City Council
Staff Report
From: City Manager
Report Type: CONSENT CALENDAR
Lead Department: Planning and Development Services
Meeting Date: March 18, 2024
Report #:2312-2330
TITLE
Adoption of a Resolution Authorizing Use of the City’s Activity (1) Permanent Local Housing Allocation (PLHA) 2019, 2020, and 2021 Allocations for Predevelopment Activities, Construction, and/or Permanent Financing of New Affordable Housing at the Matadero Creek Affordable Housing Site, and Approve FY 2024 Budget Amendments in the Permanent Local Housing Allocation Fund; CEQA Status – not a project.
RECOMMENDATION
Staff recommends that City Council take the following actions in support of the City using its Activity (1) PLHA 2019, 2020, and 2021 Allocations:
1. Adopt the Resolution (Attachment A) authorizing use of the City’s Activity (1) PLHA 2019, 2020, and 2021 allocations for predevelopment activities, construction, and permanent financing of new affordable housing at the Matadero Creek affordable housing site identified in the Sobrato Development Agreement, approved on September 12, 2023; and
2. Amend the Fiscal Year 2024 Budget Appropriation Ordinance (Required 2/3 vote) for the Permanent Local Housing Allocation (PLHA) Fund (Fund 253) by:
a. Increasing the Other Revenue estimate by $243,756; and b. Increasing the Planning and Development Services Contract Services by $243,756.
EXECUTIVE SUMMARY
Permanent Local Housing Allocation (PLHA) Program funding is a permanent, ongoing annual source of funding, but these funds need to be assigned to activities identified in the City’s 5- Year PLHA plan. The City is preparing to receive approximately $243,756 in PLHA Activity (1) funds, which were already programmed in the City’s 5-Year PLHA plan for affordable housing activities.
Approval of the recommended actions would assign the PLHA Activity (1) funds for PLHA Calendar Years 2019, 2020, and 2021 toward predevelopment activities, construction, and permanent financing of new affordable housing at the Matadero Creek affordable housing site, which is the dedicated affordable housing site identified in the approved Sobrato Development
Agreement1,2 and in the City’s Housing Element. Execution of the draft Resolution and City submittal to HCD would allow HCD to release Calendar Year 2019 funds to the City by their deadline of April 30, 2024.
BACKGROUND
The Permanent Local Housing Allocation (PLHA) is a State funding source administered by the State of California Department of Housing and Community Development Department (HCD).
Like the Federal Housing and Urban Development (HUD) Community Development Block Grant (CDBG) program, Palo Alto and other California jurisdictions are entitled to an annual allocation of funds coming from the Building Homes and Jobs Trust Fund (Fund). The Fund is established under the Building Homes and Job Act of 2017 Senate Bill 2 (SB 2) and started generating revenues in 2019. The Fund provides a permanent, ongoing annual source of local government funding for housing-related projects and programs that address unmet housing needs.
The City received approval from HCD for its PLHA Five-Year Funding Plan for the Entitled PLHA 2019-2023 Allocations (5-Year PLHA plan).3,4 The City’s 5-Year PLHA plan specified that the anticipated total of $1,388,976 for the PLHA calendar years 2019 through 2023 would be used for the following City priorities:
•Assistance to persons experiencing or at risk of homelessness (Activity (6)), including:
oOutreach and services to those experiencing homelessness, oOperating expenses for the forthcoming Homekey shelter, and •Affordable housing rental unit preservation, new construction, and operating subsidies (Activity (1)).
1 City Council September 5, 2023 and September 12, 2023, City Manager Report #:2306-1633, 3200 Park Boulevard/340 Portage [22PLN-00287 and 22PLN-00288]:
https://cityofpaloalto.primegov.com/Portal/Meeting?meetingTemplateId=13288. 2 Staff refers to the dedicated affordable housing site in the Sobrato Development Agreement at the Matadero Creek affordable housing site as a placeholder name so that the City’s PLHA request for funds and future annual reporting will not use the Sobrato name.
3 City Council authorized submittal of the City’s PLHA 5-Year Funding Plan at City Council Meeting October 24, 2022, Agenda Item 5, City Manager Report ID # 14715:
https://www.cityofpaloalto.org/files/assets/public/v/7/agendas-minutes-reports/agendas-minutes/city-council- agendas-minutes/2022/20221024/20221024pccsm-amended.pdf; The 5-Year PLHA plan is contained within Resolution No. 10080:
https://www.cityofpaloalto.org/files/assets/public/v/1/city-clerk/resolutions/resolutions-1909-to- present/2022/reso-10080.pdf.
4 The following activities are allowable under PLHA Section 301(a) Activity (1): The predevelopment, development, acquisition, rehabilitation, and preservation of multifamily, residential live-work, rental housing that is Affordable to Extremely low-, Very low-, Low-, or Moderate-income households, including necessary Operating subsidies.
The following activities are allowable under PLHA Section 301(a) Activity (6): Assisting persons who are experiencing or at risk of homelessness, including, but not limited to, providing rapid rehousing, rental assistance, supportive/case management services that allow people to obtain and retain housing, operating and capital costs for navigation centers and emergency shelters, and the new construction, rehabilitation, and preservation of permanent and transitional housing.
The 5-Year PLHA plan contains the following funding distribution for Calendar Year amounts known at the time of application:
HCD recently announced each California jurisdiction’s PLHA allocation for Calendar Year 2022.5 Palo Alto is to receive $198,460 after the City submits a streamlined application in Spring/Summer 2024. The 5-Year PLHA plan already assigns this Calendar Year 2022 funding as follows:
•60% assigned to Activity (6) outreach and services;
•20% assigned to Activity (6) Homekey shelter operational expenses; and •20% to Activity (1) affordable housing activities.
The PLHA grant funds are used by different departments across the City. The City requested and HCD already sent the portions of the PLHA Calendar Year 2019, 2020, and 2021 Activity (6) allocations assigned for outreach and services to those experiencing homelessness, administered by the Community Services Department Human Services Division.6 The City Manager’s Office will request PLHA funding for Homekey shelter operating expenses later this year. The Planning & Development Services Department submitted a request to HCD for PLHA Activity (1) funds but needs Council budget recognition to receive and expend funds and a resolution is the most efficient way to provide HCD with documentation confirming that activities will be pursued.
ANALYSIS
HCD requires that PLHA Activity (1) funds result in actual construction; predevelopment activities alone do not qualify for funding. However, HCD will provide funding to support predevelopment activity for projects that have a high likelihood of materializing, provided that funds must be repaid if the project is not completed. The Matadero Creek affordable housing site was identified for this funding because City Council certified the Sobrato Development 5 HCD announces PLHA allocations each year via a Notice of Funding Availability (NOFA) for the preceding calendar year. For Calendar Year 2022 PLHA allocations, the NOFA had a planned release of September 2023. However, the NOFA was actually released in December 2023 with application materials following in February 2024. HCD now reviews PLHA applications on an over-the-counter basis and staff will submit an application in Spring 2024 for the City to receive Calendar 2022 funds.
6 City Council Meeting December 18, 2023, Agenda Item 17, City Manager Report # 2311-2216:
https://cityofpaloalto.primegov.com/Portal/Meeting?meetingTemplateId=13074.
City Council Meeting June 19, 2023, Agenda Item 38, City Manager Report # 2305-1588:
https://cityofpaloalto.primegov.com/Portal/Meeting?meetingTemplateId=1170.
Agreement Environmental Impact Report and has already directed for the project to occur. This allows the Planning & Development Services Department and Real Estate to prepare for any next steps to commence predevelopment activities, including preparation and release of a Request for Information or a Request for Proposals for an affordable housing developer partner.
Given the development timeline in the Sobrato Development Agreement, the new affordable housing at the Matadero Creek site has a significant likelihood of being constructed by June 30, 2030 and within the current 6th Cycle Housing Element period. The location and site control for this future 100% affordable housing project has been approved by City Council through the Sobrato Development Agreement process, which anticipates dedication of 3.25 acres of a
14.65-acre site to the City for the purposes of an affordable housing project and adjacent public park.
Environmental clearance is complete, and the land use designation and zoning has been re- designated and rezoned, respectively, to support this affordable housing project and the adjacent proposed public park. Several aspects of the site preparation are completed or underway (e.g., Phase I reports, relocation of monitoring wells, and underground utility installation to accommodate the future development). Although the site has also been primed specifically for this development, this site is also considered a by-right housing site in accordance with the City’s adopted Housing Element. As part of the Sobrato Development Agreement, the City will also receive $5 million in funding that may be used toward the affordable housing project or the adjacent public park.
The draft Resolution (Attachment A) provides HCD with the documentation necessary to release the PLHA Activity (1) funds for Calendar Years 2019, 2020, and 2021. Execution of the draft Resolution and City submittal to HCD would allow HCD to release Calendar Year 2019 funds to the City by their deadline of April 30, 2024. The funds are assigned to only one project and three years are amassed for the following reasons:
•aggregating the available Activity (1) funds for one project responds to the significant overall cost of affordable housing construction per bedroom and per unit; •having more funds already dedicated and on hand could help expedite preconstruction activities after an affordable housing partner is identified for the project; and •using the funds for only one project reduces the City administrative time necessary to prepare loan and other regulatory documents and time required for annual grant reporting.
PLHA Activity (1) funds require that the funded affordable housing unit(s) be at the affordability level of at or below 60% AMI for a minimum of 55 years. Regulatory agreements and loan documents would reflect these terms. However, given that the cost of constructing a bedroom in an affordable housing unit is much more than $243,756, it is anticipated that PLHA Activity (1) funds themselves would contribute toward only one affordable housing unit; much more funding would be necessary to complete the project.
In the future, PLHA Activity (1) funds for Calendar Years 2022, 2023, and even future years could be assigned to predevelopment activities, construction, and/or permanent financing for the Matadero Creek affordable housing site, or the City could identify a different affordable housing site.
FISCAL/RESOURCE IMPACT
Approval of the recommended actions would not have a fiscal or resource impact to the City beyond what has already been directed by City Council for staff pursuit of new affordable housing at the Matadero Creek affordable housing site and staff administration of PLHA grant funding. Execution of the draft Resolution (Attachment A) is the most efficient way to provide HCD with documentation confirming that activities will be pursued at the site so that PLHA Activity (1) funds could be released. The PLHA Activity (1) funds will be available to cover a portion of anticipated associated costs incurred by a future affordable housing developer partner, such as for future architectural and engineering services. The City’s 5-Year PLHA plan does not allocate PLHA funds toward staff administrative costs.
STAKEHOLDER ENGAGEMENT
The 5-Year PLHA plan was adopted at a City Council public hearing. The Sobrato Development Agreement involved community meetings and multiple City Council public hearings. Staff did not conduct any other stakeholder engagement, given that the recommended actions are consistent with pursuing new affordable housing at the Matadero Creek affordable housing site, consistent with PLHA grant administration duties, and involve budget recognition of previously anticipated PLHA funds.
ENVIRONMENTAL REVIEW
Adoption of the draft Resolution and approval of budget amendments are not considered projects under the California Environmental Quality Act (CEQA) per CEQA Guidelines 15061(b)(3). New affordable housing units at the Matadero Creek affordable housing site was reviewed as part of the certified Environmental Impact Report for the Sobrato Development Agreement, as documented in City of Palo Alto Resolution No. 10123.7
ATTACHMENTS
Attachment A: Resolution Directing Staff to Commence Predevelopment Activities for the Matadero Creek Affordable Housing Site
APPROVED BY:
Jonathan Lait, Planning and Development Services Director 7 City Council September 5, 2023 and September 12, 2023, City Manager Report #:2306-1633, 3200 Park Boulevard/340 Portage [22PLN-00287 and 22PLN-00288]:
https://cityofpaloalto.primegov.com/Portal/Meeting?meetingTemplateId=13288.
City of Palo Alto Resolution No. 10123: https://portal.laserfiche.com/Portal/DocView.aspx?id=67824&repo=r- 704298fc.