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HRA Letter No. 37
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Agenda September 20, 1982
Housing and Redevelopment
Authority Commissioners
City of Richfield
Subject: Budget Adoption
One of the items scheduled for th S t b
meeting is the adoption of
Authority budget. The HRA
August 16 meeting. Much o
and continues the programs
the past few years.
e ep em er 20, 1982 HRA
the 1983 Housing and Redevelopment
discussed the entire budget at your
E the budget presentation is routine
and services provided by the HRA in
There are some items in the budget which merit individual
discussion by the HRA. I point them out to your attention, but
do not want to preclude the HRA commissioners from discussion of
any other aspects of the budget which they desire to geview. The
general fund of the HRA needs to have a slight amendment made to
it prior to adoption. Recently, the HRA purchased property at
6633 Lake Shore Drive. Part of that agreement called for the Knut-
son Company to pay $4,000 to the HRA which would be used as acquis-
ition costs of the property, in addition•to the $8,200 for the
property sale to the Lake Shore Drive condominimums. Both revenue
items of $4,000 and $8,200 should be added to the revenue side of
the General Fund. On the appropriations side, $4,000 should be
added to the property acquisition for 6633 Lake Shore Drive,
bringing the total to $113,484. The revised revenues projected for
1982 will be $89,297 instead of $77,097; the revised expenditures
will be $186,276 instead of $182,276; and the revised fund balance
at the end of 1982 will be $85,145, with the fund balance at the
end of 1983 projected to be $53,606. The resolution attached to
the back of the budget booklet providing for the 1982 budget should
be amended in Section 1 to read $112,167 increase and in Section 2
to read $9,127 increase.
The New Home Fund has an appropriation of $15,000 to initiate
a plan for housing on the west side of Legion Lake adjacent to
Portland Avenue. The study completed by the city concerning future
development of Legion Lake indicated that it was quite appropriate
to look for housing alternatives in this area. It would be appro-
priate for the HRA to begin development on a master plan for that
area. The Rehabilitation Program fund has funds appropriated in
1983 for continuation of the Vo-Tech rehabilitation program. It is
should continue the efforts with the Vocational school in the next
year's budget. The Small Business Program fund is set up to contin-
ue a program which is just beginning in the City of Richfield of
working with the economic development committee of the Chamber of
HRA Letter No. 37
-2- September 20, 1982
Commerce to stimulate the small business vitality in our commun-
ity. The committee is working immediately on a survey of all
businesses in the community with future direction aimed at helping
to produce financing alternatives for small businesses and looking
at other regulations by which the city government affects small
business. The next meeting of the group is scheduled for September
23, 1982 at 4:30 p.m. at city hall.
The Capital Budget of the HRA consists mainly of development
of the Godfather Block in 1983. We anticipate hearing from the
developer in the near future as to potentials for that site.
The two resolutions attached to the budget with the amend-
ment made to the second one are the appropriate vehicles for ad-
option of the 1982 Revised and 1983 Proposed Budget. I will be
happy to answer any questions or give further explanations of
programs in the budget for the HRA at the meeting on Monday. I
look forward discussing this matter further at that time.
Respectfully submitted,
Karl Nollenberger
Executive Director
cc: Program Directors
Finance Coordinator
• HOUSING AND REDEVELOP~'~4ENT AUTHORITY
Office of Executive Director
HRA Letter No. 36
Agenda September 20, 198
Housing and Redevelopment
Authority Commissioners
City of Richfield
Dear Commissioners:
Subject: Evaluating Proposed Rehabilitation
Program Changes
On August 16, 1982, the HRA authorized extension of the•CDBG
Year VII Procedural Guidelines for Rehabilitation Grants until
Year VII funds have been committed. At that time, the staff also
briefly described the new "deferred loan" program that will be pre-
sented to the HRA in final form in October. During that discussion,
the commissioners raised questions about administration of the Re-
habilitation Program and the proposed change to a deferred loan pro-
gram. This letter will address some of those questions.
There are three different types of direct financed, CDBG-
funded, rehabilitation programs being utilized in the Metropolitan
Area. These programs finance grants, deferred loans, and direct
loans. Generally, grants and deferred loans assist lower income per-
sons who do not have a ready ability to repay program assistance.
Recipients are usually elderly persons living alone or single persons
with children who get by on a limited income. Direct loans, many
with reduced or adjustable interest rates, assist more moderate in-
come households. Recipients are usually two-parent households with
one wage earner.
The HRA has targeted its housing rehabilitation assistance
efforts to those lower income households that have the hardest time
maintaining and making basic needed improvements to the health, safety,
and livability of their homes. The rehabilitation grant program has
made this possible. The primary goal of the program, to improve
housing conditions for lower income persons, is being met. However,
with changes in federal programs and the economy, it appears that the
program goal must be adjusted if we are to enable continued funding
for the program. Anew goal, to continue to provide a "grant" to
lower income households, while establishing a means to recover that
"grant", seems more appropriate and does not adversely affect the
lower income household.
A deferred loan program would replace the CDBG Rehabilitation
Grant Program currently administered by the HRA. Dwindling federal
and state funds have made it imperative that local governments recycle
the limited supply of funding in a more direct way. A deferred loan
program would recycle our funds without changing the basic structure
HRA Letter No. 36 -2- September 20, 1982
utilized for processing grants. A deferred loan recipient would be
required to pay back the total cost of improvement work at the time
that the property is sold, transferred or otherwise conveyed. No in-
terest accrues on the principal and no monthly installment payments
are made. In that regard, it remains very similar to a grant. As re-
cipients that received deferred loans convey their homes, the loan
funds will be repaid and recycled for other housing programs. Changing
our present grant program to a deferred loan program required only re-
writing a single document, the repayment agreement, and changing the
word "grant" to "deferred loan" in the procedural guidelines and forms.
Thus, the grant repayment agreement which reduced the amount owed on
a grant by 25 percent each year after the third year until nothing was
owed in the seventh year, would be changed to a deferred loan repay-
ment agreement requiring repayment of 100% of the loan, regardless of
how long the property was retained as the recipient's residence.
With a better understanding of the changes that occur when trans-
ferring from 'a grant to a deferred loan, some of the commissioners'
questions can now be discussed.
A primary question was in regard to the triggering of the repay-
ment agreement in specific instances of conveyance. There are a num-
ber of considerations that will be addressed in the language of the
repayment agreement to better answer these issues. Specific elements
of the repayment agreement would include:
1. The repayment clause of the agreement__shall be triggered
under the following circumstances:
A. The property owner and loan recipient sells, trans-
fers, assigns, leases, mortgages or otherwise conveys
all or part of the property.
2. The repayment clause of the agreement should not be
triggered in the following circumstances:
A. Change of ownership status from joint tenants to
100 percent interest of an original joint tenant (i.e.
death of spouse);
.fit
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When heirs to the estate are of any e~
that repayment of the loan could only
of the estate;
A rehabilitation loan recipient makes
then satisfies a contract for deed on
properties, thus requiring a transfer
~onomic status
occur by sale
payments on and
the improved
of title.
3. Although no interest accrues on the loan amount while the
original owner, loan recipient, retains title to the prop-
erty, interest will accrue on the loan balance from the
date of conveyance of the property until the loan is repaid
in full. A rate of interest used in the program could be
25 percent. This interest rate would apply should a
title owner sell the property on a contract for deed but
not repay the loan immediately.
HRA Letter No. 36 -3- September 20, 1982
A question was raised about the reason for using a deferred
loan program versus an interest bearing loan program. A number
of points need to be considered in evaluating these alternatives:
-An interest bearing loan program, one in which monthly
payments would be collected, recorded, and processed by
staff, would increase administrative costs beyond the
revenue that an "affordable" 3-5 percent interest rate'
loan program might produce;
-Many very low income residents, the primary recipients the
program would serve, cannot afford even a very minimal
monthly payment for a rehabilitation loan;
-These same very low income persons may have considerable
equity in their homes and would find it easier to pay off
the loan when the property was sold rather than through a
monthly payment program. Since rehabilitation repairs often
do not increase the value of a home, the HRA would end up
sharing in the equity of a house sale up to the loan amount.
The program would still allow repayment of the loan prior
to a sale if desired by the homeowner;
-It is the goal of the Rehabilitation Program to serve all
lower income Richfield homeowners. A deferred loan provides
assistance to those who feel they cannot afford an addition-
al monthly expense. An interest bearing loan program might
discourage repairs to substandard homes that need repairs
the most;
-If the indefinite term of the loan is of concern, the aver-
age length of occupancy in a Richfield home of approximately
seven to eight years needs to be considered. Deferred loan
recipients will be paying back the loan within several years
of receiving it.
A question was raised regarding the use of CDBG funds by appli-
cants who might not fully divulge all sources of income and would,
therefore, not truly be eligible for the program. The Rehabilita-
tion Program utilizes all available resources to guard against such
problems when determining and verifying income and other social ser-
vice agencies aid in the effort. Approximately 65 percent of our
grant recipients are senior citizens with their main or only source
of income being social security. Another 15 percent of our grant
applicants are AFDC recipients. In each case, social security and
welfare program administrators have verified all other sources of
income received by the recipient (necessary to determine their
benefits). This information is requested by the HRD, along with
verification of benefits received. In this way, the income of these
grant applications are verified twice, once by the agency supplying
the benefits and again by the HRD staff. In all cases, applicants
are made aware of all sources of income that must be declared on
the application form.
A question was raised about re-verifying income or "recertifi-
ying" loan recipients on a regular basis, to ensure that these home-
HRA Letter No. 36 -4- September 20, 1982
owners remain eligible according to current program guidelines.
It is proposed that program guidelines rgquire only that the re-
cipient be eligible at the time of application. A primary concern
involves enforcement of the recertification process. If a loan
recipient found to no longer have a "low income" as defined by
program program guidelines would be required to pay the loan back in
full, certain problems would arise. In a majority of the cases, it
is doubtful that the homeowner would have sufficient assets to pay
back the loan. The sale of the home is most likely the only asset
source the homeowner could use to repay the loan. Most lending
institutions will not loan money for improvement work that has al-
ready been completed, particularly if completed a number of years
earlier. Thus, a homeowner could not easily refinance a deferred
loan with conventional funds. The primary intent of recovering
loan funds back to the HRA should not require the sale of the home,
yet, few homeowners would have other alternatives.
Another concern of the recertification process is the admin-
istrative time that would be necessary to recertify loan recipients.
Utilizing the past seven years, as an example, the CDBG grant program
has made grants available to 163 Richfield homeowners. A recertifi-
cation process would be ongoing for these homeowners, and would re-
quire additional staff time and likely an additional staff member.
As other local, state and federal agencies begin implementing loan
programs, they, too, are finding that a recertification process is
financially impractical for the benefits received.
An adequate number of safeguards are required in any assistance
program. Although the program guidelines and repayment agreement
will outline a number of measures that will prevent abuse of the
program, it is administratively too complex to make the program
foolproof. There is an element of trust that must be considered
by the HRA if the program is to benefit those Richfield residents
who truly are needy.
To help the commissioners in assessing the impact that a de-
ferred loan program would have on existing program participants,
the staff has questioned recent lower income applicants about their
reaction to a program change. The reaction has been very favorable.
A large majority of the homeowners feel that it is only right that
this money be repaid by them. A "grant" program otherwise "gave"
them assistance and made some feel uncomfortable.
The HRA will be reviewing the final program guidelines of a
"deferred loan" program in the October meeting. However, it would
be appropriate to discuss these issues at the September 20, 1982
meeting, so that the staff may use the discussion to assist them
in finalizing the guidelines.
Respectfully submitted,
~ ~ 1~ ~.
c/~~ ~ ~-~-C~~ v~~J
Karl Nollenberger
Executive Director
cc: Community Development Director
Housing and Redevelopment Coordinator