Up to 30 families might have to wait longer than they expected to buy their first homes since the state has withheld locally generated funding that used to be controlled by the redevelopment agency, according to city staff and a local developer.
Back in 2010, the Morgan Hill redevelopment agency agreed to loan South County Housing up to $1.4 million in property tax revenues for down payment loans for the Madrone Plaza townhomes project. The money was to be loaned to individual buyers of the new affordable townhomes near the corner of Cochrane and Monterey roads.
The loans have not yet been distributed, but the developer and some of the families interested in the homes are ready to make a transaction, according to the developer. These families have already qualified for the loans and are in a contract to purchase from SCH. They were just waiting for oversight approval to use the public funds.
However, the California department of finance last week told the city it cannot use the former redevelopment agency property tax revenues to fulfill its end of the agreement with South County Housing, and now the city or developer must find a new, unidentified source of funds if they want to offer the down payment assistance as they planned to two years ago.
Before the DOF decision last week, 27 families “ready and interested in becoming first-time home buyers” were lined up to make use of the loans, which were to max out at $75,000 per buyer depending on their needs, according to SCH director of housing development Andy Lief.
Of those, 12 buyers are currently in contract to buy townhomes at Madrone Plaza, and more than 30 families total have submitted applications for future assistance.
“Without (down payment assistance), it’s going to take a lot longer to find qualified home buyers,” Lief said.
The city appealed the state’s decision, and SCH hopes to somehow be able to convince the state to change its mind because there appears to be no other source of down payment assistance loan funds, according Lief.
The reason for the state’s withholding of the funds is unclear, City Manager Ed Tewes said.
The DOF said in a letter dated May 30 that the city, as the redevelopment successor entity, may claim the expense as part of the existing “enforceable obligations” of the RDA that carry over to the post-redevelopment world. However, the successor agency cannot use the original, planned source of funding – the property tax increment revenues – for the $1.4 million in home-buyers’ loans.
So far, the city has only asked to be permitted to spend $1.1 million on the loans – the amount projected to be loaned to families ready to buy before the next six-month obligation schedule is over.
For now, the successor agency has no other source of funding to replace the property taxes.
That means nearly 30 brand new affordable townhomes at Madrone Plaza could sit empty for a lot longer than anticipated.
The state is able to control the former RDA revenues – now placed in a trust fund operated by the county’s auditor-controller – because of the state law that dissolved redevelopment agencies as of Feb. 1, diverting their resources to schools, cities, special districts and counties statewide.
That law also prohibits the successor entities from entering into new contracts, and DOF staff might have seen the unsigned, unprocessed loans as new contracts. A phone call to the DOF was not returned by press time.
Anyway, Tewes and Lief said the 2010 agreement between the Morgan Hill RDA and SCH was already in place before the governor announced his intent to eliminate the agency.
“Our obligation is to South County Housing,” not to individual home buyers, Tewes said.
Lief added, “It’s clearly an enforceable obligation. In our eyes, the RDA committed the funds in 2010, before the concept of eliminating the RDA” was even born.
The RDA’s down payment assistance loan program was in place for several years before the agency was eliminated. It was one piece of the complicated financing puzzle for SCH to fund the completion and sale of the one-, two-, and three-bedroom townhomes.
Madrone Plaza affordable home buyers are able to make use of other existing funds – such as affordable housing funds available from the state – but some were so dependent on the additional subsidy from the RDA that they might not be able to buy their new homes as planned, Lief said.
“We have a few home buyers that do not need the down payment assistance from the city, but the vast majority do need it,” he said.
Tewes said city staff have attempted to contact the DOF for more clarification on the decision to prohibit the use of funds from the property tax fund for down payment assistance, but have not yet heard back. They’re hoping that clarity will help identify another source of funding, or help city staff convince the state that the expense and planned funding source should be recognized.
