Scott Wagner
Deputy Director - Finance
Long-Term Financial Policy and Audit
Subcommittee
September 14, 2023
2 • Median home sale price in Santa Rosa has increased 20% over the past 5 years to $749,500.
• Current interest rates have risen significantly from historic lows during Covid and are averaging approximately 6.8%.
• These increases in principal and rate have averaged a 60% mortgage payment increase over the last 5 years.
• Housing costs is one of the City’s largest challenges to recruit and retain employees. At the median home price, 3% of City employees qualify under FHA standards. At 20% below the median price, 12% qualify for a loan.
Overview
3 • A loan is created between the employee and the City, with principal used for a down payment or up to the full purchase price of a primary residence. • An interest rate is set, and repayment schedule created where monthly payments amortize the loan over a set period of 30 years. • A deed of trust is filed with the County to secure the loan against the property.
• In practice, these programs act very much like a traditional mortgage.
How Employee Home Loan Programs Work
4 • Executive Level
• Most common program is for a City Manager, and this is negotiated as part of their contract.
• Down payment up to 100% purchase price of property
• All Employees
• Down payment assistance up to a set dollar amount.
• Programs vary greatly based on specific market affordability, reserve status of agency, level of subsidy and risk tolerance.
Types of Programs
5 • Major advantage of these programs are that the interest rate can be much lower than the market.
• Interest Rate Benchmarks:
• Treasury return rate of the City is 0.86% YTD
• LAIF is 3.17%
• Yield to Maturity at Market 5.05%
• 30-year Federal Treasury Rate 4.03%
• Applicable Federal Rate is 3.79%
Interest Rate
6 • Interest Rate
• How much subsidy would the City provide?
• Can terms be refinanced?
• Who qualifies for the loan program and for how much?
• Set amount or % of pay
• What are the repayment terms at employment termination or sale? • Commonly due in full within 6 months at termination.
• Does the City have any stake in value appreciation at sale? Policy Decisions
7 • The City operates on a cash basis of accounting.
• Cash provided for loans reduces available reserves.
• For a Citywide program with 10% participation General Fund available reserve impact would be $5.2M for a $60K down payment assistance program.
Fiscal Impact
8 • Large barrier for entry in citywide program
• Not all employees will qualify under loan program requirements or have the financial means to take advantage of the benefit creating inequity amongst employees.
• Messaging
• To the community
• To employee groups not included in executive program
• Losses from property devaluation
• Administration
• Budgetary uncertainty and strain on available resources Program Challenges
9 Questions / Comments