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approvals in place and all other financing sources committed. Kottinger Gardens scores perfectly and has all required approvals and financing source commitments. Because most 9% tax credit applications have a perfect score, in order to determine which projects receive a tax credit allocation, TCAC uses a tiebreaker system which measures a project's ability to leverage public funding and its cost efficiency. This means that a project is incentivized to reduce its Tax Credit request and to secure more public funds in order to increase its tiebreaker. As a result of this competitive situation, MidPen has surveyed the other projects expected to compete in the North/East Bay Region in the upcoming July application round, and has determined that Kottinger Gardens will need additional public funds in order to have a tiebreaker high enough to win an award of 9% tax credits and as such, it is requesting City Council consideration of that matter. DISCUSSION There are two issues driving the need for additional project funding. The first is the overall increased cost of the project which results primarily from increased hard construction costs as estimated by MidPen's general contractor and the escalating cost of area rents which are impacting the cost of temporarily relocating existing Kottinger Place residents during Phase I construction. Unfortunately, while these market forces are fundamentally outside of the City's control, the do impact the project's bottom line cost. However, while the costs have increased, they increase the project's valuation which may lead to increased investor equity that addresses the increase and as such, securing the tax credits situation is critical for project feasibility. Nevertheless, MidPen has selected Segue Construction, Inc., of Pleasanton as its general contractor and based on staffs and MidPen's experience working with Segue previously in its role as general contractor for the Parkview Assisted Living development and MidPen's focus on controlling project costs, staff is of the opinion that development costs are being appropriately controlled. Staff has reviewed the tax credit tiebreaker information in depth with MidPen and it agrees that Kottinger Gardens' success in the Tax Credit competition for this current round of TCAC applications will require additional contributions from non-tax credit sources, which based on the limited options for acquiring funding from other sources, means contributions from the City. Assuming the limited opportunity for additional funding and the critical nature of the tax credit funds, staff and MidPen have identified three options to address this situation: Option 1- Provide an additional appropriation of $3,750,000 from the LIHF. If approved, this option would result in a total financial commitment of $13,750,000 for the entire project (Phase I and Phase II). Currently, the UHF has a balance of approximately $16 million as a result the additional allocation would leave a balance of $2,250,000 for future projects, including a financial contribution anticipated for the Sunflower Hill project should it receive the necessary city entitlements. Based on an overall assessment, this option would provide the best opportunity for success during the tax credit review process. Page 5 of 7