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HomeMy WebLinkAboutCP 58 rip rr, /1 `E:." L B r f1 y 'P" Lk raw�L —Elm w .r POLICY PROPOSAL DATE FILE NUMBER SUBJECT Public Housing Site PAGE 1 OFA 9/25 79 CP-58 Selection PROPOSAL PROPOSED BY: Mayor CITY MANAGER'S REVIEW Pro tem Jim Bradshaw Background In recent months the Public Housing Authority of the City of Fort Worth has experienced a great deal of difficulty in securing acceptable sites for low-income housing in the City of Fort Worth. The manner in which sites are now selected has created strong opposition from citizens. Proposal In order to better inform the citizens and provide an opportunity for citizen input in the site selection process, I recommend the following proposal be adopted: Step 1. Select possible site, using the criteria recommended by HUD. Step 2. Obtain options to purchase. Step 3. Hold neighborhood meetings to disseminate information and obtain citizen input. Step 4. Seek HUD approval of proposed site after City Council approval. Step 5. Purchase site with Section 108 loan money (see attachment) . Step 6. Hold sites in land bank until needed for future assisted housing allocations. Step 7. Transfer selected site to Housing Authority who will repay the Section 108 loan with interest. It is expected that the utilization of this process may result in the loss of some CDBG funds used to acquire the options. It is also proposed that staff persons from the City's Human Resources, Planning and Housing Departments and the Housing Authority will attend all the scheduled meetings to insure that maximum information is made av CITY OF FORT WORTH, TEXAS THE SUBJECT MATTER OF THIS M. & C. C. WAS PRESENTED TO THE CITY COUNCIL LEGALITY I2 - ' -7 r ` _ FISCAL NOTE ® WAS _[�/ PR VED CITY MANAGER'S COMMENTS - i Xf CiW Secretary POLICY PROPOSAL (cont'd) PAGE OF 2 The Community Development Council reviewed and approved of this concept at their meeting on August 18, 1979. Recommendation It is recommended that the City Council; 1) Approve the implementation of a program for pre-selection of public housing sites; 2) Authorize the commitment of present and future CDBG funds as security for Section 108; and 3) Authorize the City Manager to obtain agreements for purchase of proposed sites. Legality Comments by the Department of Law will be furnished by separate memorandum. Fiscal Note HUD approval for the use of CDBG funds for this purpose has been obtained. City Manager's Comments The staff supports the proposed pre-site selections procedures. Under this pro- posal, the citizens will have an opportunity to be involved in site selection and the City Council for the first time will have the authority to approve or deny sites for low cost housing. Jim- radshau, Mayor Pro tem. CITY OF FORT WORTH HUD SECTION 108 Section 108 of the Housing and Community Development Act of 1974 allows HUD to guarantee loans to local governments to be used for the acquisition or rehabili- tation of property to stimulate industrial, commercial or residential land development. The local government must in turn pledge its current and future Community Development Block Grant (CDBG) funds as security for the loan. The maximum amount that may be guaranteed is three times a city's annual entitlement grant. Section 108's major advantage is that it makes money available relatively easily without a city having to wait to receive a given year's block grant entitlement. This can be important, particularly where land development may be the key to an entire project. HUD has expressed a desire to broaden the use of Section 108 in the future. Application: CDBG cities are eligible for Section 108 loan guarantees to finance the following activities: 1) acquisition of real property for community and economic development purposes; 2) rehabilitation of real property owned or acquired by the local government; and 3) payment of related expenses (interest, relocation, clearance, and site improvements). Application for the guarantee can be made as part of the block grant proposal for a given year, or, if the guarantee is sought subsequent to grant apporval, the request can be submitted as an amendment. In either case, the following documenta- tion must accompany the application: 1) project summary; 2) schedule for and source of repayment; 3) a pledge of the CDBG entitlement grant plus opinion of counsel as to the city's authority to do so; 4) environmental review assessment; and 5) certi- fication by the locality, if land is to be acquired, that no existing public land is satisfactory. Approval is based on compliance with the general goals of the Dousing and Community Development Act and Section 108 guidelines. The projects also are reviewed against standard CDBG requirements and must comply with the program benefit rule. HUD does not make ,judgments concerning the economic viability of the proposed project -- this is left to the local government. The guaranteed debt takes the form of a note issued under HUD's guidance by the locality to the'Federal Financing Bank (FFB) . (It is possible that the regulations will be amended to allow Section 108 guarantees for notes issued on the private market as well.) The terms of .the note are specified by HUD and FFB; the interest rate is set just slightly above the Treasury Department's borrowing rate (currently around 9 percent). The money may be drawn down as soon as HUD approves the guarantee, but it may only be used to meet current financing needs for approved activities. The entire amount of the loan may not be obtained up-front. Repayment of the Loan: Loans guaranteed by Section 108 must be repaid within six years, although the City has some latitude in determining the means of repayment. Repayment terms must be approved by HUD in advance of the project. Generally, a locality may use any of the following methods: L' ' - declining debt service, which treats the loan the same as a municipal bond with interest and principal paid annually, semi-annually, or quarterly; - level amortization; or - balloon repayment of principal with payments of interest only over the term of the loan. HUD will consider such an arrangement provided that 1) a legally binding commitment from a long-term lender or developer is secured, or 2) the total principal and interest amount is small relative to the city's CDBG entitlement in any fiscal year. Although block grant funds must be pledged against the obligation (some may actually be allotted each year to repay any portion of it), it is advantageous to the locality to use Section 108 funds for revenue-producing activities that will yield sufficient funds to liquidate the debt. For example, anticipated revenues from sale or lease of property or anticipated increases in tax revenues could be used for this purpose. Limitations: Despite its advantages, Section 108 loan guarantees have not been widely used by local governments. There are several limitations in the program which may account for this: 1) the repayment term is limited to six years, so the guarantee does not help with long-term financing; 2) the loan may not be used to finance new construction, and rehabilitation activities are limited to publicly- owned or publicly-acquired property; 3) the amount of the loan may not exceed three times the CDBG entitlement; and 4) the money obtained through 108 may not be passed on to a private development corporation. Perhaps the most critical problem is the high cost of the loans and the lack of an interest subsidy. A 1977 legislative change in the authority requires that the interest earned on debts guaranteed under Section 108 be subject to federal taxation. This eliminates the inherent subsidy which would have occurred if tax-exempt obli- gations were allowed under the program. Instead, Congress proposed to assist reci- pients selectively, and an interest subsidy provision was added to the law. However, no funds have ever been appropriated for this purpose. As a result, the cost of the loans is relatively high, making them a less attractive financing tool. Conclusion: For appropriate projects, the Section 108 program could be a welcome addition to the collection of Federal development tools used by local officials. While there are limitations on the use of the loans guaranteed, the program offers particularly important potential in the matter of land assembly. In addition, it gives local governments greater mileage from their CDBG funds by performing needed activities prior to receiving their entitlement. The program can be especially effective if the loans are used for activities which generate revenue to repay the loan and leave CDBG CTI, Ort FORT WORTH, TEXAS US SUBJECT t3A,TTER OF THIS It- &C. C. j WAS PRESENTED TO THE CITY COUNCIL ' WAS �" FROYED City Secretary