Affordable housing advocates scramble for funding

With redevelopment financing no longer an option in Morgan Hill,
city and state officials are in search of new funding sources to
provide affordable housing to local low- to moderate-income
families.

Last year, the Morgan Hill Redevelopment Agency collected about
$3.9 million in tax-increment property tax revenues to help private
developers fulfill the city’s affordable housing requirements, and
to assist first-time home buyers seeking below-market-rate
houses.

Most of that money was spent, and represents 20 percent of the
total tax increment revenue collected by the RDA last year – and an
amount required by state law to be set aside by all RDAs for
affordable housing efforts. That assistance in Morgan Hill just
last year included about $1.6 million for 31 loans to low- to
moderate-income first-time home buyers, and a $275,000 loan to
South County Housing to renovate 52 Crest Avenue apartment units -
a “very low-income” housing complex.

But the redevelopment agency closed Feb. 1, due to a state law that
redirects the agency’s revenues and assets to the general funds of
the city and county, as well as to public education. Without that
revenue and other funding sources drying up, no one yet knows how
the future demands for affordable housing will be met.

“We saw the writing on the wall last summer,” said Dennis Lalor,
president and CEO of the nonprofit South County Housing.
“(Redevelopment) is a significant source of development financing.
We’ve had redevelopment financing in hundreds of units we’ve
created in Morgan Hill. The commitment and policies are in place,
but the funding is going to be another challenge. At the same time,
other state and federal programs are stressed.”

Meanwhile, the need for affordable housing promises not to
disappear, and the city’s requirement to fulfill that demand will
remain in place with or without public development financing. The
Morgan Hill general plan housing element – a state-mandated
projection of future housing needs – says that between 2007 and
2014 about 62 percent of new housing units in the city would have
to be allocated for extremely, very low, low and moderate income
families.

Lalor added that the Morgan Hill RDA has an “exemplary record” for
providing housing that is affordable at all income levels.

The biggest advantage of RDA housing or construction loans is the
money helps the developer or buyer gain leverage for more funding
from other sources. “Pre-development (financing) is the hardest
thing to get, and that made it extremely valuable,” Lalor
said.

South County Housing predates the Morgan Hill RDA, which was
created in 1981. Since the RDA’s inception, the developer has built
six low- to moderate-income rental developments and six such
subdivisions in Morgan Hill, Lalor said.

Projects include affordable apartments at the downtown Skeels
building, Depot Commons, 60 units at Sunrise Meadows, about 16
units at Jasmine Way, and even a development that caters to
teachers and public safety workers off Watsonville Road.

Though not affiliated with South County Housing, one of the most
high-profile projects funded by the “housing set-aside” dollars is
the six-home Habitat for Humanity development on Cory Drive, to
which the RDA loaned more than $500,000 in 2008.

South County Housing and the network of similar private and public
affordable housing agencies and advocates throughout the state are
in the process of setting up a trust fund for affordable housing
financing to replace the loss of the RDA, Lalor said.

The city can still use future repayment of outstanding affordable
housing loans, as well as rent payments, for future low- to
moderate-income projects, City Manager Ed Tewes said.

After the RDA was dissolved, the city council appointed itself the
“successor housing agency” to administer those loans and projects
that were in progress at the time of the closing of redevelopment.
The successor agency will be eligible to use any tax increment
revenue left over after the former RDA’s annual debt and contract
payments are made, if the new “oversight board” chooses to direct
such funds to affordable housing, Tewes explained.

The city also has a “housing mitigation fund” to which developers
over the years have contributed cash fees when they were unable or
unwilling to completely fulfill their affordable housing
requirements.

“The successor agency clearly is not going to be as rigorous as the
former redevelopment agency, but it does have assets and the
potential for future income,” Tewes said.

A bill working its way through the legislature is trying to replace
the sizable slice of the affordable housing finance pie lost with
redevelopment. Senate Bill 654 would allow cities to continue using
current housing fund balances and a portion of future property tax
revenues for housing efforts. The bill passed the Senate last week,
but not with the two-thirds majority that would enact it
immediately as an “urgency” measure. The law would go into effect
Jan. 1, 2013, if it gains assembly approval and the governor’s
signature.

In Morgan Hill, that bill would keep about $1.8 million in the
local housing fund, protected from redistribution by the oversight
board – but only if lawmakers can make the measure take effect
sooner than its expected starting date.

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