Staff Report - September 18, 2001 - Agenda Item

The purpose of this memorandum is to present proposed amendments to the Redevelopment Agency�s Residential Rehabilitation Program for Agency Board consideration.

BACKGROUND

Characteristic of many communities, the Residential Rehabilitation Program has been a component of Burbank�s efforts to preserve affordable housing and an integral element to the Agency�s affordable housing strategy. The Residential Rehabilitation Program reflects a long-standing commitment by the City and Agency to provide financial assistance to qualified homeowners and owners of apartment buildings to preserve housing by correcting code deficiencies and making general property improvements. In recent years, evidence has mounted that supports the continuing need for the Program.

The origins of a housing strategy began in 1999 with the publication of Burbank�s Housing Needs Assessment prepared to provide a profile of the community housing stock from updated 1990 census data. The Housing Needs Assessment became a guide in determining the adequacy of existing housing programs and the catalyst for developing new programs. The City�s Housing Needs Assessment also articulated the need to preserve affordable housing as a principal tenet, pointing out that by 1990, �Nearly two-thirds of Burbank�s housing stock was 30 years or older, indicating a need for continued maintenance and potential rehabilitation based on age alone.� And while a 1994 City survey found the City�s housing stock to be relatively sound, the Needs Assessment noted that: �Most properties identified as needing repairs required multiple building elements [indicating] that�older units�are deteriorating system-wide and require more than just one or two repairs.�

The study also served as the basis to several essential housing documents for the City required by state or federal law: the City�s Housing Element required by State Law; the Redevelopment Agency Five Year Implementation Plan also required by State law; and the Consolidated Plan required by the Federal government for fund grantees. Due to the dynamic nature of the housing market, and the available 2000 census data, the Needs Assessment was updated in December 2001 by the Housing Profile, which more specifically evaluated the impact of the City�s escalating housing demand on Burbank�s residents and workforce, and laid the groundwork for identifying gaps in the City�s current affordable housing programs. Both studies were intended to increase the Agency�s understanding of local market conditions, and led to the creation of the Blue Ribbon Task Force on Affordable Housing.

The three plans described below are required either by the State or Federal government. All are interconnected by a common set of housing principals that include continuing to rehabilitate substandard units as affordable owner-occupied and rental properties.

q Housing Element

Adopted June 2001, the Housing Element of the General Plan is a State mandated policy document that details Burbank�s affordable housing needs and sets forth policies for the City to encourage and facilitate both public and private sector development of affordable housing. The Housing Element acknowledges that both public and private sector efforts are needed to address Burbank�s affordable housing needs.

q Implementation Plan

In conformance with California Redevelopment Law (Section 22390), the Implementation Plan sets forth the means for instituting the Plan�s goals and objectives for housing preservation and production, as well as meeting the statutory requirement for setting aside tax increment funds for housing purposes. The Plan further describes the Agency�s inclusionary and replacement housing obligations and the expenditure of the Low and Moderate-Income Housing Fund. In December 2002, the Agency approved the mid-cycle update to the Plan.

q Consolidated Plan

As a prerequisite to receive federal entitlement funds (e.g., Community Development Block Grant or CDBG and HOME Investment Partnerships Act or HOME funds) and to be eligible to apply for other federal sources, the City Council approved the most recent Consolidated Plan in April 2003. This document is a multi-year strategic plan for addressing Burbank�s low and moderate-income housing and community development needs and explaining how federal, State and local sources will be used to carry out programs responding to identified local needs. The Residential Rehabilitation Program has been one of several programs identified to meet the goal of improving and maintaining the availability of housing and the quality, appearance and livability of residential areas.

In order to localize affordable housing goals and objectives through community outreach, in April 2002, the Agency appointed a Blue Ribbon Task Force on Affordable Housing (Task Force) charged with taking a comprehensive look at the City�s affordable housing needs and providing recommendations to increase Burbank's stock of affordable housing. The intent of the task force was to incorporate public participation into the housing strategy process. Over a period of six months and eight committee meetings, the Task Force took a comprehensive look at Burbank�s affordable housing needs and developed a consensus report recommending implementation of a series of 16 housing programs, including the continuation of single-family and multifamily rehabilitation assistance.

The Residential Rehabilitation Program also was included in the housing objectives and programs proposed by the Blue Ribbon Task Force on Affordable Housing adopted by the Agency and City Council and subsequently incorporated in the July 2003 study session on an affordable housing strategy.

The Blue Ribbon Task Force on Affordable Housing encouraged the continued use of Agency funds to extend rehabilitation assistance to private property owners and recommended the continued implementation of an active residential rehabilitation program as a key tool to sustaining existing neighborhoods.

The Agency continues to market the Residential Rehabilitation Program through a number of avenues. The following is a summary of marketing efforts within the last few of years.

With the advent of the Community Resources Coordinator position, the Agency will be able to increase its community outreach within the focus neighborhoods and to provide presentations to organizations and groups. In addition, new marketing efforts will continuously be explored.

The genesis of the Agency�s Residential Rehabilitation Program stems from the period beginning in the mid-1970s, when the program was funded with Community Development Block Grant (CDBG) funds. Beginning in Fiscal Year 1994, funding for the Program was transferred to the Redevelopment Agency and the Agency�s Affordable Housing funds supplanted the City�s CDBG monies.

Under the current Program (last updated in 1999), the Agency underwrites an active rehabilitation assistance program for private property owners.[1] This program consists of the following components: deferred loans that provide below-market interest rates (BMIR) to lower-income; owner-occupants of single-family dwellings that postpone the payment until the property is conveyed; and multifamily loans offering deferred loans that are partially forgiven at the end of the 15-year period in exchange for 25 percent of the units being affordable to lower-income households. The Agency also funds grants to very low-income, owner-occupants for minor rehabilitation to single-family dwellings.

During the FY 03/04, $212,000 has been committed through the rehabilitation program. Of that amount, $28,000 have been grant funds. In addition, four loans were approved for the replacement of wood shake roofs. It is also important to note that close to $700,000 has been received to reimburse the Low and Moderate Income fund (20% Set-Aside fund) and about $460,000 has been received to reimburse the CDBG fund. For FY 04/05, $500,000 has been budgeted for the single family rehabilitation program; $150,000 has been budgeted for the multifamily rehabilitation program; and $25,000 has been budgeted for the grant program.

Household: Program is restricted to households whose total gross income does not exceed 80% of median income for Los Angeles County, as adjusted for the applicable household size (low-income).

Terms: The interest rate is three percent with payment of the principal and interest deferred until the property is sold or refinanced.

Restrictions: Principal residency requirement stipulates owner must continuously occupy the dwelling as the principal place of residence.

This program is expected to target senior citizens on fixed incomes insofar as very low- income households tend to be renters rather than homeowners.

Household: Grant is restricted to households whose total gross income does not exceed 50% of median income for Los Angeles County, as adjusted for the applicable household size (very low-income). The grant program is intended to assist those least able to afford necessary code repairs, the very low-income.

Terms: Since this is a grant, there are no terms. However, these grant funds are aimed toward code-related costs.

Amount: The maximum is $5,000 per dwelling citywide or $7,500 for properties restricted to focus neighborhoods.

Requirements: At the time of application approval, unit is owner�s principal place of residence

3. Amortized Loan Program (Not funded in FY 03-04 due to lack of participation)[2]

Household: Program limited to moderate-income families with gross incomes ranging between 80 percent and 120 percent of median income for Los Angeles County (income range for a four person household, for example, is currently $47,600 to $66,100)

Terms: Six-percent loan amortized over ten years, e.g., the monthly payment on a $25,000 loan would be $277.50.

Restrictions: Covenants to be consistent with deferred payment loans. The dwelling must be owner�s principal place of residence until the loan is conveyed.

Household: Minimum number of restricted units for lower income households is 25 percent. (For larger projects with five or more restricted units, 20 percent of the restricted units would be rented to very low-income families, below 50 percent of median income, at Low HOME rent levels inclusive of a utility allowance.)

Terms: Fifty percent of the loan is forgiven on the fifth anniversary of the loan, with the remaining principal balance plus six percent interest, amortized over the next ten years.

Restrictions: Income and rent restrictions on 25 percent of the units (lesser amount of HOME published rents, or Agency Low and Moderate-Income Housing funds rent levels) and a 15-year affordability period.

During the past fiscal year, the Agency has experienced, despite its marketing efforts, a decline in loan activity and has asked the Agency�s economic consultant, Keyser Marston and Associates, to review the Program to identify financial modifications to enhance the Program�s marketability. The Agency�s consultant noted that many jurisdictions are experiencing similar difficulties in marketing rehabilitation loans for several significant reasons:

� Borrowers can obtain in today�s market low-interest home equity loans from conventional lenders;

� The loan amounts offered by public entities are insufficient to fund the desired scope of rehabilitation;

� The income and affordability imposed restrictions limit the pool of potential clients.

While the Agency�s single-family loan program is quite similar to other programs the Agency�s consultant has reviewed, it was suggested that there are several areas that could improve marketability of single-family rehabilitation loans. First, assistance to moderate-income households should be continued; however, financing would be provided through a deferred loan, not a direct loan with monthly payments. The program should be expanded, as well, to allow investor owners of single-family units, who agree to rent to low or moderate-income households. This suggestion would be beneficial in meeting a local housing goal of providing rental units of three or more bedrooms to lower income households. However, staff is proposing that this assistance to investor owners be done under the rental (program name will change from multifamily) rehabilitation program to be consistent with occupancy and affordability covenants for rental properties.

The consultant also suggests that borrowers be allowed to make periodic payments or pre-pay loans. The former suggestion would be a new condition but one that staff supports; the latter suggestion is already provided. It is important to note, though, that the consultant also observes that, even with these changes, marketing may continue to be difficult; �the other issues such as low loan limits and availability of private low interest rate financing will continue to constrain the program�s marketability.� To summarize and address the marketability of the program, it is proposed that: 1) financing be through a deferred loan and that periodic payments be allowed; 2) investor owners of single-family units qualify for the program; 3) the loan amount increase from $25,000 to $35,000; and 4) the flexibility of the program be highlighted as it allows a wide range of improvements including code related repairs and general property improvements. While these loans may be used in bringing a home into compliance with the code (decent, safe and sanitary), the use of the loan proceeds are not restricted to that use only.

Cities have historically had difficulty in marketing multifamily rehabilitation loans because the cost to accept program restrictions (e.g., affordability and occupancy restrictions) outstrips the financial benefits of the loan. Keyser Marston and Associates noted that �parties that own buildings in the most need of rehabilitation often lease units to marginal tenants that do not have the wherewithal to relocate to buildings that are in better condition.� Consequently, a property owner has �a captive tenant base, and in turn can charge rents that exceed the value of the units being offered.� The Agency�s consultant concludes that, as with the single-family rehabilitation program, �the natural market for the multifamily rehabilitation loan program� would be that of assisting owners with code violations.

� Increase the loan maximum from the current $10,000 per unit limit to $25,000;

� Allow assistance to single-family units that are renter-occupied. The intent is to loan funds to investor owners of single-family units, who rent to low or moderate-income households. This would help respond to two clear needs. First, according to the 2000 census, approximately 19 percent of all single-family dwellings in Burbank are rental units. Unlike larger rental projects, the insufficient cash flow generated by a single unit may lead to deferred maintenance. Secondly, single-family units are the primary source of three or more bedrooms, which are in demand, particularly for lower income households;

� Make the loans deferred and forgiven gradually, so that each year the previous year�s debt service obligation (15-year amortization period) is forgiven. The remaining loan obligation would be required, though, should the project cease to meet income and affordability standards. The forgivable loan would be assumable to subsequent owners if the income and affordability restrictions were met; and

� The owner may refinance the project�s first trust deed mortgage up to the current outstanding balance on the first trust deed (no cash out on equity), with any additional debt subordinated to the Agency loan.

The basic premise for the Agency�s Residential Rehabilitation Loan Program is to create decent, safe and sanitary housing units for the low and moderate income households in the community. Therefore, the Agency�s program is aimed at giving the opportunity to property owners to correct code violations and make other general improvements to their property. These programs are designed to be desirable to property owners with a manageable application process and restrictions palatable enough to accept funds. Programs with private investment require the private entity�s underwriting criteria, have a longer processing time because of added underwriting review and have added costs to the Agency such as monitoring and administrative costs that many times are passed on to the borrower. Therefore, because of these additional requirements coupled with additional costs to the Agency for such a small loan amount, Agency staff does not recommend private investment as a requirement of the Agency�s rehabilitation loan program.

The table on the following page summarizes the major, proposed changes between the exiting and proposed programs:

Based on the aforementioned suggestions following discussions with the Agency consultant, the following amendments are recommended to the Residential Rehabilitation Program (Exhibit A):

As mentioned, during Fiscal 2003-04, the Agency committed $212,000 under the Residential Rehabilitation Program, $28,000 of which included six grants. The remaining $184,000 funded seven deferred payment loans at an average loan amount of $26,300, which reflects the interest in higher loan limits (the majority of approved loans required administrative authorization above the $25,000 loan cap).

	Assisted Units	Amount Committed
Single-Family Deferred Loans	7	$184,000
Single-Family Grants	6	28,000
Multifamily Grants	0	0
Totals	13	$212,000

Given the tendency of borrowers to maximize their loan limits, the following minimum number of units for loans and grants under the proposed program could be funded based on Fiscal 2004-05 program allocations (carryover funds and FY 04-05 budgeted funds) as outlined in the following chart:

	Fiscal Year 04-05 Allocation	Maximum Assistance	Minimum number of Assisted Units
Single-Family Loans - Total FY 04-05 Budget Carryover	$886,000 $500,000 $386,000	$35,000	25
Single-Family Grants - Total FY 04-05 Budget Carryover	$110,000 $25,000 $85,000	$7,500	14
Multifamily Loans � Total FY 04-05 Budget Carryover	$410,000 $150,000 $260,000	$25,000	16
Totals	$1,406,000		55

FISCAL IMPACT

Funds have been budgeted and are available in the Low and Moderate-Income Housing Funds budget (account 305.CD21A.62275.0000 for single-family rehabilitation, 305.CD21A.62280.0000 for rental rehabilitation and 305.CD21A.62285.1000 for grant program).

RECOMMENDATION

Staff recommends that the Agency Board approve the attached resolution approving the amendments to the loan documents described herein, permitting the use of Agency Housing Funds outside of project areas and authorizing the Agency Executive Director or designated staff to execute all necessary Agreements between the Redevelopment Agency of the City of Burbank and certain property owners relating to the Residential Rehabilitation Program.

[1] In 1999, the Agency amended the Residential Rehabilitation Program to accommodate the following revisions:

� The maximum loan amount for single-family homes was increased from $20,000 to $25,000 ;

� While the loan maximum of $10,000 per unit was retained for multifamily rehabilitation loans, the cap of $60,000 per project was waived;

� The rebate program, where participants had first to incur costs and then be reimbursed, was replaced with a grant; and

� Moderate-income homeowners were allowed to participate through an amortized loan at six percent interest.

[2] This is an existing program and is not proposed for FY 04-05.

[3] The single-family, amortized loan program will no longer be budgeted and offered.

[4] It is important to note that AB 637 requires that Agency Housing Funds be used to assist housing for persons of very low and low-income in at least the same proportions as the total number of housing units needed for persons of very low, low and moderate-income as defined by a jurisdiction�s regional housing needs contained in the housing element. Accordingly, staff will budget approximately 66 percent of residential rehabilitation funds for very low and low-income borrowers and approximately 33 percent for moderate-income borrowers.

[5] Based on past grant awards, $7,500 will cover immediate corrective action on health and safety deficiencies.

BURBANK REDEVELOPMENT AGENCY

Tuesday, July 20, 2004

Susan Georgino, Community Development Director/Assistant