Working with HFAs Structured Financing Programs

1. Working with HFAsStructured Financing Programs Andrew Baldwin Corporation for Supportive Housing July 17, 2006 www.csh.org

2. Financing Supportive Housing:Three Main Ingredients • Capital Funding • Operating Subsidy • Services Funding * Cannot work without all three

3. Typical Sources of Financing

4. Tax Credit Underwriting Issues/Challenges • Higher development costs • Multiple funding sources • Higher operating budgets • Very low income and rents • Short-term service funding • Short-term operating subsidies • Need for large operating reserves • Inexperienced developers

5. Structured Financing Programs • Provide a comprehensive “package” of financing to help meet the challenges of supportive housing. • Can provide a “one stop shop” for providers. • As production programs, can stimulate development of large numbers of units. • Award of tax credits more straightforward due to HFA role and projects’ financing readiness.

6. Challenges of Developing Structured Programs • Political will to allocate resources. • Buy-in from multiple parties/agencies. • Coordinating effort by HFA. • Developer capacity to produce units and provide services.

7. Two Examples: • Connecticut (1993 to Present): • Pilots Initiative • Next Steps • California (2005 to Present): • Mental Health Services Act • Governor’s Initiative

8. CT’s Supportive Housing Pilots Initiative 650 units • Approximately 300 scattered-site, existing apartments • 350 new construction and rehab Over 40 community-based nonprofit organizations involved

9. CT’s Supportive Housing Pilots Initiative Capital (CHFA, DMHAS, DECD) Services (DMHAS) Supportive Housing Project Operating (Project-Based Sec. 8 through DSS; HUD CofC) Predevelopment (CSH and Local Philanthropic)

10. CT’s Supportive Housing Pilots Initiative • Capital Financing • $26+ million in capital subsidy • DMHAS - $3 million through new mental health fund • DECD - $23 million in new general obligation bond funds* • CHFA - $1 million/year set-aide within HTCC program • $12 million in debt financing • CHFA - $12 million available through Investment Trust Account (flexible mortgage funding) • $30+ million in equity • LIHTC priority, availability outside competitive round *administered through CHFA

11. CT’s Supportive Housing Pilots Initiative • Service Financing • $5 million in annual support service funding through DMHAS • $9,000 per DMHAS client per year • DMHAS selected providers to receive service funds through competitive RFQ process • Operating Financing • DSS project-based 200 Section 8 and RAP vouchers • Predevelopment Financing • $1 million available for high-risk predevelopment activities • Additional available for bridge financing

12. CT’s Next Steps Initiative • Goal: Create 500 SH units over a 3 year period; 150 units have already been leased. • Current RFP seeks developers for development of 350 additional units in two phases. • Next Steps program limits per unit costs from $198,000 to $297,000 depending on location. • Uses 501(c)3 bonds backed by State; $2M set-aside under State Tax Credit Contribution program. • State funding for services, rent subsidies. • CHFA lead agency for intake, review, and underwriting.

13. CA Mental Health Services Act (MHSA) • Financed through passage of ballot initiative (Prop 63) in 2004. • Counties receive annual allocations; must develop expenditure plans. • Counties receive flexible “one time” funds. • Flexible funding for multiple uses.

14. MHSA Capital Facilities Costs May Include (Proposed) • Purchasing land or buildings. • Construction or rehabilitation costs for housing and/or office/meeting spaces . • Adequate reserves for projects to cover gaps in operating costs in future years. • Related “soft” costs for development including strategies to build community acceptance for projects.

15. Governor’s Chronic Homeless Initiative (CHI): Phase II • Announced in May 2006. • $75 million of MHSA funds per year will be “pooled” at the State. • Goal is leveraging other funds. • The pooled funds will be administered by the California Housing Finance Agency (CalHFA). • Partnership with CalHFA, State DMH, and Dept. of Housing & Community Development (HCD).

16. CHI: What we know now…. • CalHFA establishing a special needs lending program; the goal is flexibility. • Projects receiving capital funds must be linked to MHSA services and operating support funded by the county. • State will work in partnership with counties to determine allocation goals and process and to ensure small county set aside.

17. CHI: What we know now… • State will work with counties to further define program and process. • Flow of projects is anticipated to be: developer/sponsor seeks county approval and partnership then goes to state DMH and CalHFA. • Goals include: • leverage bonds, tax credits and other existing instruments • link to existing Ten Year Plans • partner with other local investments • First funds may be available in early 2007.

18. For More Information: Check out the following resources at www.csh.org: SH Financing Guide Toolkit for Ending Long Term Homelessness CSH Policy Pages andrew.baldwin@csh.org