively, a minimum of 40 percent of the units may be restricted at 60 percent AMI ($54,550 for a family of four during 2017). Due to the combined requirements of state, local, and federal funding sources, projects financed under the Bond Program are normally deed restricted as affordable for 55 years and often provide deeper affordability levels than the minimum levels required under the Bond Program.
For the issuance of Bonds, the Housing Authority must acquire an allocation of the State’s available tax-exempt debt from the California Debt Limit Allocation Committee (CDLAC), as the State Bond Authority. Pursuant to CDLAC Regulation 5031(c), adopted in December 2016, all issuers must submit for CDLAC’s review and approval policies setting forth the issuer’s bond issuance procedures and post-issuance compliance procedures.
The attached Bond Program Policies proposed to respond to requirements of CDLAC for the adoption of bond policies consistent with its regulations and in compliance with Internal Revenue Service (IRS) requirements. Additionally, adoption of Bond Policies will provide efficiency in administration of the Bond Program and program clarity to staff and the public to remain a useful incentive in the production of affordable housing within the City.
The proposed policy will apply only to new project applications received after the proposed approval by the Housing Authority, and to bond projects in process; however, not to bond projects already issued.
While the Housing Authority acts as the issuer of the bonds, there is no direct liability of the City or the Housing Authority in connection with the issuance or repayment of the Bonds. There is no pledge of the City’s or Housing Authority’s faith, credit, or taxing power and the Bonds do not constitute general obligations of the City or Housing Authority. The bonds are special, limited obligations of the Housing Authority payable solely from private revenue sources, such as project cash flows and equity payments, and secured by a first deed of trust on the Bond-financed property.
To ensure that the Bond Program is self-supporting with the Project Owner responsible for the payment of all costs of issuance and other costs and repayment of the obligations, the proposed Bond Policies reflect the Housing Authority’s past practice of collection of fees for the preparation, issuance, administration and ongoing compliance and monitoring of bonds for private projects that have a qualified public benefit, consistent with CDLAC’s regulations and guidance and in compliance with IRS requirements.
Consistent with the Bond Policies, three administrative fees are proposed as an addition to the City’s Master Fee Schedule, as Chapter 19 (Housing Authority Fees) to achieve full and equitable cost recovery for bond issuance, administration, compliance and monitoring services required:
§ TEFRA Hearing
As required by Section 147(f) of the Internal Revenue Code, in compliance with the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA), a public hearing (the “TEFRA hearing”) either by an elected official or body of elected officials of the applicable governmental entity following reasonable public notice is required for qualified private activity bonds to provide a reasonable opportunity for interested individuals to express their views, either orally or in writing, on the issuance of bonds and the nature of the improvements and projects for which the bond funds will be allocated. The cost of service associated with preparing for and holding a TEFRA Hearing is estimated to total $3,500, as calculated in Attachment 2. Full cost recovery of the estimated cost of service is recommended. This non-refundable fee shall only be charged in those instances where the City or Chula Vista Housing Authority, at its discretion, will not serve as the issuer of the bonds. No separate TEFRA hearing fee shall be charged if the City or Housing Authority serves as the Issuer of the bonds.
§ Issuance Fee
The Housing Authority provides its services to a limited segment of the public, more specifically housing developers, to obtain unique services and substantial economic benefits available to them only under the State of California’s tax-exempt bond program to issue the debt, not the least of which may be financing at interest rates substantially lower than conventional financing interest rates, if such rates are available, and/or the ability to obtain financing without equity compensation to the lender. In consideration of the Housing Authority’s application to the State and preparation and issuance of multifamily housing revenue bonds for the financing of such private projects that have a qualified public benefit and economic benefit to the Project Owner, the Housing Authority charges issuance fees. The cost of such services associated with preparing, applying and issuing multifamily housing revenue bonds on behalf of a private project varies based on the size of the original principal amount. As a result, a fee that escalates based on the principal amount is appropriate. A fee of 20 basis points (0.20%) of the total original principal amount of the bonds (both tax-exempt and taxable) to be issued is recommended. This fee is consistent with fees of other conduit issuers allowed to issue bonds, as shown in Table 1 below. This fee is inclusive of the TEFRA Hearing fee and consistent with fees of other conduit issuers allowed to issue bonds.
§ Annual Administrative Fee
The cost of service associated with the ongoing administration and monitoring costs (e.g. financial and site monitoring, and annual reporting) of Housing Authority issued Bonds required throughout the Qualified Project Period and until expiration of the CDLAC Compliance Period, reportable to CDLAC is set by size of the project as follows:
o 50 units or less $13,000
o 51 - 199 units $17,000
o 200 or more units $20,500
An analysis of the staff effort and the current fully burdened hourly rates for impacted staff associated with the ongoing administration, compliance and monitoring of bonds for private projects was conducted to determine the cost of service associated with providing these administrative services, as calculated in Attachment 2. Such analysis concludes that the fees proposed do not exceed the estimated reasonable cost of providing the associated services.
Table 1 - Comparative Summary of Bond Fees
|
Agency |
Application Fee/ Issuance Deposit |
Issuance Fee (Basis Points “bps”) |
Annual Administrative Fee |
TEFRA Hearing |
|
Chula Vista Housing Authority |
$3,500 (applied to issuance fee) |
20 bps ($15,000 minimum) |
$13,000 < 51 dus $17,000 51-199 dus $20,500 200+ dus |
$3,500 only if NOT the Issuer |
|
San Diego Housing Commission |
$3,000 (applied to issuance fee) |
25 bps |
12.5 bps $10,000 minimum |
Included in Issuance Fee |
|
California Municipal Finance Agency (CMFA) |
$2,500 (applied to issuance fee) |
$37,500 + 5 bps 18.75 bps > $20 million |
5 bps $4,000 minimum 25% shared with Local Municipality |
Included in Issuance Fee |
|
California Statewide Communities Development Authority (CSCDA) |
$2,500 (applied to issuance fee) |
$40,000 + 12 bps 20 bps ($15,000 minimum) > $20 million |
5 bps $5,000 minimum |
Included in Issuance Fee |
|
CalHFA |
$5,000 (applied to issuance fee) |
$15,000 or 20 bps (greater of) < $20 million $40,000 + 1 bp > $20 million |
$7,500 Additional Fee for Scattered Sites |
Included in Issuance Fee |
DECISION-MAKER CONFLICT
Staff has reviewed the decision contemplated by this action and has determined that it is not site-specific and consequently, the 500-foot rule found in California Code of Regulations Title 2, section 18702.2 (a)(11), is not applicable to this decision for purposes of determining a disqualifying real property-related financial conflict of interest under the Political Reform Act (Cal. Gov't Code § 87100, et seq.).
Staff is not independently aware, and has not been informed by any Housing Authority member, of any other fact that may constitute a basis for a decision maker conflict of interest in this matter.
LINK TO STRATEGIC GOALS
The City’s Strategic Plan has five major goals: Operational Excellence, Economic Vitality, Healthy Community, Strong and Secure Neighborhoods and a Connected Community. The development and provision of quality affordable housing for low and moderate-income families supports the Economic Vitality goals as it expands the availability of housing opportunities for all economic segments of the community. With 57 percent of Chula Vista households earning less than the U.S. Department of Housing and Urban Development’s area median income, the development of affordable housing addresses the City’s Connected Community goals as it provides housing to meet residents’ needs and priorities.
CURRENT YEAR FISCAL IMPACT
Staff costs associated with the preparation of this staff report and for the Chula Vista Housing Authority Multifamily Mortgage Revenue Bond Policies are offset by administrative fees charged for ongoing administration and monitoring costs of its bond issuances.
ONGOING FISCAL IMPACT
Bond financing is a self-supporting program with the Project Owner responsible for the payment of all costs of issuance and other costs and repayment of the bonds. All costs related to the issuance of the bonds will be paid from bond proceeds or profits. The bonds will be secured by the project and will not constitute a liability to or obligation of the City of Chula Vista or Housing Authority.
The Chula Vista Housing Authority will receive compensation for its services in preparing future bond issuances by charging an issuance fee of 20 basis points (0.20%) of the total original principal amount of the bonds. Staff costs associated with ongoing monitoring compliance regulatory restrictions and administration of the outstanding bonds will be funded via an annual administrative fee set at $13,000 for projects with 50 units or less, $17,000 for projects of 51 - 199 units and $20,500 for projects with 200 or more units.
ATTACHMENTS
1. Chula Vista Housing Authority Multifamily Mortgage Revenue Bond Policies
2. Cost of Service Analysis
Staff Contact: Leilani Hines, Housing Manager