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1 DATE: September 3, 2024
TO: Mayor and Members of the City Council
VIA: Stefan Chatwin, City Manager
Marlene Subhashini, Assistant City Manager
FROM: Sofia Mangalam, Community Development Director
Leslie Carmichael, Consulting Planner
Nori Jabba, Housing Coordinator
DEPARTMENT: Community Development
SUBJECT: APPLICATION FOR 2024 LOCAL HOUSING TRUST FUND
PROGRAM NOTICE OF FUNDING AVAILABILITY
RECOMMENDATION
It is recommended that the City Council adopt the attached resolutions:
1. Authorizing application for and receipt of 2024 California Department of Housing and Community Development (HCD) Local Housing Trust Funds (LHTF) and authorize the City Manager or his designee to make amendments to the application as needed, and execute other grant documents, as needed (Attachment 1); and
2. Approving (a) the Foster City LHTF specific underwriting guidelines for the three proposed loan programs; (b) transfer of funds from Commercial Linkage Fee Fund (Fund 137) to LHTF (Fund 145) as matching funds, contingent upon the City being awarded the HCD LHTF funding; and (c) In the event that the grant is not awarded, approve the use of funds from Fund 137 and authorize the City Manager or his designee to make amendments to loan programs as needed, including loan amounts, and others for the implementation of the three (3) Housing Element programs (Attachment 2).
EXECUTIVE SUMMARY
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1 The Housing Element 2023-31 identifies the community’s housing needs, states the community’s goals and objectives for housing production, rehabilitation, preservation, and conservation to meet those needs, and defines the policies and programs that the community will implement to achieve the stated goals and objectives. It includes seven (7) goals, 37 policies, and 106 programs to be implemented over an 8-year period.
Government Code Section 65400 requires each jurisdiction to prepare an APR on the jurisdiction’s status and progress in implementing its housing element. Each jurisdiction’s APR must be submitted to HCD and the Governor’s Office of Planning and Research (OPR) by April 1 of each year (covering the previous calendar year.)
The implementation of the City’s adopted Housing Element programs requires considerable staffing and funding resources. The staff utilizes consulting services and works with many local partners when necessary to expand capacity for the implementation of the Housing Element. From time to time, staff apply for grants and funds at County, Regional, State, and Federal agencies to supplement and/or maximize the use of the City’s existing financial resources.
On July 9, 2024, the HCD issued a Notice of Funding Availability (NOFA) for the 2024 LHTF Program for $53 million in matching grants to established LHTFs. Applications are due by September 17, 2024. 15% of the funds are reserved for new LHTFs. The minimum request from a new LHTF is $500,000; the maximum request is $5 million. LHTF Program requirements include that the funds be used to provide construction loans and/or permanent financing loans to pay for the construction or rehabilitation of affordable rental housing projects, emergency shelters, transitional housing, or affordable homebuyer/homeowner projects. Funding may also be used to assist income-eligible occupants, as well as to construct, convert, rehabilitate, and/or repair Accessory Dwelling Units (ADUs) or Junior Accessory Dwelling Units (JADUs).
Staff would like to seek Council authorization for the application for $4,675,000 and authorize matching funds to be transferred from Fund 137 to Fund 145 upon notification of approval of the application for the implementation of three Housing Element programs, including Multi-Family NOFA Program (H-A-5-e), Accessory Dwelling Unit Loan Program (H-D-4-b), and Low-Income Homeowner Rehabilitation Loan Program (H-B-2-a). Staff is also seeking approval for the Foster City LHTF specific underwriting guidelines for the three (3) proposed loan programs, and upon notification of approval, authorize the transfer of funds from Commercial Linkage Fee Fund (Fund 137) to LHTF (Fund 145) as matching funds. In the event that the grant is not awarded, staff is requesting to approve the use of funds from Fund 137 and authorize the City Manager or his designee to make amendments as needed, including loan amounts, and others for the implementation of the three (3) Housing Element programs.
BACKGROUND
City Local Housing Trust Fund
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1 The 2023-2031 Housing Element includes program H-A-5-c to expand sources of funds for affordable housing programs as follows:
H-A-5-c Expand Sources of Funds for the City Affordable Housing Fund.
Provide the necessary legal framework to be able to accept grants and donations to the City Affordable Housing Fund as a qualified trust fund from County, State, or Federal programs; employers; organizations; and individual donors. Evaluate potential sources of reliable funding for affordable housing programs.
On February 20, 2024, the City Council adopted Resolution 2024-9, creating a new city LHTF eligible to receive funding, including matching grants, from sources such as the HCD LHTF Program. Resolution 2024-9 designates Fund 137 as one of the sources of funding for the City LHTF.
California Local Housing Trust Fund Program (HCD LHTF)
A summary of HCD LHTF program requirements is provided below.
Uses of HCD LHTF Grant. Program funds may be used for construction loans and/or permanent financing loans for affordable rental housing, emergency shelters, permanent supportive housing, transitional housing, and affordable homebuyer/homeowner projects, including ADUs/JADUs.
Administrative Expenses. Administrative expenses may not exceed 5% of Program Funds and Matching Funds.
Income Targeting. A minimum of 30% of Program Funds and Matching Funds, after deducting administrative expenses, shall be expended on assistance to Extremely Low- Income Households (households earning less than 30% of Area Median Income (AMI)).
No more than 20% of the Program Funds and Matching Funds, after deducting administrative expenses, shall be expended on assistance to Moderate-Income Households. The remaining Program Funds and Matching Funds shall be expended on assistance to Lower-Income Households.
Matching Funds Requirements. All Program Funds provided shall be matched on a dollar-for-dollar basis with dedicated sources of funding, such as taxes, fees, or loan repayments, or public or private contributions by the Applicant. Matching Funds shall be deposited prior to the disbursement of Program Funds.
HCD LHTF Application Scoring. HCD LHTF applications are competitive and subject to a scoring system. The scoring includes factors such as:
Non-residential matching funds – more points for using sources other than residential Local Impact Fees or In-Lieu Fees.
Deeper Income Targeting – more points for lower income targeting. 7 3
1 Readiness – points for pipeline projects for which the Applicant has completed a first phase funding process for multifamily rental projects. Increasing the Supply of Lower-Income Rental Housing – more points for units restricted to <60% AMI.
Community Need: more points for having a higher percentage of lower-income households paying more than 50% of their income for housing. Performance: for new applicants – more points to those who have committed 40% or more of local Matching Funds.
Timeline. The application portal is open from August 20, 2024, through September 17, 2024. Awards are scheduled to be announced in December 2024.
ANALYSIS
The City is in the second year of implementation of the Housing Element 2023-31. For 2024, there are a few programs that need significant financial resources and are eligible for HCD LHTF grant as follows:
H-A-5-e: NOFAs for Affordable Housing. Develop a funding program and outline criteria and objectives for affordable housing developers to apply for Notices of Funding Availability (NOFAs) funded by the City’s Affordable Housing Funds.
Timeframe: Biannually beginning in 2024.
HCD LHTF grant application
Below Market Rate (BMR) Multifamily Rental Development Loan Program.
Construction or permanent loans to non-profit or for-profit developers for new multi-family rental construction projects with rent and income restrictions of units at less than 30% of Area Median Income (AMI) and/or or less than 60% of AMI.
The maximum loan amount is $5,557,500. This program uses the Uniform Multifamily Regulations (UMRs) as the loan guidelines, underwriting standards, and procedures for approving and managing loans.
H-D-4-b: ADU/JADU Financial Incentive Program. Provide or partner with another organization to provide a financial incentive program for single-family homeowners to construct an ADU/JADU that is restricted for lower-income households for 10-15 years, with an additional incentive amount for units subject to a preference for identified categories of special needs people who would benefit from coordinated onsite services, including but not limited to people with developmental disabilities.
Timeframe: Implement program by December 2024.
HCD LHTF grant application
Below Market Rate (BMR) Accessory Dwelling Unit Loan Program Construction loans to homeowners to construct new ADUs, either attached or detached, or JADUs. ADUs shall be rent and income-restricted to households earning less than 60% of AMI or 30% of AMI for ten years. The maximum loan 7 3
1 amount is $100,000, and a maximum of one loan per property owner. Interest on the loan would be 3% for ADUs restricted to 60% of AMI or 0% for ADUs restricted to 30% of AMI. The program uses the City’s BMR Accessory Dwelling Unit Loan Program Underwriting Guidelines for approving and managing loans.
H-B-2-a: Lower-Income Homeowner Rehabilitation Loans. The City will provide or partner with a regional program to provide rehabilitation loans, energy improvement such as weatherization or solar, disaster assistance programs, and proactive outreach to lower-income homeowners.
Timeframe: Implement program by December 2024
HCD LHTF grant application
Low Income Homeowner Rehabilitation Loan Program
Loans to low-income homeowners with incomes of less than 60% or less than 30% of AMI to rehabilitate their existing homes. The maximum loan amount is $100,000 and a maximum of one loan per property owner. Interest on the loan would be 3% for owners with incomes of less than 60% of AMI or 0% for owners with incomes of less than 30% of AMI. The program uses the City’s Low Income Homeowner Rehabilitation Loan Program Underwriting Guidelines for approving and managing loans.
It shall be noted that the three (3) programs listed above will be implemented over next six (6) years.
Source of Matching Funds
On August 19, 2024, staff presented a draft of the Housing Element Implementation Roadmap (Roadmap), including recommendations for leveraging the city’s available housing funds by using them as matching funds for county and state housing funding opportunities advertised through NOFAs. In a separate staff report for September 3, 2024, staff is recommending approval of the Roadmap.
Staff has prepared an application for the HCD LHTF grant for $4,675,000 that requires matching funds from the City. The source of matching funds would be Fund 137, with up to $4,675,000 to be transferred to Fund 145 LHTF upon notification of approval of the HCD LHTF Application. As of June 30, 2024, Fund 137 has a balance of approximately $5,405,386, with $110,000 appropriated for the FY 2024-25 budget, leaving an available balance of $5,296,386.
Allocation of Program Funds
Table 1 below shows the allocation of program funds to the three (3) proposed programs. Administrative expenses of up to 5% are included in the amounts shown.
Table 1: Allocation of Program Funds
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1 Program Expenditures Fund 145-LHTF
(Transferred
from Fund 137)
City Matching
Funds
HCD LHTF TOTAL
H-A-5-e BMR Multifamily Rental
Development Loan
Program
$ 2,925,000 $ 2,925,000 $ 5,850,000
H-D-4-b BMR Accessory Dwelling
Unit Loan Program
$ 750,000 $ 750,000 $ 1,500,000
H-B-2-a Low Income Homeowner
Rehabilitation Loan
Program
$ 1,000,000 $ 1,000,000 $ 2,000,000
Total $ 4,675,000 $ 4,675,000 $ 9,350,000
Administrative Costs
The LHTF Program allows up to 5% of program funds and matching funds to be used for administrative costs. Given that the City has only one Housing Coordinator, the staff’s proposal for administering the programs is as follows:
BMR Multifamily Rental Development Loan Program: Work with San Mateo County to be included in the county’s NOFA offerings. Use existing city staff, including City Attorney to prepare and manage loan documents, similar to previous city loans, such as Alma Point.
BMR Accessory Dwelling Unit Loan Program: Issue an RFP for a third-party to administer the program, including reviewing applications and loan documents, ensuring conformance with financing disclosure requirements, addressing affordability restrictions, and conducting ongoing compliance monitoring and reviews. City staff would assist with promoting the program. Low Income Homeowner Rehabilitation Loan Program: Issue an RFP for a third-party to administer the program, including review of applications, loan documents, conformance with financing disclosure requirements, affordability restrictions, and ongoing compliance monitoring and reviews. City staff would assist with promotion of the program.
The administrative cost has been included in Table 1 for three (3) programs.
LHTF Loan Programs Outline
Table 2 below summarizes the proposed guidelines for the three (3) HCD LHTF loan programs.
Table 2: LHTF Loan Programs Summary (see Note 1)
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1 Loan Provisions Program 1
BMR Multifamily
Rental Development
Loans
Program 2
BMR ADU Loans
Program 3
Low Income
Homeowner
Rehabilitation Loans
Purpose of Loans To provide loans to
developers of
affordable multi-family
rental housing for
construction and/or
permanent financing
To provide construction-
permanent financing loans
to single-family
homeowners to build an
ADU or JADU and agree
to rent them to a low or
very low-income
household.
To provide
construction-permanent
financing loans to low-
and very low- income
homeowners to
rehabilitate their
existing owner-
occupied homes
Type of Loan Construction or
permanent
Construction-permanent Construction-
permanent
Maximum Loan
Amount
$5,557,500 $100,000 per property $100,000 per property
Payment Schedule Per CCR Title 25, Div.
1, Subchapter 19,
Section 8300, Uniform
Multifamily
Regulations (UMRs).
No payments due until
expiration of
loan/affordability
agreement or triggering
event (e.g. sale or change
of ownership).
No payments due until
expiration of loan
agreement or triggering
event (e.g. sale or
change of ownership).
Term 55 years 10 years with up to four
five-year renewals for a
maximum term of 30
years.
10 years with up to four
five-year renewals for a
maximum term of 30
years.
Applicant
Requirements
Nonprofit or for-profit
developer that
commits to building
BMR units consistent
with Municipal Code
Chapter 17.90.
Includes construction
of multi-family ADUs.
Owner-occupied Foster
City (FC) single-family or
duplex dwelling
homeowner committed to
building an ADU and
renting it at BMR rates to a
household earning <60%
AMI
Owner-occupied FC
single dwelling unit,
attached or detached,
or duplex homeowner
earning <60% AMI who
needs financing to
rehabilitate their home.
Interest Rate 3%
1.5% for 100%
affordable projects.
0% for rental to <30% of
AMI and 3% for rental to
<60% of AMI.
0% for those earning
<30% of AMI and 3%
for those earning <60%
of AMI.
Program Amount
available for loans
(with LHTF NOFA
Award)
$5,557,500 $1,425,000 $1,900,000
Administration set-
aside amount
$292,500 $75,000 $100,000
Total Program
Funding
$5,850,000 $1,500,000 $2,000,000
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1 Program Oversight
Community
Development
Department (CDD)
CDD CDD
Program
Management
CDD/County of San
Mateo
Third-party Third-party
Additional
Requirements
Maximum of one (1) loan
per homeowner or per
property for the life of the
program; applicant cannot
also apply for a low-
income owner
rehabilitation loan.
Property must be owner-
occupied (in either main
home or ADU/JADU).
Affordability Restriction is
recorded that limits the
rent to households earning
<60% AMI for ten (10)
years and requires annual
income recertification.
Leases must include
Affordability Restriction
Addendum.
Maximum number of
ADUs on the property
must comply with local
and state laws.
Maximum of one loan
per homeowner or per
property for the life of
the program; applicant
cannot also apply for an
ADU loan.
Home must be owner-
occupied.
Prevailing Wage
Requirements
(subject to State Law
and other requirements)
May be required for all
projects. City staff is
currently confirming.
May be required for all
projects. City staff is
currently confirming.
Exempt. City staff is
currently confirming.
Maximum Number
of Loans
No limitation One per property owner
and per property for the
life of the program.
One property owner
and per property for the
life of the program
Application
Process
City-issued NOFA
twice per year with
applications managed
through the County of
San Mateo NOFA
program until program
funds are expended.
Quarterly application
process through City’s
website (link to third-
party); prioritized by
preference.
Quarterly application
process through City’s
website (link to third-
party); prioritized by
preference.
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1 Additional Detailed
Requirements
Uniform standards and
program rules for
multifamily rental
housing developments
BMR Accessory Dwelling
Unit Loan Program
Underwriting Guidelines
Low Income
Homeowner
Rehabilitation
Underwriting Loan
Program Guidelines
Note 1: Staff seeks approval from the City Council to authorize City Manager or his designee to make amendments to the Loan Program summary, in the event the HCDD LHTF grant is not awarded to the City.
Affordability Targeting
The proposed affordability targeting would target a higher percentage of lower income applicants than the HCD minimum requirements in order to achieve more points in application scoring. Table 3 compares the LHTF Program minimum targeted affordability levels with the staff recommended affordability levels. For the ADU/JADU and Lower- Income Rehabilitation Loan programs, targeting incomes at or below 30% AMI would be achieved with a reduced interest rate of 0%.
Table 3: LHTF Minimum Targeted Affordability Level Requirements and Staff Proposed Targeted Affordability Levels
LHTF Program Grant
Minimum Targeted
Affordability Levels
Staff Proposed LHTF Program
Grant Targeted Affordability
Levels
Moderate Income
>120% of AMI
A maximum of 20% of funds Proposed 0% of funds
Low Income
50%-80% of AMI
Very Low Income
30%-50% of AMI
Remainder of funds not
expended on Moderate Income
or Extremely Low Income
Proposed maximum of 70% of
funds targeting housing units for
residents with income at or
below 60% of AMI
Extremely Low Income
15% to 30% of AMI
Minimum of 30% of funds Proposed minimum of 30% of
funds targeting housing units for
residents with incomes at or
below 30% of AMI
Staff requests authorization from the City Council to apply for HCD LHTF application for $4,675,000 and authorize matching funds to be transferred from Fund 137 to Fund 145 upon notification of approval of the application for the implementation of three Housing Element programs, including Multi-Family NOFA Program (H-A-5-e), Accessory Dwelling Unit Loan Program (H-D-4-b), and Low-Income Homeowner Rehabilitation Loan Program (H-B-2-a).
As noted earlier, timely implementation of the Housing Element is required by state law, and the programs have specific timelines for implementation. Staff has identified three (3) programs in the adopted Housing Element that need significant financial resources 7 3
1 and is seeking authorization for the application for an HCD LHTF grant to maximize the financial capacity (double the funds).
It shall be noted that HCD LHTF is a competitive grant. In the event that the grant is not awarded to the City, staff requests authorization to use funds from Fund 137 for the implementation of the three (3) Housing Element programs. The language for the use of funds from Fund 137 in the event that the grant is not awarded is included in the Resolution (Attachment 2). Staff will follow the underwriting guidelines for the three (3) loan programs and seek approval from the City Council to authorize the City Manager or his designee to make amendments as needed, including loan amounts, and others, as included in Exhibits A, B, and C, for implementation with or without an HCD LHTF grant.
California Environmental Quality Act
The proposed use of funds does not meet the definition of a project under Public Resources Code Section 21065. Thus, no environmental assessment under the California Environmental Quality Act is required.
FISCAL IMPACT
The proposed LHTF application commits up to $4,675,000 to be transferred from Fund 137 to Fund 145 as matching funds. If successful, the LHTF Program grant would leverage existing city funds on a dollar-for-dollar basis to double the amount available for affordable housing purposes. In the event that grant is not awarded, staff is seeking authorization to use funds from Fund 137 for the implementation of the three (3) Housing Element programs. The use of funds from Fund 137 is consistent with the requirement to spend commercial linkage fees for affordable housing purposes within five years of receipt.
CITY COUNCIL VISION, MISSION, AND VALUE/PRIORITY AREA
Smart Planning, Development, and the Local Economy
ATTACHMENTS:
Attachment 1 – Resolution for HCD LHTF Grant Application Attachment 2 – Resolution for LHTF-Specific Underwriting Guidelines and Authorizing the Transfer of Funds
Exhibit A - Loan Underwriting Guidelines Program 1 - BMR MF Development Loan Program
Exhibit B - Loan Underwriting Guidelines Program 2 - BMR ADU Loan Program Exhibit C - Loan Underwriting Guidelines Program 3 - Low Income Homeowner Rehabilitation Program