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HomeMy WebLinkAboutCommunity Development Block Grant Commission - Minutes - 01/22/2007e CITY OF FORT COLLINS COMMUNITY DEVELOPMENT BLOCK GRANT COMMISSION Meeting Minutes January 11, 2007 Bob Browning, Chair Eric Berglund, Vice Chair Commission members attending: Bob Browning, Chair Eric Berglund, Vice Chair Michael Kulischeck Kay Rios Jeff Taylor Cynthia Torp Dennis Vanderheiden Staff attending: Ken Waido Maurice Head Heidi Phelps Julie Smith Sharon Thomas Chairman Browning opened the meeting at 6:45 p.m. CITIZEN COMMENTS No citizen comments were offered. APPROVAL OF DECEMBER 14 MEETING MINUTES Mr. Vanderheiden noted that "defend to Council" would be better phrased "explain to Council." Moved and seconded: To approve the minutes with the change as noted. Motion approved unanimously. PUBLIC HEARING ON COMMUNITY DEVELOPMENT AND AFFORDABLE HOUSING NEEDS No public comments were offered. Mr. Waido noted that the level of funding to be received is unknown. Congress will probably approve continuing resolutions without redoing the entire budget. It is expected that this year's allocation will be close to, but perhaps slightly below, Community Development Block Grant Commission Meeting of January 11, 2007 Page 2 that of last year. In terms of other funding, there are no Land Bank funds, and the remaining funds in the Affordable Housing Fund are $133,000. The Human Services Program will have $332,000 of funding available, to be added to the 15% allocation of public service funds. In response to questioning, Mr. Waido stated that the Affordable Housing Board is advocating for replenishment of the Affordable Housing Fund. However, in view of the City's revenues, this cannot be accomplished without changing other funding priorities. No excess revenues exist. Mr. Waido reviewed the available allocations: Of CDBG funds, 15% are for public service, approximately 65% are for affordable housing programs, and administrative costs consume the remaining 20%. Those are historical allocations, not mandated, although the CDBG regulations does cap public service at 15%. HOME funds are allocated at 90% projects and 10% administration. Administration for both programs is currently short .5 FTE. At times, the Commission has held off on funding all applications in order to have more funding available for future cycles and, hopefully, more attractive proposals. Housing funds are roughly allocated at 80% rental and 20% for home ownership, with a flexible target of $7,500 per unit depending upon income targets. The Human Services Program, a former program in partnership with Larimer County, is allocated 100% to human services. The net result is approximately $500,000-600,000 for funding housing and public services. Public facilities funding has been a low priority but has been used for very worthy projects such as Crossroads Safehouse. Public facilities also can offer special challenges in terms of compliance. SECTION 108 PROGRAM Mr. Head reported. Background: Last year, the City went to a new budgeting process, budgeting for outcomes. The City was experiencing decreased sales tax and other revenues that then adversely affected the City's fiscal health. The City wished to be Community Development Block Grant Commission Meeting of January 11, 2007 Page 3 creative and research innovative ways of tapping into new funding sources, either through State or Federal government. Staff has proposed use of a Section 108 Loan Program, a HUD program, that provides leveraging of a low interest loan based on the allocation of CDBG funds. The Section 108 Program is one of the largest economic development tools available. Roughly a half billion dollars was allocated to communities in 2006. The program provides long-term, low-cost financing with targeted projects and is part of the Housing Community Development Act. The guidelines of Section 108 mirror the CDBG program, so the two programs are somewhat interrelated in that way. The program has been around for about 30 years and has assisted over 1,200 communities. Examples: The Denver Aquarium; Six Flags in Denver, or Elitch's; Boulder Drive -In Theater, a conversion to a low-income housing project. A business loan pool is being developed in Colorado Springs. The uniqueness of the program stems from the ability to use CDBG dollars to leverage five times the amount. By example, if CDBG funds equal $1 million, the City can apply for $5 million from the Section 108 Program in the form of a low - interest loan that the City is responsible for paying back. Because of the City's loan liability, this is seen as applicable to housing or economic development -style projects, not human services. The requirements of Section 108 are to meet a national objective and to benefit low -to -moderate income households in the same ratios as mandated by the CDBG program. For every $50,000 of funding, a job must be created. This makes for an attractive economic development alternative. Other restrictions apply, such as environmental reviews, architectural barriers, and labor standards, which are similar to CDBG requirements. Section 108 can be used to finance high impact projects, spreading capital over time. The program has a fixed, low interest rate, with flexibility for repayment. It is a noncompetitive process. If application is made and is reasonable in its proposal, the money is available for local decision -making in using the funding. Staff proposal is a business loan pool to look at helping businesses expand or to attract new businesses with a long-term track record for creation of new job opportunities for low -to -moderate income households. Staff was targeting a minimum creation of 150 jobs, which is above the HUD requirement of 100 jobs. Staff wished to look at loan amounts of $1 million to $5 million, rather than trying to take on a number of small projects. Large projects also make the extensive paperwork requirements more palatable. Community Development Block Grant Commission Meeting of January 11, 2007 Page 4 Staff developed selection criteria to provide for businesses identified in the industry cluster and target study for the City. The study identified some of the core businesses in Fort Collins to build upon. The businesses identified in that study were given priority, as well as businesses in or around College Avenue. The focus will be on businesses in existence for five years, who have had ongoing operations, and have shown success. OPERATION: A Loan Review Committee would be structured, comprised of staff from Planning, Finance, City Attorney's Office, economic advisors, and lenders that would enable the program to make sound decisions with the highest probabilities of success. The repayment source for the program is the revenue from the project. Repayments would come from the borrower business, and other dedicated revenue sources can be used to service financing, such as the Downtown Development Authority's TIF funding. But CDBG funds would need to be pledged as security in the event of default by an applicant. To that end, additional security and collateral will be needed from the businesses themselves. In response to questioning concerning the mechanics of funding and financing, Mr. Head gave the following overview: Funding can be obtained either through HUD -issued bonds, or HUD reserve funds for interim funding between bond cycles. Interest rates are 4 to 5 percent. A provision would have to be applied where any repayments made would be placed in a separate fund to satisfy the bond funding in the allotted time. Program loans of up to 20 years can be made with an additional spread over the HUD rate in order to generate program income and pay for program operation. HUD has an application process, containing their standard requirements and such things as debt to income ratio, for business loans. A separate application process will be held for businesses applying for The Section 108 loans. These loans will be an adjunct to lending from financial institutions. This will share the risk and bring in financial institution involvement. HUD will have a minimum of 120 days for processing applications. Applications, as approved by City Council, will include sources and uses of the loan, how it conforms to City and HUD objectives, and other requirements by HUD. Applications will be submitted first to the Denver office. Once an application is approved, individual business applications will have quick turnaround. Community Development Block Grant Commission Meeting of January 11, 2007 Page 5 The Loan Review Committee will do the underwriting. Applications will have approval by the City Manager and City Council to move forward. The advantage of this process is its flexibility, long terms, noncompetitive funding, the amount of leverage, and the economic development that it provides. In response to questions, the following points were made: Applicants must be in the Growth Management Area or, in special cases, must serve Fort Collins residents. Land banking is not allowed in this program. Care must be taken in selecting situations where repayment is viable. Affordable housing projects receiving CDBG funds are not usually seen as being able to pay back loans. Although Section 108 has been around for a long time, developers have not approached the City for participation. Staff recognizes Council's desire to help stimulate the economy in the budget for outcomes process; therefore, this program is being promoted as economic development rather than as an affordable housing opportunity. A defaulted loan secured by CDBG funding will see a reduction by HUD of future CDBG funding in that amount, stretched over 20 years. Therefore, proper due diligence needs to be taken to ensure that loans are made to worthy applicants. The job generation goal was set higher than HUD's minimum threshold through the judgment of staff in promoting economic development and to provide a cushion to ensure that a business has no problem with meeting that threshold. Due to the risk and the amount of funding, this is not a program for small businesses. It could be used for existing businesses with a sterling track record or to bring in new business. Staff is planning to produce a procedures manual to cover the administrative efforts, budget ramifications, and all other possible outcomes in using the program. Applicants will have to clearly delineate the jobs and the economic development that they foresee generating, and then monitoring and compliance will play an important role in the Section 108 process. Job generation is counted by direct jobs, not spin-off employment. Job availability will be targeted to low -to - moderate income households, but the jobs created may be quality jobs. The targeted job creation does not have to be for the life of the loan, but staff needs to research for the exact requirement. The number of jobs to be created is based s ,< Community Development Block Grant Commission Meeting of January 11, 2007 Page 6 upon the amount of the CDBG money leveraged, not for the full amount of the loan. Default rates are historically very low. The program will be taken to City Council for a study session in May. Council will ultimately decide whether to move forward with the program. The Commission is being informed due to its potential participation with a lender and because CDBG money is potentially being placed at risk. The full allocation can be used once only until paid back. Therefore, Staff is hopeful for a large worthy project that can apply for this funding. Many opportunities can be envisioned through this project. OTHER BUSINESS United Way's Housing Day Care Center will go to the Planning and Zoning Board next Thursday. ADJOURNMENT The meeting adjourned at 7:35 p.m.