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Item 10 - 1994-95 Charges for RDA Affordable Housing Projects ,. AGENDA REPORT SUMMARY- - TO: Honorable Chairman and Members of the Redevelopment Agency FROM: James L. Bowersox, Executive Dir~ INITIATED BY: John D. Fitch, Assistant Executive Director4rt ~ Warren H. Shafer, Director of Redevelopment ervic ~ Pamela R. Colby, Redevelopment Project Administrator~ DATE: November 14, 1995 SUBJECI': 1994-95 Planning and General Administrative Charges for Redevelopment Agency Affordable Housing Projects and Programs ABSTRACI' California Redevelopment law specifically authorizes agencies to charge the planning and administration costs of their affordable housing programs to their Low- and Moderate-Income Housing Fund. The Agency Board approved a methodology for calculating this cost in 1993 and this is the third year of undertaking this calculation. Staff has completed the calculation for FY 1994-95 and has identified a total of $416,784 in staff, consultant and legal costs associated with the Agency's affordable housing - program during that time frame. Of this amount, $166,141 was directly charged to the Housing Fund. The balance of $250,643 was initially paid by the Agency's General Fund and subsequently charged to the Agency's Housing Fund. ENVIRONMENTAL REVIEW This item is not subject to CEQA review. FISCAL IMPACI' There is no additional fiscal impact resulting from approval of the staff recommendation. These planning and administrative costs were paid during FY 1994-95. ADDITIONAL PUBLIC NOTIFICATION AND CORRESPONDENCE None, RECOMMENDATION It is recommended that the Redevelopment Agency adopt the attached resolution confirming the necessity of expending Housing Funds to pay costs associated with planning for and administering affordable housing projects and programs during FY 1994-95. ACI'ION - 1 of 11 NOV 1 4 1995 ITEM 10 AGENDA REPORT CITY OF POW A Y This report is included on the Con~nt Calender. There will be no separate discussion of the report prior to approval by the City Council unless members of the Council. staff or public request it to be removed from the Consent CaLendar and discussed separately. If you wish to have this report pulled for discussion. please fill out a slip indicating the report number and give it to the City Clerk prior to the beginning of the City Council meeting. TO: Honorable Chairman and Members Of~edeVelOPment Agency FROM: James L. Bowersox, Executive Dire INITIATED BY: John D. Fitch, Assistant Executive Directo~\~ . ~ Warren H. Shafer, Director of Redevelopment ervice Pamela R. Colby, Redevelopment Project Administrator~ DATE: November 14, 1995 SUBJECT: 1994-95 Planning and General Administrative Charges for Redevelopment Agency Affordable Housing Projects and Programs BACKGROUND Sections 33334.3(d) and (e) of the California Health and Safety Code specifically authorize redevelopment agencies to charge their Housing Funds the cost of planning for and administering affordable housing projects and programs. These costs must be directly related to specific affordable housing projects and programs and must not be "disproportionate" to the direct costs of said projects and programs. The Agency Board approved a methodology for calculating these planning costs in 1993 (Attachment "A"), and this is the third year of undertaking this analysis and charging the Housing Fund for its share of said costs. Pursuant to the approved methodology, staff has calculated the cost of planning for and administering affordable housing projects and programs during FY 1994-95. This report presents the findings of the subject analysis. FINDINGS Staff first identified those Housing Fund eligible planning/administration costs charged to the Agency's General Fund during the course of the year. The first cost component involves City and Agency staff time devoted to the Agency's affordable housing projects and programs. These staff costs are directly associated with those eligible projects and programs listed in ACTION: J 2 of 11 NOV 14 1995 ITEM 10 - - Agenda Report November 14, 1994 Page 2 Attachment "B". Staff time is tracked on bi-weekly time sheets submitted to and reviewed by Agency staff during the course of the year. Staff costs are calculated by taking the actual number of hours each employee spent on specific projects/programs, multiplied by the fully weighted hourly cost of that employee, including benefits. The number derived is then multiplied by appropriate overhead factors established by the HSI Cost Recovery Study undertaken and approved in 1993, as updated by staff. The result of this calculation for FY 1994-95 was the identification of staff costs totalling $187,501. 93. The second cost component identified are consultant services directly related to the Agency's affordable housing projects and programs. These include legal, financial, environmental, geotechnical, and relocation consultants who' worked on Housing Fund eligible activities. The total cost of these consultant services was $146,974.31 during FY 1994-95. Combining these two cost components results in a total of $334,476.24. These cost were transferred to the Agency's Housing Fund last month following the close of FY 1994-95. There are other costs meeting the definition of planning and administration, which were directly charged to the Housing Fund during FY 1994-95, which must be identified through this process. A portion of the cost of administering the lease agreement and managing Haley Ranch Estates has been identified by the City's Finance Division as Housing Fund administration cost. These costs are found in the Haley Ranch Estates (#1150) budget for FY 1994-95 and total $45,203.85. Also, a portion of the cost of affordable housing consulting services and the preparation of the Comprehensive Affordable Housing Strategy by David Paul Rosen & Associates were also charged to the Housing Fund in the amount of $26,022.57. These services specifically related to negotiating and structuring affordable housing projects and programs and the preparation of a study pursuant to the terms of the Smith II Judgement. The cost of administering the Affordable Residential Rehabilitation Loan Program during FY 1994-95 was also charged to the Housing Fund in the amount of $94,914.76. The total of these planning/administration costs already charged to the Housing Fund during FY 1994-95 is $166,141.18. Staff undertakes periodic analysis to confirm that the overall charges for planning and administration are not disproportional to the actual amount spent on producing, improving or preserving the community's supply of affordable housing. The following reflects the relationship between direct costs and planning/administration costs for the Agency's Housing Fund over the past three years. FY 1992-93 1,268,573 $204,007 16.1% FY 1993-94 5,219,888 $327,749 6.3% FY 1994-95 3,803,335 $416,784 11. 0% Average 3,430,599 $316,180 9.2% 3 of 11 NOV 1 4 1995 ITEM 10 Agenda Report November 14, 1994 Page 3 Consistent with the methodology approved in 1993, staff averaged the administration costs incurred over the past three years to confirm that said costs are reasonable and not disproportionate. The average percentage of the planning/administration costs in relation to direct costs is 9.2%. The Department of Housing and Urban Development (HUD) allows recipient agencies to charge 20% for administering Community Development Block Grant funded projects. The Agency's cost of 9.2% is less than half that amount and represents a reasonable and not disproportionate cost. ENVIRONMENTAL REVIEW This item is not subject to CEQA review. FISCAL IMPACT There is no additional fiscal impact resulting from approval of the staff recommendation. These planning and administrative costs were paid during FY 1994-95. ADDITIONAL PUBLIC NOTIFICATION AND CORRESPONDENCE None. RECOMMENDATION It is recommended that the Redevelopment Agency adopt the attached resolution (Attachment "CO) confirming the necessity of expending Housing Funds to pay costs associated with planning for and administering affordable housing projects and programs during FY 1994-95. Attachment: "A" - Planning and Administrative Charge Analysis "B" - Affordable Housing Projects and Programs "CO - Redevelopment Agency Resolution 4 of 11 NOV 14 1995 ITEM 10 - - ATTACHMENT "A" POWAY REDEVELOPMENT AGENCY LOfi- AND IIODERATE-INCOIfE HOUSING FUND Planning and Administration Charge Analysis Leaal Framework for Analysis: Sections 33334.3(d) and (e) of the California Health and Safety Code set forth specific provisions which govern the expenditures by the Redevelopment Agency of Low- and Moderate-Income Housing Fund monies for the payment of planning and general administrative costs of housing programs and activities. Section 33334.3(d) reads: It is the intent of the Legislature that the Low- and Moderate- Income Housing Fund be used to the maximum extent possible to defray the costs of production, improvement, and preservation of low- and moderate-income housing and that the amount of money spent for planning and general administrative activities associated with the development, improvement, and preservation of that housing not be disproportionate to the amount actually spent for the production, improvement, or preservation of that housing. The agency shall determine annually that the planning and administrative expenses are necessary for the production, improvement, or preservation of low- and moderate-income housing. Section 33334.3(e)(I) reads: Planning and general administrative costs which may be paid with moneys from the Low- and Moderate-Income Housing Fund are those expenses incurred by the agency which are directly related to the programs and activities authorized under subdivision (e) of Section 33334.2 and are limited to the following: (a) costs incurred for salaries, wages, and related costs of the agency's staff or for services provided through interagency agreements, and agreements with contractors, including usual indirect costs related thereto; (b) costs incurred by a nonprofit corporation which are not directly attributable to a specific project. Section 33334.3(e)(2) provides that: Legal, architectural, and engineering costs and other salaries, wages, and costs directly related to the planning and execution of a specific project which are authorized under subdivision (e) of Section 33334.2 and which are incurred by a nonprofit housing sponsor are not planning and administrative costs for the purposes. of this section, but are instead project costs. .. Due to this provision, many costs that would typically be considered direct project costs must be identified as planning and administrative costs. 5 of 11 NOV 14 1995 ITEM 10 Planning/Administration Analysis Page 2 of 4 In addition, Section 33080.4(c) allows for costs associated with preparing the portion of the Redevelopment Agency's annual report which sets forth information regarding the Agency's housing activities to be charged to the Housing Fund. Section 33418 requires that the Agency adequately fund its monitoring activities to ensure compliance with applicable laws and agreements related to housing affordable to persons and families of low or moderate income, developed or otherwise made available by the Agency, pursuant to the Law. In summary, costs are eligible only to the extent that they are directly related to housing programs and activities authorized under the Law and are not disproportionate, in the aggregate, to the amount of Housing Monies actually spent by the Agency for the costs of production, improvement or preservation of housing. Legal Counsel has confirmed that the Agency should demonstrate that planning and general administrative costs paid from the Housing Fund are related to specific affordable housing programs, projects or activities. Annual Findinas Reauirement: The Redevelopment Agency is required to make an annual finding that amounts paid from the Housing Fund for planning and administrative costs are necessary for the production, improvement or preservation of low and moderate income housing. The Housing Fund is now being charged for the majority of costs associated with planning and administration of affordable housing projects and programs at the end of each fiscal year by way of an accounting entry. Staff estimates a budget amount prior to each fiscal year at the time of the budget preparation. This is followed up by an analysis at the end of each fiscal year to calculate the actual costs associated with planning for and administering affordable housing activities during the prior year. ProDortionality Test Reauirement: As previously noted, the planning and administrative costs charged to the Redevelopment Agency's Housing Fund must not be disproportionate to the amount expended for direct affordable housing program costs. This "proportional ity test" must be undertaken in addition to the year-end analysis and annual finding requirement. While "proportionality" is not defined for the purpose of complying with this legal requirement, Legal Counsel concluded that the Poway Redevelopment Agency would be best served by "making its own affirmative determinations, based upon its own particular facts and circumstances, regarding the appropriate percentage of planning and administrative costs to be paid from the low- and moderate-income housing fund." This may be followed up with a comparison to other redevelopment agencies, and ultimately, with historical data. 6 of 11 NOV 1 4 1995 ITEM 10 . - -- - Planning/Administration Analysis Page 3 of 4 Time Frame for Prooortionality Test: This determination cannot be reasonably made annually, due to the nature of project or program development and implementation. Administrative and overhead costs tend to be high during the planning stages of a program or project. Therefore, confirming the proportionality of planning and administrative charges must ultimately be determined over several years. Legal Counsel determined that "the time periods referenced in any long-range affordable housing plan of the Agency... are acceptable time periods within which to meet the proportionality requirement." The Comprehensive Affordable Housing Strategy was approved by the Redevelopment Agency on June 15, 1993 and has been included within the Redevelopment and Housing Implementation Plan, approved by the City Council/Redevelopment Agency on November 29, 1994. Both of these documents were mandated by the State and are five year plans. Because FY 1992-93 was the first year the Redevelopment Agency was subject to this requirement, staff recommended, and the Redevelopment Agency previously approved, using the five-year period which commenced on July 1, 1992 (FY 1992- 93) through June 30, 1997 (FY 1996-97). At the end of that time, staff will undertake a comprehensive review of the administrative costs charged to the Housing Fund during the previous five years to confirm that, in the aggregate, these charges are proportional to the funds expended on direct affordable housing projects and programs. Beginning with Year 6, the analysis would consist of a "rolling year" analysis. For example, the Year Six proportionality test would drop the Year 1 costs and add Year 6 costs; the Year 7 test would drop the Year 2 costs and include the Year 7 costs. In essence, this analysis would be much like that performed for the "excess surplus" analysis each year. Again, there is no speCific definition within the law as to what constitutes a proportional charge. However, staff will work with Special Legal Counsel to ensure that the Redevelopment Agency complies with this requirement. Fiscal Year 1994-95 Staff conducted the analysis to charge the Housing Fund for the actual cost of administering and planning for affordable housing projects and programs during FY 1993-94. City and Redevelopment Agency staff completed individual, per pay period time sheets reflecting actual time devoted to each of the Agency's affordable housing projects and programs, as applicable. With this information, an individual calculation was undertaken for each involved staff member. The appropriate hourly salary rate for each staff member was applied to the total number of hours dedicated to each housing project and program. The rate used was the fully weighted hourly wage of each employee, which included the cost of retirement benefits, medical, dental, optical, workers' compensation and life insurance. 7 of 11 NOV 14 1995 ITEM 10 .._--<. -_. Planning/Administration Analysis Page 4 of 4 Once staff costs were calculated for each housing project and program for each staff member involved, the applicable overhead percentages, as developed in the MSI study, were applied. The overhead rate of each staff member's home department and the general administrative rate were applied, pursuant to the overhead rates and methodology established by the MSI study. In addition to staff costs being charged to the Housing Fund are costs associated with legal, financial, geotechnical, environmental and other related consultants used on affordable housing projects and programs. The cost of these consultant services which have been charged to the Agency's General Fund (80% monies) are tracked throughout the fiscal year and are transferred to the Housing Fund through this year-end adjustment. Certain consultant costs are charged directly to the Housing Fund during the course of the year. These usually involve the larger consultant contracts for which a separate Agency Board appropriation is made. C:\BUDGET\ADMIN.CHR NOV 1 4 1995 ITEM 10 . 8 of 11 -. Attachment "B" Affordable Housina Projects and Proarams 1. Affordable Housing Assistance and Referral Program 2. Affordable Residential Rehabilitation Loan Program 3. Bowron Road Family Project 4. Breihan Family Project 5. Brookview Senior Project 6. Gateway Park Road Project 7. Habitat Project (Rockpile Site) 8. Haley Ranch Estates (Management and OPA Administration) 9. Mortgage Credit Certificate Program 10. Poway Royal Affordability Covenant Acquisition 11. Poway Villas Affordability Preservation 12. Other: a. Redevelopment & Housing Advisory b. Smith v City I c. Smith v City II d. AB 1290/SB 732 compliance e. Housing Budget, HCD and Annual Report, Housing Fund Audit NOV 14 1995 ITEM 10 9 of 11 ATTACHMENT "CO RESOLUTION NO. R-95- A RESOLUTION OF THE POWAY REDEVELOPMENT AGENCY FINDING THAT PLANNING AND GENERAL ADMINISTRATIVE COSTS INCURRED WERE NECESSARY TO INCREASE, IMPROVE AND PRESERVE THE SUPPLY OF AFFORDABLE HOUSING WITHIN THE CITY OF POWAY WHEREAS, Section 33334.2 of the California Health and Safety Code requires that not less than 20 percent of taxes which are allocated to the Redevelopment Agency be used for the purpose of increasing, improving, and preserving the community's supply of housing available at an affordable housing cost to households with low and moderate incomes; and WHEREAS, the Redevelopment and Housing Implementation Plan approved by the Redevelopment Agency on November 29, 1994 outlines a balance of programs and projects that will increase, improve and preserve the supply of housing available at an affordable housing cost to households with low and moderate incomes over the next five years; and WHEREAS, Section 33334.3(d) of the California Health and Safety Code provides that the Redevelopment Agency must determine annually that the planning and administrative expenses are necessary for the production, improvement or preservation of low- and moderate-income housing; and, WHEREAS, the Poway Redevelopment Agency staff has completed a thorough analysis to calculate the actual costs directly associated with the planning and administration of affordable housing projects and programs during FY 1994- 95. NOW, THEREFORE, the Poway Redevelopment Agency of the City of Poway does resolve the following: Section 1: The expenditure of monies from the Redevelopment Agency's Low- and Moderate-Income Housing Funds to cover costs associated with planning and administering affordable housing projects and programs is necessary for the Agency to meet its obligation to increase, improve, and preserve the supply of affordable housing available within the City of Poway. Section 2: The expenditure of $416,784 from the Redevelopment Agency's Low- and Moderate-Income Housing Fund was necessary to cover costs incurred by the City and Agency directly associated with planning and administering the Agency's affordable housing activities during Fiscal Year 1994-95. Section 3: The amount of $416,784 represents the actual cost to the Redevelopment Agency and City of planning and administering affordable housing projects and programs during the 1994-95 fiscal year and said cost is not disproportional to the Housing Fund monies expended on affordable housing projects and programs. Section 4: Housing Fund monies which were expended for planning and administering affordable housing projects and programs which were developed or offered outside the Paguay Redevelopment Project Area are of benefit to said Project Area. 10 of 11 NOV 1 4 1995 IT;:'M 10 -- -- ~csolution No. R-95- Page 2 PASSED, ADOPTED, AND APPROVED by the Redevelopment Agency of the City of Poway, California, at a regular meeting thereof this 14th day of November, 1995. Don Higginson, Chairman ATTEST: Marjorie K. Wahlsten, Secretary STATE OF CALIFORNIA ) , COUNTY OF SAN DIEGO ) I, Marjorie K. Wahlsten, Secretary of the Poway Redevelopment Agency, do hereby certify under penalty of perjury that the foregoing Resolution No. R-95- was duly adopted by the Redevelopment Agency at a meeting of said Agency-held on the 14th day of November, 1995, and that it was so adopted by the following vote: AYES: NOES: ABSTAIN: ABSENT: MarJorie K. Wahlsten, Secretary Poway Redevelopment Agency C:\BUDGET\ADMINR.RES NOV 1 4 1995 ITEM 10 11 of 11