Worst. Agenda. Ever. Ok, maybe not, I’ve seen some pretty bad agendas, but the county folks should note, I’m not blaming them this time! I happened to know what it was about . . . so I went . . .
The Affordable Housing Trust Fund is the answer . . . you don’t have to read the rest if you don’t want, but . . . It will be coming before the Council and there are some very big differences of opinion about the direction the fund should go and what they think is an affordable home, they were talking $119,000 to $175,000 which are prices IZ could never come come close to. There was some interesting anger about co-op housing as well . . . and I think this is the only place on-line that you can find the ordinance that they are discussing. It happens to be my draft, which is why I don’t have alot of comments in here, since the draft reflects my preferences. If the draft is somewhere else, I haven’t found it yet and hopefully someone reads this and gets it on-line where it should be.
Curt Brink says they are looking at the document dated March 13, 2009, paragraph by paragraph. They are trying to work towards consensus.
WHAT IS AFFORDABLE, HOW MUCH SHOULD PEOPLE SPEND ON HOUSING
They stopped at (2)(b)(1) on the first page. They were talking about different calculations of percentages of “affordable”. WHEDA has guidelines that are different than the CDBG underwriting guidelines (sent to the committee, not available with the agenda). They are looking at documents that that contain recommendations from Greg Rosenberg, Tim Radelet and Brian Munson. I might have some of them on paper, but I’d have to find them and that was months ago. If I find them or get them emailed, I’ll post them here.
Rosenberg brought some more paper he handed out (yes, I have to find that too), and they are interested in looking at purchasing power at various income levels.
Susan Day says that people need $15,000 downpayment, the banks are requiring 3% of your own cash with very few exceptions. I someone has $5,250 for a $175,000 home, they still need $9,000 from somewhere else (gifts, loans, etc).
Schumacher asks why they need $9,000?
Rosenberg explains his hand out. They did an analysis of target income of buyer and what the sales prices could be. Rosenberg says that the gap between what IZ prices were and what they could afford were off by a whole lot of money. They made assumptions on the downpayment and came up with $119,000 is what they could afford at 70 – 80% AMD, but the IZ price was $165,000. He said that 36% of income and $15,000 downpayment was way lower than what city was selling IZ for.
Brink says also limited to 33% and something else I didn’t understand.
Rosenberg said they were trying to get housing to 70% AMI. They were getting Fannie Mae and WHEDA loans. He says that was an important lesson to learn. If you want to sell housing to people at 70 – 80% AMI then you have to price it lower.
Day says the numbers are pretty good, she says it doesn’t take into account condo fees. She says she looks at a $175,000 home. She says that is what you need to pay for a good house with that needs no work to it – lower than that would need new kitchen new bathroom and new flooring. She says there needs to be $2,000 closing costs so need $177,000, so they need $5,250 and to get to 95% loan to value ratio and then they need another 2%. In some cases, even that won’t work. Sometimes community seconds won’t work to get the other 2%. If there is a seller contribution of $2,000 so you need a mortgage payment of $1,378 PITI so needs $59,000 in income. That assumes carries some debt and doesn’t exceed 36% all debts and housing.
Rosenberg says you’d need a family of 4 to qualify at that point, 2 and 3 person families won’t be able to do it.
Schumacher notes you need 2 or 3 kids. [??]
Day says the point is that parameters that have to be met with first mortgage and then there is the question of how to make it possible for the family of four so that means community seconds. If you have a household of young professionals, 2 teachers with school loans it would be really tough. If they have $25,000 in school loans and no car payment they might be able to do it. If we put floors on what they can pay on housing, then we knock out those families. You leave them nothing for debt. If they have a car payment they are out.
30% seems rational and that is why they need to come up with a different number says Brink.
Schumacher says that if they could buy something at $130,000 or $140,000 with condos.
Day says condo fees are about $200 per month. And condo loans are hard to get because of the market.
Schumacher asks what clientele they should be trying to reach.
Day says they should take out the percentages, don’t set a floor, the lenders will take care of it. She says these guidelines come from section 8 guidelines.
Schumacher asks about getting rid of the floor, then they have more flexibility and there is more discretion for staff and we have the protection of the current market. The city policy is not the bottleneck, it gets more people assistance.
Day says that is correct, that was her point but she would add that the administrator is in the position to say that current conditions and guidelines that can be changed. Due diligence would be handled at the staff level, don’t do the risk analysis here. She talks about putting it in the handbook.
Schumacher says he likes taking it out – doesn’t like the coupon mentality – when look at all the conditions, the coupon is not worth it. City should be an enabler and not have another burden as long as we have safety measures put in.
Munson says that the other debt payments was not factored in to IZ calculations. That differential is what the big swing is. That decision can be done in the policy. We are defining our target group 80% or below, the 30 – 33% can be handled by the banks, we’ll have more flexibility. Get the people in to qualify. Strike everything after the 80% and then deal with the rental.
Tobi LeMahieu asks if the policies get updated annually? Staff says yes.
Missed some discussion – Brink says the goal is to stabilize neighborhoods.
They move on to the second half of that section is rental. Tim’s edit is 60% to match the low income tax credit and city housing programs. Schumacher says since there is a growing interest in cooperative housing, should cooperative housing have its own paragraph? It may offer opportunities that we don’t want to miss out on.
Brink says the question is do they pay real estate taxes. They don’t know if new cooperatives have to be taxed. Whole separate subject.
Rosenberg says for the purposes they are just looking at the affordability of the people who live there and so they could be the same.
Day says they need a definition of cooperative.
Brink says its totally different and he has a problem with it.
Day says rental cooperative is different than ownership.
Schumacher says that they ought to have a separate paragraph or maybe we can’t deal with it.
Rosenberg says they tend to be limited equity and people don’t get money when they leave, ownership model is not here in Madison. He says functionally you can treat it as a rental. Doesn’t think we need to rework every detail and we have major issues we identified and if we keep reworking every sentence it will take hours and hours and hours and we might need other people around the table.
Schumacher says that when you change the percentages we need to ask what was meant by cooperative, he would be happy to skip over it, but the title mentions cooperative.
Day says it should say for rental and rental cooperative housing.
Rosenberg says limited equity cooperatives.
Schumacher says they are all rental.
Brink says just keep it rental.
Rosenberg says he wants to look at the larger critical issues and wants to focus on them. Like we will loan money from 90% of the corpus, or harmonizing this with other city regulations and they need a framework with the changes they want to discuss. They shouldn’t open up every paragraph, that will take forever and it won’t be cohesive.
Schumacher says that Rosenberg can own the bigger picture and he will own the smaller picture. He says they need to ask questions and explore issues that are raised. He feels more comfortable dealing with the cooperative housing issue if they make changes, but if they start making changes, and he is working on understanding and not changing the policies.
Rosenberg says there is enough going on that they should deal with it or decide to let it go for another round. He says that a definition of co-opearative is good and important but they shouldn’t come up with a definition here. They should find a definition and bring it back.
Brink says that they should leave it out this time around. He wants to just say rental and leave it at 60%.
Rosenberg asks if Brink’s concern is tax status.
Brink says some cooperatives have no taxes. He says they have enough problems and they are the only one’s tax exempt except a church.
Rosenberg says no, non-profit housing can be tax exempt.
Brink is upset but most can’t tell why. He says he has no problem with saying rental cooperatives but some are poorly run.
Munson says that the intent of that sentence, the sales portion is included. He says both could be covered under one clause. We had a 30% gross household income there, do they leave it or not.
Day says it is ok, it is not uncommon to see it. Idea is to offer a protection to the household and there is no secondary oversight.
Munson says that they can include rental and rental coop housing, and he says there are other issues.
Brink says it is ok. They will go to 60%.
Rosenberg saya he is not on board with rental cooperative because the language is wrong. They seem to think they should bring something back.
Munson says they should define what rental coop housing is.
Schumacher confirms that they are leaving 30% in for rental.
[Shit, I didn’t have the language in front of me, but they had this whole discussion not realizing that this is only in here to set the price of the units, it isn’t a restriction on how much people actually spend. Wow. That was a colossal waste of their time, and they didn’t really change anything that they talked about and meanwhile, took out the part that tells the commission how much the units should be rented or sold for. Wow, just wow. I just assumed they knew what they were talking about, but apparently they didn’t. I wonder what priced houses and rental units they intend to support after all that.]
MISCELLANEOUS CHANGES
Moving on . . . here’s a bunch of quick changes they made.
(d) – Make Radelet’s changes. Munson supports it, Brink agrees, group concurs.
(e) – Change from commission to committee. Will be done throughout the document.
(g) – Change position title. They can’t decide if they should do the Community Development Director, then they can use the “or designee” and then they can decide later.
(h) – Radelet recommends taking it out. Munson says it has already been addressed, that language is out.
(l) – also out.
On to page 3 . . .
Munson says IZ Special Reserve Fund should get payments in lieu of – discussion of IZ committee was to bring it into the Affordable Housing Trust Fund. $400,000 gets it into this system. So, cross out what is underlined.
Schumacher asks if you move it or manage it separately. They will allow it to come in, will take another action. Schumacher asks Pam to draft a parallel ordinance so that this doesn’t disappear.
MAY VS. SHALL
(3)(c) – Change that back to may. Directs funds automatically, but says that with shall we will have problems telling council where to put the money. Munson says go back to may, gives council the decision, this is a lightening rod issue.
LeMahieu asks if they could keep shall and let the council have that discussion.
Day says this is a concern.
Munson says politically they can run into problems.
Rosenberg says the appropriation is still in there.
Schumacher advocates for shall to set a higher message, he says the council will do whatever they want, and in the end they will mean the same to the council. May leaves the whole thing open, shall means that they will do it and can ignore it if they want it.
Brink says it makes them explain.
LeMahieu says that with the changes it will start working and the council may see it differently.
Munson prefers may.
They decide to stick with shall.
SPEND ALL THE MONEY OR KEEP SOME IN RESERVE TO EARN INTEREST? GRANTS VS. LOANS
(4)(a) – Munson says that this is where they move from spending 25% to 50% of the total funds. He says that some project with a long timeline could just limit the number of projects they can assist. 25% allows more projects to be assisted. 2 or 4 or more projects, how many do they want to assist.
Schumacher says that this is always the debate. He says he tends to lean in favor of larger projects, but in this case he agrees more projects, when spread it out and show it can serve more people it creates more buy in and impacts more people and doesn’t want it to be seen as easy money for people with a big project. So, he wants to do 25%.
Brink likes 25% citing Allied as an example. He says that when always looking for money it brings in more sources. He says if there is a good project they might be able to get more. 25% is alot of money and leaves more money in there.
Schumacher says this will turn over the fund more often.
Rosenberg says that he supported leaving 25% and then he says he can see it both ways. He was working on Union Corners and sources of funding and to buy it the Trust Fund was one of the few sources available to purchase it. He sees both sides. He says since he is involved in a project that could be applying for the money he needs to sit this one out.
Day says 50% in any one project is not a good idea.
Brink says if the $4M went to Allied there would be no money for Union Corners. He says that there will still be money for other projects that come up.
Schumacher says that he sponsored $5M for land bank and he is wondering why not put the money in the Affordable Housing Trust Fund the same way. He says there are policies and procedures in place here and they are creating a new program. Might as well use this vehicle.
Schumacher asks about the $1M left.
Munson says that if the projects don’t work out, this was more of insurance.
Schumacher plays devil’s advocate and says that we only have $4M and putting $1M away and that defeats the purpose of making the money work. If we want to make that work, we need to bget behind it.
Day asks if that is good fiscal policy.
Schumacher says that this is good community policy. they acknowledge that some might fail. Schumacher says we need to find other sources to keep the fund going. The $1M sitting there is not doing their job. Schumacher says that they should only reserve $100,000.
Brink agrees there is no reason to hold that money back. Brink says council has to approve the disbursement.
At this point, they asked me about how money gets put in the budget and if it will need 11 or 15 votes. I explained that in the past, they said that we needed to have a project in order to put the money in the budget and then it would be an 11 vote item. If we don’t know what the projects are when the budget is done, then it typically didn’t get into the budget and it would be a 15 vote item. This has been the Comptrollers preference for how we budget, but we don’t do it consistently. It’s been a catch 22 for the Affordable Housing Trust Fund as well as TIF 10% set aside policy and a major source of concern over the IZ funds to repurchase the homes.
Day says $10M used to be the number.
Rosenberg says that he supports lending the money.
Brink had said that he supports lending the money.
Rosenberg says he doesn’t know what we are saving the money for, it could sit there for 10 years before something is done. He says that we should do it on projects that are a good risk.
Schumacher says that the money is supposed to be spent. We won’t get better political support, interest rates or nothing. We get nothing for saving it. Some project will fail, but having $1M sitting there won’t help.
Day asks about administrative costs. $1M brings in $5,000 a year and so you have $5,000 and how will you cover your losses.
Rosenberg asks what is to cover.
Day says the fund doesn’t have a funding source.
Schumahcer says it won’t have it either way and says we should just make the investment. It does raise the question about how they can get more money. We shouldn’t be fighting over the pie slices, we should be making the pie bigger. He says no one benefits from keeping the $1M.
Rosenberg says that the reserve would make sense if we had to make loan payments, but we don’t, if a deal goes bad, we won’t have an investor demanding payment. So, we don’t need the reserve.
Schumacher says that the $1M will work better. Schumacher says “I say spend” and then modifies the word “spend” to “invest”.
Day asks about the $1M question.
Schumacher says they should look at the entire budget and figure out what where and how they can add money to the fund and put a proposal to the council. If we mean business and we have a policy that helps the community and balances the risk, we should be bold.
Rosenberg says it is a great idea, but lets get the money out there, its hard to ask for more money now.
Schumacher says finding the money will take some time. Maybe next year.
Rosenberg summarizes, go with modifications and drop $1M to $100,000. He would go all the way to $0.
Brink agrees, but if everything else fails, we can’t use the $1M. We can use the money more now than ever and still afraid of it being raided.
Day says they could use the $1M for the grant programs.
Schumacher says that is a different alternative. Schumacher just wants to let the money sit there. He says that sounds good to make it grants.
Day says that eventually goal is to give grants. She says that could be the money to start giving grants.
Rosenberg says it is $50,000 not $5,000.
Schumacher says that is something else. $50,000 in grants per year given the number of groups that would apply, its a small amount of money.
Rosenberg likes grants, makes affordable housing development easier. But, $1M sitting there to generate $50,000 doesn’t make sense.
Brink says this could be 200 homes if you took $5,000 to help with downpayment assistance. What if $1M is a grant fund, not just the interest.
Schumacher thinks they just want to spend the money.
Day wants to capitalize the fund.
Rosenberg asks for what purpose.
Day says we couldn’t spend any money from the trust fund, so we went from $10M to $1M.
Schumacher gives Day grief about stimulus money and banking industry.
Brink goes back to the 200 homes that could be helped. Brink says the more people that can buy instead of moving out of Madison. That last $1M could really do alot to stabilize alot of neighborhoods and keep people in Madison.
Munson likes the $1M for a fund source, the $50,000 off the top – that would mean 10, $5,000 downpayment grants. Not in favor of grants for the full million. If using the interest, it grows the trust fund. He reminds them that we are lending the money until the fund grows and if just do the interest you could do loans and grants. Right now we aren’t getting 5% and we’re not doing anything.
Schumacher goes back to loans with full amount, high percentage of laons will come back and we need to think of outher cousrces to replenish the fund. Otherwise tax payers have put this money in for no purpose.
Day aks what if move $750,000.
Schumacher asks what if we lose the money, still end up in the same spot if it goes bad. We aren’t securing anything or paying any bills.
Munson asks how we build to the point to get where we give money for grants. He says $3M loaned, money accrued could go into the grant base.
Schumacher says we can’t have a grant program based on interest.
Rosenberg says the way it is written it would be all loans or grants. He says we need to fine tune the difference between grants and loans.
Schumacher says they should create flexibility and make the money work. He says banks should start making grants as well . . . with a devilish smile on his face.
Rosenberg asks if the whole fund is loans and grants. Everyone says no, they want it to be loans.
Day wanted to make grants work sooner.
Munson wanted to mobilize funds but protect the base. He wants to get to a grant option, at $4M the base is too small and when get to a threshold, then they can do grants, but if they are loaning it all out, will they ever reach the threshold.
Brink says that this money can create some opportunities.
Rosenberg asks if they should put a cap on grants given until the fund reaches a certain amount. He doesn’t like no grants only. He says there are some projects that need grants to make the project work. He asks if they could set an annual cap on grants until the fund reaches a certain amount. No more than $50,000 a year until it reaches a certain size. Maybe should think about it and come back.
Day suggests they do some projections.
Rosenberg says that it will be project dependent and can’t do a one size fits all. If it is a land banking situation the money might be out for 5 years. They also need to have loan guidelines.
Schumacher says if go into grants he is leery of waiting for the fund to grow, he’d rather just have a % of the fund or return to be granted.
Day says it has to be return, otherwise we’ll never gain.
Rosenberg says that we will never have any more money than we have now. [The fund started with $400,000 and now has $4M, so I don’t know why he says that, unless its because I’m not on the council to fight for it. But I think others on the council will fight for it when it comes up.]
Day says that is why we are trying to be smart about it now.
Rosenberg says we need to make the point that we need other funds besides growing it through investment.
Schuacher says that the fund will drain. He says he understands that grants should be based on return, otherwise in 4 or 5 years the money is all gone. Grants can never outpace the money we have.
Rosenberg says they need to understand how important grants are. Grants make projects so much easier to do, grants are less paperwork, audits less expensive, adds to bottom line, enables non-profits to be stronger. Rosenberg doesn’t want to throw grants out the window. Rosenberg sees it as no grants.
Schumacher says its just small amounts.
Brink talks about 0% loans.
Schumacher says he doesn’t understand why we would do it.
Rosenberg asks why borrowers are the ones who need to grow the fund.
Rosenberg says money was for 0% for a year for construction loan for Troy Gardens and that helped the project.
Schumacher asks if 1 – 2% interest loan would kill the project?
Rosenberg said they have to pass the costs along.
Day asks if the Council will allow them to just give the money away. She says if they bring that to them will the accept that.
Rosenberg says they don’t want to grant the whole thing.
Schumacher makes a motion to take the million dollars out and add grant component but the grants are given out at the rate of return.
Day says that if they use the $1M and create $30 – 50K for grants per year, that is huge, that is huge and we have the money doing work. The alternative is lend it all, interest bearing loans and % of interest is used for grants, but then the interest rate will be 3 – 5% and 1% for grants. She hasn’t done the numbers, but that conceptually is how she would look at it to support income to support program.
Schumacher says that up front it isn’t alot, but if we leave the $1M aside, the grant component doesn’t grow.
Brink says that the grant portion can grow over time, and person who gets the money it is for grants. That way the $4M is out and grants based on return. Its like a TIF proejct. There may be an argument in the future to do something else.
Schumacher says that they could say that the grant money cannot exceed return on investment. That gives flexibility.
Day says that assumes you won’t rely on interest to grow the fund.
Schumacher says that they should say .5 or 1% of the return.
Munson says 50% of return. Munson says that half goes to grow the fund and half goes to grants. He says that .5% is going to grow the base that fast.
Schumacher says his motion is to take the $1M base out, delete that sentence. The $4M is loans, but allowing grants not to exceed 50% of the return of interest earned.
Rosenberg asks what happens meantime.
Schumahcer says that’s life.
Rosenberg says no grants until money comes back. They say yes.
Schumacher says lets make the money work aggressively as possible without hurting the fund. Says we need other sources of funds. Grant component will grow over the year and at that time, they can review the grant component. This makes it work and down the road, the city can change policy to favor grants more. But, it won’t put council members more in opposition if they think it is a hand out.
Rosenberg says the interest rates need to be lower than the market to make it work. They all know that. Rosenberg says to keep it at 25% as well.
Schumacher asks where the grant language goes.
Day suggests in (h).
Rosenberg says should put in a sub in (a) that saya grants shall be disbursed from proceeds of loan payment up to 50% of return.
LeMahieu says it is scary, but understands that it gets more money back.
Schumacher smiles and says that the tables are reversed here. Schumacher says we need to get over the poor mans mentality and we need to invest or not.
Brink says that there may be a chance to get more money in the future if we can show it works. TIF district money might actually finally happen. It’s consensus.
AFFORDABLE HOUSING TRUST FUND PENT OR ITEMS THAT IS NOT CREATION OF NEW UNITS?
(b) they decide the language is ok.
Schumacher says this is a major shift.
Rosenberg says it is just a clarification.
Schumacher is talking about the language added for programs.
Brink says it was a flaw not to have those in the program in the past.
Schumacher says that Mayor’s office has said that they don’t like this section and only want to use it for maintenance. They identify the “maintenance” language.
Munson says that originally we wanted to create new units, but we want to rehab and use old units and make them affordable and that is what this language is there for. It just brings the existing pool back into play.
Schumacher agrees. He says we can create more housing that is affordable and if it is new or existing is not relevant to us.
Brink agrees that will help stabilize the neighborhood.
Schumacher says $4M is not alot of money so shouldn’t overstate, but it could help with blight.
Rosenberg says nationally they are focusing on existing stock and bringing it up to code and making it affordable and doesn’t think we will be so new construction centric.
Schumacher says this is a shift and we need to sell it.
Brink says that the diversity group shows how this money should be used. This does more for the community and works in every neighborhood.
Munson says it just expands the conversion language and this allows for investments.
Schumacher says that maintenance and conversion could add more units than new construction.
Day suggests using the repair language, and that might take the stigma out of the language.
Rosenberg says mayor is concerned about operating and they think this clarifies.
They toss around other language but decide that language works.
They are ok with Tim Radelet language too.
Munson retracts his language – because this takes care of the issues.
Brink suggests that they quit when Schumacher leaves.
MORE MISCELLANEOUS CHANGES
They accept the next two changes that are suggested in (d) and (e)
Munson 4(l) language. He says this will take more than 5 minutes. His preference is that the proposer is irrelevant and it doesn’t matter who proposes it.
LeMahieu asks to go back to (k) and says that they need to fix that language – take the sentence from (a) and put it there and remove language in (k).
FOR PROFIT VS. NON-PROFIT
Munson goes back to (l). This is the timing affect doesn’t make much sense. doesn’t matter who is proposing it. Remove (l) completely.
Day says that private developers won’t do it.
[I spoke again, in response to some question, don’t remember what it was tho . . . of course, I wasn’t taking notes at the time. Hopefully I said I don’t care if its non-profit or for-profit because very few for profits will do the work, but they should change the 60% AMI rental which is market rate to 50% AMI for rental and then the market rate WHEDA projects won’t suck up all the money.]
Rosenberg suggests that third sector housing discuss the issue and get feedback and then he could express the collective opinion of the people. He says this is a big one.
Schumacher agrees, but Munson’s argument needs to be presented to them. It may allow a for profit to help non-profit. This really is saying that some projects might have merit, regardless.
Munson would think that a preference statement would be ok he just wants to see affordable housing.
Rosenberg agrees. He says that this process worked well.
They adjourn.
