The request is from the Emergency Housing Consortium (EHC), a well-established local non-profit agency that has been providing shelter and services for homeless people since 1981. This agency is seeking funds to acquire a rental property providing 20 units to be used for a transitional housing program for families who have been homeless. Each family would be able to rent a suitable unit for two years as long as they participate in the case management plan administered by Emergency Housing Consortium. The rental rates would be affordable to very low-income families (earning 50% or less of the county median income).

EHC will be responsible for providing its own funding for repairs of the property, which will need moderate rehabilitation estimated at $5000 per unit. EHC has signed a purchase and sale agreement with the current owners of 167 Acalanes Drive. The acquisition and closing costs are projected to come from a deferred 3% interest loan in the amount of $1,425,000 from the City’s CDBG grant, $1,092,500 from a conventional mortgage, and $425,000 from EHC’s resources. The City’s Housing Division has received complaints about maintenance on this property and others on Acalanes Drive over the past several years. This project would help the City accomplish the objectives of providing much needed affordable housing for families and of improving the physical condition of existing rental stock. Emergency Housing Consortium will be in a better position to receive federal funds for homeless programs and Welfare to Work funds if it already has housing available.

This EHC project was outlined in the CDBG Action Plan for 1999-2000. Each year the City receives CDBG funds from the federal government for the purpose of increasing the affordable housing stock as well as to provide housing for special needs groups. Failure to spend a certain percentage of the CDBG funds in the City’s accumulated allocation can result in a decrease in future funds allocated. Because of the high sales prices and lack of vacant land in Sunnyvale, some prospective affordable housing projects have been indefinitely delayed or have not materialized during the last couple years. As a result the CDBG grant funds have not been spent in the time frame required by the federal government. Due to the escalating housing market other cities in the Bay area are facing the same dilemma.

Staff is recommending approval of providing financial support in the amount of $1,425,000 for the acquisition of twenty units for transitional housing for very low-income families. The $1,425,000 will come from CDBG funds.

Emergency Housing Consortium, well established in Santa Clara County as the major non-profit provider of services and shelter for the homeless, is also involved in the development of housing for people in transition from homelessness. EHC provides the winter shelter at the Sunnyvale Armory, the year round shelter at the Reception Center San Jose, and transitional housing in San Jose. The City has contributed $100,000 toward multi-jurisdictional funding of a transitional living program at EHC’s Sobrato Family Living Center in Santa Clara.

Council adopted the Consolidated Plan in May 1995 (RTC 95-140). It places high priorities on maintaining and increasing the stock of affordable rental housing for families as well as on providing transitional housing for homeless families and individuals.

The Housing and Community Revitalization Sub-Element contains the following goals, policies and objectives:

With this new project, EHC will be serving a population usually difficult to house; families who have become homeless for various reasons and who require services such as job training, childcare and budgeting to help them become financially independent. To insure that the project meets the needs of this population the intent is to have the rents as low as possible. The proposal will also involve for the first time the participation of two City Departments: funding for the housing coming from the Housing Division of Community Development and funding and services for the Welfare to Work portion of the case management plan coming from NOVA of the Employment Development Department. EHC’s service plan for this project is affixed to this report as Attachment A.

The property being considered is in an area targeted for improvement by the City’s Neighborhood Preservation Division. Having a stable nonprofit agency managing property will contribute to this improvement effort. The amount of City subsidy for projects has been increasing in the last several years due to the escalating purchase costs in this area. Fortunately, though, the federal grant amounts have been stable, program income has been increasing and the City has the funds to offer.

EHC had presented a proposal to the Housing and Human Services Commission on August 25, 1999. At the time the agency was negotiating purchases, but had not entered into any purchase agreements. It was thought that a subsidy from the City of $1,250,000 would be enough to keep rents on a twenty unit building affordable to very low income families. The plan was to request approval from Council when EHC had reached the point of a purchase agreement on a specific property. The purchase price of $2,675,000 for 167 Acalanes Drive is $775,000 more than EHC anticipated paying for a twenty-unit property, but the price compares well with similar properties at this time.

If the City funding were limited to $1,250,000, the proposed rents would be $825 for very low income (50% of county median income) and $925 for low income (about 62% of county median income) families for these two bedroom, one bath units. The low income families would mostly include tenants residing in the property at the time of EHC’s purchase. If City funding increased by $175,000 to $1,425,000 and EHC’s equity share increased from $400,000 to $425,000 the rents can be reduced to $750 and $895. A two person family earning $33,000 is currently considered very low income, and by HUD calculations could afford a rent of $825. However, it seems unlikely that a family emerging from homelessness will be earning $33,000. By these calculations it takes about $200,000 in additional subsidy to decrease the rent $75 per month. The total cost for the housing component of this project is expected to be $2,942,500, including $100,000 for the cost of repairs. Attachment B is the proforma for this component of the project.

The City’s financing will go toward the estimated acquisition costs of $2,842,500. The City’s contribution is proposed to be $1,425,000 in CDBG funds in the form of a 3% simple interest loan for forty years. Payment will be deferred for five years and future payments will be based on a portion of residual receipts. The loan balance will become due on sale. The City will require that long term affordability provisions be written into the grant deed.

The CDBG Action Plan, approved on May 2, 1999, anticipated that this project would happen this year. Funding of this project will leave sufficient CDBG funds for the ongoing single family rehab program, rental rehab program and funding outside agencies. Currently the City has a considerable amount of CDBG funds available for use. Due to the high cost of housing, both rental and ownership housing, projects have not come to fruition as quickly as anticipated. This has left the City with funds that need to be expended as soon as possible. HUD has understood that it has taken more time and money to make projects happen but it has still left us with an excess in the City’s account. This project has the ability to close quickly and use the CDBG funds quickly. This will also leave HOME and Housing Mitigation funds, which are under less of a time constraint for spending, for future projects. Spending these CDBG funds will insure the program meets federal guidelines of expending funds in a timely manner.