Embed Doc
Copy Link
Readcast
Collections

CommentGo Back

Download

The Kitsap County Consolidated Housing Authority (KCCHA) received a financial reboot onMonday night, when the Kitsap County Commissioners ratified an agreement that assumesresponsibility for a $40 million debt."This has been a challenge to the commissioners," said North Kitsap Commissioner Steve Bauer,who also serves as KCCHA Board Chair. "We were confronted with several choices, and none of them were good ones. If we hadn't assumed this responsibility it would have driven the HousingAuthority into bankruptcy, and we still would be on the hook for $29 million."It wasn't this board that created this mess," he said. "But it was up to us to resolve it."The trouble began when KCCHA, which began as a vehicle for low-income housing, sought to build condominiums in downtown Bremerton and convinced the county to guarantee the loan.The previous commissioners approved the guarantee in 2005, but a series of events led to thecurrent financial straits. The project was delayed due to faulty windows, and was ready for occupancy just as the housing market crashed.The loan will be due later this year, and there is no money to pay the debt. Sales were far short of projections, and the county was unable to sell the condos because current market was below theminimum price allowed by the bank.The county has negotiated a new loan with Bank of America, also the current lender, whichrequires interest only payments for three years. After that time the county will need to pay on the principle, but the assumption is that sales will pick up before those payments are due.The loan is structured to allow pre-payment with no penalties, so that any money from a sale can be applied directly to the principle.Along with the restructuring of the debt, the commissioners are examining the idea of restructuring KCCHA itself. Interim Director Deborah Broughton said she expected the agency“to return to its core mission,” which is to coordinate low-income housing. Silverdale residentJack Hamilton said the KCCHA board members should not be drawn solely from local electedofficials, since it makes it difficult for the commissioners—who all sit on the board—to evaluatethemselves. Bauer said such action was under consideration.“The Housing Authority never should have entered the business of building condominiums,” saidCentral Kitsap Commissioner Josh Brown. “Governments should not enter into agreements todevelop buildings for non-government entities. The rules are different.”

KCCHA/County LoansPage 2 of 7

The mission of the Housing Authority has been re-focused to providing quality low incomehousing for approximately 2250 seniors, families and special needs residents of our County. TheKCCHA Board on Monday adopted a resolution officially withdrawing as Bremerton’s UrbanRenewal Agency stating in a press release “the KCCHA Board now confirms the over archinggoal of The Authority is to provide a continuum of affordable housing opportunities, both rentaland homeownership, to low-income households.”On Monday afternoon, the county distributed a question-and-answer document to all employeesmeant to provide reassurance that the money saved through staff cuts and budget measures wasnot squandered by the new agreement. This included the assertion that the situation could notrepeat itself, guaranteeing that KCCHA will no longer participate in renewal projects for any jurisdiction and the County Board of Commissioners will approve a resolution that limits thecounty’s ability to guarantee debt of other agencies in the future.Throughout the process the action to guarantee the initial loan was attributed to the previouscommissioners, none of who are still in office. But the assertion by one speaker that “none of those who are responsible for this are here today” was incorrect, as former Central KitsapCommissioner Patty Lent attended the hearing.“We made what looked like a good decision at the time,” she said. “The market was boomingand there was lots of money available. We wouldn’t make the same choice today. But I camehere to take responsibility for this action, and to tell the current board that they are on the righttrack.”After the meeting Bauer approached Lent, greeting her with a hug.“Thank you for coming,” he said. “That took a lot of courage.”value because theity money in the event the Authority would be unable to pay the loans needed to build theHarborside Condominiums in downtown Bremerton. The County entered into a similar financing arrangement for the Poplars Apartments. These loans have or will shortly retire and because of the economic downturn and the implosion of the credit markets, the Authority isunable to restructure or repay the loans.Thus the County was asked to fulfill its legal obligations to loan the Authority the funds to paythese loans. The County, the Authority and then banks have been in negotiations for severalmonths to extend and restructure the debt.What are the terms of the new loan?The County will borrow up to $40.5 million over a 4 year term, and will be required to make

KCCHA/County LoansPage 3 of 7

interest-only payments during that term. The interest rate is variable, but the initial rate is under 2.5%. The $40.5 million will pay off the Harborside debt (totaling $31.09 million) and Poplars(totaling $5.09 million). The final $4.32 million the County will draw as needed, to pay for thecarrying costs associated with the Harborside condominiums with structuring this debt, and theinterest payments needed for the 4 year loan.Where will the County get the money to pay back this loan?The County will assume sole responsibility for the Poplars Debt and ultimately incorporate thePoplars Property into the Central Kitsap Community Campus Project, with the potential toconvert its use in a way that will repay the $5.09 million. The remaining debt will be paidthrough:

•

Proceeds from sales of Harborside condos and the adjacent land (the Sinclair Lot)

•

Proceeds from sales of all non-low income residential assets of the Authority (office buildings, land & market rate apartments)

•

“Excess Revenues” from the Housing AuthorityThe County will manage the sale of assets, including the Harborside Condominiums. The four year term will give the real estate market a chance to recover so the condos and other real estateassets do not need to be sold at today’s fire-sale prices. Proceeds from asset sales will go directlyto paying down the Bank of America loan.What are Excess Revenues?Sources of Revenue not required by the Authority (a) to sustain the operating costs of fulfillingthe Authority’s core low income housing mission; or (b) to satisfy the Authority’s other existingobligations.What happens in four years if Proceeds from asset sales aren’t sufficient to repay the loan?At the end of the 4 year term if there is a gap between the amount the County financed and thesale proceeds of the assets, the County will need to issue long-term bonds to cover that gap.County staff is working to establish a plan, including a contingency fund to set aside any one-time only revenues the County receives beginning in 2009 to provide for debt payment needsstarting in 2013, at the end of the loan’s term. The Authority in turn is required to pay back thisloan as it receives one-time only revenues in excess of its budget.Were recent County budget reductions related to taking on this debt? No; the County has not made any cuts in expenses or staff because of this debt. The Board has been negotiating with the Bank and the Authority to minimize the loan’s impact on the County’sgeneral operating fund. As noted above, there may be debt service payments the County will