BOS Agenda Date :April 29, 2003

County of Santa Clara
Office of the County Executive
Office of Affordable Housing

CE02 042903

Prepared by: Susan Phillips
Acting Director, Office
of Affordable Housing
Submitted by: Jane Decker

Deputy County Executive
DATE:

April 29, 2003

TO:

Board of Supervisors

FROM:
Peter Kutras Jr.

Acting County Executive
SUBJECT:

Approve Recommendations Regarding Affordable Housing Fund Allocation
Process

RECOMMENDED ACTION

Consider recommendations relating to Office of Affordable Housing and use of affordable
housing funds.
Possible action:

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m

a. Approve recommendations on preliminary allocation of affordable housing funds and
process for distribution. •
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Board of Supervisors; Donald F. Gage. Blanca Alvarado, Pete McHugh,Jim Beall, Liz Kniss
Acting County Executive: Peter Kutras Jr,
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BOS Agenda Date April 29, 2003

b. Authorize staff to proceed with preparation of two Requests for Proposals(RFPs)for
distribution of $5.5 million in affordable housing funds to implement Categories 1 and 2
of the affordable housing fund allocations,

c. Approve Request for Appropriation Modification No. 156 increasing revenue and
expenditures in the Office of the County Executive, Office of Affordable Housing
budget to complete transfer of year one housing set-aside funds to the Affordable
Housing Fund.(4/5 Roll Call Vote)
FISCAL IMPLICATIONS

There is no impact on the General Fund as a result of this action. On January 28, 2003, the
Board approved the establishment of a new Affordable Housing Fund (Fund 0196) and the
transfer of $7 million in housing set-aside funds in order to support the provision of
affordable housing. At that time, the Board also approved the appropriation of $122,109 in
affordable housing funds to cover current-year costs required to establish the new Office of
Affordable Housing.

The attached Request for Appropriation Modification completes the budgetary actions
necessary to account for the $122,109 in funds approved previously by Board action and to
transfer the balance of the $7 million, in the amount of $6,877,891, current-year housing
set-aside fund receipts to the new Affordable Housing Fund. Similar aetions will be requested
of the Board when annual receipts for the housing set-aside are received in FY2004 and
FY2005.

CONTRACT HISTORY
None.

REASONS FOR RECOMMENDATION

The preliminary recommendations to the Board's Housing, Land Use, Environment and
Transportation(HLUET)Committee were presented at the April 17, 2003 HLUET meeting.
During this discussion, the following issues were raised:
• The need to make funds available as quickly as possible to meet housing needs.

• The need to provide the Board^flexibility to transfer funds between funding categories
to meet critieal needs.

Processor name

Helen Saij'ers

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Board of Supervisors: Donald F. Gage, Blanca Alvarado, Pete McHugh,Jim Beall, Liz Kniss
Acting County Executive: Peter Kutras Jr.
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BOS Agenda Date April 29, 2003

The fairness of the proposed two-tier allocation scheme for Category 1 projects, which
distinguished between projects over and under 50 units in size.
• The advisability of establishing a separate funding allocation for emergency shelter
projects.

• The need for clarification regarding whether one project could apply for funds in
multiple rounds to address different project phases.
• The need to address the current Board policy requiring payment of fair market value for
surplus land.

Staffs original report has been revised to respond to concerns and questions raised by Board
members and the public. At the Committee's direction, a summary of public comments
received at the meeting is included as Attachment 1. The staff report was accepted by the
Committee and forwarded to the Board with a recommendation for positive action.

The issues identified above have been addressed throughout the text. This is summarized
below:

• First—year funding has been reallocated to provide an additional $1 million in category
2 funds available for immediate distribution through RFPs to be issued July 1, 2003.

• Additional language has been added to underscore the Board's flexibility to move funds
from one funding category to another as needs dictate, assuming the County has
received the housing set-aside revenues and the funds have not previously been
subscribed through Board awards, contracts or other firm commitments.

• The proposed two-tier funding of projects based on project size has been revised to
provide for a range offunding per unit or bed, based on the specific needs of an
individual project.(See Attachment 3 for specific language implementing this change.)
• A separate, dedicated funding category for emergency shelters has not been
recommended; however, specific reference to shelters has been added to Category 2

projects and the total available funding in this category has been increased by $1
million. Staff believes that earmarking $4 million specifically for shelters will limit the
Board's flexibility in allocating limited funds between deserving projects.

• It is expected that individual projects will be able to submit one application for funding
either in Category 1 or Category^., This relates to the nature of these funding
allocations (project-based, rather than phase-based). The County has available other
sources of funding(CDBG and HOME)which are more suitable for phase-based
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Board of Supervisors: Donald F. Gage, Bianca Alvarado, Pete McHugh, Jim Beall, Liz Kniss
Acting County Executive: Peter Kutras Jr.
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BOS Agenda Date April 29, 2003

funding. Funding under distinct categories following the first County awards in fall,
2003, may well fund the same project in different phases (e.g., land acquisition,
pre-development, permanent financing), but this will be more clearly delineated as
details of these categories are presented to the Board.
• A report back on the issue of fair market value will be provided for Board discussion of
this policy issue, and it tentatively scheduled for early fall, 2003.
A. Preliminary Allocation of Affordable Housing Funds

On January 28, 2003, the Board directed staff to report back with an allocation of housing
set-aside funds which have been approved by the Board and are estimated to be available to
the County over the next three years. A preliminary allocation is presented in Attachment 2.
The proposed allocation consists of eight categories for distribution offunds. A brief
description of each is provided below; a more detailed description and the rationale for each is
discussed in Attachment 3.

A total of $18.6 million is estimated to be available to the affordable housing fund over the

next three fiscal years(FY2003 - FY2005). The precise level of available funding will depend
on actual receipt of housing set-aside funds. For purposes of the allocation strategy, funding
is identified as being available in the year in which funds are expected to be received by the
County:

• Year 1 — $7 million is already available and is proposed to be transferred into the
Affordable Housing Fund (Fund 0196) in this transmittal. Only $122,109 (previously
approved by the Board for OAH support during FY2003) has been appropriated; the
remainder is available for allocation beginning in FY2003.
• Year 2

$5.6 million is currently estimated to be available at the end of FY2003 and

is assumed to be available for allocation beginning in FY2004.
• Year 3

$6 million is currently estimated to be available at the end of FY2004 and is

assumed to be available for allocation beginning in FY2005.

To provide the maximum flexibility in the use of these funds, staff is proposing that

unreserved funds in each allocation can^be moved as necessary by Board action between
categories in any given funding year. That is.If funds in one category are undersubscribed, the
Board has the flexibility to allocate these funds in another category during the same funding
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Board of Supervisors: Donald F. Gage, Blanca Alvarado, Pete McHugh,Jim Beall, Liz Kniss
Acting County Executive: Peter Kutras Jr.
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BOS Agenda Date :April 29, 2003

year, or to roll the funds over in the same category for appropriation in a future allocation
year. If no specific action is taken, uncommitted funds are assumed to roll forward into the
same category for the following funding year.

The proposed allocation strategy is based on the following guidelines:
• County funds should be allocated only as funding is received through the housing
set-aside (i.e., allocation of funds should not be made contingent upon receipt of future
funding).

• County funds should make the difference in creating affordable housing (i.e., these are
not merely gap financing funds).

• County funds should be leveraged against other funds, including City funds or other
support, where applicable.

• County funds should be made available to leverage State funds through Proposition 46
(the Housing and Emergency Shelter Trust Fund Act of 2002).
• County funds should be used to add new affordable housing units or client placements
(beds)to the existing affordable housing supply.

• County funds should not compete with or duplicate existing funding sources (e.g., if the
County provides pre-development funding, it should address project needs which are
not currently covered by other, existing pre-development funds).

• Projects should focus on addressing the housing requirements of County special needs
populations.

• Housing should complement the provision of County services to enhance the
effectiveness of service provision and create cost efficiencies in service provision as
housing-related issues for these clients are addressed.
• Funds should be made available to support all five priority areas as established by the

Board; although it is not necessary to earmark funds directly to support each of the five
areas as a discrete funding category.

• Projects funded should be distributed geographically throughout Santa Clara County.
R. Preparation of Requests for Proposals (RFPsf for Distribution of Category 1 and^
Affordable Housing Funds
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In order to move quickly on funding housing projects^inFY2004, it will be necessary for staff

to release on July 1, 2003 two RPFs to generate applications for project allocations which are
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Board of Supervisors; Donald F, Gage, Blanca Alvarado, Pete McHugh, Jim Beall, Liz Kniss
Acting County Executive: Peter Kutras Jr.
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BOS Agenda Date April 29, 2003

expected to be funded in fall, 2003. The draft schedule for Category 1 (MHP-eligible
projects) funding distribution is provided as Attachment 4. The schedule for distributing funds
in Category 2(non-MHP eligible projects) is still under development; however, it is planned
that both RFPs will be released concurrently on July 1, 2003, making a total of $5.5 million in
affordable housing funds available at that time. Staff plans to present the RFPs for both
Category 1 and 2 to the Board on June 24, 2003, prior to release on July 1.
C. Request for Appropriation Modification

Approval of the Request for Appropriation Modification is required to move the remaining
housing set-aside funds (totaling $7 million in the current fiscal year)from General Fund
balance into the newly-established Affordable Housing Fund (Fund 0196). A similar action
will be requested of the Board during FY2004, once the second year revenue is received

(currently estimated at $5.6 million) and again the following fiscal year (for the estimated $6
million to be received at that time).

No additional expenditure authority for these funds is requested. The Board previously
approved expenditure of $122,109 during the current fiscal year to support the newly-created
Office of Affordable Housing.
RACKCROIJND

On January 28, 2003, the Board of Supervisors approved the creation of the Affordable
Housing Fund and approved the use of an estimated $18.6 million in housing set-aside funds
to support this new fund over the next three years with the potential of future funding
dependent on the level of housing set-aside funds received by the County. Staff recommended
three areas toward which the County's affordable housing funds could be directed;
• Emergency and Transitional Housing
• Permanent Affordable Rental Housing

• Procurement of Land/Use of Surplus Land for Affordable Housing
The Board directed that two additional areas be included (home ownership and agricultural

worker housing) as the Administration convened an Affordable Housing Fund Allocation
Process Working Group ("Working Group") to develop recommendations for allocating funds

and a process for fund distributiorir*^®^'
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Board of Supervisors; Donald F. Gage, Blanca Alvarado, Pete McHugh,Jim Beall, Liz Kniss
Acting County Executive; Peter Kutras Jr.
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BOS Agenda Date April 29, 2003

The twenty-member Working Group, chaired by Deputy County Executive Jane Decker, was
comprised of representatives of each Board office, the County's Office of Affordable Housing,
the County Executive's Economic Development Office, Office of the County Counsel, Social
Services Agency, Health and Hospital System and Santa Clara County Housing Authority.
Staff and technical support was provided by the Office of Affordable Housing, the Enterprise
Foundation and the OAH's financial consultant. The Working Group met five times between
February 18 and April 4, 2003 to develop the framework for allocating County affordable
housing funds that is presented here.

The Working Group spent considerable time evaluating the five areas of housing need
identified by the Board. Members concluded that home ownership programs could generally
be administered by the Housing Trust of Santa Clara County, rather than creating a new
administrative framework within the County for this purpose. At the same time, it will likely
be possible to work with the Trust to develop a specific program which can meet County

priority needs for home ownership (directed toward low income populations who may also
represent special needs clients).

Similarly, the issue of agricultural worker housing was also investigated. Experience within
the county has demonstrated that, even when housing is specifically set aside for this group of
residents, it is difficult to fill this housing due to other factors (fears relating to issues of status
and the mobile nature of this population). Consequently, housing has been opened to other
low income residents. By focusing housing efforts on the needs of the very low income
residents of Santa Clara County, the Working Group believes that housing needs associated
with agricultural workers can also be addressed. The presence of specific annual Proposition
46 allocations targeted to farmworker housing will increase the opportunity for housing
sponsors to target this population where the need is demonstrated, and to apply for both State
and County funds.

As the County moves forward with distribution of the Affordable Housing Funds, it will be
necessary to evaluate how the funds have been spent, to ensure that there is a reasonable
balance of housing created throughout Santa Clara County. This will allow for appropriate
monitoring of housing production as well as for course correction in dispensing future funds
should imbalances be identified.
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Board of Supervisors: Donald F. Gage, Blanca Alvarado, Pete McHugh,Jim Beall, Liz Kniss
Acting County Executive: Peter Kutras Jr.
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BOS Agenda Date April 29, 2003

Allocation Categories for Affordable Housing Funds

Eight categories are included in the proposed allocation framework. A detailed description of
each is provided in Attachment 3. Because this represents a broad framework for allocating
funds, additional work will be required for implementation and the most effort has been

applied to the first two categories, which represent immediate project funding opportunities.
Category 1 — Capital Funding for Affordable Housing TMHP Eligible Projects)
$3.5 million allocated in year!

In order to make funds available immediately, funds are proposed in year 1 to assist projects

which are applying for Prop. 46 funding through the Multifamily Housing Program (MHP).
This will leverage County funds and improve the competitive advantage of local projects
which provide affordable housing through new construetion, rehabilitation and preservation of
permanent and transitional rental housing for lower income households.
Category 2

Capital Funding for Affordable Housing fnon—MHP Eligible Projects^

$2 million allocated in year 1

In order to make funds available immediately to projects throughout the county which are not

eligible for MHP funding, an additional $2 million is proposed in year 1.(This allocation was
increased by $1 million following HLUET discussion, in order to address issues relating to
funding needs of emergency shelters.)

Because Category 1 and 2 funds will be used to address projects that are already
well-developed, the County will be in a more traditional, reactive mode in making fund
allocations. In order to better meet the needs of the County's special needs clients, it will be

necessary for the County to participate earlier in the project development process to ensure

that projects can be targeted more effectively to the needs of these populations. Categories 3
and 4 address these issues.

Category 3

Capital Funding for Affordable Housing fPre-Development to Long-Term)

$300.000 allocated in year 1: additional $4 million annually in years 2 and 3_

Category 3 proposes a two-phase process to leverage Colihfy funds. First, the County will
provide an initial $300,000 to support pre-development actiyities. As projects are defined, an
additional $4 million in funding is allocated annually in years 2 and 3 to provide permanent
item hjmber

Board of Supervisors; Donald F. Gage, Blanca Alvarado, Pete McHugh,Jim Beall, Liz Kniss
Acting County’ Executive: Peter Kutras Jr.
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BOS Agenda Date :April 29, 2003

financing.

Category 4 — Project Initiation Program

$100.000 allocated in year 1. additional $300.000 annually in years 2 and 3
Category 4 provides an annual allocation of funds to be used by the Office of Affordable
Housing to work with project sponsors on very specific kinds of affordable housing projects

targeting specific special needs clients which may not be readily addressed through other,
established programs.

Category 5 — Surplus Land/Land Acquisition Program
$ 1 Million allocated annually in years 2 and 3

Category 5 addresses the need to have funds available to make available County-owned
surplus land for affordable housing development or to secure options on property that may be
suitable for land banking or affordable housing use.

Category 6 — Housing Trust of Santa Clara County Home Ownership Program
$500.000 allocated in year 1

Category 6 provides funds to support home ownership activities through the Housing Trust of
Santa Clara County. Funds will enable the Trust to provide a match for Prop. 46 funds.
Office of Affordable Housing Support
Category 7
$19.2.109 in FY9.005. $297 000 in FY2004: $300.000 allocated thereafter for two years

The Board has previously approved use of $122,109 in affordable housing funds for the
current fiscal year to cover office start-up costs (rent, phones, furniture, computers, financial
services contract support and salary for the new Director in the current year). As reported to
the Board in January, an appropriation of $297,000 is assumed to cover the cost of a Director,
financial expertise contract and overhead (e.g., rent. County support) in FY2004. Subsequent

years' budgets may be developed differently as the needs and resources are better defined but

an

approximate number has been provided for purposes of completing the matrix.

Category 8.

Contingency Fund •teefing Date

6,2003

$580.891 total over 3 years
j-'^ocessor mme

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Helen Satyers

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Board of Supervisors: Donald F. Gage. Blanca Alvarado, Pete McHugh,Jim Beall, Liz Kniss
Acting County Executive: Peter Kutras Jr.
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BOS Agenda Date April 29, 2003

Category 8 reserves funds for contingency use, should critical opportunities arise for which
funding is unavailable and to address potential situations in which additional funds are needed
in one of the seven other allocation categories.
Implementation of Category 1 and 2 Allocations

Staff proposes to issue RFPs for funding in both the MHP Eligible and non-MHP Eligible
project categories on July 1, 2003. This timing is necessary to coincide with the State
Proposition 46 funding schedule for Round 2 MHP applications. The working group believed
strongly that it was important to release the REP for non-MHP eligible project funds at the
same time, in order to minimize confusion among applicants and provide a source of funding
for the widest possible variety of housing projects.

Category 1 Applications: The Category 1 REP will outline a 2 part application. This approach
will allow the County to identify the total demand for funds as well as the distribution of
project types early, while synchronizing the County and State Proposition 46 processes, thus
minimizing additional paperwork and analysis for applicants. Housing sponsors who wish to
apply for loan funds under this program will submit a letter of interest and response to the

County's supplemental questions (designed to address specific County priorities and concerns)
by August 26, 2003. A preliminary draft of supplemental questions is presented as Attachment
4.

Part 2 of the application consists of the Proposition 46 MHP application, with the self-scoring
sheet required by the State prepared using two scenarios — without County funds and with
County funds. In this way, the County expects to see the extent to which the use of County
funds will increase the scoring potential of the project in Round 2 of the Prop. 46 MHP

program, and thus the potential for State funding. Projects which receive County funding will
have until December, 2004, to secure State MHP funding; this allows projects which are not
successful in Round 2 of the Prop. 46 process to compete again for funding.

Category 2 Applications: The Category 2 REP will outline an application process that differs
from Category 1 applications by a slight revision in the questions posed to applicants and

incorporation of more detailed project cost dhd firfarieing information (since the MHP
application will not be part of the County process)
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Board of Supervisors: Donald F. Gage, Blanca Alvarado, Pete McHugh,Jim Beail, LizKniss
Acting Count/ Executive: Peter Kutras Jr.
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BOS Agenda Date :Aprll 29, 2003

CONSEQUENCES OF NEGATIVE ACTION

Should the Board not act on the approval of the Request for Appropriation Modification, the
Affordable Housing funds will not be properly reflected in the County's financial statements
for FY2003. Failure to accept the reports will not provide the Administration direction
required to continue implementation of the affordable housing program and the required RFPs
for distributing funds to housing sponsors will not be prepared.
STEPS FOIJ.OWTNG APPROVAL

No action by the Clerk of the Board of Supervisors is required.
ATTACHMENTS

• Attachment 4: Draft Schedule (Miscellaneous)
• Attachment 1; HLUET Public Comments (Miscellaneous)

• Attachment 3: Category Descriptions (Miscellaneous)
• Attachment 5: Draft Supplemental Questions 2(Miscellaneous)

• Appropriation Modification No. 156(Appropriation Modification(F-85))
• Attachment 2: Proposed Affordable Housing Fund Allocation (Miscellaneous)

Heetiiii Date
Processor iiarne

6,2003
Helen Sabers

Item fliiiiitier

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Board of Supervisors: Donald F. Gage, Blanca Alvarado, Pete McHugh,Jim Beall, Liz Kniss
Acting County Executive: Peter Kutras Jr.
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