'STATE Of rMLlFQRNIA -BUSINESS TRANSPORTATION AND HOI ISING AGENCY

GRAYOAVIS Goyernor

DEPARTMENT OF HOUSING AND COMMUNITY DEVELOPMENT AUDIT DIVISION

1800 Third Street, Suite 310 P. O. Box 952050 Sacramento. CA 94252-2050 (916) 324-9763

FPJ< (916) 445-2229

December 26, 2000

David Gustafson

Housing and Redevelopment Manager Santa Barbara Redevelopment Agency 630 Garden Street

Post Office Box 1990

Santa Barbara, California 93102

Dear Mr. Gustafson:

Enclosed, please find our final audit report concerning the Santa Barbara Redevelopment Agency's compliance with statutory housing and housing fund requirements. We have included your responses to our draft report in the final audit report; a copy of your response letter is also enclosed .

. We appreciate the cooperation and assistance your staff provided during the course of the audit. If you have any questions concerning thereport, please feel free to contact me at (916) 324-9763 or by emailatepfost@hcd.ca.gov.

Sincerely,

Eric Pfost, Chief Audit Division

Enclosure

We completed our audit fieldwork in Santa Barbara on June 13,2000 and issued a draft report to the Agency dated September 1, 2000. The Agency responded on November 1, 2000.- We have incorporated the Agency's responses into our final report and a copy of their response is enclosed.

This report is solely intended for the use of the Department and the Santa Barbara Redevelopment Agency's management. However, this is not intended to limit distribution of this report which, when final, is a matter of public record.

Sincerely,

Eric Pfost

Chief, Audit Division

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Finding Number One. Low and Moderate Income Housing Funds (LMIHF) were used to develop a homeless shelter.

Condition: Review of development agreements during our audit period and discussion with Agency staff revealed that $1,520,000 was expended for the development of the Cacique Street Emergency Homeless Shelter.

Criteria: Health & Safety Code Section 33334.2(a) specifies that the LMllIF is to be used for the purpose of increasing, improving, and preserving the community's supply of low and moderateincome housing available at affordable housing cost to persons and families of low or moderate income; .

Health & Safety Code Section 33334.3(g) indicates "housing" includes "residential hotels". Health & Safety Code Section 37912(k) defines "residential hotels" as hotels where individual units lack cooking and/or sanitary facilities and where at least one-half of the units are occupied on a non-transient basis (tenancy of one month or more).

Health & Safety Code Section 37912(k) defines "residence" as real property improved with a residential structure, including commercial or mixed uses deemed to be part of a residential. neighborhood, condominium and cooperative dwelling units, and other real property with single

and multi-family residential structures. .

The attached Department legal opinion discusses the validity of using the LMIHF to develop and . operate homeless shelters.

Recommendation: The Agency should refrain from using the LMIHF to fund the development and/or operation of emergency shelters.

Agency Response:

Our response to this finding is first to provide a correction in the amount of LMIHF used for the shelter and second to express our belief that the development of a homeless shelter may be an allowable use of LMlliF under certain limited circumstances.

The Coalition to Provide Shelter and Support to Santa Barbara Homeless (the "Coalition") opened the Santa Barbara Winter Homeless Shelter and Day Center last December - a broadbased effort involving the local government, business, faith and non-profit communities. With assistance from Agency staff, the Coalition identified a site appropriate for development as a homeless shelter and day center that is located within the Agency's Central City Redevelopment Project Area (the "CCRP"). Regarding the amount of funding provided, our Agency provided a Grant and bridge loan totaling 1.5 million for the development of the Santa Barbara Winter Homeless Shelter and Day Center. Of this amount, $1.2 million actually came from the Agency's general redevelopment funds and $300,000 came from LMIHF.

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The Coalition owns the property. Santa Barbara County is responsible for the Santa Barbara Emergency Winter Homeless Shelter and contracts with St. Vincent de Paul for its operation. The emergency shelter accommodates 200 people and is open from December 1 through March 31. The Coalition also contracts with St. Vincent de Paul for operation of a year-round Day Center. Community Kitchen provides meals for both .the shelter and the Day Center. A vast array of social services is available at the Day Center, including case management, housing placement assistance, health care services, substance abuse treatment, mental health treatment, veterans' outreach, and services for literacy, education and employment. .

There are approximately 3,500 homeless persons in South Santa Barbara County. The Santa Barbara Emergency Winter Homeless Shelter is the only shelter in South Santa Barbara County for homeless persons not involved in a recovery program. The Day Center is the only program for the homeless in South Santa Barbara County that provides comprehensive supportive services.

Regarding the eligibility of LMlliF for the Santa Barbara Emergency Winter Homeless Shelter, no reference in the State Redevelopment Law is made to homeless shelters, either as an allowed use or as a prohibited use of LMIHF. State Redevelopment Law, specifically Section 33334.3(g) provides that "housing" can include a "residential hotel" as defined in Health & Safety Code Section 37912. Section 37912(k) of the California Health and Safety Code defines "residence" to be real property improved with a residential structure. Certain types of residences are mentioned, but the language does not indicate that this is necessarily an exclusive listing or that no other types of residences would be allowed. A 'homeless shelter could come wi thin one of the categories specifically mentioned in Section 37912(k), that being "residential hotels."

This section specifically lists certain types of housing that are excluded from the designation of residential hotel, such as hospitals, sanitariums, rest homes, etc. This list of excluded housing types does not include homeless shelters. At the same time, the qualifying criterion cited for "residential hotels" is where the term of the tenancy for at least half of the tenants is no less than 30 days. Last year, the Santa Barbara Emergency Winter Homeless Shelter was available from December 1, 1999 through March 31, 2000. There were no other time limits set on tenancy, and people were allowed to stay for as long as they needed to stay. In fact, shelter data indicates that the overwhelming majority of people lived at the shelter for 3-4 months. Moreover, starting next April, the Coalition will operate a 30-bed shelter during the months the emergency shelter is closed. Thus, shelter and day center services will be provided on a year round basis, 24 hours a day, seven days a week.

It should be noted that the San Francisco Redevelopment-Agency sponsored legislation (S.B.1026, 1991) that specifically enabled San Francisco to use its general redevelopment funds on the development of homeless shelters without regard to whether the shelters were located within a redevelopment project area. When theSan Francisco legislation was pending, San Francisco was involved in the final draft of the bill to make certain that the law would not be interpreted as determinative of existing law. This effort resulted in the following language being added to the uncodified section of the Statute: " ... nothing in this act, or Section 33021.1 of the Health and Safety Code shall be deemed to authorize or limit, or in any way modify any authority of a redevelopment agency, other than a redevelopment agency of a city and county, to improve, increase, or preserve emergency shelters for homeless persons or households, either inside or

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outside a project area, from funds available pursuant to Section 33334.3 of the Health a Safety Code or any other source." (emphasis added).

Although the State Community Redevelopment Law is not entirely clear with regard to the use of agency housing funds for homeless shelters, the language of S.B.1026 supports the argument that the State Legislature did not intend to preclude other agencies from using LMlliF for homeless shelters, particularly those located within a Redevelopment Project Area, such as Santa

Barbara's.

The Santa Barbara Emergency Winter Homeless Shelter closed for the season on March 31, 2000; however, the Day Center continued to operate year-round, where people could still receive a meal and have access to a comprehensive array of social services. All of the social services focus on the primary goal of placing clients in permanent housing. An on-site case manager

_. works one-on-one with clients and brings in representatives from local housing providers. The City's Housing Authority and local non-profit groups provide affordable housingtothe general public. Some non-profits, such as Transition House, Salvation Army, Community Housing Corporation, and Peoples' Self-Help Housing Corporation target specific segments of the homeless population. Thus, day center staff is able to bring in the most appropriate potential housing providers depending on the needs of the individual clients. Additionally, the Day Center provides financial assistance to clients needing help with paying security deposits and first month's rents.

Given that housing in Santa Barbara is difficult to find and is very expensive, the expectation for success in finding housing for this difficult-to-house segment of the population is not very high. However, the staff of Day Center has to date managed to far exceed expectations by placing 162 people into permanent housing, transitional housing, and treatment programs with residential components. Day Center staff has recently followed up on the 162 clients placed, and it is very encouraging to find that an impressive 91 % of the clients are still residing in the housing to which they have been referred.

As mentioned previously, only 20 percent of the $1.5 million Agency assistance provided to the shelter and day center came from LMlliF. Altogether, the shelter and day center have proven to be a tremendous success, which has provided great benefits to the project area, both in terms of providing shelter and a comprehensive array o{ social services to the transient population of South Santa Barbara County. Given the extended duration of tenancy at the shelter and given the highly successful housing placement services provided by day center staff to a challenging and challenged population, we believe that this project constitutes housing assistance that is consistent with LMlliF definitions and appropriate under the Community Redevelopment Law.

Auditor's Conclusion:

We appreciate your clarification of the amount of LMlliF expended for the shelter and we recognize the many merits of the facility. However, the Department must stand by its April 14, 2000, legal opinion that monies from the LMTIIF may not be used to fund emergency shelters. We believe that it is the Legislature's intent that housing assisted with LMIH funds be available as permanent housing (including transitional housing) rather than for short-term emergency shelter. Characterization of specific accommodations as "emergency" or transitional/permanent, for LMlliF purposes, must be done on a case-by-case basis, depending on both the physical

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nature of the accommodations and the duration of permitted occupancy. In the Department's view, accommodations such as dormitories, with common sleeping, eating and sanitary facilities, are not permanent or transitional housing, regardless of the duration of permitted occupancy. This is because most people would not choose to live permanently in these types of facilities. However, the Department does consider accommodations meeting the definition of "residential hotel" found in section 37912(k) (e.g., having some areas in common, but available on a non-

o transient basis) to be transitional/permanent housing.

Our finding remains the same.

Finding Number Two: Replacement housing plan not adopted.

Condition: The Agency participated In a loan agreement leading to the destruction and removal of units, which apparently housed persons of lower- and moderate-income, without adopting a replacement housing plan. During fiscal year 1997/98, the Agency provided $2,750,000 in assistance from the LMllIF to a developer pursuant to an acquisition and development loan agreement. The funds were used to acquire and demolish five structures, containing 23 occupied dwelling units, and to facilitate the construction of a 98-unit senior housing facility on the site. A replacement housing plan was not adopted by the Agency, as required.

There is no evidence that the 98 senior units proposed for the site will provide replacementhousing opportunities for the displaced residents since the Agency (1) did not believe it had a replacement housing obligation for these residents and (2) did not collect and maintain respective information on the unit and household characteristics of the destroyed units and displaced households.

Criteria: Health & Safety Code Section 33413.5 requires that a replacement housing plan be adopted not less than 30 days prior to the execution of an agreement for the acquisition, or disposition and development of real property, or the execution of an owner participation agreement, which leads to the destruction or removal of dwelling units from the low and moderate income housing market. The Agency shall make a draft of the replacement housing plan available, for review and comment, to the project area committee, other public agencies and the general public prior to adoption.

The plan shall include (1) the general location of replacement housing required pursuant to Section 33413(a), (2) describe an adequate means for financing the replacement housing, (3) include a finding that the replacement housing is exempt from Article 34 of the State Constitution or that such approval has been obtained, (4) identify the number and afford ability of planned replacement housing units, and (5) include a timetable for meeting the plan's relocation and replacement housing objectives.

Health and Safety Code Section 33413(a) requires that whenever dwelling units housing persons and families of low or moderate income are destroyed or removed from the low- and moderateincome housing market as part of a redevelopment project which is subject to a written agreement with the agency, or where financial assistance has been provided by the agency, the agency shall develop, construct, or rehabilitate an equal number of replacement units, with an .

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equal or greater number of bedrooms, within four years. When destroyed or removed after September 1, 1989, 75 percent of the replacement units shall be replaced at the same affordable housing cost relative to the income level of the households displaced from the destroyed units.

Health and Safety Code Section 33413(d)(I) provides that subdivision (a) of Section 33413 shall apply to any redevelopment project where units are removed or destroyed from the low- and moderate-income housing market after January 1, 1996, irrespective of the adoption date of the

redevelopment plan. .

Recommendation: The Agency should prepare and adopt a replacement housing plan, with all of the required components, for this project within 30 days of the date of the final audit report. In particular, the plan should document the size and income level of the displaced households and the number of units and bedrooms lost. At the same time, the Agency should identify any other outstanding replacement housing obligations,which may exist as a result of applicable agency activity during the audit period (fiscal years 1996/97 to 1998/99).

Agency Response:

We agree with this finding. The language of the Health & Safety Code is very clear on this issue. When dwelling units occupied by low or moderate-income households are demolished as part of a redevelopment project for which the Agency has provided financial assistance, then the Agency is responsible for the construction or rehabilitation of an equal number of affordable housing . units within four years after such demolition. The Agency is also responsible for adopting a replacement housing plan which describes the general location, projected financing, and timetable for the replacement housing.

The Agency provided financial assistance to Garden Court, a 98-unit independent living development with extensive supportive services for very low-income frail elderly individuals.

To date, the project has won two architectural design awards and was recently awarded this year's Meritorious Achievement Award from the National Association of Local Housing Finance Agencies (NALHFA). Garden Court involved the demolition of five decrepit houses that, over the years, had been divided up into cramped studio apartments, some of which were illegal and unpermitted units. In addition to accounting for replacement housing for Garden Court, the Agency will also determine whether other projects triggered replacement housing and will, as soon as practicable, prepare the required replacement housing planes) accordingly for Agency

Board review and adoption. .

It should be noted, however, that the Agency has an excellent record in producing affordable housing. Through careful planning and efficient use of financial resources over the years, the City and Agency together have helped create 4,500 units of affordable housing which are

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currently in existence and under the control of recorded long-term (30- and 60-year) afford ability

covenants. This constitutes an impressive 11 % of the City's housing stock - an unexpected 'statistic for a City known for its extremely expensive housing market.

Historically, the Agency has also had a firm policy of not acquiring residential property for nonresidential redevelopment activities. Over the years, the Agency has provided financial assistance to projects that involved demolition of existing residential structures in order to make way for new affordable housing of much greater density. Far more units are created than

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destroyed. For example, in the case of Garden Court, the five decrepit houses were replaced within 16 months with a brand new 98-unit independent living development with enhanced services for the very low-income frail elderly.

Despite the creation of 98 units for the frail elderly, the Agency is nonetheless still required to create replacement housing similar in type and nature to the studios and one-bedroom units that were demolished. Several Agency-financed affordable housing projects have been successfully completed since the units were demolished in 1998. They comprise a total of 162 affordable housing units of various sizes and are not restricted to elderly households. Furthermore,

. construction on a new, Agency-financed 42-unit affordable housing project owned and managed. by the City Housing Authority (comprised entirely of studios and one-bedroom units) is expected to commence early in 2001. The Agency has also provided predevelopment assistance for a new 77 -unit affordable housing project that could commence late in 2001. Thus, despite the absence of the plan, the Agency has more than met the requirements of providing replacement housing far

ahead of the four-year requirement. ...

Auditor's Conclusion:

The Agency's response satisfactorily addresses our recommendation. We appreciate the Agency's cooperation .

. Finding Number Three: . Relocation plan not adopted/adequate benefits not provided.

Condition: The Agency participated in a loan agreement leading to the displacement of lowerand moderate-income households without adopting a relocation plan or providing adequate relocation assistance to the displaced households. During fiscal year 1997/98, the Agency provided $2,750,000 in assistance from the LMllIF to a developer pursuant to an acquisition and development loan agreement. The funds were used to acquire and demolish five structures, containing 23 occupied dwellingunits, and to facilitate the construction of a 98~unit senior housing facility on the site. A relocation plan was not adopted by the Agency, as required. A relocation plan was prepared by the project's developer. This plan, however, did not contain the prescribed requirements of Title 25, California Code of Regulations (Title 25 CCR) Section 6038(b) or provide adequate relocation benefits to the displaced households.

Criteria: Title 25 CCR Section 6038 requires a public entity to prepare and adopt a relocation plan as soon as possible following the initiation of negotiations and prior to proceeding with any phase of a project or other activity that will result in displacement. When the public entity's action will result in a significant amount of residential displacement, the displacing entity shall prepare a relocation plan containing the following:

1. A sketch of the project area.

2. Projected dates of displacement.

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3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15. An analysis of the relocation needs of all persons to be displaced and an explanation as to how these needs will be met.

An analysis of relocation housing resources.

A description of the relocation advisory services program, including procedures for locating and referring eligible persons to comparable replacement housing.

A description of the relocation payments to be made and a plan for disbursement. A cost estimate for carrying out the plan and identification of funding sources.

A detailed plan for any last resort housing to be built and financed.

An information statement to be sent to all households to be displaced.

Temporary relocation plans.

A description of relocation office operation procedures. A plan for citizen participation.

An enumeration of coordination activities undertaken per section 6052. Any comments of the relocation committee.

A written determination that necess-ary resources will be available as required.

Health and Safety Code Section 33415 requires agencies to provide relocation assistance and' make all payments required by Section 7260 of the Government Code.

Government Code Section 7260(c)(1)(A)(i) defines a displaced person as anyone who moves from real property as a direct result of a written notice of intent to acquire, or the acquisition of, the real property for a program or project undertaken by a public entity or by any person having an agreement with, or acting on behalf of, a public entity.

Government Code Section 7260(c)(2) provides that this subdivision shall be construed so that persons displaced as a result of public action receive relocation benefits where they are displaced as a result of an owner participation agreement or an acquisition carried out by a private person for, or in connection with, a public use where the public entity is otherwise empowered to acquire the property to carry out the public use.

Recommendation: The Agency should review the developer's records to ensure that each household in residence at the inception of negotiations received the benefits prescribed by law and, if not, prepare a process to ensure that these benefits (or their equivalent) are provided.

Agency Response:

We believe that state relocation benefits and assistance were not triggered by the development of Garden Court. According to Government Code Section 7260, a "displaced 'person" is defined as a person who moves as a result of acquisition of real property by a public entity or by a person

. having an agreement with or acting on behalf of a public entity. We believe no one was relocated as a result of action taken by the Agency to acquire the Garden Court real property or by .persons acting on behalf of the Agency to acquire the property.

In the case of Garden Court, clearly the Agency did not acquire the property, nor did anyone act on the Agency's behalf during the acquisition. The real property was under a sales contract before the buyer/developer was approved for financial assistance from the Agency. The sales contract was executed on May 15, 1997, and the Agency's loan was approved by the Agency

Board on July 14, 1997 and was executed on November 25, 1997. .

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Section 7260 of the Government Code does not specify that state relocation benefits are triggered merely by a redevelopment agency providing financial assistance to a private non-profit developer of affordable housing. Under RCD's interpretation, an Agency which provides a small construction grant or loan would be required to provide relocation assistance even if the property had been acquired years prior to the grant or loan. Under such an interpretation, relocation assistance and benefits would be required for virtually every project for which a Redevelopment Agency provides financial assistance. In our view, this interpretation would result in prohibitively costly and extensive relocation assistance to the point where the Agency's ability to foster private non-profit affordable housing projects would be severely crippled.

Nevertheless, the Agency is always very concerned about the welfare of persons who relocate during the construction of affordable housing. Even though Garden Court did not trigger state relocation assistance requirements, this does not mean that relocation needs of existing tenants were not addressed. The developer fully complied with local relocation requirements. Tenants received general information notices early in the process inforrriingthem of the potential project and recommending that they not move. Over the course of months, some tenants voluntarily decided to move out. Then, once financial arrangements were finalized and land use approvals secured, the developer hired a relocation consultant to assist the remaining tenants. The relocation consultant succeeded in finding comparable units that were acceptable to the remaining tenants and that had comparable rents.

In addition to helping find comparable units, the developer routinely paid for moving expenses, utility connections at new apartments, and the first month's rent and security deposits. No eviction proceedings were required, and no distinction was made between the 21 legal dwelling

. units and the three illegal dwelling units in terms of providing relocation assistance.

Auditor's Conclusion:

The issue of whether the developer acquired the property priorto the Agency's approval of financial assistance is not the determining factor.

25 Cal. Code of Regulations (6008(f)) defines a "displaced person" as anyone who moves from real property as "a resultof the rehabilitation, demolition, or other displacing activity undertaken by a public entity or by any person having an agreement with or acting on behalf ofa public entity ... "

You indicate that the Agency Board approved financial assistance to the project in July of 1997 and executed a loan agreement with the developer in November of 1997. You indicate that the developer served the occupants of the property with a 90-day displacement notice in December of 1997. The relocation plan and relocation assistance requirements of Section 6038, and Government Code Section 7260, respectively, were therefore invoked by the Agency.

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As indicated in the draft audit, the relocation plan prepared by the developer does not contain the prescribed requirements of Section 6038. In addition, based upon the description of relocation assistance offered in the plan, it is clear that adequate relocation benefits were not provided to the displaced households in accordance with Government Code Section 7260, by the Agency or the developer.

Our finding remains the same.

Finding Number Four. Annual planning and administrative determinations not made.

Condition: While the amount expended for planning and administrative activities during the audit period appear reasonable and appropriate, the Agency did not make or adopt annual determinations, which consider the necessity and proportionality ofLM1HF expenditures for planning and administrative activities during the audit period.

Criterion: Health and Safety Code Section 33334.3(d) expresses the Legislature's intent that

. LMIHF expenditures for general planning and administrative activities not be disproportionate to actual costs for housing production, improvement, and preservation; andrequires agencies to determine annually that planning and administrative expenses are necessary for the production, improvement, or preservation of low- and moderate-income housing.

Recommendation: In the future, the Agency should publicly consider and determine (via adopted resolutions, budgets, or other official documents) whether proposed planning and administrative costs are necessary and proportionate to the amount proposed for actual housing assistance activities during the year(s).

For example; to effectively evaluate the "proportionality" of proposed planning and administrative activities, the adopted determination could identify and compare budgeted or projected planning and administrative expenses with budgeted or projected expenses for actual housing development, improvement and preservation activities. To effectively evaluate the necessity of, or need for, proposed planning and administrative expenditures from the LMIHF, the determination could itemize proposed planning and administrative expenses and relate them to specific housing development, improvement, or preservation activities. The determination could also describe and analyze the availability of other funding sources, which might be used to finance proposed planning and administrative expenses.

Agency Response:

We agree with this finding. Section 33334.3 of the Health & Safety Code is clear in requiring that redevelopment agencies determine on an annual basis that the amount of money spent for planning and general administrative activities is proportionate to the amount of money actually spent on producing affordable housing. As part of the annual budget process, Agency staff recommends reasonable line item figures for planning and general administrative activities, and the Agency Board reviews and approves the budgets.

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We are pleased to see that RCD auditors found the Agency's expenditures in this category to be reasonable and appropriate. Nevertheless, the Agency will make the required determinations as part of the annual budget process in the future.

Auditor's Conclusion: The Agency's response satisfactorily addresses our recommendation. We appreciate the Agency's cooperation.

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COMMUNITY DEVELOPMENT DEPT.

630GARDENSTREET POST OFFICE BOX 1990 SANTA BARBARA. CA 931 02·1990

Planning Division .. "".""".".""".""". 564·5470 Housing & Redevelopment Division .. 564·5461

Building & Safety Division 564·5485

Director's Office 564·5502

Fax Number . , 564·5477

November 1, 2000

Eric Pfost, Chief, Audit Division

CA Deoartment of Housinz & Cornmunitv Develooment

. - - . .

PO Box 952050

Sacramento, CA 94252-2050

Dear Mr. Pfost:

As you know, the Department of Housing and Community Development (HCD) conducted an on-site audit this summer of the City of Santa Barbara's Redevelopment Agency (Agency) housing activities during fiscal years 1996,1997, and 1998. Your office prepared a draft audit report and sent it tome with a request for an official response. We appreciate this opportunity to review the draft and hereby submit our response.

There are four audit findings. Findings #2 and #4 were in fact oversights on our part, and corrective actions will be taken accordingly. However, with respect to Findings #1 and #3, our understanding of state law is that the Agency's actions are legally permissible and otherwise appropriate.

Finding #1 - Low and Moderate Income Housing Funds (LMmF) were used to develop a homeless shelter.

Our response tothis finding is first to provide a correction in the amount ofLMIHF used for the shelter and second to express our belief that the development ofa homeless shelter may be an allowable use of LMllIF under certain limited circumstances.

The Coalition to Provide Shelter and Support to Santa Barbara Homeless (the "Coalition") opened the Santa Barbara Winter Homeless Shelter and Day Center last December - a broad-based effort involving the local government, business, faith and non-profit communities. With assistance from Agency staff, the Coalition identified a site appropriate for development as a homeless shelter and day center that is located within the Agency's Central City Redevelopment Project Area (the "CCRP"). Regarding the amount of funding provided, our Agency provided a Grant and bridge loan totaling 1.5 million for the development of the Santa Barbara Winter Homeless Shelter and Day Center. Of this amount, $1.2 million actually came from the Agency's general redevelopment funds and $300,000 came from LMIHF.

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CA Department of Housing & Community Development November 1, 2000

The Coalition owns the property. Santa Barbara County is responsible for the Santa Barbara Emergency Winter Homeless Shelter and contracts withSt. Vincent de Paul for its operation. The emergency shelter accommodates 200 people and is open from December 1 through March 3 1. The Coalition also contracts with St. Vincent de Paul for operation of a year-round Day Center. Community Kitchen provides meals for both the shelter and the Day Center. A vast array of social services is available at the Day Center, including case management, housing placement assistance, health care services, substance abuse treatment, mental health treatment, veterans' outreach, and services for literacy, education and employment.

There are approximately 3,500 homeless persons in South Santa Barbara County. The Santa Barbara Emergency Winter Homeless Shelter isthe only shelter in South Santa Barbara County for homeless persons not involved in a recovery program. The Day Center is the only program for the homeless in South Santa Barbara County that provides comprehensive supportive services.

Regarding the eligibility ofLMIHF for the SantaBarbara Emergency Winter Homeless Shelter, no reference in the State Redevelopment Law is made to homeless shelters, either as an allowed use or as

a prohibited use ofLMlliF. State Redevelopment 'Law, specifically Section 33334.3(g) provides that "housing" can include a "residential hotel" as defined in Health & Safety Code Section 37912. Section 37912(k) of the California Health and Safety Code defines "residence" to be real property improved with a residential structure. Certain types of residences are mentioned, but the language does not indicate that this is necessarily an exclusive listing or that no other types of residences would be allowed. A homeless shelter could come within one of the categories specifically mentioned in Section. 3 7912(k), that being "residential hotels." This section specifically lists certain types of housing that are excluded from the designation of residential hotel, such as hospitals, sanitariums, rest homes, etc. This list of excluded housing types does not include homeless shelters. At the same time, the qualifying criterion cited for "residential hotels" is where the term of the tenancy for at least half of the tenants is no less than 30 days. Last year, the Santa Barbara Emergency Winter Homeless Shelter was available from December 1, 1999 through March 31, 2000. There were no other time I imits set on tenancy, and people were allowed to stay for as long as they needed to stay. In fact, shelter data indicates that the overwhelming majority of people lived at the shelter for 3-4 months. Moreover, starting next April, the Coalition will operate a 30-bed shelter during the months the emergency shelter is closed. Thus, shelter and day center services will be provided on a year round basis, 24 hours a day, seven days a week.

It should be noted that the San Francisco Redevelopment Agency sponsored legislation (S.B.I026, 1991) that specifically enabled San Francisco to use its general redevelopment funds on the development of homeless shelters without regard to whether the shelters were located within a redevelopment project area. When the San Francisco legislation was pending, San Francisco was involved in the final draft of the bill to make certain that the law would not be.interpreted as determinative of existing law. This effort resulted in the following language being added to the uncodified section of the Statute: "oo. nothing in this act, or Section 33021.1 of the Health and Safety Code shall be deemed to authorize or limit, or in any way modify any authority of a redevelopment agency, other than a redevelopment agency of a city and county, to improve, increase, or preserve emergency shelters for homeless persons or households, either inside or outside a project area, from

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CA Department of Housing & Community Development November 1, 2000

funds available pursuant to Section 33334.3 of the Health a Safety Code or any other source." (emphasis added)

Although the State Community Redevelopment Law is not entirely clear with regard to the use of agency housing funds for homeless shelters, the language of S.B.1 026 supports the argument that the State Legislature did not intend to preclude other agencies from using LMIHF for homeless shelters, particularly those located within a Redevelopment Project Area, such as Santa Barbara's.

The Santa Barbara Emergency Winter Homeless Shelter closed for the season on March 31, 2000; however, the Day Center continued to operate year-round, where people could still receive a meal and have access to a comprehensive array of social services. All of the social services focus on the primary goal of placing clients in permanent housing. An on-site case manager works one-on-one with clients and brings in representatives from local housing providers. The City's Housing Authority and local non-profit groups provide affordable housing to the general public . .Sorne non-profits, such as Transition House, Salvation Army, Community Housing Corporation, and Peoples' Self-Help Housing

. Corporation target specific segments of the homeless population. Thus, day center staff is able to bring in the most appropriate potential housing providers depending on the needs of the individual clients. Additionally, the Day Center provides financial assistance to clients needing help with paying security

deposits and first month's rents. .

Given that housing in Santa Barbara is difficult to find and is very expensive, the expectation for success in finding housing for this difficult-to-house segment of the population is not very high. However, the staff of Day Center has to date managed to far exceed expectations by placing 162 people into permanent housing, transitional housing, and treatment programs with residential components. Day Center staff has recently followed up on the 162 clients placed, and it is very encouraging to find that an impressive 91% of the clients are still residing in the housing to which they have been referred.

As mentioned previously, only 20 percent of the $1.5 million Agency assistance provided to the shelter and day center came from LMIHF. Altogether, the shelter and day center have proven to be a tremendous success, which has provided great benefits to the project area, both in terms ofproviding shelter and a comprehensive array of social services to the transient population of South Santa Barbara County. Given the extended duration of tenancy at the shelter and given the highly successful housing placement services provided by day center staff to a challenging and challenged population, webelieve that this project constitutes housing assistance that is consistent with LMIHF definitions and appropriate under the Community Redevelopment Law.

Finding #2 - Replacement housing plan not adopted.

We agree with this finding. The language of the Heaith & Safety Code is very clear on this issue. When dwelling units occupied by low or moderate-income households are demolished as part of a redevelopment project for which the Agency has provided financial assistance, then the Agency is responsible for the construction or rehabilitation of an equal number of affordable housing units within

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CA Department of Housing & Community Development November 1, 2000

four years after such demolition. The Agency 'is also responsible for adopting a replacement housing plan which describes the general location, projected financing, and timetable for the replacement housing.

The Agency provided financial assistance to Garden Court, a 98-unit independent living development with extensive supportive services for very-low income frail elderly individuals. To date, the project has won two architectural design awards and was recently awarded this year's Meritorious . Achievement Award from the National Association of Local Housing Finance Agencies (NALHF A), Garden Court involved the demolition of five decrepit housesthat,over the years, had been divided up into cramped studio apartments, some of which were illegal and unpermitted units. In addition to accounting for replacement housing for Garden Court, the Agency will also determine whether other projects triggered replacement housing and will, as soon as practicable, prepare the required replacement housing planes) accordingly for Agency Board review and adoption.

It should be noted, however, that the Agency has an excellent record in producing affordable housing. Through careful planning and efficient use of financial resources over the years, the City and Agency together have helped create 4,500 units of affordable housing which are currently in existence and under the control of recorded long-term (30- and 60-year) affordability covenants. This constitutes an impressive 11 % of the City's housing stock - an unexpected statistic for a City known for its

extremely expensive/housing market. '

Historically, the Agency has also had a firm policy of not acquiring residential property for nonresidential redevelopment activities. Over the years, the Agency has provided financial assistance to projects that involved demolition of existing residential structures in order to make way for new affordable housing of much greater density. Far more units are created than destroyed. For example, in the case of Garden' Court, the five decrepit houses were replaced within 16 months with a brand new 98-unit independent living development with enhanced services for the very low-income frail elderly.

Despite the creation of98 units for the frail elderly, the Agency is nonetheless still required to create replacement housing similar in type and nature to the studios and one-bedroom units that were demolished. Several Agency-financed affordable housing projects have been successfully completed since the units were demolished in 1998. They comprise a total of 162 affordable housing units of various sizes and are not restricted to elderly households. Furthermore, construction on a new, Agency- , financed 42-unit affordable housing project owned and managed by the City Housing Authority (comprised entirely of studios and one-bedroom units) is expected to commence early in 200 I. The Agency has also provided predevelopment assistance for a new 77-unit affordable housing project that could commence late in 2001. Thus, despite the absence of the plan, the Agency has more than met the requirements of providing replacement housing far ahead of the four-year requirement.

Finding #3 - Relocation plan not adopted/adequate benefits not provided.

We believe that state relocation benefits and assistance were not triggered by the development of Garden Court. According to Government Code Section 7260, a "displaced person" is defined as a

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CA Department of Housing & Community Development November. 1, 2000

person who moves as a result of acquisition of real property by a public entity or by a person having an agreement with or acting on behalf of a public entity. We believe no one was relocated as a result of action taken by the Agency to acquire the Garden Court real property or by persons acting on behalf of the Agency to acquire the property.

In the case of Garden Court, clearly the Agency did not acquire the property, nor did anyone act on the Agency's behalf during the acquisition. The real property was under a sales contract before the buyer/developer was approved for financial assistance from the Agency. The sales contract was executed on May 15, 1997, and the Agency's loan was approved by the Agency Board on July 14, 1997 and was executed on November 25, 1997.

Section 7260 of the Government Code does not specify that state relocation benefits are triggered merely by a redevelopment agency providing financial assistance to a private non-profit developer of affordable housing. Under HCD's interpretation, an Agency which provides a small construction grant or loan would be required to provide relocation assistance even if the property had been acquired years prior to the grant or loan. Under such an interpretation, relocation assistance and benefits would be required for virtually every project for which a Redevelopment Agency provides financial assistance. In our view, this interpretation would result in prohibitively costly and extensive relocation assistance to the point where the Agency's ability to foster private non-profit affordable housing projects would be severely crippled .

. Nevertheless, the Agency is always very concerned about the welfare of persons who relocate during the construction of affordable housing. Even though Garden Court did not trigger state relocation assistance requirements, this does not mean that relocation needs of existing tenants were not addressed. The developer fully complied with local relocation requirements. Tenants received general information notices early in the process informing them of the potential project and recommending that they not move. Over the course of months, some tenants voluntarily decided to move out. Then.ionce financial arrangements were finalized and land use approvals secured, the developer hired a relocation consultant to assist the remaining tenants. The relocation consultant succeeded in finding comparable units that were acceptable to the remaining tenants and that had comparable rents.

In addition to helping find comparable units, the developer routinely paid for moving expenses, utility connections at new apartments, and the first month's rent and security deposits. No eviction proceedings were required, and no distinction was made between the 21 legal dwelling units and the. three illegal dwelling units in terms of providing relocation assistance. .

Finding #4 - Annual planning and administrative determinations not made.

We agree with this finding. Section 33334.3 of the Health & Safety Code is clear in requiring that redevelopment agencies determine on an annual basis that the amount of money spent for planning and general administrative activities is proportionate to the amount of money actually spent on producing affordable housing. As part of the annual budget process, Agency staff recommends reasonable line item figures for planning and general administrative activities, and the Agency Board reviews and

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cl. Department of Housing & Community Development November 1, 2000

approves the budgets. We are pleased to see that HCD auditors found the Agency's expenditures in this category to be reasonable and appropriate. Nevertheless, the Agency will make the required determinations as part of the annual budget process in the future.

We thank you again for the opportunity to respond to your draft report, and we would welcome further conversation on these issues, should you think it beneficial. We certainly share your interest in

ensuring that our Agency operates in agreement with State law. .

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