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HomeMy WebLinkAboutCity Council Meeting - Council Workshop - Agenda - 02/17/2004 Council Workshop Agenda All Councilmembers • Julie Peterson, Council President KENT W A S H I N G T G N February 17, 2004 5:30 PM — 6:15 PM Item Description Speaker Time 1. Impoundment Reservoir Comprehensive Plan Fred Satterstrom/ 15 min and Initial Zoning Designation Charlene Anderson 2. One Stop Human Services Project John Hodgson/ 15 min Katherin Johnson 3. Admissions Tax Bob Nachlinger/ 15 min Tom Brubaker Unless otherwise noted,the Council Workshops are held at 5:30 p.m.on the 1St and 3rd Tuesdays of each month. Council Chambers West,Kent City Hall,220 4th Avenue South,Kent,98032-5895. For information please contact the City Clerk's Office at(253) 856-5712. Any person requiring a disability accommodation should contact the City Clerk's Office at (253)856-5725 in advance. For TDD relay service call the Washington Telecommunications Relay Service at 1-800-833-6388. S:\PUBLIC\CLERK\City Council Committee Packets\Council Workshop\WorkshopConunittee02l7O4.doc 0 c� 0 p a One Stop Human Services II Center a 0 Purpose F Q) Improve access to human C ] services for clients e Increase coordination a between agencies .: Q :• Decrease agencies' W operational costs over time B lu i Improve efficiency in delive iW of services FE 4 Q VIM— Project History 4 2000 a �w I? rq a —Mayor White dire IU1 staff to research .+ QStop Human Se Centers c c� 2001 Q —Council funds On „fir 6 d b feasibility study , II --•Agencies come t to work on One S CEI'll d -•Feasibility Study ' completedEE a 4 U7 G3 zanxona e 1 OO ER History (cont.) 0 2002 —Agencies contract with realtor for poperty C search U 2003 M a —New non profit formed—South County Area Human Services Alliance(SCAHSA) IM —Building located—Purchase and Sales M Agreement signed S --Funding search#arted CM G9 s IT .. rR M vnrzme Xantrex Building—21440 68-Ave S. C OO Proposed Funding Strategy O p -King County would IssUB, � z a $6m loan to the AIIIanCe` T�O using funds from a Q Section 108 Loan � . -Kent would issue an loan < ' Q not to exceed $3m to II Alliance using funds f a Section 108 Loan ER -SCAHSA will pursue gra and foundation fundnn a pay off the Kent 108 Loan a` G3 zn�rzmu Section 108 Loan 4 nt � • Section 106 is the loan guarant''ee p provision of the Community Deve, ment' Block Grant(CDBG)program prow ling G source of financing for economic "f a development,housing rehabilltatlOn� t Q public facilities,etc Wv • CDBG entitlement communities can borrowi, up to 5 times their annual entitlement for certain CDBG eligible projects- pledgln EE future CDBG grants as secure • Financing is similar to bond f except that it is backed by thIc _ and credit of the federal gov r IE • The jurisdictions local bond ra �le.n ar^7 impacted IM17 rE G3 v17rsau 2 0 LE Risks p •To date, there has been no default a under Section 108 resulting in a repayment by HUD. •In the event of default requiring a payment, HUD would continue to a make payments on the loan in accordance with its terms. FR •The source of payments by HUD 0 pursuant to its guarantee would 6Z almost always be pledged CDBG EM 4_ funds. G3 vnauu. OO LE Risks (cont.) p •Kent's CDBG allocation would be used to pay the loan in the event a of a default by the Alliance a •The City can mitigate the impact aby allocating funds annually to d pay the debt from its CDBG fund TE •This would not result in defunding 0 any current program but rather Z would replace funding any new Im 4 capital projects IM G3 vrzoo1 a CG ER Next Steps 4 p • March 2,2004-Operations Committee DPresent information to amend the 2004 Action Plan and authorize Mayor White to Gn7 submit the Section 108 application. Q Recommend Committee forward to Council GJ for approval • March 17,2004-Council Meeting Request authorization from Council for Mayor B White to submit the application and amended (c Action Plan IR • Apply to HUDfor a Section 108 Loan in the � amount not to exceed$3m 12 • Work with the Alliance to secure foundation u and state funding to payoff the loan over CE three years ��'' sizznw 3 0 LEE Partners 0 City of Kent p fi King County G1 <• Multi-Service Center U_1'1 Public Health—Seattle&King County Q •e Kent Food Bank&Emergency Sevices M 0 •}Washington Women's Employment& LE Education d •o Renton Technical College b HOME 12 4 Catholic Community Services , C Thank you for your support! KEN T G3 zmrzow w..�.o.o. m 4 PROJECT NAME: South County Are Human Services Alliance "One Stop Service Facility" PROJECT ADDRESS: 21446 68"'Avenue South,Kent,WA. PROJECT DESCRIPTION: The South County Area Human Services Alliance's"One Stop" Service Center is an innovative community concept for the southeast King County area. The vision is to bring together a variety of human service providers in one location, enabling clients to meet multiple needs in one site. Currently low-income individuals and families living in the south county area must go to several different locations to obtain needed services. Co-location of services helps to reduce the stress on low-income individuals and families. Cross referrals and a complementary services focus will increase efficiency of service delivery, strengthen teamwork among providers,and improve outcomes for southeast county areas residents. An additional goal is to help agencies better contain their costs so more their funds can be put directly into services as opposed to facilities. Many of the agencies involved currently lease office space in this area and have seen these rents continually on the rise. The intent of the One Stop is to purchase a building in the most cost effective manner possible so that over time nonprofit and governmental human service providers will continue to provide a stable rate of rental fees as well as access to services will be increase for the low-income. Agencies Involved: Currently eight agencies have been working together on this project. A 9"' agency,King County LSJ Domestic Violence Program, is interested in becoming a member of the group but this has not yet been finalized. The current agencies are: Multi-Service Center Public Health Dept of Seattle King County Homeless Outreach Mobilization Effort(HOME) Kent Food Bank Washington Women's Employment and Education Catholic Community Services Renton Technical College Valley cities Counseling and Consultation Proposed Facility: A Purchase and Sales Agreement was signed on November 4, 2003 between The Alaska Laborers-Employers Retirement Trust Fund and the Alliance for the facility located at 21446 68"'Ave. S. in Kent,WA. The price for the facility is$3,950,000. The building currently consist of 26,924 sq. ft of office space and 46,013 sq. ft. of warehouse space. It is located directly off a major arterial,West Valley Highway, and is on a major bus rout. It was built in 1982 and the construction type is concrete Tilt-Up. A Phase I Environment and a Geotechnical survey have been conducted on the property. The Phase I showed no problem and the geotech recommendation are incorporated into the architect's list of improvements. An appraisal is currently in process and is expected to be completed by the end of January. When completed the project will provide over 88,000 sq. feet of office and warehouse space for non profit service providers. The remaining 8,250 will be common area. NEED FOR THE PROJECT: The 2 000 C ensus shows that S outh King C ounty h as a total population of 709,068;representing 41% of the total King County population. It is larger in mass and population that the city of Seattle. South County represents the poorest population of all King County with 68%residing there. Southeast King County includes the cities of Renton, Kent, Auburn and the southeast King County Health Planning area. According to 2000 Census,it is home to 386,328 people of which 106,825 are under 18 years of age. Ethnically, 80.1% are white the remainder consists mainly of African-American, Native American, Asian/Pacific Islander, Multi-racial and a growing Hispanic population. Over 6% of its population has an income of less than 100% of the Federal Poverty level. It also has the highest rate of adolescent births in the County at almost 17 per 1000. Only slightly over 56%have some college education or more compared to the 65.4% average for King County as a whole for persons 25 years and older. Of the four Washington cities with the greatest poverty rate, three are located in the South County region. Auburn has the county's worst poverty rate of 12.8 percent with Tukwila following closely at 12.7 percent with Kent showing a rate of 11.6 percent. In contrast Seattle's poverty rate was 11.8 percent,ranking it 36 h among all cities in the state. This project will address the needs of approximately 200,000 people a year,when the building is fully rented. Current estimates for the 8 agencies committed to the project show a combined total of over 119,000 low income individuals receiving assistance by these agencies. PROPOSED BUDGET: Total Acquisitions and Rehabilitation $8,735,888 Initial Section 108 Loan $8,735,888 Total Debt Service to be Carried $6,000,000 (Total Funds to be Raised over 3 years. $2,735,888) Fund Raising: The Alliance will conduct an all out campaign to raise the over$2.7 million dollars necessary to bring this project into affordability. The following sources will be asked to contribute to this project: Bill/Melinda Gates $1,600,000 (over three years) Murdock Charitable Trust $ 200,000 Medina Foundation $ 50,000 Boeing Corporate $ 67,175 Paul Allen Foundation $ 874,000 McEachern Foundation $ 100,000 State Capital Facilities Funds $ 900,000 Section 108 Loan Guarantee Program Section 108, the loan guarantee provision of the Community Development Block Grant program, is one of the most potent and important public investment tools that HUD offers to local governments. It allows them to transform a small portion of their CDBG funds into federally guaranteed loans large enough to pursue physical and economic revitalization projects that can renew entire neighborhoods. Such public investment is often needed to inspire private economic activity, providing the initial resources or simply the confidence that private firms and individuals may need to invest in distressed areas. Section 108 loans are not risk-free, however; local governments borrowing funds guaranteed by Section 108 must pledge their current and future CDBG allocations to cover the loan amount as security for the loan. Loan commitments are often paired with Economic Development Initiative (EDI) or Brownfield Economic Development Initiative (BEDI) grants, which can be used to pay predevelopment costs of a Section 108-funded project. They can also be used as a loan loss reserve (in lieu of CDBG funds), to write-down interest rates, or to establish a debt service reserve. Specifics on the program can be found in the program fact sheet, and examples of HUD Section 108 financing in use in communities across America can be found on the case studies page. Content updated August 4, 2003 U.S. Department of Housing and Urban Development 451 7th Street, S.W., Washington, DC 20410 Telephone: (202) 708-1112 TTY: (202) 708-1455 Section 108 Fact Sheet In this fact sheet: Regulations Eligible applicants and activities Maximum commitment amount Loan Security, repayment, and financing source Interest Rates r Loan Default Introduction Section 108 is the loan guarantee provision of the Community Development Block Grant (CDBG) program. Section 108 provides communities with a source of financing for economic development, housing rehabilitation, public facilities, and large-scale physical development projects. Regulations Regulations governing the Section 108 program may be found at 24 CFR 570, Subpart M, "Loan Guarantees." Eligible Applicants Eligible applicants include the following public entities: metropolitan cities and urban counties (i.e. CDBG entitlement recipients); � nonentitlement communities that are assisted in the submission of applications by States that administer the CDBG program; and ► nonentitlement communities eligible to receive CDBG funds under the HUD-Administered Small Cities CDBG program (Hawaii). The public entity may be the borrower or it may designate a public agency as the borrower. Eligible Activities Activities eligible for Section 108 financing include: ► economic development activities eligible under CDBG; ► acquisition of real property; o rehabilitation of publicly owned real property; k housing rehabilitation eligible under CDBG; r construction, reconstruction, or installation of public facilities (including street, sidewalk, and other site improvements); f related relocation, clearance, and site improvements; ► payment of interest on the guaranteed loan and issuance costs of public offerings; debt service reserves; � public works and site improvements in colonias; and in limited circumstances, housing construction as part of community economic development, Housing Development Grant, or Nehemiah Housing Opportunity Grant programs. For purposes of determining eligibility, the CDBG rules and requirements apply. As with the CDBG program, all projects and activities must either principally benefit low- and moderate-income persons, aid in the elimination or prevention of slums and blight, or meet urgent needs of the community. Maximum Commitment Amount Commitments are limited as follows: 1. Entitlement public entities. An entitlement public entity may apply for up to five times the public entity's latest approved CDBG entitlement amount, minus any outstanding Section 108 commitments and/or principal balances of Section 108 loans. 2. State assisted public entities. A nonentitlement public entity may apply for up to five times the latest approved CDBG amount received by its State, minus any outstanding Section 108 commitments and/or principal balances on Section 108 loans for which the State has pledged its CDBG funds as security. 3. Nonentitlement public entities eligible under the HUD administered Small Cities Program. For a public entity in Hawaii, the maximum commitment amount is five times the public entity's latest grant under 24 CFR 570, Subpart F, minus any outstanding Section 108 commitments and/or principal balances on Section 108 loans. Loan Security The principal security for the loan guarantee is a pledge by the applicant public entity or the State (in the case of a nonentitlement public entity) of its current and future CDBG funds. Additional security will also be required to assure repayment of guaranteed obligations. The additional security requirements will be determined on a case-by-case basis, but could include assets financed by the guaranteed loan. Loan Repayment The maximum repayment period for a Section 108 loan is twenty years. HUD has the ability to structure the principal amortization to match the needs of the project and borrower. Each annual principal amount will have a separate interest rate associated with it. Financing Source Section 108 obligations are financed through underwritten public offerings. Financing between public offerings is provided through an interim lending facility established by HUD. Interest Rates Interest rates on interim borrowing are priced at the 3 month London Interbank Offered (LIBO) rate plus 20 basis points (0.2%). Permanent financing is pegged to yields on U,S. Treasury obligations of similar maturity to the principal amount. A small additional basis point spread, depending on maturity, will be added to the Treasury yield to determine the actual rate. Loan Default To date, there has been no default under Section 108 resulting in a repayment by HUD. In the event of default requiring a payment, HUD would continue to make payments on the loan in accordance with its terms, The source of payments by HUD pursuant to its guarantee would almost always be pledged CDBG funds. However, HUD does have borrowing authority with the U.S. Treasury if the pledged funds are insufficient. Content updated November 13, 2001 U.S. Department of Housing and Urban Development 451 7th Street, S.W., Washington, DC 20410 Telephone: (202) 708-1112 TTY: (202) 708-1455 Section 108 Application Questions Applying If you are interested in applying for a Section 108 Guaranteed Loan, contact your local HUD office* in advance for help in preparing an application. The program has no forms, but the following is the process required (as described in 24 CFR 570.704, "Application Requirements:" A. Pre-submission and Citizen Participation Requirements: ► Development of a proposed application. ► Compliance with CDBG citizen participation public hearings. o Publication of the proposed application. ► Preparation of the final application. Inclusion of the final application in the Consolidated Plan. B. Application Submission Requirements: � Description of compliance with CDBG National Objectives and Eligible Activities. o Schedule for repayment. Certifications. Local Offices After consulting with the local HUD office and the preparation of the final application, the local office will conduct a "due diligence and compliance review", where a Community Planning and Development representative will check to ensure compliance with the above process, as well as verify national objectives, eligible activities, and certifications. Once this review is complete, the office will forward the application to the Section 108 staff in HUD headquarters along with a recommendation of approval or disapproval. HUD Headquarters Upon arrival in HUD's main office, the application will be assigned to a staff underwriter, who will examine the application in detail. It is at this stage that the requested loan terms and additional security offered will be examined. It is customary for the staff reviewer to be in contact with the local HUD office representative as well as the Applicant in order to resolve questions or issues which may arise during the review. Upon completion of the review, a Project Review Panel (consisting of headquarters staff and the local HUD office representative) will examine the application, suggest ways to resolve issues, request additional information, or recommend the application be approved. Once an application has received an approval recommendation, it is forwarded to the Secretary of HUD for final approval and release. Timeframe The length of time the application approval process takes depends on the individual application. For questions on a specific application, contact your local HUD office or the staff underwriter in HUD headquarters who is reviewing the application. Content updated November 13, 2001 U.S. Department of Housing and Urban Development 451 7th Street, S.W., Washington, DC 20410 Telephone: (202) 708-1112 TTY: (202) 708-1455 Kent One-Stop Human Service Facility: Proposal for CDBG Section 108 Loan Guarantee Issue: The South County Area Human Services Alliance ("the Alliance") has requested a CDBG"Section 108" Guaranteed Loan of approximately$3 million from the City of Kent and $6m from King County to acquire and rehabilitate a building in Kent. The building would be used as a one-stop human service facility that would house several agencies and programs. The City and County would each have to apply to HUD for the loans on behalf of the Alliance. The key issue for the City is that our future CDBG entitlement funds would have to provide the guarantee for the loan to the Alliance. Section 108,allows for entitlement communities to borrow up to five (5) times their annual allocation.,For the City of Kent this is approximately$4.75m. The initial terms of the loan would be interest only for the first three years on a floating rate. The rationale for this is that a 108 loan can only be paid down during the time before the interest rates are locked in. The Alliance through an aggressive capital campaign intends to raise the full amount of the loan and repay the debt. The City can further protect itself by building in the annual interest payment into our annual CDBG funding plan. If the Council authorizes the City to apply'for the loan the Mayor.will move forward by submitting an application to HUD. If the Council"xecommends'that the City not provide this loan guarantee, the project will not move forward -Please note that the Alliance's timeline is tight; they are concerned about the need to act before their purchase and sale agreement on the building expires, and before their projected anchor tenant is forced to seek alternative space. Background Information This proposal raises a number of important and complex issues which are discussed in'detail starting on page 3 of this document: • Section 108 Loan Guarantee: What is it? (see page 3 below) • The Alliance and the One Stop Facility: What is the vision? Where is this facility? Who is the Alliance, what services would they offer, and to whom? (see page 3) • Consistency with Kent's Mission and Goals: Is this proposal consistent with the adopted Consolidated Housing and Community Development Plan? (see page 6) • Financial Structure of the Project: What is the role of the City of Kent,which is not part of the CDBG Consortium? Is this a safe investment, or are our future CDBG funds at risk? What is the worst case? (see page 6) • Process and Timing: What would Kent's approval or disapproval signify? Why is the timing so tight? Will there be additional opportunities for public input? (see page 9) 1 Kent staff has been meeting with County staff for the past nine months to develop funding strategies for this project. During those meetings it became evident the County would only proceed with this project if the City of Kent was an active participant. Kent staff has met with the National Development Corporation a non-profit corporation specializing in the development of funding options for jurisdictions. The NDC identified the Section 108 loan as the most logical funding mechanism for this project. In addition, Kent staff will solicit public comment on the City's intent to amend its CDBG Annual Action through a newspaper ad. A public hearing has been set for March 4, 2004. Council Action Alternatives: The Council could: 1. Recommend that the City provide a Section 108 loan guarantee, and specify any conditions. The Mayor will then proceed with submitting�an application to HUD, provided the project meets those conditions. 2. Recommend that the City not provide a Section 108 loan guarantee. The project would end there. Staff Recommendation: Recommend that the'City provide a Section 108 guaranteed loan for the Kent One Stop Human Service Facility,,subject to the following four conditions: Condition #1: That the guaranteed,loan is for no more"than $3 million and that King County approves its Section i 081,loan;and Condition#2: That:the County Council approves the lease for the Department of Public Health,,which is expected to be the anchor tenant, before the Section 108 guaranteed loan documents are signed by the Mayor; and Condition#4: That'.the Alliance will ensure that all agency leases contain a provision for an escalator in 3 years,and periodically after that (in case actual expenses increase above projections in the pro forma, or in case the actual interest rate on the loan is higher than projected) For further information: Questions about the financing, Alliance, the building, or the services to be offered from it: Katherin Johnson, City of Kent Human Services Manager (253) 856-5073 or ki ohnson(a,ci.kent.wa.us 2 Background Information Section 108 Loan Guarantee: What is it? A Section 108 Loan Guarantee is a federally authorized tool to provide long-term financing (20-year loans) for certain CDBG-eligible projects. It is authorized by Section 108 of the Housing and Community Development Act of 1974, as amended. This section allows CDBG entitlement communities such as the City of Kent to borrow up to 5 times the annual entitlement to finance certain projects, with future CDBG grants as security for the loan. It is similar to bond financing, except that it is backed by the full faith and credit of the federal government, not the local government. CDBG funds are federal funds. The local jurisdiction's bond rating is not impacted. Nationwide, most Section 108 projects are similar to revenue bond projects, in that they generate cash flow to repay:the debt. However, some entitlement jurisdictions consciously choose to subsidize their Section 108 projects,repaying part or all of the debt withtheir future CDBG funds: The Alliance and the One-Stop Facility: What is the vision? Where is this facility? Who is the Alliance,what services would they offer, and to whom? City of Kent Mayor Jim White was the initial force behind the vision of a One-Stop Human Service Center. He charged staff with studying its feasibility, and they formed a planning committee which included several South King County nonprofit and governmental human service providers and United Way. The committee completed the feasibility study in 2001,and began actively pursuing the vision. What is the Vision'?The vision for the One-Stop Human Service Center is to bring together a variety ofhuman service providers in one location, enabling clients to meet multiple needs at one site.'.Low-income people often have more than one need: for example,they may need assistance:with their energy bills as well as emergency food or health care for their children'.," Currently in the South King County area, these needs can only be met by traveling to'several different locations. For those who do not own a car, it is often extremely difficult to get from one service location to another in the same day. Public transportation in south King County is challenging at best, and is not conducive to multiple trips in any given day. Trying to use a food bank, get energy assistance, and see to medical needs in one outing is essentially impossible, especially for clients who may also be juggling a low-paying job and childcare. The One-Stop will increase clients' access to multiple services, and is designed to strengthen family functioning and improve self-sufficiency. Co-location of a range of services and agencies will not only reduce stress on clients, it will also allow for increased cross-referrals and complementary services among providers. This will increase efficiency of service delivery, strengthen teamwork among providers, and in general improve outcomes for South King County area clients. Sharing 3 of resources, such as meeting rooms, classroom spaces, office equipment(in some cases) and other common needs, is another benefit for both small and large providers. Finally, an additional goal of the One-Stop is to help agencies better contain their facility costs, so that more of their funds can be put directly into services to clients rather than into landlords' pockets. Many of the agencies involved currently lease office space in the Kent area and have seen their rents rise continually. The intent of the One-Stop is to purchase a building so that over time nonprofit and governmental human service providers will stabilize their lease costs and not be at the mercy of an ever-increasing office rental market. In a climate of tightening budgets, this is particularly important, and the current economic downturn means that this is a good time to buy a building. Where is the Facility? The building the Alliance wishes to purchase and rehabilitate is located at 21440 68t" Avenue South in Kent, on the northeast comer of West Valley Highway and South 214`h Street. It is on a Metro bus line. It is a large:and well- maintained building, primarily warehouse space that can be renovated to provide over 88,000 square feet of leasable space, amply accommodating a variety of human service agencies. Who is the Alliance, what services will they offer, and to whom? The South County Area Human Services Alliance emerged from the earlier planning process. It is a group of existing human service providers who have formed;a new 501(c) (3) nonprofit corporation for the purpose of owning and managing the One-Stop Human Service Facility to serve their combined total of over,1;00,000 low;ncome individuals. Dini Duclos of the Multi Service Center (MSC) is the president of the board. Following is a list of the Alliance agencies that will constitute the initial tenants for the facility, and a discussion of the services they offer and who they'serve: • Multi-Service Center (MSC).• The MSC is South King County's community action agency. It has been providing services to low-income people since 1971. MSC intends to move its entire Kent office staff and services to the new One Stop location. (Their Federal Way office will remain in Federal Way.) The Kent office provides housing, energy assistance and other emergency services, employment assistance, adult literacy including basic skills, ESL, GED preparation and citizenship classes. Approximately 87% of the people they serve with these programs are low- and moderate-income: In the past year, their programs served 9,178 people, 57% from the City of Kent and 43% from surrounding communities. • Public Health of Seattle-King County: The Health Department is part of King County government and is not formally part of the Alliance,but has been involved in the planning. It intends to lease about one third of the space in the One Stop Facility(the lease is subject to County Council approval). They plan to consolidate several Kent health service offices into the One Stop. (The Renton, Auburn, and Federal Way offices will remain where they are.) Services to be provided at the One Stop include: Women, Infants and Children(WIC)Nutrition services for low-income pregnant and post-partum women and their infants and children up to age 5; maternity support 4 services;public health nursing field visits to young families; family planning services for teens and women; field oral health services; immunization clinical services; and the foster care passport program. Approximately 40% of those served are from the City of Kent and 60% from the surrounding areas. In addition, the Environmental Health offices that serve all South King County communities will be located at the One Stop. Together, these various Health Department programs served over 24,000 people, 68% of whom were low- and moderate-income. • Homeless Outreach Mobilization Effort (HOME): This is a shelter operation for homeless men that currently rotates among several of the South King County area churches. Services are provided to the men by Catholic Community Services. The One Stop will provide stable overnight shelter space (possibly a"time share" arrangement making use of warehouse or common space at night). HOME served 157 homeless men last year, about three-quarters of whom were estimated to have lived in Kent in the past. • Kent Food Bank and Emergency Services."The Kent food bank is one of the larger food banks in South King County. It serves over 80 households per day; and last year served over 70,000 individuals, 100% of whom are low- and moderate-income. Clients may visit once a month for food, clothes and commodities, and weekly for perishable items. Homeless individuals/families may visit weekly for special quick or "no cook"bags. The food bank is a direct distributor of government commodities that need to be securely warehoused, and it is anticipated that since the passing of the Farm Bill, more food will become available, necessitating additional warehouse space. Most of the clients are from the City of Kent;'although about 7% are from outside the city. • Washington s Women' �Employment and Education (WWEE): WWEE was established in King County in 1987, andyits mission is to assist low-income individuals to gain the skills, knowledge,and courage to be self-supporting. WWEE provides job readiness and computer training,matching with mentors, internships and long-term career guidance. In the effort to overcome barriers to employment, WWEE also assists clients with links to other needed resources in the community, so WWEE is looking forward to co-location with several of these other agencies. WWEE served 872 clients last year, 99% of whom were low- and moderate-income. Approximately half their clients are,from Kent and half from other South King County communities. • Catholic Community Services (CCS): CCS has been providing social services to children, families and the elderly inSouth King County for over 15 years. At the One Stop they will be providing family support services, counseling, and help with basic needs, such as housing/shelter and utility bills. They will also be providing staff support for the HOME shelter. Last year they served 1,426 people, 99% of whom were low- and moderate-income. About 40% of their clients were from Kent and 60%were from other South King County communities. 5 • Renton Technical College: RTC is a post-secondary training institution that has been in existence since 1941. As a public institution it is not formally part of the Alliance but intends to lease space in the One Stop to offer instruction in Basic Skills, GED preparation, ESL instruction, and basic computer skills. They provided these services to 2,535 people last year, 67% of whom were low- and moderate-income. About three quarters of the people served are from the City of Kent and one quarter from other South King County communities. • Valley Cities Counseling and Consultation (VCCQ: VCCC provides outreach and engagement services, and outpatient behavioral health services(mental health and chemical dependency) to children, youth and their families,adults`and older adults in south King County. Last year they served nearly 15,000.people, one third from Kent and two thirds from other South King County communities. Approximately 97% were low- and moderate-income. Nearly all of the above agencies currently receive,`some support from South Ding County cities and/or the County for their operating budgets,,,,Together they would lease about one half the space in the One-Stop facility. The Allianceis already attracting interest from other human service providers in the South King County'area who are looking for new, relatively inexpensive space and are interested in becoming part of the One-Stop. Consistency with City's CDBG Goals. Is this Proposal Consistent with the adopted Consolidated Housing and Community Development Plan? The Kent One-Stop is fully consistent with our City's CDBG goals. Community Development Goal C2 in our adopted Consolidated Plan reads: "Create a community that supports healthy individuals and families," (this objective is discussed on pages 94-95). Strategy C2.A: Build neighborhood,center/local access to services. The 2003 Annual Action Plan includes`Continue the collaboration with non-profit providers toward development of the "One Stop Service Center"co-locating service providers." Financial Structure of the Project: What is the Role of the City of Kent? Is This a Safe Investment, or Will Our Future CDBG Funds Be At Risk? What is the Worst Case? Financial Structure.''The total project cost is $8.7 million: about $4.0 million to acquire the property and about $4.7 million to construct the necessary improvements. The Alliance initially requested an $8.7 million Section 108 Loan Guarantee from the County CDBG Consortium, to be repaid over 20 years. The County wants to see participation from the City of Kent in the project. To that end the Joint Recommendations Committee of the Community Development Block Grant Consortium has recommended to the County Executive that he recommend the Section 108 Loan to the County Council not to exceed $6m dependent on the City of Kent providing the additional funding for the proj ect. 6 What is the role of the City of Kent? County and City of Kent staffs have been negotiating potential ways that the City of Kent could participate in the project and mitigate the fundraising risk. Kent was the initiator of the One-Stop idea and should participate in financing it. This would require two separate Section 108 loan guarantees: one from the King County CDBG Consortium and one from Kent at no more than$3 million. The Consortium's loan would be in first position,but the Alliance's fundraising effort would be focused on buying down Kent's Section 108, and potentially paying it off within 3 years. If the Alliance falls short of its fundraising target they would have 17 years to pay off the Kent Section 108 loan. Kent has the option of designating use of its;annual CDBG allocation to pay the debt service annually. Staff recommends setting aside,;the amount needed for the debt payment annually. If the funds are not needed they can lie reallocated to other projects. (Or, if the One-Stop turns out to have enough net;,,income after making payments on the Consortium's loan, the Alliance could make payments on the Kent loan as well.) Is $3 million a safe investment, or will our future CI)BG funds be at risk? It is important to bear in mind that the safety of an investment is a relative issue. There is no black and white dividing line. Instead of asking if it is safe or unsafe, it is more helpful to look at the risk factors, and haw they can,be mitigated: One risk is the construction risk: how certain are we that the necessary improvements can be completed for$4.7 million, and what happens if they can't be? The City of Kent provided predevelopnent funding so that an experienced architectural firm (Tonkin, Hoyne, and Lokan) could be hired to prepare the construction estimates. The estimates include a 15% contingency,-,In a`woxst case, however, the Alliance would be forced to divert some of the'dollars they fundraise over the next nine months into the construction cost overruns. This would delay,-the "buy down" of Kent's Section 108 loan guarantee. Or the Alliance could choose to phase,.the construction allowing opportunities for application to other South County cities for CDBG capital funds for the project. Other risks are'associated the Alliance's ability to raise $2.7 - $3m from foundations and other governmental entities.`'The Alliance has already had favorable response from some of the foundations indicating this is the type of project they are interested in. This project is an excellent example of the public/private partnership that many foundations express interest in funding. All funds raised as part of the capital campaign will be used to pay down the City of Kent Section 108 loan. Moving on to more specific issues the income is essentially all from leases. Consequently lease-up risk is a specific risk that needs to be addressed. How reasonable is it to assume that the One Stop will actually be leased up within the time projected,or that it will actually be able to command the rents it is projecting? 7 On the one hand, it is a huge building: 88,000 square feet of leasable space. Is there that much demand for human service space? On the other hand, it is already 50% tentatively leased, which from a bank's perspective is great. And the major premise of the One- Stop—to provide below-market leases where that low cost is stable over time—should mean that they have no trouble attracting the rest of the tenants. Note that the lease cost for any new One Stop tenants is currently projected to be $10.50 per square foot, compared to $12 to $15 market rate in the Kent area. And market rate will only go up as the economy recovers. Finally, the advice they received from the Family Resource Center in Redmond (the only other facility similar to the One Stop in the Consortium) was to "buy bigger than you think you'll need". The Family Resource Center's experience has been that many other agencies want in, but their facility is too small to accommodate them. Other factors need to be considered. Many of these agencies receive part of their operating budgets from local cities or the county. What happens if that funding support goes away? For example, if the new Eyman initiative passes, local governments will be hard pressed to maintain their human services funding. Will agencies survive'and be able to pay their lease costs? A good question, but one'could conclude this means the south county would need a low cost One Stop facility more than ever, and that even more agencies will want in. Finally, the single largest factor in considering the-lease-up risk must be that the anchor tenant tentatively committed to leasing one third of the:space is the Seattle-King County Department of Public Health. Not only would this agency be leasing the largest amount of space,they would be paying the most for'their lease—''in part because their needs are largely responsible,for the high construction budget(they need examination rooms, sinks, etc.). Not only is the project sized to accommodate them, but also their lease income is critical to making it pencil out". What happens if Public Health does not participate? This leads to"another recommended condition: Condition 42 The.County Council should approve the lease for Public Health— Seattle &King County before the Section 108 Loan Guarantee documents are actually signed by the Executive. Another question that should be asked is "Are the operating expenses reasonable?" While the Alliance itself is a new nonprofit, the lead agency is the Multi-Service Center, which is a large nonprofit very experienced at owning and operating property, especially large housing complexes. The expense estimates have been increased since the original proposal was submitted, and are reasonable projections according to current business practices. On the one hand, the 6% estimate provides some leeway—the current fixed rate for Section 108 Guaranteed Loans is only about 5%. In addition, it is possible for them to never lock in,but to continue on a floating interest rate, which has historically been lower than a fixed interest rate (they would, however, make fixed payments on the principle). 'And as will be shown in the next section,they are also one of the drivers of the tight timeline. 8 But continuing on floating rates could be risky; if there is inflation it might be better to fix the rate. What would be best is for the Alliance to plan for increasing agency lease costs if the interest rates increase above the pro forma's projection. This is the final recommended condition: Condition #4: The Alliance should ensure that all agency leases contain a provision for an escalator in 3 years, and periodically after that (in case actual expenses increase above projections in the pro forma, or in case the actual interest rate on the loan is higher than projected). Timing Why is timing so tight? The timeline has been built with a Tune 1 target date for closing on the property acquisition. There are two factors driving-the timing • The current lease for the Health Department's major program in Dent expires at the end of September, so construction on the One Stop facility needs to be completed by then to allow them to move in. (If it does not look like this can happen,the'Health Department may back out of the One-Stop project rather than pay expensive month- to-month lease extensions while they await completion of construction. This would be a serious blow to the project, since the Health Department is an important service provider and plans on leasing one third of the space.) • The Alliance has a purchase and sale agreement on the property that will expire June lst. To extend it would cost$50,000 each mont40 h'; Therefore, the timeline'has been built with June 1 as the°deadline for closing the sale. Will there be opportunities for public input? Ws. 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