Fort Walton Beach Council agenda — 03-23-2010 Special-Soundside Develp. Project — reading text

infrastructure improvements, which will be completed by are estimated at City personnel or the City' s annual contractors, 1, 550,000. This includes the installation of the potable water system, fire suppression system, sanitary sewer system, stormwater drainage system, sidewalks, curb and gutter, and road and parking area paving. 2. 2. 3 The projected site preparation and restoration costs are estimated at 250, 000. 2. 2. 4 The estimated cash contribution from the City is $ 500, 000 and includes the pre- closing costs and bond fees. 5- 2.3 The total fiinding request is not -to- exceed $ 2, 500, 000 with all but $ 500, 000 consisting of in -kind services for the demolition and infrastructure improvements to serve the development. 2. 3. 1 The $ 2, 500, 000 investment by the City will be in the form of a loan to the FWBHA. 2. 3. 2 The terms of the loan would be included in an interlocal agreement between the City and the FWBHA that would be developed by the City Manager, Finance Director, Engineering & Utility Services Director, and City Attorney and approved by City Council. 2. 3. 3 No funds for the in -kind services will be expended by the City prior to the interlocal agreement being approved by City Council. 2. 4 The City has been coordinating with the FWBHA and HomeCorp to explore all options for financing the development. The most viable option is the Build America Bond ( BAB) program, which is a Federal stimulus program implemented through the American Recovery and Reinvestment Act of 2009 ARRA). 2. 4. 1 The BAB program permits issuers of certain governmental municipal bonds to elect to have interest treated as includable in gross income for federal tax purposes and to receive a cash subsidy payment from the U.S. Treasury equal to 35% of the interest payable on the bonds. These bonds are called " Direct Subsidy Build America Bonds ". 2. 4. 2 Between April 15, 2009 and January 28, 2010, there were 878 issues of BABs totaling $ 71 billion, or approximately 24 %, of the $ 301 billion of municipal bonds issued during this period. 2. 4. 3 The Build America Bond program is scheduled to sunset on December 31, 2010, but the Obama Administration is proposing to continue the BAB program in perpetuity but lower the cash subsidy to 27% of the interest. 2. 5 The basic requirements of the BAB program include: 2. 5. 1 The issuer of the bonds and the user of the facilities financed each must be a state or apolitical subdivision of a state, which the FWBHA qualifies as. The issuer and the borrower may be the same public entity which is the case for the Sound Side Affordable Housing development. 2.6 HUD has recently agreed to " wrap" a portion of the BAB cash subsidy stream into the mortgage loan underwriting, which will enable the FWBHA to achieve maximum : proceeds. HUD can only insure up to 90% of the total mortgage amount. 2. 6. 1 This will allow the FWBHA to utilize the BAB cash subsidy to offset any shortfalls in operating expenses while filling the 200 units in Sound Side. 6-  2. 7 The Build America Bond program would allow the FWBHA to repay the City' s contribution over a period of time based on the details of the interlocal agreement that would be forwarded to HUD and the City Council for review and approval. 2. 8 The estimated project schedule would allow the City to begin demolition within six months from the date the City' s contribution is approved. Work cannot begin on the site until a Firm Commitment is given by HUD for insuring the loan. The overall project schedule is listed below ( all timeframes are based on City Council 23rd approval at the March Special Council Meeting): 2. 8. 1 45 days to submit the Pre -Application to HUD, including a revised market study 2. 8. 2 45 days for HUD review 2. 8. 3 30 days to submit the Firm Application in the issuance of a Firm 2nd 2. 8. 4 45 days for HUD' s review resulting Commitment from HUD 2. 8. 5 30 days to closing and issuance of the mortgage 3. FINANCIAL INFORMATION: 3. 1 To provide the in -kind services for the project, the City would be required to purchase the necessary materials for the infrastructure and site work, contract the demolition services via Invitation to Bid, and provide cash to the FWBHA for pre- closing costs and Build America Bond fees. The total estimate for the City to provide the in -kind services is $ 2, 500, 000. 3. 2 The return on investment from the Sound Side Affordable Housing development includes the following items: 3. 2. 1 The monthly revenue from services provided by the City, including water, 8, 225. The sanitary sewer, stormwater, and solid waste, is approximately $ annual revenue is $ 98, 700. This estimate is based on a minimum monthly water consumption of 2, 000 gallons per unit. 3. 2. 2 The projected ad valorem revenue or Payment In Lieu of Taxes ( PILOT) is estimated at $ 90, 000 to $ 100, 000 per year. 3. 3 The payback mechanisms for the $ 2, 500, 000 loan to the FWBHA will be in the form of the following: 3. 3. 1 The Build America Bond program issues a cash subsidy of 35% of the interest, which would allow the City to recoup the in -kind and cash contribution over a period of time. The payback terms would be included in the interlocal agreement between the City and the FWBHA. 3. 4 HomeCorp' s typical occupancy goal is to have at least 80% of the units rented within six to eight months of project completion. The total construction schedule 7-  for this project is 12 to 18 months. The units will be rented as soon as each building is completed. 3. 5 The CRA Fund Balance is $ 3, 207, 305 as of September 30, 2009. The disbursement of funds would occur over an 18 -month period starting with the initial disbursement of the pre- closing costs and the bond fees. 3. 5. 1 Based on the proposed timeline to close the loan and begin construction, a cash flow analysis has been completed and is attached to this report. 4. RECOMMENDATION: 4. 1 At the March 17, 2010, CRA Special Meeting, the CRA Board of Commissioners voted unanimously ( 6 -0) to utilize up to $ 2, 500, 000 in CRA Fund Balance to provide in -kind services in form of cash, labor, and materials to allow the Sound Side Affordable Housing development to proceed with submitting the necessary items to HUD to secure a conventional loan and proceed with the Build America Bond program. 5. STAFF RECOMMENDATION: 5. 1 Staff requests City Council approval of Resolution 2010 -12 to utilize CRA funds to provide in -kind services in the not -to- exceed amount of $2, 500, 000 in the form of cash, labor, and materials to allow the Sound Side Affordable Housing development to proceed with submitting the necessary items to HUD to secure a conventional loan and proceed with the Build America Bond program. 5. 1. 1 The in -kind services include labor and materials for demolition, site grading, potable water, fire service, sanitary sewer, stormwater, sidewalks, curb and gutter, paving, and site restoration. The expenditures for these items would be encumbered over the 12- to 18 -month schedule for the proj ect. 5. 1. 1.. 1 The demolition work will be contracted out via Invitation to Bid, and the paving work will be completed by the City' s annual paving contractor. 5. 1. 2 Approximately $ 500, 000 in cash would be required for the pre- closing costs and bond fees. The cash would be required between City Council approval of the funding and closing of the loan, which would occur in approximately six months. 5. 2 Staff also requests City Council authorization for the City Manager, City Attorney, Finance Director, and Engineering & Utility Services Director to develop an interlocal agreement with the FWBHA that will include the payback terms of the; $ 2, 500, 000. The final interlocal agreement will be forwarded to HUD and City Council for final approval. 8-  0 0 0 0 0 0 0 0 ":..LO O M N OU') d O O O O N :: N O O ...• B O N N O O Lf) 0 0 00 O 00 x L I i 0 0 M O M N O M O M 00 O O In Ln • M l0 f D ti U*) N CO In I` LO N f r aa N 0=0= O QQ N O OO M LLLL d' C_C_ 0) U)U) NN NN O N UU 0=0= d p NN