City Council Agenda
City of Campbell, 70 N. First St., Campbell, California
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STUDY SESSION OF THE CAMPBELL CITY COUNCIL
Tuesday, February 20, 2024 – 6:00 p.m.
City Hall Council Chamber – 70 N. First Street
CALL TO ORDER
ROLL CALL
PUBLIC COMMENT
NEW BUSINESS
1. Study Session to Review the Current Financial Status of the Housing Program and Provide Feedback on Funding Strategies for the Housing Program.
Recommended Action: That the City Council receive the report and provide feedback on the identified funding strategies for the City’s Housing Program.
ADJOURN
IMPORTANT NOTICE: Materials related to an item on this agenda submitted to the City Council after distribution of the agenda packet are available for public inspection with the agenda packet in the lobby of City Clerk’s Office, 70 N. First Street, Campbell, CA 95008, during normal business hours. These materials will also be available on the City website at https://www.ci.campbell.ca.us/agendacenter with the agenda packet following the last item of the agenda, subject to staff’s ability to post the documents prior to the meeting. All documents not posted prior to the meeting will be posted the next business day.
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City
Council
Report
TITLE: Study Session to Review the Current Financial Status of the Housing Program and Provide Feedback on Funding Strategies for the Housing Program.
RECOMMENDED ACTION
That the City Council receive the report and provide feedback on the identified funding strategies for the City’s Housing Program.
PURPOSE
This item provides information and solicits feedback on funding strategies for the development of a comprehensive Housing Program which is tasked with implementing 2023-2031 Housing Element goals, policies and programs related to affordable housing.
The City’s Housing Element includes five goals: 1) encourage the production of affordable housing; 2) preserve existing housing; 3) remove government constraints to housing; 4) resilient housing policies; and 5) affirmatively furthering fair housing and addressing special needs.
The 2024 Budget includes the following workplan item under the Community Development Department (CDD):
In coordination with the Finance Department, City Council, key stakeholders, and outside consultants (as needed), develop funding strategies and options to support Housing Element programs. CO-LEAD DEPARTMENTS – Finance and Community Development [Council Priorities – Financial Stability and Long- Term and Land Use Planning and Housing].
This report will focus on the housing program’s funding needs and strategies to identify sustainable funding sources.
BACKGROUND
2023-2031 Housing Element
Through its 6th cycle housing element, the City of Campbell is responsible for facilitating the development of a minimum number of 2,977 housing units over the next eight -year Item: 1
Category: NEW BUSINESS
Meeting Date: February 20, 2024
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period, effectively tripling the 5 th cycle numbers from 933 units to 2,977 units. Table 1 below provides a breakdown of the 2,977 units in the City’s RHNA by income level.
Table 1 – City of Campbell’s Regional Needs Allocation
2023-2031
Very Low Income
(<50% of Area
Median Income)
Low Income (50-
80% of Area
Median Income)
Moderate
Income (80-
120% of Area
Median Income)
Above
Moderate
Income
(>120% of
Area Median
Income)
Total
752 434 499 1,292 2,977
Unlike in prior housing element cycles, the RHNA is no longer regarded as an aspirational goal but rather as the housing target that cities and counties have a legal obligation to make a meaningful effort to achieve. According to HCD’s 2022 Housing Plan, "The state helps cities and counties meet this goal through funding for housing planning and implementation activities, education, and technical assistance. While education and technical assistance is always the first step in the state's accountability efforts, the state holds jurisdictions accountable for their housing obligations and compliance with state housing laws.1"
A commitment to achieve the RHNA and goals in the City’s Housing Element will require a financial investment by the City, as affordable housing development requires funding subsidies and there are limited resources available at the state and federal level.
Status of Housing Program
In August 2022, the City entered into a contract with Rebecca Garcia to undertake a program audit of the City’s Housing Program. The audit was completed in April 2023 and the results of the audit were received by the City Council on May 16, 2023. The report identified five high priority recommendations. Recommendations #1, 2 and 5 have been completed, and this report is focused on Recommendation # 3 (Housing Program Funding):
• Recommendation #1 (Housing Manager) – Hiring of a Housing Manager starting in Fiscal Year 24.
• Recommendation #2 (BMR Administrative Costs) – Allocation of an annual increase of $42,000 in BMR portfolio associated with housing production under the 6th cycle Housing Element.
1 The California Department of Housing and Community Development, “A Home for Every Californian:
2022 Statewide Housing Plan,” March 2022, p.4, https://statewide-housing-plan-cahcd.hub.arcgis.com/ 1 Packet Pg. 4
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• Recommendation #3 (Housing Program Funding) – Prioritize generating a new revenue stream to sustain the program or a temporary loan from another funding source within the City as needed, followed by implementing an affordable housing funding strategy.
• Recommendation #4 (Communication / Outreach Plan) – Create a communication, outreach, and engagement plan to engage with the Campbell community about housing.
• Recommendation #5 (Unhoused Specialist) – It was recommended that the City consider applying for a three -year Destination: Home capacity-building grant to hire a full -time unhoused specialist to support the coordination of Homeless services and provide direct assistance through proactive street outreach.
The City’s Housing program is administered by the Housing Division within the Community Development Department. The Housing Program’s responsibilities include:
• Implementing the Housing Element for the eight-year duration of the 6th cycle planning period covering January 31, 2023, through January 31, 2031. The Housing Element is one of nine State -mandated elements that must be included in every General Plan. On April 18, 2023, the City adopted the 2023 -2031 Housing Element, which included implementation plans identifying a schedule for the completion of key programs to meet overall goals and objectives. The Housing Element assesses housing needs for all income groups within the community and identifies implementation programs for which there are 31 policies and 59 programs to meet those housing needs. Unlike other General Plan elements, the Housing Element must be updated every eight years, rather than every 20 years, and must address statutory requirements regarding its content. It is subject to mandatory review and certification by the California Department of Housing and Community Development (HCD).
• Working towards Affirmatively Furthering Fair Housing (AFFH) through a contract with Project Sentinel, a nonprofit housing counseling organization.
• Implementing the City’s Inclusionary Housing Ordinance (IHO) to ensure that new affordable housing inventory is created to the standards set by the City Council.
• Overseeing the administration of the Inclusionary Housing Ordinance’s (IHO) Below Market Rate (BMR) Program through a third -party administrator that provides developer onboarding, verification of eligibility, marketing and selling units, enforcement, and annual monitoring. Additionally, there is an existing affordable housing portfolio that requires loan servicing.
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• Coordinating new unit private development production, implementing the Housing Element, achieving the City’s Regional Housing Needs Allocation (RHNA), and providing various local housing-related services.
• Implementation of new homeless prevention and assistance programs through the Unhoused Coordinator when they are onboard.
• In coordination with the County and other service providers, promoting, providing, and coordinating housing services, such a rapid rehousing program.
DISCUSSION
As noted in Recommendation #3 (Housing Program Funding) of the program audit , the Housing Program needs to identify a sustainable funding source. For context, the City had historically relied on the Redevelopment Agency (RDA) to promote and fund the production of affordable housing until it was dissolved on January 17, 2012. The loss of the RDA eliminated a crucial tool and financial resource that the city had used to support the Housing Program’s goals.
This section will focus on the current status of funding for the housing program, and potential sources of new funding to develop and sustain the housing program.
I. Current Financial Status of the City’s Housing Program
The City’s Housing Program has a budget of approximately $1,026,000 in FY 2024, which includes salary and benefits for a newly hired housing manager. Staff has created a five-year forecast based on today’s staffing and programming needs. Within the five - year projection, Staff is identifying a negative cash flow in FY 2027.
Funding Sources and Loan Portfolio:
The Housing Program includes the following funding sources as of January 2024:
• Fund 233 – Housing Assistance (Low -Moderate Income Housing) fund that includes interest income and loan payoff from previously provided RDA loans. • Fund 233’s portfolio includes the following four types of outstanding loans:
o 18 First Time Homebuyer Loans - $407K
o 19 Rehab Loans - $1.36M
o 24 BEGIN Downpayment Assistance Loans - $2.256M at $94,000 each, 1% interest
o 23 Maravilla Loans - $3.515M (2011-12 Maravilla Project, where the City subsidized low-income homebuyers by providing a loan for up to $200,000 per household (23 loans were issued, ranging from $76,462 to $200,274 at 0% interest)
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• Fund 208 – Historically served as the funding source for HCD programs.
Currently there are no available funds in this fund. The fund’s sole asset is a $143,000 deferred loan.
There is $7.5 million in outstanding loans in the housing loan portfolio, and all loans are current. The City receives approximately $50,000 in interest payments annually. The Housing Program is funded by Fund 233 which was created following the dissolution of the City’s Redevelopment Agency. For ongoing revenue, the program collects funds from the sale of restricted housing units, loan payoffs and interest payments, and the collection of miscellaneous transaction fees.
The Community Development included the addition of one FTE Housing Manager in FY
24. The Housing Manager position will be funded from the City’s Affordable Housing Fund (Fund 233.577) with financial support for the first two years of the position augmented by the City’s remaining American Rescue Plan Act (ARPA) funds. The City hired a full time Housing Manager in January 2024.
Financial Picture:
The Housing fund has assets in the form of loans and cash and investments of over $8.5 million after liabilities and FY 23 expenditures. Table 2 below provides an overview of the Housing Program’s current Financial Picture.
Table 2 – Housing Program Financial Picture
Assets:
Cash & Investments $1,012,337.42 (includes unrealized gains and losses)
Interest Receivable $7,054.00
Loan Receivable $7,536,125.54
Total Assets $8,555,516.96
Liability $59,828.92
Fund Balance $8,495,688.04
Although Table 2 shows that there is a fund balance of approximately $8 .5 million in the City’s Housing Program fund , it should be noted that approximately $7.5 million of the fund is encumbered in outstanding loans and is not available as a short -term funding resource.
II. Development of a Comprehensive Housing Program
The City’s Housing Program as currently funded (and in prior years following the dissolution of the RDA), has only had sufficient funding available to support the management of ongoing programs, such as the Below Market Rate housing program and financial assistance for Project Sentinel for the provision of tenant/landlord and rent mediation services. Because of its limited resources, the Housing Program has had 1 Packet Pg. 7
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insufficient housing funds to support the development of new affordable housing projects or enhanced housing programs, such as homelessness prevention and assistance programs.
Based on the limited funding and resulting programs, the City was unable to meet its RHNA for the fifth cycle housing element from 2015 -2023 as demonstrated in Table 3 below. During the fifth cycle, the City achieved 5.4% of its RHNA allocation for Very Low Income Units and 68% of its RHNA overall.
Table 3 – City of Campbell’s Regional Needs Allocation Progress 2015-2023
Very Low
Income
(<50% of
Area
Median
Income)
Low Income
(50-80% of
Area Median
Income)
Moderate
Income (80-
120% of Area
Median
Income)
Above
Moderate
Income
(>120% of
Area
Median
Income)
Total
RHNA
Allocation
253 138 151 391 933
Units Permitted 13 4 16 600 633
% of RHNA
Achieved
5.4% 2.9% 11.8% 153.4% 68%
As previously mentioned, the City is committed to implementing the goals, policies , and programs of the 2023-2031 Housing Element. If the City were to continue with the same approach for funding and operating the Housing Program, it would not make the necessary progress to achieve its goals in the sixth cycle 2023-2031 housing element.
For comparison purposes, the City of Morgan Hill , which is similar in size to Campbell, with a population of 45,000, has a more robust housing program with a budget of approximately $2,800,000. As a result, In the fifth cycle housing element from 2015 - 2023, Morgan Hill was able to achieve 338% of its total RHNA, including 113% of its RHNA for VLI units.
The City’s Housing Program currently consists of the following primary programs:
• Urban County CDBG and HOME Participant
• Inclusionary Housing Ordinance
• Below Market Rate Program
• Homeless Programs (early stages)
In order for the City to achieve its Housing Element goals, policies and programs, the City will need to create a more comprehensive housing program . The creation of the comprehensive housing program will require financial resources that the City does not 1 Packet Pg. 8
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currently have. The City will need to augment its existing Housing program with the following additional programs:
• New Affordable Housing Development
o The City has a RHNA allocation of 2,977, with 1,184 of those units targeted to very -low and low -income households. To make meaningful progress in achieving these goals, the City will need to identify funding sources to financially support the development of new affordable housing projects.
o The City does not currently have funding available to contribute to new affordable housing development projects.
• Homeless policy, planning and coordination
o The Housing Element includes eight programs that address the housing needs of people experiencing homelessness. Program H -5e: Homeless Assistance/Shelter Provisions includes ma ny actions that the City will need to undertake to successfully achieve this program, including the establishment of an inclement cold weather program, the creation of a regional homeless shelter and the identification of motels or other non - residential building to create 100 units of permanent supportive housing. o The City does not currently have sufficient funding available to address these actions.
• Housing search and investigation (case management by the Unhoused Specialist)
o Based on the 2022 Santa Clara County Point -In-time Count, the City’s unhoused population was 216. This represented a 191% increase since 2019.
o Program H -5e: Homeless Assistance/Shelter Provisions of the Housing Element specifically identifies the establishment of an Unhoused Specialist to target assistance to locations with known concentrations of homeless: the Los Gatos Creek corridor, Highway 17 overpasses, and Downtown.
o The City has secured funding through a Destination: Home grant to fund this position for three years, but long -term funding is needed to permanently support this position.
• Housing Policy (Implementation of Policies and Programs in the Housing Element)
o The Housing Element includes 31 policies and 59 programs to meet housing needs for all income groups in the community. These policies and programs must be achieved during the 2023 -2031 housing element cycle and will require an increase in the City’s Housing Fund budget in order to do so.
o The City does not currently have sufficient funding to implement the Housing Element policies and programs.
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The creation of these programs would bring the City’s Housing Program more in line with many of the programs offered by other local jurisdictions in Santa Clara County.
III. Funding Opportunities for a Comprehensive Housing Program
To achieve the 2023-2031 Housing Element’s five goals and associated 31 policies and 59 programs, the City will need to significantly increase its capacity requiring the creation of a more comprehensive housing program with sustained funding source s.
Staff has identified some potential funding options and strategies that may help support the development of a more comprehensive, sustainable housing program. In addition to the list below, staff will explore new options as they become available.
1. Inclusionary Housing Ordinance (IHO)
The City adopted an Inclusionary Housing Ordinance (IHO) i n 2006, which generally requires projects with 10 or more units to reserve 15% of the units for affordable housing. The City of Campbell’s IHO intends to increase the availability of affordable housing for very low-income, low-income, and moderate-income households. The City’s IHO includes some provisions for alternative compliance methods, including an in -lieu housing fee. Staff anticipate returning to City Council for a study session to present the results of the updated Affordable Housing Nexus Study in April 2024 and seek Council direction. Some of the funding options that the city will evaluate as part of this process are:
• Collecting in-lieu fees for fractional units
• Expanding fees to smaller projects with less than 10 units • Adjusting the in -lieu fees to better align with the Nexus study
2. Commercial Linkage Fee
The City currently does not have a commercial linkage fee (CLF), which is a fee paid by developers of office and retail space to offset some of the additional need for affordable housing created by new commercial development. CLF funds are used for the provision of affordable housing. In comparison, the neighboring cities of Cupertino, Mountain View, San Jose, Santa Clara and Sunnyvale all have adopted commercial linkage fees ranging from $17.44 to $33.76 per square foot for office development and $3.50 to $20.50 per square foot for retail development. As part of an upcoming study session in April 2024 on the Affordable Housing Nexus Study, the Commercial Linkage Fee analysis will also be discussed as a potential funding source.
3. Urban County CDBG/HOME Funding
The Community Development Block Grant (CDBG) Program was created by the Housing and Community Development (HCD) Act of 1974. In the County of Santa Clara, the CDBG Program is operated by the Office of Supportive Housing. The County CDBG Program is federally funded by the United States Department of Housing and Urban Development (HUD) to assist lower -income and special needs persons to address housing and community development needs. The County of Santa Clara administers the CDBG program on behalf of the Unincorporated Areas of Santa Clara 1 Packet Pg. 10
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County and the Cities of Campbell, Los Altos, Los Altos Hills, Los Gatos, Monte Sereno, Morgan Hill, and Saratoga, also known as the Urban County Program.
The Home Investment Partnerships Program (HOME) is also federally funded by HUD to provide decent affordable housing to lower -income households. The HOME Program is administered on behalf of the Urban County cities and the Cities of Cupertino, Gilroy, and Palo Alto. As part of the County’s annual allocation process, they typically allocate funds for Housing Development and/or Multifamily Acquisition/Rehabilitation. The City has not requested funds from the County for these purposes in recent years . It is recommended that the City more actively pursue CDBG and HOME funds from the County when available to fund housing projects within the City of Campbell.
4. Affordable Housing Overlay Zone (AHOZ) – Reduction of Park In-lieu Fees As part of the establishment of a new Zoning Map incorporating three new Housing Overlay/Combining Zoning Districts, staff are recommending the reduction of park in - lieu fees for affordable housing projects. Since the City does not currently have available funds to contribute to new affordable housing development projects, this will provide a form of local financial support for projects to compete for tax credits and other financial support. The amount of the reduction in impact fees would be based on the number of affordable housing units within the project, ranging from a 12.5% reduction in park in-lieu fees for a project with 50% of its units being set aside for moderate -income or lower -income households to a 50% reduction in fees for 100% affordable housing projects. While this does not provide funding to the city, this proposal is meant as a short-term measure to support affordable housing projects until the City has other funds available to support affordable housing projects. The AHOZ will be considered as a separate agenda item on the Council’s March 19, 2024, meeting.
5. Bay Area Housing Finance Agency (BAHFA)
The Bay Area Housing Finance Authority (BAHFA) is a regional public agency that state legislators created in 2019 with the goal of finding better solutions for the Bay Area’s affordable housing needs. The Bay Area includes the counties of Alameda, Contra Costa, Marin, Napa, San Francisco, San Mateo, Santa Clara, Solano and Sonoma as well as the 101 cities spread across their respective jurisdictions.
BAHFA is actively working on placing a Measure on the ballot in November 2024. Bay Area residents could potentially vote on a regional bond measure to generate $10 to $20 billion to build more affordable homes and help keep existing homes affordable. A $20 billion dollar bond could create 80,000 new affordable homes — over two times more than what would be possible without a bond.
If the bond is approved, funds from the housing bond will be used to build new affordable homes and preserve existing housing to help protect vulnerable tenants across the Bay Area. 80% of the bond revenue will go directly to the nine counties and four cities: San Jose, Oakland, Santa Rosa and Napa. BAHFA will invest 20% of the bond revenue in affordable developments throughout the region, while also generating 1 Packet Pg. 11
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new housing resources to support affordable housing development long after the bonds are fully spent. The majority of funds (at least 52%) must be used to produce new housing, and most of that new housing would be affordable to low - and extremely low - income residents.
If the bond is approved, the City will actively engage with the County of Santa Clara on programming and how to access the funds for affordable housing development projects in the City.
6. Housing and Community Development Department (HCD) Grants The state also offers several housing grants through the Department of Housing and Community Development (HCD). Many of the grants are allocated directly to developers for affordable housing projects. However, they also offer grant opportunities for local jurisdictions. Of the available HCD funding sources, the following appear to be the most viable in providing funding for the City’s programs:
• Prohousing Incentive Program (PIP) – On January 23, 2024, HCD issued a Notice of Funding Availability (NOFA) for the second round of funding for the Prohousing Incentive Program. This funding is only available to jurisdictions who have achieved a Prohousing designation. The City does not yet have a Prohousing designation but is working on completing the application and anticipates submitting the application by April 2024. It is expected that the NOFA for the third round of PIP funding will be issued in August 2024. If the City has achieved a Prohousing designation by then, the City could be eligible for up to $250,000 in funding through this program.
• Local Housing Trust Fund (LHTF) - The LHTF program provides matching funds to local and regional housing trust funds dedicated to the creation, rehabilitation, or preservation of affordable housing, transitional housing and emergency shelters. Funds may also be used for the construction, conversion, repair, reconstruction, or rehabilitation of Accessory Dwelling Units (ADUs) or Junior Accessory Dwelling Units (JADUs). Per the HCD funding calendar, the NOFA is expected to be released in March 2024.
• Community Development Block Grant (CDBG) – Not to be confused with the County’s direct CDBG allocation, HCD also receives a separate allocation of CDBG funding directly from HUD that it makes available for projects in non - entitlement jurisdictions that do not receive a direct allocation. As such, the City is eligible to apply for funding directly from HCD if it has projects ready to proceed or “shovel ready”. The City will monitor HCD CDBG application deadlines and submit an application if it has identified a shovel ready project.
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• HOME Investments Partnerships Program (HOME) – Separate from the County’s direct HOME allocation, similar to the CDBG program, HCD also receives a direct allocation from HUD that it makes available for shovel ready projects in non -entitlement jurisdictions that do not receive a direct allocation from HUD. The City will also monitor HOME applications deadlines and will submit an application if it has identified a shovel ready project.
7. Local Housing Bond
Beyond the revenue sources identified above, which are commonly used to support municipal housing programs, the City could also consider supporting a ballot measure that would financially aid the housing program. City staff plans on scheduling a study session with the Council in March to specifically discuss additional funding sources for the city, including a possible ballot measure. Revenue sources that support the City’s housing program could be included in this discussion
As one option, the City could consider the creation of a local affordable housing bond, similar to the BAHFA housing bond, but at a significantly reduced scale. There is a model for an affordable housing bond in Santa Clara County. In 2016, the voters of Santa Clara County voted to approve a $950M affordable housing bond known as the 2016 Measure A Affordable Housing Bond. The housing bond has been very successful in the funding and development of new affordable housing projects throughout the County and as of December 2023, the County has committed the majority of the 2016 Measure A funds.
The City can explore putting a local housing bond on the November 2024 ballot, however it would be at a much smaller scale than the County’s Measure A bond. A local housing bond has the potential to provide funds for housing development projects as well as other housing priorities. For example, the City and County of San Francisco Board of Supervisors have voted to place a housing bond on the March 2024 ballot. If approved, the $300 million -dollar Housing Bond will be allocated to support the construction of new affordable homes for families, seniors, residents of former public housing projects, and households experiencing homelessness. Funds will also support the preservation and rehabilitation of existing affordable housing, including housing for victims and survivors of trafficking and domestic violence. A Campbell specific housing bond could support similar programs.
To come up with an estimated amount of bond funding needed, staff reviewed 2016 Measure A expenditures for approved multi -family development projects. As of December 2023, the County had committed $623,941,043 in Measure A funding to new multi-family affordable housing development projects with a total of 5,127 units. On a per unit basis, the County’s contribution was $121,697. If the City were to apply the County’s per unit contribution of $121,697 to meeting its combined extremely low income and very low income RHNA allocation of 1,186 units, the funding needed would total approximately $144,332,763.
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In summary, the recommended funding strategy for the housing program involves a three-pronged approach consisting of these factors:
1. Sustained funding through in lieu fees and linkage fees.
2. Pursuit of grants and funding from State and Federal programs and potentially BAFHA.
3. Consideration of a ballot measure.
NEXT STEPS
Following the subject meeting, staff will refined the funding strategies for the Housing program based on Council feedback. Further, staff will solicit feedback from affordable housing developers on the effectiveness of the potential funding sources. Staff will provide a study session to the Council in March concerning funding sources and separately return to Council for a study session in April 2024 to solicit Council input on the draft Affordable Housing Nexus Study which contemplates adjustments to the Inclusionary Housing Ordinance and the creation of a Commercial Linkage Fee. After Council feedback, staff will prepare a revised Inclusionary Housing Ordinance for review by the Planning Commission, and consideration of adoption by the City Council in June 2024.
FISCAL IMPACT
There are no direct fiscal impacts associated with this item. Implementation of several of the staff report’s recommendations will require the City to commit additional staffing and other services requiring ongoing funding.
Prepared by:
Eloiza Murillo-Garcia, Housing Program
Manager
Reviewed by:
Rob Eastwood, Community Development Director
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Approved by:
Brian Loventhal, City Manager
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