AGENDA #7

MEMORANDUM

TO:                  Mayor and Town Council

FROM:            W. Calvin Horton, Town Manager

SUBJECT:       Request from Habitat for Humanity

DATE:             November 25, 2002

The purpose of this memorandum is to respond to a request from Habitat for Humanity for the Council to provide funds to the organization to purchase a 16-acre parcel of land on Sunrise Road.  The property would be used for the development of affordable housing.

Adoption of attached Resolution A would amend the guidelines of the Housing Loan Trust Fund to allow funds to be used to acquire property located in the Chapel Hill Planning Jurisdiction. 

Adoption of attached Resolution B would authorize use of up to $50,000 from the Housing Loan Trust Fund to Habitat for Humanity for either an extended option or to assist with the acquisition of this property. 

Adoption of the attached Ordinance would allocate funds in the Housing Loan Trust Fund for this project.

THE REQUEST

In a letter dated October 31, 2002, Habitat requests $300,000 from the Town and Orange County to purchase a 16-acre parcel of property off Sunrise Road (please see Attachment 1).  An addendum to the purchase contract contemplates that Habitat will obtain commitments from Orange County for the purchase price by December 31, 2002 (please see Attachment 2).   Habitat plans to partner with Orange Community Housing and Land Trust and Orange-Person-Chatham Mental Health Association to construct affordable rental and homeownership units on this site.  Habitat intends to request that the Council rezone this property from R-2 to the Residential Special Standards – Conditional (R-SS-C) zoning district so that more units can be built on the property than allowed under the current zoning.   Habitat estimates that the variety of units that they propose to construct would serve households earning between 15% and 80% of the area median income. 

BACKGROUND

On July 25, 2002 Habitat for Humanity entered into an Offer to Purchase and Contract with the estate of Thelma T. Clark to purchase a 16-acre parcel on Sunrise Road in Chapel Hill for $400,000 (please see Attachment 2).   As stipulated in the purchase contract, Habitat paid an initial earnest money payment of $5,000 upon signing the document, and an additional $5,000 of earnest money on October 31, 2002.  The contract stipulates that a closing must take place by February 28, 2003.  An addendum to the contract states that Habitat’s obligations under the contract are contingent upon receiving funding approval from the Orange County Commissioners by December 31, 2002. 

Orange Water and Sewer Authority (OWASA) has informed Habitat that it could provide water service to the site and it would be “permissible to construct a pump station and force main to convey sewage to an existing OWASA manhole in the wastewater collection system”.

On October 3, 2002, Habitat representatives met with the Planning Director to ask questions about development regulations that would apply to this site. 

On October 21, 2002, Community Development Coordinator Loryn Barnes and Orange County’s Director of Housing and Community Development Tara Fikes met with Susan Levy to discuss this project.  At that time, Habitat informed the staff that they would be requesting funds from the Town and the County for assistance with the acquisition of this property. 

DISCUSSION

Current Zoning

The property is currently zoned Residential-2, which would allow up to four units per acre.  Habitat intends to request that the Council rezone the property to Residential Special Standards – Conditional (R-SS-C).  Created by the Council in 1999, this zoning district allows considerable flexibility in terms of requirements for setbacks and buffers, along with density, height, and floor area restrictions that are less restrictive than other zoning districts.  Houses developed in this zoning district must serve households earning less than 80% of the area median income, include a long term affordability component, and developers are encouraged to incorporate design features that take advantage of solar energy technologies.

Property Value

An appraisal conducted in October 2002 indicates that the value of the property as it is currently zoned (R-2) is $411,250.  The current tax value of the property is $260,568. 

Process for Consideration of Development Applications

The October 31 petition included a preliminary description of Habitat’s proposal for development of this property.   Habitat’s proposal for this site includes 90-95 dwelling units on the 16 acre tract (approximately six units per acre).  The petition suggests that an application will be prepared to seek rezoning of the site to the Residential-Special Standards zoning district, along with an accompanying application for a Special Use Permit to authorize construction of the proposed development. 

This site is outside of Chapel Hill’s municipal boundary, but within the portion of the Joint Planning Area in which Chapel Hill’s Development Ordinance applies.  Accordingly, the process for consideration of a proposal of the type described in the petition would be as follows:

• Applications for rezoning and Special Use Permit may be submitted and evaluated concurrently.

• The rezoning application would need to be considered at a Joint Public Hearing involving the Chapel Hill Town Council and the Orange County Board of Commissioners.  Both boards would need to approve a rezoning in this area for it to become effective.

• Following joint action on the rezoning component, consideration of and action on the Special Use Permit application would be by the Chapel Hill Town Council.

• In order to approve a Special Use Permit, the Town Council would need to make four findings:  That the proposed development

1. Would be located, designed, and operated so as to maintain or promote the public health, safety, and general welfare;

2. Would comply with all required regulations and standards;

3. Would be located, designed, and operated so as to maintain or enhance the value of contiguous property, or be a public necessity; and

4. Would conform with Chapel Hill’s Comprehensive Plan.

• The expected time frame for consideration and action under this process would be approximately 12-18 months.

A rezoning in this Joint Planning Area takes place within the context of Orange County’s zoning authority.  Accordingly, there are no protest petition provisions that would apply, because county zoning authority in North Carolina does not contain protest petition provisions.

It is important to note that any actions by the Council to facilitate or not to facilitate the purchase of the property by Habitat should not be interpreted as a decision by the Council to favor or not favor a particular form or type of development.  The Council is required by law to make judgments about applications for Special Use Permits based on evidence presented through the public hearing process. 

Options

Options for Funding Sources

We offer the following options for consideration if the Council wishes to provide financial support for purchase of the land as requested by Habitat.

1. Housing Loan Trust Fund

The Town Council established the Housing Loan Trust Fund in 1973, using revenue sharing funds, to assist low-income families with the purchase of a new home or to renovate an existing home.  Please see Attachment 3 for a history of the use of the Housing Loan Trust Fund over the past two years. 

Acquisition of property in the Town of Chapel Hill for resale to low and moderate income families is an eligible use of the Housing Loan Trust Fund.  Because this property is not located within the Town limits or the Town’s Planning Jurisdiction, the Council would have to amend the guidelines of the Housing Loan Trust Fund for this project if it wished to use funds from this source.

Our review of the financial status of the Housing Loan Trust Fund comparing revenues and commitments indicates that the Council could make up to $50,000 available for this project from the Fund at this time.  Use of funds for this purpose would reduce the amount available for any other need that may emerge.

2.  Community Development Funds 

Acquisition of property for affordable housing purposes is an eligible Community Development activity under federal regulations.  On April 22, 2002, the Council budgeted all of the Community Development funds awarded to the Town by the U.S. Department of Housing and Urban Development for the 2002-2003 fiscal year (please see Attachment 4).  The Council could choose to reallocate funds from existing activities to fund this request.  In particular, we note that $37,000 of 2001-2002 and 2002-2003 funds are designated for Habitat’s Rusch Road project for acquisition and/or site improvements.  To date, Habitat has not submitted requests to use these funds.  The Council could reallocate these funds for this request if Habitat no longer needs them.

According to the Town’s Citizen Participation Plan adopted by the Council, reallocating funds from an existing activity or budgeting program income for this project would be considered an amendment to the Community Development program.  Typically, the amendment process is as follows:

· The Council approves a process for amending the Community Development program, including scheduling a date for a public hearing.

· As required by the Citizen Participation Plan, notice of the public hearing is given at least fourteen days prior to the meeting. 

· The Council holds the public hearing.

· Staff returns to the Council with a recommendation.

We believe it would be feasible to amend the Community Development program in January if desired by the Council. 

If Habitat would obtain an extension to its contract, it could apply for Community Development funds in 2003-2004.

3. General Fund Balance

The Council has the option of using General Fund Balance for this project.  As of June 30, 2002, the Fund Balance was approximately $4.3 million, near the minimum that is consistent with guidelines for best practices.

4. Additional State Revenue Expected in the Current Year

As indicated in our November 11, 2002 memorandum to the Town Council, additional revenue is available in this fiscal year.  On that date, the Council allocated $648,000 for pay increases and to initiate work on development of storm water management utility.  In addition, the Council will consider on December 9 the possibility of using $815,000 for capital improvements in the current year, and using $167,000 to replace debt service reserves.  Alternatively, the Council could consider using some of these funds for the Habitat project.

5. Orange County Funding

It is possible that funds from the Orange County Affordable Housing Trust Fund could be used to fund this request.  We have determined that HOME Program funds received by the Orange County HOME Consortium would not be eligible for this project; projects funded with HOME Program funds must be completed within five years. 

Options for Proceeding

1.  Allocate $300,000 as requested.

The Council could choose to fund this request using a combination of an allocation from the General Fund Balance, a portion of additional revenues received this year, and an allocation from the Town’s Housing Loan Trust Fund.

2. Allocate funds for a portion of the request.

The Council could consider funding a portion of the request, using a cost-sharing approach with Orange County.  For example, the Council could propose to allocate funds based on the current split of local option sales tax revenues in Orange County (currently Chapel Hill receives about 25%).  The Council could consider using the recently received additional revenues, the Housing Loan Trust Fund, the General Fund, or a combination of these sources to allocate funds in this manner.

3. Use the balance of the Housing Loan Trust Fund.

The Council could consider using $50,000 from the Housing Loan Trust Fund we estimate is currently available and not restricted for any other purpose.

4. Use Community Development funds.

If Habitat could get an extension of the current contract, we believe our best option would be to pursue funding in next year’s 2003-04 funding cycle. 

The Council could also pursue taking the $37,000 of existing funds reserved for Habitat’s Rusch Road subdivision and reallocating them for the Sunrise Road project.  Habitat could then request that these funds be replaced in the 2003-04 funding cycle.

5.  Consider other funding sources.

We also believe that sources available through Orange County may be available for this request such as the Orange County Affordable Housing Trust Fund.

6.  The Council could choose not to allocate funds for this project.

The Council could choose not to allocate funds for this project.  There are a limited amount of funds available and we believe that there may be other needs for the use of these funds.

Requests for funding are usually received during the Town’s budget cycle, which includes the Council receiving requests at a series of public forums.  This request was received outside of the budget cycle; therefore we have not had an opportunity to learn of competing needs for these funds.

RECOMMENDATION

We recommend that the Council request that Habitat for Humanity seek to negotiate an extended option on the property.  Use of the Housing Loan Trust Fund for options is an eligible use of that Fund.  This approach would permit consideration of Habitat’s development proposal through the development review process before the land is purchased.  We recognize, however, that the seller may not be willing to extend the current contract.

If obtaining an extended option is not feasible, we recommend that the Council provide a $50,000 acquisition loan to Habitat for Humanity.  We recommend that Habitat provide the Town with a Promissory Note and Deed of Trust on the property to secure the loan.  The Council could require that the loan be repaid within two years, but that Habitat could request that the Council extend the terms of the loan or that the funds be converted into a grant.  If the property were not approved for development in a manner acceptable to Habitat, the loan would be due and payable to the Town.

We recommend that the Council adopt the attached resolution to budget up to $50,000 from the Housing Loan Trust Fund to Habitat for Humanity for either an extended option or for a loan to assist with the acquisition of this property.  We recommend that the Council authorize the Manager to execute a Performance Agreement with Habitat for Humanity for this project that would establish conditions consistent with the above discussion.

We also recommend that the Council enact the attached ordinance to appropriate $50,000 from the Housing Loan Trust Fund for this project.

ATTACHMENTS

1. Request from Habitat for Humanity (p. 11).
Additional Attachments for the Request from Habitat for Humanity

2. Purchase Contract between Habitat for Humanity and the Estate of Thelma Clark (p. 17).

3. History of the Housing Loan Trust Fund (p. 22).

4. Summary of 2002-2003 Community Development Program (p. 24).

5. Correspondence from Citizens (p.26).

RESOLUTION A

A RESOLUTION AMENDING THE GUIDELINES OF THE HOUSING LOAN TRUST FUND (2002-11-25/R-4a)

WHEREAS, the current regulations of the Housing Loan Trust Fund adopted by the Council on June 23, 1986 and amended on October 10, 1994, April 14, 1997, and February 22, 1999 do not include acquisition of property for affordable housing purposes in the Chapel Hill Planning Jurisdiction  as an eligible activity;

NOW, THEREFORE, BE IT RESOLVED that the Council of the Town of Chapel Hill amends Section 4 of the Housing Loan Trust Fund guidelines to read:

“4. Loan and Grant Subsidies.

“f.  For the acquisition of properties situated within the Chapel Hill Planning Jurisdiction suitable for resale to low- and moderate income families qualifying under the provisions of this program, provided that all such acquisitions shall be approved in advance by the Town Council.”

This the 25^th day of November, 2002.

RESOLUTION B

A RESOLUTION ALLOCATING UP TO $50,000 FROM THE HOUSING LOAN TRUST FUND TO HABITAT FOR HUMANITY, ORANGE COUNTY FOR A 16-ACRE PARCEL OF PROPERTY ON SUNRISE ROAD (2002-11-25/R-4b)

WHEREAS, the Town has an ongoing interest in the development of affordable housing in Chapel Hill; and

WHEREAS, on November 11, 2002, the Council received a request for funding from Habitat for Humanity, Orange County for assistance to acquire property;

NOW, THEREFORE, BE IT RESOLVED by the Council of the Town of Chapel Hill that the Council allocates up to $50,000 from the Housing Loan Trust Fund to Habitat for Humanity, Orange County for either an extended option on the property or a loan to assist with the acquisition of a 16-acre parcel of property on Sunrise Road.

BE IT FURTHER RESOLVED that the Council authorizes the Manager to execute a Performance Agreement with Habitat that would establish conditions consistent with the memorandum to Council of November 25, 2002.

BE IT FURTHER RESOLVED that any use of Town funds for property acquisition is contingent upon receiving the remaining balance needed from Orange County or other sources.

This the 25^th day of November, 2002.

AN ORDINANCE TO AMEND “THE ORDINANCE CONCERNING APPROPRIATIONS AND THE RAISING OF REVENUE FOR THE FISCAL YEAR BEGINNING JULY 1, 2002” (2002-11-25/O-4)

BE IT ORDAINED by the Council of the Town of Chapel Hill that the Budget Ordinance entitled “An Ordinance Concerning Appropriations and the Raising of Revenue for the Fiscal year beginning July 1, 2002” as duly adopted on July 26, 2002 be and the same is hereby amended as follows:

ARTICLE I
APPROPRIATIONS	Current Budget	Increase	Decrease	Revised Budget
HOUSING LOAN TRUST FUND	337,012	50,000		387,012
ARTICLE II
REVENUES	Current Budget	Increase	Decrease	Revised Budget
HOUSING LOAN TRUST FUND	337,012	50,000		387,012

This the 25^th day of November, 2002.