The Archuleta County Board of County Commissioners (BoCC) approved a $300,000 grant for the Pagosa Springs Community Development Corporation (PSCDC) at a March 29 special meeting to cover construction contingency funds requested by the Colorado Department of Local Affairs (DOLA) Division of Housing for a PSCDC affordable housing grant application.
At a March 26 BoCC work session, the board discussed the need for contingency funds and the formulation of deed restrictions for the PSCDC affordable housing project with PSCDC Executive Director Emily Lashbrooke.
Lashbrooke opened the discussion by presenting a proposed deed restriction for the affordable homes, which she indicated includes restrictions that the home must be owner-occupied, cannot be a short-term rental, has a 3 percent per year cap on return on investment and must be sold to someone within the same area median income (AMI) level as the home was originally designated at.
She added that the AMI thresholds on these homes could be between 80 percent AMI and 120 percent AMI and they could be sold to someone at a lower AMI than the original buyer, but could not be sold to someone with a higher AMI.
Lashbrooke stated that the buyer’s income qualifications to purchase a home would be assessed upon purchasing the house and that they could exceed the AMI level the home is designated for at a later date if their income increases, although this would not increase the AMI at which the buyer can sell the home.
She indicated that the deed restrictions also include a provision waiving the work requirement for living in the home if the occupant becomes permanently disabled and cannot work.
Lashbrooke added that the deed restrictions cover a large number of “what ifs” covering a range of possible circumstances and unforeseen events.
She indicated that the restrictions allow the owner to meet the work requirements for owning a home by being self-employed, assuming they file their taxes in Archuleta County.
Lashbrooke explained that she is negotiating with the Archuleta County Housing Authority (ACHA) and believes that it will agree to manage ensuring that the occupants of the homes continue to meet the requirements for owning a home as well as assisting occupants in determining what price they would be allowed to sell their home for.
She commented that she hopes to create a bank of potential buyers for these homes through the lottery process where the initial buyers will be selected and that the ACHA could notify this bank when one of the homes comes onto the market and manage the transaction if someone in the bank chooses to buy the home.
In response to a question from Commissioner Warren Brown, Lashbrooke stated that all potential buyers in this bank would be notified and who could purchase the home would have to be determined by lottery due to federal regulations.
She stated that, if the owner defaults on the loan for the house, the ACHA would have the right to force a sale of the home to prevent it being foreclosed upon.
She indicated that having forced sales upon default would prevent any entity from having to rescue the mortgage for the home and that the buyer of the home would again be selected by lottery.
Lashbrooke added that the PSCDC does not have the capacity to manage deed restrictions and that the restrictions were designed to remove the organization from managing the home once construction and sale is complete.
She stated that the ACHA would also likely manage complaints raised about the home by neighbors or the bank providing the loan.
The deed restrictions will remain in place for 33 years, Lashbrooke added.
She then raised the possibility that, in later phases of the project, some of the homes could be sold to local businesses to provide temporary housing for their employees.
She indicated that this possibility would be built into the deed restrictions and that the rents on the homes would be restricted by the AMI level they are designated for.
Commissioner Ronnie Maez asked if there would be limitations on how many homes could be bought by local businesses, commenting that having all the homes owned by local businesses “wouldn’t be good.”
“That’s not our mission either,” Lashbrooke said, adding that the business buyers would primarily become relevant if the PSCDC is unable to otherwise sell the homes.
She commented that having these guaranteed buyers would supply banks providing loans for the project with additional security.
“They would love for someone else to build their housing for them and occupy them and they just pay for it,” she said. “They would love for that to happen. That’s not our goal or our intention. We would only sell to businesses if, all of a sudden, affordable housing became plentiful and we’re struggling to sell these houses.”
She added that the deed restrictions also include a provision where, if the occupant of the home has to move out of the area for work, they can rent the house to another person.
Commissioner Veronica Medina questioned how businesses would qualify to meet the AMI required to purchase these homes.
“I haven’t thought that through, to be quite honest,” Lashbrooke replied. “I would have to go back and check with my consultant on how that could work.”
The group then discussed how these qualifications could work and how the restrictions on rents for the properties operate, with Lashbrooke clarifying that the option to rent the home while the owner is out of the area requires that the rental cost meet the AMI levels the home was initially designated for.
Medina commented that she is opposed to businesses being able to purchase homes, to which Lashbrooke responded that the rent controls related to business are being integrated into the deed restrictions “in case this ever happens.”
Lashbrooke added that the formatting of the deed restrictions could be changed for homes built later in the project, and the group briefly discussed if the deed restrictions on the properties could be altered later, with Lashbrooke emphasizing that doing this would be challenging.
She added that the local capacity grant that the PSCDC and the Town of Pagosa Springs obtained would support a community affordable housing coordinator who would help design a deed restriction that could be broadly used in the community.
In response to a question from Maez, County Attorney Todd Weaver indicated that the county cannot change the county deed restrictions on the properties in the future since it will not own the properties anymore.
Lashbrooke added that the ACHA would be the only one with the power to change the deed restrictions.
Medina questioned how to prevent the deed restrictions from being changed in the future, and Maez proposed that the agreement with ACHA concerning management of the deed restrictions would likely be a powerful tool in this regard.
Lashbrooke added that these deed restrictions will be monitored by the Colorado Division of Housing.
County Manager Derek Woodman noted that the deed restrictions require the occupant to be employed in Archuleta County and asked what would happen if the occupant is employed in La Plata County but still resides in Archuleta County.
Lashbrooke stated that one member of the household has to be employed in Archuleta County and that, if this is not the case, the occupant would be notified and would have to come before the BoCC to ask for relief of this restriction.
“But that’s not the goal of this project,” Lashbrooke said. “The goal is to employ our employees and our residents here.”
She added that questions still exist about those who live in Archuleta County but are employed in Hinsdale or Mineral counties, particularly given that many area residents work at Wolf Creek Ski Area in Mineral County.
Lashbrooke added that there are a range of ways to address this and that she would like recommendations from the BoCC on the issue.
Medina questioned why requests for relief from the employment restrictions would come before the BoCC given the county does not own the homes or control the deed restrictions.
Instead, Medina proposed, these requests would likely be handled by the ACHA since it manages the deed restrictions.
Lashbrooke expressed agreement and noted that the ACHA would likely have to report back to the BoCC if this situation arises and ask for its position on the issue.
Maez commented that the decision should remain with the ACHA, and Weaver questioned what authority the BoCC would have to intervene in that situation due to the county not owning the properties.
Maez then allowed resident and affordable housing advocate Bill Hudson to ask a question.
Hudson asked how the deed restrictions would interact with occupants who retire while still living in the home and if these retired occupants would be ejected from their homes due to no longer working in the county.
Lashbrooke explained that the deed restrictions allow the occupant to continue living in the house once they retire assuming they have occupied it for 10 years prior to retirement.
“What we don’t want is someone who’s going to retire in one year to occupy a workforce housing home,” she said.
She added that, according to the Division of Housing, workforce housing units tend to be owned for about 10 years before re-entering the marketplace.
Medina asked Lashbrooke to let Weaver review the deed restrictions before they are finalized.
Weaver commented that, although he had not yet reviewed the restrictions in detail, he did feel that spelling out who has enforcement authority in the deed restriction is critical.
Brown asked that the ACHA be required to give the BoCC a quarterly update on the homes to ensure the board remains up to date on the project.
Maez stated that a quarterly report would be valuable at the beginning of the project and that they could potentially become semiannual later on.
Lashbrooke commented that the ACHA’s involvement with the project would mostly occur when homes are initially purchased or sold.
Lashbrooke then shifted focus to the issue of the PSCDC’s need for additional contingency funding, explaining that, as part of an application for a Division of Housing grant, she is required to guarantee a certain amount of funding that she is applying for grants to cover.
She indicated that she would not hear back from these grants until after the Division of Housing grant application closes.
Lashbrooke added that the Division of Housing is requesting that the PSCDC put in a contingency of 10 percent of the affordable housing project’s cost into the project budget, which she stated is about $385,000.
She noted that this contingency will cover any overruns of the anticipated project costs.
Lashbrooke stated that the division is requesting that the PSCDC have a commitment guaranteeing its contingency up to $300,000.
She added that there are several grants that she is looking at to cover these costs.
Lashbrooke stated that the grant application is due April 1 and that, because of the short timeframe available, she was asking the county to supply funds to guarantee the $300,000 contingency needed for the grant.
She then outlined the county’s risk in guaranteeing this contingency, noting that the PSCDC has a fixed-price contract with builder BWD and that any budget overruns would have to be reviewed and approved by the PSCDC Board of Directors, although she added that she would be willing to add BoCC review and approval of budget overruns if the county provides the contingency funds.
“I fully anticipate and expect that I will cover this funding before it ever comes to the BoCC with funding, with stakeholder interest and participation, I have several different options,” she said. “I just can’t close anything before the 31st of this month.”
She stated that the primary grant she is pursuing to cover this contingency is a $300,000 request to the Colorado Healthcare Foundation, which she will receive a decision on in the next three months.
Brown asked when these contingency funds would be needed in the “worst-case scenario” that they are necessary.
Lashbrooke stated that they would be required at the end of the project in November or December.
She added that it is “highly unlikely” that the contingency funds would be needed due to the nature of the building contract and that the PSCDC would be aware of any likely budget overruns once the foundations for the homes are in place.
“So, it’s just kind of like a little type of reserve thing to get us through April 1,” Maez said.
“It’s a safety net honestly that the ... Department of Housing is asking for, just to say, ‘OK, if we’re going to give you all this fund to offset the costs of your house, you look like you’re about $300,000 short,’” Lashbrooke said. “Well, I have several other options to go after, it’s just the window hasn’t opened yet. Who’s gonna guarantee that contingency?”
She added that she could not foresee the PSCDC project using more than $50,000 in contingency.
She noted the Colorado Health Foundation is “very interested” in the project.
Brown asked if the contingency request is a “gap guarantee request” for a short period of time that would not be due for up to nine months, which Lashbrooke confirmed.
Maez highlighted that Lashbrooke might obtain more funds for the project, thus preventing the county from spending any money.
Maez then asked Woodman about what funding the county could use to fulfill this request.
Woodman stated that the county has $667,000 in Payment in Lieu of Taxes and Local Assistance and Tribal Consistency monies available.
Weaver noted that he would have to think about how to implement providing this funding since the Colorado Constitution forbids counties from pledging credit to other entities.
Following consideration, Weaver stated that the most effective way to provide the contingency would be to set the money aside for contingency and arrange that the PSCDC could apply for a grant to obtain the funding if necessary.
He added that the county would have to be “creative” in how it structures this process to ensure it complies with the Colorado Constitution.
Lashbrooke expressed confidence that the PSCDC will not need the funds.
Weaver proposed that the county could award a grant to the PSCDC that would reimburse the organization for contingency costs up to $300,000.
Brown asked if a provision could be included in the grant agreement that any project savings on the PSCDC project would be applied to the contingency prior to using county grant funds.
Lashbrooke stated that this would be acceptable.
Maez emphasized that he is focused on ensuring the funding is in place by April 1, as needed for the PSCDC grant.
Weaver reiterated that the best way to approach this issue would be with a reimbursement grant similar to those the county used when awarding American Rescue Plan Act funding.
“It’s too important of a project to not try to make it happen,” Maez said.
“I agree, Ronnie,” Brown added.
Lashbrooke emphasized how close the PSCDC is to completing funding the project and stated that she learned of the requirement due to a phone call from the Division of Housing the Friday before the work session.
Medina asked Lashbrooke if the reimbursement grant arrangement Weaver proposed would meet the grant requirements.
Lashbrooke stated she believed it would, but she would check with the Department of Housing.
“And I will work really tirelessly as normal to make sure that we get more grant funding in to offset that cost,” Lashbrooke said.
Medina asked Weaver what steps would need to be taken to rescind the grant to the PSCDC if funding to cover the contingency is found elsewhere.
Weaver commented that the grant could be set to expire at the end of the year and stated, because it would be a reimbursement grant, “if no receipts were submitted, basically the grant goes away.”
Lashbrooke concluded the discussion by stating that, if she obtains funding from another source, she will notify the county so the funds can be released to cover other county needs.
At the March 29 BoCC special meeting, Woodman presented a grant agreement with the PSCDC for a $300,000 grant along with a resolution appropriating $300,000 in Local Assistance and Tribal Consistency Fund monies to the PSCDC grant award and a letter of commitment for the grant to be presented to DOLA.
Brown highlighted that the grant funds would cover the gap if the PSCDC does not receive all the grant funds it is applying for.
Maez expressed agreement with this assessment and Woodman added that the PSCDC has a “top final number” with its building contractor that the project costs will not exceed, although he noted that the project could be impacted by increases in material or product cost increases.
“There is no anticipation that these funds will be needed,” Woodman said, adding that the grant is necessary for the PSCDC to move forward on the project and on obtaining other DOLA grants.
“I hope that these funds are not needed and they revert back to the county,” Maez said.
“Me, too,” Brown added.
The board then approved the grant agreement, the resolution and the letter of commitment.
