When Glendale agreed last month to enter into a financially complex venture to build a subsidized senior housing project, it crossed a threshold from serving as a caretaker of federal tax dollars to a world of municipal enterprise.
The $2.1-million, 22-unit Palmer House project is the first to be built with the use of redevelopment property taxes. A "creative financing" scheme will combine those funds with federal tax credits and city-owned land that will be leased, rather than sold, to a developer.
Unlike traditional grants in which the city has simply doled out the money--forever gone once bestowed--officials are acting more like a business making an investment with the expectation of a return. Income from this development can then be used for future projects.
That way of thinking is a new approach to spending public dollars in Glendale.
"This is the kind of thing that cities are going to need to do to solve affordable housing problems," said Marc Herrera, an administrator with Southern California Presbyterian Homes, developer of the Palmer project.
"It's innovative, and it's not easy. But I think this is the prototype of more to come."
While the unusual structure of the Palmer project will probably never be duplicated, it at least reveals the city's attempt to depart from the traditional into intricate new avenues of finance.
It also is seen as a way that the city may take greater control over the type of housing it builds, rather than conforming to rigid state and federal dictates.
"We need to make a bull decision," Councilman Larry Zarian said before the City Council and Housing Authority agreed April 16 to help finance the Palmer House, to be built for low- and moderate-income senior citizens on two vacant lots at 549-605 E. Palmer Ave. "Hopefully, this is just the beginning of what will be done."
Admittedly, the Palmer project will not work like a private development. The city expects to surrender $1 million of an initial investment of about $2.2 million. But the remainder that will come back in rents and interest payments will start the city's investment fund to build a portfolio for future development.
"We're talking about a variety of different strategies," said Beth Stochl, city housing analyst. Possibilities include "equity sharing," in which the city could help families acquire their first homes and later recover a portion of the appreciated value. "Land banking" is another strategy with business overtones being considered. The city would acquire land and retain it for future development after it is worth more.
More than two years ago, city officials made it a top priority to find ways to provide affordable housing in Glendale, not only for the 1,400 elderly people on waiting lists for 300 low-income units, but also for low- and moderate-income families and city employees who cannot afford to rent or buy a home in the city.
Glendale has accumulated about $4.7 million in a housing fund since 1988 under a state mandate that all cities set aside 20% of their annual tax increment from redevelopment areas for low- and moderate-income housing.
Annual payments to the fund will continue to grow as property values climb in the booming downtown redevelopment area, the only one in the city. The tax increment in Glendale has grown from $600,000 in 1972, when the redevelopment zone was formed, to $9.4 million this year. In the next four years, that figure is expected to jump to more than $16 million annually in redevelopment tax revenues--or $3.2 million a year to the housing fund.
The city is required to assign set-aside money to some project within five years of receipt of each increment. The project can be anywhere in the city.
But upon completion of the redevelopment project--scheduled for the year 2007--the city will no longer receive tax-increment money. Officials hope that by developing income-producing strategies now, the housing fund will be perpetuated indefinitely and the city will be able to break away from its dependency on federal funding for low-cost housing.
The goal of the Palmer House development is to keep tight control over the quality of the project by retaining ownership of the land while ensuring low rents with a city subsidy.
Here's how it is to work:
The city will lend the developer $800,000 from its housing fund to help build the apartment development on land the city will lease to the developer for 55 years. The city has also set aside $979,000 from the housing fund to subsidize rents.
Southern California Presbyterian Homes, a veteran nonprofit operator of senior housing based in Glendale, will repay the loan at 6.5% interest over 30 years, instead of the 11% or more it would pay for private financing, said Brian Butler, city finance director.
The savings in interest lowers the cost of the development and, subsequently, the amount of rent subsidy required from the city, said Madalyn Blake, director of community housing and development.