It is the mission of Mid-Peninsula Housing Coalition (MPHC) to provide decent, safe and affordable shelter for low-income residents and to strive to preserve affordability and to maintain building standards for all properties owned under MPHC affiliates. They are particularly concerned with preserving properties whose affordability restrictions are expiring and those properties that require rehabilitation. They have developed an Asset Management Plan to solely own, rehabilitate and preserve affordability.

Morse Court consists of thirty-five rental units located at 825 Morse Avenue. It is a twenty-year old affordable housing project. The City of Sunnyvale contributed the land towards the development of this project. The property has a Section 8 contract and associated affordability restrictions that will expire in July 2003. When these restrictions expire, the project can be sold on the open market at market price and rent restrictions would be lost. Mid-Peninsula Housing Coalition is the operating general partner and has provided management of the site during the last twenty years. Mid-Peninsula currently has a purchase agreement to purchase Morse Court from their tax credit limited partner at $2,800,000 – a below market purchase price. They are acutely concerned that the price may increase dramatically if they are unable to close the escrow to purchase by December 31, 2002.

The project is currently financed with the California Housing Finance Agency (CalHFA). Although prepayment of these loans is typically prohibited, CalHFA has agreed to refinance this project at the purchase price of $2,800,000 in order to preserve the affordable rents, extend the affordability restrictions and accomplish the necessary rehabilitation.

CalHFA is willing to loan $2,800,000 to fund the acquisition, associated closing costs and financing fees. To receive the loan, CalHFA requires that Mid Pen complete over $400,000 of rehabilitation in order to ensure the long-term viability of the project and bring the property up to their standards. However, CalHFA will not provide additional monies to cover the cost of rehabilitation. Therefore, to meet CalHFA’s refinancing condition, Mid-Peninsula identified all available sources of funds, including the project's established affordability reserve to fund the required rehabilitation costs.

A review of documents recorded against Morse Court was conducted. This resulted in a detailed review of The Agreement for Disposition of Land for Private Development (The Agreement No. 7583929) recorded on July 28, 1983. The Agreement stated that the project site and improvements will be "subject to ad valorem property taxes" and "in the event the project is exempt from property taxes, a like amount shall be paid to the City of Sunnyvale in lieu of property taxes." While the agreement was cited in a preliminary title report, a tax audit did not note this agreement. Mid-Peninsula relies on the tax audits to outline all obligations of their properties.

From 1983 to 1988, Morse Court's property taxes were assessed and paid to the County of Santa Clara. In January 1988, property taxes were reduced based on AB2144, a state law which expanded the Welfare Exemption to include rental housing and related facilities serving lower-income households. The statue requires those funds in lieu of property taxes to be used to maintain the rent affordability, to make building improvements, or to further promote the non-profit mission through providing services to residents.

Staff and representatives of Mid-Peninsula Housing Coalition have met and discussed the various issues, which include the preservation of the affordability of the project, as well as the interpretation of the existing agreement. Mid Pen now understands that they have an obligation towards the City to pay monies in lieu of taxes from January 1988, when they received the property tax exemption from the state, through June 2002, when the agreement expired.

1. Approve the modification to The Agreement for the Disposition of Land, recorded on 825 Morse Avenue, providing a total due the City of Sunnyvale of approximately $35,000 of the required repayment of "ad valorum property tax" from January 1988 through June 2002. The amount to be repaid from the project affordability reserve balance after rehabilitation and with any remaining unpaid balances due upon repayment of the CalHFA lien.
2. Do not approve a modification to The Agreement for The Disposition of Land.

1. Agreement for Disposition of Land For Private Development