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HomeMy WebLinkAboutItem 3: PH on Ordinance Authorizing HUD Section 108 Revenue Bonds ECC UGENE ITY OUNCIL AIS GENDA TEM UMMARY Public Hearing: An Ordinance Authorizing HUD Section 108 Revenue Bonds Meeting Date: January 16, 2007 Agenda Item Number: 3 Department: Central Services Staff Contact: Sue Cutsogeorge www.eugene-or.gov Contact Telephone Number: 682-5589 ISSUE STATEMENT This is a public hearing on an ordinance to authorize the use of the HUD Section 108 loan through the Uniform Revenue Bond Act (URBA) process. The HUD Section 108 loan would be used as a downtown redevelopment tool. There are no specific projects being authorized for this financing tool at this time. BACKGROUND In February 2006, the City received notice of award of a $2 million Brownfield Economic Development Initiative (BEDI) grant to assist redevelopment projects within the City's two urban renewal districts. BEDI funds must be used in conjunction with, and for projects financed by, a HUD Section 108 guaranteed loan commitment (Section 108). Section 108 is the loan guarantee provision of the federal Community Development Block Grant (CDBG) program. Section 108 allows cities to borrow up to five times their annual CDBG allocation. HUD has authorized a borrowing of up to $7,895,000 for Eugene. Section 108 provides communities with a source of financing economic development, housing rehabilitation, and public facility projects. It allows communities to leverage their limited CDBG funds into federally guaranteed loans sufficient to pursue large-scale projects. Projects funded with Section 108 proceeds must meet HUD underwriting criteria, including project cash flow and collateral sufficient to repay the Section 108 borrowing and provision of a public benefit. Local governments that borrow Section 108 funds must pledge their current and future CDBG allocations as a secondary source of repayment for the borrowing. At this time, there is no specific project proposed for use of the Section 108 loan and BEDI grant funding. To initiate the approval process for the use of a Section 108 loan under state statutes, staff has prepared this draft ordinance that would give the City the authority to borrow money under the Section 108 program. State law requires that the City obtain this authority through a non-emergency ordinance, which requires a public hearing. Following the public hearing and approval of the ordinance by the council, the City will be authorized to act once the council approves a specific project for Section 108 loan funding. Passage of this ordinance will not authorize the City to borrow any money, nor will it approve a specific project. Those acts will require subsequent approval by council. To draw down the Section 108 and BEDI grant funds, HUD requires that the specific project funding request be approved by the council following a public comment process and a public hearing. It is L:\CMO\2007 Council Agendas\M070116\S0701163.DOC customary to hold public hearings related to CDBG funds before the CDBG Advisory Committee. Staff anticipates following this procedure with respect to Section 108 borrowings. Each specific project funded under the BEDI grant and Section 108 loan funding will require an additional level of City Council approval before the City actually borrows HUD funds. Funds borrowed under the Section 108 program require the City’s security pledge of future CDBG allocations. However, the City does not anticipate utilizing future CDBG allocations as a source of repayment, given the capacity of the City’s urban renewal districts to supplement project-specific cash flow and collateral. The BEDI grant is also intended to offset the risk of using Section 108 by utilizing the grant funds to create loan loss reserves or to make a direct loan of the grant funds. The ordinance sets out the revenues that would be pledged for the Section 108, including federal grant funds, revenues and rights the City obtains in connection with the redevelopment projects, repayments of loans and other assistance provided by the City pursuant to Section 108, payments from the Eugene Urban Renewal Agency (URA), and similar amounts. The Section 108 loans will not be secured by the City’s general fund or any other general resources. Projects that receive Section 108/BEDI funds must: 1) meet a CDBG national objective of benefiting low or moderate income persons or eliminating conditions of slums or blight; 2) lead to economic revitalization in connection with brownfields; 3) be financially feasible; 4) be within reasonable risk; 5) be likely to be repaid; and 6) provide permanent, full-time employment for low and moderate income individuals. The six project preference criteria are designed to provide an objective evaluation of the applicant’s ability to produce an effective and timely outcome and of the impact of the project. Section 108/BEDI project loan recipients will be obligated to comply with all applicable local and State laws. Recipients will also be specifically bound by Federal requirements covering civil rights and equal opportunity, environmental review, flood plain insurance, labor standards (Federal Davis-Bacon wage rates), real property acquisition, relocation and displacement, and replacement of low-moderate income housing. Applicants will be encouraged to consider these requirements in the design of a project proposal and in preparation of an application, particularly if the proposal involves construction. There are two potential areas that might generate projects to be considered for use of the Section 108 loan. Those areas are West Broadway in the Downtown Urban Renewal District and the Courthouse area in the Riverfront Urban Renewal District. RELATED CITY POLICIES The Budget Committee approved a set of debt issuance guidelines in February 2004. The guidelines include a section on conduit financings, which are defined as bonds issued by the City to finance a project to be used primarily by a third party, usually a corporation engaged in a private enterprise. If the City decides to use Section 108 to borrow money to lend to a private developer, the council will need to waive several of the conduit financing policies. For instance, the City’s debt policies state that the City will not incur any moral or financial obligation under a conduit borrowing. Section 108 is set up for the purpose of using the City’s CDBG funds as the ultimate security on a loan; therefore, the City would incur a possible financial obligation under this financing structure. When council considers a specific financing resolution for a future project, waiver of any appropriate debt policies would be part of that approval process. The waiver is not necessary at this time. L:\CMO\2007 Council Agendas\M070116\S0701163.DOC COUNCIL OPTIONS This ordinance is designed to have council go through the ordinance process to authorize the use of Section 108 as a redevelopment tool, but the ordinance does not authorize specific projects. Specific projects would be authorized at a later date through a resolution process. As an alternative, the council could choose to go through the ordinance process each time a project was identified for Section 108 funding. CITY MANAGER’S RECOMMENDATION The City Manager recommends adoption of the ordinance. Consideration of the ordinance is scheduled for February 12. SUGGESTED MOTION No motion is required for the public hearing. When the ordinance is considered by council on February 12, the following motion is recommended: Move to adopt an ordinance authorizing HUD Section 108 revenue bonds. ATTACHMENTS A. Ordinance FOR MORE INFORMATION URBA Contact: Sue Cutsogeorge, Financial Analysis Manager Telephone: 682-5589 Staff E-Mail: Sue.L.Cutsogeorge@ci.eugene.or.us HUD Contact: Denny Braud, Senior Development Analyst Telephone: 682-5536 Staff E-Mail: Denny.Braud@ci.eugene.or.us L:\CMO\2007 Council Agendas\M070116\S0701163.DOC ATTACHMENT A ORDINANCE NO. AN ORDINANCE AUTHORIZING HUD SECTION 108 REVENUE BONDS. The City Council of the City of Eugene, Oregon, finds: A . The City is authorized to issue revenue bonds for any public purpose under Oregon's Uniform Revenue Bond Act (ORS 288.805 to 288.945) (the “Act”). Revenue bonds issued under the Act may be payable from all or any portion of the “revenues” of the City, as defined in the Act. The Act defines “revenues” to include all fees, tolls, taxes, and other income available to the City. B . The City may authorize revenue bonds under the Act by non-emergency ordinance. The City may not sell revenue bonds under the Act until the period for referral of the non-emergency ordinance has expired. If a non-emergency ordinance authorizing revenue bonds is referred, the City may not sell revenue bonds unless the voters approve the revenue bonds. C . The City is eligible to receive a grant of up to $2,000,000 if it issues up to $7,895,000 of revenue bonds in compliance with the requirements of Section 108 of Title I of the Housing and Commun- ity Development Act of 1974, as amended (”Section 108”). The proceeds of those revenues bonds will be used for loans and other assistance for economic development, property acquisition, public facilities, large- scale physical development projects and any other projects that are eligible for funding under Section 108 (the “Projects”). D . Revenue bonds issued by the City in compliance with Section 108 are secured solely by federal grant funds, revenues and rights the City obtains in connection with the Projects, repayments of loans and other assistance provided by the City pursuant to Section 108, payments from the Eugene Urban Renewal Agency, and similar amounts. E . Any revenue bond issuance under this ordinance will only occur after subsequent City Council approval to finance loans and other assistance for the Projects in compliance with Section 108. NOW THEREFORE: THE CITY OF EUGENE DOES ORDAIN AS FOLLOWS: Section 1 . Revenue Bonds Authorized. The City hereby authorizes the issuance of not more than Seven Million Eight Hundred Ninety-five Thousand Dollars ($7,895,000.00) in aggregate principal amount of revenue bonds to finance loans and other assistance for the Projects and related costs. The bonds shall be issued and sold in accordance with ORS 288.805 to 288.945. Section 2 . Bonds Payable Solely from Revenues. The bonds authorized by this ordinance shall be secured solely by federal grant funds, revenues and rights the City obtains in connection with the Projects, repayments of loans and other assistance provided by the City pursuant to Section 108, payments from the Eugene Urban Renewal Agency, and similar amounts. Ordinance No. ____ Page 1 of 2 Section 3 . Procedure. No series of bonds authorized by this ordinance may be sold and no purchase agreement for any series of bonds authorized by this ordinance may be executed until the period of referral of this non-emergency ordinance has expired. If this ordinance is referred, the City may not sell the revenue bonds unless the voters approve the revenue bonds. Section 4. Additional Authorization Required. Before any revenue bonds authorized by this ordinance are issued, the City Council shall authorize the issuance by a separate, subsequent resolution. Passed by the City Council this Approved by the Mayor this __ day of _____, 2007 __ day of _____, 2007 City Recorder Mayor Ordinance No. ____ Page 2 of 2