Item 3: Resolution Authorizing HUD Section 108 Revenue Bonds

Home Browse Search

HUD Section 108 Loan Contract To borrow money under the Section 108 loan program, HUD requires a two-step process. First, the City must enter into a loan contract with HUD. This is like a master loan agreement. Second, the City must draw down funds under a project note. The project notes are governed by the terms in the loan contract. The proposed resolution authorizes the City Manager or designee to enter into both the loan contract and one or more project notes. The City is proposing to use the Section 108 funds to acquire property for the West Broadway Redevel- opment Project. A number of repayment sources for Section 108 have been authorized by the council previously in Ordinance 20376. However, the City anticipates that the loan will be repaid from tax increment revenues of the Downtown District. It is also possible that the loan could be repaid from payments the developers make to the City to purchase the property, depending on the ultimate finance plan for the overall West Broadway Redevelopment Project. HUD requires local governments that borrow Section 108 funds to also pledge their current and future CDBG allocations as a secondary source of repayment for the borrowing. The City does not anticipate utilizing future CDBG allocations as a source of repayment for this project because the City’s Down- town Urban Renewal District has the financial capacity to make the payments on this borrowing. The CDBG Advisory Group met on July 10 to review the proposed project. It unanimously recommended “submittal of the individual project application to HUD subject to completion of public hearing and City Council approval of a project specific resolution.” The mechanism for the City to access tax increment revenues to repay the Section 108 loan is through a bond of the URA. Under this approach, the agency would issue urban renewal bonds to the City in the same amount, and under the same terms as, the Section 108 loan with HUD. In the past, the City and agency have handled this type of transaction between themselves through an intergovernmental agreement. (The library financing is one such example.) Bond counsel has advised, however, that a bond would be HUD’s preferred type of agreement. On this same council agenda, there is an item for the URA to authorize the issuance of the urban renewal bonds for this purpose. Attachment B includes the proposed City resolution authorizing the Section 108 borrowing. Attachment C includes charts that depict the relationship between HUD, the City and the URA for the initial funding under the loan and for the repayment. This council briefing statement focuses on the approvals needed for the City to sign the loan documents with HUD. Because the council has discussed the West Broadway Redevelopment Project specifics at previous meetings, details (as much as is known at this time) are included in the attachments. Attachments D and E include information about HUD’s project requirements and the properties to be purchased with the Section 108 loan. Attachment F is the draft HUD application for the project to be funded with the Section 108 loan. The draft application is currently being edited and refined, and additional versions will be posted on the City’s web site as they become available. The finalized application will be submitted to HUD by August 1. West Broadway Redevelopment Project Finance Plan The URA was presented with a preliminary finance plan on May 29 for the West Broadway Redevelopment Project. At that time, specific financial details for the joint developer plan were not yet available, but to begin the process of putting the necessary financing tools in place for this project, a preliminary finance plan was developed. Additional refinement of the finance plan is expected to occur L:\CMO\2007 Council Agendas\M070723\S0707233.doc