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bond counsel raises issue with the preference system, the City and developer would work to identify an alternative system. Mr. Bocian noted that it is not uncommon, that the City has always prevailed in this respect and that staff is confident the same will hold true for this project. The agreement further stipulates that it runs with the land and will remain in place for perpetuity, the project is required to accept Section 8 vouchers, units will be spread throughout the project, the developer is responsible for marketing the units and qualifying tenants, and that the project will provide three units (one each of one, two and three bedroom) that are specifically designed as accessible units. He stated that the proposed Development Agreement meets the requirements of the City's Inclusionary Zoning Ordinance (IZO) and exceeds it with respect to affordability. Mr. Bocian reviewed the Inclusionary Unit Credit Agreement. He explained that the City's IZO permits a developer to meet its affordable requirement by providing offsite use, which provides for situations where it may be more economically feasible if units do not occur within a certain development. In view of this option, the Council adopted Resolution 04-073 in 2004 to spell out of the overall guidelines and use of what are called Inclusionary Unit Credits (IUCs). Similar to the cap and trade concept, one project could choose to make its excess affordable units available through transfer or sale to another project looking to meet its offsite requirement. Vice-Mayor Cook-Kallio asked if the assumption is that this allows for greater affordability. Mr. Bocian said staff believes it does in this instance. The develop has been clear in that it could provide the level of affordability proposed here without some outside financial source to offset the cost. Staff and the developer are also aware that changes in the IZO law is making it increasingly difficult to achieve this level of affordability and see this as an opportunity to provide that here as well as make it available to another development that would otherwise not be able to accomplish the same. The proposed project provides 35 units to low or very low income households which is 9 units more than required by the IZO. Based on this language, the applicant would have 9 units to make available to another developer. In this particular instance however, the applicant is requesting 16 IUCs because of the depth of affordability. Staff and the Housing Commission carefully considered the request and feels the 16 credits can be supported with conditions.. Staff is recommending that the Council approve 8 unconditional IUCs, which the applicant may do with as they wish without any implications for their own project. Use of the remaining 8 units would require the backfill of one 100% AMI unit for each IUC used. Assuming all 16 IUCs were transferred, the project would yield 19 of the original 50% AMI units and 8 units at 100% AMI. A total of 27 units would be credited to the project for an affordability level of 16%, the majority of which would still be at 50% AMI. The IUC Agreement contains two primary terms related to the use of the credits — the credits may be transferred to any existing or future development except for the California Center project and the transfer must occur prior to issuance of St. Anton's certificate of occupancy. The agreement also stipulates that if approved, the City Manager is authorized to sign any agreement related to use of the credits and the matter will not come before the Council for review or approval. Mr. Bocian stated that an action by the Council to approve the IUC Agreement supersedes some of the requirements set forth in Resolution 04-073. He did however note that the agreement is largely consistent with the resolution, with exception of the Council's ability to review and approve how the credits are shared. The agreement sets forth the City's issuance of a $500,000 fee waiver, paid from the Lower Income Housing Fund, to support the affordability of the project. It also establishes provisions should the project fail to obtain the expected financing. While staff believes it unlikely that should occur, the fallback provision is an affordability plan similar to what the Council approved for the California Center. City Council Minutes Page 6 of 14 May 21, 2013