TO: HONORABLE MAYOR FROM: Julia H. Cooper
AND CITY COUNCIL Jacky Morales-Ferrand
SUBJECT: SEE BELOW DATE: October 17, 2022
Approved Date
10/28/22
COUNCIL DISTRICT: 9
SUBJECT: TAX EQUITY AND FISCAL RESPONSIBILITY ACT HEARING FOR
CALIFORNIA MUNICIPAL FINANCE AUTHORITY'S ISSUANCE OF
TAX-EXEMPT MULTIFAMILY REVENUE BONDS TO FINANCE THE
VIEW AT BLOSSOM HILL AFFORDABLE HOUSING DEVELOPMENT
RECOMMENDATION
(a) Hold a Tax Equity and Fiscal Responsibility Act of 1982 public hearing for the issuance of not to exceed $95,000,000 of tax-exempt multifamily housing revenue bonds by the California Municipal Finance Authority, to finance and refinance the acquisition, construction, improvement and equipping of the 271-unit multifamily rental housing project to be located at 1007 Blossom Hill Road in San José by View at Blossom Hill, LP, a California limited partnership or an affiliate; and to pay certain expenses incurred in connection with the issuance of the bonds.
(b) Adopt a resolution approving the issuance of tax-exempt multifamily housing revenue bonds by the California Municipal Finance Authority, in an aggregate principal amount not to exceed $95,000,000 to finance and refinance the acquisition, construction, improvement and equipping of the 271-unit multifamily rental housing project to be located at 1007 Blossom Hill Road in San José, and to pay certain expenses incurred in connection with the issuance of the bonds.
OUTCOME
The Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA) hearing provides an opportunity for the public to review and provide comments on the issuance of $95,000,000 of tax-exempt revenue bonds for the development of View at Blossom Hill affordable housing development located at 1007 Blossom Hill Road (Development). Additionally, approval of the recommended action will authorize the California Municipal Finance Authority (CMFA) to issue tax-exempt COUNCIL AGENDA: 11/8/22
FILE: 22-1622
ITEM: 3.5
HONORABLE MAYOR AND CITY COUNCIL
October 17, 2022
Subject: Conduit Financing for View at Blossom Hill Development -- TEFRA Public Hearing
bonds to finance the construction and operation of the Development, with no City funding, providing 267 affordable apartments and four unrestricted managers’ units. This will allow the View at Blossom Hill, LP or affiliate (Borrower) to move forward with its current financing plan and develop much needed affordable housing.
BACKGROUND
The Council Policy for the Issuance of Multifamily Housing Revenue Bonds (Council Policy 1- 16) (Policy) states the City shall be the issuer of all bonds financing multifamily housing rental projects within the City, with specified exceptions. One of these exceptions allows an alternate issuer to issue bonds for affordable housing within the City when there are “special circumstances” merited by the circumstances of the project and the financing. In the case the City is not the issuer of bonds for the project, it is policy to require the issuer to assume full responsibility for issuance and ongoing compliance of the bond issue with federal tax and state laws. The Policy also states that the City will hold a TEFRA public hearing.
CMFA was established in 2004 under the California Government Code as a statewide Joint Powers Authority to provide local governments and private industry access to tax-exempt low- interest financing to achieve public benefit goals. The Board of Directors of the California Foundation for Stronger Communities, a California non-profit public benefit corporation, acts as the Board of Directors for CMFA. CMFA shares a portion of its issuance fees with its member communities and donates a portion of issuance fees to the California Foundation for Stronger Communities for the support of local charities. It is expected 25% of the CMFA issuance fee, or $20,423, will be contributed by CMFA to the City.
CMFA received a request to issue bonds on behalf of the Borrower or a partnership of which JEMCOR Development Partners, LLC or a related person to the JEMCOR Development Partners, LLC is the general partner (an affiliate). On October 18, 2022, City Council adopted a resolution authorizing the issuance of bonds by CMFA as the alternate issuer for the Development under Section I.C of the Policy for special circumstances. At that time, the Development had all sources in place, was not seeking City loan financing, and applied for a $75,000,000 bond allocation from the California Debt Limit Allocation Committee (CDLAC) on August 9, 2022. Due to the timing of the upcoming financing round, the City did not have the capacity to prepare for another issuance of bonds in time for CDLAC’s August application.
CDLAC will announce its bond allocation decision for this Development on November 30, 2022.
The Development does not have a City loan, therefore, consistent with the Policy, special circumstances related to the financing of the Development arose, and staff recommended an exception to the Policy allowing this project to move forward with an outside bond issuer.
HONORABLE MAYOR AND CITY COUNCIL
October 17, 2022
Subject: Conduit Financing for View at Blossom Hill Development -- TEFRA Public Hearing
ANALYSIS
The Development proposes building 271 new affordable rental homes, all but four of the apartments targeting families with incomes between 30-70% of area median income (AMI). This Development has not requested financing from the City. CMFA’s recycled bond will be an additional source of construction financing for this Development.
Table 1: View at Blossom Hill Affordability Unit Mix and AMI Levels
Unit Type 30%
AMI
50%
AMI
60%
AMI
70%
AMI Manager Total
One-bedroom 8 7 32 33 - 80
Two-bedroom 18 18 70 66 4 176
Three-bedroom 1 2 6 6 0 15
Total 27 27 108 105 4 271
CMFA requested the City Council, as the applicable elected representative of the jurisdiction, consent to its issuance of tax-exempt bonds for the Development in an amount not to exceed $95,000,000. This TEFRA public hearing amount is set higher than the Borrower’s CDLAC application amount of $75,000,000 to provide a cushion, due to rising construction and financing costs, in case the Development must return to CDLAC for an additional award. The bond proceeds and other sources, including low-income housing tax credit equity, will finance the construction of the Development.
TEFRA Public Hearing Requirements
Pursuant to Section 147(f) of the Internal Revenue Code of 1986, the issuance of the bonds by CMFA requires the City’s approval because the Development is located within the territorial limits of the City. The proposed bond issuance by CMFA is classified as a private activity for purposes of the Internal Revenue Code. A qualified private activity bond is a bond issued to fund a development for a private entity that meets certain requirements under the Internal Revenue Code for the interest received by the bondholder to be excluded from gross income for federal income tax purposes.
In order for the interest on the bonds to be exempt from federal income tax, an "applicable elected representative" of the government unit must approve the issuance of the bond after a public hearing, known as a TEFRA Public Hearing. Because the CMFA Board of Directors is not an elected body, the Internal Revenue Code provides that a governmental unit with elected representatives and jurisdiction over the area in which the project to be financed is located, in this case, the City Council of San José, is an applicable elected representative with respect to the bond issue. City Council’s approval of the recommended action items is not approval of the Development for any other purpose.
HONORABLE MAYOR AND CITY COUNCIL
October 17, 2022
Subject: Conduit Financing for View at Blossom Hill Development -- TEFRA Public Hearing
The TEFRA Public Hearing is scheduled to be held as part of the action items on the November 8, 2022, San José City Council agenda and serves as a method of notifying the community of CMFA’s intent to approve and issue tax-exempt private activity bonds for the Development. The public hearing notice will be published in the San José Post-Record on or prior to October 31, 2022, announcing the time and location of the public hearing.
Federal tax law limits the types of projects that may be funded with tax-exempt bond proceeds since the interest earned on such bonds is exempt from federal taxation. The purpose of a TEFRA Public Hearing is to identify a project that may subsequently receive funding from the sale of private activity tax-exempt bonds. A hearing will also provide interested individuals with the opportunity to provide testimony on any matters related to such potential bond issues, including the nature and location of the Development.
CONCLUSION
This action allows CMFA to issue bonds for the Development as previously approved by the City Council. This will result in the construction of 267 units of affordable apartments and four manager units that will provide a range of housing opportunities from extremely low-income to low-income households.
EVALUATION AND FOLLOW-UP
This action will facilitate the issuance of tax-exempt revenue bonds by CMFA and requires no follow-up with the City Council. The Housing Department posts periodic reports on the status of affordable properties undergoing rehabilitation or construction in the City on its website, www.sjhousing.org. If the recommended actions are approved and the Development successfully closes construction financing, it would be included in these periodic reports.
CLIMATE SMART SAN JOSE
The recommendation in this memorandum aligns with one or more of Climate Smart San José's energy, water, or mobility goals and contributes to sustainability in several ways through Energy Star certified appliances, energy efficient lighting, and low flow faucets and toilets. It will exceed Title 24 standards, an energy code under California’s building standards’ code that ensures building construction, system design, and installation achieve higher energy efficiency and reduce wasteful and unnecessary energy consumption.
HONORABLE MAYOR AND CITY COUNCIL
October 17, 2022
Subject: Conduit Financing for View at Blossom Hill Development -- TEFRA Public Hearing
PUBLIC OUTREACH
The TEFRA Public Hearing to be held as part of the recommended action items on the November 8, 2022 San José City Council agenda is a method of notifying the community of CMFA’s intent to issue tax-exempt private activity bonds for this Development. The public hearing notice will have been published on or before October 31, 2022, in the San José Post- Record announcing the time and location of the public hearing.
COORDINATION
This memorandum has been coordinated with the City Attorney’s Office and the City Manager’s Budget Office.
COMMISSION RECOMMENDATION/INPUT
This item was not heard by the Housing and Community Development Commission, as approvals of affordable development financing do not fall under the functions, powers, and duties of the Commission delineated in Section 2.08.2840 of the San José Municipal Code.
COST SUMMARY/IMPLICATIONS
By not exercising its option to be the bond issuer, the City will forego its standard issuance fees and the annual fees associated with the bond monitoring obligation. However, as consideration for this request, the City will charge a $5,000 TEFRA Public Hearing fee for non-City bond issuances. Additionally, it is expected that 25% of the CMFA issuance fee, or $20,423, will be contributed by CMFA to the City. These funds will be deposited into the Housing Trust Fund when they are received. There are no other fiscal impacts to the City, as there are no City funds allocated to the Development. Repayment of the tax-exempt bonds issued by CMFA will be secured solely by the Development’s revenues.
FISCAL/POLICY ALIGNMENT
This expenditure is consistent with the following policy documents: The City’s Envision 2040 General Plan and the 2014-23 adopted Housing Element in that it will help the City meets its Regional Housing Needs Allocation; the City’s current Housing Investment Plan in that it increases San José’s supply of affordable housing; and, the City’s 2020-25 HUD Consolidated Plan in that it will provide rental apartments affordable to very-low- and extremely-low-income households.
HONORABLE MAYOR AND CITY COUNCIL
October 17, 2022
Subject: Conduit Financing for View at Blossom Hill Development -- TEFRA Public Hearing
CEQA
Categorically Exempt, File No. H21-020, CEQA Guidelines Section 15332, Infill Development Projects.
/s/ /s/
JULIA H. COOPER JACKY MORALES-FERRAND
Director of Finance Director of Housing
The principal author of this memorandum is Banu San, Housing Policy and Planning Administrator. For questions, please contact Qianyu Sun, Deputy Director of Finance – Debt and Treasury Management, at (408) 535-7832 or Rachel VanderVeen, Deputy Director of the Housing Department, at (408) 535-8231.