To: Board of Supervisors
Department or Agency Name(s): County Administrator’s Office
Staff Name and Phone Number: Lois Hopkins, 565-3784
Vote Requirement: Majority
Supervisorial District(s): Countywide
Title:
Title
Approval of RED Housing Fund (RHF) 2022 Annual Report
End
Recommended Action:
Recommended action
A) Accept and approve the RED Housing Fund (RHF) 2022 Annual Report and associated audited financial statements as required by the $10 million loan agreement with the County.
B) Upon approval of the 2022 Annual Report, and per the terms of the loan agreement, direct the County Administrator to issue “Year 2 Statement of Loan Forgiveness” to RHF in the amount of 5% of the original loan amount, or $500,000.
end
Executive Summary:
On September 14, 2021, your Board authorized the County Administrator, in consultation with County Counsel, to execute a Loan Agreement (“Agreement”) and any related documents for the County’s $10 million loan to the RED Housing Fund (“RHF”). Paragraph 3 of the Agreement (Attachment A) provides that the loan is forgivable over a 20-year period, at a rate of 5% ($500,000) per year, provided that:
(i) No Event of Default has arisen under the Loan Documents;
(ii) RHF is in compliance with Lender’s Requirements as set forth in Exhibit D to the Loan Agreement; and
(iii) The Board of Supervisors has reviewed and approved RHF’s Annual Report.
The official review of the RFH’s Annual is intended to verify that the County-loaned funds are being used to provide financing, credit enhancement, and/or guarantees to support development of housing projects that meet the RHF’s investment criteria, which can be found on page 5 of the Annual Report.
On April 27, 2023, the RHF timely submitted its 2022 Annual Report as well as Financial Statements and Independent Auditor Report for its fiscal year beginning on January 1, 2022, and ending on December 31, 2022. The Annual Report can be found HERE <https://redhousingfund.org/wp-content/uploads/2023/04/2023.04.27-RHF-Annual-Report_12.31.22-vF.pdf> or at <https://redhousingfund.org/wp-content/uploads/2023/04/2023.04.27-RHF-Annual-Report_12.31.22-vF.pdf>). The Financial Statements and Independent Auditor Report can be found HERE <https://redhousingfund.org/wp-content/uploads/2023/04/2023.04.25-RHF-issued-Financial-Statements-12.31.2022-1_final_unlocked.pdf> or at https://redhousingfund.org/wp-content/uploads/2023/04/2023.04.25-RHF-issued-Financial-Statements-12.31.2022-1_final_unlocked.pdf)
The Auditor-Controller-Treasurer-Tax Collector’s (ACTTC) Office has reviewed the Financial Statements and Independent Auditor Report and determined that it demonstrates compliance with Section 6 of the Agreement (Use of Loan Proceeds). County Administrator and ACTTC staff conclude the RHF’s Annual Report is compliant with two of the three Agreement forgiveness terms ([i] no event of default has arisen from RFH’s issued loan documents and [ii] RFH is in compliance with Lender's Requirements as set forth in Exhibit D of the Agreement).
Staff recommends the Board review and approve RHF’s 2022 Annual Report, which represents the third and final loan forgiveness term condition that needs to be met, and direct the County Administrator to issue the Year 2 Statement of Partial Loan Forgiveness in the amount of $500,000;.
Discussion:
Section 8 of the Agreement requires the RHF to provide a report to the Board within 180 days following the close of the Fund’s fiscal year, which runs from January 1st to December 31st. On April 27, 2023, the RHF timely submitted to the ACTTC its 2022 Annual Report for its second fiscal year. Section 3 of the Agreement provides that the County’s loan to the RHF is forgivable over a 20-year period, with 5% ($500,000) forgiven annually, provided that three conditions are met: no default has arisen under the Loan Documents, RFH is compliant with County requirements, and your Board approves the Annual Report.
The RHF is required to request forgiveness at least 60 days in advance of the anniversary date of the Agreement’s effective date (by September 4, 2023), after which, upon the Board of Supervisors’ review and approval, the County Administrator will issue a “Loan Forgiveness Statement” of $500,000 on the anniversary date of the Agreement. Attached is the RHF’s request for the second year 5% annual forgiveness, timely submitted on April 23, 2023, and the Year 2 Loan Forgiveness template (Attachment B).
County Administrator staff has reviewed the Annual Report, and confirmed that no default has arisen under the Loan Documents (per condition 1 of Section 3 of the Agreement). ACTTC staff has reviewed the RHF’s Report and determined that it demonstrates compliance with Section 6 of the Agreement, which describes permissible uses of the County loaned funds (per condition 2 of Section 3 of the Agreement).
Annual Report Summary
The RHF’s first Annual Report (2021) reported the Fund had secured its initial capital target; established the governance and operational structure; adopted the infrastructure required to support its lending program including contracts with third party service providers; and sent out its first Notice of Funding Availability (NOFA) on December 21, 2021, with responses due in January 2022.
The RHF’s 2022 Report provides key updates, including a portfolio update, a statement of financial position, and activities that took place during the reporting period (January 2022-December 2022). The Report reiterates that the RHF intends to support projects that meet its threshold criteria as set forth in the Agreement, and that approved projects shall meet at least one of the RHF’s evaluation criteria. (Page 5 of Report.) In 2022, the RHF focused on raising additional lending capital and it met organizational and strategic milestones to strengthen its lending program.
In January 2022, the RHF received ten responses to its NOFA representing over $30 million in requests financing and 800 new units of housing. After thorough consideration and review of these proposals, the Fund’s Board moved forward with offering term sheets to six of these projects supporting various levels of housing units affordability and which support residential projects that meet the County Loan Agreement established criteria. In total these 3 projects represent $4.5 million in issued loans.
During 2022, the RHF underwrote and closed three loans for projects in Santa Rosa (Aviara, Acme and Pullman Lofts), which collectively represent over 325 new units of housing, over 200 of which are at affordable rent levels to households earning at or below 60% of AMI.
Attachment C is a condensed summary of information for these three projects pulled from the Annual Report.
The RHF’s Profit & Loss Statement reflects earnings through interest income, origination fees, investment income, and grant income. Grants received (primarily from Kaiser Permanente and the Community Foundation of Sonoma County) are intended to support the RHF’s operating expenses before its lending program generates sufficient revenue. During the reporting period, the RHF closed a $1 million loan from Enterprise Community Loan Fund to be added to its lending capital.
Summary
In summary, the RHF has timely submitted its Annual Report and County Administrator and ACTTC staff have reviewed the Report and determined that it is compliant with the terms of Section 6 of the Agreement and two of the three conditions for Loan Forgiveness as set out in Paragraph 3 of the Agreement. Accordingly, staff recommends that your Board review and approve the Renewal Enterprise District Housing Fund’s 2022 Annual Report, satisfying the third and final condition for Loan Forgiveness, and direct the County Administrator to issue a Year 2 Statement of Partial Loan Forgiveness in the amount of $500,000.
Strategic Plan: This item directly supports the County’s Five-Year Strategic Plan and is aligned with the following pillar, goal, and objective.
Pillar Healthy & Safe Communities
Goal: In collaboration with cities, increase affordable housing development near public transportation and easy access to services.
Objective: Objective 3: Create incentives for developers to promote affordable housing development in the County.
Racial Equity:
Was this item identified as an opportunity to apply the Racial Equity Toolkit?
No
Prior Board Actions:
8/30/22: The Board reviewed and approved the Renewal Enterprise District Housing Fund’s Annual Report for fiscal/calendar year 2021 and directed the County Administrator to issue Year 1 Statement of Partial Loan Forgiveness for 5% of the original loan amount ($500,000).
9/14/21: The Board voted to authorize the County Administrator, in consultation with County Counsel, to execute a loan agreement and any related documents for the County’s $10 million loan financed from the PG&E Settlement fund to the Renewal Enterprise District Housing Fund.
Fiscal Summary
Narrative Explanation of Fiscal Impacts:
$500,000 of the PG&E Settlement Fund will not be replaced given the County forgiveness terms being met by the RHF Annual Report.
Narrative Explanation of Staffing Impacts (If Required):
N/A
Attachments:
Attachment A: Loan Agreement between the County and the RHF
Attachment B: RHF’s request for 2023 annual loan forgiveness and statement of loan forgiveness template
Attachment C: Summary of Project Information from RHF’s Annual Report
Related Items “On File” with the Clerk of the Board:
None