Should TCAC redesign the tiebreaker?

Transcription

1 Should TCAC redesign the tiebreaker? Presented by Kingdom Development, Inc. a California nonprofit public benefit corporation Live Polling Instructions: 1. Using your smartphone, browse to: PollEv.com/WilliamLeach Enter your name and click [Continue] or click [Skip] to remain anonymous 3. You are all set if the website asks: Is the sky blue?

2 San Diego Housing Commission The San Diego Housing Commission (SDHC) has earned a national reputation as a model public housing agency. Established in 1979, SDHC provides a variety of awardwinning affordable housing programs and services that: stimulate the local economy; revitalize neighborhoods; and impact the lives of low income and homeless San Diegans. SDHC has three primary programs: 1. Provide rental assistance 2. Create and preserve affordable housing 3. Address homelessness Alpha Square th Street Downtown San Diego

3 San Diego Housing Commission California is Facing a Housing Crisis San Diego faces similar and unique challenges within our region Volatility of Local & Federal Funding Sources Federal HOME funding has been reduced by more than 50 percent since FY 2010 Dissolution of Redevelopment Agencies in 2012 Local housing fee collections tend to coincide with economic cycles A production rate of 17,000 24,000 units annually is needed to adequately meet the identified demand for housing in the City by The top annual production rate in last 5 years was 6,400.

4 San Diego Housing Commission Ongoing Effects of State & Local Housing Crisis Supply of housing is not keeping pace with demand resulting in rising rents and home values Nearly 50 percent of San Diego households are unable to find rental housing they can afford Negative Impact on Gross Domestic Product High housing cost reduces disposable income that would otherwise be spent in the local economy which supports GDP Talent available to employers is constrained, which impacts an employer s ability attract and retain qualified workforce Impacts to Quality of Life & Environment Ensuing sprawl and traffic congestion result in longer commute times and increases to greenhouse gas emissions

5 San Diego Housing Commission Advocacy More effective affordable housing policies and resources Incentivize Production Maximize resources through operational efficiencies and innovation Increase the number of affordable housing opportunities that serve low income individuals and families Incentivize Cost Efficiency Measures Reduce development cost through responsible policy measures Maximize the Use of Public Funds

6 Why is Kingdom Development Concerned? 1. Nonprofit organization focused on making a difference 2. Experienced with the 9% program 3. Serves on advisory committees 4. Shares insights with the industry

7 Should TCAC redesign the tiebreaker? Only If: 1. There is an unmet need for affordable housing; 2. The tiebreaker doesn t effectively leverage our resources; 3. A more effective tiebreaker could be designed; and 4. The benefit to the public outweighs the redesign cost.

8 1. There is an unmet need for affordable housing.

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10 2. The tiebreaker doesn t leverage our resources Topics: A. Role of the tiebreaker B. Recent outcomes C. Tiebreaker correlations D. Resulting behaviors

11 2.A. The tiebreaker s role i. Set asides and geographic regions ensure we distribute funding evenly across the state and to certain project types ii. Points ensure every project provides sufficient public benefit iii. Minimum construction standards ensure projects are of sufficient quality iv. Housing type goals ensure we don t over invest in certain housing types v. The tiebreaker decides between: i. equally meritorious projects, ii. that meet all quality standards, iii. that equally fulfill a housing need, iv. within each set aside and region.

12 2.A. The tiebreaker s role i. When the current tiebreaker was proposed its stated goal was to reduce the amount of credits awarded to projects by inducing local investments ii. Simply stated, the tiebreaker s purpose is to leverage the credit Need for affordable housing Developers The Tiebreaker Conventional & Public Financing

13 2.B. Recent outcomes 1.2 Credits Awarded over Time Credits (in Billions)

14 2.B. Recent outcomes 1.2 Credits Awarded over Time Credits (in Billions) Adjusted for: cost inflation credit pricing Interest rates

15 2.B. Recent outcomes 1.2 Credits Awarded over Time Credits (in Billions) s 940 million is 20% more than 2007 s 780 million

16 2.B. Recent outcomes 7,000 Units Produced over Time 6,500 6,000 5,802 6,045 Units 5,500 5,000 4,500 4,000 4,126 5,037 4,230 4,170 5,080 4,846 4,842 4,513 3,776 3,500 3,000 2,500 2,

17 2.B. Recent outcomes

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19 2.B. Recent outcomes 300,000 Credits per Unit over Time Government Funds per Unit 372k 331k 330k 422k 250, k Credits / Unit 200, , , k 161k 197k 197k 154k 153k 186k 227k 210k 212k 145k 143k 121k 118k Public Funds per Unit 50,

20 2.B. Recent outcomes

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22 2.C. Tiebreaker correlations (Most recent 238 New Con. awardees) No correlation to credits/unit 44%Avg. 270k Avg.

23 2.C. Tiebreaker correlations (Most recent 238 New Con. awardees) Moderate correlation to high cost 400k Avg.

24 2.C. Tiebreaker correlations (Most recent 238 New Con. awardees) Strong correlation to public funds 130k Avg.

25 2.C. Tiebreaker correlations Credits/unit

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27 2.C. Tiebreaker correlations Cost/unit

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29 2.C. Tiebreaker correlations Public Funds/unit

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31 2.D. Resulting behaviors 30 units = 50 TB 50 units = 39 TB 70 units = 35 TB $5m PF 70 units $5m PF = 166k/unit = 50 TB 30 units $5m PF = 100k/unit = 39 TB 50 units = 71k/unit = 35 TB

32 2.D. Resulting behaviors $5m PF 70 units = 35 TB $5m PF 50 units = 39 TB $5m PF 30 units = 50 TB

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34 2. Qualitative scorecard Measure Current TB Production C Fairness D Adjustable F Policeable D Game able D Understandable F Defensible D Behaviors C Simple D Familiar A

35 2. The tiebreaker isn t working properly Rising credits/unit Correlation with high cost Downward pressure on units $5m PF 30 units = 50 TB

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37 3. A more effective tiebreaker could be designed Topics: A. The design process B. A better way to measure leverage C. Resulting behaviors D. Avoiding bad outcomes E. Overall benefits

38 Thanks to those who ve provided feedback so far.

39 3.A. Tiebreaker design process Process: i. Decide the tiebreaker s purpose ii. Use the most direct measurement iii. List the undesirable outcomes iv. Decide which outcomes must be avoided v. Include adjustments to avoid such outcomes

40 3.B. A better way to measure leverage How to measure leverage directly: Return on investment Units divided by Credits

41 3.B. A better way to measure leverage = Score

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43 3.C. Resulting behaviors Motivates Increasing units Decreasing credits Reducing costs Increasing sources Debt Equity Public funds Base case

44 3.C. Resulting behaviors Raise more capital Base case Add units and costs More PF Save costs

45 3.C. Resulting behaviors Raise more capital Increase density Get parking reduction Better stack units Negotiate pricing Get public funding Build at scale Trim excess costs Get fees waived Operate efficiently

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47 3.D. Avoiding bad outcomes Unadjusted, a production oriented tiebreaker would result in two types of bad outcomes: 1. Ancillary public benefits would be ignored by the score 2. Projects that require more credits would be disadvantaged

48 3.D. Avoiding bad outcomes Adjustment Modules Incentivize policy goals Level the playing field Types Multiplicative modules (incent) Affects all units Additive modules (equalize) Incremental effect

49 3.D. Avoiding bad outcomes Multiplicative adjuster example (Incent) High Opp. Family Project Other Projects

50 3.D. Avoiding bad outcomes Additive adjuster example (Equalize) Prevailing Wage Project Non P.W. Projects

51 3.D. Avoiding bad outcomes Current adjusters 1. Size factor 2. NPV subsidies 3. Commercial proration 4. Offsite deduction 5. Requested basis 6. Divide by 3 7. Basis addback 8. Opportunity areas Unfair to: new con. Family Infill PSH PW Potential adjusters 1. Rehab New Con. * multiplier 2. Square footage ± equalizer 3. Location based cost ± equalizer 4. Supportive service equalizer 5. Opportunity area * multiplier 6. Prevailing wage equalizer Multipliers ± Equalizers

52 3.D. Avoiding bad outcomes

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54 3.E. Overall benefits Redesigning the tiebreaker could: i. Increase production by simply measuring it ii. Make it easier to understand, explain, and defend iii. Involve the entire development team in improving the score iv. Foster creativity in achieving density, lowering costs, and raising capital v. Reduce the amount of certification, gaming, and policing vi. Increase flexibility to address emerging policies vii. House more Californians

55 3. Qualitative scorecard Measure U/C Structure Current TB Production A C Fairness B D Adjustable A F Policeable A D Game able A D Understandable B F Defensible A D Behaviors A C Simple D D Familiar F A

56 Comments and concerns

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58 3. A more effective tiebreaker could be designed

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60 4. The benefits outweigh the cost Topics: A. Retrospective results B. Rough cost calculation C. Return on investment

61 4.A. Retrospective results Performed mock allocations for the past 4 years Used units/divided by credits with two simple adjusters: 50% multiplier for Rehab deals because they require half the credits and provide less new affordability 10% subtraction for Family deals because they require more square footage than other housing types Note: this is not a proposal, it s merely an example

62 4.A. Retrospective results Measure Historic Results Mock Results Units awarded 17,686 19,620 Increase 0% 11% Credits per unit 230k 207k Credits awarded 4.07b 4.07b New construction 78% 85% Rehabilitation 22% 15% Family Housing Type 49% 52% Other Housing Types 51% 48% 2k additional 484 per year * *

63 4.B. Rough cost estimation Effort Base Qnty Hours Subtotal Taskforce meetings ,920 Taskforce research Public hearing Developers respond Committee considers Excel tools published Developers update models Developers train staff Total: 4,741

64 4.C. Return on investment Total Investment = 4,741 hours * $250/hour = $1,185,250 Break Even = Investment / Average cost per unit $400k = Annual Return = (19,620 17,686) / 4 years = 3 units 484 units Savings = units * government funding/unit = 484 * 363k = 175m First year ROI = 175m / 1.2m = 15,000%

65 4. The benefits outweigh the cost $1,185,250 3 to break even 484 first year 175m saved

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67 Should TCAC redesign the tiebreaker? Only If: 1. There is an unmet need for affordable housing; 1.5 million 2. The tiebreaker doesn t effectively leverage our resources; 279k credits per unit in k government funds per unit in A more effective tiebreaker could be designed; Units/Credits motivates desired outcomes Adjusters ensure fairness 4. The benefit to the public outweighs the redesign cost. 175m > 1.2m

68 Should TCAC redesign the tiebreaker?

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70 Should Units / Credit with adjusters be the structure?

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