Loading...
HomeMy WebLinkAbout03. Section 108 Loan DATE: June 22, 2010 TO: Mayor and Members of the City Council FROM: Office of the City Manager By: Brian Saeki, Director of Community Development SUBJECT: CONSOLIDATED PLAN AMENDMENT AND SUBMISSION OF A LOAN APPLICATION TO THE U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT IN THE AMOUNT OF $3.8 MILLION RECOMMENDATION Staff recommends that the City Council approve an amendment to the Community Development Block Grant Program for the 2005 - 2010 Consolidated Plan to allow the submission of an application to the U.S. Department of Housing and Urban Development for $3.8 million in funding under the Section 108 Loan Guarantee Program; and adopt the following resolution: A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF DOWNEY AUTHORIZING THE CITY MANAGER TO SUBMIT TO THE DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT AN APPLICATION FOR $3.8 MILLION IN LOAN GUARANTEE FUNDS PURSUANT TO SECTION 108 OF THE HOUSING AND COMMUNITY DEVELOPMENT ACT OF 1974 AS AMENDED BACKGROUND As a grant recipient of the federal Community Development Block Grant (CDBG), the City is eligible to apply to the U.S. Department of Housing and Urban Development (HUD) for project financing under the Section 108 Loan Guarantee Program. The Section 108 Loan Program was established by HUD to provide cities with financing for large CDBG-eligible projects by using cities’ CDBG allocation as security to borrow funds in the bond market. It is a pooling-type of program where numerous cities combine together to borrow funds via the federal government. The advantages are that the City does not need to pledge any local tax revenue as security and the issuance cost is low because costs are spread out among the participating cities. The maximum amount the cities can borrow cannot exceed five times their annual CDBG entitlement grant. The amount of funding proposed by City staff does not exceed the maximum permitted by HUD. DISCUSSION The City has identified three projects which are appropriate for funding by the CDBG program. The scale and estimated costs of each of these three projects are too large to effectively fund with the City’s annual CDBG allocation. To move these projects forward, staff is proposing utilizing the Section 108 Loan Program as an alternative funding source for these projects. The three projects and recommended allocations are as follows: $1,500,000 For the construction of a multipurpose community building which will house and display the City-owned mock-up of the NASA space shuttle. This structure will be built on Discovery Park, which is located in an eligible CDBG zone. $ 500,000 For upgrade of Apollo Park, including the demolition of all buildings and complete site clearance of the Smallwood Transit Yard. Although the Smallwood yard is not located in an eligible CDBG zone, the elimination of clearance of blight is an eligible use of the CDBG funds. $1,800,000 To create a financial fund for economic development activities which create jobs for low and moderate-income persons. These funds will be used to provide incentives for the productive reuse of properties which have closed down within the last two years, including new-car auto dealerships. Unlike the City’s annual CDBG allocation, the Section 108 Loan Program provides a loan which requires repayment. However, these loans can be repaid with CDBG funds or any other source the City chooses to use. The interest rate on these loans is based on the interest rate for government-issued U.S. Treasury Notes offered at the time of actual funding. As of this report, the current interest rate on comparable rates for government- backed bonds is 4.375% for 30-year U.S. Treasuries. The interest rate available to the City may be higher should rates increase before the City’s loan is funded. The Section 108 Program offers repayment terms which are flexible but cannot exceed 20 years. One advantage of the Section 108 program is HUD has the authority to work with the City to structure a repayment plan meeting the needs of the City. Due to the size of the proposed loan, the City may need the maximum number of years to repay the loan. Currently, the City is making payments on one Section 108 Loan used for Discovery Park. The City’s application recommends that HUD consider a repayment plan that includes interest-only payments in years one through five, followed by fifteen years of principal and interest payments. We believe this schedule will allow the City to payoff its existing federal loan without putting undue financial pressure on the City’s CDBG-funded activities. The process of the Section 108 Loan Program is as follows: 1. Cities submit applications to participate in the Section 108 Program. 2. HUD processes each application and develops the basic principal amounts and repayment schedules. 3. HUD selects a financial investment company and bank to complete the financing program. 4. The financing company holds a public offering, selling the HUD-guarantee notes. Page 2 of 11 rd Typically, these public offerings are scheduled annually, often during the 3 quarter, and final issuance costs and interest rates are determined then. 5. The assigned trustee receives bond proceeds and distributes the proper amount to each participating city. 6. Each city makes its loan payment to the trustee, and the trustee pays the note- holder. HUD typically needs 3-4 months to review and approval the Section 108 loan applications. The actual funding of these loans typically in the third quarter of the calendar year. In order to apply for the Section 108 loan, it is necessary to amend the CDBG Program to incorporate the proposed projects with the recommended funding amounts. Approval of this item will be recognized as an amendment to the current Consolidated Plan and Action Plan for the current fiscal year and CDBG Program. FISCAL IMPACT The Section 108 loan, if approved by HUD, will be repaid over a twenty-year period, with interest and principal payments paid from the City’s annual CDBG allocation. The General Fund is not expected to be impacted by this action. Attachments: Resolution Loan Application Page 3 of 11 RESOLUTION NO. _______ A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF DOWNEY AUTHORIZING THE CITY MANAGER TO SUBMIT, TO THE DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT, AN APPLICATION FOR $3.8 MILLION IN LOAN GUARANTEE FUNDS, PURSUANT TO SECTION 108 OF THE HOUSING AND COMMUNITY DEVELOPMENT ACT OF 1974, AS AMENDED; WHEREAS, The City of Downey (“CITY”) wishes to apply for $3.8 million in loan guarantees from the Department of Housing and Urban Development through the Section 108 Loan Guarantee Program; WHEREAS, the City intends to use funds obtained from the Section 108 Loan Guarantee loan Program towards three separate and distinct activities involving: 1) the clearance and demolition of the Smallwood Physical Service Yard; 2) the construction of a building at Discovery Park to accommodate a full scale mock-up of a NASA Space Shuttle; and 3) for financial incentives to facilitate economic development and new job creation. NOW, THEREFORE, THE CITY COUNCIL OF THE CITY OF DOWNEY DOES HEREBY RESOLVE AS FOLLOWS: SECTION 1. That the City authorizes the City Manager to submit the Application and Certification thereto, and direct the City Manager, as the official representative in connection with the application, to provide additional information, all understandings and assurances, as may be required. SECTION 2. The City authorizes the City Manager to execute the Application and submit such documents as may be required in order to implement the Application. SECTION 3. The City Clerk shall certify to the adoption of this Resolution. APPROVED AND ADOPTED this 22nd day of June, 2010 _____________________________ Mayor ATTEST: _________________________________ City Clerk I HEREBY CERTIFY that the foregoing resolution was adopted by the City Council of the City of Downey at a regular meeting held on the 22nd day of June, 2010, by the following vote, to wit: AYES: Council Members: NOES: Council Members: ABSENT: Council Members: ABSTAIN: Council Members: _____________________________ City Clerk Page 4 of 11 APPLICATION FOR SECTION 108 LOAN GUARANTEE PROGRAM Grantee: City of Downey, CA 11111 Brookshire Avenue Downey, CA 90241 DUNS# 067790386 The City of Downey is submitting this application and is seeking $3.8 million in loan guarantee funds under Section 108 of the Housing and Community Development Act of 1974. The City intends to use this federal Program to fund three separate projects. Two of the proposed projects will meet the national objective of principally benefitting persons of low and moderate income, and the third project with be undertaken as an activity to eliminate slum and blight. Section 108 Program Borrowing Limits The amount of funds requested by the City of Downey is approximately 62% of the total available to the City under the Section 108 Program. Based on our in-house calculation, the City can borrow up to $6.17 million. This figure was based on the City’s current year CDBG allocation of $1,477,010 multiple by a factor of 5 years and subtracting our existing Section 108 obligation. The City is limiting this application to $3.8 million. The City expects to complete all three projects by the end of program year 2011-2012. Under this schedule and projected expenditures, the City will be compliant with the overall benefit requirement were at least 70 percent of funded activities benefit persons of low and moderate income. Loan Repayment Structure The City is requesting a 20 year loan term and a flexible nonconforming repayment plan. The City is proposing a payment plan consisting of interest only payments for the first five years of the loan followed by interest and principal payment from year 6 through year 20. All payments on this product will be made from the City annual CDBG allocation. The preferred payment plan is reflected below: Requested Amount: $3,800,000 Repayment Term: 20 years Payment Plan: Year 1 – 5 Interest only payments Year 5 – 20 Annual Principal Payment of $253,334 plus Interest Citizen Participation Process Page 5 of 11 The City of Downey adopted a Citizen Participation Plan in June 1995 and approved an update of the Citizen Participation Plan in May 2010. The Plan establishes the process for public input and notification pertaining to the substantial changes and amendments to the CDBG program. A public notice was published in the local Press Telegram newspaper on May 26, 2010, initiating the start of a 28 day public review and comment period. A public hearing scheduled for June 22, 2010 allowed for public comment prior to action on this matter by the Downey City Council. Public Comment Received This Section is to be completed after the public hearing of June 22, 2010. Local Agency Contact Edward Velasco, Housing Manager 11111 Brookshire Avenue Downey, CA 90241 Phone: (562) 904-7166 Fax: (562) 869-2810 Email:evelasco@downeyca.org Page 6 of 11 Project No.1 Project Name: Site Clearance Smallwood Yard Project location: 7850 Smallwood, Downey 90242 Funding Amount: $500,000 Eligibility Citation: 24 CFR 507.201 (d) National Objective: Elimination Slum and Blight – Spot Basis. Project Description: The scope of this City project involves the clearance of existing structures and amenities on a surplus public works service yard. The City is proposing to demolish and haul away all standing buildings, ancillary structures, all flat work and subsurface materials. The site is economically obsolete and a blight to the adjacent residential neighborhood. The outcome of the project is the elimination of blight on a spot basis. The project site is owned by the City of Downey and is located adjacent to an existing community park. The City has plans for improving this existing park and those plans include expanding into the proposed project site. The City park plans will not be funded with funds from the Section 108 Program. Project Financing: This proposed project is a public works project undertaken by the City Downey. This clearance project will be funded entirely with Section 108 funds. Project Schedule: All phases of the propose scope of work will completed during program year 2010-2011 Page 7 of 11 Project No. 2 Project Name: Discovery Park Community Building Project Location: 11111 Discovery Way Funding Amount: $ 1,500,000 National Objective: Low- Mod Benefit, Area Benefit Eligibility Citation: 24 CFR 507.201 (c) Project Description: The City is proposing to construct an 18,000 square foot multi- purpose community building located at Discovery Park. Discovery Park sits on a portion of a former NASA property which served an important role in the development of both the Apollo and Space Shuttle programs. The proposed project will include an element from this historic period in Downey. The new building will provide neighborhood residents with community space, restrooms and a location for the permanent display of an authentic mock-up of the NASA space shuttle. The full scale replica of the space shuttle was donated to the City of Downey by NASA. Based on available 2000 census data, the primary service area for Discovery Park has a population where 48.6% are low and moderate income persons. As a designated “exception community” this ratio complies with area benefit test, because it exceeds the 43.3% exception threshold for the City of Downey. Project Financing: The scope of this project will be financed with Section 108 CDBG fund. Project schedule: All phase of the propose scope of work can be completed during program year 2010-2011. Page 8 of 11 Project No. 3 Project Name: Economic Development Incentive Redevelopment and reuse of large and vacant commercial properties, including vacant new car dealerships Project Location: Three properties have been identified 9500 Lakewood Blvd 10700 Studebaker Rd 9621 - 9715 Firestone Blvd. Funding Amount: $ 1,800,000 Eligibility Citation: 24 CFR 507.203 (b) National Objective: Benefit to Low Mod persons, Job Creation Project Description: The City of Downey, like many California cities, is facing an unprecedented fiscal challenge. Both the downturn in the macro economy and, more specifically, the massive contraction in the automobile industry have had a significant impact on the City of Downey. Fifty percent of the new-car dealership have closed, resulting in the loss of tax revenues and over one hundred private sector jobs. The City has seen its sales tax revenues shrink by more than 30% over the last two years. The three key properties identified above provide opportunity sites for redevelopment. This redevelopment would create new jobs for persons of low and moderate income and would generate new sales tax revenues. To bring the three opportunity sites back into productive use, City staff members are currently working with both property owners and prospective retailers. The City of Downey intends to use Section 108 funds to facilitate transactions that locate sales-tax producing and jobs-generating tenants at these sites. The City will provide assistance with acquisition costs and will finance onsite improvements and offsite public improvements. Public Benefit Standard: A public benefit test will be prepared for project assisted with this funding program. Page 9 of 11 APPLICATION ATTACHMENTS Project No 2 Low/Moderate Income Data Table Program Certifications City Council Resolution Public Hearing Notice Page 10 of 11 AGENDA MEMO ATTACHMENT Project Area Benefit Income Data By Census Block Group Source 2000 Census Count CENSUSBLOCKLOW/MODPOPULATION TRACTGROUPCOUNTCOUNT 5511 221753233 5511 313031981 5511 48541607 5511 510521824 5512 18811719 5512 27131785 5512 313152638 5512 48072195 5513 19021994 5513 26471172 5517 111072282 5517 23901277 5518 264324 5518 4133842 5518 6214627 5518 85201385 Total 13,07726,885 Note: The project service area contains a low and moderated income Concentration of 48.6%. CITY OF DOWNEY, CALIFORNIA