Petaluma affordable housing funds lagging

While the slow resurgence of development has helped put new money toward Petaluma’s affordable housing program, the funding still pales in comparison to pre-recession years, presenting steep challenges for financing the brick-and-mortar affordable housing projects that were more common in the past, according to the city’s housing coordinator.

An estimated $963,000 will flow into the program through the fees that some commercial and residential developers will pay this year, roughly one third of the additional $3 million that Petaluma used to put toward the program annually from the property taxes collected by its former redevelopment agency, according to Housing Coordinator Sue Castellucci and city budget documents. California eliminated those agencies in 2012, which had the effect of redistributing the money to other taxing entities.

Petaluma has largely used the now limited dollars to prop up housing assistance and community programs, efforts that Castellucci said are focused around helping residents keep their existing homes. Yet even contributions to those programs have declined by between 25 and 50 percent in recent years, and future funding is not guaranteed, according to a recent report by Castellucci to the Petaluma City Council.

The situation highlights the nuanced challenges Petaluma and many other cities face in promoting affordable housing development, even as a broader economic upswing has put more housing units in the city’s long-term pipeline.

“The city of Petaluma doesn’t have a lot of options,” she said.

The Petaluma City Council took an administrative vote last week to approve the affordable housing spending plan for the fiscal year ending June 30, 2017. The plan outlines $542,516 in appropriations to various organizations, as well as administrative costs.

The money comes from fees paid by builders of large residential developments as an alternative to including on-site affordable housing, as well as builders of large commercial projects.

Fees from development

Castellucci said projects like The Artisan Apartments on Maria Drive and North McDowell Commons paid the so-called in-lieu fees last year, which put money into the fund. Ongoing construction at places like the Deer Creek Village shopping center is also causing money to trickle in through the similar commercial linkage fee.

Yet the timing of that money is somewhat unpredictable – Petaluma gets its housing in-lieu fees after final building inspection, and gets commercial linkage fees when building permits are issued, she noted. The situation means it is uncertain, year to year, what the housing program may be in a position to fund.

Even with a prospect of in-lieu funding from a long-term pipeline of projects like the large Riverfront development off Hopper Street and the North River Apartments near Petaluma’s downtown, Castellucci said the city simply doesn’t have the firepower for funding housing that it used to.

“Even with the in-lieu fees that are coming on over the next five years, typically, it’s not going to be a lot of money,” she said.

More than 1,760 housing units were built using contributions of funding from Petaluma’s housing program, including senior rentals, family rentals, first-time homebuyer properties, two homeless shelters and five transitional houses, according to the report to the city council.

Funding gap

Castellucci said it has generally taken about $3 million from the city to bridge the gap that affordable housing developers have faced in making their projects pencil out. The city’s current funding balance, which is spread out across three pots representing money from in-lieu fees, commercial accounts and the former redevelopment agency, is about $3.6 million, not counting expected revenue for the year.

She noted $1.7 million of that funding is currently set aside pending a decision on whether the state will take it as part of the redevelopment agency dissolution.

While revenue from development on the long-term horizon in Petaluma may bump the program’s overall funding up to a point where it can make a substantial impact on new housing construction, the spending would likely come at the expense of the division itself, she said.

“Then I’d be closing my door, because there’s nothing else we’d be able to do,” Castellucci said.

City council debate

It’s ultimately up to the city council to approve the spending policy, and opinions across the dais on how to use the limited funds have not been entirely harmonious.

At issue has been a debate over using a portion of the money to support Boys and Girls Club programs at existing affordable housing sites, which amounts to $150,000 in the current fiscal year. While supportive of the organization as a whole, Councilman Mike Healy said he has questioned whether it was appropriate to contribute to the program through the affordable housing funds.

“It’s a real Hobson’s choice. You want to support this kind of programs, and I do, but I don’t think that’s an appropriate funding source to do it with,” he said.

Healy said historically, the city’s contributions to affordable housing construction by organizations like PEP Housing and others have enabled the building of permanent housing projects worth 11 times as much. He described it as a compelling ratio at a time when the city is trying to stretch its limited dollars, and has argued that the funding in general should go toward programs with a more direct housing role.

“This and last year, the city spent $450,000 on the Boys and Girls Club,” he said. “That would have been $5 million of permanent housing.”

Petaluma Mayor David Glass, meanwhile, was supportive of the spending on the Boys and Girls Club. He said that the child care it provides takes pressure off parents who are working, which subsequently makes it easier for them to earn the money that winds up paying a rent or mortgage payment.

He cited it as an example of a holistic approach to housing policy, one that takes into account the broader expenses that lower-income residents face that could impact their housing security.

Glass said he was not aware of legislation in the works in Sacramento that could fill some of the hole left with the demise of redevelopment, but noted that the chorus of cities calling for a change is getting louder.

“We’ve had past success when we’ve had real capability. It’s up to the state legislature to give local governments the tools to take care of these issues,” he said.

Grand Jury report

Citing information from the city of Petaluma, a recent Sonoma County Grand Jury report examining a paucity of affordable housing countywide said Petaluma was currently $7.7 million short in annual public spending to meet its future housing needs. The county as a whole would need to spend $40 million every year to meet its housing projections, a sum that the report concluded was unattainable without significant “realignments” of municipal budgets.

Still, while Petaluma’s affordable housing program has shrunken, the city has not been entirely unsuccessful in boosting the stock of below-market-rate housing through agreements with market-rate developers. The 150-unit Altura Apartments project on Baywood Drive is in an agreement to set aside 15 percent of its units as affordable, and around 75 of such units are in the pipeline over the next three years, Castellucci said.

“That’s why we are relying on market-rate developers. We get 23 units here, 25 units here,” she said. “That doesn’t sound like a lot, but it’s more than we would have if we were waiting for a project.”

(Contact Eric Gneckow at eric.gneckow@arguscourier.com. On Twitter @Eric_Reports.)