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HomeMy WebLinkAboutagenda.council.worksession.20140923 CITY COUNCIL WORK SESSION September 23, 2014 4:00 PM, City Council Chambers MEETING AGENDA I. Bike Race Debrief II. Use of Affordable Housing Credit Certificates P1 I. P2 I. P3 I. P4 I. P5 I. P6 I. P7 I. P8 I. P9 I. P1 0 I. P1 1 I. P1 2 I. 1 MEMORANDUM TO: Mayor and Council THROUGH: Steve Barwick, City Manager FROM R. Barry Crook, Assistant City Manager Chris Bendon, Director of Community Development DATE: September 19, 2014 MEETING DATE: September 23, 2014 RE: Use of Affordable Housing Credit Certificates _____ Summary The Aspen Pitkin County Housing Authority has been exploring options to re-develop a property they own at 1230 E. Cooper Ave. They have considered a couple of scenarios for this property but has not been able to accomplish this with the resources at hand. Their current conceptual proposal is to re-develop the property in collaboration with Habitat for Humanity and it would remove the current building (a 3-bedroom home) and replace it with two three-bedroom duplexes. The current use is on a non-conforming lot that was the result of a lot split. The current lot is some 6000 square feet and the zoning would require a 15,000 square foot lot to accommodate the current structure within the underlying zoning. The proposal to double the square footage will require a change in the zoning or some kind of variance. These would have to come to council for your approval. The proposal by APCHA is to seek the issuance of Affordable Housing Credit Certificates for the additional FTEs to be housed in the additional duplex unit. The sale of these certificates would offset the cost of development. Chapter 26.540 of the City’s Land Use Code – “Certificates of Affordable Housing Credit” is silent as to who is eligible for participation in the program, only that it is to be issued to “the developer of affordable housing that is not required for mitigation.” The Planning and Zoning Commission is authorized to approve, approve with conditions or deny an application for the establishment of the certificates, subsequent to a recommendation of the Community Development Director. The review criteria established in the ordinance requires all of the following to be met: 1. a C.O. has been issued for AH units that have been deed-restricted subsequent to the new ordinance’s adoption, 2. the units are not for the purpose of mitigating impacts of development or a requirement or obligation of a Development Order, P13 II. 2 3. a recommendation of the APCHA Board has been made, establishing the number of FTEs accommodated by the units pursuant to the Guidelines. Decisions of the P&Z or the Community Development Director may be appealed to the City Council. The decision of the APCHA to pursue the issuance of Credit Certificates is contrary to previous Council’s direction regarding who should be eligible to apply for certificates, but is within the language of the ordinance. In particular, staff does not believe the program was intended to apply to public agencies using public monies. The use of public resources to assist for-profit development through the credit program seems entirely inappropriate. The efforts of APCHA should not be used to reduce mitigation obligations of private development. Hence the need for policy discussion by the City Council and possible direction regarding code changes. Previous Council Direction The previous City Council had provided direction that no public sector or non-profit entity whose core mission was to provide affordable housing was to utilize the ordinance’s provisions to seek Affordable Housing Credit Certificates. It was felt that because this was the mission of such an organization, they had revenue streams to complete their mission and should not be competing with for-profit private sector individuals for the certificates – and thereby reducing the value of those certificates and thus reducing the incentive for a profit-seeking entity to create units “in advance” of the mitigation requirement. Because of that direction neither APCHA nor the City’s Affordable Housing Program has sought to have credit certificates issued. The current APCHA Board disagrees with that policy direction. They were scheduled to participate in a Council worksession to discuss the policy with the City Council, but have instead decided that since the ordinance does not limit participation in that manner, they would instead go directly to the Planning and Zoning Commission and seek their approval in advance of filing a development application. Background: On March 22, 2010 the City Council approved changes to the Land Use Code at the urging of Peter Fornell to establish the Affordable Housing Credit Certificate Program. Under this program, private developers would be incentivized to produce affordable housing units, then be issued a certificate of credit which would be another avenue to satisfy mitigation requirements of new development. In this fashion, a developer could satisfy their mitigation requirement by: (1) building or otherwise providing the necessary mitigation themselves, (2) pay a fee in lieu, or (3) P14 II. 3 purchase a credit certificate from someone like Peter Fornell who had already built the units in advance of a mitigation requirement. The purpose of the new program, as written into the code language is as follows: “There are two main purposes of this chapter: to encourage the development of affordable housing; and to establish a new option for housing mitigation that immediately offsets the impact of free market development. A Certificate of Affordable Housing Credit is issued to the developer of affordable housing that is not required for mitigation. Another entity can purchase such a Certificate and use it to satisfy housing mitigation requirements. Establishing this transferable Certificate creates a new revenue stream that can make the development of affordable housing more economically viable. Establishing this transferable Certificate also establishes a new option for mitigation that reflects built and occupied affordable housing, thereby offsetting the impacts of free market development before those impacts are felt.” It was hoped that the market for the certificates would produce a price that would be sufficient to induce participation by for-profit private developers, however the ordinance was clear that “the market for Certificates of Affordable Housing Credit is unrestricted and the City shall not prescribe or guarantee the monetary value of a Certificate of Affordable Housing Credit.” In that vein, the previous council determined that making the City, APCHA or non-profits entities whose mission was to provide affordable housing to participate might increase the number of certificates in circulation to a point where the subsequent market price was so low that it would not induce for-profit developers to participate in the program. So the practice has been that those entities would not seek the issuance of credit certificates. Discussion A housing certificate is, in some sense, “free money/printed money” in that it is a way of creating revenue for a development project. You have to find a willing buyer and come to an agreement about the price of the certificate, but once issued and sold, it is a part of the revenue stream that will pay for the development of affordable housing. This would apply to someone like Peter Fornell, to APCHA or Habitat for Humanity, and to the City of Aspen. APCHA/H4H is seeking to offset some of the cost of their development by seeking three credits – in this case it would be for the creation of two Cat 1 duplexes of 3-bedrooms each – to be sold to developers needing to mitigate for the impacts of their development. The credits would be issued for the new units, not for the ones being replaced. The new ordinance authorizing the Housing Credit program was not designed to be used for this purpose, but the project does meet the requirements of the ordinance, as would the 82 units the city P15 II. 4 has built/is building in Burlingame Phase II. In the case of the City’s BG2 project, the city would be eligible for 197.25 credits – which if sold off as demand appears might bring some $60 million at the prices being quoted for current sales – albeit it may take decades to sell that kind of inventory. One can see how such an infusion of credit certificates into the marketplace would disrupt the incentive for a private developer to continue to pursue the creation of new units, be issued new certificates and try to sell them into such a flooded marketplace. Hence the previous council direction limiting participation to non-government, non-NGOs entities for whom the profit motive was paramount. The decision by the APCHA Board to seek such certificates means that the Council’s policy considerations should be discussed and a determination should be made to either: 1. revise the code to put into language the policy direction of the previous council; 2. revise the code to exclude only those developers who use public funding as part of their financing plan – so a Habitat for Humanity that pays APCHA market value for the land and takes no other public funding could apply for credits on the same basis as a private, for-profit developer could; 3. make those determination on a case-by-case basis as part of a larger land use application review process by the Council; or 4. permit any developer of affordable housing that is not produced for mitigation to fully participate in the program and have certificates issued to them. Policy Choice 1: Council might want to codify its previous policy direction. In that case the Community Development Department would initiate the steps necessary to do that – a process that might take 60-90 days. Policy Choice 2: Instead of barring all NGOs from participation in the credit certificate program, Council might want to only prevent those who use public funds as part of their development financing plan to be barred. This approach would free some NGOs who don’t use public funding to participate on the same basis as a for-profit, private developer. Thus, if Habitat for Humanity were to purchase the property from APCHA at market rates, then develop the property, they would be eligible for participation in the credit program just as a Fornell would. Policy Choice 3: Council might instead prefer to make a determination on a case-by-case basis and use the deliberations involved in reviewing a specific land-use application as the vehicle for determining policy in this area. In the case of the APCHA/H4H proposal, since their development proposal will require variances or code changes, the project will come to the Council for your review. You can use that forum for making policy specific to their proposal. P16 II. 5 Policy Choice 4: Or you might choose to do nothing. In which case a proposal like the APCHA/H4H development would pursue the issuance of certificates from P&Z in accordance with the current rules and regulations. If Council chooses that route, should the City’s Housing Development staff also seek the issuance of certificates for the eligible units developed at Burlingame since the adoption of the ordinance? The revenue from the sales proceeds would be used to offset taxpayer costs in providing the subsidy for the units and used to finance future construction at Burlingame or at other land-banked sites. Staff Recommendation: We believe the previous council direction to be the better policy choice and that Council should amend the Certificates Program to make ineligible government or NGO organizations. Alternatives to Consider: Another consideration is for Council to amend the ordinance to exclude government/NGO organizations from participating in the Credit Certificate marketplace, but to consider waiving certain development review fees as a way of reducing the development costs for affordable housing units. In this fashion, the city’s General Fund would be asked to subsidize the cost of development for both governments and NGOs when they are producing affordable housing units – in much the same fashion council recently considered subsidizing desired development of lodge units. Request of Council: Provide policy direction for who is eligible for participation in the Affordable Housing Credit Certificate program and under what circumstances. P17 II.