EAST PALO ALTO
CITY COUNCIL
STAFF REPORT
DATE: December 6, 2022
TO: Honorable Mayor and Members of the City Council
VIA: Patrick Heisinger, Interim City Manager
BY: Karen Camacho, Housing Project Manager
SUBJECT: Addition of Funds to Existing BMR Program Administration Agreement Recommendation
Adopt a Resolution:
1. Authorizing the City Manager to amend the Agreement with EPACANDO for operation of the Below Market Rate (“BMR”) Program to increase the not-to-exceed amount by $41,000 to $216,000 to fund administration services through May 9, 2023; and
2. Appropriating $41,000 from the Housing In-Lieu Fund for BMR Program Administration.
Alignment with City Council Strategic Plan
This recommendation is primarily aligned with:
Priority No. 3: Increase Organizational Effectiveness and Efficiency Priority No. 6: Create a Healthy and Safe Community
Background
On February 5, 2019, by Resolution No. 5080, the City Council awarded the team of East Palo Alto Community Alliance and Neighborhood Development Organization (“EPACANDO”) and the Bay Area Affordable Homeownership Alliance (“BAAHA”) a 3-year contract (“Agreement”) totaling $125,000 to administer the City’s portfolio of Below Market Rate (“BMR”) units. The contract commenced in May 2019 and allows for two optional one-year extensions at the discretion of the City Manager.
On July 20, 2021, via Resolution No. 107-2021 and the First Amendment to the agreement between the City and EPACANDO (“First Amendment”), an additional amount of $50,000, for a total not-to-exceed amount of $175,000, was allocated from the Affordable Housing Fund (F207) to cover costs related to Palo Mobile Estates loan administration.
On April 5, 2022, staff provided an update on the City’s BMR Program Administration, including the current number of BMR units in the City portfolio, BMR resales conducted, and the monitoring of compliance. EPACANDO found that the City currently has 53 homes in the ownership BMR program. In previous years, the City had 74 BMR homes with a City-recorded restriction, before 14 planned contract expirations and 7 unplanned losses. EPACANDO also found that of the resulting 53 BMR homes, 11 had instances of probable violation. See the April 5, 2022 staff report (Attachment C) for an overview of these cases.
The three-year BMR Program Administration contract was due to expire on April 9, 2022.
However, on May 12, 2022, via Resolution No. 11-2022 and the Second Amendment to the agreement between the City and EPACANDO ("Second Amendment”), the City Manager approved the extension of the BMR Administration contract for an additional year until May 9, 2023. Resolution No. 11-2022, approved by City Council on February 1, 2022, clarified that the City Manager has the authority to approve the extension of the term of the three-year professional services agreement with EPACANDO to administer the City’s Below Market-Rate Program.
On November 29, 2022, EPACANDO submitted an update on the 11 BMR homes it was monitoring for compliance, with recommendations for City action (see Attachment B).
EPACANDO has been in contact with the homeowners in each of the 11 BMR homes to put them on notice of potential enforcement actions. Staff will work with EPACANDO on further enforcement actions in January 2023, and provide City Council with an update upon expiration of the agreement in April 2023.
Staff is now seeking an increase in the contract amount by $41,000 to cover the costs of the additional BMR Administration services that will be conducted until May 9, 2023. This increase will be reflected in the mid-year budget review.
Analysis
BMR Portfolio
The City has a portfolio of Below Market Rent homeownership units resulting from Redevelopment Agency programs and the inclusionary housing policy that requires market rate developers to increase affordable units. These homeownership units typically have a resale restriction agreement between the City (as the successor to the former Redevelopment Agency) and the homeowner. The resale restriction agreement regulates the price at which the homeowner may resell the property and gives the City an option to purchase the home if the homeowner wishes to sell.
Following the dissolution of Redevelopment Agencies in 2011 and subsequent staffing cuts, the City had no consistent monitoring of its BMR units. Regular transactions such as refinances, loan subordinations, and re-sales required significant time and involvement of the City’s Community and Economic Development Department, Office of the City Attorney and outside counsel.
The City sought to build back capacity after several years of limited oversight and administration of its affordable housing portfolio and in 2018, the City Council directed staff to issue a Request for Proposals (“RFP”) to identify a consultant to assist with creating a more efficient and cost-effective program.
EPACANDO and BAAHA (“Contractor”) were selected to administer the City’s BMR units starting on May 10, 2019. Through an extensive review process of program file archives, EPACANDO found that the City currently has 53 units in its BMR program. The Contractor monitors the existing portfolio, facilitates all enforcement activities, provides refinancing support, processes new sales and resales, provides property inspection and evaluation, manages BMR sales, and executes post purchase activities.
Increase in Funds
Staff are recommending that City Council authorize an amendment to the Agreement with EPACANDO and BAAHA that increases the total not-to-exceed amount by $41,000 for a total of $216,000, taken from the Housing In-Lieu Fund. An additional amount of $41,000 reflects the estimated total cost of BMR administration for one year covering the period from May 10, 2022 to May 9, 2023. While the City Council had clarified via Resolution No. 11-2022 that the City Manager could extend the contract for two additional one-year periods, an additional budget appropriation was not included in the Council resolution. The additional amount added to the original not-to-exceed amount is shown below:
Original Not-to-Exceed $125,000
+
PME Loan Administration $50,000
+
$41,000 x 1 year BMR Admin $41,000
___________________________________
New Not-to-Exceed = $216,000
Three categories of costs are included in Schedule B of the current Agreement: startup costs, annual fixed costs, and annual variable costs based on tasks. Start-up costs were one-time costs that should no longer be needed, and annual costs vary greatly and depend on the number of BMR resales and associated services. While sufficient funds have been available to cover the cost of services to date, additional funds are necessary to cover the extended oneyear term of the agreement. Staff recommends a budget increase equal to the estimated expenses to May 9, 2023. Table 1 provides an overview of BMR administration costs.
Table 1. BMR Administration Costs
Item Contractor Fee
Contract Set-Up $10,000 (no longer applicable)
Annual Compliance Fee Per File $180
Inquiries Included in hourly fee
Thorough Review of Each BMR File Included in hourly fee Fee per Resale (Program-driven, with waitlist) $1,500
Fee per Resale (Buyer-driven, no waitlist) $3,000
Marketing per Project on Website Included in hourly fee Per Lottery Fee Included in hourly fee
Per Refinance Fee $500
Payoffs $500
Enforcement Activities (Estimate per Case) $550
Cost Per Workshop $300
Per Hour Fees $58 - $127
Reimbursable Expenses Upon City authorization
Future of the BMR Administration
The BMR Administration Program has been well-administered to date. During the initial three years of the contract (2019-2022), there were three resales, four refinances, one title change, and well over fifty consultations. During the one-year extension, EPACANDO has already produced a BMR manual and distributed it to all BMR homeowners. While EPACANDO will continue to communicate with all BMR households, enforcement activity on the 11 noncompliant BMR homes will expedite in January 2023.
Based on City Council discussion at the April 5, 2022 City Council meeting, Council may choose to issue another Request for Proposals to contract this work with a bigger scope and using other potential funding sources. For example, East Palo Alto, like most cities with a BMR program, does not pass any program administration costs through to BMR homeowners.
EPACANDO estimates this cost to be $75 to $125 per unit per month. This would be a substantial cost for most low- or moderate-income BMR homeowners. Some cities charge an administrative fee and lower the price of the BMR unit accordingly. In the future, the City may wish to consider incorporating an administrative fee into the program.
When the Agreement expires on May 9, 2023, the City Manager will also have the authority to extend the Agreement for a second one-year period to exhaust the funds if they have not been used by the contract end date.
Next Steps
If approved, the City Manager will amend the Agreement with EPACANDO and BAAHA to fund costs associated with administration of the BMR unit portfolio in an additional amount of $41,000 for the remaining extension term expiring on May 9, 2023. The Agreement may be extended for a second one-year term thereafter upon City Manager approval, or City Council may wish to issue another RFP.
Fiscal Impact
The total increase in the not-to-exceed amount by $41,000 to $216,000 for continued BMR administration through May 9, 2023 will be funded by the Agreement with EPACANDO and BAAFA, using the Housing In-Lieu Fund (Fund 207). So far only $2,679.00 remain in the threeyear contract for BMR administration, and additional appropriation of $41,000 will be needed from the Housing in-Lieu Fund to pay for the BMR administration during the one-year extension between May 10, 2022 to May 9, 2023.
Public Notice
The public was provided notice of this agenda item by posting the City Council agenda on the City’s official bulletin board outside City Hall and making the agenda and report available at the City’s website.
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
A. EPACANDO BMR Enforcement Update (November 2022)
B. Resolution
C. April 5, 2022 Staff Report