Marin County to consider Oak Hill guarantor program
Marin County supervisors voted unanimously on Tuesday to take an initial step toward helping to guarantee rental income for a housing project designed to serve educators and county employees.
The project, the Village at Oak Hill, envisions construction of 135 apartments on vacant land donated by the state in eastern Larkspur near San Quentin. The plan is to reserve 101 of the apartments for the employees of local schools and 34 for county employees.
The project, which is being overseen by the Marin County Public Financing Authority, a joint partnership between Marin County and the Marin County Office of Education, has a $16.4 million funding gap. Rising interest rates since the project launched are to blame, said Matthew Hymel, the authority’s director and a former county executive.
As a means of reducing the deficit, the authority is asking Marin County and local school districts to guarantee future rental income from the apartments for 40 years as a means of convincing bondholders to accept lower interest rates on the loan that will finance the project.
Tamalpais Union High School District declined to participate in the guarantee program in March. The Novato Unified School District and the College of Marin have both expressed interest. The project was initially designed to serve the county’s 17 school districts. College of Marin was invited in after the funding gap emerged.
Despite the fact that the county could still reverse course, opponents of the plan warned strongly against embarking on a slippery slope.
“If you agree today, you are essentially getting pregnant and then you become reluctant to abort further on,” said Mimi Willard, president of the Coalition of Sensible Taxpayers. “That is why I suggest you not do so.”
Casting his yes vote, Supervisor Eric Lucan said, “I don’t believe that we are getting pregnant yet. This is more of a let’s go on a second date, let’s work out the details.”
Kevin Saavedra, a Tamalpais Union High School District trustee, was one of several people with financial expertise who voiced their opposition Tuesday to Marin schools guaranteeing bondholders’ investments.
“The various school districts don’t have the expertise to understand what they’re being asked to take on and should not have the authority to bind their district in this kind of arrangement,” said Saavedra, who is a partner in a real estate investment management firm.
“It is virtually certain that the income guarantee will be triggered during the 40-year life of these bonds,” Saavedra asserted.
Critics of the plan objected to the fact that the county was being asked to move forward with the plan before being presented with details about the project’s financial prospects and the potential cost of backing it up.
“You should absolutely have pro formas before you make a decision,” said Larkspur Vice Mayor Stephanie Andre, a finance executive with nearly three decades of experience. “We are asking school districts to do something that is outside of their core mandate and expertise.”
Steven Lang, who has had a 40-year municipal bond career, wrote in an email to supervisors, “The fact that bond investors reportedly will accept a much lower interest rate if school districts guarantee rental income implies that sophisticated (municipal bond) investors see material risk of default in the real estate, so they need to transfer that risk to the school districts and the county.”
Hymel, however, said, “We think over the long term the units should be filled and have a waiting list.”
The apartments would be priced to be affordable to households earning between 50% and 80% of area median income (AMI). A household of three earning $88,150 per year in Marin is at 50% of area median income, while a household of three earning $141,000 a year is at 80%.
Hymel said a demand study predicted that there will be some 300 people per year who will be interested in renting the units.
“If we meet our target of 50% to 80% AMI,” Hymel said, “we think there would be an excess demand.”
Critics of the plan cited high vacancy rates and financial problems at other Bay Area apartment complexes designed to provide workforce housing, such as Serenity at Larkspur, a 342-apartment complex at 700 Lincoln Village Circle in Larkspur, and Marina Crossing, a 90-apartment complex in Petaluma.
Hymel said the problems at those complexes resulted due to rents being raised to market rates or above.
“So, we are really reluctant to do that,” he said, “but that obviously would be an option.”
Under the guarantor financing proposal, a certain number of apartments would be reserved for each participant. Participants would back up the rent of only those units.
Hymel said if one participant’s apartments failed to rent, another participant could rent them to their employees. He noted that while Marin County has 2,500 employees it is being asked to guarantee the rent of just 34 apartments.
Hymel also said that the joint powers authority is budgeting for a vacancy rate of 4% so participants would not be held responsible for any vacancy rate below that.
Hymel said the authority needs to know how many apartments the county and local school districts are willing to back before building a final budget and pro forma. He has said the project will not go forward unless the budget is balanced.
Several housing advocates spoke in support of the project Tuesday.
Jenny Silva, who heads the board of the Marin Environmental Housing Collaborative, said that Oak Hill addresses the problem that Marin school districts are having hiring and retaining teachers due to the lack of affordable housing.
“The Novato school district has stated it costs $25,000 to recruit a teacher, and those 25- to 34-year-old teachers are needing to be replaced every 1.6 years,” Silva said.
Rollie Katz, executive director of the Marin Association of Public Employees, said, “We need to build more housing that people who work for this county can afford to live in. There is risk to that, but there is even greater risk to not doing it.”