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BACKGROUND At it's meeting of October 3, 2006, the City Council approved a Planned Unit Development (PUD-50 Lehman/Selway) to subdivide an approximately 19.83-acre site into 27 lots and to construct 25 new, one and two story single-family detached homes ranging in size from 3,908 square feet to 4,595 square feet. The development is located on 3157 Trennery Drive and 2313 Martin Avenue. Ponderosa Homes is the developer of the property. In accordance with the City Inclusionary Zoning Ordinance (IZO), the City Council conditioned its approval on Ponderosa Homes entering into an affordable housing agreement with the City. While in recent history the City has required that IZO requirements be met with on-site affordable units, the Inclusionary Zoning Ordinance provides a significant amount of flexibility ranging from payment of the Lower Income Housing Fee to providing off-site units. One option as stated in Section 17.44.080 "Alternatives to Constructing Inclusionary Units On-Site" of the IZO, allows applicants to propose creative concepts for meeting affordability requirements with on or off site affordable units. To that end, staff has been meeting with Ponderosa Homes and Busch Gardens Investors, L. P., (the ownership entity for the Gardens of Ironwood) to explore creative opportunities for generating affordable housing from the Lehman/Selway project that can be used to increase affordability at the Gardens of Ironwood, the 172-unit senior apartment project located on the Busch property. This interest stems, in part, from fact that this past year, Ponderosa Homes approached the Housing Commission with a concept of reducing the rents for a specified number of units at the Gardens of Ironwood as a means of meeting the needs of extremely low income senior households. The Gardens currently includes 138 units affordable at 50% and 60% of the Area Median Income but does not have any units for lower income brackets lower than 50% AMI. The Commission expressed an interest in this concept and encouraged staff to pursue it if the appropriate opportunity became available. Because of this situation and the fact that the PUD-50 has been already been through a public approval process, staff has focused on alternative means for meeting affordability requirements. DISCUSSION As indicated above, staff and the Housing Commission approached the IZO affordability requirements for the Lehman/Selway project with a goal of trying to partner with the Gardens of Ironwood to increase affordability at that development rather then pursuing affordable units on the Lehman/Selway or an alternative site. To meet this goal, the HC approved the following outline for the project: Ponderosa Homes will enter into an Affordable Housing Agreement (Attachment 1) agreeing to meet its IZO obligation for the Lehman/Selway project with cone-time payment to the City of $313,126. This payment exceeds the normal Lower Income Housing Fee for the project, which is $234,825 and was set to meet the obligations of the rent reduction grant program. The City and Busch Gardens Investors, L.P., will enter into Amendment 2 (Attachment 2) of the existing Affordable Housing Agreement approved initially for the Busch property development, to create a rent reduction grant program that will reduce the Page 2 of 4