Building Sonoma’s Affordable Housing Trust Fund
Posted on July 19, 2021 by Larry Barnett
Redevelopment funding ended in 2012, and the city was slow to begin to replace it. The 20% portion of redevelopment funding that was dedicated to the creation of affordable housing accounted for millions of dollars used to subsidize larger affordable housing projects. The newly created Affordable Housing Trust Fund (AHTF) has accumulated only $150,000 (and that in the form of a credit from the General Fund).
Large affordable housing projects built by non-profit housing developers have always, and continue today, to rely upon government assistance in the form of finances or dedication of land. Unless the City of Sonoma can offer substantial assistance, such developers will work with other jurisdictions where assistance is available. Thus, it is incumbent upon the city to build up the balance in the AHTF as quickly as possible if it has any chance of seeing meaningful progress made on the creation of affordable housing.
Sonoma’s Inclusionary Ordinance has been in place for a long time, and as it is, it’s beneficial. However, the number of affordable units it creates is very small, an average of six per year, and in a good year, perhaps ten. This is a proverbial drop in the bucket and cannot provide the depth of affordable housing this community needs. The only viable route to the creation of significant numbers of affordable housing units is through the financial strength of the AHTF, and the adoption of proactive policies that aggressively support the growth of its revenues. In order for this to happen, City Council priorities will have to change.
Accordingly, I suggest the following ways to generate revenues to quickly build the cash balance of the AHTF:
- Explore the viability of increasing the Real Estate Transfer Tax – I first suggested this in 2015. The current tax rate is $.55 per $1,000 in sales price, which in an average year produces approximately $150,000 in General Fund revenue. Many jurisdictions have rates two, three or four times as large. For example, San Francisco has implemented a progressive transfer tax rate of 0.5% – 3% of the sales price, depending upon the value of the home sold. Given the current average sales price of homes in Sonoma, a tax increase to roughly $2.00 per $1,000 would generate an additional $450,000 yearly. This change might require becoming a Charter Law city from our current General Law designation, but the costs associated with that effort would quickly be recovered, and reliable increased revenue generated thereafter.
- Renegotiate the city’s agreement with the Tourism Improvement District (TID) – At its current two percent (2%) of room charge levy, and with occupancy returning to its historic levels, the TID will accumulate roughly $800,000 yearly. This is an enormous amount of money, all of which must be spent on tourism promotion, having risen from an original amount of $400,000. I suggest the city ask the TID to reduce its percentage by half, which would provide the opportunity for the city to increase its TOT by one percent and generate an additional $400,000 in revenues available to place into the AHTF.
- Reconfigure the basis for the Transient Occupancy Tax (TOT) – Presently, the TOT is based on hotel room charges only. Hotel stays today, particularly at our largest hotels, also offer spa services to guests, and such spa charges are often substantial, even approaching room charges (massage, facials, pedicure, manicures, spa facility use fees, etc.). By including spa charges in the basis of the TOT charged to guests, I estimate the city’s TOT can increase by at least 25%, adding another one-million dollars per year that can be placed in the AHTF.
- Assess a new Affordable Housing levy on guest lodging – Other municipalities specifically and explicitly assess a separate Affordable Housing levy on guest lodging charges. Recognizing that the hospitality is a source of many low-paying jobs (housekeeping, kitchen, landscape maintenance, etc.) and that housing for employees of such low-paying jobs is hard to find, cities have prioritized generating revenues for affordable housing project subsidies. By making the purpose of such charges explicit on guest invoices, lodging guests will understand they are contributing to housing solutions. A two-percent levy would produce revenues of $800,000 per year; four percent would generate $1.6 million for the AHTF.
- Increase Housing Impact Fees – The city’s Housing Impact Fee schedule emerged from the Nexus Study conducted a number of years ago. It took far longer than it should have taken for the fee schedule to be adopted. As it is, the fees for new hotel construction are set at only $15 per square foot, even though the Nexus Study indicated fees as high as $89 per square foot could be justified. Once again, as primary generators of low-paying jobs, hotels need to generate revenues for housing low-paid workers.
- Increase Yearly Business License Fees – All businesses operating in the City of Sonoma should be contributing to the creation of affordable housing since their employees and the city would benefit if less expensive housing were more available. At present, Business License Fee revenue averages $380,000 (21/22). It appears the fee schedule has not been increased in nearly a decade, instead of tracking at minimum, with inflation. In addition to yearly increases based upon inflation, an immediate 30% increase dedicated to funding the AHTF would add over $100,000.
- Initiate a community contribution campaign to build the AHTF – The private wealth in this community is enormous, and if individuals, businesses, non-profits, and the City of Sonoma make it a priority, substantial sums for the AHTF can be raised.
In summary, should all the recommendations above be implemented, average yearly revenues for a contribution to the AHTF could reach well over $3,500,000. At this level, the city could use its bonding authority, as it did while redevelopment agency funding was in place. Bonding authority would allow the city to issue 20 or 30-year bonds against these future revenues to the tune of $30-50 million dollars, which would once again allow the city to acquire land and provide financial assistance to non-profit affordable housing developers for the creation of housing for extremely low, very low, and low income households.
The methods exist, what’s needed is the political will.