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ADOPT A RESOLUTION ALLOCATING HOME INVESTMENT PARTNERSHIPS PROGRAM FUNDS IN AN AMOUNT UP TO $1,653,877 AND ALLOCATE UP TO $350,000 FROM THE LOW-MODERATE-INCOME HOUSING FUND TO DELTA COMMUNITY DEVELOPMENT CORPORATION FOR THE ACQUISITION OF FIVE SINGLE-FAMILY AFFORDABLE HOMES
recommended action
RECOMMENDATION
It is recommended that the City Council adopt a resolution:
1. Approving the allocation of up to $153,877 of 2017 HOME Investment Partnerships Program Entitlement (HOME) funds, expiring in September 2025, to Delta Community Development Corporation (DCDC) for the acquisition of five single-family affordable homes, from the HOME fund balance;
2. Approving the allocation of up to $1,500,000 of HOME funds to DCDC for the acquisition of five single-family affordable homes, from the HOME fund balance;
3. Approving the allocation of up to $350,000 of Low-Moderate-Income-Housing Funds (LMIHF) to DCDC for the acquisition of five single-family affordable homes;
4. Authorizing the City Manager, or designee, to take actions that are necessary and appropriate to carry out the purpose and intent of the resolution, including the execution of grant documents.
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Summary
The recommended action utilizes two funding sources to ensure the project is fully financed and strategically aligns with federal spending deadlines. The driving force behind such actions is the City’s ability to preserve $153,877 of expiring 2017 HOME funds. The City will spend $1.65 million of HOME funds ($153,877 of 2017 expiring HOME funding + $1,500,000 of HOME funds) by September 2025 to avoid forfeiting the remaining 2017 HOME funding allocation ($153,877). This approach not only secures the use of time-sensitive 2017 HOME funds but also strengthens the City’s ability to meet future expenditure deadlines, including another key federal spending milestone in 2018, by accelerating progress on shovel-ready housing projects.
As the real estate market in the Stockton area places 3-bedroom homes above the allowable investment amount for single-family homes set by HOME, the recommended action includes up to $350,000 of LMIHF funding to share the gap of actual selling price and allowable HOME funding investment with the developer. The requested funding is written as not-to-exceed amounts, as actual costs, including closing, are estimated.
Five properties have been identified by DCDC for acquisition, but Council authorization of funding is required prior to escrow commencement. Should one of the identified homes not be available, another comparable 3-bedroom property will be acquired. The gap between actual cost and the allowable HOME investment per property will be shared evenly between the City and DCDC up to the amounts allocated by the attached resolution. Should there be any additional shortfall beyond the authorization in the attached resolution, DCDC will bear any remaining cost. Therefore, staff recommends allocating up to $2,003,877 in the form of a grant, as defined above and in the resolution, to DCDC for the acquisition of five single-family, 3-bedroom homes to add to the affordable housing inventory in the City of Stockton.
DISCUSSION
Background
Annually, the City of Stockton receives HOME allocations from the U.S. Department of Housing and Urban Development (HUD). The objectives of the HOME Program are to provide decent, affordable housing to lower-income households, and strengthen the ability of local government and nonprofit organizations to meet local housing needs. The City receives HOME entitlement funding each year, which must be spent within an eight-year period. Previous eligible funding plans have failed to expend the full amount of the 2017 HOME allocation, leaving $153,877 to expire in September 2025. HOME funding has historically been made available for affordable housing projects.
Present Situation
There is an urgent need to allocate and expend the expiring 2017 HOME funding. To complicate the expenditure, HOME regulations do not allow funding to be added to a project that has already commenced construction, and environmental review is required on HOME-funded new and rehabilitation projects. The environmental review on an existing residential home requires a much shorter timeframe and thus has led staff to conclude that acquisition of existing homes is the only expenditure expected to meet timeliness prior to the September 2025 deadline. With the goal of retaining the expiring funding, staff reached out to all participants of the 2024 City-issued Affordable Housing Notice of Funding Available (NOFA) in May 2025 requesting submission of proposals for single-family affordable home acquisitions using the HOME funding requirements. The City received one proposal from DCDC.
At the time the emailed request was sent, the funding in jeopardy was anticipated to be $837,000. HOME requirements limit the funding amount to $327,293 per single-family home, so the City was looking at funding acquisition of multiple single-family affordable housing units to meet expenditure needs. During the process of seeking potential acquisition partners, staff were also working with HUD to attempt to categorize a previous expenditure draw to the 2017 allocation to lower the potential forfeiture exposure. Staff were successful in this endeavor, reducing the remaining expenditure amount to $153,877. The City also identified an additional $1,500,000 of HOME funding to support this project.
The current real estate market in Stockton has homes with move-in-ready status (meaning no rehabilitation required) listed at approximately $120,000 to $140,000 above HOME’s allowable investment limit. Recognizing this, staff looked to DCDC to make a commitment of their own funds to share in the gap beyond funding allowed through HOME. To that end, LMIHF funding has been identified, up to $350,000, to be used to share equally with DCDC to cover the gap funding needed.
FINANCIAL SUMMARY
The proposed resolution will have no financial impact on the General Fund or any other unrestricted fund. A total not to exceed of $1,653,877 million will be allocated from the HOME fund balance, (fund 230-, sub-fund 233). A total of $350,000 will be allocated from the LMIHF community/program account (fund 290, sub-fund 293). There are sufficient funds to support this action.