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submittals, the project could be awarded the tax credits resulting in a reduced financial contribution. While all of the above offer some advantages and disadvantages, staff prefers Option 1 as it provides the greatest assurance that the project moves forward in a timely manner and that Phase II (the Pleasanton Gardens site) will be funded in a timely manner. If Phase I is successful in the July competition, construction would begin in March, 2016. Nevertheless, funding is not guaranteed and staff will continue working with MidPen to monitor this situation. If the award is not made, the City will reapply in March 2016 which would impact the schedule accordingly. When evaluating this funding request it is important to note that the current project development budget includes hard cost and construction loan interest reserve contingencies and assuming the relocation and construction cost reach targets, there is the potential for a reduced overall contribution if the full contingency is not used. Finally, it should be noted that Kottinger Gardens is structured to maintain positive cash flow for at least 30 years and its estimated operating budget includes all costs to maintain the property and provide on-site services to the residents. As a result, additional contributions are not anticipated after project construction. If the City Council concurs with staffs recommendation, then the recommended amendment will be executed and the $3,750,000 would be appropriated for this purpose. Regarding the actual loan, the DDA requires that a simple interest of 3% accrue on the principal amount. Currently, there is an executed promissory note in place for the $2.8 predevelopment loan and a subsequent promissory loan would be made with the remaining $7.2 million. Once the project is constructed the City and MidPen will execute final documents detailing all loan terms which are expected to include that the loan has a term of 55 years and that repayment would be required an unauthorized transfer, default or the end of the loan term. In addition staff anticipates that there will be some level of sharing of excess cash flow, if any that would be used to meet loan costs. However, as with most affordable housing loans, there should not be an expectation that the City will receive regular, or any, payments of these loans during their term. Submitted by: Approved by: teven :ocian Tina Olson Nelson Fialho Assistant City Manager Director of Finance City Manager Attachments: Resolution appropriating funds and amending the DDA Page 7 of 7