STAFF REPORT
DATE: November 26, 2024
TO: Justin Hess, City Manager
FROM: Patrick Prescott, Community Development Director VIA: Simone McFarland, Assistant Community Development Director, Housing and Economic Development
BY: Maribel Leyland, Housing Authority Manager
SUBJECT: Burbank Housing Corporation Master Loan Agreement (MLA) Proposed Changes – Phase I Study Session
BACKGROUND
The City of Burbank and the Burbank Housing Corporation have a long- standing (25- year) relationship that has created more than 320 affordable units utilizing the C ity’s restricted housing funds . These funds include federal HOME Investment Partnership (HOME) funds and Low - and Moderate- Income Housing funds of the former Redevelopment Agency .1 BHC’s portfolio of units have restricted rents for the C ity’s Extremely-Low, Very-Low, Low- and Moderate-Income households. T his affordability restriction is in place for a minimum of 55 years, and City staff works closely with BHC on an annual basis to ensure affordability requirements are met. 2 At the August 13, 2024 City Council meeting, staff presented an overview of the partnership between the City and the BHC (Attachment 1), including the following:
1) A n overview BHC’s formation, history, and mission;
2) A summary of the affordable housing units created and managed; 3) A summary of the community uses and programs that BHC operates and manages;
4) An explanation of the financing utilized to fund the creation of the affordable housing units (restricted housing funds); and
1 Redevelopment Agencies were dissolved in the State of California as of February 1, 2012. 2 Affordability terms vary by funding source. The 55-year term is the most restrictive.
COMMUNITY
DEVELOPMENT
2 5) A proposal from BHC for proposed amendments to the Master Loan Agreement for the City’s financing.
The Council was informed that staff would return at a later date to present a detailed analysis of the proposed amendments to BHC’s requested term changes as well as staff’s recommendation to the Master Loan Agreement for the properties. It is anticipated that it will take a minimum of three future meetings for Council to assess each area of policy consideration and provide recommendations. The study session on November 26, 2024 regarding Phase I of the MLA is for informational purposes only. Staff is scheduled to return to Council on December 10, 2024 for consideration of the terms for Phase I of the MLA.
DISCUSSION
Historically, t he City has utilized its restricted housing funds to finance BHC projects.
These funds include former redevelopment agency Low - and Moderate-income housing funds, as well as federal HOME funds, all tied to one Master Loan Agreement with cross collateralization.3 The majority of the current funding comes from City resources, supplemented by state grant funds and private funding. Funding has decreased significantly due to the conclusion of Redevelopment.
Long-term affordability covenants were handled on a project -by-project basis for a minimum of 55 years, following the more restrictive funding source requirements. In addition, the affordability period was extended on all projects each time a new property was added; known as the evergreen provision.
To continue their work in the community, BHC has submitted a proposal to the C ity that would make global accounting and oversight changes to the existing Master Loan Agreement (MLA). As the City no longer receives ongoing restricted housing funds to assist BHC, these changes would give BHC the flexibility to apply for other funding sources, such as state and federal tax credits, private funds , and grants , to finance projects among other changes. In addition, the proposed changes would streamline the administrative process, allowing for the successful continuation and growth of BHC.
MLA PHASE I DEAL POINTS
Phase I of the MLA amendment proposes changes to the following financial terms only:
1. Reset interest to zero for the notes as of Dec ember 31, 2024.4 N o interest will accrue or be owed after this date.
3 All of BHC properties are utilized as assets for repayment of the Master Loan Agreement with the City. 4 The new note amounts as of December 31, 2024 include past simple interest. 3 2. Forego 1/55th of the outstanding loan balance each year provided BHC is in compliance with the Affordable Housing Agreement of each property . This proposed term also removes the “Residual Receipts” payment requirement.5
3. Reset the term of the loans to an additional 55 years to correspond to the Affordability Period after approval of the MLA Phase I amendment; and
4. Reset affordability restrictions (term) to greatest feasible time and no less than 55 years.
The following chart summarizes the current terms and proposed terms for Phase I of the MLA amendment.
The MLA Phase 1 proposal would allow BHC to have favorable financial records, should it desire (subject to City/Authority approval) to work with other agencies or funding sources to receive outside assistance for projects. However, Phase 1 of the MLA does not make BHC solvent in the long term. BHC will provide an update to Council during the study session on their financial health as well as provide an overview of future discussions on the additional proposed terms from the August 13, 2024 study session.
ENVIRONMENTAL REVIEW
The refinancing of the BHC loan is not a project subject to the California Environmental Quality Act (CEQA) under State CEQA Guidelines § 15060(c)(2), in that the refinancing
5 “Residual Receipts” is revenue available after expenses.
MASTER LOAN AGREEMENT PROPOSED AMENDMENTS-
EXISTING PROPERTIES ONLY
PHASE I
Current Master Loan
Agreement Terms
• Interest – 3% fixed
• Requires Residual Receipts
payments
• Term of Loans – 30 & 55 yrs
• Term of Affordability – Perpetuity
(“Evergreen” provision; extended
with each new project), but no less
than 55 years
Proposed Master Loan
Agreement Terms
1. Interest – Reset to Zero and forego
future interest
2. Forego 1/55
th
of outstanding loan
balance each year; provided BHC is
in compliance with agreements.
Removes Residual Receipts.
3. Term of Loans – Reset to an
additional 55 years after approval of
Phase I
4. Term of Affordability – Reset to
greatest feasible time; no less than 55
years
4 will not result in a direct or reasonably foreseeable indirect physical change in the environment, and is further and independently exempt from the California Environmental Quality Act under State CEQA Guidelines § 15061(b)(3), in that it can be seen with certainty there is no possibility the refinancing will have a significant effect on the environment.
FISCAL IMPACT
The MLA Phase I amendment has no fiscal impact to the City or the Housing Authority.
The M LA, as it is currently structured, requires BHC to make payments on Housing Authority loans only if cashflow allows. The MLA utilizes the term “Residual Receipts” payment which means, under the current structure, BHC will only make a payment on Housing Authority notes after revenues are applied to all approved expenses , including funding operating and capital replacement reserve funds. The notes with the City for HOME and C ommunity Development Block Grant (CDBG) funds are structured as forgivable loans, and no payment is expected if obligations of the agreements are met.
Debt repayment i s restrictive to Housing Authority uses only, not to the City for HOME and CDBG funds.
Phase 1 of the MLA changes BHC’s books/accounting sheets by removing expected debt that exceeds revenues. Since the debt is only paid if certain BHC revenues exist, i t is unlikely that a substantial amount of the debt would ever be repaid. With the limited rent revenue received for these affordable housing units, and expenses that continue to escalate, BHC will not have the revenues to meet the current debt repayment terms of the MLA while continuing to fund agreement property obligations.
CONCLUSION
In the last 25 years, the partnership between the City and BHC has benefited the Burbank community with the creation of more than 320 affordable housing units with long- term affordability covenants to keep those units affordable for a minimum of 55 years. In addition, BHC has managed community serving uses to assist households in BHC units and households throughout the community, when space is available. BHC partners with local service providers to offer programming at five different Family Resource Centers , and oversees the accredited operator for two childcare centers . Looking ahead, BHC is proposing changes that will allow them to continue this work for the community.
ATTACHMENT
Attachment 1 – August 13, 2024 BHC Partnership Study Session Presentation