Santa Rosa seeks way to bolster low-income housing projects

Facing what many are calling an affordable housing crisis, the Santa Rosa City Council on Tuesday instructed staff to explore a novel way to kick-start low-income housing projects by allowing developers to defer millions of dollars in fees for up to 16 years.

Council members expressed support for the fee deferral on the same night that dozens of residents pleaded with them to do something about people being forced out of their homes by sharply increasing rents.

While significant questions remain about the proposal’s legality, affordability and financial risks to the city, the council nevertheless asked city staff to explore the idea further and return with a proposal.

“Any way that we can create more flexibility to allow us to create more homes at all levels of affordability is a good thing,” Mayor John Sawyer said.

The idea was floated by the Hugh Futrell Corp., which is in the process of an ambitious renovation of the former AT&T building downtown. It is also trying to build a 141-unit building for low-income seniors, a project called 888 Fourth Street.

But the affordable housing project and three others like it are stalled in part because - given the dissolution of the state’s redevelopment agencies two years ago - the city doesn’t have the money it once did to help finance them. If built, the projects would construct a total of 343 low-income units. But they still need a combined $13.7 million in local housing loans to be viable.

At the current funding rates, it would take years for that much money to accumulate. So, Futrell asked the city to consider deferring approximately $2.2 million in development fees for his project.

Such “impact fees” are meant to help the city fund parks, public art and other infrastructure projects.

The city already defers development fees for low-income projects for two years. But Futrell is asking for a special arrangement that would allow his firm to defer payment of the fees for up to 16 years, when they would be due in full with 3 percent interest.

Not all fees would be deferred. Building permit, inspection and school impact fees would need to be paid by the developer.

The fee deferral would help bridge the $2.5 million “cash gap” in the $28 million project, which combines senior housing with medical services by partnering with Episcopalian Senior Communities and Santa Rosa Community Medical Centers. Deferring city fees would make the project more competitive for other funding sources, such as tax exempt financing, he said.

Futrell argues the crisis is dire and the city must act quickly.

Forty percent of households in the city face increasing rents, reduced household income, forced relocation into deteriorated housing, or homelessness, according to Futrell.

“These conditions afflict lower-income families savagely,” Futrell wrote to the council.

The council didn’t have to look far for the examples of the human cost of the housing crisis. Dozens of residents, many holding signs in English and Spanish that read “Housing Now,” urged the council to act decisively to help produce more affordable units.

Ten-year-old Brenda Hernandez told the council she had recently been forced out of her home on Hoen Avenue because of mold and a rat infestation.

“I was scared to sleep at night,” Hernandez said of the rats.

Santa Rosa Junior College student Charlene Love said affordable housing is a deeply personal issue for her.

“I need a home. Next week I will be on the street,” she said.

Adrienne Lauby said the homelessness problem in the city had reached a “tipping point.”

“You have new people coming into homelessness and people who can’t get out of homelessness,” she said. “This is the priority.”

While all seemed to agree something needs to be done, there are several significant hurdles to the proposal before the city can strike a development deal with Futrell or any other developer.

One is what happens if the project runs into financial trouble. The city’s loan will be secured by a lien on the property, but it will be subordinate to the main lenders, which could make it difficult to recoup the fees.

Deferring the fees so long could also make it more difficult for the city to build the projects the fees were meant to construct. Chuck Regalia said the deferred fees would represent “a big chunk” of the fees the city collects for such projects annually.

It also raises legal questions. City Attorney Caroline Fowler has concluded the proposal could violate laws governing impact fees.

There would also be significant staff time needed to strike such a deal, which would be a first for the city.

How many projects would benefit from such a deferral is another open question. Burbank Housing has approvals for two of the four projects, the 96-unit Lantana Place project and the 79-unit Crossroads project, both in the city’s southwest area. But Pascal Sisich, director of housing development at Burbank Housing, told the council he’s not sure his nonprofit would even avail itself of such a fee deferral because of the challenges of making a balloon payment.

“To have this option in your menu is good,” Sisich said. “I’m not sure it’s going to work for every affordable housing development.”

You can reach Staff Writer Kevin McCallum at 521-5207 or kevin.mccallum@pressdemocrat.com. On Twitter @srcitybeat.