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HomeMy WebLinkAbout1997-01-28 - AGENDA REPORTS - HUD 108 LOAN PROGRAM (2)NEW BUSINESS DATE: SUBJECT: DEPARTMENT: BACKGROUND AGENDA REPORT January 28, 1997 CIManageerApproval Item to be presented by: Ken Pulskamn_ Assistant nt '1 anaeer DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT (HUD) SECTION 108 LOAN PROGRAM: OVERVIEW Community Development At the January 7, 1997 Study Session, the City Manager was directed to prepare a report that provided the City Council with an overview of the Department of Housing and Urban Development (HUD) Section 108 Loan Program. A Section 108 Loan would allow the City to take an advance on future Community Development Block Grant (CDBG) Entitlement Funds, and complete West Newhall capital improvements in a more timely manner. The potential funding received through this loan program could be dedicated to complete outstanding Capital Improvement Project work in the West Newhall Area. At this time, there are approximately $4.6 million in remaining, unfunded capital improvements in West Newhall. These improvements are largely comprised of sidewalk, curb and gutter construction that must be completed throughout the project area (Exhibit `A'). rejes V1.11173►';I 1 L A The Section 108 Loan Program would allow the City to receive a HUD loan in an amount that does not to exceed five times that of the City's most recent entitlement amount. In Fiscal Year 1996/97, the City received CDBG Entitlement Funds in the amount of $979,958. Based upon this amount, if Santa Clarita were to submit a.loan application to HUD, the City would.have the opportunity to borrow up to $4,900,000 in Section 108 funding. If the City Council should decide that the 108 Loan Program is an appropriate way to fund the West Newhall Capital Improvement Project, the City may wish to begin this loan process as part of the CDBG funding cycle for Fiscal Year 1997/98. Following a series of required public hearings to discuss this proposed finding option with the community, staff would then submit a Section 108 Loan application in conjunction with its annual CDBG Consolidated Plan. Pursuant to HUD requirements, the City's Consolidated Plan must be submitted by May 15, 1997. 8, ppr--% omu s Agenda �_ y Item: As in any loan situation, the City would be allowed to retire this debt over an extended period of time. At this time staff has prepared a series of funding option for the City Council's review and consideration (Attachment "A") that proposed a fifteen (15) year pay back period. As discussed previously, through this loan program the City would utilize future CDBG funding to retire this debt. Specifically, if a loan were to take place, a portion of the City's CDBG Entitlement would be dedicated in each future program year toward retiring this debt. It is important for the City Council to note that the repayment of this proposed loan will impact the City's ability to fund additional/future CDBG eligible capital improvements during the pay back period. Before entering into any possible loan situation, there are several potential impacts that the City Council should review. In consideration of these potential impacts, staff has prepared an attachment which addresses possible questions that the City Council may have concerning the Section 108 Loan Program (Attachment "2"). 1. "1 t:u lit ►Y 1 1 1 ►Y I u ► ►1 In Fiscal Year 1991/92, Santa Clarita became a CDBG Entitlement City, allowing Santa Clarita to receive CDBG funds directly from HUD. In Fiscal Year 1996/97, the City received CDBG Entitlement funding in the amount of $973,333 allocated in the following manner: Handyworker Program $180,000 Senior Center $ 48,000 L.A. County Service Center $ 31,000 SANE Camp $ 42,000 Samual Dixon Health Center $ 5,000 Mobile Dental Lab $ 5,006 Program Administration OVERVIEW OF WEST NEWHAL.L. $ 99,430 CAPTTAL. IMPROVEMENT Capital Projects PROGRAM $568,903 As outlined within the City's Five Year CIP, the construction of sidewalks, curbs and gutters in the West Newhall area has been broken into five (5) separate phases of work. Currently under construction, Phase I of the West Newhall CIP encompass the areas of 15th Street (east of Newhall Avenue, and west of San Fernando Road.), and a one block portion of Walnut Street (south of 15th Street and north of 14th Street). This Capital Improvement Project has been funded through the CDBG Entitlement Program, and has a budget of approximately $500,000. Phase I improvements are scheduled to be completed by June of 1997. Phase II of the West Newhall CIP is currently in the final design stage, with work expected to begin in July of 1997. Phase II improvements encompass an area of West Newhall along Walnut Street, extending south from 14th Street to Lyons Avenue, and include the portions of 13th and 11th Street that are west of Walnut. The improvements associated with Phase II have been budgeted at approximately $750,000 and are expected to be completed in January of 1998. The remaining portions of the West Newhall Capital Improvement Project (Phases III, IV and V) will require an additional $4.6 million in CDBG capital funding. In Fiscal Year 1997/98, staff projects that the City will receive $955,000 in CDBG Entitlement Funding. Based upon this funding projection, at this time - staff feels sufficient monies will be available to fund the design and construction of Phase III improvements during the upcoming fiscal year. If the City were to continue funding West Newhall improvements through the normal CDBG entitlement process, it is projected that: ■ Phase III improvements could be completed by July 1998. ■ Adequate funding for the remaining portions of West Newhall (Phases IV & V) will not be available until Fiscal Years 2001/02 and 2005/06 respectively. (This estimate assumes that the City will allocate all future CDBG capital funds solely for the completion of the West Newhall Improvement Project.) ■ All West Newhall capital improvements could be completed by January 2007 If the City were to fund the remaining West Newhall improvements (Phases III, IV & V) through the Section 108 Loan Program, it is projected that: ■ All West Newhall capital improvements could be completed by January 2000 That the City Council review and discuss the HUD Section 108 Loan Program, authorize staff to begin the Section 108 Loan application process as part of the City's CDBG Consolidated/Action Plan for Entitlement Year 1997/98, and direct the City Manager to pursue one of the three recommended funding options: Option #1. Fund all West Newhall capital improvements through the normal CDBG Entitlement Process without entering into a Section 108 Loan Agreement with HUD. Option #2. Fund remaining West Newhall capital improvements (Phases III, IV & V) through the Section 108 Loan process at the full amount of $4,600,000. Option #3. Fund Phases III and IV of the West Newhall capital improvement project (approximately two-thirds of the remaining project area) through the Section 108 process at $2.475,000; and fund the remaining project area improvements (West Nhewhall Phase V- $2,125,000) through the normal CDBG Entitlement Process. S:NCDvCDBM12897 ATTACHMENTS Exhibit `A' - West Newhall Improvements Project Location Map Attachment 1 - Section 108 Loan Program: Overview of Proposed Financing Options Attachment 2 - Section 108 Loan Program: Questions and Answers Exhibit'A' West Newhall Improvements Project Project Location Map is °yam ao r GATE V O n4 1 q� 9'PQ fJSe OP "GH SC SCM 2� r ni 9Q � Q k �Rp. �p �SP�OQ➢' y9``' ESREA.♦ 0 C DRO OL RAM NA FPk GT SP H.M. NEWH SHOW ry x/`50 �� (j� MEMORIAL MHOME�t' t vOATELOCKED NP�p1j0 ti� O \ CRY PARK AR \,�� 5 9� ` Supp fRIT05 0� .A Rq5t*k�,. �9�°ge. q� �' WM. 5. HART , x 5. (0 P14CCR1Tq m UNION 00 ��� '� wcµsceoD�e� may►�Q�a "OF a��a ro Y A � N� ROS `$f �pa` gqo qi2` c P RD 11 OLD o (PVr.) HARo4b P K F LYONS AVE ?� TAZ O r� CT :(� CHERRY nn 9 GP`A ✓� H D< mr D •UEY W h � HM � IIAPPN U ya , vaiEY m O�Rt NR py SAUGUSSTATION S z ST AND MUSEUM Legend North � Phase 1 nts .■■■■■■ Phase 2 Phase 3 Phase 4 Phase 5 Attachment #1 SECTION 108 LOAN PROGRAM OVERVIEW OF PROPOSED FINANCING OPTIONS At this time, the City Council may choose to pursue one of three options to fund and complete capital improvements in the West Newhall Area. As described below, each option incorporates a different funding strategy and encompasses its own individual time frame. These options include: Option #1: Completion of all West Newhall improvements through the Normal CDBG Entitlement Program at a total cost of $5,850,000 (in 1996 dollars) Assuming that: 1) the City were to continue funding West Newhall Capital Improvements through the normal CDBG Entitlement process and; 2) the City were to dedicate all future CDBG Capital monies to the completion of the West Newhall Capital Improvement Project. Staff projects the following construction schedule: Project Phase CDA Construction Schedule (Est. Phase I $500,000 January 1997/June 1997 Phase II $750,000 July 1997/January 1998 Phase III $350,000 Jan - Feb 1998/July 1998 Phase IV $2,125,000 January 2003/January 2004 Phase V $2,125,000 January 2006/January 2007 City would continue to fund improvements through the normal CDBG Entitlement process. PROS: ■ City retains all future CDBG Entitlement Funds City maintains ability to allocate CDBG Entitlement Funds to all eligible capital improvement projects City does not open itself to any financial exposure CONS: ■ West Newhall Capital Improvements will not be completed for at least 10 more years ■ City will incur increased design, material and construction costs by completing West Newhall improvements in separate phases Option #2: Completion of West Newhall through HUD Section 108 Loan Program Assuming that: 1) the City were to fund all remaining West Newhall Capital Improvements (Phases III, IV & V) through a loan secured through the Section 108 Program in the amount of $4,600,000. Staff projects the following construction schedule: S 2[T.�M e . Phase $500,000 Phase II $750,000 Phase III, IV & V $4,600,000 Funding/Loan Process: January 1997/June 1997 July 1997/January 1998 June 1998/January 2000 Based upon a fifteen (15) year HUD Loan, at a conservatively estimated annual interest rate of 7%, staff projects the following: ■Annual Loan Payment: $505,055 ■Total Payments to Principal by Year 15: $4,600,000 ■Total Interest Payments by Year 15: $2,975,830 PROS: ■ West Newhall improvements completed by January 2000 ■ Complete all West Newhall Improvements at one time, with no gaps in construction periods and less impact to surrounding neighborhood ■ All design work can be completed at one time ■ Construction bids should be lower in price due to increased material quantities ■ Save time by going through only one Request For Proposal and Award Process ■ Utility (power/telephone lines, cable boxes) relocations will be completed in one phase CONS: ■ Potential property owner issues/inconveniences addressed at one time ■ Large utility relocation effort has potential to cause delays ■ Section 108 Loan Program will be repaid through Santa Clarita's annual entitlement, leaving the City with no additional CDBG monies to fund future capital programs during the 15 year repayment period ■ City required to colleralize Section 108 Loan ■ CDBG Funds will be spent on interest payments, and not capital improvements ■ Potential for CDBG Entitlement Funding to be eliminated by the Federal Government Option #3: Completion of West Newhall through both HUD Section 108 Loan Program and the Normal CDBG Entitlement Funding Assuming that: 1) the City were to fund Phase III and IV of the West Newhall Capital Improvements through the Section 108 Loan Program in the amount of $2,475,000; 2) finance the remaining capital improvements (Phase V) through the normal CDBG Entitlement process and; 3) dedicate all future CDBG Capital monies ($2,125,000) to the completion of Phase V West Newhall Capital Improvements. Staff projects the following construction schedule: ProjecttPPh_acg C= Construction Schedule (F. t. Start/Finish Datel Phase I $500,000 January 1997/June 1997 Phase II $750,000 July 1997/January 1998 Phase III, IV $2,475,000 June 1998/January 2000 Phase V $2,125,000 July 2005/July 2006 Funding/Loan Process: Based upon a fifteen (15) year HUD Loan, at a conservatively estimated annual interest rate of 7%, staff projects the following: ■Annual Loan Payment: $271,740 ■Total Payments to Principal by Year 15: $2,400,000 ■Total Interest Payments by Year 15: $1,601,125 As discussed above, through this proposed option Phase V construction would be funded through the normal CDBG Entitlement process. If the City were to allocate all future CDBG capital funds to Phase V of the West Newhall Project, staff anticipates that full funding for Phase V would be available by July of 2005. (this projection assumes that the City will continue to receive approximately $270,000 a year in entitlement monies that can be allocated to capital improvement projects.) PROS: Annual loan repayment schedule will allow the City to retain approximately $270,000 of its annual entitlement monies that can be allocated towards future capital improvements (West Newhall Phase V) Less money will be spent on interest than in Option #2, leaving additional funds for future improvements Less financial exposure to City than in Option #2 CONS: ■ West Newhall improvements will not be completed until at least July 2006 ■ CDBG capital funds will be spent on nothing except the completion of Phase V. Construction in West Newhall ■ CDBG Funds will be spent on interest payments, and not capital improvements Attachment #2 SECTION 108 LOAN PROGRAM QUESTIONS AND ANSWERS Q. What assurances does the City Council have that Santa Clarita will continue to receive CDBG Entitlement allocations from HUD each fiscal year? i A. The CDBG Entitlement Program was created by Congress through Title 1 of the Housing and Community Development Act in 1974. The Act provides local governments with a funding source to meet the community development needs of low and moderate income people. The current Administration is committed to the goals of the Department of Housing and Urban Development, and staff has received no indication that this ongoing commitment will change. Staff has had an opportunity to discuss the future of the CDBG Entitlement and Section 108 Loan Program with our Washington D.C. Lobbyists. Based upon staff's conversations, it appears that CDBG Entitlement Funds are secure at this time, and it is the opinion of our lobbyists that the Section 108 Loan Program is a viable and secure method to fund these types of capital improvements. However, it should be noted by the City Council that as with any Federal Grant Program, the potential does always exist for funding to be reduced or eliminated at some point in the future. Again, that is not the outlook at this present time. Q. What is the potential that the City's CDBG Entitlement allocations will either increase or decrease in future program years? A. Santa Clarita's CDBG Entitlement Funding is tied to many factors, the most important being the annual allocation provided to the Department Housing and Urban Development by the United States Congress. In Fiscal Year 1996/97, the City received an allocation of $979,958. For Fiscal Year 1997/98, the City anticipates receiving a total of. $955,000 in CDBG Entitlement Funding. While this does not represent a significant decrease in funding, the City Council can see that CDBG funding can vary from one program year to the next. Conversely, since Fiscal Year 1991/92, the City's Entitlement Funding has risen from $271,000 to its current level of almost $1,000,000. This dramatic increase in funding is a direct reflection upon the demonstrated success of the City's many CDBG Programs. Q. Does the City have to provide some type of collateral to secure this loan? A. Yes. As previously mentioned, a Section 108 Loan is secured through future CDBG Entitlement Allocations. In addition to Santa Clarita's future entitlement allocation, HUD does require the City to collateralize the full amount of this proposed loan through a separate funding source or method. At this time, the City can provide this additional collateral through one of the following methods: ■ A Letter of Credit ■ A Cash Bond ■ A lien against City owned property Q. How would the City repay a Section 108 Loan if future CDBG Entitlement monies were reduced or eliminated by the Federal government? A. If future Entitlement Funding was reduced or eliminated, the City would have the following options available to fulfill its debt obligation: ■Reduce the level of funding currently afforded to ongoing CDBG Programs ■Repay the loan through the use of General Fund monies ■Re -allocate non-CDBG monies, identified for non CDBG capital projects to repay the loan ■Request that the Federal Government forgive the loan Q. If the City does submit a Section 108 Loan Application, what will be the final interest rate on the loan? A. At this time, staff can only provide the City Council with an estimated annual interest rate. The final interest rate on the loan would not be known until approximately one week before the loan process was completed through the HUD Public Offering Process. Q. If the completion of all West Newhall Capital Improvements have a 1997 dollar value of $4.6 million, factoring in inflation what would be the value for the same improvements in 2006 dollars? A. While it is not possible to provide the City Council with an exact figure, staff has estimated an inflation rate of 3% annually for the costs associated with the completion of West Newhall Capital Improvements. Based upon this estimate, the cost to complete these improvements in 2006 dollars could conceivably be in the range of $6,000,000. Q. Can the City apply for an additional Section 108 Loan at a future date to finance the completion of West Newhall Phase V Improvements? A. Yes. As previously discussed, the City can apply for Section 108 Funds in an amount that does not exceed five times the amount of the total CDBG Entitlement Funding received in the previous fiscal year. Therefore, the dollar value of any subsequent 108 loan would be the total amount Santa Clarita would be eligible to receive, minus the outstanding amount owed to HUD on the fust Section 108 loan.