Housing In-Lieu Fund Revenue
Discussion
Agenda Item 12.B
By: Scot Graham, Community Development Director
Meeting Date: October 7, 2025
Housing In-Lieu Fund Discussion
July 1, 2025 – Council reviewed the City’s inclusionary housing policies, and housing in-lieu fee requirements
•Council provided direction to return at a future meeting with options to increase in-lieu fund revenue to help
sustain the Fund
•Current In-lieu Fund balance estimated to be $510,000 at the end of FY 2026.
2 Housing In-Lieu Fund Revenue Options
Housing In-Lieu Fund revenue options are varied and a
few of the more common revenue sources include:
1.Developer fees
2.Demolition taxes
3.Bond election taxes
4.Tax increment financing
5.Federal Community Development Block Grant (CDBG)
3 Developer Fees
Developer fees include inclusionary fees and linkage fees A.Inclusionary fees are already part of the City’s Inclusionary Housing Ordinance and are triggered by housing development of 5 units or more or for commercial development of at least 5000 sq/ft.
B.Linkage fees or impact fees are typically charged to commercial and residential projects to support affordable housing. • They tie production of market rate housing and commercial square footage to affordable housing. •They are typically tied to commercial development on a per square foot basis. Ex. City of SLO charge $6.42 per sq/ft of retail commercial and $5.35 per sq/ft for industrial
4 Developer Fees
Pros:
-Fee are flexible and can easily be changed with adoption of a fee schedule
-Cons:
-Complicated and require nexus study
-Requires amendment of zoning code to remove current In-lieu fee requirement for commercial development
-Replace the existing Inclusionary Housing program associated with commercial development
5 Demolition Tax/Fee
-Fee imposed on property owners who tear down residential buildings, usually applied to older more affordable units -Goal is to offset the loss of low-cost housing and to discourage replacement of low cost housing with higher cost housing.
Pros:
- Can generate new income stream and encourages preservation of existing affordable housing Cons:
- Adds cost to redevelopment of properties and can disincentivize new housing development. - May generate limited revenue if properties are not being redeveloped 6 General Bond Elections
General Obligation (GO) Bonds: are govt. issued bonds that are repaid from state or local general funds or dedicated property tax. Typically authorized by two-thirds majority vote.
Pros: Provide tax exempt low-cost revenue to increase production of affordable housing or to preserve existing affordable housing Cons:
-Requires two-thirds majority vote to pass
-Requires significant public outreach
-Likely would need to be associated with a specific project so voters know what they are getting. -Increases property taxes which can make them unpopular 7 Tax Increment Financing
Can help fund affordable housing through Enhanced
Infrastructure Financing Districts (EIFD’s), which allow for capture of future property tax increase.
- EIFD’s work by freezing the property tax that flow from a designated project area at base level in the current year.
Additional tax revenue in future years (the “increment”) is diverted to a separate pool of $$.
- Can be used to pay for affordable housing directly or to pay back bonds issued for affordable housing development. 8 Tax Increment Financing cont.
-EIFD’s are governed by a Public Financing Authority (PFA) which oversees the creation of the district’s Infrastructure Financing Plan, which identifies the project the district will fund.
Pros:
-Generates funding without raising taxes
-Can have a life of up to 45 years
-Only requires 55% voter approval for EIFD’s to issue bonds 9 Tax Increment Financing cont.
Cons:
-City is built out, limiting revenue generation potential -EIFD’s are complicated, include significant upfront costs for consultants, legal counsel, feasibility studies and public outreach.
10 Community Development Block Grant (CDBG)
CDBG is primarily funded by the US Department of Housing and Urban Development (HUD) through federal allocations to states. HUD assistance is provided in the form of grants in three areas:
1.Public Services
2.Development of Affordable Housing or Public Facilities
3.Program Administration/Capacity building
The City currently participates in the County’s Urban County Program where we receive limited CDBG funding, with current 2025-year funding of $28,873.
11 CDBG cont.
The City could opt out of the Urban County Program and apply directly to HUD for CDBG funds. In doing so, a community’s activities must meet one of three objectives:
1.Benefit low and moderate income persons
2.Eliminate slums or blight
3.Address urgent community needs
When applying directly to HUD for CDBG funds a successful application typically would address one of the three items above in neighborhood areas where 70% of the funds serve low and moderate income persons (80% of area median income). The City doesn’t currently have any significant neighborhood areas that meet this requirement. 12 Recommendation
The staff report includes several revenue sources that
could serve to provide additional revenue to be utilized in support of affordable housing, with each having pluses and minuses.
Staff recommends that the Council provide direction on
any desired change to the revenue sources that support
the housing in-lieu fund. Changes could include ordinance modification, development of a new policy resolution or other actions deemed appropriate by Council.
13 Questions?