Management of the Capital Revolving

Fund for Affordable Housing

The Community and Neighbourhood Services Committee recommends the adoption of the following joint report (April 6, 1999) from the Commissioner of Community and Neighbourhood Services and Chief Financial Officer and Treasurer:

Purpose:

(i) To seek Council approval of management guidelines for the Capital Revolving Fund for Affordable Housing which was established by Council at its meeting on February 2, 3 and4,1999.

(ii) To report on the establishment of an external reference group on affordable housing.

Financial Implications:

There are no immediate financial implications arising from this report. Specific proposals for community projects to be supported by the Capital Revolving Fund will be brought forward for Council approval at a later date.

Recommendations:

It is recommended that Council:

(1)adopt Terms of Reference for a Reference Group to advise the Commissioner of Community and Neighbourhood Services on management of the Capital Revolving Fund for Affordable Housing, as set out in Appendix A.

(2)adopt Management Guidelines for the Capital Revolving Fund for Affordable Housing, as set out in Appendix B.

(3)appoint Councillor Feldman as the Council representative to the Reference Group for the Capital Revolving Fund.

(4)authorize the Commissioner of Community and Neighbourhood Services to select community members of the Reference Group per the criteria in the Terms of Reference.

(5)authorize appropriate City officials to take the necessary action to give effect to these recommendations.

Background:

At its meeting of July 29, 30 and 31, 1998, Council approved an affordable housing strategy for the City, with the following goal: to create an environment in which the private sector and community partners will be willing and able to develop affordable housing for people with a range of housing needs that are not currently being met in the market. One element of this strategy is the provision of support for community projects that demonstrate the City's role in facilitating the creation of affordable housing.

At its February 2, 3 and 4, 1999, meeting, Council redesignated $10.9 million in existing funds, primarily contained in the Social Housing Reserve Fund of the former City of Toronto, to establish a new Capital Revolving Fund for Affordable Housing. This Council initiative is consistent with Recommendation No. 77 of the Mayor's Homelessness Action Task Force. Staff were asked to report back on management guidelines for the fund. The guidelines are intended to ensure the viability of projects to be supported, who and what types of projects would access the funds, and how projects would be monitored and evaluated.

As part of the affordable housing strategy, staff were also directed to establish an external reference group consisting of private sector, financial and community representatives. This report provides an update on the reference group and endorsement of its role in advising staff with regard to the Capital Revolving Fund.

Staff have also been asked to report back on options for future contributions to the Capital Revolving Fund from the City or other sources and the potential establishment of a permanent endowment fund for affordable housing. These issues will be addressed in a subsequent report to Council.

Comments:

As the Mayor's Homelessness Action Task Force has noted, it is more cost-effective to provide permanent housing for low income people than to provide emergency shelter. While some homeless people require support services in order to maintain permanent housing, most need access to affordable, adequate housing that is very scarce in the housing market in Toronto.

In the absence of senior government housing programs, the City strategy is to use tools available at the municipal level to mobilize the private sector and the community to create affordable housing, and to find new ways to involve the provincial and federal governments. While the City is taking a number of steps to encourage the private sector to build new rental housing (e.g., special property tax class for new multi-residential housing), the capital fund is intended to support housing for those who cannot afford market rent levels.

As shown by economist Greg Lampert (in a presentation made to the Budget Committee on January19, 1999), it is now possible, through a combination of discounted land costs and capital or equity contributions, to develop housing at a level that social assistance recipients can afford in Toronto. The revolving fund is a vehicle whereby the City can provide limited capital contributions in order to lever the development of housing projects by community and private groups.

This report sets out the next step toward implementing the use of the Capital Revolving Fund, including the creation of an external Reference Group and establishment of management guidelines. Future reports will recommend specific funding proposals based on advice from the Reference Group.

Reference Group:

Appendix A provides terms of reference for an external reference group that would act in an advisory capacity to the Commissioner of Community and Neighbourhood Services. It is recommended that the following initial membership be approved (pending Council endorsement of the Terms of Reference):

City Councillor (1):

Councillor Mike Feldman

Private development and property management industry (4):

John Latimer, President, The Monarch Group

Tom Schwartz, President, Intraurban

Marvin Sadowski, Executive Vice-President, Sterling Silver Development Corp.

John Fogolin, President, Tornat Construction

Financial sector (2):

Stewart Pearson, President, Mortgage Capital Co.

Mike Braid, Vice-President, Toronto-Dominion Bank

Community-based housing and services sector (2):

Maria Crawford, Executive Director, Eva's Place

Rick Egan, Co-ordinator, St. Christopher House

Ontario Ministry of Municipal Affairs and Housing (1):

To be determined

Canada Mortgage and Housing Corporation (1):

Len Bulmer, Portfolio Manager, Social Housing

Housing expert (1):

Don Richmond, Consultant

If confirmed by Council, Councillor Feldman will continue to chair the group. This group has met twice informally, in order to review draft management guidelines for the Fund.

The Terms of Reference also contains specific provisions to ensure that potential conflicts of interest for members will be declared and addressed. While advisory committees are not subject to the Municipal Conflict of Interest Act, the group has made a policy decision to abide by such requirements and members will be signing statements to that effect. As a result, members cannot participate in any discussion of projects or funding proposals in which they have a pecuniary interest.

Management Guidelines for the Capital Revolving Fund:

Appendix B proposes specific management guidelines for Council approval. Individual funding proposals must be approved by Council; however the guidelines provide a framework for development of such proposals. They are based on draft guidelines that were attached to the staff report of December 1, 1998, but have been modified to reflect the advice of the informal Reference Group. They also reflect comments provided by the City Solicitor.

The guidelines address a number of issues raised by Councillors at the time the fund was approved, as follows.

Ensuring the Viability of Projects:

A key objective of the fund is to encourage community partners to develop affordable housing projects, but at minimum financial risk to the City.

There is significant experience in the United States with capital funds supporting affordable housing development, and a number of Canadian cities that have launched such funds. The proposed guidelines draw from this experience. The resulting approach is one that is significantly different from previous housing programs which were based on ongoing, largely open-ended subsidy arrangements.

Use of the Fund will be limited to one-time capital contributions to community-led projects. The fund will not be used for on-going operating requirements or rent-subsidies. This reduces the direct risk to the City of increased costs due to rising project operating costs. The guidelines clearly state that community groups are expected to contribute equity to their project, and to fundraise for the balance of costs. It is intended that the fund contribution be no more than 15-25 percent of the total project cost. In most cases, the primary financing will be in the form of a private mortgage insured by the Canada Housing and Mortgage Corporation.

Funding proposals must provide a detailed business case and a financial pro forma that will be reviewed by the Reference Group. As noted above the Reference Group includes significant private development and financial expertise to advise staff on the economic viability of proposed projects. While no project will ever be risk-free, the objective is to provide the best advice possible to Council. At the two informal meetings held to date, the Reference Group has discussed at length the means by which the City can limit its future financial risk exposure for the proposed project at the Lawrence/Allen City-owned site. Specific recommendations for that project will be presented to Council shortly.

Who Will be Eligible:

The proposed guidelines in Appendix B set out eligibility requirements for projects. The Reference Group is interested in supporting both private and non-profit sponsors of affordable housing development. However, given restrictions of the Municipal Act with regard to commercial bonusing, only non-profit corporations can be eligible for funding currently. The Reference Group will be working with City program and legal staff to explore options for supporting private sector development of affordable housing. This may or may not include use of the Fund, and staff will report to Council on the results of these discussions.

As the guidelines indicate, project selection will be based on a competitive, proposal call process. Requests for proposals may be issued for specific types of projects or there may be a request for expressions of interest, followed by invited proposals from a short list.

Key requirements for each project proposal include:

-a detailed business plan to demonstrate financial viability;

-successful track record and financial competence for the community partners involved;

-sufficient funding for the balance of project costs, including equity contribution from the group;

-commitments of support service funding where needed;

-sufficient attention paid to social and neighbourhood factors and the land use approval process.

As noted above, all project proposals must be approved by Council, based on recommendations from staff with advice from the Reference Group.

Monitoring Projects:

As noted in the proposed guidelines, the City contribution to projects will generally be secured by way of a land lease or other agreement registered on title to the land, to the satisfaction of the City Solicitor.

Such an agreement will include provisions related to the nature of City funding, the type and amount of affordable housing provided in exchange for funding the mechanism, monitoring of the ongoing provision of affordable housing, and remedies available to the City if the project ceases to be operated as affordable housing.

Conclusion:

Establishment of a capital revolving fund is a key element of the City's affordable housing strategy and was specifically recommended by the Mayor's Homelessness Action Task Force. The guidelines proposed in this report provide a framework for the City to lever affordable housing to be developed by the community in Toronto and support from senior levels of government.

Appendices:

AReference Group - Terms of Reference

BCapital Revolving Fund for Affordable Housing - Management Guidelines

Contact Name:

Joanne Campbell

Tel: 392-7885/Fax: 392-0548

Joe Farag

Tel: 392-8108/Fax: 392-3649

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Appendix A

Reference Group for the Capital Revolving Fund

Terms of Reference

(1)Context:

Toronto City Council has established a Capital Revolving Fund for Affordable Housing, as part of a strategy for developing affordable housing. "Affordable housing" may include ownership, rental, or transitional/supportive housing.

The Fund will be used to provide financial assistance to non-profit groups, and possibly others, in the development of affordable housing. Capital from the fund is intended to be combined with other resources, from the City or elsewhere, to result in viable projects.

(2)Purpose and Function:

The purpose and function of the Reference Group is twofold:

(a)to provide expert advice to the Commissioner of Community and Neighbourhood Services on use of the Fund, including setting general priorities, assessing viability of projects, and selecting projects for recommendation to Council for funding;

(b)to help develop strategies for creating affordable housing, including ways to lever contributions from other parties, and ways to combine resources from the Fund with other resources.

(3)Membership:

(a)The membership of the Reference Group will be 10 to 12 persons appointed by the Commissioner of Community and Neighbourhood Services, with a maximum number as follows from different sectors or areas of expertise:

1 City Councillor;

4 from the private development and property management industry;

2 from the financial sector;

2 from the community-based housing and services sector;

1 from the Ontario Ministry of Municipal Affairs and Housing;

1 from Canada Mortgage and Housing Corporation; and

1 other housing expert.

(b)Members of the Reference Group will be appointed for terms which end at the same time as the term of City Council.

(c)No honoraria will be paid by the City of Toronto to members of the Reference Group.

(4)Conflict of Interests:

(a)Although the Reference Group has only an advisory role, it will adopt and abide by a conflict of interest policy, whereby each member of the Reference Group will:

(i)upon being appointed to the Reference Group, sign a document acknowledging awareness of and stating intention to abide by these conflict of interest provisions;

(ii)declare in advance any conflict of interest he or she has regarding any item considered by the Reference Group;

(iii)abstain from all Reference Group discussions of any item on which he or she has a conflict of interest; and

(iv)abide by any other conflict of interest provisions that may be adopted.

(b)A conflict of interest arises if a member of the Reference Group has a pecuniary interest as described in the Municipal Conflict of Interest Act.

(5)Confidentiality:

Members of the Reference Group will not disclose any sensitive information on particular properties, applicants for funding, project proposals, or related matters, to persons other than Reference Group members and associated City staff.

(6)Conduct of Meetings:

(a)The Reference Group will choose its own chair.

(b)Meetings will be public except when matters listed in subsection 55(5) of the Municipal Act are considered.

(c)Meetings will be held at the call of the chair on the advice of City staff, or as determined by the Reference Group.

(d)Minutes will be kept of the Reference Group's meetings, but these minutes will not contain sensitive project information.

(7)Committees:

Ad hoc subgroups or committees of the Reference Group may be formed to engage in detailed review, advice, or other close collaboration with City staff on particular proposal calls, project proposals, or other matters; such committees will report to the Reference Group.

(8)Reporting and Decision-making:

The Reference Group will report to the Commissioner of Community and Neighbourhood Services; staff recommendations to Council on use of the fund will be accompanied by information regarding the advice provided on that matter by the Reference Group.

Appendix B

Capital Revolving Fund for Affordable Housing

Management Guidelines

(1)Purpose

(1.1)The purpose of the Capital Revolving Fund for Affordable Housing is to provide financial assistance for the development of affordable housing.

(1.2)The fund was established as part of a City strategy for affordable housing development. The City is seen as facilitator and partner in that process.

"The goal of the Affordable Housing Development Strategy is to create an environment in which private sector and community partners will be willing and able to develop affordable housing for people with a range of housing needs that are not currently being met in the market." (Approved by Council, July 1998.)

(2)Definition of Affordable Housing:

(2.1)Affordable Housing means low- and moderate-income housing at rents or prices which in the City of Toronto are not generally found in the private housing market, or the market for new housing.

(2.2)Affordable Housing may include rental, transitional/supportive housing, or affordable ownership.

(2.3)A more precise definition of Affordable Housing will be adopted by Council, to apply to the fund. This may define more than one category of Affordable Housing.

(2.4)Development of affordable housing may include acquisition, rehabilitation, or conversion of existing residential or non-residential buildings, in cases where Affordable Housing would not otherwise be created or preserved.

(3)Nature of Support from the Fund:

(3.1)Capital from the fund is intended to lever and combine with other resources that will jointly make projects viable. Other resources may include fundraised equity, private capital, contributions of land, the new multi-residential property tax class, exemption from development charges, help to access financing or mortgage insurance on favourable terms, federal or provincial capital support, and other resources as appropriate.

(3.2)Funding will be provided to non-profit corporations and may be provided to private corporations subject to any restrictions in the Municipal Act and other legislation.

(3.3)Recipients of funding must raise or borrow additional funds from other sources to the extent needed to cover the full project capital costs.

(3.4)The fund will not provide ongoing or operating funding.

(3.5)The nature and amount of support provided by the fund may depend on the amount of resources or risk on the part of the recipient of funding, and the number and type of affordable units provided.

(3.6)Assistance may be provided in the form of grants, loans, or forgivable loans. Affordable ownership housing will be eligible only for repayable loans.

(4)Priorities for Use of the Fund:

(4.1)Funds available in each year will be allocated in a diversified way among several projects.

(4.2)The Capital Revolving Fund Reference Group will assist the Commissioner of Community and Neighbourhood Services in advising Council on overall priorities for the fund and on specific funding allocation decisions.

(4.3)Priorities and broad targets for the fund, or for any particular proposal call, may be set from time to time by the Commissioner of Community and Neighbourhood Services on the advice of the Reference Group, and reported to Council. Such priorities and broad targets may pertain to volume of funds to be allocated, number of units or projects, types of housing to be funded, and/or levels and forms of support.

(4.4)The overall priority for use of the fund will be to cover construction costs and related soft costs. This may include interim financing during construction. Proposal Development Funding (PDF) may be provided to cover approved costs (such as architectural and technical consultants, legal costs, etc.) for short-listed applicants to develop their proposals more fully.

(5)Process For Allocating Funds:

(5.1)Funding will be allocated through a competitive proposal call process. There may be one or more than one proposal call each year that funds are available.

(5.2)Proposal calls may be by way of an initial Request for Expressions of Interest, followed by invited proposals from a short list, or by way of a one-step request for proposals (RFP).

(5.3)The Reference Group will advise on how broad or specific each proposal call will be. A proposal call may target one or more particular housing types or forms of assistance.

(5.4)Proposal calls will be issued on behalf of the City by the General Manager of Shelter, Housing and Support, within the parameters of any relevant policies of Council.

(5.5)The General Manager of Shelter, Housing and Support will review and evaluate proposals received, recommending a short list or preferred proposal to the Reference Group for review. The General Manager will negotiate with the selected party or parties to determine the form of assistance to be recommended to Council.

(5.6)The General Manager of Shelter, Housing and Support will seek the advice of City staff in the Finance Department and the Legal, Facilities and Real Estate, City Planning, and other divisions, as required.

(5.7)Final approval of funding for each project will be by City Council, based on a report from the Commissioner of Community and Neighbourhood Services through a standing committee.

(6)Eligibility Requirements:

(6.1)Recipients of funding must be incorporated. Unincorporated groups may receive funding through an incorporated trustee organization.

(6.2)Projects supported by the fund must be within the boundaries of the City of Toronto.

(6.3)The following criteria will apply to selection of project proposals, along with other criteria determined by the Commissioner of Community and Neighbourhood Services as appropriate:

(i)a viable business plan including other elements named here;

(ii)sufficient funds for the balance of project capital costs;

(iii)a viable operating budget;

(iv)commitments of support service funding, where required;

(v)ability of private-sector partners to meet due diligence requirements and demonstrate financial competence and track record;

(vi)a solid track record as a housing management organization (may apply to one but not all parties in a partnership), and a management plan;

(vii)land use planning approvals progressing to the satisfaction of the General Manager of Shelter, Housing and Support;

(viii)due attention paid, in project planning, to social and neighbourhood factors;

(ix)meeting any special requirements applying to particular proposal calls.

(7)Financial and Legal Management:

(7.1)The fund will be invested and managed financially by the Chief Financial Officer and Treasurer, within the parameters of relevant City policies.

(7.2)Each recipient of funding will enter into an agreement with the City, to the satisfaction of the City Solicitor. This agreement will include provisions on the nature of City funding, the type and amount of Affordable Housing provided in exchange for funding, monitoring of the ongoing provision of Affordable Housing, remedies available to the City if the project ceases to be Affordable Housing, and other matters to the satisfaction of the City Solicitor. Such an agreement may be registered on title.

(7.3)Undertaking to enter into such an agreement will be a condition of approval of funding.

(8)Replenishment of the Fund:

(8.1)A portion but not all of the assistance provided from the fund will be repaid on a short-term or long-term basis, and used for further affordable housing projects.

(8.2)The fund will be replenished in part from a share of developer contributions to affordable housing under agreements authorized by Section 37 of the Planning Act.

(8.3)The fund will also be replenished from other sources to be determined by City Council.

(9)Reporting:

The Commissioner of Community and Neighbourhood Services will report to Council on each specific allocation from the fund, and will report annually to Council on overall allocations from the fund and the results achieved.