Sonoma County, Santa Rosa officials plan to loan out $20 million in PG&E settlement cash to spur housing projects
A fledgling Sonoma County housing fund, led by a cohort of local elected officials, will soon have $20 million in PG&E settlement cash to loan to promising new housing projects, starting as early as this summer.
The Sonoma County Board of Supervisors in October set aside $10 million, drawing from the $149 million settlement check the county received from PG&E last summer for 2017 and 2018 wildfires. Labeling that money for housing, the county steered that portion to a joint city-county agency created in January 2019 called the Renewal Enterprise District, or “the RED.“
The county made that loan contingent on matching action by on the Santa Rosa City Council, which followed through last month by agreeing to loan $10 million of the city’s own $95 million PG&E settlement check to the RED.
Santa Rosa and Sonoma County created the entity two years ago as a way to pool resources to address a shared problem: the region’s chronic housing shortage, and even more specifically, the absence of adequate dense and affordable housing projects near transit services.
The district, though, has no land-use authority and has had relatively little funds at its disposal, starting up largely on the back of a $1 million grant from the William and Flora Hewlett Foundation. The agency’s financial consultant, New York City-based Forsyth Street, estimated that the RED would need at least $20 million to start serving out its purpose, and over its first two years of existence, its actions have been largely theoretical.
But now, the district — led by a four-person board comprised of Supervisors Chris Coursey and David Rabbitt, Councilwoman Victoria Fleming and Councilman Jack Tibbetts — actually has the money its consultants said it needs to fund housing development in earnest.
“All the stars aligned for us to get the settlement to begin with,” said Fleming, who chaired the RED until last month. “And to get the Board of Supervisors and the City Council to agree on something like this — it’s not nothing.”
The district is focused on “gap funding,“ which is developer-speak for the last few millions of dollars a project needs for it to make financial sense to build. The district’s policies state that it can only fund up to 10% of a project’s total cost, so somebody looking to build a $40 million apartment project in Santa Rosa could ask for no more than a $4 million loan.
That may simultaneously sound like a lot of money and nowhere near enough to bolster local housing projects. But the RED is working under the assumption that those smaller loans are exactly what Santa Rosa needs.
Tibbetts put it this way: Banks and other “conventional lenders” aren’t inclined to lend to projects that can’t offer substantial profit margins, roughly 14% or so. So developers in California end up looking to build elsewhere in the Bay Area — San Francisco or San Jose, for instance, where rents are higher than in Santa Rosa — or away from the Bay altogether, such as in Redding, where the costs to build are far lower than in Sonoma County.
“Santa Rosa has always fallen in that awkward space in between,” said Tibbetts, who took over as chair from Fleming last month.
The county lost more than 5,300 homes in the 2017 fires, including more than 3,000 within Santa Rosa, representing about 5% of the city stock at the time.
The plan is to create a new housing fund to “spur meritorious, shovel ready projects” that are aligned with the district’s criteria, which favors big-city-style developments with higher densities and close proximity to mass transit.
Tall apartments in downtown Santa Rosa promote benefits outside the county’s urban core, said Coursey, who advocated for the RED as a member of the City Council before winning election last year to the Board of Supervisors. For one, the county gets a share of the property tax revenue generated by enhanced downtown development, and for another, given the widespread nature of the shortage of affordable homes, “all housing is good for Sonoma County,” Coursey said.
“This is a gift that gives along a lot of different lines: societal, financial, culturally,” Coursey said.
The district will spend the next few months figuring out how exactly to go about disbursing its newfound bounty, said Tibbetts. That could involve setting up a nonprofit or some other entity to actually get the money out the door.
Forsyth Street, the district’s consultant, is banking on launching that program as soon as July, depending on the pace of loan agreements between the city, the county and the RED. Tibbetts said he’d be happy if they managed to get it done by September.
Forsyth Street already has created a sample development pipeline for the district that laid out an avenue to loan $20 million to fund three market-rate projects and two affordable home developments over the next 15 months, potentially leading to 429 new homes. The loans would generate interest and origination fees, allowing the district to sustain itself without further outside grant support.
When the district board last met Feb. 24, it was the first time they had shown they had the money to push some of the myriad projects proposed in Santa Rosa across the finish line, and developers have already started to line up.
“This is a terrific program,” Tom Robertson, who is developing a market-rate project in downtown Santa Rosa, said to the RED board last month. “It is possible that it would make our project, which is a 94-unit project on Humboldt Street, work, and so we’ll be following it closely.”
The district’s efforts also have drawn interest from the affordable housing sector, namely from Santa Rosa-based Burbank Housing, a major local developer of income-restricted homes.
“We’re excited with the prospects for the RED to help facilitate smart development that is focused on affordability and focused on providing the much needed impetus or financial incentives to move projects forward,“ said Efren Carrillo, director of housing development for Burbank Housing.
You can reach Staff Writer Will Schmitt at 707-521-5207 or email@example.com. On Twitter @wsreports.