ROARING FORK HOUSING AUTHORITY INITIATIVE DECISION BRIEF #3 To: Steering Committee and Staff From: Kathy McCormick, McCormick & Associates 303-499-1915 Andy Knudtsen, Economic and Planning Systems 303-623-3557 Colin Laird, Healthy Mountain Communities 963-5502 Subject: Decision brief on staffing and financing regional housing authority services Date: August 21, 2002 PURPOSE At the August 7th meeting, steering committee members discussed several different levels of staffing for a regional housing authority; the tasks and projects staff that a staff could pursue; the amount of budget that would be needed to support the initial operations of a regional housing authority; and, the timing of a ballot question that could generate revenues to enable a regional housing authority to take an active role in the development of affordable housing. This memo provides a framework and additional information on staffing and budget options for a regional housing authority by separating the potential services and funding sources into categories: 1) Administration and Policy Services, and 2) Development Services. Although there is can be some overlap between these service categories, the project team believes it useful to separate them into two separate categories for the purpose of moving forward on the draft intergovernmental agreement to create the regional authority. These two service categories also correspond to the goals of ‘keep up’ and ‘catch up’ in relation to the regions’affordable housing stock. ‘Keep up’ refers to the administrative and policy services (administration of inclusionary zoning requirements, development review, policy guidance, and financing options) that stem from local government requirements that new residential development contain an affordable housing component. ‘Catch up’ refers to the development services (acquisition, development, and rehabilitation of affordable housing units) the regional housing authority would pursue to address the need for affordable housing that has existed for the past several years and has resulted in an affordable housing gap in the region. Finally, as will become more apparent from the information in this memo, providing the administrative and policy services (keep up) are not dependent on the success of a ballot question to the same degree as development services (catch up) are. This allows steering committee members to consider staffing, budget, and funding options for each category of services as two separate decision tracks. REGIONAL HOUSING AUTHORITY SERVICE & FUNDING MATRIX The following matrix outlines some of the potential services and funding sources associated with the proposed Roaring Fork Housing Authority. Services and funding are separated into two categories. 1) Administrative & Policy Services / Keep up and 2) Development Related Services / Catch up. The project team assumes a regional housing authority would hire a full-time director skilled in affordable housing techniques and strategies, with an emphasis on acquisition, development and financing of affordable housing projects. We also assumed that this person would be knowledgeable about affordable housing policy and programs. This matrix identifies broad administrative and policy and development related services, currently unavailable, that the regional housing authority would provide to local governments as well as potential sources of funding associated with these tasks. This matrix does not cover all tasks or potential sources of funds, but illustrates that a combination of resources and skills needed and potentially available to support this effort. Administrative & Policy Services Development Related Services Tasks 1. Advise local governments about the practical application of local housing policy 2. Update and revise inclusionary zoning administrative guidelines Policy and program development 3. Ensure program Compliance 4. Review of development proposals (inclusionary zoning/mitigation programs) 5. Facilitate partnerships to create housing 6. Allocate “cash-in-lieu” funds for housing projects. 7. Establish Community Housing Land Trust 8. Identify vacant land that could be developed with affordable housing 9. Identify financing opportunities 10. Fund allocation (assumes revenues from a ballot initiative) 1. Acquire existing rental housing to assure retention in affordable housing stock. 2. Acquire land and obtain development approvals. Issue RFP for private sector to build. 3. Develop new for-sale or rental housing. 4. Rehabilitate existing housing. Funding 1. Local Government General Revenues or portion of ballot initiative; 2. Fees paid on sales transactions. 3. Application fees from households seeking to purchase a unit. 4. Fee paid by developer when plan is submitted, general revenues of city and portion of housing tax. 5. Housing administration/business fees. 6. Portion of ballot initiative allocated to administrative fees. 1. Charge development/acquisition fee. Typically 3% to 10% of project, depending on project size. Include as part of financing strategy. 2. Cash flow from rental project. Depending on the structure of the project, these would be paid after operations; debt service and operating/maintenance reserves are funded. 3. In addition to charging development/project management fees, the authority could generate revenues from the sales of units, particularly in a mixed income development. This would occur where development costs were less than proposed sales prices; 4. Program management fees (e.g. rehabilitation loan program) Matrix Notes All of the administrative services could be provided to local governments without a ballot question if local governments shared operational costs of the regional housing authority until such time as the authority could begin to generate revenues through fees and transaction costs related to the sale of affordable units. Sam Betters of the Loveland Housing Authority has agreed to meet with the group in October to share his experiences in establishing an “entrepreneurial” housing authority. Sam is also overseeing the efforts of the Estes Park Housing Authority and is familiar with the challenges of developing housing in smaller, high cost communities. Final Note: Our original concern about being able to ask a ballot question in odd numbered years is unwarranted. The Regional Housing Authority can ask a tax question in any general election (i.e., any November). ADMINISTRATIVE AND POLICY SERVICES BUDGET OPTIONS The budget presented on August 7th (the ‘original budget’ in the table below), assumed two full years of operation, with a director hired at the beginning of 2003 and a consideration of a ballot initiative by 2004. The three budget options for the first and second years of operation presented below are more modest in cost. All options assume a ballot question in November, 2004. Original Budget Option 1 Option 2 Option 3 * Full-time director * Administrative oversight of program administrator * Miscellaneous Contracts ($35,000) * Legal ($5,000) * Travel ($2,500) * Training ($2,500) * Telephone ($2,400) * Rent ($4,800) * Supplies ($1,000) * Printing ($1,200) * Accounting ($1,200) * Marketing and Information Fairs ($4,000) * Administrative Overhead ($15,000) * Full-time director, hired by June 2003 * Administrative oversight of program administrator * No miscellaneous contracts; assumes additional funds may be allocated from local governments/other sources for special services * Legal services provided by local governments * Rent provided by local government * Minimal marketing and information fairs ($1,500) * All other costs estimated at half the initial budget amount * Full-time director hired by March 2003 * Administrative oversight * Initial funding for miscellaneous contracts and additional funds ($15,000) * Legal services provided by local governments * Shared office space with some defrayment of cost ($200 per month) * Modest marketing and information fairs ($3,000) * All other costs estimated at ¾ of initial budget amount * Full-time director hired by January 2003. * Administrative Oversight * Initial funding for miscellaneous contracts and additional funds ($15,000) * Hire outside legal assistance (3/4 of original budget) * Shared office space with some defrayment of cost ($300 per month) * Full marketing and information fairs ($4,000) * All other costs estimated at ¾ of initial budget amount Total Estimated Budget: $151,500 Total Estimated Budget: $53,350 Total Estimated Budget: $97,425 Total Estimated Budget: $120,8255 Role of Fees in Regional Housing Authority Administrative and Policy Budget – An Example Fees could play an important role in supporting the administrative and policy / keep up role of the regional housing authority and allow such services to be offered to local governments without a ballot question. The table below illustrates how a package of fees could provide important revenue to the regional authority and reduce annual contributions from local governments. Assumptions * $97,425 annual operating budget with 3% annual increase. * Application Fees: households applying for an affordable housing unit to pay a modest application fee. Payment of such a fee usually means the household is serious about following through with the program requirements. A fee of $25 could generate $1,250 per year in revenue with 50 applicants per year. * Sales Fees: Several communities levy sales fee on each sale of an affordable unit. This is generally 2.25% of sales price. If there were 10 sales in one year, a 2.25%sales fee on an average affordable housing sale price of $140,000 would generate $35,000. Often, this fee is less than the cost of using a Realtor, although sellers are not precluded from using their services. * Affordable Housing Review Fees: Most communities impose some type of fee for processing a site plan or PUD request. A modest affordable housing review fee could be imposed that would generate review to offset the cost of a portion of staff time to review housing plan. $350 per development application. 10 applications per year generates $3,500. ADMINISTRATIVE AND POLICY SERVICES STAFFING AND BUDGET RECOMMENDATION Option # 2: This option assumes a director is hired by March 2003 and that local governments provide legal assistance, office space and a modest marketing and information sharing effort is undertaken. Total estimated budget $97,425. There are a number of reasons why Option # 2 works best for the initial creation of a regional housing authority in the Roaring Fork Region. They include: 1. Full-time staff support will enhance the overall affordable housing efforts being undertaken in the area. This, in turn, will improve the chances for a successful ballot initiative; 2. Local governments have legal staff that can provide many of the services that are likely to be required by a regional housing authority; 3. Sharing office space with a local government or other entity may be able to be done; however, starting a regional housing authority with the intent that it has funds to defray the costs of its operations maintains an attitude that it is somewhat separate and able to represent the interests of all participating jurisdictions; 4. Having some funding available for miscellaneous contracts is desirable to support different projects, provide information that will be useful in an ballot initiative and limits the time staff have to devote to fund raising; 5. It is likely that some of these costs can be covered from funds that are already being allocated to program administration by Garfield County and Glenwood Springs; and, 6. Several local governments are interested in pursing different housing initiatives (outside of inclusionary zoning). Starting someone in March will provide sufficient time to show progress toward creating a project that can demonstrate the value of having a regional housing authority. DEVELOPMENT SERVICES BUDGET OPTIONS As mentioned earlier in this memo, development services will include acquisition, development, and rehabilitation of affordable housing units. This can be viewed as the ‘catch up’ and refers to the actions the regional housing authority would take to address the need for affordable housing that has existed for the past several years and has resulted in an affordable housing gap in the region. Unlike, administrative and policy services (keep up), development services (catch up) require significant revenues. Fortunately, state enabling legislation allows regional housing authority’s the following revenue sources: * A sales or use tax or both, not to exceed one percent; * A property tax not to exceed five mills; and, * A development impact fee of two dollars per square foot or less. All proposed tax measures must be submitted to the voters. Although it appears that development impact fees would not be subject to a direct vote, such fees can only be used by the Authority if it also implements a sales/use tax or a property tax. Affordable housing is exempt from paying these fees. This section of the memo examines these funding sources under the following development service goals and assumptions. : * Revenue from a tax will sunset in 10 years. * 5% of the housing stock will be permanently affordable. * Residential growth, which drives the number of affordable units created through inclusionary zoning, has been assumed to increase by 1% annually. * Average home cost for an affordable unit is $222,000. * Operational costs are roughly $200,000. * Development services will result in a package of benefits annually. Potential benefits include down payment assistance, housing acquisition, for-sale development, rental housing, and land banking. Housing Goals The Lower Roaring Fork Valley is expected to have 17,310 housing units by 2003. This figure reflects the portions of Garfield and Eagle Counties, extending from Basalt to Glenwood Springs. It is based on 2000 Census data, factored up by an annual growth rate of 2.7 percent. The growth rate is derived from the Colorado State Demographer’s estimates for Garfield County over the next decade. The chart below identifies three alternative affordable housing goals, ranging from 5 percent to 15 percent. The goals are based on the concept that Lower Roaring Fork communities desire to have a certain percentage of the housing inventory set aside as permanently affordable units. These figures are derived by multiplying the goal against the number of units in the 2003 housing inventory and subtracting the existing number of affordable units. A goal of 5 percent translates to 525 units; a 10 percent goal would be 1,391 units; and a 15 percent goal would require 2,256 units. These figures all account for the 340 existing affordable units in the valley. Figure 1 Alternative Housing Goals Lower Roaring Fork Regional Housing Authority Revenue Required to Achieve Goals The estimated costs for development are shown below in Table 1. The annual costs of $1.2 million are based on the following assumptions: * The housing goal is 5 percent, or a total of 525 units. * Inclusionary housing requirements will generate approximately half of the goal, or 262 units. * The average cost of an affordable home is $222,000. This cost reflects the average sales price for attached housing for the 12-month period from July 2001 to July 2002. * Based on a leverage factor of 6:1, the total cost of $58.5 million can be covered with proceeds from the regional housing authority of $9.7 million. The leverage factor accounts for all project revenues, such as financing, home sales, state or federal subsidies, etc. * The subsidy per unit is estimated to be $37,000. The revenue required annually is 10 percent of the total cost, which assumes that the goal will be achieved over a 10 year period. The information provided below includes $200,000 annually for administration costs. These may potentially be covered by other sources and could be eliminated from these estimated costs. Table 1 Revenue Source Comparisons As discussed previously, there are several revenue sources available to a regional housing authority that would provide it with adequate resources to meet the goal. The state enabling legislation allows for $2 per square foot impact fees, in conjunction with a sales tax and/or property tax. The annual revenue needed to achieve the 5 percent and 10 percent goals is shown below in Figure 2. A 0.25 percent sales tax or an increase of 2.5 mills is sufficient to generate approximately $1.2 million annually. The potential revenue generated by impacts fees is significantly less. A residential impact fee of $2 per square foot on all new construction (except units generated through inclusionary zoning) would provide $350,000 annually. The same impact fee applied to commercial development would generate $150,000 annually. However, neither may be feasible. Given that all of the communities in the Lower Roaring Fork Valley already apply inclusionary zoning standards, an additional impact fee on residential development may not be legal. Much of the future commercial development may be removed from consideration as well. Basalt already has an impact fee and some of the development located in Glenwood Springs may have existing mitigation requirements from annexation approvals. Nonetheless, the potential revenues are shown in this analysis to identify the magnitude of revenue that could hypothetically be generated through these sources. Figure 2 - Alternative Revenue Sources Lower Roaring Fork Regional Housing Authority [1] Impact Fees may not be feasible. Annual Benefits If a revenue source generating $1.2 million annually were adopted, it could generate the type of benefits shown below in Table 2. Types of activities include down payment assistance, acquisition of units, construction of new for-sale housing, development of new rental projects, and land banking sites for future development (rental or ownership). The distribution of activities is hypothetical and generally sets aside 50 percent of the revenue for home-ownership activities. The balance could be used in alternating years for rental development or land banking. With these types of programs, the regional housing authority could benefit approximately 61 households a year. Next Steps The primary purpose of this analysis is to identify options and provide a general understanding about the nature of each. At the steering committee meeting of August 26, 2002, the financial model will be available to test the assumptions and help committee members become better informed about the alternatives. PAGE 3 OF 11 ROARING FORK REGIONAL HOUSING AUTHORITY INITIATIVE HEALTHY MOUNTAIN COMMUNITIES