TO: Planning and Operations Committee FR: Executive Director DATE: April 2, 2004 RE: Transportation for Livable Communities (TLC): Revised TLC Program Guidelines (Resolution No. 3618) Action Requested MTC staff requests the Committee approve the revisions to the TLC Program Guidelines and refer the attached Resolution No. 3618 to the Commission for approval. Background At your March 5, 2004 meeting, MTC staff and consultant ICF Consulting presented the findings from the TLC Program Evaluation. MTC staff highlighted the proposed revisions to the TLC Program Guidelines which were based on the results of the TLC Program Evaluation and input from a Task Force of CMAs and MTC’s Advisory Council representatives. This Committee asked several questions, and directed staff to come back in April for further discussion and action on the revised TLC Program Guidelines. Outstanding Questions Listed below are the outstanding questions posed by this Committee and MTC staff recommendations. The staff recommended changes are shown in Resolution No. 3618 highlighted with a gray box. 1. The bonus for affordable housing units appears relatively modest when compared to the density awards in the Housing Incentive Program. Is it possible to adjust the sliding scale for the affordable housing bonus? Staff Response: In response to this comment, MTC staff recommends revising the sliding scale to $400 per lower income unit bedroom, $600 (previously $500) per very low-income unit bedroom, and $800 (previously $700) per extremely low-income unit bedroom. This would result in a 50% increase from the lower-bound bonus to upper-bound bonus ($400 to $800), and 25% increase from the midpoint to upper-bound bonus ($600 to $800). This is the same percentage increases for the density awards – 50% increase from $1,000 per bedroom for 20 units per acre to $2,000 per bedroom for 40 units per acre, and 25% increase for $1,500 per bedroom for 30 units per acre and $2,000 per bedroom for 40 units per acre. 2. Why raise the limit of the grant from a maximum of $2 million to $5 million for TLC capital and HIP projects, particularly given the total funding available for TLC/HIP? Staff Response: A larger grant size will allow MTC the flexibility to fund larger-scaled projects that would result in greater community benefits, and this new grant maximum would be applied towards a tripled TLC/HIP program. In response to committee comment, staff recommends that the maximum grant be set at $4 million instead of $5 million. 3. Why is there an exception to the 15-minute transit headways and lowered density threshold to 20 units per acre for North Bay communities? Staff Response: The Task Force of CMAs and MTC’s Advisory Council representatives agreed to make the HIP requirements more flexible to allow the North Bay communities to better compete for HIP funding. The current program requirement that a housing project must be at least 25-units per acre, and near transit that operates at 15-minute peak headways was unattainable for much of the North Bay. Allowing North Bay housing projects that are located within downtown areas with no greater than 30-minute transit peak headways and at least 20 units per acre would foster greater North Bay participation in HIP. This would also further MTC’s objective to support and encourage higher density housing developments near transit around all parts of the region. 4. MTC staff should seek input from affordable housing developers as to whether HIP offers the proper incentives to build housing near transit, particularly affordable housing. Staff Response: In developing the revisions to the TLC Program Guidelines, MTC received input from the Task Force of CMAs and MTC’s Advisory Council representatives, which included Doug Shoemaker, Policy Director, for the Nonprofit Housing Association of Northern California. In addition, as part of the TLC Program Evaluation, MTC staff held a roundtable discussion with planning directors, nonprofit affordable housing developers, and market-rate housing developers to seek their input on the effectiveness of the TLC capital and HIP programs, and gather ideas about potential incentive strategies MTC could pursue to help local governments and developers remove the barriers to building transit-oriented housing. This input resulted in the proposed revisions to the TLC Program Guidelines, and influenced MTC’s strategy to pursue a new land use program (i.e., specific plans) to help change regulatory frameworks in support of transit-oriented development. This strategy is part of the Commission’s adopted Transportation 2030 transportation-land use policy platform. We anticipate funding the first wave of specific plans in the upcoming cycle of TLC programming later this year. As additional follow-up to this Committee’s request, MTC staff solicited feedback about HIP from four housing experts—Avalon Bay Communities, Inc., BRIDGE Housing Corporation, Citizens Housing Corporation, and Eden Housing, Inc.—all have had hands-on experience in implementing a TLC or HIP project. Attachment 1 summarizes the comments expressed by these housing experts. ________________________________ Steve Heminger SH:AN J:\COMMITTE\Planning & Operations\2004\April04\TLC_POC 4-09-04_Nguyen.doc Attachment 1 Housing Experts Comments on the Housing Incentive Program Avalon Bay Communities, Inc. – Housing Developer (San Jose) 3/17/04 Phone Conversation between David Lynn, Senior Director of Development, and Ashley Nguyen The City of Dublin received a $1.3 million in HIP grant for Avalon Bay Communities’ 258-unit housing project (includes 31 affordable units) plus 2 other housing projects being planned for the Dublin Transit Center. The HIP program provides incentives to local governments to build higher density housing, which is important because local governments are often faced with disincentives and complex regulatory requirements for housing. To the extent that MTC can develop a working relationship with local governments through HIP, MTC can help provide the best practices and support local governments may need. More education about HIP is needed. HIP is results-oriented, and a HIP award of $1 million is attractive to local governments. The criteria in HIP are not overly prescriptive, and are more performance-based criteria. Encouraging higher density housing located near transit would increase the capital expenditure per square foot which allows the developer to build higher quality, better designed housing. Zoning and building codes that discourage higher density result in greater cost to the developer and typically lower quality products. In the Bay Area, often the problem is the lack of land availability, thus it is imperative to build denser developments. HIP should focus on encouraging density as the most direct way to increase the housing supply. The market will determine the cost of housing and with a larger housing supply the prices will drop. While the affordable housing bonuses are reasonable, it is important to understand that affordable housing requirements ultimately constrain housing production. It is a good idea for MTC to pursue a land use program to help developers and local governments with entitlements through specific plans and EIRs. If developers do not have to fight this battle, everyone is better off because the land use situation is better defined and the risks for developers are reduced. It would be an even better idea if MTC could use TLC/HIP capital dollars to pay for infrastructure improvements once the planning is completed. BRIDGE Housing Corporation, Nonprofit Affordable Housing Developer (San Francisco) 3/18/04 Phone Conversation between Grant Reading, Assistance Project Manager, and Ashley Nguyen 3/24/04 Phone Conversation between Kevin Griffin, Project Manager, and Ashley Nguyen The City of Oakland received a $606,000 HIP grant for BRIDGE’s Mandela Gateway project adjacent to the West Oakland BART Station. BRIDGE has implemented several TLC-funded projects at the Castro Valley BART Station, Pleasant Hill BART Station, and San Francisco’s North Beach/Taylor Street. Grant Reading: The 15-minute transit peak headway is a tough requirement. For instance, many of the bus lines on the Peninsula do not offer 15-minute service, particularly in light of the recent service cuts. BRIDGE is working on a project in San Carlos and would like to pursue HIP funding but the project would not qualify under the current 15-minute service requirement. It would make more sense to have 30-minute peak headways. HIP is attractive to BRIDGE because this would allow BRIDGE to focus more on the affordability components of the housing rather than the off-site improvements, which local governments often require the developer to pay for them. For example, for BRIDGE’s affordable housing project in North Beach, it would have been beneficial if HIP could pay for the transportation infrastructure improvements around the new housing. Once the cost burden is shifted, BRIDGE could provide greater focus on making the housing even more affordable. Kevin Griffin: The 15-minute transit peak headway requirement is difficult to meet. In the application to the California Tax Credit Allocation Committee (TCAC) for low-income housing tax credits, points are awarded to transit-oriented housing projects near transit with service of at least every 30 minutes during peak periods. In sites that BRIDGE has evaluated for potential housing projects, including those located along major corridors, the transit service typically does not offer 15minute peak headways. It is worthwhile for MTC to look at other sites in the region, and see if it makes sense to modify the 15-minute peak headway requirement. For HIP funds awarded, it would be a greater incentive if the city could use the funds for a wide variety of purposes. If the HIP funds were constrained, it would be less of an incentive. As an affordable housing developer, the affordable bonus is great. In practice, BRIDGE is looking to achieve both the density and affordability components, particularly in transit-accessible areas. It makes sense to give the affordable bonus since the developer is building affordable housing for residents who are more likely to use transit. MTC should consider adding a requirement that the housing project not only be of certain densities but that creative parking strategies are employed. For example, a housing project that is 40 units to the acre may typically require 3 stories of parking (2 spaces per unit). It would better to reward the city that allows the 40 units and reduces the parking requirements (permit less than 2 spaces per unit). Overall, this is a better way to promote transit, give fewer subsidies to the car, and create better urban design. Developers often push for higher densities, and if they can show cities/counties that there’s other money on the table, cities/counties may be more inclined to support the higher densities. Citizens Housing Corporation, Nonprofit Affordable Housing Developer (San Francisco) 3/19/04 Letter from Scott Falcone of Citizens Housing Corporation (complete excerpt below) The City of Vallejo received a $383,000 HIP grant for Citizens Housing’s 125-unit Sereno Village Apartments, which celebrated its grand opening in September 2003. The flexibility for local governments to use the HIP funds within other areas in their jurisdictions seems to offer cities valuable flexibility. However, it may be a disincentive for a specific developer to partner with a city if the city could simply choose not to use the funds in a way that would directly support the developer’s project. The allowance of flexible headways for less urban counties seems to also offer valuable flexibility based on these particular cases. The scale of incentives for affordable housing should be even higher, though the adjustments are clearly heading in the right direction. Unfortunately, many cities need to be further enticed to support affordable housing development. Flexible HIP funds offer just such an enticement. Some more guidance about the exact method of sharing funds between the local government and the developer might be offered as a part of the formal application process. Eden Housing, Inc., Nonprofit Affordable Housing Developer (Hayward) 3/29/04 Phone conversation between Deni Adaniya, Senior Project Developer, and Ashley Nguyen The City of Petaluma received $266,000 for Eden Housing’s Downtown River Apartments project. Eden Housing, in partnership with the City of Antioch, also implemented a TLC capital grant for streetscape improvements around their West Rivertown housing project in downtown Antioch. The federal-aid process through Caltrans Local Assistance is very onerous and very costly for the grant administrator. For example, for the TLC-funded West Rivertown streetscape project, Eden Housing had to pay for most of the soft costs such as additional engineering, additional architecture and other work scope elements added by the City of Antioch (including City overhead and administration costs) – this totaled over $150,000 in out-of-pocket expenses for Eden Housing. For the HIP-funded Downtown River Apartments streetscape project, administering the HIP grant for the Downtown River Apartments is also expensive with the soft costs to be paid out of the HIP grant and city/developer’s pockets (which means less funding for the hard costs). The cost and benefit of a HIP grant needs to be weighed. A HIP grant of $500,000 or greater is worth the time and cost of administering a HIP grant. The time requirements for breaking ground on the housing (24 months after HIP award) and obligation of transportation funds for the transportation project (12 months after groundbreaking) seem reasonable. For the Project Readiness criteria, MTC should ask questions about whether the City has attained tax credits, tax bonds, or HUD’s 202 or 811 funding. This is a good way to determine if the housing project is indeed ―ready‖ in terms of closing its financing and starting construction.