PURPOSE

The purpose of this memorandum is to request the City Council's approval of a HOME Community Housing Development Organization Operating Expense Agreement that would grant $88,054 in HOME funds to the Burbank Housing Corporation for Fiscal Years 2004-05 and 2005-06, and would authorize staff to administratively approve an allocation of up to five percent for future HOME allocations through Fiscal Year 2007-2008 (the term remaining in the five year Consolidated Plan).  The purpose of this grant is to assist the Burbank Housing Corporation to pay operating expenses to continue and expand their work in Focus Neighborhoods.

BACKGROUND

The City and Redevelopment Agency have provided the Burbank Housing Corporation with funding since 1997 to upgrade rental properties and to implement youth and family services as a proven strategy for upgrading neighborhoods in decline. In each focus neighborhood (Elmwood, Verdugo-Lake, Peyton-Grismer, Golden State and soon Lake-Alameda), the approach has been to assist the Burbank Housing Corporation, acquire and rehabilitate deteriorated properties, operate them as mixed-income properties with an affordability component and develop activity centers from which to provide services that will help to integrate tenants into the community and build healthier, stronger families.

These actions have been consistent with several housing objectives and programs of the City's affordable housing strategy first put forth as recommended by the Blue Ribbon Task Force on Affordable Housing, later adopted by the City Council and Agency Board and reiterated at subsequent study sessions of the City and Agency�s affordable housing strategy, most recently in May 2005.  The two specific objectives that the Burbank Housing Corporation have been implementing are as follow:

Objective: Sustain and Strengthen Neighborhoods

Program: Continue acquisition/rehabilitation activities in focus neighborhoods

The City and the Agency have assisted the Burbank Housing Corporation with the acquisition and rehabilitation of the more than 200 units in the City�s Focus Neighborhoods.[1]

Objective: Create community in conjunction with housing

Program: Integrate community-serving uses with housing development

Whenever possible, the Agency is to incorporate community-serving uses within new and existing residential developments that address the needs of the larger neighborhood. The Agency has integrated an activity center in the Elmwood, Verdugo-Lake and Peyton-Grismer neighborhoods, and a fourth activity center in the Golden State Focus Neighborhood is under construction.

ANALYSIS

While the Agency and City have funded development costs for Burbank Housing Corporation-acquired rental properties, each of these properties have a restricted cash flow. The properties are covenanted with rent restrictions and non-income generating activity centers. These properties are purchased at market rates but must operate with suppressed rents, sometimes with fewer units than when acquired such as the Peyton-Grismer Project where 99 units were bought but 70 units will remain post-rehabilitation.  Consequently, the Agency and City have recognized that adequate funding to accommodate the capacity needs of the Corporation and the operational costs of the activity centers is necessary.

Historically, the financing of each project has been structured based on what the project could support.  This piecemeal approach (while necessary when dealing with smaller, sporatic acquisitions) makes it difficult to build in any significant amount of Burbank Housing Corporation support from the cash flow stream of the properties.  As previously mentioned, many projects� cashflow are quite restricted because of the size of the project after-rehabilitation, coupled with operating activity centers along with covenants restricting rents.  To help address these cashflow challenges, the Agency and the Burbank Housing Corporation restructured debt in the Verdugo-Lake neighborhood last fiscal year.  Also, staff is looking at a more global plan to restructure the Burbank Housing Corporation�s debt to allow greater cashflow efficiencies. 

Most properties owned by the Burbank Housing Corporation have been acquired incrementally and average six units; not enough units to fully support all operational costs as part of each project.  The Elmwood and Peyton-Grismer Focus Neighborhoods, have projects that are substantially larger (the Peyton-Grismer project is to be 70 units when completed and Elmwood is 65 units) therefore, operational costs are more easily satisfied.  However, the  Burbank Housing Corporation is looking at other housing opportunites in the focus neighborhoods including partnering and building for-sale housing as well as other targeted rental projects.  In addition, the Burbank Housing Corporation also manages the operations contract for the Cottages childcare facility and will soon be managing the operations contract for the recently approved Buena Vista childcare and family resource center.[2]  With these added operational responsibilities, and with an increase in projects comes an increased need in cashflow and staff.

Building the Burbank Housing Corporation�s Capacity

To help build the Burbank Housing Corporation�s capacity for the above mentioned responsibilities, staff is proposing the Burbank City Council amend the City�s Five Year Consolidated Plan (2003-08) and Fiscal 2005-06 Annual Action Plan to fund a new activity under the existing housing needs priority to �Sustain and Strengthen Neighborhoods.�  As previously described, an implementing program under this priority need is the Acquisition and Rehabilitation of residential dwellings in designated Focus Neighborhoods.  The Program is funded primarily with Redevelopment Low and Moderate Income Housing Funds (LMI) with supplemental funding through the HOME Investment Partnerships (HOME) program.

This Amendment to the Consolidated Plan and Annual Action Plan proposes to provide funding that will offset operating expenses of the Burbank Housing Corporation.  Under HOME regulations, the City is allowed to use up to five percent of its annual HOME allocation to enhance a Community Housing Development Organization�s (CHDO) capacity by offsetting operating expenses it incurs (24 CFR � 92.208).  Therefore, staff proposes that Burbank commit and expend up to five percent of its annual HOME allocation from fiscal years 2003-2008 for the payment of operating expenses of the Burbank Housing Corporation as a certified Community Housing Development Organization.[3]  The funds will assist the Burbank Housing Corporation in its continuing efforts to acquire and rehabilitate residential properties in geographically targeted focus neighborhoods as described, and to expand projects and programs.

Eligible operating expenses, defined as reasonable and necessary costs for the operation of a Community Housing Development Organization, may include salaries and benefits, taxes and insurance to a Community Housing Development Organization already receiving HOME funds to develop affordable housing.  The immediate need which could be assisted through this grant, would include a project manager to assist with completing existing projects and overseeing future projects.  However, if the current trend continues of doubling rental units, two additional project managers may be needed.  Moreover, a Development Officer may also be necessary as BHC begins to look at expanding services, public relations efforts and fundraising (including grant writing).  The Burbank Housing Corporation proposes to use the HOME operating expenses for contracting additional construction management services, offsetting salaries, inspections and testing of properties, engineering and design costs (Exhibit A).

This HOME allocation for operating expenses is not a long-term remedy; it is a short-term solution.  Staff is looking at other ways to free cashflow such as restructuring all of the Corporation�s notes similar to the recent Verdugo-Lake restructuring that included the refinancing of conventional debt and the City/Agency restructuring their loans, all to provide the Burbank Housing Corporation with the administrative capacity needed in the Verdugo-Lake area and the operating funds necessary for the Verdugo-Lake Activity Center.   The Burbank Housing Corporation also realizes these funds should not be seen as a permanent subsidy, but rather as a way of building and maintaining the capacity of the organization to maintain and expand operations as they work toward their long-term objectives (including a more self-sustaining organization).

CONCLUSION

Staff is proposing a $88,054 grant from Fiscal Years 2004-05 and 2005-06 HOME allocations (a five percent allocation).  Furthermore, staff recommends the City Council approve an allocation of up to five percent of future HOME allocations after an annual request in writing from the Burbank Housing Corporation (to be approved by the City�s Community Development Director or designee) through Fiscal Year 2007-2008; the term of the City�s Consolidated plan (Exhibit B).  While it is unknown what future allocations the City will receive, staff assumes future allocations will be similar to past allocations.  Therefore, an estimated $44,000 per year may be available under the HOME Entitlement allocation.

As required by the U.S. Department of Housing and Urban Development (HUD) stipulated in 24 CFR Part 91 (91.105) and the City of Burbank Citizen Participation Plan for the receipt and allocation of federal HOME funds, an amendment to the City's 2003-2008 Consolidated Plan has been prepared.  A notice was published in the newspaper providing citizens with 10 calendar days notice and an opportunity to comment on the proposed change on the use of HOME funds as outlined in the City of Burbank Citizen Participation Plan for Federal Programs.  As of the completion of this report, staff did not receive any comments on the amendment.

Environmental Review

The City has determined that the use of HOME funds to be used for the operating expenses of a Community Housing Development Organization is an exempt activity under 24 CFR 58.34(a). Consequently, the National Environmental Policy Act stipulates that exempt activities, which have virtually no physical affect of the environment, do not necessitate conducting the environmental review process.  Eligible activity expenses include, for example, administrative and management activities, inspections and testing of properties, insurance, engineering or design costs.

FISCAL IMPACT

Staff is proposing a $88,054 grant from Fiscal Years 2004-05 and 2005-06 HOME allocations (a five percent allocation).  Furthermore, staff recommends the City Council approve an allocation of up to five percent of future HOME allocations through Fiscal Year 2007-2008.  There will be no direct fiscal impact to the City General Fund. An amendment to the City's 2003-2008 Consolidated Plan has been prepared and HOME funds are available and budgeted under 128.CD25A.62085.0000.000000.

RECOMMENDATION

Staff recommends the City Council adopt the resolution approving a HOME Community Housing Development Organization Operating Expense Agreement with the Burbank Housing Corporation.

EXHIBITS

Exhibit A -      Burbank Housing Corporation Proposal

Exhibit B -      Community Housing Development Organization Operating Expense Agreement

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