Supplemental Memo 1 for Item 7-A, September 1, 2026 City Council Meeting 1
To: Honorable Mayor and Members of the City Council
From: Gerry Beaudin, City Manager
Date: August 31, 2026
Supplemental Memo 1 regarding Item 7-A: Commitment Letter for MidPen Housing
SUPPLEMENTAL INFORMATION
This memo is being provided to supplement the staff report already published for the September 1, 2026 City Council meeting.
Given the complexity of the Federal housing voucher s, and of this project, s taff h as worked with MidPen and the City’s HUD consultant (VPCC, Inc.) to provide additional clarity around the operating subsidy needs at Stardust Gardens in the attached question and answer document. This document also responds to several questions received from Councilmembers.
VPCC Inc. is also conducting an analysis of the Alameda Housing Authority’s budget status which will be shared as an additional supplemental memorandum to this item when it is completed.
Respectfully submitted,
Abigail Thorne-Lyman, Director of Base Reuse and Economic Development
Exhibit:
1. Housing Subsidy Questions and Answers
Supplemental Memo 1 for Item 7-A, September 1, 2026 City Council Meeting 2
HOUSING SUBSIDY QUESTIONS AND ANSWERS
SEPTEMBER 1, 2026, CITY COUNCIL MEETING – ITEM 7-A
Why are we here?
1. Why does Stardust Gardens need an operating subsidy in the first place?
Answer: To continue to serve extremely low-income Alamedans in a service rich community. Approval of this commitment ensures that extremely low-income families will continue to live at Alameda Point in the future.
The Stardust Gardens development at the former Navy base is targeted towards a tenant population with extremely low-income families with substantial supportive services for families, veterans, survivors of domestic violence and people at risk of homelessness. As part of the Stardust Gardens redevelopment, financing includes the need for 4% federal low-income housing tax credits. To succeed in the competition for the federal tax credits, Stardust must prove it has sufficient revenue to cover all operating costs after construction, including supportive services.
Despite multiple funding sources and expected rent from non-assisted low-income families, the development currently has an expected annual operational funding gap of approximately $1M, as the rent paid by existing Alameda Point residents - who are most often extremely low income households (earning less than 30 percent of the area median income) – do not cover the operating costs for the building. The Alameda Point Collaborative and its partners focus on providing housing and services to these families and individuals, and receive Federally funded project based vouchers (among other sources) to do so. RESHAP is a continuation, and eventually expansion of their commitment.
2. Why do we need a commitment now if Stardust Gardens won't be completed and operating until approximately 2029?
Answer: 4% federal tax credits are competitively awarded by the State to worthy projects that aim to serve low-income families. To succeed in the competition for these critical federal tax credits this year, Stardust Gardens must demonstrate sufficient revenue to cover all operating costs after construction, including supportive services. The commitment shows that Stardust Gardens will be able to operate the property and provide supportive services post-construction.
3. What is the deadline for this commitment letter and why?
Answer: Applications for the next round of the 4% Low Income Housing Tax Credit Competition in California are due September 8. The County, who will be issuing bonds to successful projects, has asked that all materials be uploaded by Supplemental Memo 1 for Item 7-A, September 1, 2026 City Council Meeting 3
September 3 for their final review. MidPen must submit in this round in order to fulfill its requirements for a $15 million Multifamily Housing Program subsidy it received several weeks ago. This is the final round of tax credit applications available in California this year.
Missing this round will cause MidPen to lose its MHP funds, meaning it will next have to try for the much more difficult to secure 9% tax credits next year which it will not be as competitive for. This year, the first 9% round occurred in April, the first 4% round occurred in February. There will be at least a six month delay in project construction, which has a rippling effect for the West Midway housing development as well.
4. What happens to Stardust Gardens if there is no operating subsidy commitment now? Can MidPen still obtain the 4% tax credits and other financing needed to construct the project?
Answer: Access to the 4% low-income Housing Tax Credits is an essential financing component guaranteeing that 80 of the units built shall remain available to lower income families. Past 4% federal tax credit rounds in California have been competitive. There is no guarantee that Stardust Gardens will succeed in the September round if it cannot demonstrate its ability to sustain operations post construction.
5. Why does the tax-credit financing require evidence of an operating subsidy now if the subsidy itself won't be needed until the project is operating?
Answer: Ensuring successful management of the property after construction and throughout the life of the property ensures that low-income Alamedans have an opportunity to rent in a redeveloped site. The commitment also demonstrates that the project presents a low risk of possible default by providing ongoing subsidy for extremely low-income renters, as there is a commitment of sufficient future operating funds, subsidies, and rent collections to sustain the project during the term of the tax credit period (15 years).
Why can't the Alameda Housing Authority provide the commitment?
5. Why can't the Alameda Housing Authority (AHA) make the operating subsidy commitment instead of the City?
Answer: AHA administers federal housing vouchers within the City of Alameda.
AHA can make the commitment but has chosen not to and has provided reasoning for not doing so that the City of Alameda does not agree with. Namely, it has stated it is concerned that committing vouchers would cause a budget shortfall for its Supplemental Memo 1 for Item 7-A, September 1, 2026 City Council Meeting 4
organization, and it is concerned about using a state grant competition as the basis for allocating the vouchers due to the way that MidPen represented the use of vouchers in the application. These concerns are further discussed below. A follow up memo analyzing AHA’s budget will be issued shortly.
6. If AHA is already providing vouchers for approximately 25 households in the existing housing, why can't those vouchers simply follow the residents to Stardust Gardens?
Answer: Technically, AHA and the City would need to seek a waiver from HUD to simply transfer the vouchers to the new project, which has been done in the past but does take effort and time. An easier way to do this is to terminate the vouchers at the old housing, and reissue them to the new housing. Since APC residents accepting new housing will have access to Stardust Gardens before they have to move out of their current apartments, this is feasible.
But there is no guarantee that all APC residents choose to move to Stardust Gardens, and they will be given a choice. Federal program requirements give the existing 25 households the option to take their vouchers anywhere in the United States once the existing housing is no longer available. It is a personal choice whether or not to come back to Stardust Gardens after construction of the units is complete. In MidPen’s experience at other similar redevelopments throughout the Bay Area, few residents opt to take their vouchers elsewhere, especially families.
Alameda is a high-sought after community in the core Bay Area and existing residents are actively supported by Alameda Point Collaborative’s wraparound services, making it seem unlikely that many of them will opt to move elsewhere.
There is also the possibility other Bay Area residents with federal vouchers would choose to move into Stardust Gardens, bringing those vouchers with them.
7. If AHA is already paying for those vouchers, why would committing them to Stardust Gardens create a financial concern for AHA?
Answer: MidPen is requesting 30 vouchers, while current APC buildings to be relocated into Stardust Gardens provide 25 existing vouchers.
Additionally, some of the households associated with the 25 existing vouchers may choose to leave and take their voucher with them. However, affordable units in a newly built, desirable location with access to extensive supportive services are rare.
If not, over 1,200 other families in AHA’s program that have to potentially look for units once their lease expires will find this development attractive. It is also important to point out that there are tens of thousands of voucher holders in the San Francisco/Oakland area that may also find the development attractive to lease.
The City does not see how this commitment for 30 vouchers can create a significant financial concern to AHA.
Supplemental Memo 1 for Item 7-A, September 1, 2026 City Council Meeting 5
8. We've heard that AHA was previously in a budget shortfall, is currently out of shortfall, but could go back into shortfall. What does that mean in plain English, and how does that affect AHA's ability to make this commitment?
Answer: A shortfall in a traditional housing authority occurs when an agency does not have sufficient current annual funding plus reserves to cover its annual rental payment obligations. However, unlike most traditional housing authorities, AHA was selected by HUD for additional flexibility under a program demonstration called Moving to Work. AHA currently had approximately $3.15M in reserves as of December 31, 2025 and we do not believe the risk of a potential future shortfall would affect its ability to make a commitment for 30 vouchers especially if a lot of the families currently housed return to Stardust Gardens after construction.
9. If the subsidy won't actually be needed until approximately 2029, why can't AHA make the commitment now?
Answer: AHA has outlined multiple reasons for not wanting to issue a commitment letter for Stardust Gardens by the September 8 deadline. One was procedural in nature dealing with competition for the vouchers. Another was financial and AHA’s concern about future potential shortfalls. AHA has also raised additional barriers such as insurance coverage. Outside legal counsel for Stardust Gardens, a former high-ranking HUD official, has provided responses to these objections and does not think providing a commitment is controversial or particularly risky.
10. Do you have examples of other housing authorities that have provided similar commitment letters for operating subsidies for similar affordable housing projects?
Answer: Yes. Commitment letters are used throughout the affordable housing development community to show project viability and secure federal tax credits to assist extremely low-income families afford housing. This is the norm, not the exception. In the past year or so, MidPen has received commitment letters from the Housing Authority of the County of San Mateo, the Santa Clara County Housing Authority and Santa Cruz County Housing Authority.
11. Why would AHA need to conduct a competitive process before committing project- based vouchers to Stardust Gardens?
Answer: They do not need to if the proposed development has been through a similar competitive process in the past three years. There are statutes and regulations that permit doing so. In fact, the AHA itself has adopted this flexibility in its administrative plan that governs how it manages its Section 8 program.
12. What is the potential HUD waiver option? What would the waiver allow AHA to do, and is that a realistic alternative?
Supplemental Memo 1 for Item 7-A, September 1, 2026 City Council Meeting 6
Answer: It may be a realistic alternative, but it is a longer-term process involving HUD approval that could not be completed in time for the tax credit competition deadline of September 8, 2026. AHA could request a waiver of competition for project-based vouchers under specific circumstances as part of its MTW flexibilities which would allow AHA to issue a commitment letter without the normal competitive process. While MidPen and its HUD Attorney are confident that AHA could make an award based on the recently awarded MHP competition, the team is open to participating in a competitive process, but this too could not be completed before the 9/8/26 tax credit application deadline. As such, City staff is asking Council to bridge this timing issue with an operating subsidy commitment for the TCAC application in order to give the Stardust Gardens team more time to work this out with AHA.
Why the City/other alternatives?
13. Why can't MidPen provide the operating subsidy itself?
Answer: While MidPen is committed to leveraging their balance sheet to support their developments and support those most in need, the organization is a non-profit developer managing over 130 properties throughout the Bay Area. Unlike AHA, MidPen does not receive an allocation of federal subsidy to assist extremely low- income households and covering a ~$1M annually for one property is not sustainable for the organization.
14. Are there other realistic sources that could provide the operating subsidy instead of the City?
Answer: Generally, deep subsidies for extremely low-income families is what the voucher program was designed to do. Some funding sources, such as Alameda County Measure W, have allowed for Capitalized Operating Subsidy Reserves in past competitions, but having to capitalize an operating subsidy upfront (in this case ~$25.5M) makes competing for funding very difficult. Most funding programs consider total development cost in their scoring and adding $25M+ to the budget makes it such that Stardust Gardens would not be competitive for these programs.
15. If the City makes the commitment now and AHA or another funding source becomes available later, can that funding replace or reduce the City's obligation?
Answer: Yes. If vouchers become available there would not be a need for the City’s subsidy. City Staff’s goal is to sign a commitment letter now, and resolve AHA’s concerns to secure a commitment from them of federal vouchers between now and 2029 when the actual subsidy is needed for the first time.
Supplemental Memo 1 for Item 7-A, September 1, 2026 City Council Meeting 7
16. Is the City actually paying anything now, or are we making a commitment today for payments that would begin only after Stardust Gardens opens?
Answer: The City is making a commitment today for potential payments that would begin only after Stardust Gardens completes construction and begins operation, which, at the earliest, would be February 2029. The goal is that a different source for subsidy is identified before the project starts construction in mid-2027.
17. What would trigger the City's obligation to actually begin paying the subsidy?
Answer: Generally, an occupancy permit. There are reserves set aside during initial occupancy of the property to assist. If the 25 families return, or additional families decide to use their vouchers in the development, then the HUD voucher subsidy replaces the need for the City subsidy.
18. How was the amount of the proposed subsidy determined? Answer: MidPen developed estimates of sources and uses of funds post construction. The gap between what they expect to collect in rent versus operating costs is how the subsidy is determined. The estimated $25.5M is a conservative estimate that assumes 2.5% escalation year over year and is not a net present value amount (which would be much lower). In reality, the property would only collect the subsidy necessary to pay operating expenses and debt service each year.
19. Is the expectation that the City will provide the subsidy for the full 20 years, or is the City effectively serving as a backstop while other subsidy sources are pursued?
Answer: The City is providing a commitment to the project in lieu of AHA’s commitment of vouchers to the project. The City is still pursuing the option of having AHA replace the City’s commitment with AHA’s commitment to provide project-based vouchers. In addition, many of the families may decide to come back and use their voucher at Stardust Garden or new voucher families may decide they want to live in the new units and bring the vouchers to the development as part of the regular voucher program.
The goal is for the City commitment to serve as a backstop until another source is found, but there is a possibility the City would need to see this commitment through.
What happens if the City does not make the commitment?
20. If Council doesn't approve the commitment on September 1, what happens to Stardust Gardens?
Supplemental Memo 1 for Item 7-A, September 1, 2026 City Council Meeting 8
Answer: Without a commitment, in all likelihood Stardust Garden will not win the tax credit competition this year and will not have the necessary funds to begin the redevelopment. In this case, MidPen does not advance the project to the construction stage until it secures full funding, which creates complications for the West Midway housing development that is planned to be built on the footprint of current APC housing that would have otherwise been demolished. City staff would need to negotiate a new deal with Catellus and Brookfield. Additionally, MidPen and the City run the risk of failing to meet grant deadlines for the State Affordable Housing & Sustainable Communities program, which includes a commitment of over $7 million to WETA for the Seaplane Lagoon ferry electrification project. The City may end up owing WETA these funds, and both the City and MidPen could be dinged in future rounds of affordable housing applications for failure to deliver on prior grant commitments.
21. Could MidPen simply apply for the tax credits again later? If so, what would a delay mean for the project's financing and schedule?
Answer: MidPen could apply for tax credits again the future, but they would have to return the $15M recently awarded from the State via their Multifamily Housing Program. That program was specifically structured to support projects that just needed a little extra boost to ensure their competitiveness for tax credits in the 9/8/26 application round. Without the $15M, MidPen will be significantly less competitive for tax credits in future rounds. Additionally, construction costs, labor, etc. continue to increase the longer this project remains in predevelopment.
22. In the simplest terms, why is City action necessary now to keep Stardust Gardens moving forward?
Answer: To obtain tax credits to redevelop Alameda Point. After 10 years of the Alameda Council, regional, state, federal, nonprofit and private partners contributing funds, grants, land, fee waivers, etc., the City’s commitment to redevelop Alameda Point may not happen. The planning for the RESHAP effort has been in the planning process for more than 10 years and MidPen has already raised $48M from two different state grant programs. All that remains is $22M in tax credit financing to do the construction.
Housing Counts
23. How do the 332 units in RESHAP factor into the City’s 25% overall housing affordability requirements for Alameda Point, and how do they factor into the affordability requirements for the West Midway market rate development? Supplemental Memo 1 for Item 7-A, September 1, 2026 City Council Meeting 9
Answer: In various policy contexts further described below, the 332 is the numerator, with the overall 810-unit combined West Midway/RESHAP project as the denominator, for a total of 41% affordable to lower income households:
• The West Midway Disposition and Development Agreement refers to RESHAP as primarily fulfilling its affordable housing obligation (because the West Midway developer is making the horizontal site improvements). At a minimum, according to the second amendment to this agreement, RESHAP is to provide 201 “replacement units” and 131 new units for a total of 332 minimum units. In addition, the West Midway Developer is obligated under the DDA to provide 39 to 44 moderate income units on site. • The City Council adopted Resolution 16089 declaring the RESHAP and West Midway properties to be Exempt Surplus Land under the Surplus Land Act, using the Government Code Section 54221(f)(1)(A) which allows projects with greater than 40% units restricted to certain income levels to be exempt from the Surplus Land Act requirements. Therefore a minimum of 40% of the 810 units – or 324 units- would need to meet these requirements. • Subsequent Council Resolutions related to Surplus Land Act exemptions at Alameda Point (for example, Resolution 16387 for the Radium project) have utilized Government Code Section 54221(f)(1)(M) (the “Alameda Point exemption”) which requires that at least 25% of the initial 1,400 residential units developed shall be restricted to lower income households. Staff have used the West Midway/RESHAP DDAs demonstrating a minimum 40% affordability requirement to demonstrate this overall 25% commitment. • Reducing overall RESHAP units below the 324 units would impact the City’s compliance with the State Surplus Land Act, unless this were combined with a subsequent reduction of market rate units at West Midway.
24. Assuming the 332 units represent the amount of housing associated with the 25% policy, in the event the policy was relaxed and lowered by one percentage point to 24% (and for West Midway, from 41% to 40%), by how much will the requested annual gap funding amount of $1 million a year lower?
Answer: The overall number of affordable units can be reduced to 324, for reasons described above, and align with various City requirements. However, reducing the overall RESHAP unit count by 8 units does not have an impact on the need for an annual operating subsidy of some sort for Stardust Gardens or on the amount of subsidy. In order to accommodate the APC residents who currently live within the footprint of the West Midway development at rents that they can afford, either a Supplemental Memo 1 for Item 7-A, September 1, 2026 City Council Meeting 10
federal rent subsidy from the Housing Authority, or another source of operating subsidy is needed, in order to cover the annual operating costs of Stardust Gardens.
The subsidy amount is based on the current cost of subsidizing the existing APC tenants rent increased to adjust for inflation when Stardust Gardens project is completed.
In other words, Stardust Gardens has all the money it needs to get built, but does not have the money it needs to continually operate to serve households at risk of homelessness as defined by HUD, and to especially ensure APC’s residents can relocate into the new, permanent housing. There is not really a way to reduce Stardust Gardens’ 80 units at this point.
Staff have not started contemplating what happens with the subsequent three additional buildings that need to be delivered within the RESHAP project. It is true that the City and AHA will need to continually address the question of operating subsidy and vouchers for subsequent affordable housing at Alameda Point and especially the next phases of RESHAP , and the two agencies need to find a better way to work together to avoid such a pinch point again.