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HomeMy WebLinkAboutAGENDA REPORT 1997 0219 CC REG ITEM 09ATO: FROM: DATE: CITY OF MOORPARK CITY COUNCIL AGENDA REPORT The Honorable City Council r-- Donald P. Reynolds Jr., Administrative Services Manager February 13, 1997 SUBJECT: Consider Acceptance of the Terms and Conditions of the HUD HOME Grant Program mm City and County staff have been finalizing the language for use of the proposed HOME grant monies with the Redevelopment Agency's housing rehabilitation program, and staff is presenting several potentially problematic issues related to the incorporation of HOME regulations into the current program. These regulations range from additional administrative duties to a potential loss of the City's matching portion of the funds. However, the problems can be mitigated, if assistance is provided to very low income home owners, for homes within the required value range. This is significantly less flexible than originally perceived. Overall, staff is confident that the program can be administered efficiently and increase the availability of assistance to Moorpark residents Background The current Housing Rehabilitation program provides a combination of $5,000 grants and $10,000 loans for households within the project area, and only loans not to exceed $15,000 for those outside the project area. A separate report to the Agency is requesting that only loans be provided. The assistance for those outside the project area is currently funded by $160,000 of local, non -MRA affordable housing funds. One household has been assisted and approximately nine other applications are being considered. The City was awarded the $50,000 HOME grant from the County last April primarily to expand the assistance to those outside of the project area. If there are no applications being considered for this use, it may also be used for the loan portion of assistance to homes within the project area. In either of the two applications, the HOME monies can only be used as loans. The HOME grant requires a 25 percent match, or in this case, a local contribution not to exceed $12,500. This would allow four loans split between local matching funds of $3,750, and $11,250 of HOME monies, assuming $15,000 was considered. This leaves $2,500 of HOME monies available for a fifth project, but no required match would apply. Out of ten projects, the loan amounts have ranged between $10,000 and $13,000, which indicates that the total of $62,500 available could be used to assist as many as six households. When loans are made to very low income households, payments can be deferred until the title changes hands. Loans made to low and moderate income households initiate payments shortly after the project is completed for a ten year term. All but one home assisted thus far is at or below the very low income status. Discussion Like CDBG, the County contract passes the HUD /HOME regulations, which were finalized by HUD in September 1996, to the City. Unlike CDBG, the HOME program is specifically designed to increase the availability of low income housing in the community (where CDBG can be used for much more broad approach to assisting low income residents). Some of the regulations imposed by HUD are aimed at assuring that affordable housing resources increase, and this difference could potentially cause some complications to the current administration. Regulations such as the federal bid requirements and Davis Bacon /prevailing wage provisions are the same for CDBG as they are for HOME. These two requirements however, do not apply to the Rehabilitation program unless the City is using HOME for a multi- family complex, (because Davis Bacon applies only to rehabilitation of eight units or more), or using more than $100,000 for any one project, (which triggers federal bid requirements). There are however, three unique HOME requirements that do require the City's attention. The first concern is the mandated repayment of the City's matching portion of $12,500. Within the HOME regulations is the stipulation that each grantee (in this case is the County, with the City acting as a sub- recipient), create a HOME Investment Trust Fund. HOME monies and the local match portion when loaned by grantees, are required to be returned the HOME Trust fund when repaid. These monies would then be considered for new projects within the grantee's jurisdiction. In this case, the "grantee's" jurisdiction includes the County unicorporated area, and the cities of Moorpark, Santa Paula, Fillmore, Ojai and Port Hueneme. At issue therefore, is the disposition of the City's local match, when the HOME Trust Fund is programmed by the County for a new project As a member of the "Grantee's jurisdiction," the City is able to reapply to the County and compete for use of the HOME Trust Fund and/or new HOME monies in subsequent years. The Grantee will consolidate both the Trust Fund monies and the new HOME Grant monies each year, and present the availability of the sum each January. Therefore, it should be recognized that the matching requirement will apply to any future successful HOME grant application. These applications do not have to focus on housing rehabilitation, and could be proposed to the County for use in any affordable housing application. Staff may be presenting new HOME grant application concepts or expansion of the currently proposed program to Council in December, 1997 If the City used the HOME Funds to target only the very low income households, which equals nine out of ten applicants thus far, then the repayment of the City's match could be prolonged until the title changes hands. Assuming that various loans will be repaid at various times, most for more than ten years, the value of the City's match will be returned in small increments, (no more than $3,750 per repayment), and the first repayment may not be made until ten or more years after the assistance has been provided. During that time frame, the City's $12,500 will have decreased significantly in value, or in actual buying power, as a result of inflation. So what appears to be a potential for the City to place at risk $12,500, may by the time it is repaid to the County, be equal to substantially less when the loan is actually repaid, if provided to a very low income household The second most significant concern is a requirement to maintain the "affordability of the home" over a five year period. The five year period is determined by HUD, based upon the amount of money used for each project. Those loans of $15,000 or less, require a five year "affordability" assurance. There is no provision currently in the program to assure the 000002 affordability. HUD provides two options to determine whether or not a home meets the affordability criteria; 1) use of a County -wide average provided by HUD, or; 2) use of a local survey of home resale values. The home has to be at 80% or below the average resale value to be eligible for the program. The HUD provided County -wide assessment places this value currently at $195,000, and the HUD data is updated annually. It is perceived that although a deed restriction will be required to assure that the home remains available to other low income persons if re -sold during the five year period or if the value increases to above the 80 percent threshold, if the houses subject to these regulations begin at a low enough value, this factor will not be applicable. HOME monies, with the deed restriction assuring affordability for a five year period, can present a slightly greater risk for use by the homeowner than accepting a loan which is currently available using local resources. To assure expedient use of the HOME monies, as required by HUD, the administration of the program will have to follow a flexible approach of looking at applicants both within and outside of the project area. HOME monies for eligible homes, will therefore, be the first consideration for use whenever possible less attention made to the project area boundary and geographic location The third concern is the requirement for annual income verification. Although HUD requires the annual income verification of each recipient, there is no penalty or loan pay -off triggered in the event that a person or family rises above the low income standards. HUD has combined the income verifications with the affordability of the home (as mentioned above), and elected to enforce the occurrence of a home becoming too costly to be deemed affordable, as its mechanism of enforcement, rather than a household no longer being "low income." Just the same, the contract requires documentation of each, and income verifications for the initial applicants are already in place. Annual income status could be resolved by regular mailings, for the same period as the "affordability" criteria, or five years. Considering the fact that only five homes would be assisted, and that the income status would only need to be maintained for this same period, this task would not be prohibitive Summary If the City applies the use of HOME with consideration of these regulations, the apparent differences between the current program and the HUD program can be mitigated. Because the City can fall back to home owners within the project area, when no "eligible" applicants can be accommodated outside the project area, the HUD contribution can be used to expand the current program. The HOME recipient targets therefore, would be first the very low income persons residing outside the project area with homes valued at less than $195,000, and then turn to homeowners inside the project area who meet the same two criterion. The key is to assist those most in need, who reside in homes with the least value. This concept is different than originally intended by staff, which was hoping for a broader target area consisting primarily of homes outside the project area. However, the program can still assist the City in the rehabilitation endeavor, and still be a valuable tool for residents to improve their quality of life. Recommendation Authorize staff to accept the grant and authorize the City Manager to execute the contract initiating the program. "W003