April 5, 2005
SUBJECT: Review of Modifications to Municipal Code Chapter 19.66 and Administrative Procedure provisions for Renters in the Below Market Rate (BMR) Program
REPORT IN BRIEF
This report provides a review of the Below Market Rate (BMR) Program and describes certain changes of procedures related to rental units that have occurred by amendment to Municipal Code 19.66 (see Attachment F) or are contained in recently prepared programmatic administrative procedures (see Attachment E). This report was prepared as a response to issues and concerns expressed by Tri-County Apartment Association related to how the implementation of procedures may affect the business operations of apartment complexes with BMR units. During the last seven months, gradual implementation of the revisions to the Municipal Code has been underway, as well as development and completion of administration procedures. These efforts will provide the framework for ongoing management and annual audits of complexes with BMR rental units. A full description of the items that were approved by Council and supporting documentation have been included in the report.
Programmatic restrictions or limitations that were developed by staff as administrative procedures are identified and are fully described as part of this review. The staff rationale that resulted in certain program determinates has been provided. The current status and/or planned schedule for implementation have been provided for each change or modified procedure.
Listed below are the issues raised by Tri-County Apartment Association (TCAA) and a summary of the staff response to each. Staff has modified administrative procedures in response to the Association’s concerns where experience has indicated that such modifications will improve procedures while still conforming to policies set forth by City Council.
|
Issue |
Origin |
Staff Response |
|
Certification of Eligibility
|
Administrative Procedures |
Procedures revised per Association recommendation |
|
12-Month Lease |
Administrative Procedures |
Procedures revised per Association recommendation
|
|
Occupancy By Employees |
Administrative Procedures |
Procedures revised per Association recommendation
|
|
Changes in Occupancy |
Administrative Procedures |
Procedures modified to address Association’s concerns
|
|
Fee for Certification |
Council Resolution |
Council prerogative
|
|
Income Limits
(70% of Area Median Income) |
Municipal Code |
Study Issue to reconsider |
Tri-County Apartment Association has since rescinded its request to consider an increase of household income eligibility from 70% to 80% of area median income.
BACKGROUND
In 1980, Sunnyvale adopted an Affordable Housing Ordinance, which can be found in Section 19.66 of the Sunnyvale Municipal Code (Attachment F). The adoption of the inclusionary housing requirement was a recognition by Council that the City of Sunnyvale and all of Santa Clara County were facing an acute affordable housing crisis which specifically impacts low and moderate income renters and homeowners, including all employment categories defined as essential workers (i.e., public school employees; city, county, state and federal employees; teachers at licensed child care centers; health care workers; and service industry workers).
During the first twenty years, the BMR program created a total of 818 BMR units comprised of both rental and purchase housing. Due to real estate market economics and conditions, more than 75% of the BMR units constructed during those years (1980-2000) were rentals. Since 2000, this trend has reversed with only 14 new rental units in development compared to 141 ownership units in development.
In October 2001, staff undertook the first comprehensive audit to validate proper occupancy of all ownership BMR units and has previously reported the results to Council. The audit provided evidence that up to 48 BMR owners may have moved out of their property and rented it to others, in violation of the BMR program requirements. Further investigation and enforcement by staff has resulted in 16 forced sales and one additional property in litigation in order to force the sale. The City has received over $191,000 in penalties to date due to the audit findings and the City may receive an additional $69,000 in penalties pending successful resolution of the two remaining cases.
The audit also revealed that 29 owners of BMR units violated the restrictions on refinance and had obtained loans that exceeded the allowable resale value. Staff has taken actions necessary to prevent these and others from continuing this practice including the development of a Deed of Trust, required endorsement of the Deed of Trust from all owners in violation of program restrictions, notification to their lenders, and correspondence to all BMR owners on the value of their homes and the proper process to follow to obtain approved loan refinancing.
The completion of the ownership audit provided valuable insights regarding the type of procedures, record-keeping, monitoring and legal documentation required to operate a highly successful BMR ownership program. It also provided staff with a direct knowledge of various types of programmatic abuses that had occurred and an insight into how best to prevent those occurrences in the future. This knowledge was extremely useful in the development of the BMR administrative procedures for BMR ownership housing.
Administration of the rental program differs from that of the ownership program. Whereas in the ownership program staff certifies participants and manages the wait list, in the rental program these functions are the responsibility of the owners of each rental complex (i.e., there is a separate wait list for each complex). Over the past ten or more years, staff has conducted annual on-site audits of each complex which check to see that occupants have qualifying incomes and that appropriate rents are being charged. During that time the complexes were not required to periodically submit copies of their wait lists for review, and due to the lack of this data the audits have not been able to adequately verify the validity and proper management of the wait list.
In January, 2003, the City Council revamped the rental program, as had recently taken place with the audit of the homeownership program, by amending Municipal Code Chapter 19.66. Staff subsequently developed administrative procedures for renters (Attachment E) consistent with the amended code. The information obtained during on-site audits provided a basis for developing procedures that would limit possible abuses of the program. The expectation was that by providing property managers with detailed operational procedures and reporting timeframes, the intended benefits of the program to low-income residents would be ensured. Implementation of the new guidelines and required reporting schedule is gradually occurring this year. The required audit for April 2005 is intended as an onsite training opportunity so that property management staff may be more successful in future program audits.
Since it was adopted in 1980, the Affordable Housing regulations have undergone six amendments. Following is a brief summary of historical modifications to Sunnyvale Municipal Code Chapter 19.66:
1980-1989
In 1982, legislative policy 2.33 was enacted to allow smaller interior units and to specify minimum room size standards. Following a study to evaluate the impacts of instituting an in-lieu fee option for smaller developments, the regulations were amended in 1989 to allow the fee for developments of less than twenty units with City Council approval.
1990-2000
In 1991, the State Bonus Density Law was codified into the BMR regulations. In 1992, several changes were made as follows: a waiver was added for multi-family projects of fifty or more units that were not able to use the density bonus; BMR units were required to be constructed concurrently with market-rate units, they were to be dispersed throughout the development and to have a similar number of bedrooms and exterior design to the project as a whole; and, the sale and resale procedures were revised. The BMR regulations were amended in 1994 to allow the Community Development Director authority to waive the requirement to provide BMR units in exchange for the in-lieu fee.
2000-2005
At the 2001 Study Issues workshop, City Council directed staff to explore options for affordable housing for teachers and City employees and to include a comprehensive review of the BMR Housing Program. More specifically, City Council requested that the review cover the availability of housing units, eligibility, housing preferences and the types of housing development offered in the Program. This was to be a two-year study to be brought to City Council in two phases for the 2002 calendar year.
In January 2003, BMR regulations pertaining to rental units were amended as follows:
§ Legislative Policies 2.3.3 and 2.3.7 were repealed;
§ the requirement for BMR rental units was retained at 10% of units, but was to be increased to 15% when the vacancy rate drops to 3% or less as indicated on the semi-annual vacancy survey, and rents increase 20% (net) over a rolling two year period;
§ projects of less than nine units were exempted from BMR Program requirements;
§ the deed restriction for rental units was extended to 55 years;
§ priority categories for program participants were adopted based on a point system, which priority system would return to City Council for approval;
§ the household income limits were lowered from 80% AMI to 70% AMI or less;
§ the methodology for allowing for annual increases in rent was modified to limit increases to the lesser of 5% or the actual percentage increase in median market rent in Sunnyvale over the past 12 months.
These amendments were made following two study sessions each with the Planning Commission and the Housing and Human Services Commission. The report was presented on September 23, 2002 at a Planning Commission Public Hearing and on September 25, 2002 at a Housing and Human Services Commission Hearing. Following a Council study session on October 22, 2002, staff sought the advice of an economic consultant. Two additional focus group meetings with stakeholders from the development community, including apartment developers, managers and trade associations, were held in November and December 2002. City Council took action on the report (RTC -03-031) on January 28, 2003.
EXISTING POLICY
General Plan Goals, Policies and Actions related to this issue are listed below.
Land Use and Transportation Sub-Element (1997)
Goal C2: Ensure ownership and rental housing options in terms of style, size and density that are appropriate and contribute positively to the surrounding area.
Action C2.1.1 Ensure consistency with the City’s Housing and Community Revitalization Sub-element.
Policy C2.2 Encourage the development of ownership housing to maintain a majority of housing in the City for ownership choice.
Housing and Community Revitalization Sub-Element (2000)
Goal A: Foster the expansion of the housing supply to provide greater opportunities for current and future residents given environmental, social, fiscal and land use constraints.
Goal B: Move toward a local balance of jobs and housing.
Policy B.3 Continue to permit and encourage a mix of residential and job-producing land uses, as long as there is neighborhood compatibility and no unavoidable environmental impacts.
Goal D: Maintain diversity in tenure, type, size, location and cost-of-housing to permit a range of individual choice for all current residents and those expected to become city residents.
Policy D.4 Provide a mixture of owner and rental housing opportunities by allowing conversion from apartments to condominiums or cooperatives when a benefit to the overall city housing situation can be shown and when the citywide vacancy rate for rental units warrants.
Goal E: Maintain and increase housing units affordable to households of all income levels and ages.
Policy E.1.b Comprehensively review and update the Below Market Rate (BMR) Program to better address affordable housing needs. Review code requirements for terms and conditions, review and update administrative processes to enhance marketing, monitoring and compliance.
Consolidated Plan 2000-2005
The Consolidated Plan, which is required by U.S. Department of Housing and Urban Development (HUD), establishes priorities, strategies and objectives designed to correspond with adopted goals from the Housing and Community Revitalization Sub-element. The following Consolidated Plan Objectives support the Housing Sub-element Goals and Policies listed above:
Objective H-15: Produce, through Sunnyvale’s Affordable Housing Ordinance, 150 below market rate rental units affordable to low and moderate-income individuals and families (annual goal of 30 BMR units).
Objective H-16: Produce, through Sunnyvale’s Affordable Housing Ordinance, 10 low-income and 20 moderate-income below market rate purchase units (annual goal of 6 units).
These Objectives are identified as high priority in the Consolidated Plan.
DISCUSSION
On February 1, 2005, Council considered concerns of Tri-County Apartment Association, based on a letter from the Association addressed to the Mayor and Council (Attachment A). The letter requested Council to take the following actions:
a. Certification of Eligibility of Rental Applicants for BMR Units
b. Lease Requirements and Restrictions
c. “Live/work” eligibility requirement
d. Requirement that bars employees of owners or property management firms from applying and renting BMR units in complexes for which they work
e. Change in Occupancy restrictions limiting addition of occupants to leases
f. A $100 BMR fee for Certification of Eligibility for Renters
g. Household income limit of 70% of Area Median Income
In order to consider the requests of the Association, Council directed staff to review the Below Market Rate Program to note whether specified changes of procedures related to rental units have occurred by amendment to Municipal Code 19.66 or by promulgation of programmatic administrative procedures; to determine which areas were specifically approved by Council and the supporting documentation provided Council for that determination; to determine which areas were developed by staff as Administrative Procedures and the rationale used for that determination; and finally, report on the current status and/or planned schedule for implementation of those modifications.
The following discussion is organized around the seven issues raised by the Tri-County Apartment Association as listed above.
a. Certification of Eligibility of Rental Applications
In its letter of February 1, 2005, the Tri-County Apartment Association recommended that the certification process by staff be rescinded, and that responsibility for certification be returned to the management of each apartment complex which has BMR rental units.
Historically, when the criteria for eligibility were limited to family income and place of residency or employment, certification was the responsibility of the apartment owner. Following direction by City Council that a more complex preference system be instituted, staff developed an administrative procedure whereby certification would be undertaken by staff rather than by the apartment owners.
City Council first suggested a preference system for BMR rentals when it considered Affordable Housing for Teachers and City Employees on June 19, 2001. Council directed that this issue be addressed in the pending review of the BMR Program.
On January 28, 2003, when the review of the BMR program was presented to the Council, the Council amended Municipal Code Section 19.66.050 as follows: (Attachment F)
“ All persons in each of the following categories of otherwise qualified persons shall receive priority placement as more fully outline in the administrative procedure: qualified public school employees, city employees, childcare workers, persons who live in the city of Sunnyvale, and persons who work in the city of Sunnyvale.”
Council further directed that a preference system be defined in the administrative procedures, and that the preference system developed be returned to City Council for approval.
On September 30, 2003 (RTC-03-332), City Council approved the following preference categories for BMR rental applicants:
Preference due to Community Contributions:
q Reside in Sunnyvale
q Work in Sunnyvale
(Minimum requirement to reside or work in Sunnyvale for six months prior to application submittal.)
Preference due to Employment
q City of Sunnyvale employee
q School district employee working in schools with a majority of Sunnyvale student residents.
q Certified child care teacher working at child care center in Sunnyvale or at child care center operated by school district
q Sunnyvale service industry worker
q Sunnyvale health care worker e.g. home health care aide, staff in convalescent homes and assisted living facilities
q Other non-City Public Service employee (e.g. Santa Clara County, State, federal)
Housing Characteristics
q Resident of at-risk assisted rental unit (within 5 years of affordability expiration)
q Resident of BMR rental unit
q Resident of housing or mobile home park lost due to redevelopment or conversion
Preference due to Household Characteristics
q Single parent households
q Number of Children under 12
q Chronically Ill Persons including those with HIV and mental illness
q Displaced teenage parents (or expectant teenage parents)
q Disabled
q Homeless or at risk of becoming homeless
q Seniors (over 55 years old)
The rationale of staff for shifting responsibility for certification from the property owner to the staff was the complexity of the new preference system and the difficulty that owners would experience in implementing it. Review of the supporting documentation to verify the preference points claimed is time consuming. Following certification by staff, applicants would be able to utilize that certification at any of the rental complexes, compared to each complex completing a review prior to accepting the application. In addition, staff certification would address some of the allegations of applicants that wait lists have been manipulated to favor certain applicants.
Based upon further discussions with Tri-County Apartment Association, wherein the Association asserted that the property managers can easily use the priority preference system and will obtain verifiable documentation to prove different preference characteristics, staff is modifying the administrative procedures to indicate that property managers will assume responsibility for implementation of the preference system. Staff and TCAA will train the property managers to insure their full understanding of the documentation required and staff will include a review of priority preference system management as part of each complex’s annual audit. However, as described below, staff will maintain responsibility for the review of complex employee applicants seeking occupancy in on-site BMR rental housing. Subsequent discussions with Tri-County included their acknowledgement that property owners be penalized for audit findings. Therefore, staff has included an alternative that provides for a revision to Sunnyvale Municipal Code Chapter 19.66 to include penalties to insure rigorous compliance with procedures including administration of the preference system. Staff will work with the Association to insure full understanding of this modification.
b. Lease Requirements and Restrictions
In its letter of February 1, 2005, the Tri-County Apartment Association recommended that the requirement for a 12-month lease be rescinded. In its subsequent letter of March 1, 2005, the Association suggests that prospective tenants be given a choice of a 12-month lease or a shorter lease, including a month-to-month rental agreement.
The administrative procedures require a minimum lease term of one year unless the tenant is relocating into a BMR ownership unit, in which case a 30-day notice is required. The administrative procedure requirement was phased in over a five-month period and the property managers were asked to complete the conversion to 12-month leases by October 31, 2004. Staff is unable to determine the status of the conversion to 12-month leases until annual reports, submitted by the complexes, are received and reviewed this month.
This guideline is intended to protect low-income renters from unexpected rent increases within 12 months of moving into their unit. Based on the statements of Tri-County Apartment Association that some renters prefer a month-to-month rental, staff is modifying the administrative procedures to require apartment owners to offer a 12-month lease, but allow the tenants to choose a shorter term lease provided that rent increases are permitted only one time in every 12-month period of occupancy.
c. Requirement to Live or Work in Sunnyvale
In its letter of February 1, 2005, the Tri-County Apartment Association recommended that the requirement that BMR applicants either live or work in Sunnyvale be rescinded.
Historically, preference has been given to BMR applicants who either live or work in the City of Sunnyvale. This was reinforced by Council on September 30, 2003, when it included residing or working in Sunnyvale among the preference criteria as described above.
Staff agrees with the concern raised by Tri-County Apartment Association that administrative procedures should not require residence or employment in Sunnyvale, but rather give a preference to such applicants. Therefore, the requirement has been deleted from the guidelines so that households who do not reside or work in Sunnyvale could occupy BMR rental units if there were no Sunnyvale residents or employees on the wait list.
d. Occupying of BMR Units by Employees of the Apartment Complex
In their letter of February 1, 2005, Tri-County Apartment Association recommended that the prohibition against employees of an apartment complex occupying BMR units in that complex be rescinded. In their subsequent letter of March 1, 2005, the Association modified their position to recommend that all existing employee occupants be “grandfathered” into their BMR unit, and that all future employee applicants be required to make application to be placed on the wait list in the same manner as all other applicants.
The administrative procedures prohibiting occupancy of BMR units in an apartment complex by employees of that complex was promulgated by staff in response to complaints by applicants on the wait lists that employees were being given preference over others on the list. Staff was also concerned that apartment owners might offer low-rent BMR units to their employees as partial compensation for their work, thereby utilizing the reduced BMR rent to subsidize the apartment owner rather than the tenant. There is a perception of abuse of the BMR program since the apartment may be viewed as an employee subsidy. This practice would be difficult to audit and prove. The existing administrative procedure does not require employee occupants to move from the complex, but does require the apartment owner designate another vacant apartment as a BMR unit.
Staff concurs with the suggestion that present employees be “grandfathered” into the BMR units which they occupy. Like other occupants, however, they must give up the BMR rental when their income exceeds the BMR income limits. Staff has also altered the guidelines to permit employees to apply for certification to be placed on the wait list for the complex in which they work, so long as City staff certifies these applicants and that future occupancy by employees is limited to 25% of the total number of BMR rental units in the complex.
e. Rules Regarding Changes in Occupancy
In its letter of February 1, 2005, the Tri-County Apartment Association recommended that the prohibition of adding additional occupants to the lease be rescinded.
The administrative procedures contain the following regarding changes in occupancy:
Changes in Occupancy
The property owner/manager shall ensure that the original lessee remains in occupancy of the unit during the term of the lease. Subletting or substitution by the original lessee shall NOT be permitted. In the event that the original lessee(s) fail(s) to occupy a unit for a period in excess of 60 days, the lease shall automatically terminate and the property owner/manager shall notify all other occupants to vacate the unit within 30 days of the written notice.
If an additional occupant (roommate, family member, etc.) moves into the unit for a period in excess of 30 days, he/she is then considered part of the existing household. The BMR renter must notify the property manager, however the property manager may not add the additional occupant to the lease as a lessee. The entire household’s income (including the new occupant) will be evaluated to determine income eligibility, during the annual certification
The limitation on assigning lease renewal rights to new occupants was included in the administrative procedure to limit the abuses by tenants that staff had been made aware of during past audits of rental complexes. Of most concern was the circumvention of the wait list by maintaining control of the BMR unit through a roommate pass-through scheme. Several noted instances of this type of abuse related to students attending a chiropractic school. Each school year, new students would be added as roommates of existing students, and then as these students graduated, a new group of students would be added as roommates. Some BMR units had been controlled in this fashion for approximately ten years. The administrative procedure was developed to eliminate this practice of controlling the use of a BMR rental unit, thereby ensuring an opportunity for households on the wait list to occupy a vacated unit.
The requirement limiting lease renewal rights was discussed with the property managers during the previously mentioned meetings. The concern of the managers appeared to be related to the security of the complex and their need to know who was living in each unit. Tri-County Apartment Association has suggested that everyone in occupancy be included on the lease, but that the lease on the apartment be terminated when the original BMR occupants vacate the apartment. Therefore, any other individual on the lease will also be forced to vacate the unit making the unit available for the next applicant on the wait list. To address this concern while still protecting against the unauthorized transfer of BMR units from one occupant to another, the administrative procedures have been modified to permit managers to add new occupants to the lease, but require that all occupants endorse an addendum to the lease to acknowledge that they understand that they must vacate the unit upon termination of occupancy by the primary BMR lessees.
f. Fee for BMR Certification
In their letter of February 1, 2005, Tri-County Apartment Association recommended that the City suspend the $100 fee charged to applicants for staff to certify their eligibility and verify their preference ranking for occupancy of BMR rental units. In their letter of March 1, 2005, the Association reiterated its position, pointing out that the fee is often on top of an average $35 fee the apartment owner charges the applicant for processing the application.
On June 15, 2004 the City Council adopted its fee resolution for FY 2004/2005. Included in the resolution is a $100 fee for certifying applicants for the BMR rental program. Following is the justification for this fee as presented in the staff report (RTC-04-198):
Below Market Rate (BMR) Program Fees
Staff is requesting the inclusion of three new fees associated with the City’s BMR Housing Program. These new fees have been developed to recover costs from services provided to process BMR purchase applications, process BMR re-finance requests, and process certification of eligibility for BMR renters. Staff anticipates the proposed fees will generate $40,000 in revenue during FY 2004/2005. In order to be able to collect these fees a change to the current City Ordinance will be required. The Department of Community Development staff will present a report detailing the ordinance change on tonight’s agenda
Staff recommends a fee of $100 to process applications for BMR renters. In the BMR Rental Program, each property owner/manager maintains a waiting list for their property. However, the Administrative Procedures for the Rental Program (Attachment F) have been revised so that each applicant is granted preference points to determine their priority placement on the waiting list. The City will issue a "Certification of Eligibility" to each applicant so that there is uniformity in the review of documentation and assignment of preference points using the City’s database. Again, staff believes that the proposed fee is reasonable, within the same range of fees charged by other entities, below the actual cost for processing and should not act as an economic deterrent to those households in need of affordable housing.
As stated earlier, Tri-County Apartment Association has assured staff that the property managers are willing to use the priority preference system devised by staff and will obtain all verifiable documentation to prove different preference characteristics. Staff is modifying the administrative procedures to indicate that property managers will assume the responsibility for implementation of the preference system. However, staff will retain responsibility for the review of complex employees seeking occupancy in on-site BMR rental housing and will charge each applicant a fee of $100 to recover the costs of processing their applications. Therefore, there is no need at this time to modify the fee schedule.
Staff had delayed the implementation of the priority preference points for renters and certification of eligibility until April 2005. Notification to the BMR property managers was made on December 20, 2004 of a continuing delay of the implementation by the City until spring. The property managers were advised to continue to maintain wait lists for each complex and to verify live/work status, household income and legal residency/citizenship for each applicant. During the next two months staff, with Tri-County assistance, will train property managers and scheduled implementation of the priority preference system by the managers should begin by June.
g. Income Limitation for BMR Rental Occupants
The Tri-County Apartment Association did not include this issue in its letter of February 1, 2005. However, in its letter of March 1, 2005, the Association requests that the limit be raised to 80% of area median income (AMI), with households at or below 70% AMI being given priority.
On January 28, 2003, the City Council amended Municipal Code Section 19.66 to establish the maximum income of BMR rental occupants of 70% AMI and establishing a range of incomes for BMR owner units of 70%-120% AMI (RTC-03-031). The income limit for BMR rental units was previously 80% AMI. The reason for the change to 70% AMI was based upon the study that was done for a variety of occupations and presented to City Council on January 28, 2003 (see Attachment B). The study indicated that the salaries for the occupations listed ranged from 20.8% to 66.5 % percent of area median income. Childcare workers make the lowest annual salary at 20.8% of median and registered nurse make the highest annual salary at 66.5% of median. All of the salaries listed for “essential workers” are below 80% of median income and half of the salaries listed are considered to be very low-income (50% or less of median income).
To update the above statistics, 2003 median income for a family of four, according to HUD, rose 9% to $105,500 in Silicon Valley. However, 2004 and 2005 median income figures indicate 0% increase in median income. Although market rate rents have decreased from 2001, the maximum allowable BMR rents were frozen at the rent formula in place prior to the revision to the municipal code. These rents were calculated using a formula of one-twelfth of 25% of 80% of area median income. Therefore, a complex may now charge up to $1,151 for a one-bedroom unit or $1,295 for a two-bedroom BMR unit, which rents may equal or exceed present market rents. During the review process both Planning Commission and Housing and Human Services Commission supported the modification. The determination by Council to lower the income eligibility of BMR rental units from 80% of AMI to 70% of AMI was based upon the income and affordability information in Attachment B – Family Median Income and Attachment C - Rental Unit Affordability. At the same time the code was also amended to include households with 70%-120% of AMI as eligible for ownership BMR units.
A notice concerning the changes governing the maximum allowable income limits was sent to all BMR properties in April 2003, Attachment D. Staff prepared and distributed the Below Market Rate Housing Program Administrative Procedures for Renters to BMR property owners and property managers in June 2004. Meetings were conducted on June 11 and August 27, 2004 to discuss the administrative procedures and issues raised by the attendees. Clarification was provided to all properties in August 2004 that households with incomes above 70% of median income occupying BMR units would remain eligible until their income exceeded the prior income limits (80% of AMI); however, all new residents’ income should meet the 70% AMI eligibility criteria.
A modification to the 70% income limitation for BMR rental occupants would require an amendment to the Municipal Code Section 19.66. As noted in a letter to City Council from the Non-Profit Housing Association of Northern California (NPH), dated March 4, 2005 (Attachment G), maximum BMR rents exceed market rate rents and households making 80% of median area income can well afford a market rate housing unit. NPH goes on to suggest that Council should consider further lowering of income targets to less than 60% of AMI. Staff considered the two-tier system (70%AMI first-up to 80%AMI second) suggested by TCAA, since owners stated that they were unable to fill BMR unit vacancies from the pool of income eligible (70%AMI) households. Staff suggested a compromise, that if owners were willing to permanently lower the cap on BMR rental rates by 10%, i.e. to reduce a two bedroom unit from $1,295 to $1,166, then staff could support the two-tier system suggested by TCAA. However, following subsequent discussions with their members, TCAA has now indicated that they are no longer asking that this modification be considered.
FISCAL IMPACT
There are no financial impacts on the City’s General Fund.
Conclusion
The BMR program was initiated by the Sunnyvale City Council in 1980, and has since produced 818 housing units affordable to low and moderate income households (636 rental units and 182 ownership units). The first major audit of the program in 2001 revealed a number of significant abuses in the BMR ownership program, and annual audits and complaints from applicants and occupants suggested similar abuses of the BMR rental program.
In January, 2003, following a two-year review of the BMR program as a result of a Study Issue, the City Council revamped the program through amendments to the Municipal Code. In accordance with these amendments, staff subsequently prepared and promulgated the first administrative procedures for the BMR ownership and rental programs. As the new regulations and procedures have been implemented for the rental program, the Tri-County Apartment Association has been concerned that their ability to rent BMR units has been severely constrained. The Association’s recent communications to City Council have recommended modifications to recently adopted procedures which the Association believes would improve and simplify implementation of the program.
One of the issues raised by the Association related to recent amendments to the Municipal Code, the income limit for BMR rental occupancy. In accordance with City policy, a reconsideration of this matter is properly the subject of a Study Issue. Alternatively, staff considered the option of a two-tiered income system (70%AMI first-up to 80%AMI) since owners stated that they were unable to fill BMR unit vacancies, provided owners agreed to a 10% rent reduction. However, unless a majority of owners agreed to participate, staff feels that partial program implementation would be difficult administer. TCAA has since withdrawn this issue from consideration.
The remaining issues relate to administrative procedures promulgated by staff. The issues are listed below with the staff response to each:
Staff concurs with Tri-County and has made a modification to the administrative procedures so that property managers will be required to certify each applicant prior to occupancy of the BMR unit, with the exception that the City will certify all employees of the owner or property manager seeking to rent a BMR unit on-site.
Staff concurs with the suggestions of the Tri-County Apartment Association and is revising the administrative procedures to allow the tenant to choose a lease of less than 12 months provided that there are not rental rate increases over a 12-month period.
Staff concurs with the suggestion of Tri-County Apartment Association to “grandfather” existing employee occupants and to limit future occupancy at existing complexes to 25% of the site BMR rental units with City staff certification, and is revising the administrative procedures accordingly.
Administrative procedure has been modified to address the Association’s concern, while still prohibiting one BMR occupant from passing on the unit to another occupant.
PUBLIC CONTACT
Public contact was made through posting of the Council agenda on the City’s official notice bulletin board, posting of the agenda and report on the City’s web page, and the availability of the report in the Library and the City Clerk’s Office. A copy of this report was also sent to the Tri-County Apartment Association and the Non-Profit Housing Association of Northern California. Staff participated in several meetings and discussions with Tri-County Apartment Association. A letter from Nancy Tivol, Executive Director of Sunnyvale Community Services is included as Attachment H.
It summarizes the discussion and comments made at a meeting with participation of Tri-County staff and members of the community to discuss many of the issues described in this report.
ALTERNATIVES
1. Take no action.
2. Direct staff to place responsibility for certification of applicants upon the apartment owners, and direct the City Attorney to prepare, for Council consideration, a revision to the Sunnyvale Municipal Code Chapter 19.66 to include penalties to insure rigorous compliance with the BMR administrative procedures for rental complexes, including proper administration of the preference system.
3. Initiate a Study Issue to review specific aspects of Sunnyvale Municipal Code Chapter 19.66 as identified by Council for future consideration of amendment.
4. Direct City Attorney to amend Section 19.66 of the Sunnyvale Municipal Code to establish a two-tier system for income eligibility up to a maximum allowable income of 80% area median income, for properties whose owners agree to a permanent 10% reduction of BMR rents in complexes constructed prior to February 2003.
RECOMMENDATION