1. Housing Financing and Leveraging MHSA Dollars CSH 9/07

2. Objectives  How housing projects are financed  Types of funding sources  How communities can use MHSA funds to create more housing  How to leverage other funding sources

3. The Three “Flavors” of Money CapitalOperating Services

4. How Funding for Supportive Housing Is Used TypeUses CAPITALLand, buildings, new construction, soft costs of development, capitalized reserves OPERATINGProperty operations such as management staff, landscaping, utilities, reserves SERVICESDelivery of supportive services to tenants

5. Putting Together a Financing Plan CAPITAL BUDGET:  Pre-Development: Site selection, project planning and feasibility, architectural renderings, early community outreach, environmental testing, etc.  Construction: Hard and soft costs of construction or rehabilitation  Permanent: Takes out earlier financing and stays in the deal for the long-term. REMEMBER: SOURCES MUST ALWAYS EQUAL BUDGETED USES!!!

6. Putting Together a Financing Plan SERVICES BUDGET: Wide array of relevant, efficient supports that enable individuals to maintain their housing. REMEMBER: SOURCES MUST ALWAYS EQUAL BUDGETED USES!!!

7. Putting Together a Financing Plan OPERATING BUDGET: The cost to operate the property Rents in supportive housing usually don’t cover these costs EXAMPLE: Amount a tenant can afford in rent$210 Monthly cost to operate a unit$435 GAP THAT NEEDS TO BE FUNDED ($225) AND REMEMBER: SOURCES MUST ALWAYS EQUAL BUDGETED USES!!!

8. Putting Together a Financing Plan: Addressing the Operating Gap Operating Gaps can be addressed in two ways: Obtain a rental or operating subsidy that will pay for that gap on a monthly or annual basis. –Such sources include: Project or Sponsor Based Shelter Plus Care and Section 8 Vouchers Capitalize upfront to cover the gap over time. - The MHSA Housing Program offers the opportunity to apply for capitalized operating subsidy funds.

9. Capitalized Operating Reserves Concept:  Establish a fund at the beginning of the project to meet the operating deficits you know you’ll experience over time (best to plan for as long a term as possible – the MHSA Housing Program application allows for up to 20 years)  CalHFA holds these funds and disburses them quarterly to the project.  Regular, scheduled draw downs subsidize rent over time

10. Calculating a Capitalized Operating Reserve MHSA Example – Attachment B Operating Cost Per Unit (per year) :$6,000 Rental Income (per year) : $2,536 Expected Operating Deficit Per Unit (Year 1):($3,464) Required Reserve (Per Unit), Based on 20-year operations period:$100,000

11. Capital Financing

12. What are Sources of Capital Funding? FEDERALSection 811, HOPWA, HOME, CDBG, Section 515 Rural Loans, Rural Homeless Assistance, Supportive Housing Program (SHP) (HOME, CDBG and HOPWA often administered by local gov’t or State) STATELow Income Housing Tax Credits (Tax Credit Allocation Committee), Multifamily Housing Program (MHP), CalHFA, Rural Predev. Loans, MHSA LOCALRedevelopment Agency Funds, Housing Trust Funds, Inclusionary Funds Intermediaries and Banks Various loan and grant products

13. Prop 1C Supportive Housing Funds:  195 Million available at the state level  50 Million available specifically for supportive housing for youth

14. Prop 1C  These funds are available by applying to the State Department of Housing and Community Development Department  The application process is open to applications on an “over the counter” basis. Applications accepted until funds expended.

15. Mental Health Services Act Housing Program California Counties committed an initial $400 Million to this program Application released August 6 th Ensure you have the copy that is listed on the website as revised August 13 th A County must submit an MHSA Housing Program application to both the Department of Mental Health (DMH) and the California Housing Finance Agency (CalHFA). MHSA Housing Program applications will be considered updates to a county's Community Services and Supports (CSS) component of its Three-Year Program and Expenditure Plan.

16. Operating Financing

17. What are Sources of Operating Funding? FEDERALSection 811, HOPWA, Shelter Plus Care, Supportive Housing Program (SHP), Section 515 Rural Loans, Rural Homeless Assistance (HOPWA often administered by local gov’t or State) STATEMHSA, Independent Living Program (transitional youth), THP+ LOCALSection 8 vouchers TENANT RENTBased on ability to pay

18. Services Financing

19. Where are Sources of Services Funding? FEDERALHOPWA, Supportive Housing Program (SHP) (HOPWA often administered by local gov’t or State) STATEMHSA, THP+ LOCALCounty Departments of Health and Human Services, Mental Health, Alcohol and Drug, HIV/AIDS and other social service programs, private foundations, MediCal

20. Leveraging Funds

21. Leverage is the Name of the Game Supportive housing finance involves MANY different sources Funders like to LEVERAGE their resources Funders want others to share in the cost of developing a project; to share in the risk Some funders will establish either a match requirement or a percentage of the total costs that they will contribute to a project

22.  MHSA funding can be used with any of the other sources identified.  MHSA can “jump-start” a development serving your population and attract other funding sources.  Since MHSA funding is flexible, it can be used to fill gaps left once you’ve exhausted all other sources.  Please see the “CSH Supportive Housing Financing Map” for more information on leveraging MHSA dollars. MHSA Funds Can Leverage Other Funds

23. Projecting and/or Evaluating Operating Costs in Supportive Housing

24. Tenancy Considerations  Identifying the Target Population(s) – community need, services experience and capacity  Planning the Unit / Tenant Mix – income levels, intensity of service needs, services experience and capacity, marketing plan  Tenant Income Considerations – rent levels, subsidized vs. non-subsidized units, employment histories, access to public benefits.  Planning for Changing Needs over Time – initial lease-up vs. projected vacancy rate, tenants’ increased stability

25.  Vacancy factors should be tailored to the target population and local market conditions.  In supportive housing, vacancy factors may be as high as 10 – 12%, depending on target populations, referral and screening processes. Vacancy Factors

26.  Management Fee - % or per door fee  Office Supplies & Expenses  Legal – evictions, etc …  Accounting - tax filings, audit, reporting to investors Operating Budget Categories

27.  Staff / Payroll Costs Administrative Payroll Maintenance Payroll Security Payroll Operating Budget Categories

28.  Utilities Heating Master Metering Common Area Utilities Water & Sewer Telephone Operating Budget Categories

29.  Maintenance and Repair Exterminating Supplies Repairs Trash Removal Snow Removal Grounds Upkeep & Landscaping Painting & Decorating Elevator Maintenance Operating Budget Categories

30.  Marketing and Leasing Advertising Credit Investigations/Leasing Fees Operating Budget Categories

31.  Taxes and Insurance Real Estate Taxes Other Taxes Property Insurance Operating Budget Categories

32.  Contributions to Reserves Replacement Reserves Operating Reserves Operating Budget Categories

33. Trending  Apply growth factors to both income (typically 1% to 3%) and expenses (typically 3% to 4%).  Growth factors may vary for subsidized vs. non-subsidized units, market-rate units vs. rent-restricted units  “ Spread ” = difference between income growth factor and expense growth factor.

34. Developing Supportive Housing Additional CSH Resources: Publications: Not a Solo Act Between the Lines: Legal Issues in Supportive Housing Laying A New the Foundation Family Matters WEB resources: On-line financing summaries (via Resource Library link) Toolkit for Ending Long-term Homelessness