Travis County Commissioners Court
May 1, 2007
Housing Finance Corporation
We'll call to order the Travis County housing finance corporation voting session for item number 2 only, consider and take appropriate action on to approve resolution authorizing fourth supplemental trust indenture for the corporation's single-family mortgage revenue notes, series 2001-1; authorizing the execution of documents and containing other provisions healthing thereto. -- relating there to.
>> I'm harvey Davis, manager for the corporation, and this is the item that the is Commissioners court had the discussion and hearing this morning.
>> move approval.
>> second.
>> all in favor? And then we will recess the Travis County housing authority until 130 for the other two item.
>> that was the finance corporation.
>> thank you.
>> okay.
we are going to call back the Travis County housing finance corporation session. We did recess this item before we left for -- for lunch. On item 1, take appropriate request request to approve payments to deloitte & touche llp for audit of the component unit corporations.
>> I'm harvey Davis, invoice is $6,680 and the housing finance corporation's portion is -- is 4,464.36. And that's the amount that I'm asking the board to approve. The -- the amount is determined by the -- by the actual ending fund balance for each -- for the three corporations that were audited. And so it's their relative amount.
>> okay.
>> combined ending fund balance.
>> okay.
>> all those in favor? Show unanimous court and Commissioner Daugherty is right here. 3. Consider and take appropriate action regarding presentation from american housing foundation related to establishment of scholarship program in conjunction with financing by capital trust agency.
>> I'm here with jeff richards, who is the chief financial officer for american housing foundation. Just to give a little -- a little background on this item, you will recall in 2003 they came to the corporation asking us to be -- the corporation to be the issuer for -- for their purchase of five apartment complexes in Travis County. There was a -- a -- a long process that was involved then, the corporation didn't -- was not -- declined to be the issuer. American housing foundation issued taxable bonds to purchase the apartment complexes and then -- then in -- so those are -- these apartments are off the property tax roll due to their status as a chdo non-profit housing entity. In 2005 they came to the board to the corporation and asked the corporation to be a host issuer. For another -- for a florida issuer to issue tax exempt bonds so that they could convert their debt from -- from taxable to tax exempt debt. Thereby lowering their debt service costs. We did -- the corporation did approve that transaction. But they were not able to -- to complete the transaction. And -- and the -- the proposal in 2005 was that if -- if the corporation would have approved the transaction, then they would donate two percent of their units to -- to a non--- of non-profits to -- to -- to provide housing for disabled, elderly -- very low income disabled elderly or -- or victims of domestic violence and they would contribute to a scholarship program to -- to be -- to be run by the corporation. The amount was $300,000 at closing and 75,000 per quarter to fund the scholarship program. But again the -- they were not able to consummate the transaction and in the interim they said, well, we wanted to -- to go ahead and donate the -- the units, whether this transaction completed or not. So they have executed agreements with family elder care and the basic needs coalition to -- to donate 31 apartment units. So -- so what they have come back to -- essentially offer the same -- the same transactions that they did in -- in 2005, they -- they have done a little bit of restructuring of their -- of the -- of the financing part of this proposal. So -- so the purpose of today's agenda item is really not to ask the board to take any action, but to -- to present the -- the proposal, have american housing finance -- sorry, american housing foundation to present their proposal and what they -- there is a scheduled public hearing on this transaction on may 15th. And that is when they would -- they are asking the board to -- to approve their transaction. So I will -- if it's okay with you, Commissioner, I'll turn it over to mr. Richards.
>> welcome.
>> thank you.
>> thanks for allowing us to be here today. Harvey that was a -- actually a very complete synopsis of what we are going to be asking for. Basically asking this board to ratify or approve again exactly what we asked a couple -- requested a couple of years ago in 2005. They have -- there are five assets that we own here in Austin. They are part of a larger portfolio of 17 assets that were undergoing an overall restructure in the financing. It is a performing portfolio, but there are several advantages that we think we are going to need in the financing that will be advantages for the properties as well as for the foundation. But -- but one of the things that we are doing within that will be to -- to convert the taxable debt against the five Austin assets to tax exempt as -- as I said we already own the properties, they are already off the tax rolls. We would actually be coming to this board to ask you to be the issuers on that. If it were not for -- for prohibition by state statute that an issuer cannot refinance existing bonds. So we are going through an issuer in florida called cta, they are located in the gulf
>> [indiscernible] florida. They by charter can issue bonds across state lines. And so one of the things that we will be asking you to do for us, on the 15th, is to -- is to approve an interlocal agreement with cta wherein Travis County housing finance corporation actually is the host issuer.
>> can you repeat that, I'm sorry. Can you speak a little louder. Also repeat that last statement, especially with the interlocal agreement. The last part of that.
>> one of the things that we will be asking this board to do on the 15th is to approve an interlocal agreement with cta in florida and so this board actually won't be acting as it is host issuer. Ct will be the issuer on those bonds. Does that answer the question?
>> yeah, it does. Continue, I just wanted to make sure that I understood that.
>> the other two things that we will be asking you to do is to approve the hearing held on that day, I guess somewhat earlier, that -- than this board meeting and -- and also then to approve a scholarship agreement. The cost savings that -- that we will realize through converting these bonds to tax exempt, we estimate to be in the neighborhood of half a million a year. And what we are proposing to do, really what we have proposed to do it's my understanding since we bought these properties is to share the lion's share of those savings with the Travis County housing finance corporation in the form of establishing a scholarship program for -- for at-need kids and -- and it's our vision that those funds will be used to provide college scholarships for kids that are either first generation college students or come from families that 60% or less than median income or single parents that -- that want to take advantage of educational opportunities to -- to improve their family's condition. We have done this very similar program now for -- for a little over three years in dallas and the dallas housing authority in the phoenix fund and as of today, the -- there's -- their scholarship program has received a little over a million dollars. From this portfolio. They have a well established program that they are very excited about, have had a high degree of success. I understand that -- that perhaps some of you are familiar with that program and have been in contact with those folks in dallas as to how --
>> actually testified before the corporation, board members, during that process of -- of -- of you looking into Travis County involvement in this program. Particular program.
>> uh-huh.
>> but anyway, go ahead.
>> okay. What we would propose to do, right now, we are scheduled to close our larger transaction on the entire portfolio on or about June 7th of this year. And on that -- on the date that we close, what we are proposing to do is to -- is to fund $300,000 to the housing finance corporation to -- to establish the seed for that scholarship program. We would have no problem with you using a portion of those funds to establish the administration of that program. Then on an ongoing basis, each year it would be our intention to fund an additional $300,000 each year that we own these assets, actually that would be $60,000 per property that we own here. And that would be broken down into a monthly amount and funded monthly.
>> okay. I got some questions, but go ahead --
>> well, in a nutshell, that's it.
>> ready for questions.
>> yes. So -- all right. I -- I recall this real vividly, as much as I possibly vividly can recall things. But it was -- it was some -- some aspects that we looked at and in fact looking at the dallas model, especially dealing with the scholarships on -- there was one instance where I think they were basically -- if I can recall, harvey correct me if I'm incorrect, they were basically looking at the -- the transitional housing units, in other words, public supported housing units as far as looking at some of these type of opportunities whereby I think at that time the court, the corporation was trying to -- to not just isolate just in -- in situations where -- where -- we are looking at public housing recipients for the scholarship moneys, we wanted to kind of make it be more pervasive throughout the -- especially in the area of qualified aspects of income level. First time student, of course, attending college was another cite tear I don't know that -- criterion that was also looked up. My concern is the administration of us, I never did hear us, I can't recall, harvey, where we have looked at and said who would actually minister this scholarship money that would be made available from the savings of -- of taxable -- bond versus non-tax I don'table. That money that's being generated. The savings on this. Who would actually assure that -- that the persons that qualify to receive scholarship money, these children, who would actually oversee that to ensure that -- that the money didn't -- is getting handed to the right people and stuff like that. And who -- as far as checking out the qualifications for -- for the student that would receive scholarship money, who do we determine how that would be? Because we never did go through --
>> first of all, I believe that you are correct in that the dallas housing authority's program, being the housing authority, is -- is the recipients are housing authority residents. So -- so a program that -- that would -- that the corporation would establish would be different and it would be a broader -- broader range of recipients. The plan would be -- first, we would establish a 501 c 3 organization, that would be -- that would be -- established by the -- by the housing finance corporation that then would run the -- the -- make the necessary personnel add addition, we thought would be a part time person, coming up with policies and ways of administering the program we haven't gone a long ways down that road because there's not a reason to until it's approved by the board and they actually are able to close. Doesn't seem to be a lot of reason to devote a lot of work to -- to designing a scholarship program. It is -- it is something that -- that you know I see as quite a bit of work to -- to try to really come up with something that's -- that's nice and because we -- there's outreach, there's -- there's a committee to select people and I mean there's just a lot involved with -- with a scholarship program. If this works out the way that they have proposed and there's sufficient cash flow to fund it, I mean there's a lot of resources there for doing a lot of good work.
>> I guess -- I guess we didn't venture down that road very far because of the fact that we -- that we didn't know where -- where this would lead. It was basically at that time taking input and of course things didn't pan out and they didn't close and stuff like that. So -- so I'm just trying to make sure that we would put all of those pieces back together. And if -- if the closing in all of these other things that was brought to us today and closing, all of these other things take place, close -- I guess my question is when could Travis County housing finance corporation or that little 501 c 3 entity, that may need to be created, we will receive -- we will receive the scholarship money for the -- for the -- for the when would that actually take place.
>> if they are able to close on June the 7th, then on that date, the corporation would be wired $300,000. I have been advised that --
>> $300,000.
>> I have been advised that it's fine for that money to be put into the corporation's account, to be held more -- sort of reserved. For the scholarship program. And until we create the 501 c 3, come up with our scholarship program and, you know, that will take obviously several months to -- to do and then at that time we would crank through the money, which is a new entity, and go from there.
>> I might add, also, it's not our intention to look over this board's shoulder in administering this pam. This is going to -- this program. This is going to be your program to administer. There's no stipulation that kids that we have seize scholarships come out of our properties. This will be truly your fund to administer. We would like some -- some kind of reporting in whatever way you think is most convenient or meaningful so that we could see on an annual or semi annual basis how the funds are being used, who is receiving them, get some stories occasionally. Find out, you know, how it's working. But other than that, these are your funds.
>> administrative costs taken care of out of the -- out of the $300,000, harvey?
>> yes.
>> and that -- that roughly what percentage administrative cost is there in
>> [indiscernible]
>> I don't know what that percentage is.
>> ance that, either. But -- I can't answer that, either, but I would expect as you get closer to this, you could certainly get in touch with those folks again. They would be happy to share their model with you, their experiences.
>> I think that you need to have some of those models kind of in place. I realize that you don't want to go down that path very far until you get this deal done. But the anticipation of doing this, I mean it would be nice to -- to just sort of have a -- I mean, a thumbnail sketch of -- you know, what that costs, I mean, and how that's -- you know, how that's taken care of. I don't think that you need to have it to the nth agree, but it would be nice to sort of -- we had those things answered a couple of years ago, but it's been a couple of years ago.
>> it's been a while.
>> when I looked at their program in 2005, I don't recall getting that figure, but I do remember that their program was more than just giving money to people for scholarship. It was -- we want a -- we want to -- to broaden the horizons of -- of our people, high school and grade school kids in the housing authority and they will take them on trips to -- to give universities and kind of expose kids to, you know, things beyond their neighborhood. So it's -- they probably have a higher administrative cost for that good reason. Than, you know, what -- what we may come up with here.
>> we can look at it as one of the models that's available.
>> I believe that they have also used their administration of that program to develop a new fairly well developed adult mentoring program for kids, adult volunteers. Things like that.
>> okay.
>> I have a couple of questions. It goes back to what we were talking about yesterday a little bit. In terms of the $500,000 savings realized, how -- I hear what you are saying that 300,000 would come to us in this scholarship fund and then an additional, is it -- is it $75,000 per quarter would come to us, what about the remainder? How will that be utilized? Would that go back into these five properties? If so, how?
>> it very well could. Let me say the priority of the funding for the scholarship program in the waterfall or in the method that -- that funds come out of a portfolio like this would be superior to any funds that the foundation could receive. In other words --
>> so we would get the cream off the top.
>> that's exactly right.
>> we would get the first 75,000.
>> after --
>> if you realize any.
>> after debt service, before any excess cash flow from the portfolio could be distributed to the foundation.
>> so we would get the first $75,000 that was available, even before, say, upgrading the -- was it a sewer problem that was at fair way village?
>> well, fairway village again is not part of this portfolio.
>> good point. But as far as any kind of capital improvements to one of the five properties.
>> no, that's not exactly right. Because -- because there's money that goes into the capital reserve.
>> so capital reserve actually would come before our 75?
>> I believe it would, yes.
>> that would be part of your --
>> because of course central to -- to maintaining the integrity of cash flow available, this would be maintaining the properties in a safe and marketable condition.
>> okay. And -- on the 31 units that have been set aside, for family elder care and basic needs coalition, I don't know how far -- have -- you have already executed the contracts for those?
>> that's correct.
>> in those contracts what are the terms for those 31 units? Will they be leased at the same rate as the other units or will there be a discount?
>> no, those are made available free of charge.
>> oh, great.
>> fully furnished with utilities and everything, yes.
>> pardon me, I'm not a rocket scientist on financing, I'm learning as I'm going. Bear with me, here. But the freddie mac is going to issue fixed rate and variable rate bonds, tax exempt to replace the taxable bonds that you used to finance the purchase of the five properties; is that correct?
>> well, cta in florida actually would be the issuer of the bond. Freddie mac will purchase them.
>> okay. So while these five properties are already tax exempt, who -- what is the -- some governmental entity is taking a cost, taking a hit or these bonds being issued tax exempt. Which governmental entity is it? I'm just trying to follow?
>> no, that's not really true. What happens is --
>> someone is not getting a tax.
>> [laughter]
>> well, invest stores, you know, the investors that purchase these bonds will receive interest income that they do not have to pay taxes on.
>> do not have to pay federal income taxes on.
>> that's correct.
>> so it would be similar to investing municipal bonds or any other tax exempt bonds.
>> okay. Thanks for letting me --
>> it's 2003, local governments have taken the hit in that they haven't received property taxes on these properties.
>> which is a separate issue.
>> and if this transaction is consummated then in effect the federal government will be taking a hit because they will lose tax revenue on interest income.
>> okay.
>> in effect we will be diverting the lion's share of that, that would have gone to the federal government to the scholarship program here in Travis County.
>> okay. Thanks for explaining that, because I was just trying to follow the trail. And -- and now as far as -- right now there's no revenue stream on these properties.
>> oh, yes. These are existing -- existing, mature -- operating properties. We actually purchased these properties in December of 2003. And they are operating as affordable housing. Now. And have been since we purchased them.
>> hum ... When did I see the item where you all had -- what are the bonds currently rated at?
>> this is tom fwib son, gibson with stern brothers.
>> the current rating of the existing bonds that we are trying to restructure, there's three series of debt. Series a is double a rated, next is a rated third series is c rated. Through the restructuring we are proposing to take the first two series of debt, double a and a and restructure them with freddie mac which would lead to triple a rating.
>> currently the bond in this portfolio do not have what we call credit enhancement. They are rated by standard and poors in new york who reviews periodically the operating performance and debt service coverage of the property. And what we are doing, one of the things that we are doing in this overall restructure, in taking it out of the standard and poors rated issue into a freddie mac credit enhanced issue is we are able then to adopt the credit rating of freddie mac overall in the portfolio. What that does going forward is makes it a much more stable structure that would not be subject to any potential for being downgraded in the future by s and p. A down grade could if that happen result in a much higher cost of debt, which would impact operations, impact capital reserves, impact condition of the properties and certainly impact scholarship program like this.
>> going back to the question that I had before, let me clarify it. There is cash flow on these properties, but you are not getting any excess cash flow off of them.
>> we are not getting excess cash flow, no. All of the cash flow on these has been going back into the properties.
>> if I can add something to that, there was something that jeff said earlier that I wanted to be clear on. The priority of your cash flow will be above any cash flow that comes to h.f. I think everyone caught that. But it's important to note that the dallas scholarship program is funded on time every month. So you would be at the same priority as them. What we are doing is the existing structure has not been efficient so the money hasn't made it down, we are restructuring that, improving the structure. It's my belief that the cash flow that we are offering to you is even more secure than the existing structure.
>> but if the -- if it continues to perform as it has been and there's no excess cash flow because all of it being plowed back into the property, there will be no $75,000 per quarter.
>> that's actually not true.
>> we have a 15 step waterfall. The money, such a certain place in the waterfall where you have priority over some payments below you, including afh payments. The current structure which has now worked very well. No cash flow all the way down to the 15th bucket, it has fit the bucket that it is fitting into. Assuming the current structure isn't working well would be funded at current noi levels.
>> that's not priority over capital improvements.
>> it's not. Frankly capital improvements have priority over senior debt service.
>> that's good.
>> yeah.
>> it's the most operating expenses, capital improvements are the highest priertd of cash flow.
>> they are a collar maintenance issue for the lender.
>> that would make sense. What about something that isn't the collateral maintenance issue, like rents to the tenants or providing services to them or -- any of those kind of -- kind of give back to the consumer of the -- afh would have the ability to lower rents, set the rents as they see fit.
>> that would come after --
>> that would be the top of the waterfall. But to extent that they spend certain benchmark tests with freddie mac, they would be in technically default. Freddie mac would reverse those type of benovlent actions ... I know there's -- there's some -- we have some in the operating budget which is priority -- has senior priority, much of their activities get funded through the excess cash flow.
>> Commissioners that's really where it has been going is back into resident service of services.
>> back into residents services or maintenance of collateral.
>> excess cash flow wouldn't go back into maintenance of collateral necessarily. So long as the existing reserves --
>> [multiple voices]
>> am I correct about that
>> [multiple voices]
>> unless there were extraordinary needs. An exeam of that farewell village. Cash flow by farewell village has put an excess of $300,000 back into the property, because of extraordinary problems that need to be taken care of. We don't so far see that in this portfolio. It's a portfolio of newer properties. In much better condition overall. It's not contract based property. Not contract based properties. And just really kind of a different -- a different product in the marketplace.
>> uh-huh. But we are a charitable foundation, the lion's share of any excess cash flow that we get on any of our portfolios or properties goes back into providing services to the residents.
>> are these section 8.
>> no.
>> it's not?
>> no.
>> I'm trying to understand --
>> fair way village is 100% section 8.
>> all right. I think those are all of the questions that I have for right now.
>> today we would take the action that we would take today would be to move to the establishment of the scholarship program in figuring out how we'll set that up.
>> I would recommend that the board not take any action.
>> not today.
>> no.
>> delay that -- that our finance advisor we will do work and, you know, look more closely at this transaction. And -- and then come back on the 15th.
>> then move to the public hearing on the 15th and then wait for their closing, but I guess in the meantime we can look at models that may be available. In case we move to that point we would be ready. Okay.
>>
>> [indiscernible] dallas -- I can't remember her name.
>> sheryl rose?
>> rosebach.
>> she have the one that seemed to have a good handle on the situation.
>> > she's still with them. Still has the same level of energy.
>> right.
>> and enthusiasm.
>> we probably want to get in touch with her as well.
>> okay. Cliff?
>> I just want to clarify. On the 15th that the interlocal agreement, the scholarship funding agreement, which are still a little bit of in flux, we are negotiating those, they would be on for approval on that day. They would be in material final form and so that's why we would anticipate the action item in --
>> okay. That being all of the business of the housing finance corporation, I move we adjourn.
>> second.
>> all in favor? .
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Wednesday, May 2, 2007, 8:00 AM