SunnyvaleRTC

April 5, 2005

SUBJECT: Request to Appropriate $44,100 in Below Market Rate (BMR) Homeownership Fee Revenues to the BMR Implementation Program and Budget Modification No. 26

REPORT IN BRIEF

Approval is requested for Budget Modification No. 26 to appropriate revenues generated from Below Market Rate (BMR) program fees to fund expenditures related to the implementation of the BMR Homeownership Program. As of March 2005, the BMR Homeownership Program has generated $36,400 in application processing fee revenues and anticipates receiving an additional $7,700, from 11 additional applications to be processed by June 2005. The greater than anticipated number of BMR units available to sell has resulted in the need to process a much higher than anticipated volume of BMR applications. The number of BMR sales to be completed through June 2005 will be 30 units, three times the number of units originally projected for this year. Additional resources of $15,400 are needed to fund the costs of homebuyer educational workshop services provided by non-profit agencies on behalf of the City; $28,700 is needed for additional staff time to process applications and manage escrow. The needed staff resources will be transferred from the First Time Homebuyer Support Program, which will be delayed by four months as a result.

BACKGROUND

On June 1, 2004, a BMR Housing Program Update including an Amendment of Ordinance 19.66 was presented to the City Council (RTC 04-199). This report provided Council with a progress report on actions taken in response to the audit of the BMR Homeownership Program and the request of an amendment to Section 19.66 of the Municipal Code to include fees for specific staff services and expenditures related to the BMR Program. The BMR fees were included for budget adoption on June 15, 2004 and became effective on July 8, 2004. The BMR fee which applicants submit with their application to purchase is $700 and is intended to recover the costs of providing educational workshops and for processing of the applications by the City.

To date, the City received fifty-two purchase applications, which require staff reviews, verifications of eligibility documents, working one-on-one with applicants and determination of preference points to purchase a BMR property. These applications have generated a total of $36,400 in fee revenues.

EXISTING POLICY

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.

Housing and Community Revitalization Sub-Element (1992):

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 C: Promote and maintain a 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 as a result of normal growth processes and employment opportunities.

DISCUSSION

In an effort to ensure that all BMR applicants waiting to purchase a home have a thorough understanding of the City’s guidelines and restrictions, staff has obtained the services of a non-profit agency that provides homebuyer workshops specifically geared to the City’s BMR Homeownership Program. The overall course consists of two separate but linked modules. The curriculum for each module contains the following:

Module One - 2 hours

Understanding the requirements associated with the wait list and approval procedures

· A detailed, hands-on explanation of how to successfully complete the City application forms and how to prepare related documentation to verify priority preference points.

Module Two – 2.5 hours

Understanding the guidelines and restrictions of the city’s BMR Housing Program, emphasizing the programmatic limitations and the terms contained in the deed restrictions. This module includes the provisions governing:

ü Refinancing

ü Selling and transferring

ü Owner occupancy of the unit

ü Program requirements including annual certifications and continuing homeowner education

ü The potential consequences of failure to comply with restrictions.

In June 2004, City Council approved a $700 fee to recover the costs of the educational workshops and processing of applications for the homeownership program. Since the new BMR application processing fees were implemented after development of the FY 2004-2005 budget, fee revenues were neither budgeted nor appropriated to fund any program expenditures.

The current budget for the BMR Program Implementation activity is $12,693, which is funded by interest earned on prior years’ accumulation of various housing revenues. It has been anticipated that this budget would be increased through a budget modification when it becomes clear how many BMR units would need to be processed during the year and what amount would be realized from the new fees. In fact, expenditures to date for this activity are $41,770. The current budget was developed with the assumption that ten BMR units would be purchased or resold during fiscal year 2004. As stated earlier, the number of BMR sales expected to be completed by June 2005 is 30 units.

The rapid development of various housing projects led to a higher than anticipated availability of units in the BMR Homeownership Program. To date, 12 BMR units were sold and two additional units will close escrow this month. Staff efforts are focused on ensuring a sufficient pool of qualified applicants is maintained to purchase approximately 16 additional BMR purchase units that will become available by this June. Resources in the amount of $44,100 are needed to fully fund the activity. $15,400 is needed for additional homebuyer workshops and $28,700 for staff time to process applications and manage escrows. To meet the workload, staff recommends moving work hours currently budgeted in the First Time Homebuyer Support project to the BMR Program Implementation activity. This will result in an approximately four months delay in the initial implementation of this new program.

The First Time Homebuyer Support program will help low and moderate-income renters become first time home buyers of housing units that may or may not be BMR units. To date, the educational components of the program have been launched, but the proposed independent development accounts and downpayment assistance components have not yet been initiated. Staff plans to present the details of these components to Council on April 26, 2005. Staff believes that a timely response to the unanticipated high demand in the BMR Home Ownership Program is more critical than launching these two components of the First Time Homebuyer Support Program, which are being delayed approximately four months.

FISCAL IMPACT

Approval of Budget Modification Number 26 would appropriate $44,100 in BMR program fee revenues to the BMR Program Implementation activity for expenditures related to processing applications and education workshops for the BMR Homeownership Program. $15,400 is needed for additional homebuyer workshops and $28,700 for staff time to process applications and manage escrows. This Budget Modification would also reduce 528 staff hours currently budgeted in the First Time Homebuyer Support project, which is funded with BMR In-Lieu monies. This results in a return of $28,700 to the BMR In-Lieu Reserve.

BUDGET MODIFICATION NO. 26

FISCAL YEAR 2004/2005

Current

Increase

(Decrease)

Revised

Housing Fund / Other Grant Supported Sub-Fund

Revenue:

BMR Program Fee Revenues

$ 0

$ 44,100

$ 44,100

Expenditures:

230340 BMR Program Implementation

$ 12,693

$ 44,100

$ 56,793

824471 First Time Homebuyer Support

$1,024,714

($28,700)

$996,014

Reserves

BMR In-Lieu Reserve

$2,319,206

$28,700

$2,347,906

Conclusion

The request to appropriate $44,100 in BMR program fee revenues would increase the budget for the BMR Implementation Program activity. This will fund the higher than anticipated workload for this program, including the cost of processing applications and costs for additional educational workshops.

Participation in pre-purchase education programs is mandatory for BMR wait list applicants. These programs enable applicants to become knowledgeable about program requirements. The programs are necessary to educate first time homebuyers on how to be best prepared to complete the required application and documentation process, and what guidelines and restrictions govern their on-going participation in the BMR Homeownership Program.

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.

ALTERNATIVES

1. Approve Budget Modification Number 26 to appropriate $44,100 in BMR Program Fee Revenues to the BMR Program Implementation activity for expenditures related to processing applications and education workshops for the BMR Homeownership Program. Reduce 528 Housing Programs Analyst hours from the First Time Homebuyer Support project, and move the hours to the BMR Program Implementation activity.

2. Do not approve Budget Modification Number 26 to appropriate $44,100 in BMR Program fees for BMR Program Implementation costs.

RECOMMENDATION

Staff recommends alternative 1. Approval of Budget Modification Number 26 will allow the BMR Homeownership Program to run smoothly and insure that qualified buyers are available and prepared to purchase the unanticipated high number of units which will become available this year. The reduction of 528 Housing Programs Analyst hours from the First Time Homebuyer Support project to the BMR Program Implementation activity will result in a minor delay in the implementation of two components of the First Time Homebuyer Support project, but staff believes that it is more important to meet a commitment for an existing program than to meet a target date for initiation of a new program.

The BMR Purchase Wait List created last year is currently comprised of a pool of over 400 applicants. There are 140+ homes that will become available in the

next 18-24 months. Staff anticipates an additional $79,800 in BMR Program Fee Revenues will be received in FY 2005/2006. The fee revenue and the corresponding increase in the budget for the BMR Program Implementation activity will be included in the FY 2005/2006 Recommended Budget for Council consideration. Participation in pre-purchase education programs is mandatory for BMR wait list applicants and BMR homeowners. An ongoing investment in pre-purchase educational programs about BMR Program requirements is essential and will help to reduce applicant processing costs and program enforcement costs since applicants and owners will be very familiar with program requirements.

Reviewed by:

Annabel Yurutucu, Housing Officer
Prepared by: Katrina L. Ardina, Housing Programs Analyst

Reviewed by:

Robert Paternoster Director, Community Development

Reviewed by:

Mary J. Bradley, Director of Finance

Approved by:

Amy Chan

City Manager