Novato school district weighs stake in housing project

The Novato Unified School District has agreed to consider reserving 27 apartments in a workforce housing complex in Larkspur.

The district board of trustees directed staff on Tuesday to vet a potential agreement with the Oak Hill project near San Quentin. To finance the 135-apartment complex, organizers want school districts to participate and guarantee rental income from their housing.

Staff at the Novato district are expected to come back to the board by May with a draft agreement that outlines the potential risks and benefits if the district participates in the guarantor program.

Matthew Hymel, executive director of the Marin County Public Financing Authority, told trustees that the guarantor program is needed to help close a projected $17.4 million deficit in the project. Hymel, speaking before the Novato board, attributed the shortfall to interest rates that have “more than doubled in the last few years.”

“If we could get 100% participation in the guarantor program, it would lower the interest rate on the project by 1 point,” Hymel said.

The project needs at least five major public entities in Marin to guarantee rental incomes from tenants to make the program work, he said.

In addition to the Novato district, the authority is speaking with officials at San Rafael City Schools, the College of Marin and the Marin County Office of Education. The county education office is expected to be an umbrella guarantor for Marin’s smaller school districts.

The county, which would reserve about 25% of the apartments for other types of public employees, would be the fifth guarantor. Hymel and other officials in the authority expect to address the county about the guarantor program in April, he said.

All the apartments would be leased at between 50% to 80% of the area median income. For a three-person household, for example, half the median is $88,150 per year.

The main reason for the project is to recruit and retain school employees, many of whom have long commutes because they can’t afford to live in the county, Hymel said. Some might endure commuting for a few years but quit if they get a job closer to home, he said.

“Retention is the real challenge,” he said.

For the same reason, the Novato district is looking to build up to 200 affordable dwellings for workers on properties it owns. The district has identified two sites: the Meadow Annex property in the Hamilton area and the San Andreas property in the San Marin neighborhood.

Joshua Braff, the district’s chief financial officer, said the Oak Hill guarantor program could carry some risk if the 27 apartments are not fully rented by education workers. Districts that commit to the guarantor program would be expected to backfill rental income for any apartments that remain vacant for a year or more.

But Braff noted that the district has a huge need for affordable housing.

“If we don’t think we can fill 27 units, what are we doing trying to build 200 units?” Braff said at the board meeting.

While most affordable housing projects in Marin have long waiting lists, critics were skeptical.

“It’s really unacceptable to ask school districts to backstop a housing development,” Mimi Willard, president of the Coalition of Sensible Taxpayers, said at the board meeting. “If you agree to look at it, you’re taking a giant step on a slippery slope.”

Willard advised the board to “hire your own people to look at this, and see if it fits your employees.”

“Get an accountant and an auditor of your own choosing to look at the contingent liability that extends for 40 years,” she said.

She said it wasn’t a given, for example, that a Novato employee would choose Oak Hill over a comparably priced place in Petaluma that has a yard.

Hymel said the Novato district’s total annual guarantee, for example, would be about $1 million in rental income in the unlikely scenario that all 27 apartments remained vacant. With a 4% vacancy rate, there would be no liability to the district, he said. A 8% vacancy rate would be a $42,000 liability, while 12% would be $84,000.

Hymel said a likelier scenario is few or no vacancies, because the plan allows districts to fill apartments from waitlists at other districts.

The estimated cost of the Oak Hill project is more than $118 million. The county and the Marin County of Office of Education created the financing authority in 2023.