Mental Health Services Act Housing Program The Capitalized Operating Subsidy Reserve

1. Mental Health Services Act Housing ProgramThe Capitalized Operating Subsidy Reserve

2. Program Funds • Each county has its own planning estimate of MHSA Housing Program funds • Each planning estimate is broken into two components – capital loans (65%) and capitalized operating subsidy (35%) • A county can choose use all of its planning estimate for capital loans, but no more that 35% of its allocation for capitalized operating subsidy.

3. Additional County Allocations and Interest Earned on County Sub Accounts • Additional County Allocations to the MHSA Housing Program can be used for either Capital Loans or Capitalized Operating Subsidies and are not subject to the 65%/35% split. They may be used entirely for subsidies. • Additional allocations per Info Notice 08-11. • Interest earned on county funds held by CalHFA (after the first 1%) are not subject to the 65%/35% split, and may be used entirely for subsidies.

4. The Application Capitalized Operating Subsidies are applied for in the application by • Checking the box on the first page of the Universal Application which says applying for Operating Subsidy and filling out the 6th page which lists rental and subsidy information • Filling out Attachment A of the Application called the Application Supplement for Developments Applying for Capitalized Operating Subsidies

5. Attachment A asks three important questions • Number of units for which MHSA Capitalized Operating Subsidy is requested. • Approximate dollar amount of MHSA Capitalized Operating Subsidy requested per unit. (maximum $100,000 per unit in 2008). Note: CalHFA will determine the amount awarded. • A list of the number and status of other rental subsidy sources applied for by the developer.

6. Why are developers required to apply for other rental and operating subsidies • To create the maximum number of new units • To stretch the MHSA operating subsidy dollars by encouraging developers to seek all available operating subsidy sources • To encourage localities to prioritize the homeless mentally ill when they award other subsidies

7. Questions about applying for other operating subsidies • Developers need only apply in one round • They can apply for rounds that occur after they submit their application • If a given subsidy is not available in a county, we will take a letter from the subsidy source that the subsidy is not available in lieu of the developer filing an application • They need to apply for all appropriate subsidy sources • Developers who do not want the operating subsidy do not need to apply for it.

8. A developer may receive two sources of subsidy for the same unit • A developer can receive another subsidy for a shorter period of time (less than 20 years) and “stack” an MHSA subsidy behind • A developer can supplement a subsidy that does not cover all of the units expenses with an MHSA capitalized operating subsidy • A tenant can receive an individual section 8 voucher after the development has received an award of subsidy dollars for that unit

9. Funding Limits • The program will fund up to $100,000 in a Capitalized Operating Subsidy per MHSA Housing Program restricted unit. • To qualify for funding, the developer has to also apply for an MHSA capital loan for the same unit. • Capitalized operating subsidy funds are only available for units that also receive permanent loans from the MHSA Housing Program.

10. Basic Information about Capitalized Operating Subsidies • Capitalized operating subsidy funds may be used to cover the gap between unit revenue and operating costs of MHSA Housing Program targeted units. • Unit revenue includes: operating income, Other Project Based Operating or Rental Subsidies, and/or Other Tenant Based Rental Subsidies (if applicable) attributable to that unit. • Capitalized operating subsidies will be sized to provide 18 to 20 years of subsidy, up to the $100,000/unit cap • CalHFA will determine the amount of capitalized operating subsidy award a development receives based on the development’s first-year operating budget, an annual income escalator assumption and an annual cost escalator assumption

11. County Mental Health Department Role • Counties will work with qualified developers to identify developments which can house the MHSA Housing Program target Population, and identify the level of services required at the development • Counties will approve/apply for the use of their MHSA Housing Program funds for the development for capital loans and capitalized operating subsidies

12. What is CalHFA’s role in awarding and disbursing capitalized operating subsidies • CalHFA will underwrite requests for capital funds and capitalized operating subsidies after receiving an application • CalHFA will make loan and operating subsidy commitments, close loans and execute and administer subsidy contracts • CalHFA will hold the capitalized operating subsidy funds in a reserve account for the benefit of the MHSA tenants that live in the development and disburse the capitalized operating subsidy to a development until the subsidy is exhausted • CalHFA will provide investment the capitalized operating subsidy funds with a goal of capital preservation

13. What rent will MHSA tenants who are in subsidized units pay • For MHSA Units receiving a subsidy, the tenant portion of the rent shall be set at thirty percent (30%) of the current SSI/SSP grant amount for a single individual living independently or thirty percent (30%) of the total household income, whichever is higher, and as adjusted for a utility allowance when paid by tenants. • Capitalized operating subsidy shall only be available those months in which a MHSA Eligible Resident occupies a MHSA Unit except (see next slide)

14. The operating subsidy will be paid when the MHSA tenant is not occupying the unit • For to three months when the MHSA Eligible Resident is in the hospital, an acute or long-term care facility, or other institutional setting, provided that tenant portion of the rent is paid • For two months upon vacancy of a unit • For three months after the MHSA Eligible Resident vacates the MHSA Unit when the MHSA Eligible Resident resided in the MHSA Unit with other household members

15. When will subsidy payments start and how will they be paid • Payments can start at the time a development receives it certificate of occupancy for the Development. Full lease up is not required. • CalHFA will require a requisition for twenty (20) working days prior to the requested date for disbursement of funds. • Disbursement amounts may vary annually, based upon the projects Fiscal Year, estimated from the approved Development Operating Budget. • Disbursements will made quarterly in advance. • The first disbursement will include the anticipated tenant portion of the subsidized rent for one full year.

16. Operating Subsidy Can Be Used For the Following Expenses Attributable the Subsidized MHSA Units FIRST • Approved Operating Expenses in excess of actual Development revenue. • The annual servicing fee of 0.42 percent based on the original loan amount. SECOND, if funds are available after the items in above have been paid, in the priority order specified below: • The HCD Multifamily Housing Program (MHP) loan 0.42 percent required annual interest payment of the principal amount of the MHP loan • Annual bond issuance fees, if any • Asset management fees of up to $30 per month per COS MHSA Unit, up to $18,000 per Development per year. • An annual Operating Reserve deposit not to exceed three percent (3%) of anticipated gross income for the relevant year • Deferred Developer fees • Service coordinator salaries and benefits.

17. Capitalized Operating Subsidy can not be use to Pay for • Amortized debt service payments. • Ground lease payments. • Asset Management fees or Partnership Management Fees in excess of the proportional share of the $18,000 per development allowed in the MHSA Housing Program as adjusted for inflation. • The operating costs of any non-MHSA Unit. • The operating costs of any MHSA Units for which the Borrower did not apply for MHSA an operating subsidy award. • Cash distributions to the owner • Residual receipts payments to other lenders • Lump sum pay off of other loans.

18. Exhaustion of the MHSA Operating Subsidy • If the MHSA and/or Other Project Based Operating or Rental Subsidies, for the MHSA Units are expected to be exhausted prior to the maturity date of the original program loan, the Borrower may submit a plan for transition of the use of these Units. The plan shall be submitted to the Agency at least two years prior to the expected depletion of the subsidies. The plan shall include, but not be limited to the following: • An explanation of the efforts the Borrower has made to secure Other Project Based Operating or Rental Subsidies necessary to sustain the lower MHSA Units rents from other sources. • An explanation of the fiscal necessity of adjusting the number or use of the designated MHSA Units. • A process for increasing the rent and continuing to market and rent the MHSA units to members of the Target Population who do not require subsidies. • The plan for continuing, throughout the term of the MHSA program loan, to apply for other subsidies, renewal of subsidies, and/or applications to the County or other sources for additional funds to subsidize the rental of MHSA Units to members of the Target Population.

19. Additional Facts about the Capitalized Operating Subsidy • The Borrower will not have an no ownership interest in the Capitalized Operating Subsidy Reserve. The reserve will be allocated to the Development for the benefit of the MHSA Eligible Residents and will be held in a reserve by the Agency. • The Capitalized may be reduced or reallocated in year 15 if the Development receives new or an extension of existing Other Project Based Operating or Rental Subsidies beyond those identifies in the original underwriting, and in the judgment of the Agency has not utilized, or will not be able to fully utilize funds in the COS in the first 20 years following the execution of this agreement. • The reserve will be calculated on a 20 year projection. This may or may not result in actual funds being available for the full twenty years.

20. Additional Facts continued • The amount of any single disbursement may be reduced by CalHFA, if CalHFA determines that the full amount of the disbursement is not required to cover all reasonable and allowable Operating Expenses attributable to operation of the MHSA Units. • The first year distribution of COS may be held back in the event that the Development has Other Project Based Operating or Rental Subsidies to fully cover Operating Expenses for the MHSA Units. • The disbursement of the first year of the tenants portion of the rent is intended to be revolving fund that pays for the tenant portion for the rent for the MHSA Eligible Residents who are renting COS MHSA Units while they are in the process of qualifying for SSI disability benefits and general relief. • When a subsidized MHSA Unit is rented to a tenant who cannot qualify for SSI benefits, that tenant must either pay the tenant portion of the rent or their rent must be paid by the county with CSS or FSP funds.