April 12, 2022
Rene Mendez
City Manager
City of Gonzales, CA
Re: 498 Alta Street, Gonzales
Dear Rene:
CHISPA looks forward to the opportunity to develop affordable senior housing on the .98-acre parcel at 498 Alta Street.
Our goal is to construct between 36 and 40 one-bedroom apartments and a community room on the parcel.
Construction of affordable apartments requires CHISPA (or any affordable housing developer) to apply for low-income housing tax credits from the State Treasurer’s Office. These tax credits are sold to a corporation seeking to invest equity in affordable housing to receive a tax credit on its income taxes.
The tax credit application process is extremely competitive. To be eligible to apply, the location must meet certain threshold standards: for example, proximity to amenities like a grocery store or pharmacy, schools, and parks or senior centers, location in “high opportunity areas” that have strong school systems or many employment opportunities, commitment to energy standards and on-site amenities.
After achieving these threshold standards, the application must then demonstrate considerable local and state funding as leverage. The more leverage a development has, the higher its tax credit score, and the more likely it will be to score an award. Each application round, a given application competes with many other applications from throughout the State.
It usually takes several years secure adequate leverage funding to be competitive. This funding usually comes from a local City of County or from the State of California. Sometimes it comes from the federal government (HOME fund) and occasionally from grants.
To apply for tax credits, we invest in architectural and engineering plans and complete environmental reports (CEQA or NEPA, depending on the source of funding). In the case of Alta Steet, we would probably remove the house and outbuildings.
We reimburse ourselves for the several hundred thousand dollars of predevelopment expenses at the time we secure tax credits and close all funding for the partnership.
The Tax Credit threshold scoring matrix, which for years has been unchanging, and therefore has been predictable, has been changed by the State a few times recently.
This makes me slightly uncomfortable, because, during the time it takes us to line up the soft leverage funding, we could find that the tax credit regulations could change again enough for this proposed development to be uncompetitive.
Examples: The Treasurer’s office could impose new regulations for required distances to amenities , or the application could require that a property be in a location with a higher-ranking school system than is required today.
Should regulations change, causing the Alta Street site to become uncompetitive for tax credits, CHISPA still would like to develop some affordable senior housing at that location.
Without the equity from the tax credits, we would have to use private funding.
In this circumstance, we would propose to build about 15 small single-family homes, which we would rent to seniors. 40% of the homes would be restricted to low- income residents (80% of median income) and the remainder for moderate income.
In either scenario (apartment building or rental homes), the tenants would be low-income, and we would accept Section 8 vouchers.
To be clear: CHISPA would prefer to build an apartment building, because it provides more housing. And, based on the apparent scoring today, I anticipate that we will be able to do this, subject to our securing enough soft funding leverage. I expect that it could take several years and multiple applications to secure tax credits. That does not concern me as much as the possibility that the threshold scoring matrix could change, making the parcel’s location uncompetitive.
I raise the possibility of the smaller development as a backup plan because of the recent tax credit scoring changes make me uncomfortable.
I’d like to have an alternative development in the back of our minds, should this site become uncompetitive for tax credits.
Sincerely,
Dana Cleary
Director of Real Estate Development