Council shifts to subsidize Local Housing Trust Fund plan
Just last summer, a slight 4-3 majority of the Merced City Council was not too keen on the creation of a Local Housing Trust Fund (LHTF) that would tap city discretionary funds, along with a dollar-for-dollar state match, to support new affordable housing efforts.
Some members argued the amount of local General Fund money would not be significant enough to make an impact in an industry that requires tens of millions of dollars in investment, and that such a discretionary expenditure could be better spent for other city priorities.
Some said the city was already experiencing a boost in housing investment from multiple state and federal sources.
They also pointed out that the Merced County Associations of Governments was working on a better-funded Regional Housing Trust Fund option that Merced could join and benefit from.
Meanwhile, housing rights activists continued to call for the city to dedicate at least $5 million from its coffers for an LHTF. They said the city should prioritize affordable housing money within General Fund spending that mostly goes to support Police, Fire, Parks and Recreation and Community Development. They described affordable housing as “public safety.”
The split Council ended up dedicating $500,000 in the current budget for an “undefined” affordable housing funding plan.
That was then.
November’s election added new City Council members, including Ronnie De Anda and Fue Xiong, and now these two have helped tip the balance in favor of the LHTF program.
On Monday night, a new split Council voted 4-3, in two separate votes, to apply for the LHTF program and use the $500,000 set aside last June (which conveniently happens to be the same minimum amount the state requires from cities for the LHTF program) — and add $100,000 annually from the General Fund over five years for a total of $1 million. The plan includes targeting a matching LHTF grant from the state’s Housing and Community Development (HCD) to reach a total of $2 million.
Mayor Matthew Serratto, Councilman Shane Smith and Councilwoman Sarah Boyle voted NO.
There were long, pensive moments on the dais before each LHTF decision. The silence that followed the first vote to apply for the program prompted Councilman Smith to comment: “The fact that we don’t know what to do next is kind of telling.”
The Council eventually voted 6-1 to use the LHTF for low interest loans allocated to first-time home buyers. Councilman Xiong voted NO.
Here’s what we do know about the LHTF and the ramifications of what the Council decided on Monday night:
- With the LHTF, Merced would be ineligible to benefit directly from a Regional Housing Trust Fund.
- City officials have identified at least three state grant programs they could apply for in order to fund the city’s ongoing contribution to the LHTF. Staff is also studying an in-lieu fee strategy where developers would contribute to the trust. Meanwhile, the program will be funded directly from the General Fund budget.
- LHTF contributions to the community would come in the form of construction or permanent finance loans at simple interest rate of 3 percent for predevelopment costs, acquisition, construction, or rehabilitation associated with affordable rental housing projects, emergency shelters, transitional housing, permanent supportive housing, homebuyer/homeowner projects to purchase for-sale housing units or to rehabilitate an owner-occupied dwelling. Funds may also be used for the construction, conversion, repair and rehabilitation of Accessory Dwelling Units (ADUs) or Junior Accessory Dwelling Units (JADUs).
- Specific percentages of the loans are required to support “Extremely Low-Income Households,” “Moderate-Income Households” and “Lower-Income Households.”
- Despite calls from activists that the city should use General Fund dollars to fund tenant protection and housing education services, these areas are considered ineligible for the LHTF loans to the community. Ineligible activities include: housing navigation services, fair housing and legal services, homeowner counseling services, acquisition and rehabilitation of foreclosed homes, and individual assistance through a nonprofit to address needs after a natural disaster.
“People are asking for things that this money can’t be used for,” said Councilman Smith in his arguments before the issue was put to a vote. “It seems to me the way to build affordable housing is to get a sustainable revenue stream that could be used as seed money to incentify the investment either by making it cheaper for someone to build or cheaper for someone to operate.”
Smith brought up the recent announcement that the City of Merced secured $31 million in state funding for two affordable housing projects — on Parsons Avenue and another on Devonwood Drive.
“It seems to me if we spend our money here [LHTF], we are getting a very poor rate of return, whereas if we do what we have been doing, we get a much, much higher return.”
Councilman Xiong, the one who brought back the housing trust debate during last month’s budget priority meetings, pointed out that $2 million in the city’s future LHGF could go to help support affordable housing projects like the one recently created at Childs and B. However, to put it in perspective, Merced’s Development Services Director Scott McBride said the $49 million project in south Merced was supported by around $7 million in direct city allocations.
Xiong argued that every bit helps in the local affordable housing effort, and suggested the city should not turn its back on free matching money from the state through the LHGF program.
Mayor Serratto disagreed.
“We should not pursue a local trust fund,” he said flat out before the vote. “It seems like a very inferior tool to build affordable housing. The big state goal is to build affordable housing, and the Council has embraced that, and has been very aggressive when it comes to affordable housing. … Obviously affordable housing projects take a lot of money to build — oftentimes in excess of $50 to $100 million dollars. … We can’t use it [the LHTF] as leverage for bigger grants.”
When asked by the Times for comment, Councilwoman Boyle said she would have preferred a more fiscally prudent approach to future discretionary dollars — perhaps a rainy day fund — rather than a LHTF that falls short of other affordable housing strategies available to the city.
Nevertheless, Mayor Serratto did indicate to the Times that he is pleased the Council at the very least voted to dedicate the LHTF use for a First-Time Home Buyer program(s). He said similar programs have had local success in the past, and that there is a potential of growing the program to about $4 million. He added that loan repayments would come back to support an ongoing program.
But alas, the meeting on Monday night would not end without a shadow cast on that very decision.
In his final comments, Councilman Jesse Ornelas — a steady LHTF supporter — made a request for the next meeting to reconsider his YES vote on the decision to use the
LHTF to support first-time home buyers.
It seems he may have had an immediate change of heart on how the housing trust fund can help residents.
And so the debate continues …
In other news …
Merced City Council members were unanimous in their decision to enact an “Urgency Ordinance” to protect those renters who were displaced from rental properties due to damage caused by recent flooding.
The City Attorney’s Office is drafting the ordinance that will include temporary “just cause eviction” protections and tenant return rights, within a short timeframe, once rental rehabilitations are completed. The Urgency Ordinance is expected to sunset within six months of the estimated rehabilitation completion date. The ordinance draft will return at the next meeting for Council adoption.
The good news is that public testimony during the meeting indicated that property owners and renters are working out agreeable arrangements on their own. What’s unclear is how many rental units within the city are in need of repair and how many renters are still facing obstacles two months after the January floods. City officials say they have a team working on the numbers and should have more detailed information in the days to come.