June 20, 2006

SUBJECT:  Request for additional funding in the amount of $84,000 to complete the sale of City owned property at 388 Charles Street and Budget Modification No. 29

REPORT IN BRIEF

As part of the FY 2005/2006 Budget, Council appropriated $552,500 in Housing Mitigation funds for the acquisition and maintenance of the 388 Charles Street property from the General Fund.  This property was originally acquired with General Fund monies and is currently managed as a low and moderate income rental unit.  An appraisal of the property indicated that its current value is substantially higher than the FY 2005/2006 Budget. Budget Modification No. 29 would increase the budget to $636,500 to complete the purchase at the current appraised value of $635,000 and pay for all closing costs related to the transaction.

BACKGROUND

388 Charles Street, a three-bedroom single-family residence, is one of eight City owned properties in the Downtown. The Charles Street property is currently planned for sale in FY 2009/2010 along with the other City owned Downtown properties upon completion of the Town Center Mall redevelopment project.  This property was originally acquired with General Fund monies.  As part of the FY 2005/2006 Budget, Council appropriated $552,500 in Housing Mitigation funds for the acquisition and maintenance of the property from the General Fund.  Staff determined that it is more appropriate to account for this property in the Housing Fund because it is currently managed as a low and moderate income rental unit.  Upon completion of this sale, all future rental revenues and proceeds from the sale of the property in FY 2009/2010 will be accounted for in the Housing Fund. 

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 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.

DISCUSSION

Staff obtained an appraisal of the property at 388 Charles Street which determined that the market value of the property in May 2006 is higher than the $550,000 purchase price estimated during the preparation of the FY 2005/2006 Budget.  The current value is $635,000, as determined by the appraisal included as Attachment A.

During the past 12 years, Community Development Block Grant (CDBG) funds were loaned to the City to rehabilitate and maintain this property.  The total amount due is $62,691 which will be repaid from the proceeds of this sale.  The FY 2005/2006 Budget for the General Fund includes revenues of $550,000 from this proposed sale.  The net proceeds from this sale will be placed in the Capital Improvement Projects Reserve of the General Fund.

As stated earlier, this property is planned to be sold in FY 2009/2010.  To keep the property in marketable condition, staff estimates that approximately $4,725 in annual maintenance and management costs is required. This includes $2,500 for maintenance, $1,600 for property management/administration and $625 for possesory interest tax.  This is higher than the FY 2005/2006 Budget which only included $2,500 for maintenance cost starting in FY 2006/07.  The annual rental revenue from this property is approximately $16,800, which more than offsets the maintenance and management costs; the project revenues and costs will be accounted for in the Housing Fund.  The revised maintenance and management costs estimate is included in the FY 2006/2007 Budget which is scheduled for Council adoption tonight.

FISCAL IMPACT

Approval of Budget Modification No. 29 would increase the budget for the City Owned Properties – 388 Charles Street to $636,500 to complete the purchase at the current appraised value of $635,000 and pay for all closing costs related to the transaction.

As stated earlier, a total of $62,691 in CDBG rehabilitation loan repayment will be deducted from the proceeds of this sale.  The FY 2005/2006 Budget for the General Fund included revenues of $550,000 for the sale of this property.  The net effect of the increase in appraised value and repayment to the CDBG Fund is approximately $22,000 in additional unanticipated revenues for the General Fund. All proceeds from the sale of this property will be placed in the Capital Improvement Projects Reserve of the General Fund. 

*Based on the May revised budget included in the recommended FY 2006/2007 Budget.

Conclusion

Staff recommends that Council approve Budget Modification No. 29 to complete the transfer of ownership interest from the General Fund to the Housing Fund.  In addition, to keep the property in marketable condition, staff estimates that approximately $4,725 in annual maintenance and management costs is required for this property. This is higher than the FY 2005/2006 Budget which only included $2,500 for maintenance cost starting in FY 2006/07.  The revised operating cost is included in the FY 2006/2007 Budget which is scheduled for Council adoption tonight.

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 No. 29 to appropriate $84,000 of Housing  Mitigation Funds to affect the transfer of City owned property at 388 Charles Street, appropriate funds from the sale proceeds to repay CDBG rehabilitation loan outstanding, and recognize the revenues for the General Fund and CDBG Fund as outlined in this report.

2.  Do not approve Budget Modification No. 29 and provide further direction for this project.

RECOMMENDATION

Staff recommends Alternative 1.  Approve Budget Modification No. 29 to appropriate $84,000 of Housing  Mitigation Funds to affect the transfer of City owned property at 388 Charles Street, appropriate funds from the sale proceeds to repay CDBG rehabilitation loan outstanding, and recognize the revenues for the General Fund and CDBG Fund as outlined in this report.

Reviewed by:

Robert Paternoster Director, Community Development

Prepared by: Annabel Yurutucu, Housing Officer

Reviewed by:

Mary Bradley Director, Department of Finance

Approved by:

Amy Chan

City Manager

Attachments

A.  A property appraisal of 388 Charles Street, dated May 16, 2006 prepared by Mr. Duane Adams.