Consideration and Approval of a Loan Agreement:  Approval of a loan agreement with The Villas on Lake Mary, LLC for $397,398.00 distributed from the American Rescue Plan Act Coronavirus Local Fiscal Recovery Funds (ARPA). Loan documents include a sub-award loan agreement, consent and subordination agreement, declaration of restrictive covenants, promissory note, and deed of trust.
 

1. Approve the loan agreement between the City of Flagstaff and The Villas on Lake Mary, LLC, utilizing $397,398.00 of the American Rescue Plan Act Coronavirus Local Fiscal Recovery Funds; and
2. Authorize the City Manager to execute the necessary documents.

Staff seeks approval of a loan agreement between the City of Flagstaff and The Villas on Lake Mary, LLC, utilizing a portion of the City's American Rescue Plan Act Coronavirus Local Fiscal Recovery Funds (ARPA) to respond to the COVID-19 public health emergency and its negative economic impacts. ARPA funds in the amount of three hundred and ninety-seven thousand, three hundred and ninety-eight dollars ($397,398.00) will be loaned to The Villas on Lake Mary, LLC. This 76-unit Low-Income Housing Tax Credit (LIHTC) development will serve households at or below 60% of the Area Median Income and is located at 4000 S. Lake Mary Road, Flagstaff, Arizona 86005. The minimum affordability period for this project is 30 years. The account number to be used is # 024-09-402-6321-1-4273, and the project number is CL6321S.

The loan agreement is comprised of the following documents:

• sub-award loan agreement between the City of Flagstaff and The Villas on Lake Mary, LLC,
• promissory note,
• deed of trust,
• declaration of restrictive covenants, and
• consent and subordination agreements required by the Arizona Department of Housing.

The loan is funded with American Rescue Plan Act Coronavirus Local Fiscal Recovery Funds (ARPA), which were allocated by City Council for Housing Assistance Projects.

Loan terms include:

• $397,398 for construction costs,
• 30-year term,
• 0% interest, and
• Balloon payment of principal at the end of 30 years

The City will receive funds back as unrestricted program income per federal ARPA regulation.

The City of Flagstaff 10-Year Housing Plan provides policy initiatives and strategies that the City will implement to address the City's Housing Emergency, including incentivizing the creation of affordable units. The funding provided will support the development and construction of 76 apartments, affordable to households at 60% of the Area Median Income (AMI) under the Low Income Housing Tax Credit (LIHTC) program.

Priority-Based Budget Key Community Priorities and Objectives

•  Safe & Healthy Community
  • Support social services, community partners & housing opportunities
     
•  Inclusive & Engaged Community
  • Foster community pride & civic engagement by increasing opportunities for public involvement in line with best practices & legal requirements
  • Enhance community involvement, education & regional partnerships to strengthen the level of public trust
     
•  Sustainable, Innovative Infrastructure
  • Support the community’s social infrastructure needs; assist those partner organizations that provide services the City does not
     
•  Robust Resilient Economy
  • Support & strengthen a more robust, diverse, & sustainable economy in ways that reflect community values & provides for affordable housing opportunities
  • Enhance understanding between the development community, the City & Flagstaff residents
     
•  Livable Community
  • Actively support attainable & affordable housing through City projects & opportunities with developers
     

Regional Plan

• Goal NH.1. Foster and maintain healthy and diverse urban, suburban, and rural neighborhoods in the Flagstaff region.
  • Policy NH.1.1. Preserve and enhance existing neighborhoods.
     
• Goal NH.3. Make available a variety of housing types at different price points, to provide housing opportunities for all economic sectors.
  • Policy NH.3.1. Provide a variety of housing types throughout the City and region, including purchase and rental options, to expand the choices available to meet the financial and lifestyle needs of our diverse population.
  • Policy NH.3.3. Increase the availability of affordable housing for very low-income persons, through innovative and effective funding mechanisms
     
• Goal NH.4. All housing is safe and sanitary.
  • Policy NH.4.1. Expand the availability of affordable housing throughout the region by preserving existing housing, including housing for very low-income persons.
  • Policy NH.4.3. Address accessibility issues and other housing barriers to persons with disabilities or special needs.
  • Policy NH.4.4. Encourage green practices in housing construction and rehabilitation that support durable, healthy, and energy efficient homes.
  • Policy NH.4.6. Consider and integrate public transportation, when possible, in planning housing developments, to help reduce a household’s transportation costs and minimize impact on the community’s roads and transportation system.
  • Policy NH.4.7. Enforce compliance with fair housing laws.
     
• Goal NH.5. Eliminate homelessness.
  • Policy NH.5.1. Provide adequate resources for families with children experiencing homelessness.
  • Policy NH.5.2. Provide adequate resources for individuals experiencing homelessness.
     

Carbon Neutrality Plan

• Community Resilience
  • CR-1: Ensure all mitigation actions improve Flagstaff’s ability to adapt to the future.
  • CR-2: Strengthen existing community systems to create resilience to both short-term shocks and long-term change.
     
• Equitable systems
  • ES-2: Proactively engage community members on an ongoing basis
  • ES-4: Actively seek to recognize past harms, repair trust, and build deeper relationships with community members.

10 Year Housing Plan

• Create housing options for households at all income levels and family sizes occupied by local residents.
  • Create 1: Incentivize the creation of affordable units through various programs and mechanisms.
     
• Connect people to equitable housing solutions.
  • Connect 1: Reduce homelessness in the Flagstaff community and seek creative solutions to foster housing permanency for all.
  • Connect 2: Implement a framework for centering equity in proposed and existing housing practices, policies, and programs.
     
• Protect people from housing discrimination and remove housing barriers.
  • Protect 2: Ensure affordable housing is a part of every Flagstaff neighborhood and work to address disparate impact as part of any development or redevelopment.
  • Protect 3: Continue Flagstaff's commitment to further Federal and Arizona Fair Housing laws in all housing-related services and programs, valuing the efforts of those who seek to reduce barriers to equitable housing opportunities, and providing Fair Housing education and resources to the community.

On October 12, 2021, City Council provided direction on the use of ARPA Funds. City Council allocated $1,900,000.00 to housing assistance within the Negative Economic Impacts funding category.

On April 11, 2023, Housing staff presented allocation recommendations to City Council, forwarded by the Housing Commission, for the allocation of ARPA Funds for Housing Assistance. Included in these recommendations was a loan of $397,398.00 to The Villas on Lake Mary, LLC.

1. Approve the loan agreement between the City of Flagstaff and The Villas on Lake Mary, LLC, utilizing $397,398.00 of the American Rescue Plan Act Coronavirus Local Fiscal Recovery Funds (ARPA); or
2. Do not approve the Agreement and direct staff to conduct an additional solicitation.

The City is a recipient of certain funds through the American Rescue Plan Act, Pub. L. No. 117-2 (March 11, 2021), which authorizes the U.S. Department of the Treasury to make payments from the ARPA Fund. On October 12, 2021, City Council provided direction on the use of ARPA Funds. City Council allocated $1,900,000.00 to housing assistance within the Negative Economic Impacts funding category.
 
On November 7, 2022, the City of Flagstaff released a Notice of Funding Available ("NOFA") for Housing Assistance Projects that address community needs identified as a result of the COVID-19 pandemic in order to improve community resilience, address disparities of disproportionately impacted communities and create and preserve stable, affordable housing and prevent eviction. The City received eight (8) eligible applications.
Housing staff conducted a risk assessment of all eight (8) applying agencies and their proposed Projects. Additionally, a Ranking Committee comprised of three (3) community representatives and three (3) City Staff met to review the proposals and rank them by consensus. Rankings primarily serve as a risk and benefit assessment and are the guiding input for Staff recommendations of ARPA Local Recovery Fund allocations. Staff presented the recommended allocations to the Housing Commission at the March 2023 meeting, and the Housing Commission voted unanimously to forward them to Council with a recommendation for approval.
 
On April 11, 2023, Housing Staff presented to City Council allocation recommendations, forwarded by the Housing Commission, for the allocation of Local Recovery Funds for Housing Assistance. Included in these recommendations was a loan of $397,398.00 to The Villas on Lake Mary, LLC.

Low Income Housing Tax Credit Program Information: The Low Income Housing Tax Credit (LIHTC) Program in Section 42 of the Internal Revenue Code, was enacted by Congress in 1986 to provide the private market with an incentive to invest in affordable rental housing. Federal housing tax credits are allocated to states who then award the credits to developers of qualified projects. Developers then sell these credits to investors to raise capital (or equity) for the projects, reducing the debt that the developer would otherwise have to borrow. Because the debt is lower, a tax credit property is required to offer lower, more affordable rents. Provided the property maintains compliance with the program requirements, investors receive a dollar-for-dollar credit against their federal tax liability each year over a period of 10 years. Since the program's creation during the Reagan administration, LIHTC has proven to be the most successful rental housing production program nationally.

As documented in the 10-Year Housing Plan, the need for increased affordable housing options remains high. Nearly half (47%) of Flagstaff residents are low-income, earning no more than $55,350 annually. In Flagstaff's current housing market, 65% of households that fall within or below the moderate-income level could benefit from some form of subsidy to achieve housing that is considered affordable. This project works to achieve (in part) the City's overarching goal to "create or preserve 7,976 housing units by 2031 with a minimum of 10% of them being affordable."

City Council discussed ARPA Funds allocation amounts and categories for funding at the City Council work session on September 7, 2021 and provided direction on use of the ARPA Funds on October 12, 2021. The Housing Commission reviewed the proposed allocation of these funds at the March 23, 2023, meeting, recommending the proposed allocations be forwarded to City Council for approval. On April 11, 2023, Housing staff presented allocation recommendations to City Council for the allocation of ARPA Funds for Housing. These meetings were held in accordance with Open Meeting Law and included a public participation process allowing for public comments. Additionally, there was an open and competitive application (Notice of Funding Availability) process for ARPA Funds for Housing Assistance.