MEETING - California State Treasurer



STATE OF CALIFORNIACALIFORNIA DEBT LIMIT ALLOCATION COMMITTEE(CDLAC)In the Matter of: ) ) ) California Debt Limit Allocation)Committee Meeting ) ___________________________________) JESSE UNRUH BUILDINGROOM 587915 CAPITOL MALLSACRAMENTO, CA 95814MONDAY, DECEMBER 23, 20191:00 p.m.Reported by:Peter PettyAPPEARANCESCOMMITTEE MEMBERS:Jovan Agee for Fiona Ma, State Treasurer (Chair)Gayle Miller for Gavin Newsom, GovernorAnthony Sertich for Betty T. Yee, State ControllerADVISORY MEMBERS:California Housing Finance Agency (CHFA) (Absent) Zack Olmstead for the Department of Housing and Community Development (HCD)STAFF:Larry Flood, Executive DirectorEvan Kass, Senior Program ManagerSpencer Walker, Senior AttorneyLeisa Hood, SecretaryPUBLIC: (* Via Phone)William Leach, Kingdom Development, Inc.Felicity Wood, CalHFAMarina Wiant, California Housing ConsortiumPatrick R. Sabelhaus, California Council for Affordable Housing I N D E X PageOPEN SESSION1)Call to Order and Roll Call 42)Discussion and Possible Action Regarding 2020 4 Allocation Priorities – Larry Flood4) Public Comment 605) Adjournment 75P R O C E E D I N G S DECEMBER 23, 2019 1:05 p.m.CHAIR AGEE: The time is 1:05. I am calling to order the meeting of the California Debt Limit Allocation Committee.(Announcement for phone participants.) Secretary, can you please call the roll?SECRETARY: Governor Gavin Newsom? MS. MILLER: Gayle Miller for Governor Newsom. SECRETARY: State Controller Betty T. Yee?MR. SERTICH: Tony Sertich here for State Controller Betty T. Yee. SECRETARY: State Treasurer Fiona Ma, CPA? CHAIR AGEE: Jovan Agee in lieu of. SECRETARY: California Housing Finance Agency? MR. KASS: Absent.SECRETARY: Absent.And Department of Housing and Community Development?MR. OLMSTEAD: Zack Olmstead for Acting Director Doug McCauley.CHAIR AGEE: Thank you. We have a quorum. Moving on to Agenda Item 2, Discussion and Possible Action Regarding 2020 Allocation Priorities. Larry Flood will be leading this portion of the session.MR. FLOOD: Thank you, Mr. Chair. ITEM TWO: Moving on to Agenda Item 2, Discussion and Possible Action Regarding 2020 Allocation Priorities. Larry Flood will be leading this portion of the session.MR. FLOOD: Thank you, Mr. Chair. Before I get started properly on Item No. Two I would just like to make a short statement about CDLAC and what we believe our mission to be. I think that we have been characterized often as a housing agency. I think at least in our view, that that is a slight mischaracterization. That we believe that we are an economic development agency and that while the lion's share of the allocation each year goes to housing, that we are also mandated to finance and deliver allocation for all of the exempt facilities included in the IRS code. And that my staff and analysts need to be every bit as proficient in pollution control or high-speed rail, educational facilities, and any of a number of other exempt facilities as they are with housing and so I would just like to put that on the record.In terms of what we are here for today, is to have a discussion about what the pools are. Our goal here, we hope, is to be able to establish percentages for non-housing exempt facilities, single family and then for multifamily, preferably in that order. In determining pools for our informal recommendation we took direction from written policy statements by the Governor's Office, the Controller’s Office, and the Treasurer's Office including the HCD Statewide Housing Plan, the webpage on the Controller’s site for housing and infrastructure and the state’s economic development goals stated by the Treasurer in the 10 City Tour and in other written statements.All three of those sources listed the following priorities for economic development: new construction, rehab and preservation, home ownership, economic development including high-speed rail, providing housing to a wide range of income levels, empowering residents in distressed communities and building wealth for all Californians. So we took these priorities along with our state annual demand study and a review analysis of prior year allocation and usage to come up with what we are terming an informal recommendation. I would like to, before we get into what our recommendation is, turn your attention to page 2. Now the point of this was not to go into a lot of discussion about the methodology. It was really just to show. I should preface this by saying that these are demand estimates that we work to create in partnership with the California Housing Partnership. It looks at all of the available state funding through HCD NOFAs and through the 100 million in state credits in addition to the 500 million of additional state credits and trying to forecast the bond allocation that would be required if all of these funding sources were used. I think that while there is some obvious estimating error, because we do not know and we are just guessing at the sizes and the costs per unit of a lot of the programs I do not think that these estimates are off by very much. Having said that, if you look at the HCD programs this is showing that bond allocation needed in 2020 to fund all of their NOFAs for this year would be 3.6 billion. If you look at the tax credits these are the non-CalHFA tax credits, which represent the 100 million of regular credits and 300 million of the new AB 101 credits. This would require 1.3 billion additional allocation. The CalHFA credits would require about a half a billion of additional allocation. I think the point of all of this is that even if we tried to fund all of the demand using state subsidy that our 2020 allocation is woefully short. Again, we tried as best we could to control for things like HCD deals that also had state credits and vice versa. We may not have gotten the exact percentages right, but I think that for what this is it is very illustrative of what it would require for this to get done. With that, I would like to call your attention to page 4, which really walks through our 2019 pool reservations and then what the final usage was and then what the results of our 2020 demand survey was. I think the big change between what is in the pool reservations and what happened at the end of the year in terms of final usage is that the majority of the allocation on hold, that 830 million, I think 700 million of it plus went to multifamily. And the remainder went to exempt facilities. The 2020 demand survey, I would like to point out that this is not the total demand. This is what was listed by the issuers as being likely, so there is another billion and a half to two billion that was in our demand study that does not show up here, because it was too tentative for us to want to include. I also think that if you look at what is in here for multifamily mixed income, it is a much larger number than what was in our pool reservation or in the final usage. Part of that has to do with the change in our regulation to allow the CalHFA MIP program to be considered mixed income. I think unless there is a question about that, I would like to go to our informal recommendation. Unfortunately, they are not on the same page, which would make it easy. If you look at what we allocated to multifamily and single family for the total housing is about 84 percent of the total allocation. That is very similar to the 86 percent in our demand survey. The non-housing of 15.66 is very similar to the 13.8. I think the big difference here, and what I would like to get into now, is that we do not anticipate our 2020 allocation to be significantly different than 2019. We have gotten the multiplier from the IRS and it is $105, which is exactly the same as it was last year. We expect to get our population estimate on or around December 30th. We multiply the population estimate by the multiplier to get the ceiling. No one is expecting a big change in population. And I do not know this for sure but I have been told that when annual estimates are done that there is a heavy bias not to reduce the number unless it is absolutely necessary. I think that it is probably a safe bet to think that the number will be either the same or slightly higher. Since we do not know our allocation and we will not know until we bring it to for the January meeting, we are not looking at hard numbers in this meeting, but what we are asking our Board Members to do is to think about percentages to each of these categories, so that we could then when we get the final number apply those percentages. To start with, non-housing, we are looking at nothing for the beginning farmer program, 10 million for the industrial development program and 640 million for exempt facilities. Now the exempt facilities includes the IBank transaction for the high-speed rail. We gave a 300 million conditional (indiscernible) in September. They will come back in January for the final 300 million. The conditions still have to be met for the January 15th meeting. If that is not the case, the entire 600 million could revert back to CDLAC and be applied to other categories. I think that this is an important project when you think about leverage, because high-speed rail is one of the very few exempt facilities where the IRS allows a facility that is owned by a private company to issue bonds for four times the required allocation amount. So our 600 million in allocation translate into to 2.4 billion of bonds by IBank that will not only result in the building of a train of Victorville to Las Vegas that is a high-speed rail, it will also spur a lot of housing and other economic development along the corridor. There are plans to build 1,200 to 1,400 units of housing adjacent to the station in Victorville. There are plans by a lot of the communities along that line to build housing and commercial development. So I think that there is an important economic development argument here that we need to think about and that it is not just a train is what I am trying to say. There is a lot more to it and I think that it deserves serious consideration. The other 340 million would go to other exempt facilities projects. As you see from our demand studies there were about 1.3 billion of projects. We know for sure of a letter by CPCFA that they have got 540 million of shovel-ready projects for 2020. We thought that while housing is a huge priority that there are other priorities in the state for solid waste and pollution control particularly since the Chinese have stated that they are not taking any more of our solid waste. So I think that there are some real priorities here that we have to address in addition to housing. I do not know, Mr. Chair, if you want to talk about each one, each category separately, or should I go through all three categories? CHAIR AGEE: I think just continue all three categories then maybe take a pause there and allow Board Members to ask questions.MR. FLOOD: Okay. For single family, because it was a priority in all of the stated positions by each of the Governor's Office, Treasurer's Office and Controller's Office we did allot 350 million to single family. In the past that money has been used for MCCs or Mortgage Credit Certificates in lieu of the issuance of bonds. I know that there is a policy debate among practitioners in the industry over whether or not that is an efficient use of allocation. But we decided that we had to fund something for single family, because it was a stated priority. Lastly, we put the majority of our allocations, 75.9 percent of it into multifamily. We are not wedded to the names of the pools, but what we tried to do was set aside money for affordable deals that had the state credits and those that did not have the state credits that had local money or were using HCD money without state credits or for rehabilitation and preservation. We are also required by statute or by our regulations to have a mixed income pool and a multifamily rural pool. It is not as much as we put in last year. Last year we put in the original funding. Well, actually it is about the same. We put in actually in terms of final usage it was at 82 percent as opposed to 75 percent. Again in doing this we are assuming that our allocation will not be any larger than it was in 2019. If we fund more to exempt facilities, because of the high-speed rail and other shovel-ready projects that means we have to put less somewhere else. I think with that I would like to open it up to the Board. I would suggest that we talk about these in the order that they were presented. That we talk about the exempt facilities and then single family and then multifamily. CHAIR AGEE: Yeah, I think I would just sort of restate where you opened up with, which is an extensive amount of time was put into I think really delving into what are our respective goals. We do not use the term "priorities," in our respective documents whether they are the plan HCD put together in conjunction with CalHFA and DHCS. We use the terms "goals." Those goals in fact actually neatly align with the goals the Treasurer's Office has established as well with some of the goals the Controller has established. It ended up working sort of very well in terms of establishing kind of a parameter or framework and focus as relates to what we are doing. I think the other premise what we wanted to tackle, because a second goal that we state at least in the Treasurer's Office is to figure out how to make more efficient use of our bonds. When we look at what other states are doing, particularly New York, I think we have a premise in California is that the only to get more production is to have more bonds. Whereas what you actually see in other states like New York, they are actually doing almost the same amount of production with half the bond cap. So I think that is something we have to think about as well as there is no sort of special allocation coming any time soon, so how do we actually start to begin to do more with sort of less or the same amount. I think that was a premise that we want to tackle as well in terms of how do we actually get more out there given the parameters and the restrictions that we have. So I would just sort of pause with that and open it up to any questions or comments folks might have. MR. SERTICH: Go ahead. If not, I can go first. MS. MILLER: Go ahead. MR. SERTICH: No, I want to thank you, Mr. Chair. I agree with your comments. I think it is very important that now that the bonds are competitive that we make sure we are making the most and best use of them. I think as Mr. Flood stated all of our goals align with a lot of what is placed here and now we have to then determine the priorities for that. Generally the bonds, that given into the calculation I think provide a 10 to 15 percent subsidy for every dollar that is issued. Certain types of programs are able to leverage that more. Like Mr. Flood mentioned the high-speed rail that ECCA is able to use that four times compared to what a normal bond would. Then the 4 percent tax credits, if done efficiently, that can be 15 percent or even more of the bond issuance as providing a subsidy. So that is where we are getting the most bang for the buck. If we decide to use it on other areas we need to make sure that there is a very good policy reason for that. From the Controller's Office perspective we think that the exempt facilities that we have identified here, specifically the CPCFA programs, are a necessary use for the bonds. We want to make sure that that program continues. I think in the next year we should look at maybe how we can better mix and match these programs together to best leverage the federal money. We do want to make sure that that program continues going forward. CHAIR AGEE: Okay. Gayle?MS. MILLER: I appreciate that. Thank you, Mr. Chair. Thank you, to the staff. I know how hard you have worked and this is a tough time of year. I really appreciate how thorough this is and the data and the ability to use the information you have to make decisions. Mr. Chair, if it is okay, may I speak to the single family, go out of order for a minute? CHAIR AGEE: Yes. MS. MILLER: I do agree with the Controller's Office that the most important thing we can do is look at where we get the most leverage from the federal dollars. I agree that obviously the high-speed rail is a special IRS allowance is four times, which the greatest leverage and then the 4 percent credits. I am a little bit concerned about the single-family designation. I completely agree with staff that it is listed as a priority and think it is. When we are looking at the leverage from the credits I am not sure we are getting quit the leverage in single family that we are in multifamily. I am very curious about the CalVet Program and how CalVet specifically leverages CDLAC. I am not sure I completely understand that. I do not know if there is some leverage. UNIDENTIFIED SPEAKER: (Indiscernible.)MS. MILLER: Yeah, that I am not clear on. MR. KASS: Yeah, they came in for a mortgage revenue bond that was converted to MCCs. The total was 80 million back in January. MS. MILLER: Okay.MR. KASS: That precluded the issuance of their program to be able to subsidize. MS. MILLER: So CalVet is not eligible for any CDLAC allocation? I am sorry. I do not think I fully understand. MR. KASS: In this case, CalVet was the sponsor for the program and that came in for 80 million for MRPs. MS. MILLER: Okay. You know, I think given that, and I do not know Mr. Chair your preference in terms of making any decisions today, but I do think given that I would suggest moving the single family subtotal into multifamily and not having a single family allocation within CDLAC for 2020 and have it all for multifamily. Then obviously there's a longer conversation about the pools within multifamily. I do think given the limited resources shifting it to multifamily may be a better use of the dollars, and more importantly a better use of the leverage that we get by using state dollars and federal dollars together. That is sort of my large playing around single family. Then I do agree with the Controller's Office that we do need to set aside for CPCFA and IBank and other uses in the state. I do want to clarify however on the record that as the year goes if in fact folks do not meet the requirements in terms of shovel ready and financing availability and projects that meet the requirements of CDLAC that we would have an option at that point to shift that allocation back into housing. Is that correct? MR. FLOOD: Yes. MS. MILLER: Okay. MR. FLOOD: At every meeting you have the ability to reallocate. MS. MILLER: So the pools are set but if at any point there's a greater need or God forbid another natural disaster or something like that at CDLAC these pools are not only set once a year. MR. FLOOD: Correct.MS. MILLER: The Board can shift priorities throughout the year? MR. FLOOD: That is correct. MS. MILLER: Okay. CHAIR AGEE: I will clarify the response from CDLAC. The idea would be is that if there is a diversion it would not automatically be earmarked to housing, because what we look to do is give proportionality. Essentially what we say is okay there is a set baseline of demand for housing versus non-housing. We try to ensure that either side kind of only got about 60 percent of what their demand was to supply some parity. With that, the thinking is that if there is a reversion in looking at the segregated buckets and seeing who has gotten what and where the need is at that point. I just wanted to clarify that, so that we do not come back and think that whatever reversion happens is automatically go into the housing side. We want to look at the bucket in totality in terms of the need.MS. MILLER: Got it, so any reversion would come back to the Board.CHAIR AGEE: For consideration to be reallocated into either bucket, not just housing.MS. MILLER: Okay. Got it. Thank you. That is helpful. MR. FLOOD: Okay. I think if I understand here, at least the point of your original question was if we do this allocation and then we come back in March and you say well, maybe the rehab bucket should be half of what it is, do we have the ability to make that change? The answer is yes. MS. MILLER: Okay, great. Based on actual demand and what we see come to prove. Okay. MR. SERTICH: Following up on Ms. Miller's comments, I fully agree that single-family allocation is not the best use of bonds going forward or at least in the 2020 year. Because of the leverage I think there are a lot of other resources that the state puts forward single family that are a better use than the MCCs that generally these have been used for in the last two years. I would agree that that 350 million should be moved to the multifamily allocation. MR. OLMSTEAD: I think I would concur with that or if you guys take that action, because I think just on the stage when we look at what we did last year versus the demands survey as well, to go down from the 82 percent we spent on multifamily housing to 75 percent looks like the wrong direction to be going given where we are at of need in the state. Just like the general saturation, (phonetic) that just is not something that is glaring. Obviously if you move the single family subtotal up to multifamily about where you were last year then it looks a little bit more accurate to reflect the current need. The only other thing I would say, even though I know we are asked not to delve on it, in terms of the projections in page 2 just a couple of corrections. Our Transit-Oriented Development Program, which should have at least a $75 million NOFA in April was not included in this. That is another deficiency of this analysis. MS. MILLER: Can you say that one more time?MR. OLMSTEAD: Our Transit-Oriented Development Program, which we needed to put at least 75 million out for April that is from the Prop 1 bonds, is not listed. As well as I do know what the perspective demand is from the awards we made from our 2019 MHP NOFA. It is 647 million in CDLAC funds for the 262 million we are putting out. So granted yes that might not all come in for 2020 need, but to say the total bond need for last year's MHP in the upcoming NOFA is only 682 when we know there is at least already 647 is probably a little low. Now that probably does not necessarily need to impact our discussions. We already know we are in over demand. I just want to, for the record, make those corrections. So I did share that a little late in the week with staff last week, but obviously this was already out there. Anyways, I will stop there. I think (indecipherable) we certainly do have some programs that I see that are able to help with single family too, but for this resource to be able to maybe roll it out to multifamily in order to get to at least what that demand was last year and (indiscernible).MR. FLOOD: Yeah, I think I get the direction and we are happy to follow it. The only point I would like to make is that I think the locals use the MCC program to satisfy their fair share of housing goals, so there might be a little griping about getting rid of that entirely, but I understand it. I think the other thing I would say about multifamily is that last year I believe that our allocation was split 60/40 between rehab and new construction. 2020 I think that is going to flip. One of the things that that will do is that and our other emergency rent change that limited the max allocation for project to 60 percent of total development costs. Last year we had a lot of projects that were below 60, but many of the rehab projects were above 60 percent. I think by limiting all of them to 60 and having a majority of the projects be new construction will mean that we will get more bang. Even with a lower allocation amount we should get more units, because of those changes. CHAIR AGEE: Is it by chance, while we are going back and forth, if the CalHFA representative is on and would like to weigh in could you please jump in the queue and then we will open up the line for you to make a comment, if you are on?Gayle, did you want to say something? MS. MILLER: Yes. MR. FLOOD: Oh, just one minute. Counsel, is it okay for them to speak if they are not here? MR. WALKER: If their representative is not here? MR. FLOOD: Yeah.MR. WALKER: No. They cannot speak. CHAIR AGEE: Even if they join by phone? MR. WALKER: Is the address on the agenda? It is not there, so they do not speak.CHAIR AGEE: Got it.MR. FLOOD: Okay. MS. MILLER: Thank you, Mr. Chair. So on the MCC is the only way for the locals to leverage the MCC through CDLAC? CHAIR AGEE: (No audible response.)MS. MILLER: Yes. Okay. That is hopeful to know. I still think that MCCs, as we discussed I think at the last meeting, still there is no leverage. I think because we are so oversubscribed I think giving any of our allocation to something that we really are getting 25 cents to the dollar versus 42 or even more, I appreciate that point of clarification, but I still would suggest that we consolidate multifamily with the recommendation for single family right now going into multifamily. I am not entirely what that brings the total to. You could probably do that Mr. Flood, faster than me.MR. FLOOD: Yes.MS. MILLER: Yes, so the total for multifamily would then be 3.5 billion.MR. FLOOD: It would be 3.5 billion.MS. MILLER: Yeah, or 84 percent if you are looking at it in percentages. I think that is really important. Then just to flag I do think in Ms. Boatman-Patterson's CalHFA letter she does talk about preservation. I think there is a good idea in there about the $100 million existing tax credit at TCAC. That that is all to be focused on preservation for the Trailer Bill 8101, so I think that is a discussion for early next year around preservation versus new construction. I think she said that to the whole floor last time. MR. FLOOD: Yeah, agreed.MS. MILLER: I do think that there is some discussion in there about preservation versus new construction. MR. FLOOD: Yeah. I would also like to make the letter part of the record. MS. MILLER: Oh, great. Thank you. MR. SERTICH: Yeah I think the only issue with that is generally the majority of that is tied to the 9 percent program. MS. MILLER: Right. MR. SERTICH: We are only looking at 15 million, so it is not really set up like that I think. That would be the concern about making that all tied to the 4 percent of preservation. MS. MILLER: Oh, that is a good point. I think that is a discussion for TCAC, right? That is a fair point, but then the question about where, about new construction versus, I do not know what your preference is, Mr. Chair, as to discuss the new construction versus preservation within the pools. Is that something you wanted to talk about today or in January? What is your preference?CHAIR AGEE: No. I mean I think it is fine to talk about that today. I think the main thing was to do at least two things. One, kind of keep larger parameters for the (indecipherable) buckets and then once we sort of establish what the housing bucket is then to delve in and get of get to prioritization of the allocation. MS. MILLER: Right.(Overlapping colloquy.)MR. SERTICH: Let me talk about multifamily allocation. MS. MILLER: Yes.MR. SERTICH: I think it is really important. I think this is really where staff has the toughest job here is allocating the funds within the multifamily bucket. I do not think there is an easy answer. The way I tried to think of it a little bit was sort of stepping back and thinking about what the larger goals are that we are trying to meet. I think new construction, construction of new units is definitely a priority. I think that we want to -- the Governor has laid out a few different priorities through some of the policies that he has implemented. One is being the middle income I think. I think what we need to do is step back and rather than approach it in terms of how, I do not think the goal should be to necessary spend all of the other state money that has been allocated to housing through this. I think the goal should be to fund the best projects. If they need other state housing money, then that other housing money is there. I do think that the one issue along those lines is HCD has very well thought out, very intricately designed programs that have been thought through over the years and their scoring has been thought through. Those projects that have received HCD funding generally are serving some sort of state public purpose. On the state tax credit side I am not sure that we fully thought out the scoring mechanisms for that as well as we have on the HCD programs. I think the same thing with a lot of the local money that is going into housing. Some of the programs probably align very well with the state's housing priorities, but others may not. We do not have as much as a detailed understanding of all the different local housing programs to make that decision. CHAIR AGEE: And then acknowledging I think the significance of the local process as relates to development right, in intersection with us. I think we have to be very cognizant and sensitive of all that goes on at the local level to finally get deals packed in such a way to even get to where we are. I just think being cognizant of that as well. MR. SERTICH: No, very sure and of course the locals are key to getting housing built. MR. OLMSTEAD: We take that into account in our funding programs, right? That is part of our readiness scoring like CEQA clearance right, entitlements in place, you know all the lines that you score in place. For MHP for example, it is 15 points out of the 115, another 20 points for leveraging of other funds like local. So I mean, we do take that into account, is it enough?CHAIR AGEE: To be honest with you, that is why we spend a significant amount of time actually getting smart on the planning (indecipherable) put together, because that work has been done. I think often times we kind of discuss at this level is if that work hasn't been accomplished already. I think just maybe kind of revisiting some of that, being clear of what that is and just figuring out if we want to continue to abide that, because that work has been done. I think the latest report was is in February of either this year or last year, the (indiscernible) report. MR. OLMSTEAD: (Overlapping) Oh, our state housing assessment was finalized last February. CHAIR AGEE: February. Yes, so that is what we use, kind of our really guide post in a lot of where we have landed.MR. SERTICH: Again, I think that is important. I think what we really need to do ultimately is create a scoring system for the multifamily side of CDLAC that really emphasizes those priorities and rewards the projects that best fulfill those priorities. Obviously we are not going to get that done for the 2020 allocation. It is too late in the process, so these pools that we are setting up in January are going to be what drives or the closest we can get to driving these priorities. What I was thinking about it, is rather than having a "with state credits" and "without state credits" I was wondering if we should have a new construction pool of at-risk preservation projects. I thought about a few other things that we could have that I do not think necessarily make sense. A geographic pool, you know, geographic pools like maybe not in depth as are on the TCAC side. Then maybe a pool that emphasizes either population types or opportunity areas that have been a focus on the TCAC side that we want for family projects built in high opportunity areas. I think it is hard to do all of that, so I think we are going to have to prioritize what we want to do. I do not want to make this overly complicated on staff. I know Evan is already glaring at me, but I think those ideas that would need to think through about how we are doing this. As opposed to saying if you get this money then you qualify for this money, because it is going to be really hard. It is possible we could set up an HCD pool. We could set up a state credit pool. We could set up a local money pool. I think there are proposals out there that will push that forward. I think we are lumping a lot of different steps together when we are doing that as opposed to saying here are our priorities and this is where we want to fund the projects. I just wanted to start a discussion and see what you all think about this as well.CHAIR AGEE: I just want to clarify your statement. You feel that because I think we agree to your point that it is looking at the inhabitants and the source and then let that dictate kind of the project, right? So I think but you are saying that you do not believe that this current construct is the best way to get there? MR. SERTICH: I do not think the state tax credits are measuring sort of the quality of the project in any real way. I think the state tax credit scoring is really just a cost, the allocation of credits per unit.CHAIR AGEE: Quality defined as like building materials? MR. SERTICH: Or as these other priorities that we are trying to ratify. CHAIR AGEE: Got it. MS. MILLER: Right, so you are saying, Mr. Sertich, because they are just using the tiebreaker now? MR. SERTICH: Yeah, because it is just one sort of small. Put it this way like I was saying, HCD scoring systems have been built out over time. The 9 percent scoring system has been built out over time and has been really well thought out and honed. I think everyone has quibbles with details here or there but at least it has been thought out and reflects some sort of priorities that have been set. I do think staff would probably agree that the CDLAC scoring system, well is out dated and needs to be reworked, but it still reflects some of the priorities that we want to get at in terms of projects that we recognize and we award. MS. MILLER: Right.CHAIR AGEE: So with that really quickly, so this was an approach that was taken in terms of figuring out how to prioritize within the multifamily projects. The conversation that you sort of walked on is, is there a better way to reprioritize funding within the multifamily budget? So I am looking to you all because a lot of the work has been done, again giving the existing extensive work that has been done by HCD, CalHFA, DHCS. We want to honor and respect all that work that has happened that has taken into consideration all of the things we have considered: federal priorities, local priorities. I think that that should continue to be fundamental for us as a guidepost. If this sort of approach was established by multifamily, is there another potential approach? I'll characterize it that way. Is there another potential approach that still respects the integrity of the goals, but maybe is a more efficient use of the bond allocation within the multifamily? MR. FLOOD: Yeah. I guess the two things that are sort of in conflict for us are how to set up buckets that both or pools that both meet the goals, but also do not involve so much back office accounting for staff that it is untenable with staff that we have. Now having said that, we could go back to just having multifamily in general and multifamily rehabilitation preservation, and put some restrictions or additional guidance on what kinds of deals can get financed in each of those pools if the idea of tying them to the credits is not really palatable. My thought was that since only 100 million of the state credits were for rehab that a pool with credits was going to be predominantly new construction, because that was the only other thing that could go in there. So to me it was sort of an easy way to prioritize new construction over rehab, but I am certainly open to other ways to do that. CHAIR AGEE: Do you not see it that way? MR. SERTICH: No, I see it that way. I guess what I do not want to do is prioritize new construction that needs state credits over new construction that may have other mechanisms. You know, other soft money that does not need state credit. CHAIR AGEE: Does this structure prevent that from occurring? MR. FLOOD: No, I guess that the people who do not have new construction without it would fall into the affordable without credit. CHAIR AGEE: So then to simplify this, is there a way that we can maintain and advance what we have, but take into consideration some of the concerns (indiscernible) and just simplify what we are going to do? MR. FLOOD: Yeah, certainly.MS. MILLER: Yes. Mr. Chair, if I may? I wonder if just to build on what Mr. Sertich's comments I think, Mr. Flood, what Mr. Sertich was recommending actually would not necessarily be more of a staff accounting, because it would be sort of redefining the pool. So I do wonder if in January, given this we could have the existing recommendation you have here in terms of the multifamily with and without credits. Then even with the additional data from HCD, an additional pool allocation potential for the Board to see that includes the new construction.What I (indiscernible) say Mr. Sertich was new construction, preservation, geographic, population and opportunity areas? MR. SERTICH: Yeah and I am not sure, I think the geographic I would not recommend. MS. MILLER: You would not. Okay, so then just to clarify, it would be new construction, preservation, population and opportunity areas? MR. SERTICH: Yeah, or maybe opportunity areas in new construction. MS. MILLER: I think it would be instead of the way that you have pooled multifamily now, with this three-and-a-half billion that we are potentially considering, it would be either what you suggest here or a second pool of allocation priority? MR. FLOOD: Yes. And you said new construction, preservation and what was the other? MR. SERTICH: I think there is a separate family opportunity area pool. I mean one of my concerns, and this really just comes down to the scoring to some extent, I think there is an advantage to scoring for certain types of rehab preservation projects. I think also, if it comes down to the tiebreaker, there is an advantage to lower-cost projects, which could mean one or two things. Either geographically lower-cost areas, or smaller units, which might go against family projects and might lead to other types of projects. That is my concern about setting aside pools for those that are not my concern. That is why I would argue for maybe setting aside some sort of pools for projects that otherwise may not be advantage in the scoring (indecipherable). MS. MILLER: Right. MR. FLOOD: I was thinking or the other thing that I wanted to add, and I am sorry. I did not mean to jump in, but we are planning to bring revised regulations to the Board for approval in February. Then the public will have a chance to comment on it before then. That will fix a lot of the scoring issues, but your point is correct. Thank you.MS. MILLER: Mr. Flood, are those regulations, would they be emergency regulations or that would be for the 2021 allocation? MR. FLOOD: I think that what we would bring to you would be all of our recommendations. Then those that we could do as emergency regs we would do. MS. MILLER: Yeah, I still think that I would be interested to see another way to allocate this multifamily pool in January. MR. FLOOD: Yeah?MS. MILLER: I think it would be helpful for that distinction for the priorities. I am mindful that there is an application deadline on January 17th, but hopefully adjust the allocation into multifamily and other state investments will at least give an indication to your applicants what the Board's priorities are. CHAIR AGEE: Can you respond to two things here. One, what impact will this have on staff capacity right, if we go in a direction where we are now talking about establishing three pools: new construction, opportunity, areas of population. MS. MILLER: I think it is new construction and preservation.MR. SERTICH: Preservation.CHAIR AGEE: Preservation and population?MR. SERTICH: And family opportunity areas. I think I want to hear more feedback before we go again. CHAIR AGEE: Yeah, but before we go there, because we are saying a lot of things, I want to establish what impact will this have before we can open it up. It could be a great idea, but if we do not have staff capacity it is going to be a cluster anyway, right? So I think that we should just be clear on what is real to do given current constraints. Then let's see if we actually need to establish new pools or can it be done in a different way? I am just trying to get a handle on the control of what we are actually talking about. So three pools are new construction, preservation and then what is the third that we want to look at?MS. MILLER: I think there are four. One is population. MR. SERTICH: I will rephrase what at least I was getting at. When I say population I think there is an opportunity to look at family or senior or permanent support of housing pools. I think if we do prioritize, if we just wanted to prioritize one of those, I think prioritizing family in high-opportunity areas would be a small pool we could set up. That has been priority on the 9 percent side and that is sort of a statewide priority of ours. I think the other thing we could set up as a priority would be some sort of permanent support of housing pool. Again, I do not want to create too many pools and make it too difficult for staff to operate, so I completely agree with you on that level. CHAIR AGEE: To your earlier point, in some ways are we not already doing that through the way our rates have been structured based off of some of the reports that have already come that reflect? I mean again our regs are not ideal, which is why we are going to do what we are doing in February. But we do have something in place and they do take into consideration some of the priorities (indiscernible).MR. SERTICH: That is correct. I think especially in the service side. I think there's points already in CDLAC for services. CHAIR AGEE: Correct.MR. SERTICH: There are minor points. It is definitely not as strong and has not been revised as much as the 9 percent regulations and scoring has been. But yes for sure like I said these priorities are reflected in different ways. I do not think for example, one of the things that is not reflected in the CDLAC regulations is any prioritization for family or for opportunity areas, which was added a few years ago in the 9 percent rate. That is why I focused on that one more than anything else, because I think that is something that we do not want to get lost. We want to make sure that we are building housing for all Californians and not just housing that meets some subset of Californians. CHAIR AGEE: Just so you all know, one of the things that we are talking about as relates to this next version of the regs is to have a low (indiscernible) redundancy. We are actually moving into an opposite direction, so we are not looking to how do we strengthen CDLAC regs to look more like TCAC regs? But how do we sort of reduce the amount of CDLAC regs, so that if you sort of go in through the TCAC door it automatically triggers what you need on the CDLAC side. Then were there are differences you sort of have additional regs that speak to that to that difference because CDLAC has a different central requirement and reporting requirements that TCAC does. How do we sort of respect that in a way that it does not create a redundancy by the users in terms of what they are submitting, which is driving simplification in greater alignment with TCAC and CDLAC, which is what We have been talking about. Understanding that, which is we are kind of trying to tease this analogy at the last meeting, trying to build a plane while we fly it, how do we move forward in a direction that I think respects what I think we heard at the last meeting, which is how do we set a policy focus to get us sort of out of this time period of uniqueness where a lot of money was thrown at us, right? The program has grown exponentially, right? We are not even yet clear as a Board what our priorities should be. I mean we are kind of hearing it now trying to figure it out. Like how do we get us through this time period where we do not create so much sort of confusion in the developer community we do not disadvantage projects that have submitted based off of the realities today. Then also respecting the fact that we have literally CDLAC is like not equal, right? In backing out administrative staff who do not even put hands on the projects. So I think just kind of keeping all that in mind in terms of what we are tasked with today. Although it may not be perfect, knowing that it is the step forward understanding that there are regs in place, although not ideal, that have taken into consideration some of the priorities that we have been looking at over the past five to six years. So I just kind of always want to bring that back to the conversation.Gayle? MS. MILLER: Did you?MR. OLMSTEAD: Well, I think I was going to share, and I think largely you were able to say that Mr. Flood, is I think in the regs process (indiscernible) reflect the policy previous long term and give it access to opportunity and affordability that serves vulnerable populations and what have you. The challenge we have of course is what it will be 2020 and how much do we expand. It looks like you are already contemplating at least two pools underneath multifamily, affordable. It looks like we may be suggesting three, so that that is the administrative question there. It sounds like at least two is doable if we could substitute at least two of them from what you have administratively, but maybe not. I would just say it is very important that we engage holistically in that regs discussion, because that is where you can get to the nitty gritty of these policies and can smooth over potential disadvantages by allowing products to come in that do various types of things. That is how we have done it over time to try to hit policy per purviews, award points within the scoring of course for various policy purviews that shift over time. I think we can then reassess those over time. MR. SERTICH: Yes. MS. MILLER: Yeah, no I agree I think almost with everything that has been stated. The only concern I have is that while we are coming up with the long-term solution to make sure that we are coordinating, especially TCAC and CDLAC, that there is the 2020 question and the demand is so great that we do spend some time in January considering what the pools can be within staff resources. I think you have gotten a lot of feedback, so maybe Mr. Chair if Mr. Flood should go back to his team and see whatever options could be in terms of the priorities within multifamily.The final thing I would add is I do think I understand HCD maybe had some delays in the demand survey, but to the extent we can understand full demand from HCD programs as well when we are determining the multifamily pools I think even that could be helpful to make sure that we have as much information as possible in the sub-pools within multifamily.MR. FLOOD: Okay, I just wondering was the transit-oriented development NOFAs on the calendar?MR. OLMSTEAD: It is on our NOFA calendar as April, yeah. So awards would come -- I mean that is the hard part, right? I know they are trying to make it break even about the latter half of the year NOFAs, because those would be coming in for 2021 allocation. The TOD line, the awards will probably be out early summer or early fall, so it is possible that some of those are coming in for 2020 depending on that. Maybe there was a call made to not include that for obvious reasons.I just want to make sure I identified it, because for sure in at least the initial plan. Depending on how these conversations go next month, maybe we need to reassess ARRA funding too to make sure we are not over saturating the market. MS. MILLER: Mr. Olmstead, could I ask then maybe that your department coordinate with CDLAC then and maybe then together we come back in January and get a better sense?MR. OLMSTEAD: Like I said, we already shared that. I mean, this was an independent entity that did this demand survey and so they for whatever reason did not look at our TOD program.MS. MILLER: Oh, I see. CHAIR AGEE: I would just add I think the challenge for us is not coordination. It is lack of clarity around priorities within the goals, so if you look at the 100 or so page report that HCD put together with CalHFA and DHCS. MR. OLMSTEAD: I think when (indiscernible) the assessment, I think That is just ours. It is not to (indiscernible) I do not mean it would belong to the association, no.CHAIR AGEE: So (indiscernible) CalHFA as well. The dilemma becomes that it doesn't speak to priorities, right? It speaks to broad goals, things like serving vulnerable populations, things of that nature.The issue becomes is when you have a finite resource and you then start to establish your priority within that you create winners and losers, right? So what happens is if you say okay, well I want to find an opportunity neighborhood. Then what you are essentially saying is that you are prioritizing the need for people from a lower socioeconomic community to be integrated into higher net worth communities. Now there is a philosophy that believes that that is a good thing, but what that also creates is disinvestment from poor communities to ever become that higher income community. So how do you actually serve vulnerable populations? That is where we are at. We are at the crux of not commanding the goals. We are at the crux of who are we picking to be the winner, who are we picking to be the loser? That is where I think we sort of need some direction from the Governor's side of the house in terms of no matter what we pick we are pooling away from one or the other. It is not a lack of the command of the goals. It is what vulnerable population are we going to serve, how and when? MR. SERTICH: Then we are definitely a zero sum failure. We have a limited amount of resources at hand. MS. MILLER: That is actually a negative sum gain, because there is an $8 billion demand.MR. SERTICH: I think that is why as we have all talked about, I think the number one goal if we cannot get to it, I know that adding the 16 percent limitation on the allocation of basis to multifamily projects, I think we probably need to lower that for 2021 and continue to for funding that. The number one goal needs to be making sure we do use our resources as efficiently as possible and that is why it is going to be important. I do not think allocating these pools is the best way to pick the winners and losers. We really should do it through some sort of scoring mechanism that does that better, but this is what we are going to work with in 2020. Then going forward I am sure we will have a very robust discussion over the next six months about how to best move forward in 2021. Hopefully that gets us to an even better place and that is all we can do at this point. One thing we have not talked about, I know that you brought this up Mr. Flood, but is the two other pools, the mixed income and rural pools. Getting back to a discussion about what HCD's demand might be for general, do we have a demand on the mixed income side from CalHFA? Have you received that?MR. FLOOD: No, I have not seen that.MR. SERTICH: I have seen what is on here. I think they have already put their NOFA out if I am correct. I do not know if they can provide that as well, so that we could have a better idea of that sort of allocation. I am concerned about the mixed income pool in that generally if we have 80/20 projects coming in and using a lot of volume cap. I want to thank CalHFA for putting together the recycling workshop they had last week, because like you said New York is doing things a little more innovatively and making better use of their bonds. So funding 80/20 projects that could be a large use of bonded fat without getting all of the 4 percent credits that we would want to get for more important projects. CHAIR AGEE: Is that a nod to say that you would like maybe to look at kind of efficiency as the driving? MR. SERTICH: Well, I think we are going forward. I think so I do not want to is allocate too much to the mixed income side.CHAIR AGEE: Yeah.MR. SERTICH: I mean if CalHFA has priority there, because I think their mixed income is not the same definition of the general CDLAC mixed income, which is calling for at least 50 percent market rate units. MR. FLOOD: Yeah, it will score higher because it. MR. SERTICH: Yeah, so they will score higher. What I do not want to do is set that too high and have that bleed out to these 80/20 projects that are not used as efficiency. They may create the same amount of total units, but a lot fewer affordable units. MS. MILLER: Right.MR. SERTICH: We do not want to be subsidizing or using, maybe the better use is we do not want to be giving up the opportunity to subsidize affordable units by providing these bonds to market rate units. I think we just need to be careful about how we allocate those bonds. MS. MILLER: Yeah, I agree with that. I think in terms of the action items as I understand them, Mr. Chair, is to look at Mr. Flood and Mr. Kass, I am sorry. We are looking at a way to allocate some multifamily general perhaps dividing by preservation and new construction and potentially population criteria if that seems doable for you and your team. Then the second question around the multifamily next and rural is if there a more efficient way to do that, that maximizes the public benefit. I think these are questions for which we need additional data from HCD and CalHFA. MR. SERTICH: Following up on the rural amount as well, I think last year there was less than $10 million out of the rural pool. I do not know if that was because projects came in and just applied in the general pool, because it was not committed or what.MR. FLOOD: Right. That is what it was. MR. SERTICH: Okay. Well going from 10 million to 200 million seems like (indiscernible).MR. FLOOD: We figure this will probably be some state credit deals in rural areas. MR. SERTICH: Okay. I just want to make sure that we are not over allocating to that pool as well. I think one thing that we could do however the pools are set up, I think we do not have to allocate 100 percent to each pool. There could be a general pool of some amount like either within the multifamily bucket that sort of can clean up whatever, so if there is a little overuse in any one pool. MR. FLOOD: Well, that is what I was starting to think about of new construction, preservation and other issues.MS. MILLER: Yeah.CHAIR AGEE: Is that the best way? I mean, there is not really a science to this.MS. MILLER: No.CHAIR AGEE: I think we can beat this thing to death. MS. MILLER: Right. Well, I think I would like to kind of see it side-by-side and just for the CDLAC team to make sure you feel like you have the resources to do it. Personally that is beginning to make some sense to me. Like a little bit of flexibility, but I would love to hear first of all to make sure that you are able to get that (indiscernible) reasonable.MR. FLOOD: Yeah, I guess it sort of depends on how specific we do it. I mean, if we did something like new construction, preservation and other or something like that then I think that is perfectly doable. CHAIR AGEE: New construction, preservation and other? MR. SERTICH: And then like a general.MR. FLOOD: That is totally other, general or yeah.MR. KASS: Yeah, and administratively for if we reassess pools during the year based on what we see we can make the adjustments. MR. SERTICH: The one thing I would ask for as well is that the preservation be more of an at-risk category rather than just a general preservation. I think if we are going to set a separate pool up I think it should be for projects that really are at risk of losing affordability, rather than a 15-year resyndication. (phonetic) I know TCAC has a definition for that, but I think HCD has a good definition as well for that. CHAIR AGEE: Do we address that? We talked about that. MR. FLOOD: Yeah, we talked about bases, but the more of those types of things you do that adds to the staff report.MR. SERTICH: No, but I mean if we could have just one simple. I do not want to make this overly complicated, but I also want to make sure that the funds are allocated to the projects that need it the most. MR. FLOOD: Yeah.MR. OLMSTEAD: And all preservation is not equal, right? It is losing affordability (indiscernible) that should be the golden standard or something or re-establishing as long as you are committing to re-implement the goals long term.MR. FLOOD: Correct. MR. OLMSTEAD: Or reestablishing as long as you are committing to risk affordability. CHAIR AGEE: So let me try to bring all this together. It sounds like then, and Gayle I am looking more so to you, because of the nuanced nature of kind of your request. Would you be okay with the takeaway being sort of moving forward with the idea that we would have essentially three pools: preservation, new construction and other of some sort classifications? Then you would like, it sounds like, CDLAC staff to come back to the next Board meeting with some sort of research that delves a little bit deeper into how we got here in terms of data that is being provided? MS. MILLER: Well, I appreciate that. Thank you. The data that has been provided I think is great, but in terms of what I am comfortable with today, obviously I would like to hear from folks here, but is to have the total allocation for housing to be 3.5 billion or 83.34 percent. Then for the next meeting to bring back that. I think you are on the right track, Mr. Flood. I do not know that I am comfortable deciding that today, but that sounds reasonable. It would be new construction, at-risk preservation/ preservation and other. Then in addition, the additional data plans from CalHFA and HCD in terms of what mixed income looks like. What levels of adjusted medium income are being subsidized and what is the highest public benefit in those areas. I think those are two questions that I have not seen here that if we could that to determine those mixed income pools, so the multifamily mixed income and rural. It would be nice to have just a little bit more information on those before deciding on the final priorities.MR. FLOOD: More information in terms of product numbers on what is actually is being approved by CalHFA for mixed income?MS. MILLER: Yeah, and you do rural?MR. OLMSTEAD: Yeah, our rural funding projects are kind of across the board, like even some HCD, around three of them are rural projects. Maybe not come in not in the rural to CDLAC in recent, but I guess I had a question. Do we have a sense of what the breakdown should be on new construction versus preservation? Shall we have that discussion and the percentages? MR. SERTICH: I mean, we can. I think in terms of percentages I think if we really want to incentivize new construction early on, I think we could put up to you know 75 percent there and then set aside it. I am just throwing out numbers and I think you could have this discussion, but 75 percent for new construction, maybe 10 or 15 percent for at-risk preservation and then a 10 percent sort of general catchall that could be fund either one afterwards. MR. OLMSTEAD: I mean, I just think we need to be pretty heavy on the new construction priority. I think that would make sense. I mean a staff recommendation certainly could come back with that. I think 60/40 might be too close right, to really reflect new construction be a priority. I think it needs to be pushed up higher than that, maybe it is 75. Maybe it is 80. Maybe it is 70.CHAIR AGEE: So what was the methodology? Remind me again when we decided that we could actually do just as much or more with less allocation? What was the proportionality that we had thought about for new versus rehab? MR. FLOOD: Actually, we thought that the current relationships would flip from 60/40 rehab to 60/40 new construction.CHAIR AGEE: Got it, so then essentially what we are saying now is that if we decided to scale up and dredge down with the rehab, we actually would theoretically get more units online or so if we went to the 75/25, right? Right now the current document we have before us, to Larry's point, flips the allocation from what it has been to 60/40, now 60/40 with 60 being for new. If we are saying we are drumming that 60 up to 75 or ratcheting down the 40 to 25 then what does that do to our production totals? I think that these are some things that we cannot or should not be trying to decide, right? I just think all this is put together with a lot of extensive thought.MR. OLMSTEAD: But it would be good to see some of those rates (indiscernible).(Overlapping colloquy.) MR. FLOOD: I guess the problem with is that the result will depend a lot on the breakdown between HCD programs and tax credit programs, because they have different economics.MR. SERTICH: I think also this would be a good thing are all of the MHP deals new construction? MR. OLMSTEAD: Yeah, I believe so. MR. SERTICH: I think a lot of these projects that we have coming in, obviously the new state tax credits are all new construction. The new, a lot of the HCD deals that are getting funds are new construction. A lot of the deals that are getting money from locals are going to be new construction. CHAIR AGEE: I guess based on much of this too, do we have to I guess, because we can always come back and reset it. I mean if we start out at 60/40 that is all right. I just want to be cautious. MR. SERTICH: What I want to be careful of though is what I would rather do is set up maybe 60/40 allocation, but leave some amount unallocated so that we can go back. What I do not want to do is set up a 40 percent preservation pool and have it be eaten up too quickly. I guess the other question is, and maybe this gets into it, is we would do an allocation of every meeting. We would divide this by three or four and have these allocations? MR. FLOOD: We would have an allocation for a round, yeah. MS. MILLER: Well, actually.CHAIR AGEE: Well and I think to the other point is that has not been brought up that you raised, which I think when I thought about it I think is something that we should look at doing and that was your comments around the dashboard. So we get this kind of running total. I think while we are sort of working on this dashboard concept, that can be an external facing information on our website. I do think it makes sense for us to give running totals by Board meeting. So I think if we do that, then that does not wait until we are right at the tip of the empty, right, to then say okay we need to hurry up and try to scramble.MR. SERTICH: If we are not allocating everything in the first meeting then we have a little time as well.CHAIR AGEE: Correct.MS. MILLER: Yeah.MR. SERTICH: But I do not know if we have to do all that. MR. KASS: Just to Tony's point, I mean in the past we have always had allocation on hold as its own category and we would determine prioritization to pull from that into the other pools or sub-pools. Generally from an accounting perspective it is a lot easier to move out from reallocation on hold to other goals. MR. SERTICH: Rather than switching pools? MS. MILLER: Right, but the only difference being, Mr. Kass, that we have never been oversubscribed like this. I mean, that is right so you can imagine a scenario under which a lot of the volume cap is kind of consumed very quickly. So being mindful from the outset of the percentages with the caveat that we can adjust as we go, I do think is important or else we may actually left with less towards the end.MR. FLOOD: I appreciate that bluntly. I think I was going to make two statements. The first is that I guess in a competitive round we not only have to set the pools like we did when it was an open round, but we have to set dollar amounts and percentages for each round. So I think we need to be mindful of the fact that we can make sure that it is all not gone in the very beginning, by the amount that we set aside for each round. The second thing I wanted to say is that when you look at state tax credit deal, when you look at the state money and you look at the income levels that they are designed to finance, the state tax credit seems to me that it dovetails almost perfectly with the 4 percent credit. So that part of the reason that it looks like you get more bang for the buck is because the 4 percent credit and the state credit overlap almost entirely. I think when you look at HCD programs they are designed to subsidize a much lower AMI and so some of the subsidy eventually going into subsidizing income limits as opposed to units. When you look MIP you get the same thing in reverse. It is designed to support units that are above the 4 percent income limits and so you have also got a level of subsidy there. Both of those programs, if you just look at how much one dollar of subsidy is going to produce in terms of units you are going to mistakenly be led to state credits. I just wanted to make sure that that point was made. MS. MILLER: That is a great point Mr. Flood. I do think it is that type of insight that would be really helpful to bring back in January along with how you suggest we allocate the full throughout the year. I think that is helpful. You know, Mr. Chair, whenever you are ready for a motion to at least have the difference between multifamily housing and non-housing I would be happy to make that motion for you. I do not know what order you want to do that in.MR. SERTICH: Are we voting on or making motions today? MS. MILLER: I do not know. That is up to you. I did not know if we wanted to indicate just the multifamily housing and non-housing, the two pools just at least in advance of that January 17th application deadline to get some indication of the Board priorities. Then in January recommend that we further refine that multifamily pool, but I defer to the Board on that. CHAIR AGEE: That will be the goal to that point. We start making some progress in moving the ball down the field, so that we start to give some level of confidence to the constituents that are waiting on us to make clarity decisions. MR. SERTICH: Then one other thing I would like to say or ask before you do that is that I know that last week, Congress in their tax extender provided another up to a billion dollars for California's 9 percent, maybe it is not quite a billion, but close to a billion or a hundred million or whatever over ten years. I believe, I am not 100 percent sure on this, but my research is that we should be able to spend that because I think LA County is one of the counties could benefit as well as most of Southern California. I am not sure how that changes what we are doing here in terms of the competition. I think we do need to look at how we can maybe better utilize the 9 percent credit if we are going to have twice as much of it this year and think through how that may affect some of us. It is late in the game, so there is not much we can do to change, but I think we need to be ready to react to that as we hear from constituents. MS. MILLER: Right, but to clarify, Mr. Flood, that the additional resources that California will receive, which I also am a little bit confused about how much that is a year, but we are very grateful for it, that does not change the volume cap at all. MR. FLOOD: Correct. MS. MILLER: Okay. MR. SERTICH: What I am saying is it could drive some projects that were expecting to use 4 percent plus state credits over the 9 percent.MS. MILLER: Oh, over to 9 percent, right. I see.MR. SERTICH: So could the competitive nature of the bonds a little bit. I think since we are so oversubscribed I think there will be enough demand on both sides. CHAIR AGEE: That is the point I was making about how do you create some surety around things that are out of all of our control to provide a level of confidence for people who have to submit applications while something is moving. I think we are trying our best to take this convergence of all things, historical information, already establish where it can provide us some guidance in terms of what we are doing as well as some of the things that are coming down to us and we hope more come from the feds, but as a minimum we have to try to create a reality of some sureness for those that have to submit applications and are out there doing the real work.MS. MILLER: I completely agree. Okay, so I move that we approve that we approve today, and Mr. Walker I am going look to you to make sure I am doing this right, a multifamily pool of $3.5 billion. The allocation within the multifamily pool will be determined in January and then a second non-housing pool of $650 million. MR. FLOOD: Could we do percentages?MS. MILLER: Oh, I am sorry. May I begin again? Then I move to establish two pools today, a multifamily housing pool of 83.34 percent. CHAIR AGEE: 84.34MS. MILLER: 84.34 percent, sorry, and a non-housing pool of 15.66 percent with the further priorities in the multifamily pool to be determined in January by the Board. MR. WALKER: That makes sense. It is clear. MS. MILLER: Thank you. ]CHAIR AGEE: Do we have a second? MR. SERTICH: I second.CHAIR AGEE: We have a motion and a second. Are there any public comments? Yes. If you are making a public comment please make your way to the front row while we have a speaker. Mr. Leach, welcome. MR. LEACH: Good afternoon Honorable Chair and esteemed Committee Members. Number one, I would say that the conversation has so far seems totally right on point. I appreciate it happening here in the December rather than in January. That really helps the community out a lot. One of the things I would like to provide is my perspective on mechanics and kind of go over a little bit of what was discussed. Number one, I am super supportive of the 84 percent and 16 percent proposed and the fact that the single family has the zero percent up front. I am super supportive of that concept. Number two, in regards to the pools for the multifamily. Statutorily we need a mixed income, we need a rural. But rather than the staff's proposed pools I do think the Committee is correct that going to a new construction and a preservation pool is the most important designation that you can make rather than state credits or non or other types of housing types. So I am super supportive of that. If I was to be asked what percentages would you do, I would do 75/25 just because I think it is a way to stretch and not a huge deviation from the amount of preservation that is needed. CHAIR AGEE: 75 new construction?MR. LEACH: 75 new construction, 25 preservation. One of the things I will try of alleviate some of your concerns, if there was a lot more rehabilitations done in the past than the 25 percent could fund, fear not. Not every rehab project done in the past was a preservation project. Some of them were simply refinances. Okay. They weren't because the regulatory agreement was up. They weren't because they were 25 years old and needed work. They weren't because they were financially infeasible and needed to be recapitalized, so many of the previous rehabs were not a preservation. When you do get into a discussion on preservation you might want to think of those three different things. Sometimes it is for regulatory reasons. Sometimes it is the project just absolutely needed to be rehabilitated. It has been 30 years and it just needs it. Then lastly there are some economic reasons where the AMIs were just way too low, so but not getting into preservation here. The two sentiments it seemed like the Board was attempting to get across. Number one, there is this priority that because we are not going to play with scoring fast enough to affect 2020 allocations, I might want to see the example of high opportunity family new construction projects. And if you would like to something like that I want to recommend that in your January meeting what you will do is you will say we are going to create a pool for this new construction family high-opportunity as a subset of the new construction pool. And that you will state to people this pool will set aside bond allocation for the first two meetings and if not used will revert to the general pool in the last meeting, right? So that way, because you cannot do scoring way to prioritize them, but you can set aside some monies and if you are worried nobody applied for it, okay good. Then you will just put it out at the end of the year and it is already set to be put out. That we are setting these moneys aside for the first two rounds and then in last round it is going to go to the general new construction pool. The second sentiment that sounded like you guys were thinking about is, I wonder if I am over allocating to something and I would have wanted to pull an audible, right? In that case, I definitely think the tool that staff mentioned was the unallocated pool is much better than an "other" pool. If you make an other pool people are going to apply for it, but rather an unallocated pool I think works better. Just because we know there are lots of projects I probably would not make it a huge pool. TCAC sets aside, I think 4 percent of its credits in the 9 percent program, as the supplemental set aside to fix overages here and there. If yours was closer to 5 or 10 percent that would still give you the ability to tweak something. Putting a larger percentage off would make every pool a little bit smaller. In regards to the 9 percent, maybe we could maybe we could get more 9 percent credits. I would alleviate that concern with the fact that the 9 percent program has been oversubscribed a little more than two to one, historically and has stayed that way even after HCD's bond allocations. So my assumption is we can utilize it in the industry without messing with the bond program. I would alleviate that concern. It could be a great problem to have. I am happy that we have all (indiscernible) subscribed in 2020 and that would be a great outcome. MR. SERTICH: I do not think anyone's complaining about having an extra billion dollars. MR. LEACH: Absolutely. So thank you so much for having the conversation. I think you guys are right on point and hopefully these technical ideas are useful, but I am fully supportive.CHAIR AGEE: Would you mind submitting those ideas in writing to CDLAC staff?MR. LEACH: Sure, absolutely. CHAIR AGEE: Great, much appreciated. Thank you. Before you leave, any questions for Mr. Leach from Board? MS. MILLER: May I just ask one, sorry. On your allocated pool, and Mr. Kass I do not know if this is a question for you, is it okay to have the 85/15 roughly pursuant to the motion we just made or does that unallocated pool have to be completely separate? Could the unallocated pool be within that multifamily pool that we have already designated by the motion? MR. KASS: No. Generally the unallocated pool is allocation on hold. It is considered completely separate. MS. MILLER: Okay.MR. SERTICH: But is there any reason we could not set up an unallocated pool in multifamily? CHAIR AGEE: Within multifamily? That is possible.MR. SERTICH: I mean I think it should be possible.CHAIR AGEE: So (indiscernible) is possible.MR. SERTICH: (Indecipherable.) MR. LEACH: I think the unallocated pool within multifamily gets the community knows we are making this big investment in housing. We did the 85 percent or 84 percent, but within that we need to wait and see a little bit with some of that money. MS. MILLER: Okay. Thank you for that clarification. CHAIR AGEE: Yes, so thank you for that. We will want to put in some staff time to figure out how to essentially create some of those "sub pools." I think to get at a lot of our concerns and give us some flexibility in a world that we cannot get sort of command.Yes, next.MS. WOOD: Hi. I am Felicity Wood. I am finance staff at CalHFA. I have two comments and one technical question. Thank you for the great discussion. Responding to Mr. Sertich about the mixed income, I know that the recommendation for the mixed income pool is less than half the request for the mixed income. I do not have the numbers with me from CalHFA, but it is certainly a lot less than was asked for, so at least there is that. My second comment is regarding the multifamily sub-pools. I certainly agree with prioritizing new construction and at-risk preservation. I think it might be worth considering that the committee build in a couple of year at least of lead time on the more nuanced priorities just because I see now it take so long for projects to kind of pivot or plan on what kind of resources would be available. I think that is exactly the kind of prioritization that is perfect via the regular rulemaking process and public comments. So my technical question is regarding the veteran's mortgage revenue bonds. I know Internal Revenue Code Title 26, Section 142, I do not remember what subsection, defines private activity bonds as excluding veteran's mortgage revenue bonds. Okay, so does that mean that they still have to come out of volume cap?MR. FLOOD: If they issue bonds no, but if they want to exchange them for mortgage credit certificates they have to.MS. WOOD: Okay. Bummer, I was hoping to find some more magic allocations somewhere and a great volume cap.CHAIR AGEE: I have a question for you before you (indiscernible) as well. MS. WOOD: Yes. CHAIR AGEE: But operationally when you speak to this idea of lead time, what does that look like in your opinion? MS. WOOD: Three years. I am not a developer, but I just see projects. You know, it is really hard to hear a discussion I would imagine in December and think that the resources available might be different next month when projects are planning to apply. So I think that building and regs, this happened in the past, the CDLAC regs were changed with a forward date like 2023 we are going to have this new rule in place and I give people a little time to plan for that. CHAIR AGEE: Got it. Yes, and we have been doing that. I just wanted some clarification to make sure it is different than kind of what we have been thinking about. Thank you for that. Any additional questions or comments? MR. SERTICH: Thank you. CHAIR AGEE: All right, next. Hello.MS. WIANT: Hi, good afternoon, Marina Wiant with the California Housing Consortium. I really want to thank staff and the Board for your comments and consideration today and in particular, the motion that is on the table of increasing the allocation to multifamily set-aside. Within further conversation that you will be having or the thoughts you will be having around of how to allocate within the multifamily pool, again we appreciate the direction that you appear to be going with respect to new construction and at-risk projects. Even within that sub-pool I think this is a really great place to prioritize perhaps have even further within the new construction pool to really prioritize both the state-funded projects as articulated I think throughout this discussion, both HCD and state credits. But also keep in mind locally-funded projects with significant amount of funds. We did submit a letter to the Board reflecting some of those ideas that came from a broad base of developers. Yeah, those are my comments today, so thank you very much. MR. SERTICH: Thank you.CHAIR AGEE: Marina, could you do me a favor? Could you now give any sort of the new construct of what we are talking about this notion of sub-pools within broader pools reshape your letter to kind of give instruction on what that could look like given this new conversation we are having? MS. WIANT: Yeah, sure thing. CHAIR AGEE: All right. Thank you. MS. WIANT: Thank you. MR. SABELHAUS: I am going to keep you here a little bit longer. (Laughter). I am not. I am Pat Sabelhaus on behalf of the California Council for Affordable Housing. Thanks for the struggle that you are going through now. This is a difficult undertaking as you know better than I do and all of us have been struggling with this for the last 33 years or so. I just would like to emphasize that I agree with most of what has been said here, but I would like to emphasize that we cannot ignore the need for preservation projects, because we have built so many thousands of units here over the years. Every year you have ones that are becoming either expiring the regulatory agreements or, as was pointed out earlier, there are projects such as the SROs that were emphasized in the very beginning of '87, '88 and '89 and every city wanted an SRO. Then three or four years ago, we eliminated that from the 9 percent program, so it is not even eligible now to participate in rehab. Some of these projects are 25 or 30 years old and are in desperate need to be rehabilitated. So I would follow up on the earlier statement that in addition to having expiring agreements that are HCD regulatory agreements or CalHFA's or HUD Section 8, that you also look at a capital needs assessment as a major issue in determining whether a preservation project even though it does not have an expiring regulatory agreement, that it would be given equal consideration and equal opportunity to be funded with both 4 percent credits. State credits are not going to be eligible for it, because this first 500 million has been limited to new construction, which we think is a good way to start. We would be back at some point in the future here to ask that SROs be recertified again as an eligible housing type under the 9 percent program where it was eliminated some years ago and has caused some major problems I think in terms of making sure we keep those projects functional and cleaned up and able to continue to serve the people that they are serving, which are the lowest income people. So thank you very much. MS. MILLER: Thank you. CHAIR AGEE: And again before you leave, Pat, can you make sure that TCAC staff sort of stay mindful about that? Especially as we are getting essentially new monies coming from the feds and I think we will be looking at how to potentially do some of what you are suggesting, which is not abandon our past priorities at the state or local as it relates to vulnerable populations. Mr. Sertich?MR. SERTICH: Yeah, I was just going to say I do want to make sure that we expand the at-risk definition to make sure it includes physical address as well as regulatory numbers.MR. SABELHAUS: Thank you. MS. MILLER: Yeah, I agree with that. Mr. Sabelhaus, I do not know does every rehab project need a capital needs assessment? I am sorry, I do not know. MR. SABELHAUS: Yes, they do. If you are applying for new credits after your 15-year compliance period has run you must do a capital needs assessment in terms of determining exactly what rehabilitation is required as a minimum for the project, not as a maximum.MS. MILLER: Okay. Thank you.CHAIR AGEE: All right. Do you have anything for Mr. Sabelhaus? You look like you are ready to get out of here. Thank you. Thank you, Pat. MR. SABELHAUS: I kept you here on purpose. (Overlapping colloquy.)MR. FLOOD: Mr. Chair, I wanted to say that CDLAC also requires a (indecipherable). MS. MILLER: Oh great. For preservation? MR. FLOOD: For preservation. MS. MILLER: Oh, great. Thank you for that clarification. CHAIR AGEE: All right. It looks like we have no other comments from those in the room. Do we have any from those on the phone? MS. MILLER: No. CHAIR AGEE: All right, seeing none I will make a -- MS. MILLER: Mr. Chair, do we -- oh, sorry, that is what you were going to do. We are adjourning, sorry. CHAIR AGEE: Oh, we have a motion and a second on the floor. Can you please call the roll?SECRETARY: Gayle Miller?MS. MILLER: Aye. SECRETARY: Anthony Sertich?MR. SERTICH: Aye. SECRETARY: Jovan Agee?CHAIR AGEE: Aye. The motion has been moved and approved. I think we have made some great progress here today. We have come a long way I think in the past two to three months and so that may be (indiscernible) and there is an elf somewhere under the table that has helped.(Overlapping colloquy.)CHAIR AGEE: I just would like to say first and foremost I would like to very much thank staff for the work that they have done and the work they have done in conjunction with the consultants we brought on for the strategic plan who I think most of you thus far have met with. Who have been just really delving into what other states are doing, getting us smarter in terms of the work at HCD, CalHFA, DHCS has done, which has helped our learning curve in the State Treasurer's Office. I feel like we are kind of in the middle of the ocean as a ship without a sail, but I realize that there are some reference points that we can go and operate off of. So I think it gets us closer to all the things that we have been saying over the past couple of months. So I just appreciate the amount and the volume of information that you all have delved into, to get us to where we are today in such a short period of time. So I want to make sure that I acknowledge that. I want to thank the Board for figuring this out. Often times when there is a certain level of complexity to a problem you are trying to solve that creates a certain amount of tension. Things can go sideways and become multiple personalities in a collective goal. I was happy that we have always had the opportunity to keep our eyes focused on what the collective goal has been, which is providing housing for Californians in a way where we have scarce resources. Then I will say just lastly I want to thank sort of those in the development community for having patience with us as we are figuring all this stuff out by being thrown a tremendous amount of resources to do this work at hopefully a level that you all can be pleased with in terms of the simplicity and ease to use. So with that I want to give some final remarks to the Board members before we do an official close and I will start with you, Ms. Miller.MS. MILLER: I would just say dead on, thank you. Happy holidays, Happy New Year and thank you, Mr. Chair.CHAIR AGEE: All right. Thank you.Mr. Olmstead?MR. OLMSTEAD: Thank you. I think it was pretty good discussion. I am looking forward to January. I know we have a lot of different policy discussions ahead of us in setting future priorities, but I think we made significant progress today. So thank you. CHAIR AGEE: And this is the happiest I think I have seen you, so I am a little surprised. (Overlapping colloquy.)MS. MILLER: Of course he is happy.CHAIR AGEE: I don't know if it is because we are adjourning or because of (indiscernible).MR. OLMSTEAD: Come on.MR. SERTICH: I want to echo your comments. I really want to thank staff for their focus on this. It is great to have Mr. Flood on board here and Ms. Blackwell at TCAC. It has been great to work with both of them and see all the staff out in the audience, TCAC hiding in the back row. But and especially I want to thank you for helping lead us through this, Mr. Chair. So thank you all. I hope everyone has a very happy holiday season and then a relaxing New Year, so we can really get back at it in 2020. CHAIR AGEE: That is right. Well, Merry Christmas and Happy New Year to you all. We are adjourned. MR. WALKER: One last item, public comment for the general public.CHAIR AGEE: Oh, is there any general public comments for any item not listed on the agenda? Any on the phone? SECRETARY: No.CHAIR AGEE: Seeing none, Merry Christmas and Happy New Year to you all. We are adjourned. (The meeting was adjourned at 2:42 p.m.) ................
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