The City of Billings Community Development Division is required by federal regulation to commit 15% of its annual allocation to a Community Housing Development Organization (CHDO). Homeword is currently the only certified CHDO for the City of Billings. On June 28, 2010, a pre-development loan in the amount of $25,000 was made to Homeword to begin the ground work on an affordable housing project. An additional $434,000 was granted on June 27, 2011. The $459,000 in funding committed to Homeword has made it possible for the division to meet the CHDO requirement.

Since committing the funding to Homeword, additional funding that must be allocated to a CHDO has become available. An additional $47,191 for the FY 2012-2013 budget and $48,000 for the FY 2013–2014 budget must now be committed to a CHDO. Homeword has fully expended the $25,000 pre-development loan and has begun work on a project, Pheasant Home. Committing the additional $95,191 now available would allow the City to remain in compliance with the CHDO requirements. The Development Agreement previously executed between Homeword and the City of Billings did not contain project specifics because the project was in the planning process. Now that a project has been identified, a new Development Agreement that reflects project specifics must be completed.

The Pheasant Home project will be comprised of four buildings with a total of 16 units and will be constructed in partnership with the owner of the land, the Housing Authority of Billings (see attached agreement). The project includes a mixture of two- and three-bedroom units. Pheasant Home will be built in the Whitetail Subdivision located at Sioux Lane and Lake Elmo Drive in the Billings Heights area.

1) Fund the request and approve updated agreements in order to secure the City’s CHDO affordable housing investment in Billings that would ensure HUD commitment compliance for allocations through FY2013-2014; or

(2) Do not approve additional funding and agreements for the project. By not providing additional funding for this project, Homeword would have to secure additional conventional financing to complete the project, which would increase costs that would be passed on to renters. Under-subsidizing the project may also shorten the long-term viability of the project. The City would need to find and grant funds to another project to remain in compliance with CHDO regulations.

Homeword is currently the only CHDO certified by the City of Billings. If the additional funding is not committed to the Homeword project, the City could be in jeopardy of being out of compliance with federal regulations and may be required to return the funds to HUD if not allocated to another project by June 30, 2014.

While Staff was working on the subsidy layering review of the project, the review indicated the project replacement reserves were not sufficiently funded. Adequately funding reserves helps to ensure long-term success of the project.

The City of Billings conducted a Housing Needs Analysis in 2010. The analysis used a combination of household forecast and housing needs surveys as the basis for the housing needs assessment and the determination of the priorities to meet those needs. It is reported that low income households earning 30% of median income could not afford the median rental price of a one-bedroom apartment in Billings in 2009.

Based on HUD and Census Bureau data, the 2010 Housing Needs Assessment indicates an increase of 592 low income renter households is projected in Billings by 2015. These additional households are distributed across three HUD income ranges; 1-30%, 31-50% and 51-80% of median family income and includes elderly renters.

Overall, low-income households had the ability to afford rental housing of some kind in Billings based on median rental prices in 2009. However, one- and two-person households earning less than 30% of median household income may have difficulty finding rental housing that meets their needs. With a total of $445 available for housing per month, including 20% for utilities, a two-person household making less than 30% of median income is not making enough for a median rental price one-bedroom apartment and might be forced to accept an inadequate unit.

According to the HUD and Census Bureau data, there are projected to be 180 additional small (two- to four-persons) or single-member households in Billings by 2015 earning 30% or less of median household income. There were a total of 590 efficiency apartment units available for rent in 2008. If this supply is not enough to meet the demand, or if an efficiency apartment does not meet the needs of the household, the majority of these households will be spending more than 30% of their income on housing. This is a situation where assistance is critical to help very low-income households afford housing that meets their needs and better matches available rental housing.

Solid data on the condition of rental housing in Billings are not available. However, the condition of rental housing is often a concern brought out when discussing affordable rental housing for low-income households. Pheasant Home will address this need by providing 16 affordable, safe and sanitary units.

Additionally, this project will create in-fill development in an existing neighborhood and will provide much-needed affordable housing options in the Billings Heights. This project area is also along established local bus routes.

Procedural History
• June 2010: Homeword submitted an application to the City’s Community Development Division for funding to begin pre-development activities that would result in an affordable housing project. The City Council approved a $25,000 pre-development loan to Homeword June 28, 2010.
• June 2011: City Council approved $434,000 in HOME funding for an affordable housing project.
• July 2012: Homeword began work on an agreement with the Housing Authority of Billings to serve as developer of an affordable housing project on land owned by the Housing Authority. The agreement was reviewed by Rural Collaborative to ensure HOME compliance. The agreement is in final stages of review by both parties’ legal team and will be executed upon completion of the review.

Project Review
The property is located within the Billings city limits and is located in the Billings Heights area. Parking and landscaping are required and will be included in the site plan. Utilities are available at the site. No environmental review issues are anticipated at the site as the lot is located in a developed residential area and it is not located adjacent to the airport, PCE contamination site, or a four-lane street. Staff has received a HUD clearance letter on the environmental review.

Organizational Strengths
Homeword has successfully managed two City of Billings HOME grants for multi-family units, which resulted in 20 units at Southern Lights and 19 units at the Acme Hotel. All previous Homeword projects have come in on time and on budget. Homeword also owns and operates 24 affordable housing units in Lewistown and 144 affordable housing units in Missoula.

Financial Plan
Sources of funds to complete the project financing to date are as follows:

City of Billings Pre-Development Loan	$25,000
City of Billings HOME Funds Approved	$434,000
City of Billings HOME Funds Requested	$95,191
Housing Authority of Billings Financing	$800,000
Montana Department of Commerce HOME Funds	$750,000
Housing Authority of Billings Funding	$1,147,060
Housing Authority of Billings - Value of Land	$284,000
Total Sources:	$3,535,251

The land has been appraised and is valued at $284,000, which the City can consider 51% match funding for the total HOME grant. The City’s minimum match requirement is 25%. Total construction floor area for the buildings is estimated at 20,528 square feet. The average cost per square foot over the 16 units is $133, as estimated by the architect, JGA Architects, Engineers, Planners, PC.

With $554,191 in total HOME funding, the per unit subsidy is $34,637 for each of the 16 units. There will be four HOME-assisted units in the project, totaling a $138,548 subsidy for each HOME-assisted unit. The maximum allowable HOME allocation for a three-bedroom in this project is $230,524 and $178,193 for a two-bedroom, according to Billings’ Section 221(d)(3) per-unit subsidy limit (current as of January 2012). The recommended HOME funding level for this project is 16% of total project costs.

Projects previously funded include:
• Southern Lights: $500,000 for 20 units, with the cost per unit of $25,000.
• The Acme: $143,400 for 19 HOME-assisted units, with the cost per unit of $7,547.
• The Housing Authority of Billings, Town Square Apartments: $187,000 for 16 units, with the cost per unit of $11,688.
• The Schwend Apartments: total cost per unit was $27,533.

• Heights Community Development Task Force: The Housing Authority of Billings made a presentation to the Heights Task Force October 21, 2012. Tom Binon, Heights Task Force Chairman, submitted a letter of support for the Pheasant Home project on behalf of the task force.
• Low income families and individuals in the community. This project is targeted to families and individuals under 50% AMI.
• Disabled individuals and families in the community.
• Surrounding property owners. By funding this project, a new, high-quality, family housing complex with numerous amenities would be constructed to complement the neighborhood. This will likely have a positive impact on the surrounding property owners through increasing the value of their homes and the neighborhood as a whole.

This project meets the following strategies in the City’s five-year Consolidated Plan:
• Promote new affordable housing opportunities; and
• Support active partnerships with non-profits, neighborhood groups and provide assistance to agencies serving lower income and special needs populations.

An overall review of the funding for the project reveals it to be consistent with other similar projects the City has funded. The HOME subsidy amount being requested is consistent with the number of HOME assisted units, and is not over subsidy limitations. Match requirements are being appropriately met, as well as Section 504 requirements and ADA accessibility. This project is also consistent with the City’s Consolidated Plan.

There is a demonstrated need for these types of units, as evidenced through data from the recent Housing Needs Assessment. Homeword has extensive experience, both in developing and managing affordable housing projects, and they are knowledgeable about HOME program requirements as well. The City has partnered successfully with the Homeword on other projects and a positive relationship has been developed.