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The project developer, MidPen Housing, is now poised to submit its 9% Low Income Housing tax Credit (LIHTC) application which is a critical source of funding to the project at this time. This process is very competitive with an anticipated application to approvals ratio of 3 to 1. Both MidPen and city staff, after careful evaluation, have determined that additional public funds will be necessary to remain competitive in this current round of applications. Mr. Bocian presented a slide on the project budget, noting that it is somewhat misleading in that in order to obtain the tax credit proceeds more money will have to be put towards the project. Staff has prepared the following options for the Council's consideration: • Option 1 —Approve the additional appropriation of$3.7 million from the Lower Income Housing Fund. • Option 2 — Provide some level of fee waiver, augmented with an additional loan amount from the Lower Income Housing Fund to achieve a combined subsidy of $3.75 million. Staff notes that when the city has authorized fee waivers in the past, those revenues have essentially been backfilled by the Lower Income Housing Fund. • Option 3 —Authorize no additional appropriations or waivers. MidPen would proceed with filing the application in July 2015. If the project were not awarded the tax credit the application would be submitted again next year. Staff and the developer believe that based on the current development environment, this process will remain competitive for some time. Staff recommends that the Council approve Option 1, approving the resolution authorizing a $3.7 million appropriation from the Lower Income Housing Fund and approving an amendment to the DDA as outlined in the staff report. Mayor Thome asked and Mr. Bocian confirmed that any loan amount authorized under Option 2 would also come from the Lower Income Housing Fund. Councilmember Narum expressed concern that net impact of Option 1 and the $10 million already appropriated to the project would leave the Lower Income Housing Fund with a rather low balance. She asked whether there is any development on the horizon that would help to replenish the fund balance. Mr. Bocian estimated that the development expected to come in over the next 2 years would yield a fair amount of activity for the fund. He also advised that the best use of monies within the fund is on a city- funded project, rather than something in the private sector, and thought this was a strong opportunity to use those in an effective way. Councilmember Narum asked and Mr. Bocian confirmed that the Council has the flexibility to borrow from another internal fund to meet the needs of developments like Sunflower Hill, should the Lower Income Housing Fund lack a sufficient balance. Vice Mayor Brown asked and Mr. Bocian confirmed that the stated balance of $16 million in the Lower Income Housing Fund does not reflect the $10 million appropriation. She requested clarification on the term "conventional permanent loan." Mr. Bocian explained that the city will enter into a permanent agreement with an affiliate of MidPen, who will be the owner of the property improvements, regarding a permanent conventional loan. While the loan terms will stipulate an interest rate of 3%, typically these are repaid through residual receipts of the property. Most often the loan is not repaid until something significant, such as resyndication at the end of the ground lease term, occurs. He highlighted several similar projects, some of which the city currently receives payments on and some it does not. He cautioned that the Council should enter into this with the understanding that the loan may not be repaid for many years, particularly in light of the level of affordability in this project. City Council Minutes Page 15 of 18 June 16,2015