Truckee, Northstar will collaborate on employee housing
Taking a cue from resort communities in Colorado, Truckee will support the Northstar-at-Tahoe employee housing project with financing assistance that, so far, hasn’t been used in California.
The financing mechanism – called 63-20 financing because of a specific IRS code – allows the town to sponsor tax-exempt bonds by establishing a non-profit entity with a board of directors. Although this mechanism has been used to fund other civic projects in California, Truckee will be the first in the state to use it to finance employee housing.
The 380-bed, 96-unit complex is slated to serve Northstar employees only, and will cost approximately $17 million to build.
After about a year of exploring risks and philosophical issues related to involvement in real estate projects outside its jurisdictional boundaries, Truckee officials appear to be embracing the concept as the answer to its affordable housing conundrum.
A regional problem, a local solution
For the seasonal and year-round workforce alike, finding housing priced within an “affordable” range can be nearly impossible in the Truckee-North Lake Tahoe region.
Financing options exist for developers to build affordable, workforce housing, but developers say 63-20 financing offers incentives that other federal and state programs don’t.
“There are so many disincentives that [affordable housing] doesn’t happen,” said Roger Lessman, managing partner of East West Partners’ Tahoe office, Northstar’s development partner.
“Truckee has the chance to lead the way to solve some of these financing problems.”
Because of the high price of land and high development fees in Truckee and North Lake Tahoe, developers aren’t often moved to voluntarily build affordable housing.
And, in resort communities, “employee or affordable housing is almost never the highest and best use of the land,” said Jerry Flynn, a consultant for East West who has helped Colorado cities and developers use 63-20 financing to build affordable housing.
This financing mechanism has been around since the early 1960s, but it wasn’t until much later that cities began looking at it as an option for affordable housing.
“The IRS did issue some further guidance for this in the early 80s,” Flynn said from his office in Edwards, Colo. “Now it’s become the preferred way of doing it in Colorado.”
The bond financing gives developers more flexibility – especially when it comes to setting rents. Projects funded by state or federal programs often dictate rents.
With a funding mechanism such as this, the developer sets the rent to cover maintenance costs and debt, but the rents are subject to market fluctuation.
East West would not comment on the possible cost of housing to Northstar employees.
“It’s a permanent affordable structure without some of the complicated permanent deed restrictions,” Flynn said. He said once the developer pays off the tax-exempt bonds – 30 to 40 years down the road – the government agency, in this case, Truckee, is the owner of the property.
Truckee would probably then transfer the property to a local nonprofit or housing agency, said Tony Lashbrook, Truckee community development director. In the meantime, a board of directors would oversee the operations and finances of the housing. Credit enhancement provisions would protect the town from financial liability if Northstar defaults on payments.
The bonds offered would be issued at an interest rate somewhere between 6.25 and 6.5 percent, which is “considerably less” than other interest rates on a $17 million loan, Lessman said.
“It’s enough to be worth pursuing,” he said.
Employee housing for the public benefit
“The bonds are for a project with public benefit – in this case affordable housing,” Lashbrook said.
As of yet, the units would be for Northstar employees only, but town staff and officials feel the lack of housing at Northstar is a problem that affects Truckee – especially when it comes to rush-hour traffic.
Lashbrook noted during the Jan. 16 Truckee Town Council meeting that because these employees are often seasonal, housing should be in the area of the resort to cut down on peak hour traffic on Highway 267.
“It can do nothing but benefit Truckee and our housing goals,” Truckee Mayor Ted Owens said at the meeting.
The project lies within Placer County’s jurisdiction, initially raising legal and philosophical questions about the town’s reach.
Legally, the town government is able to sponsor the financing as long as it’s for the “public benefit” of Truckee residents.
“There’s been some discussion as to, ‘Why are we solving Placer County’s problems?'” said Councilman Josh Susman. “We’re not solving Placer County’s problems, we’re solving housing problems.”
Placer County was first approached by East West and Northstar to sponsor the project, but the county, after lengthy discussions, declined.
Rich Colwell, Placer County deputy CEO for redevelopment, said the county had its hands tied by California law.
“You can’t use public money for a strictly employee housing unit. It’s against the law,” Colwell said.
“Counties and cities are very different animals legally,” said Town Attorney Dennis Crabb. “As a creature of the state, counties can only do things as specified by state law.”
But Placer County – with housing ordinances that may be passed requiring developers to provide up to 50 percent of new employees with housing in the Tahoe region – is scrambling to find new, effective ways to promote affordable and employee housing development. So much so that Placer County is now lobbying the state to change a law, allowing counties to pursue funding mechanisms such as this, Colwell said.
Northstar’s employee housing project was approved unanimously by the county Board of Supervisors and Planning Commission a year ago, and Colwell said the county offered support through other funding avenues.
“The problem is they (East West and Northstar) were not interested in some of the restrictions that were required to get the money,” Colwell said. One of those restrictions could have included opening up a portion of the project to the regional workforce – not just Northstar employees.
Part of an ‘imagined Truckee’
“Part of [the Town Council’s decision] had to do with recognizing that regardless of the jurisdictional boundary lines, we’re talking about Northstar – it’s all a part of our immediate region,” Mayor Owens said.
Northstar’s location across town and county lines does not make Truckee immune to development there or the Martis Valley. It is all part of an “imagined Truckee,” Owens said.
Although Truckee must wait for a ruling on a suit filed by a group of Northstar homeowners, who claimed the project needed a full-scale environmental impact report instead of the approved negative declaration, many seem optimistic about the potential for affordable housing in the region.
“This is an exciting, viable mechanism for funding these project,” said Joe Guzman, executive director of the Workforce Housing Association of Truckee Tahoe.
The entire Town Council “embraced the concept,” voting 4-1 in favor of pursuing the project. Councilwoman Beth Ingalls voted against the issue, saying the decision could affect the outcome of the pending litigation.