To: Board of Supervisors of County of Sonoma and Board of Commissioners of Community Development Commission
Department or Agency Name(s): Community Development Commission
Staff Name and Phone Number: Dave Kiff, (707) 565-7504
Vote Requirement: Majority
Supervisorial District(s): Countywide
Title:
Title
Updates to Community Development Commission Funding, Loan, and Grant Policies; and Authorization to Submit Federal Funding Requests
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Recommended Action:
Recommended action
A) Board of Supervisors and Board of Commissioners:
i) Approve FY 2023-24 Community Development Block Grant, HOME Investment Partnerships Program, Emergency Solutions Grants, and Low- and Moderate-Income Housing Asset-Fund Homeless Services Funding Policies for Affordable Housing Projects, Non-Housing Capital Projects, Fair Housing and Housing Justice Programs, and Homeless Services, Emergency Shelter, and Rapid Rehousing Programs.
ii) Approve revised Sonoma County Affordable Housing Program Homeownership Policies.
iii) Approve revised Sonoma County Community Development Commission Loan Policies.
iv) Approve revised Flood Elevation Grant Program Design.
B) Board of Commissioners:
i) Approve revised Low- and Moderate-Income Housing Asset Fund Policies.
ii) Approve revised Housing Rehabilitation Loan Program Design.
iii) Approve revised Mobile Home Earthquake Resistant Bracing System Grant Program Design.
iv) Approve revised Commercial Rehabilitation Loan Program Design.
v) Authorize submittal of a $500,000 Community Development Block Grant request by the Community Development Commission for the Housing Rehabilitation Loan and Earthquake Resistant Bracing System Grant programs, and an $88,000 HOME Investment Partnerships funding request by the Sonoma County Housing Authority for the Tenant-Based Rental Assistance Program, for consideration during the FY 2023-24 Consolidate Plan funding cycle.
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Executive Summary:
Approval of this agenda item will update several Community Development Commission (CDC) funding, loan, and grant policies to implement changes that will enable the agency to operate the related financing programs effectively into the future. As more specifically described in the discussion section below, this agenda item seeks approval of the following substantive policy revisions. All policies are also updated to make non-substantive revisions related to procedural changes, clarification of language, and correction of errors.
1. Community Development Block Grant (CDBG), HOME Investment Partnerships Program (HOME), Emergency Solutions Grants (ESG), and Low- and Moderate-Income Housing Asset Fund-Homeless Services (LMIHAF-Homeless Services) Funding Policies are revised to update the funding sources to be included, and to reinstate previously deleted provisions that give preference to nonprofit developers as required in the County Housing Element and require your Board’s approval of the policies.
2. LMIHAF Policy is revised to give preference to nonprofit developers as required in the County Housing Element, require Regional Housing Needs Allocation (RHNA) Sharing Agreements for projects located in incorporated jurisdictions, and to give CDC authority to sponsor funding proposals.
3. Sonoma County Affordable Housing Program Homeownership Policy is revised to facilitate the transition from using the “share of appreciation” approach to the “restricted sales price” approach upon resale of previously assisted units to ensure ongoing retention of the units for future sale to income-eligible households.
4. CDC Loan Policies are revised to update loan fees and compliance monitoring provisions.
5. Housing Rehabilitation Loan Program (HRLP) Design is revised to increase maximum allowed loan amounts and grant the CDC’s Executive Director authority to waive flood insurance and appraisal requirements under certain circumstances, as long as the security of the loan is preserved.
6. Mobile Home Earthquake Resistant Bracing System (ERBS) Grant Program Design is revised to add a “hardship exception” provision that mirrors an HRLP policy that allows the CDC’s Executive Director to make policy exceptions to the extent necessary to correct hazards that are an imminent threat to the occupants’ physical well-being.
7. Flood Elevation Grant Program Design is revised to reduce the term of “escrow loans”, from 20 to 7 years, which are forgiven upon completion of the elevation work.
8. CalHome Housing Rehabilitation Loan Program and Commercial Rehabilitation Loan Program policies are revised with only non-substantive changes.
In addition, approval of this agenda item will authorize the CDC to submit a request for $500,000 in FY 2023-24 CDBG funding for the HRLP and ERBS programs, and the Sonoma County Housing Authority to submit an $88,000 request for FY 2023-24 HOME funding for the Tenant-Based Rental Assistance Program.
Discussion:
FY 2023-24 CDBG, HOME, ESG, AND LMIHAF-HOMELESS SERVICES FUNDING POLICIES:
The U.S. Department of Housing and Urban Development (HUD) provides CDBG, HOME, and the ESG funds to local jurisdictions for a wide range of activities to benefit lower-income people. The overall federal goal of these programs is to develop viable urban communities by providing decent housing, a suitable living environment, and expanded economic opportunities for residents. The County of Sonoma, the cities of Cloverdale, Cotati, Healdsburg, Rohnert Park, Sebastopol, and Sonoma, and the Town of Windsor have entered into a Joint Powers Agreement (JPA) to form an "Urban County," which HUD recognizes as an entitlement jurisdiction eligible for formula allocations under these three programs. The JPA designates the County as the lead agency with final decision-making authority, and the CDC as fiscal agent for the program. As such, the CDC administers all aspects of the CDBG, HOME, and ESG programs for the Urban County.
The CDC also administers the Low- and Moderate-Income Housing Asset Fund (LMIHAF), in its capacity as the parent entity of the Sonoma County Housing Authority, which was designated by Community Redevelopment Law (CRL) as the Housing Successor entity for the former Sonoma County, City of Sonoma, and City of Sebastopol redevelopment agencies when the redevelopment program was eliminated in 2012. The LMIHAF is comprised of all remaining housing assets of the three former redevelopment agencies, and all revenues that may continue to be generated by investment of those assets. In 2014, your Board approved the annual use of up to $250,000 in LMIHAF revenue for certain homelessness-prevention and rapid re-housing programs, as permitted by CRL.
The CDBG, HOME, ESG, and LMIHAF-Homeless Services Funding Policies guide the annual solicitation and selection of proposals to receive funds. Attachment 1, the red-lined draft Funding Policies for FY 2023-24, is revised to make the changes summarized below.
1. Reinsert inclusion of the ESG and LMIHAF-Homeless Services funds. For the past few years, these two funding streams have been administered under a separate policy by the CDC’s Ending Homelessness staff working under the guidance of the Continuum of Care (CoC) Board. Because the CDC is the designated administrator of these funds, they are now being brought back under the broader CDC Funding Policies due to the anticipated move of the Ending Homelessness staff to the Department of Health Services in 2023. CDC staff will continue to consult with the CoC on the use of the ESG and LMIHAF-Homeless Services funds and their funding recommendations will be forwarded to these Community Development (CD) Committee and Cities and Town Advisory Committee (CTAC) for their consideration when making annual funding recommendations to your Boards.
2. Reinsert the requirement for Board of Supervisors approval of annual Federal Funding Policies. This approval process was eliminated by staff beginning with the FY 2018-19 Funding Policies and is being reinstated to ensure compliance with the provisions of the JPA and HUD regulations.
3. Reinsert language that funding preference is given to non-profit developers for housing development funds, in compliance with the County’s Housing Element.
4. Make non-substantive revisions to clarify several sections to better inform applicants of policies and procedures, and to make minor clerical and format corrections to the overall document.
Notice of Funding Availability
HUD has not yet announced FY 2023-24 CDBG, HOME, and ESG program allocations; however, funding levels are anticipated to be similar to allocations received for FY 2022-23, which totaled $2.773 million for the three programs. LMIHAF funding in the amount of $250,000 is expected to be available for public services FY 2023-24. CDC staff will issue a Notice of Funding Availability (NOFA) using these estimated figures shortly after receiving your Board’s final approval of the Funding Policies. Proposals will be reviewed, and funding recommendations made by the Community Development Committee and Communities and Towns Advisory Committee at public hearings in Spring 2023, and staff will return to your Board for specific project funding approval in May, 2023.
Authorization for CDC and Housing Authority Funding Requests
The Funding Policies require all project sponsors to include with their application evidence of their governing board’s approval to submit a request for funding. To comply with this requirement the CDC and the Sonoma County Housing Authority request your Boards’ approval for the following funding requests.
The CDC seeks approval to request $500,000 in FY 2023-24 CDBG funding for the Housing Rehabilitation Loan Program and Mobile Home Earthquake Resistant Bracing System Grant Program.
The Sonoma County Housing Authority seeks approval to request $88,000 in FY 2023-24 HOME funding to provide monthly rental subsidies and/or security deposits under the Tenant-Based Rental Assistance Program.
CDC AFFORDABLE HOUSING AND REHABILITATION PROGRAM POLICIES:
CDC staff administers various loan and grant programs using policies and procedures that are consistent with the applicable local, state, or federal requirements of the funding sources being used, and with the policies and goals of the County and CDC. The program policy documents are updated as needed to ensure that the policies and procedures enable staff to effectively implement the programs and ensure compliance with the most current requirements and regulations. The eight (8) attached (Attachments 2-9) red-lined draft policy documents governing these programs are revised as summarized below.
Low- and Moderate-Income Housing Asset Fund (LMIHAF) Policies
The LMIHAF uses housing assets from the former Sonoma County, Sonoma City, and Sebastopol redevelopment agencies, and on-going revenue generated from those assets, to assist development and preservation of affordable housing in all areas of the county. The LMIHAF policy is revised to:
1. Allow investment of LMIHAF funds within the incorporated boundaries of municipalities other than the cities of Sonoma and Sebastopol only if the jurisdiction and County have executed a RHNA Sharing Agreement.
2. Add a funding preference for non-profit developers, in compliance with the County’s Housing Element. preference will increase the likelihood that units will remain affordable for a longer period.
3. Add a provision for CDC sponsored proposals to allow the Executive Director to submit a funding proposal to the Board of Commissioners.
4. Add a “special circumstances” provision that, in the event the CDC offers publicly owned land for development as part of a request for proposal process, the award may, with the approval of the Board of Commissioners, include a commitment of future years’ LMIHAF funding.
Non-substantive revisions to the LMIHAF Policies make minor clerical, text, and format corrections to overall document.
Sonoma County Affordable Housing Program Homeownership Policies
The Homeownership Policies apply to owner-occupied homes in developments that are subject to the inclusionary housing, workforce housing, density bonus, and other provisions of Sonoma County Code Chapter 26, Article 89 (Article 89), and to owner-occupied homes in developments for which the CDC provides development financing or homebuyer loans subject to the CDC Loan Policies.
The Homeownership Policies describe a “share of appreciation approach” to control affordability of assisted homes that was in place until 2016 and has been used since that time only for resales of homes that were initially sold or resold prior to that time. The Homeownership Policies also describe a “restricted sales price approach,” which was established in July 2016 and applies to the initial sale and resale of homes built after that date. Under this approach, the initial purchase price is established using a formula that calculates the maximum housing cost (mortgage, interest, taxes, and insurance) that is affordable for a household at the targeted income level. The assisted homebuyer may sell the home at any time for a price that reflects the increase in the Consumer Price Index for the San Francisco-Oakland-San Jose area (CPI). The method of controlling affordability of assisted homes was changed because the shared appreciation approach did not function well in housing markets that were experiencing either rapidly escalating or falling prices.
The one substantive revision to the Homeownership Policies establishes a transitional process through which resales of homes that were originally assisted under the shared appreciation formula will be converted to the restricted sales price formula upon resale, unless prohibited by the funding source being used or otherwise not possible. This change will improve the ability of the CDC to retain the inventory of assisted affordable ownership units and help preserve opportunities to sell the units to lower income households in future years.
Non-substantive revisions to the Homeownership Policies make minor clarifying, clerical, text, and format corrections to overall document.
CDC Loan Policies
The CDC Loan Policies govern all loans made using any funding source to assist affordable ownership and rental housing development, acquisition and preservation; multi-family housing rehabilitation; and acquisition, development, or rehabilitation of community facilities owned by non-profit agencies. The Loan Policies supplement the separate policy documents that describe the eligible uses of the various funding sources that are used to provide the loans, and which are described elsewhere in this agenda item. Three substantive revisions to the CDC Loan Policies are as follows:
1. Update the loan fees to increase the maximum loan transaction fees for developer loan modifications, subordinations, and assignments from up to $2,500 to up to $5,000, and add a homeowner loan subordination or modification fee of $150, a loan reconveyance fee of $45 (capped by the California Civil Code), and a loan payoff demand fee of $150. The fees will be adjusted annually on July 1st based on changes in the CPI. These cost recovery fees are put in place to ensure that the CDC will receive sufficient revenue to pay for the cost of providing the services. The developer loan fees were last set in 2013 and no longer cover the cost of CDC staff time and the extensive County Counsel time needed to review documents of all senior lenders and to prepare CDC’s documents. The CDC has not charged homeowner fees in the past and is establishing the new fees at industry standard levels. For example, the City of Santa Rosa’s fees as of July 2022 are $133 for loan modifications, $45 for loan reconveyances, and $133 for loan payoff demands.
2. Remove the annual affordable housing monitoring fee waiver provision, which allowed developers to avoid paying the CDC a monitoring fee if another public agency was also monitoring the development. The CDC staff is now being held to higher monitoring standards and requirements and can no longer rely on the monitoring work of other agencies without completing an extensive review of their work to confirm that it meets requirements. Other revisions to this section include the increase of the annual monitoring fee to $150 per unit, which was approved by your Board on November 8, 2022.
3. Allow conversion of an amortized loan to a deferred-payment term under extenuating circumstances where the borrower demonstrates the financial need. The CDC staff will apply appropriate underwriting standards to determine eligibility.
Non-substantive revisions to the CDC Loan Policies make minor clarifying, clerical, text, and format corrections to overall document.
Housing Rehabilitation Loan Program (HRLP)
The HRLP uses federal CDBG, R&R, LMIHAF, and other funds, as available, to provide below-market interest rate loans to low-income homeowners, and to owners of rental properties comprised of up to four units that are predominantly occupied by low-income households. The HRLP policy is revised to make three substantive revisions, as follows:
1. Increase loan limits for owner-occupied properties from $50,000 to $100,000 for single-family properties, and from $24,000 to $50,000 for mobile homes. The loan limits for rental properties would remain unchanged at $25,000 per unit. The current loan caps have been in place since April 2005. Since that time, the Consumer Price Index (CPI) for the San Francisco Bay area has increased by 64.2%. As construction costs increased, the loan caps in many cases were insufficient to accommodate all needed health and safety repairs. As a result, the CDC began to approve more hardship exception requests that allow loans over the policy maximums for owner-occupied properties when needed to correct health and safety hazards that are deemed an imminent threat to the occupants’ physical well-being. The requirement to hold the exception loan amounts to a minimal level to address only “imminent threats” resulted in reduced scopes of work that could not correct all health and safety needs. Approving an increase in the maximum loan limits will eliminate the need for hardship requests in most cases, allow correction of health and safety conditions as well as “imminent threat” issues, and accommodate future increases in construction costs for the next few years.
2. Allow the CDC’s Executive Director to waive flood insurance requirements in certain circumstances while maintaining requirements that will preserve security of loan funds.
3. Allow the CDC’s Executive Director to waive appraisal requirements in certain circumstances while maintaining requirements that will preserve security of loan funds.
Non-substantive revisions to the HRLP policies make changes to transition to using gender-neutral language, add a web link to access current income limits, and more clearly explain some of the on-going program requirements.
CalHome Owner-Occupied Housing Rehabilitation Program
CalHome funds were provided to the CDC from the State Department of Housing and Community Development (HCD) and are used to provide loans to low-income owners of residential property. The program operates in the same manner as the HRLP but uses a separate set of policies to ensure that HCD’s specific requirements are met.
Only non-substantive revisions are made to the CalHome policy, to transition to gender-neutral language and insert a web link for access to current income limits.
Flood Elevation Program
The Flood Elevation Program is a hazard mitigation activity funded through the U.S. Department of Homeland Security / Federal Emergency Management Agency (FEMA). Grants are provided to cover 75-100% of the costs of elevating a home to one foot above the base flood elevation level.
The one substantive revision to the Flood Elevation policy revises the loan term for “escrow” loans from 20 to 7 years. Escrow loans help owners without their own funds to pay for up-front project costs such as engineering and permit approvals. All loans are forgiven upon the completion of the project during the performance period of the grant for which it was approved and final FEMA reimbursement. If a project does not move forward to completion during the performance period of the grant for which it was approved, the property owner is required to repay the funds within the remaining 7-year loan term. For low-income owner-occupied properties, repayment may be deferred for additional 7-year terms up until sale or transfer of the property.
Non-substantive revisions to the policy clarify or more completely describe already existing requirements, transition to gender neutral language, and describe the priority order for funding applications if insufficient funds are available.
Mobile Home Earthquake Resistant Bracing System Program (ERBS)
The ERBS Program uses CDBG, FEMA, Reinvestment & Revitalization (R&R), and other local funds, as available, to provide grants to mobile homeowners to install earthquake-resistant bracing systems beneath their homes. The ERBS are intended to prevent the home from falling from its piers and rupturing gas lines during an earthquake. This is a hazard mitigation measure that helps to prevent fires which can burn through many units in a mobile home park. The Commission uses a variety of funding sources for the program so that we can assist mobile homeowners of all income levels.
The one substantive revision to the ERBS policy adds a “hardship exception” provision that mirrors an HRLP policy, allowing the CDC’s Executive Director to make policy exceptions to the extent necessary to correct hazards that are an imminent threat to the occupants’ physical well-being, as long as all applicable funding source regulations are met.
Non-substantive revisions to the ERBS policy update the list of funding sources being used for the program, clarify that the funding source being used for any given mobile home will determine the allowed income level of the assisted household, the maximum grant amount, and the allowed project costs that can be paid with grant funds, and specify the way any required owner matching funds may be disbursed to contractors.
Commercial Rehabilitation Loan Program (CRLP)
The CRLP began as a program of the former Sonoma County Redevelopment Agency, which is now funded with R&R funds, as available. The program is intended to reduce economic and physical blight within the unincorporated areas of Sonoma County by providing financial assistance to business and commercial property owners to rehabilitate, renovate, and revitalize commercial properties, primarily within commercial corridors in Urban Service Areas.
Only non-substantive revisions are made to the CRLP policy, to clarify language in some areas, transition to using gender-neutral language, and correct contact information.
ADVISORY COMMITTEE RECOMMENDATIONS AND AUTHORITY TO IMPLEMENT POLICIES:
At their concurrent public hearings on September 21, 2022, the CD Committee and CTAC voted to recommend your Board’s approval of the revised FY 2023-24 Funding Polices.
Also at its public meeting on September 21, 2022, the CD Committee voted to recommend your Board’s approval of the revised LMIHAF, Homeownership Program, and CDC Loan Policies, as well as the HRLP, CalHome Owner-Occupied Rehab, Flood Elevation, Mobile Home ERBS, and CRLP Program Designs.
Approval of this agenda item will authorize the CDC staff to take all actions necessary to implement the provisions of the ten revised policies.
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 and Safe Communities
Goal: Goal 3: In collaboration with cities, increase affordable housing development near public transportation and easy access to services.
Objective: Objective 3: Increase investment in programs that treat underlying causes of homelessness, including substance abuse, mental illness, poverty, and lack of affordable housing.
Prior Board Actions:
04/25/2017: Approved revised Flood Elevation Program Design
10/16/2016: Approved FY 17-18 CDBG, HOME, ESG, CSF & LMIHAF-Homeless Services Funding Policies
10/16/2016: Approved revised CDC Loan Policies
10/16/2016: Approved revised Homeownership Policies
10/16/2016: Authorized CDC to submit funding request for FY 17-18 CDBG funds and Housing Authority to submit request for FY 17-18 HOME funds
10/13/2015: Approved revised LMIHAF Policies
09/23/2014: Approved revised HRLP and CRLP Program Designs
07/30/2013: Approved revised CalHome Owner-Occupied Housing Rehab Program Design
06/04/2007: Approved Mobile Home ERBS Program Design
Fiscal Summary
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Narrative Explanation of Fiscal Impacts:
The proposed policy revisions will have no fiscal impacts at this time. We will include all related funds in the regular FY 2023-24 budget submission.
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Narrative Explanation of Staffing Impacts (If Required):
None
Attachments:
Attachment 1 - FY 2023-24 CDBG, HOME, ESG, and LMIHAF-Homeless Services Funding Policies
Attachment 2 - Revised Low- and Moderate-Income Housing Asset Fund Policies
Attachment 3 - Revised Sonoma County Affordable Housing Program Homeownership Policies
Attachment 4 - Revised CDC Loan Policies
Attachment 5 - Revised Housing Rehabilitation Loan Program Design
Attachment 6 - Revised CalHome Owner-Occupied Loan Program Design
Attachment 7 - Revised Flood Elevation Grant Program Design
Attachment 8 - Revised Mobile Home Earthquake Resistant Bracing System Grant Program Design
Attachment 9 - Revised Commercial Rehabilitation Loan Program Design
Related Items “On File” with the Clerk of the Board:
None