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City of Missoula, Montana Item to be Referred to City Council Committee Committee: Administration and Finance Item: Resolution amending Resolution Number 6538 and authorizing a loan 0f $400,000 in Title One funds to the North Missoula Community Development Corporation Date: July 10, 2009 Prepared by: Mike Barton Initiated by: Mayor John Engen Action Required: Adopt a resolution amending Resolution Number 6538 and authorizing a $400,000 loan to be made from the Title One fund to the North Missoula Community Development Corporation to assist in the repayment of the construction financing for the Burns Street Commons first-time homebuyer development. The term of the loan will be three years and the interest rate will be 3% with payments deferred until such time that fifteen of the units have been sold. Recommended Motion: I move the City Council adopt a resolution amending Resolution Number 6538 and authorizing a $400,000 loan to be made from the Title One fund to the North Missoula Community Development Corporation. Timeline: Referral to committee: July 13, 2009 Committee discussion: July 15, 2009 Background and Alternatives Explored: In August, 2008, completed construction of its seventeen-unit Burns Street Commons housing development. This project, which was funded in part by the City’s HOME and CDBG programs, is intended for low- and moderate-income homebuyers. Economic conditions have had a chilling effect on potential buyers and, as a result, thirteen units currently remain unsold. The construction loan on the project comes due this month and the costs of extending this financing are beyond the resources of The Mayor and City staff have negotiated an agreement with state and federal agencies and local banks that will allow to rent some of the units on a temporary basis to gain revenue. As part of this arrangement, the Mayor has suggested that the City utilize a portion of its Title One fund (current balance: approximately $580,000) to write down the cost of the bank loan while continues to market the Burns Street units. The loan amount being recommended, $400,000, would allow and the housing development to remain viable. It will also leave enough of a balance in the fund to allow the City to continue to support the annual contributions to internal projects and community-based organizations (CBOs) authorized in Resolution 6538. The interest rate on the loan is intended to ---PAGE BREAK--- be comparable to the rate the funds would earn on deposit in a commercial bank. The term is designed to allow sufficient time to market and close on all of the Burns Street units. Financial Implications: In the case of default, the City would assume an ownership position with respect to the residential units. A conservative estimate of the value of the unsold improvements is $1.5 million. Attachments: Draft resolution