TO: HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL
FROM: David Chantarangsu, AICP, Development Services Director
PREPARED BY: Carl Stiehl, City Planner
SUBJECT:
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Financing for the Kensington Apartments Affordable Housing Project
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RECOMMENDATION
recommendation
Conduct a Public Hearing under the requirements of the Tax Equity Fiscal Responsibility Act (TEFRA) and the Internal Revenue Code of 1986, (IRS Code) as amended; and
Adopt Resolution No. 25-4815 entitled: A Resolution of the City Council of the City of Murrieta, California, Approving the Issuance by the California Municipal Finance Authority of Exempt Facility Bonds in an Aggregate Principal Amount Not to Exceed $40,000,000, for the purpose of Financing or Refinancing the Acquisition, Construction, Improvement, and Equipping of the Kensington Apartments Project.
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PRIOR ACTION/VOTE
None.
CITY COUNCIL GOAL
Plan, program and create infrastructure development.
BACKGROUND
In 2022, Pacific West Communities Inc. (Applicant) received approval for the 126-unit Kensington Apartments, which will be restricted to occupancy by low-income residents spread across five buildings (Project) located southeast of the intersection of Washington Avenue and Nighthawk Way, APN 906-780-004 (Property). The Project was approved by staff on December 30, 2022, utilizing a Director’s approval of the Development Plan in accordance with Murrieta Municipal Code Section 16.56.025(A)(1). Following Project approval, the Applicant unsuccessfully applied for State low-income tax credits in multiple rounds through its Project financing entity, Murrieta Pacific Associates (Borrower). In August 2023, the city approved a Development Impact Fee Deferral Loan Agreement for the Project, in an amount of approximately $1.77 million, in order to make the Project more competitive to receive a state tax credit award. After additional applications to the state, in December 2024, the Project was awarded low-income tax credits.
In addition to receiving state tax credits for the Project, the Borrower applied for funding from the California Municipal Finance Authority (CMFA) requesting that the CMFA serve as the municipal issuer of tax-exempt bonds in an aggregate principal amount not to exceed $40,000,000 (Bonds). The Bond proceeds will be used to finance or refinance the acquisition, construction, improvement, and equipping of a multifamily rental housing Project within the city.
For the Bonds to qualify as tax-exempt bonds, the City of Murrieta must conduct a public hearing (the “TEFRA Hearing”) providing the members of the community an opportunity to speak in favor of or against the use of tax-exempt bonds for the financing of the Project. Prior to such TEFRA Hearing, reasonable notice must be provided to the members of the community. The public hearing notice was published 10 days prior to the hearing in the Riverside Press-Enterprise. Following the close of the TEFRA Hearing, an “applicable elected representative” of the governmental unit hosting the Project must provide its approval of the issuance of the Bonds for the financing of the Project.
California Municipal Finance Authority
The CMFA was created on January 1, 2004, pursuant to a joint exercise of powers agreement to promote economic, cultural, and community development through the financing of economic development and charitable activities throughout California. To date, over 350 municipalities have become members of CMFA including the city. The CMFA was formed to assist local governments, non-profit organizations, and businesses with the issuance of taxable and tax-exempt bonds aimed at improving the standard of living in California. The CMFA’s representatives and its Board of Directors have considerable experience in bond financing. CMFA has assisted by issuing bonds for the Monamos Terrace Apartments and Viscar Terrace Apartments projects in the city.
Bond Financing and City Obligations
The Bonds to be issued by the CMFA for the Project will be the sole responsibility of the Borrower, and the city will have no financial, legal, or moral obligation, liability, or responsibility for the Project or the repayment of the Bonds for the financing of the Project. All financing documents with respect to the issuance of the Bonds will contain clear disclaimers that the Bonds are not obligations of the city or the State of California but are to be paid for solely from funds provided by the Borrower.
There are no costs associated with membership in the CMFA, and the city will in no way become exposed to any financial liability because of its existing membership. In addition, participation by the city in the CMFA does not impact the city’s appropriations limits or debt capacity and will not constitute any type of indebtedness by the city. Outside of holding the TEFRA hearing and approving the issuance of bonds, no other participation or activity of the city or the City Council with respect to the issuance of the Bonds will be required.
Project Analysis
The Project is an important low-income, affordable, multi-family residential project for the city. Whereas this part of the region in the county has seen extensive residential growth in the past twenty years, the supply of affordable housing has not grown in the same manner. Both the State of California Housing and Community Development Department and Southern California Association of Governments have noted that affordable multi-family residential developments are the type of projects currently most needed to address the state’s housing supply shortage. The city did not have any of these types of units constructed over the most recently concluded 5th Cycle Housing Element housing cycle covering 2014-2021. Hence, this Project implements the city’s housing strategy to develop low-income housing to help meet the City’s 6th Cycle Housing Element RHNA covering the period of 2021-2029.
Considering the foregoing, and to support the funding of affordable housing consistent with the City’s Housing Element, staff recommends that the City Council conduct the TEFRA Hearing and adopt the resolution (Attachment 1) to authorize the issuance of the Bonds by CMFA.
CEQA Determination
The development of the Project was previously determined to be Categorically Exempt from California Environmental Quality Act (CEQA) pursuant to Section 15332, Title 14, Chapter 3 of the California Code of Regulations (CEQA Guidelines). A Categorical Exemption was posted and filed for the Project on January 3, 2023. The approval of bond funding does not alter the approved Project and the financing is not a project as defined by CEQA since the action to approve a project funding source does not result in a physical change in the environment.
FISCAL IMPACT
The Bonds to be issued by the CMFA for the Project will be the sole responsibility of the Borrower. The city will have no financial, legal, or moral obligation, liability, or responsibility for the Project or the repayment of the Bonds for the financing of the Project. All financing documents with respect to the issuance of the Bonds will contain clear disclaimers that the Bonds are not obligations of the city or the State of California but are to be paid for solely from funds provided by the Borrower.
The Board of Directors of the California Foundation for Stronger Communities, a California non-profit public benefit corporation (the “Foundation”), acts as the Board of Directors for the CMFA. Through its conduit issuance activities, the CMFA shares a portion of the issuance fees it receives with its member communities and donates a portion of these issuance fees to the Foundation for the support of local charities. With respect to the City of Murrieta, it is expected that a portion of the issuance fee attributable to the City will be granted by the CMFA to the General Fund of the city. Such grant may be used for any lawful purpose of the city.
ATTACHMENTS
1. Resolution No. 25-4815
2. Kensington Apartments Site Plan and Elevations