TO: HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL
FROM: David Chantarangsu, AICIP, Development Services Director
PREPARED BY: Carl Stiehl, City Planner
SUBJECT:
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Lasting Affordability Program Grant Award and Memorandum of Understanding
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RECOMMENDATION
recommendation
Adopt Resolution No. 25-4831, entitled: A Resolution of the City Council of the City of Murrieta authorizing the receipt of Lasting Affordability Program Grant funds in the amount of $4,100,000, in order to establish a revolving loan fund for the City's Housing Authority;
Authorize the City Manager to sign a Memorandum of Understanding with the Southern California Association of Governments to develop the revolving loan fund for the City's Housing Authority in order to receive the program grant funds; and
Direct staff to prepare a revolving loan fund program for the City's Housing Authority to receive the $4,100,000 grant award from the Southern California Association of Governments.
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PRIOR ACTION/VOTE
None.
CITY COUNCIL GOAL
Plan, program and create infrastructure development.
BACKGROUND
In the summer of 2023, the California Department of Housing and Community Development (HCD) formally awarded the Southern California Association of Governments (SCAG) $246 million in Regional Early Action Planning (REAP) grants to accelerate progress toward housing goals and climate commitments by strengthening the partnership between the State, its regions, and local entities. The 2023 REAP funding is referred to as REAP 2.0.
SCAG made available $45 million of REAP 2.0 funding to establish the Lasting Affordability Program in order to solicit proposals for innovative housing finance, trust funds, catalyst funds, and new permanent funding sources to assist affordable housing development in the SCAG region. Working with the City's grants team, Development Services staff applied for a grant to establish a revolving loan fund on behalf of the City's Housing Authority (Authority) with a requested amount of $4.1 million. The grant proposal for a revolving loan fund would create a source of funds to provide short-term loans to affordable housing projects in the City through the Authority to assist with needed financing until permanent project financing is in place. Examples of activities that could qualify for short-term loans include pre-development costs like permit fees, property acquisition, construction, and bridge financing. The overall goal is to provide a limited source of short-term funding for 1-5 years that affordable housing developers could access until permanent project financing is in place. The City's short-term loan would be replaced by permanent project financing, which would occur when the project was completed.
The loan fund would act as seed money to be used again and again by the City's Housing Authority on the City's affordable housing projects. There is already an existing need for this funding from approved affordable housing projects underway in the City. A number of projects in the past year have experienced issues with interest rates, one-time sources of funding drying up (such as federal funds, like ARPA), and unforeseen project cost overruns.
The Authority replaced the former Murrieta Redevelopment Agency (Agency) and has successfully absorbed its housing obligations, as was required after the passage of State laws that dissolved redevelopment agencies in 2012. Over the years, the Authority has supported existing and proposed affordable housing projects.
Many projects in the City, both market-rate and affordable, have encountered financial difficulties in recent years. There can be significant uncertainty throughout the development process, given the time it takes to navigate the entitlement process, line up financing for a project, go through plan checks, pull permits, and actually build a project in more than one or two years. During this time, the cost of a project can go up, requiring additional sources of funding. These funds are envisioned to assist the affordable housing projects with an additional funding source and provide more options for projects to meet potential funding shortfalls that arise.
On November 2, 2023, SCAG's Regional Council approved the allocation of $45 million to 14 grant proposals for innovative housing finance projects across Southern California. The Authority was awarded a $4.1 million grant to establish the revolving loan fund, one of only three awards in Riverside County (Attachment No. 3). The award by SCAG to the Authority shows the City's commitment to continue to seek and acquire additional funding to support housing development consistent with the City's housing goals and policies.
There were some delays in getting the funds from HCD to SCAG due to the State budget shortfalls in early 2024. The funding was put on hold, and at one time, it appeared that the REAP 2.0 funding would be removed from the State budget in the spring of 2024. However, ultimately, the funding was included in the State budget for 2024, in part due to Murrieta's local elected representatives and local housing advocates informing the State how important it was to keep this funding in the budget to provide a direct investment in local housing.
In July 2024, it was confirmed that the funding was in the State's budget, and it was then transferred from HCD to SCAG in late 2024. Therefore, in the fall of 2024, City staff began working with SCAG staff to prepare an MOU with a scope of work to prepare the revolving loan fund and accept the grant funds (Attachment No. 2).
The City's Housing Element supports innovative programs, such as a loan fund managed by the Authority, in order to provide additional funding sources and a direct investment by the City in affordable housing projects.The establishment of the revolving loan fund by the Authority for direct investments in affordable housing projects in the City is a financial incentive that implements the following Housing Element policies:
• Policy 1.2 - Encourage the development of affordable housing in the City through the use of financial and/or regulatory incentives; and
• Policy 1.3 - Encourage development of senior and low-income housing through the use of financial and/or regulatory incentives.
The Authority has an existing on-call housing consultant, RSG, that is anticipated to assist staff in preparing the program for the revolving loan fund. Staff anticipates working on the initial drafts of the loan fund with SCAG and then proceeding to a public engagement phase where discussions with the City's affordable housing developers and the members of the public interested in this program will help to shape the initial draft of the program. Staff would work with SCAG to draft the revolving loan fund program and once approved by SCAG, the Authority should formally receive the $4.1 million funds pursuant to the MOU. With the program in place, staff anticipates being able to issue the first round of loans to existing projects in the City late this year and then subsequently releasing a round of loans each year as funding is available.
The City has an excellent record within the current housing cycle of supporting affordable housing development. There are affordable housing projects currently under construction in the City with occupancies occurring this year, as well as another batch of projects that just received State tax-credit awards in December that are anticipated to be under construction later this year or early next year. This active development of affordable housing continues to show the State, including HCD, that the City is committed to supporting affordable housing where and when projects are feasible. The City’s active development of affordable housing should make available other sites for City improvements, which the City has long planned for other public benefits.
Long term, the revolving loan fund is anticipated to act as seed funding for the Authority to be utilized on proposed and existing housing projects in the City for many years to come. A housing authority typically needs some sort of direct investment in order to continue to provide loans for projects until the funding being repaid from loans reaches a more sustainable level, where rounds of loans can be offered on a regular basis, such as annually. Staff was successful in going after this initial funding to get the program off the ground. Staff anticipates going after other grants in the coming years to continue to augment the loan fund. Most of the City’s affordable housing stock is relatively young, in good condition and well maintained, having been built in the past twenty years. In the future, the revolving loan fund may also be used to assist existing affordable housing projects in the City with loans to refinance a project or for rehabilitation, remodeling, or other potential uses that are a direct investment in affordable housing in the City, consistent with the Authority's purpose and the loan fund program. This program will create lasting affordability in the City of Murrieta.
As the establishment of a revolving loan fund by the Authority is a direct investment in affordable housing in the City, consistent with the Housing Element policies for financial incentives, staff recommends that the City Council, acting as the Authority, accept the grant award, direct staff to prepare the revolving loan fund, enter into an MOU and work with SCAG under the grant program to implement the revolving loan fund later this year, and authorize the City Manager to execute any necessary documents to effectuate the program, including, but not limited to, the MOU and grant program establishment documents (Attachment No. 1).
Once the revolving loan program is established, any future loans to affordable housing projects from the Authority would return to the City Council for consideration and approval prior to execution by the City.
FISCAL IMPACT
A budget of $4.1 million is proposed to be added to the Authority budget in FY 2025/26 since the grant funds are not anticipated to be received by the City prior to June 30, 2025. The Authority and Finance staff will establish the appropriate special revenue fund to account for the grant fund and the revolving loan fund operations. There is no fiscal impact on the Authority to receive the grant funds from SCAG. There are anticipated to be some additional one-time hours of staff time and consultant time with RSG (already budgeted) in order to prepare the loan program with SCAG. This work is anticipated to be covered by existing staffing levels.
There will be ongoing costs to the Authority to maintain the revolving loan fund moving forward. Staff anticipates that the administrative responsibilities can be covered by the City’s existing consultant contract with RSG, already allocated in the current and next fiscal year in this budget cycle. In the future, the maintenance of the revolving loan fund will be part of the ongoing activities of the Authority. As the revolving loan fund grows in the future, the fund may provide a portion of funding, along with other sources of Authority funding (such as the Authority funding currently provided to RSG for housing services), for a permanent staff position for the Authority. This is something that may be considered in a future budget cycle.
ATTACHMENTS
1. Resolution No. 25-4831
2. Draft SCAG Memorandum of Understanding
3. Lasting Affordability Grant Award Letter