EAST PALO ALTO
CITY COUNCIL
STAFF REPORT
DATE: May 17, 2022
TO: Honorable Mayor and Members of the City Council
VIA: Patrick Heisinger, Interim City Manager
BY: Rachel Horst, Housing and Economic Development Manager SUBJECT: Grant Agreement with HEART for the Local Housing Trust Fund Program Recommendation
Adopt a Resolution authorizing the City Manager to execute a Grant Agreement with Housing Endowment and Regional Trust of San Mateo County (“HEART”) to provide match funds in the amount of $1,700,000, so that HEART may draw Local Housing Trust Fund Program Funds granted by the Department of Housing and Community Development and provide $3,230,000 to the 965 Weeks Affordable Housing Project in the form of a deferred, 55-year low-interest loan.
Alignment with City Council Strategic Plan
This recommendation is primarily aligned with:
Priority No. 2: Enhance Economic Vitality
Priority No. 6: Create a Healthy and Safe Community
Background
On July 30, 2020, by Resolution No. 105-2020, the City Council directed staff to partner with the Housing Endowment and Regional Trust of San Mateo County (“HEART”) to apply for the Local Housing Trust Fund (“LHTF”), an affordable housing loan program of the Department of Housing and Community Development (“HCD”), to benefit the 965 Weeks affordable housing project (“965 Weeks”), appropriating $1.7 million in required local match funds if awarded. A more detailed breakdown of LHTF and match funds is provided in the July 30, 2020 staff report.
Since the LHTF program requires a local funding match, HCD requires all applicants to show a legally binding commitment of these funds as part of an application for the LHTF. To assist with HEART’s application and show evidence of a City commitment, Resolution No. 105-2020 also authorizes the City Manager to submit a letter evidencing the $1.7M commitment (“Commitment Letter”) and, if the LHTF application is successful, to further negotiate and revise the Commitment Letter with HEART based on LHTF requirements. The City’s Commitment Letter, dated July 30, 2020, is included as Exhibit A to the draft Grant Agreement in Attachment 2.
On March 10, 2021, HEART was awarded $5 million from the LHTF in support of three affordable housing projects in three jurisdictions: East Palo Alto, San Mateo, and Daly City.
The purpose of this staff report is to obtain City Council approval for the City Manager to execute a Grant Agreement with HEART (Attachment 2) to provide $1.7M in match funds as a grant to HEART, so that HEART may draw down funds from the LHTF and provide a loan in the amount of $3.23M to 965 Weeks.
Analysis
Grant Agreement with HEART
The Grant Agreement states HEART will provide a deferred, low-interest, 55-year loan (“Loan”) to the developer of 965 Weeks in the amount of $3.23M. This amount reflects the total of the City grant and LHTF amounts ($3.4M) minus 5% of the total, which HEART will retain as an administrative fee for the program.
As noted in the July 30, 2020 staff report, the $1.7M in City funds will be provided as a grant to HEART for the sole purpose of funding the Loan to 965 Weeks. HCD does not permit loans by member jurisdictions to Regional Housing Trust Funds (e.g., HEART) for the purposes of applying for LHTF. HEART will be named in the Deed of Trust as the sole beneficiary for the Loan amount, meaning that Loan repayments will be made to HEART.
To ensure a long-term benefit to East Palo Alto from the use of City funds, the Grant Agreement commits HEART to restricting 50% of program income from the City’s portion of the LHTF to be used on future affordable housing projects in East Palo Alto. The Grant Agreement further states that the loan terms and regulatory agreement associated with HEART funding for the Project will meet or exceed City requirements for funding affordable housing developments.
Next Steps
As noted above, the $1.7M is provided to HEART in the form of a grant. Funds are made available to an affordable housing project from the Regional Housing Trust Fund (HEART) shortly before the close of the construction loan. However, coordination between HEART, the City, and HCD can take months.
Making the commitment to HEART now ensures that the funds will be on deposit when 965 Weeks approaches this milestone, which is expected in Fall 2023 (assuming application for tax credits in February 2023). Pursuant to the Grant Agreement, HEART must first make a written request to the City to remit the $1.7M, and the City must disburse the funds within 10 days.
Fiscal Impact
As noted in the July 30, 2020 staff report and authorized by Resolution 105-2020, the $1.7M City commitment consists of $500,000 in Measure HH funds and $1.2 million in TOT Affordable Housing funds. These have been encumbered for FY 2022-23 in the Housing Division draft budget.
Public Notice
The public was provided notice of this agenda item by making the agenda and report available on the City’s website and on the City’s official bulletin board located outside City Hall at 2415 University Avenue, East Palo Alto.
Environmental
The action being considered does not constitute a “Project” within the meaning of the California Environmental Quality Act (CEQA), pursuant to CEQA Guideline section 15378 (b)(5), in that it is a government administrative activity that will not result in direct or indirect changes in the environment.
Attachments
1. Resolution
2. Grant Agreement with HEART