Memorandum

City of Lawrence

Planning & Development Services

 

TO:

Affordable Housing Advisory Board

 

FROM:

Scott McCullough, Director

 

Date:

March, 2017 Affordable Housing Advisory Board Meeting

 

RE:

SMART Goal – Identify Five Funding Sources by First Quarter 2017

 

 

 

The Affordable Housing Advisory Board (AHAB) tasked Staff with presenting five sources to fund the Affordable Housing Trust Fund, not including those already in the city’s Capital Improvement Plan (CIP), by the end of the first quarter in 2017, per one of the SMART goals that AHAB developed during their 2016 retreat.  The CIP includes $300,000 in general obligation bonds (debt) in 2017 and an anticipated $350,000 in general obligation bonds in years 2018-2021.  Property taxes would pay off the bonds.

 

Lack of affordable housing should be viewed as a community-wide issue, thus funding the trust fund, and the outcome of additional housing units it could produce, should rest on the shoulders as broadly as possible on the community and is only part of the addressing the need. Further, it should take a systemic approach to ensure that funding is dedicated to the cause and perpetual to the extent it can be.  To this end, Staff has attempted to present broad based funding sources that don’t burden any one specific sector of the community, though a few suggestions do hone in on a specific sector where it can be argued that such a sector contributes directly to the issue.

 

The specific goal reads as follows:

 

The AHAB will identify five funding sources, not including those already in the CIP, by first quarter of 2017.

a.    Research other peer cities for existing models

b.    Research federal and state sources to leverage trust fund dollars

c.    Lobby state and federal legislators to reshape or create new funding sources

d.    Seek local, state and national grants

e.    Establish proactive incentive policy that automatically applies if certain triggers are met

 

This memo focuses on parts (a) and (e) of the above goal.  The other parts require ongoing efforts.

 

The attached table highlights methods that other cities have used to fund affordable housing programs. In addition, Staff offers the following new sources of funding for discussion.

 

  1. Voter approved general obligation bonds – Seek approval from the citizens to obligate a specific, dedicated amount of debt to support affordable housing efforts.  Proceeds from selling bonds would be leveraged with other resources.  One mill of funding could support approximately $1 million per year.  Who pays? Property owners in the city.

 

  1. Challenge Grant – Challenge a community organization to raise a certain amount of money and then match it with general fund or other dollars up to a certain limit.  For example, the city matches fundraising up to $500,000 to generate $1 million worth of trust fund dollars.  Who pays?  Donors and residents at large.

 

  1. Voter approved local sales tax – Seek voter approval of a new sales tax of .05%, for example, to provide approximately $830,000 annually toward the trust fund.  Currently, consumers in Lawrence pay sales tax at the rate of 9.05%.  Of this 9.05%, the state receives 6.50%, the county 1.00% and the city collects 1.55% with 1.00% going toward general government services and .55% dedicated to supporting infrastructure (primarily streets) and transit.  The .55% sales tax was approved by voters in 2008 and is set to expire March 31, 2019.  Such an initiative would require a vote of Lawrence residents and the initiative might compete with other needs such as transit, a police facility, bike/pedestrian infrastructure and sidewalk maintenance, street maintenance, economic development, etc.  Sales tax is considered by many as a regressive tax, meaning that low-income taxpayers pay a larger percentage of their income for goods than high income taxpayers.  Who pays? Residents and visitors who purchase goods in the city.

 

  1. New Transient Guest Tax - Direct Transient Guest Tax on “new” transient accommodation uses that use online sharing platforms, such as AirBnB, to the Affordable Housing Trust Fund. Transient accommodations such as AirBnB are currently not permitted by the zoning code and are not regulated in terms of business licensing.  The City Commission will soon receive a report on the many components of this type of housing use and will decide how to move forward on regulating it.  However, research indicates that such uses can erode affordable housing in a community by taking such housing off the market to gain more profit.  The state recently declared that they will be collecting guest tax from AirBnB for distribution to the city.  Directing this tax to the trust fund could offset some or all of the potential harm such uses may have on the affordable housing market. It is anticipated that approximately $26,400 per year will be collected from this “new” guest tax source.  Who pays? Primarily visitors who use AirBnB to book rooms in Lawrence.

 

  1. Voluntary Donation - Establish a voluntary donation as part of paying one’s utility bill. There are 30,400 residential utility customers in the city.  A voluntary donation of $5 per month by 10% of customers would generate $182,400 annually. An education/marketing program could inform customers on the community need for affordable housing with the intent of increasing donations.

 

  1. Pay for density – Establish a program whereby all residential project density is set at 6 dwelling units per acre.  Development projects seeking additional density would be required to pay for that density at a rate established per unit.  While this seems counter to keeping housing affordable, it captures developments that are built at market rate to subsidize more affordable units.  Who pays?  Developers and perhaps end consumers of houses depending on margin of profit for the increased density.

 

  1. Redirect outside agency funding - The city budgeted $515,000 for 2017, out of the city’s general fund, to agencies doing non-profit charitable work in the city (agencies receiving funding: https://lawrenceks.org/2017-funding-applications/).  If affordable housing is a top priority, then it may be reasonable to direct the majority of this limited funding to affordable housing.  Who pays?  Multiple sources collected within the general fund.

 

  1. Community Improvement Districts - Establish Community Improvement Districts (CID) with new annexations to collect a portion of new property tax proceeds and distribute it to the Affordable Housing Trust Fund.  A CID allows for all or a portion of the increment in new property or sales taxes to be used for private development.  For example, a property that is annexed into the city and developed will have one tax value as raw land and a new, increased value upon development.  A CID takes this difference, or increment, and can dedicate it toward affordable housing and not just general government services for a specified amount of time.  The negative to this program would be that the funding needed to serve the newly annexed areas would be delayed for a time while all or a portion of the new tax proceeds goes toward affordable housing.  Who pays?  Property owners in the annexed area.

 

  1. Incentives for affordable housing projects – When the city provides assistance in the form of tax rebate, tax abatement, waiving fees, or completing infrastructure improvements at city’s cost, there are real dollars either being used or foregone at the expense of funding other priorities.  While not necessarily a new funding stream, it should be acknowledged that such public assistance is going towards the goal of funding affordable housing efforts.  Who Pays?  Depends on the incentive.  Any increase in property taxes generated from a project that is returned to the developer to assist in affordable housing is made up by other property taxes.

 

Sources of funding that were reviewed and found to be legally challenging.

 

  1. Impact fee for new annexation requests – Establish a fee paid at the time an owner gains approval of any annexation based upon a set formula related to acreage, zoning or both. Who pays?  Can be passed down from owner to developer to consumer.

 

  1. Impact fee for all development at time of building permit – Establish an impact fee for all development projects – commercial, residential, and industrial – based on the value of the project.  While this may seem counter to keeping housing affordable on residential developments, it captures the commercial and industrial projects that can contribute to the affordability issue by generating the need for housing to begin with.  A 10% fee on all projects in 2016 would have generated approximately $130,000.  Who pays? Varies – businesses, developers, end consumer of goods and buildings.

 

  1. Affordable housing utility fee – Establish a new required fee, paid on one’s utility bill (30,400 customers), that goes toward the trust fund.  This would be similar to the storm water fee where storm water mitigation is viewed as a community wide issue requiring community wide funding to address.  A $2.00 Monthly fee would generate approximately $730,000 per year of funding.  Who pays?  Consumers of city water and sewer services.

 

Staff offers the following for discussion related to, “Establish proactive incentive policy that automatically applies if certain triggers are met.” It should be noted that the recently updated economic development policies do require affordable housing units be created in conjunction with incentives for mixed use projects which include four or more residential units.

 

  1. Automatic incentives – establish a program whereby if a certain percentage of residential units in a residential or mixed use development are maintained as affordable or donated to an organization that produces affordable units, that development receives one or a combination of the following to be applied to the entire project:
    1. An automatic tax abatement/rebate of a certain percent (10% of units receives a 30% abatement, for example). An abatement under this mechanism would typically be limited to 10 years unless it could be established as a Neighborhood Revitalization Area, which may enable it to have a longer duration.
    2. A waiver of certain development fees – system development charges for sewer and water utility fees and building permit fees, for example.
    3. An increase in density and/or height above what the zoning permits.

 

Example matrix:

 

Percent of affordable units provided / cash equivalent

Bonus provided

10%

Increase in density by 20%

20%

Increase in density by 20% plus 30% tax abatement for 5 years

30%

Increase in density by 20% plus 30% tax abatement for 5 years plus 50% waiver of building fee and system development charges

 

 

Who pays?  Varies – in theory, abating taxes or fees for a specific use without receiving a monetary return on the investment to address one community need requires raising taxes to subsidize that abatement.  Waiving utility system development charges (sewer and water) for a number of projects, for example, requires fees to be raised by those that pay the fee to cover the actual costs of developing the system.