Mike Thompson pony EBo0 9 2006 Sonoma County Water Agency oP ie 404 Aviation Boulevard Santa Rosa, CA. 95406 Dear Mike, ORIGINA) SONOMA cot Ki DOCUMENT UNTY WATER AGENCY| 5 ‘ZN/0-0-21 Allen, Michael dba Collaborative Housing Solutions (Agreement for Consulting Services for Work Force Housing Project) Tw elteaq Enclosed you will find my draft alternatives for the Water Agency and recommendations. We should meet to finalize the BOS packet, and to make any changes ot modifications to my report. The report and recommendations are about 90% complete, but I really need input both from Water Agency Management and the CAO staff, in order to make the document clearer. tried to articulate that development of the West College Parcel is independent of any other changes that could be made in the area of Employer housing assistance programs; however I want to stress the importance of the various alternatives as being proven methods of helping employees realize their dreams of home ownership. My fifth recommendation might take a couple of years or longer, but would ultimately increase the likelihood of overall success for all concerned. Tam giving you two (2) complete copies of my most recent draft of recommendations and identification of alternatives for the design of a multi-faceted housing assistance program for the Agency. I will follow up with a phone call to you, to set a time and date that is mutually convenient for both of us. Sincerely, VAL LL bn Michael Allen oA W oc & (707) 695-6454 Enclosure ~ 2 copies of 5 pages eachEXECUTIVE SUMMARY Eleven types of Housing benefit programs are identified and programs generally fall into two categories. Demand programs enhance the affordability of existing housing stock. These programs most closely resemble other types of personnel benefit programs in that employer involvement is usually indirect. ‘Supply programs increase the number of affordable housing units in a regional housing market. These programs can provide home ownership housing, rental housing, limited equity housing, or rehabilitation of existing housing. Both types of programs can be used exclusively, or in conjunction with other housing program types. The seven demand models identified as alternatives for the Water Agency are: Group Mortgage Discount Origination, Closing Cost Subsidies, Mortgage Guarantees, Group Mortgage, Insurance, Down Payment Loans, and Mortgage Buy Down Programs, and Mortgage Backed Securities. ‘The four ways employers can increase housing supply and supply assistance are: Housing Site Subsidy, Cash Subsidies, Construction Financing and Purchase Guarantees. These models were also identified as alternatives for the Water Agency. Based upon discussions with the Sonoma County Water Agency Management Team and research findings, the following interests were identified: ability to recruit and retain quality staff (difficulty in attracting out of area specialists was noted); agency concern that existing housing benefits are confined to a segment of it’s workforce; agency interest in converting said parcel into a model urban infill housing subdivision; increasing regional housing supply while providing an opportunity for affordable home ownership to Public Sector employees; a desire to partner with both the Private and Public sectors in the development of the parcel; economic viability and sustainability of the development. RECOMMENDATIONS 1. Analysis of costs and feasibility of utilizing West College 7 acre parcel for conversion to urban infill employee housing. This would include an RFP for initial architectural site renderings for West College Subdivision. 2. Investigation of placing West College parcel into a land trust to enhance long term affordability of employee housing. 3. Continue discussion with other Public Agency employers about possible collaboration and partnering, for provision of employee housing. 4, Identify which employers will be participating in the West College Subdivision, survey employees regarding needs and preferences for West College housing. 5. Consultation with County Administrators Office, Human Resources Department, Department Heads, and Employee Organizations concerning Employer Assisted Housing Benefits. A consensus recommendation (if possible) to be forwarded to the Board of Supervisors concerning the adoption of employer assisted housing benefits for its workforce based upon identified employer alternatives.‘Sonoma County Water Agency Employee Housing Program Alternatives There are a number of ways that housing programs can be designed to meet the recruitment and retention goals of the Agency. The programs that will be described in this memo are currently ‘models that have been adopted by employers during the past 30+ years. ‘The following are examples of housing benefit programs that are most easily adopted with costs that are relatively low for both implementation and administration: 1. Group Mortgage Discount Plan — these are programs where a mortgage lender voluntarily reduces either the interest rates or closing points in return for a volume lending commitment from the employer. The lender subsidy will depend on the number of mortgages originated, and ‘market interest rates. This type of program can be expected fo achieve a quarter cent reduction on the mortgage interest rate. An Example of this type of program would be the California Public Employee Retirement System (PERS) Loan Origination Discount Program. 2. Closing Cost Assistance Programs ~ an employer offering a closing cost subsidy program ccan pay closing points on a mortgage (usually 1-3% of mortgage total) this type of program may be used in tandem with a group discount plan or a single subsidy. ‘The University of California System offers this benefit to its workforce, as well as a mortgage discount program. 3. Mortgage Guarantees — Employers can guarantee all, or a portion of, a mortgage. By guaranteeing a mortgage an employer can reduce lender risk. In return the lender can reduce down payment requirements, offer more flexible loan underwriting criteria, and waive private ‘mortgage insurance premiums (saving the borrower about 14% annually). The University of California offers this benefit program to a segment of its staff (professors). 4, Group Mortgage Insurance - offers the same benefit to the employee as a mortgage guarantee program does. To the employer the difference between the two programs is that a ‘mortgage guarantee results in the employers incurring a contingent liability. An insurance program enables the employer to transfer this liability to an insurer in return for a premium. Because the default experience rate for employers has been so low (typically less than a 2% default experience rate), many employers opt to self insure using an identified reserve of funds. 1 University of Pennsylvania has successfully self insured for the past 30 + vears. Examples of housing benefit programs that are easily adopted with higher costs to implement and administer are as follows: 5. Down Payment Loans - Down payment loan programs can be structured in several ways including, reduced interest rate loans and deferred loans, but perhaps the most interesting form being offered is a forgivable down payment loan. Employers are discovering that they can afford to forgive down payment loans if the rate of forgiveness is equal to, or less than, the rate of employee turnover and the cost of recruitment and training. By having the loan forgiven over time (generally 4-6 years) the employee has a powerful incentive to remain with the employer. Conversely, if the employee does not remain with the employer the loan can be structured so asto be due immediately, and thus the employer can fully recapture the investment in the employee. For employers concerned with attracting and retaining employees, concerned about employee tumover and training costs, a down payment program can be a cost-effective and risk less benefit. The City of Whittier has adopted forgivable down payment loans as a method of recruiting and retaining public safety personnel. The County of Sonoma currently offers, repayable mortgage loans to SEIU represented employees for first time home buyers, and a rental assistance loan program that was subsequently developed. 6. Mortgage Buy Down Programs - Employers offering relocation programs are familiar with mortgage buy down programs as the practice of subsidizing mortgage interest rates is a mainstay of corporate relocation programs. These programs pay multiple points at the time of closing, usually 6-16 points, driving down interest rates 100-300 basis points. Ten points on an eighty thousand dollar mortgage is $8,000, a substantial sum for a broad-based benefit program. For this reason many employers will want to offer other types of benefit programs including the next program discussed which can offer a similar benefit at ultimately a lower cost. However, employers that are in the finance sectors, banks, S & L's, and insurance companies are familiar with the reduced interest rate concept and they frequently offer what is essentially a mortgage buy down benefit, by agreeing to hold a below market rate loan in the lender's own portfolio. This benefit is frequently used in the private sector for key employees, and by Colleges and Universities that are competing nationwide for top tier scholars 7. Purchase of Mortgage Backed Securities - Mortgage revenue bonds are commonly issued by local and state agencies and many private real estate lenders. Employers can request that these issuers issue taxable bonds paying a below market rate, which the employer would purchase. The proceeds from the bonds would be used to fund mortgages or second mortgage down payment loans for the employer's employees, and the repayment of the mortgages would repay the employer's bond. Thus the employer would actually earn a return on a personnel benefit. Mortgage revenue bonds have been utilized to produce affordable housing nationwide. These bonds are commonly used by Private Sector Employers due to favored tax treatment. The Public Sector most commonly uses bonds for community redevelopment, and affordable housing development, ‘The following programs have greater initial costs than the foregoing alternatives discussed; however they have the significant advantages of increasing the actual supply of employee housing, while also preserving long term affordability for both the employer and employee. Public Sector employers are increasingly adopting assistance models that are sustainable by controlling long term costs. It is apparent that wages have not kept pace with housing costs; therefore housing programs that offer the ability to contain long term inflation are highly desirable. Housing supply programs all result in a developer (nonprofit or for profit) being able to build or rehabilitate units at a reduced cost. As a result of the program assistance the employer's employees receive priority access to the units created and at a reduced sales price or rental rate. 8, Housing Site Subsidy - Some employers may have excess land suitable for housing development, while other employers, or a consortium of employers, may be able to purchase asite or even a building proximate to corporate facilities. By selling at a discount, leasing, or donating the parcel to a developer (nonprofit or for profit) housing affordability and availability can be increased. Land can be held by the employer (s), leased to a developer, or held by a nonprofit land trust. The land trust model is utilized by the University of California System, Cal- Poly State University, and also the Fountaingrove Teacher Housing Development that was recently approved by the Santa Rosa Planning Commission. Emplovees own the housing: however the underlying land is subject to a ground lease. Appreciation caps are conditions of sale so that employees realize appreciation tied to an inflation index that is much lower than the ‘market appreciation of the property. 9. Construction Financing - Major employers can borrow short-term at or near the prime rate. Real estate developer’s particularly nonprofit developers can borrow only at much higher rates. Major employers could borrow or guarantee loans for housing developers and by doing so pass through the employer's borrowing capacity to the developer. The result of such a program is substantial savings in construction finance interest charges. This allows for improved initial affordability of the housing units. The University of California and Cal-Poly are partnering with rivate sector develo} fit and non-profit), 10. Cash - Cash contributions can be used to write down construction costs or rent rates on apartments, or sales prices on homes or condominiums, or to purchase shares on behalf of employees living in mutual housing projects. The University of California System utilizes cash subsidies both for purchase and rentals, 11, Purchase Guarantees - Building housing that is meant for sale has certain risks for the builder. Perhaps greatest among those risks is that the housing won’t be sold. Employers can help eliminate this risk for a builder by agreeing to purchase some number of units on a certain date if those units are not sold by the builder. In return the builder agrees to market the units to the employer's employees at a substantial sales price discount. If the specified numbers of units are purchased by the employer's employees, the employer is relieved of the responsibility of purchasing units, and the benefit becomes, in effect, costless. The Coastal Housing Partnership (a non-profit serving employees in Santa Barbara and Ventura Counties) has utilized purchase ‘guarantees to local developers. The Partnership is a multi-employer consortium designed to alleviate chronic housing affordability problems. By implementing any of these programs employers have the opportunity to address important recruitment, training and productivity cost issues by providing employees a permanent valuable benefit. The specific program undertaken will depend on the goals and problems faced by an employer and the employees.‘Recommendations: 1. Analysis of costs and feasibility of utilizing West College 7 acre parce! for conversion to urban infill employee housing. This would include an RFP for initial architeotural site renderings for West College Subdivision. 2, Investigation of placing West College parcel into a land trust to enhance fong term affordability of employee housing. 3. Continue discussion with other Public Agency employers about possible collaboration and partnering for provision of employee housing. 4, Identify which employers will be participating in the West College Subdivision, survey employees regarding needs and preferences for West College housing. 5. Consultation with County Administrators Office, Human Resources Department, Department Heads, and Employee Organizations concerning Employer Assisted Housing Benefits. A consensus recommendation (if possible) to be forwarded to the Board of Supervisors conceming the adoption of employer assisted housing benefits for its workforce based upon identified employer alternatives.