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HONORABLE MAYOR AND CITY COUNCIL April 16,2021 Subject:JPA-issued Bonds for Moderate-Income Housing Page 4 two sets of bonds,one for the purchase and the other"B" series, to pay the manager and other parties. The approving city commits existing property taxes from the existing apartments to the project by approving the project. This property tax exemption is the key to enabling income- restricted units without any additional funding. Income restrictions on transactions are completely flexible under use of this product; however, cities have elected income mixes including a significant number of units priced for moderate-income households at 120%of Area Median Income(AMI), a portion for moderate-income households at 100%AMI, and some at 80%AMI for low-income households. In these models, the corresponding rents are intended to include some at nominally affordable levels(usually about 30%of the units) such as 35%of 80%of AMI, but others are essentially market-rate. Rent limits are not enforced by the City in this model. Rent increases may also be capped at no more than a 4%per year. Conceptually,the model could be used to finance new construction or to acquire and rehabilitate older apartment buildings, but to- date has been used for the acquisition of existing newer market-rate apartments. Between years 15 and 30,the City has a right of first refusal to purchase the property for the amount of debt then on the property. If bondholders on either set of bonds foreclose on the property, this right is lost. Also, the City has no control as to how much debt is amassed by the project in its first 15 years. If the City declines to purchase,the JPA must sell the property and distribute any net sales proceeds remaining after paying off debt. Ca1CHA started this model in 2019, and CSCDA and reportedly other JPAs are entering the market using the same model. A more in-depth overview of the financing model is included in staff's December 2, 2020, memo to the Rules Committee.4 Few Large Cities Have Joined these JPAs Cities that have larger finance and housing departments that have taken the time to analyze the product have declined to join these JPAs. Since the December City Council meeting, staff has learned that the City of Oakland has declined to join,citing similar concerns as have been raised by San José staff. San Francisco has also indicated it will not be joining and is focusing on other products for this income group as well as subsidizing deeper affordability options. The City of San Mateo reportedly is also not interested in this product for similar reasons as San José staff have cited. Staff has not had the capacity to survey additional cities. Of the 10 largest cities in California,two cities have joined these JPAs. Long Beach (7) has joined CSCDA on a pilot basis to do one transaction and has joined Ca1CHA, while Anaheim (10)has joined CSCDA. The next largest cities to join CaICHA are Chula Vista(15)and Glendale (24). Carson (90) has also done a transaction with CSCDA. By far, most of CaICHA's members are small jurisdictions.5 CaICHA's website shows a total of seven transactions closed since April 2019,6 and CSCDA's shows a total of five transactions closed since December 2020.' https://sanjose.legistar.com/View.ashx?M=F&ID=8954795&GUID=DBE8A2A7-3985-4E78-BEF2-9BEBA5E2D800 https://www.calcha.org/general-information/members/ 6 https://www.calcha.org/. https://cscda.org/workforce-housing-program/.