The Multifamily Bond Program provides below market financing (based on tax
exemption of bond interest) for developers willing to set aside a portion
of the units in their projects as affordable housing. The issuer of these
bonds is the Housing Authority. At the present time, $545 million in
outstanding bonds provides permanent financing for more than 9,200
multifamily rental units in the City, of which 4,316units are restricted
at various levels of affordability.
Bonds issued by the Housing Authority require a minimum "A" rating, which
is typically achieved through the provision of an outside credit
enhancement by participating financial institutions that underwrite the
project loans and guarantee the repayment of bonds.
The authority to issue bonds is limited under the US Internal Revenue
Code. The California Debt Limit Allocation Committee (CDLAC) accepts
applications generally two to three times a year (funding “rounds”), and
typically receives more applications than is available under its financing
authority. The state has a $75 per capita bonding capacity.
The following actions must be taken by the Housing Authority and by the
City Council to initiate a bond financing:
1. Official Intent (Bond Inducement)
The adoption of an Official Intent (inducement) resolution is an initial
step required by the Internal Revenue Service to initiate a possible
new-money bond issuance. It does not represent any commitment by the
Housing Authority or the applicant to proceed with the financing. Rather,
it establishes, through public record, the date from which project costs
incurred may be determined to be reimbursable from bond proceeds.
Generally, the Official Intent amount is higher than the estimated bond
amount to reflect a 10-15 percent contingency. The adoption also
authorizes staff to work with the selected financing team to perform a due
diligence process to determine the feasibility of the financing, the level
of affordability of the set-aside units and structure a resulting proposal
for the issuance of bonds.
2. TEFRA Hearing and Approval
In order for interest on the bonds to be tax-exempt and in accordance with
the Tax Equity and Fiscal Responsibility Act (TEFRA) of 1982, Section
147(f) of the Internal Revenue Code of 1986, the issuance of bonds must be
approved by representatives of the governmental unit with jurisdiction
over the area in which the project is located after a public hearing for
which a reasonable public notice was given. Therefore, federal regulations
require that the issuance of bonds by the Housing Authority be approved by
the City Council, as the elected legislative body of the City. A notice of
public hearing to be held by the City Council with respect to the proposed
issuance of bonds will be published in the San Diego Daily Transcript at
least fourteen days prior to the scheduled meeting. The purpose of such
public hearing is to provide an opportunity for interested persons to
provide their views on the proposed bond issuance and on the nature and
location of the project.
3. Bond Allocation
The issuance of bonds for projects owned by private developers (i.e.,
projects owned by private developers or by nonprofit sponsors with for
profit investor participation - "private activity bonds") requires an
allocation of a bond issuing authority from the State of California. In
order to apply for the bond allocation, an application approved by the
Housing Authority and supported by an adopted Official Intent resolution
and by proof of credit enhancement (or bond rating) must be filed with the
California Debt Limit Allocation Committee (CDLAC). In addition, evidence
of a TEFRA hearing and approval must be submitted prior to the CDLAC
meeting.
4. Final Bond Approval
The Housing Authority retains absolute discretion over the issuance of
bonds through adoption of a final resolution authorizing the issuance.
Initially, the information about the proposed tax-exempt financing of the
project is preliminary. If the Official Intent and TEFRA resolutions are
approved, a due diligence process conducted by staff and financing team
members will generate additional information and analysis. Prior to final
consideration of the proposed bond issuance by the Housing Authority, the
project will have to comply with all the program's financing and
affordability requirements, and undergo all required planning
procedures/reviews by local planning groups, etc.
