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HomeMy WebLinkAbout041426-03.2 STUDY STUDY SESSION MEMORANDUM 3.2 TO: Mayor and Town Council April 14, 2026 SUBJECT: Consider use of the Town’s Low and Moderate Income Housing Fund to assist with LLAD payments for low-income apartment projects BACKGROUND In 2025, the Town’s property owners approved the creation of Landscaping and Lighting Assessment District No. 2025-1 (“LLAD 2025-1”), replacing LLAD 1983-1. The new LLAD includes an updated assessment methodology which conforms to current standards for the spread of benefit provided by the District. One of the most significant changes to the methodology involved for-rent apartments. Under the methodology used in LLAD 1983-1, multi-family rental units were assessed based on the acreage of the property, not the number of units. This resulted in very low assessment rates and created an inequity compared to multi-family for sale units such as condominiums. Under the new methodology, multi-family rentals are assessed at 0.67 EDUs (equivalent dwelling units) per unit on the property (for comparison, condominiums are assessed at 0.75 EDUs). Subsequent to property owner approval of LLAD No. 2025-1, the Town was contacted by The Armony Company, the developer of the new 44-unit low-income apartment project at the Borel property on Camino Ramon. They expressed the concern that the extent of the increase in their assessment created a budgetary problem for them that would be difficult to pass along to tenants given the income restrictions. To illustrate the financial implications, under LLAD 1983-1, the total assessment for the 44 units would have been $758, while under LLAD 2025-1, the rate for the first year would have been $8,182 (as the project is not yet occupied, the full impact has not been realized). Armony provided the attached memo outlining the financial impact of the new rates. Understanding the impact this increase can have on low-income housing, Town staff agreed to look into options, which are presented here. DISCUSSION The original suggestion from Armony was to have a different assessment rate for low- income rental housing. While there is a process for this type of adjustment in a Mello Roos district, it does not work for assessments. As we discussed last year regarding the LLAD Rates for Low-Income Units 2 April 14, 2026 senior exemption previously utilized in LLAD No. 1983-1, assessments are based on the benefit provided to the property, not who currently owns or lives at the property. In discussions with our District Engineer, we do not believe it is possible to justify a lower assessment because the property receives the same benefits as any other multi-family apartment building. The second option Town staff has identified is to use some of Town’s Low and Moderate Income Housing Fund (the “Housing Fund”) to partially subsidize this rate increase for a period of time. The Housing Fund is a restricted fund that must be spent to assist with the provision of low-income housing in Town. Use of the fund for this type of purpose is also consistent with Policy 6.1.B in the 2023-31 Housing Element. The current fund balance in the Housing Fund is approximately $2,100,000. Town staff proposes use of the Housing Fund for this purpose with the following parameters: • The Town would set aside $200,000 from the Housing Fund for the purpose of helping low-income rental projects make the transition into the new LLAD rates. This dollar amount would still leave sufficient funds in assist in funding for the future low-income project at 510 La Gonda Way. • The only projects eligible would be those that are 100% low income. Currently this would include the Armony project as well as the BRIDGE Housing project on Laurel Drive (their assessment went from $847 to $13,818). If funds were still available, the future low-income project at 510 La Gonda would also be eligible. • Owners of qualifying projects would be eligible for reimbursement of 50% of the LLAD assessment paid after providing proof of payment. RECOMMENDATION If the Town Council is supportive of this concept, a formal resolution could be brought forward to lay out the formal program and appropriate the funds from the Housing Fund. Prepared by: Robert B. Ewing City Attorney Attachment MEMORANDUM To: Rob Ewing From: Sarah Ford, Attorney, SMF Legal, PLLC Date: March 12, 2026 RE: Request for Exemption of Affordable Housing Properties from Landscape and Lighting Assessment District (LLAD) Assessments for FY 2026/27 – Financial Impact Analysis and Supporting Data Purpose This memorandum provides detailed financial context for our request to exempt qualifying affordable housing properties, including the affordable housing project located at 3020 Fostoria Circle, Danville, California, 94526 (APN 218-090-034) (the “Project”), from LLAD assessments under Streets and Highways Code Section 22500 for FY 2026/27. As previously discussed, any exemption would require the Town to backfill reduced revenue from alternative sources, applied uniformly to all qualifying projects. The data below demonstrates the significant strain these assessments place on affordable housing operations amid rising costs, while highlighting precedents and community benefits that support targeted relief. 1. Direct Financial Impact on Our Affordable Housing Project • The current annual LLAD assessment against the Project is approximately $10,000. • This represents approximately 2.87% of our total annual operating expenses (including reserves and taxes) and 9.16% of our projected NOI after debt service, which is partially used to pay for the project’s subordinate lenders. • On a per-unit basis, the assessment equates to approximately $227 per unit per year (based on 44 units in the Project). • Without exemption, the cumulative impact over the next five (5) years would total approximately $53,040 (assuming a 2% annual increase as projected for similar taxes: Year 1: $10,000; Year 2: $10,200; Year 3: $10,404; Year 4: $10,612; Year 5: $10,824). • Opportunity cost: The exempted amount could cover utilities for approximately 20-25 units annually (based on average utility costs of $400-$500 per unit) or fund preventive repairs, enhancing long-term property sustainability and resident quality of life. 2. Benchmark Operating Expenses for Affordable Housing in California Affordable housing properties, particularly those financed under the Low-Income Housing Tax Credit (LIHTC) program, face escalating operating costs that outpace revenue growth. Statewide data illustrate how LLAD assessments exacerbate these pressures: • Median annual operating expenses for LIHTC properties reached $7,657 per unit in 2024, a 10.5% increase from 2023 and a 33.8% rise since 2021 (from $5,721 per unit).1 The Project’s per-unit expenses, adjusted for the additional $10,000 LLAD assessment, align at $7,927 (including reserves and taxes). • Key category breakdowns (2024 medians)2: o Maintenance & Repairs: ~$1,500–$2,000+ per unit (up 13.8% in 2024).  The Project: $489 per unit (Building & Maintenance Repairs) o Utilities: ~$1,000–$1,200 per unit.  The Project: $1,620 per unit (Fuel & Gas, Electricity, Water & Sewer, Trash Removal) o Insurance & Related (including assessments/taxes): ~$800–$1,200 per unit (with property insurance up 17.8% in 2024, now 10.7% of total expenses).  The Project: $892 per unit (Insurance $642 + existing taxes/assessments $23 + LLAD $227) o Operating expenses consumed ~60-61% of rental income in recent years, leaving limited margins for additional burdens like special assessments. • Development costs for LIHTC projects in California average ~$640 per square foot (or ~$708,000 per unit in some 2023 analyses), 1.5 times market-rate costs 3, further underscoring the need to minimize ongoing operational strains to maintain viability. 3. Broader Industry Evidence of Strain from Assessments • State policy recognizes disproportionate impacts on affordable housing: AB 572 (effective 2024) caps regular assessment increases for deed-restricted affordable units in HOAs at 5% plus CPI (max 10%)4, preventing financial hardship and potential delinquency/displacement. Similar logic applies to LLADs as special assessments. • Severely cost-burdened renters (spending >50% of income on housing) include 79% of extremely low-income (ELI) renter households statewide, compared to just 6% of moderate-income households.5 Assessments indirectly worsen this by constraining operator budgets and risking service reductions. 4. Precedents for Tax/Assessment Relief • California's Property Tax Welfare Exemption (Revenue and Taxation Code §214) fully exempts nonprofit-owned affordable housing serving ≤80% AMI households (with subsidies or credits), preserving thousands of units annually and saving owners $10,000– 1 Novogradac Low-Income Housing Tax Credit Income and Operating Expenses Report (2025 edition, covering 2024 data) (analyzing 193,783 units across 1,754+ properties). 2 Novogradac reports (2025/2024 editions); see also Terner Center for Housing Innovation (analyses confirming similar trends in California LIHTC projects). 3 RAND Corporation (2025 report on multifamily costs); Terner Center (2024-2025 studies). 4 California Civil Code §5605 (as amended by AB 572, 2023-2024 session). 5 California Housing Partnership State Affordable Housing Needs Report 2025 (analysis of 2023 ACS PUMS data with HUD income levels). $30,000+ per project without broad revenue loss.6 This demonstrates targeted exemptions as effective, low-impact tools. 5. Benefits to the Town and Community • The backfill amount (e.g., $10,000 annually) is minimal relative to the Town's overall budget (<0.1% of $44.4 million in forecast revenues)7 but yields high returns: Affordable housing generates $1.50–$2.50 in local economic activity per dollar invested (via resident spending, jobs).8 • Exemptions reduce resident strain, lowering Town costs for social services (e.g., homelessness prevention at $30,000–$50,000 per person annually)9 and supporting workforce housing. • Alignment with state priorities: Increasing supply addresses California's shortfall (only ~15% of needed units funded yearly).10 We appreciate your assistance in presenting this to the Town Council during the February/March LLAD renewal or April/May budget process. Please let me know if additional project-specific financials or further details would be helpful. Thank you for your continued support in advancing affordable housing in the Danville community. Sincerely, Sarah Ford 6 California State Board of Equalization guidelines; Property Tax Rule 140. 7 Town of Danville FY 2025/26 Budget Forecast (general fund revenues approximately $44.4M; $10,000 represents ~0.023%) (https://www.danville.ca.gov/634/Budget) 8 National Association of Home Builders (NAHB) Economic Impact Studies (2022-2025 editions), adapted for California affordable housing multipliers; see also Terner Center for Housing Innovation, “The Economic Impacts of Affordable Housing” (2025). 9 California Homelessness Costs Fact Sheet (2025), citing HUD and local studies (e.g., average taxpayer costs $30K-$50K/year per chronically homeless individual; savings from housing placement up to $80K/year per household in LA County analysis). 10 California Housing Partnership State Affordable Housing Needs Report 2025 (Roadmap Home 2030 targets 119,287 units/year, with funding covering ~15% or ~18,000 units).