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HONORABLE MAYOR AND CITY COUNCIL April 16,2021 Subject:JPA-issued Bonds for Moderate-Income Housing Page 8 Transaction fees are high relative to public benefit to renters—The public JPA that purchases and owns a property and the asset manager that puts the transaction together both receive fees at both closing and annually. In the HR&A analysis done for the Oceanaire transaction in the City of Long Beach,the total fees exceeded the affordability benefit of the project for the first 14 years. The affordability benefit was quantified by the dollar amount of rent reduction compared to market-rate. Over the 30 years,the fees totaled 65%of the cumulative affordability benefit. These fees are reportedly high relative to other market-rate transactions, and they limit the affordability benefit that a project is able to offer. The purpose of the public tax subsidy should be to convey value to residents more than to the seller of the private property and the asset and program managers. Therefore,the ongoing affordability relative to fees paid must be carefully weighed for each project. In the Long Beach Oceanaire transaction, as an example, the forgone property tax on the purchased property was approximately $1.53 million annually,while the annual rent reduction for the project was roughly $1 million. In other words, by this comparative measure,the cumulative foregone taxes exceeded the total reduction in rents achieved through the purchase. In other words,the City could have produced 1.5 times more affordability by not getting involved with the JPA and finding a way to return the property taxes to the original apartment building owner. Potential partial mitigants—The Term Sheet indicates that each project must demonstrate through a City-engaged third-party analysis prior to City Council approval of the transaction that the projected rent reduction is expected to meet or exceed forgone property tax revenue. To convey real affordability through market cycles and to ensure that units are rented promptly, staff included a minimum rent rule that all rents be at least 10%below market- rate rents for that submarket at all times. Affordability definitions must adhere to State law, using a 30% income standard and defining rent as net of a standard set of utility payments, and requiring deeper affordability income mixes will convey more value to tenants, even though it is highly unlikely Regional Housing Needs Allocation credit can be given for these properties. Finally, lower transaction fees will allow more of the value in transactions to benefit tenants in the form of affordability rather than benefitting the JPA and its partners. This concern about the value of tax subsidy relative to affordability can be mitigated but not fully eliminated, as the performance of the property is over the long-term for 15 to 30 years, and projections may not come to fruition. Further, there is uncertainty over affordability enforcement, as discussed above. In that respect, a City-sponsored JPA eliminating profit motive and subjecting all procurement to competitive processes would come closer to fully mitigating the concern. Cumulative impact on property tax and transfer taxes—Because the acquisitions from these projects typically involve large,newly-built multifamily housing complexes the approval of several or even one large transaction can have a significant impact to property tax revenues. The cumulative effect of many large new multifamily buildings receiving tax exemptions every year could represent a significant cumulative fiscal impact. In addition, the City would also forego collection of property transfer tax under the City's Measure E, as public entities such as a JPA are