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Report regarding a proposed Affordable Housing Financing Plan (AHFP) that would guide the City of South San Francisco’s biennial funding priorities in relation to existing housing goals, policies, programs, and funding availability. (Pierce Abrahamson, Management Analyst II)
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RECOMMENDATION
Staff recommends that the City Council provide feedback on a proposed Affordable Housing Financing Plan (AHFP) that would guide the City’s biennial housing funding priorities in relation to existing housing goals, policies, programs, and funding availability. While the AHFP is an administrative document without need for formal Council adoption, feedback provided during the May 14, 2025 Council meeting will help inform a series of forthcoming proposed Council action items originating in the AHFP to restructure the City’s housing funds and programs.
BACKGROUND
In April 2021, the City Council held a study session on housing program goals, existing housing policies and programs, and housing fund balances. This study session set the groundwork for a financial plan for the City’s affordable housing funds to better align actual spending with housing priorities in the Housing Element and General Plan. On February 25, 2025, staff met with the Housing Standing Committee (HSC) to discuss a conceptual draft of the AHFP. During this meeting, committee members asked questions and provided feedback on the strategies and proposals within the plan. Staff have since incorporated HSC feedback and are bringing forward a revised AHFP for Council consideration ahead of important State and Federal funding program deadlines.
The AHFP is intended to serve as an administrative document to guide the implementation of Housing Element and General Plan policies based on funding availability. While most expenditures of funds consistent with the AHFP have already received Council approval and budget appropriation, associated with the AHFP are a series of Council proposed or soon to be proposed resolutions to implement funding proposals outlined in Section V of the AHFP. These actions include, but are not limited to, allocating the City’s LHTF award to the Bridge Housing 1051 Mission Road affordable housing project and appropriating $890,000 from Fund 823 to Fund 205 in order to receive a $890,000 match from the State’s Prohousing Incentive Program (PIP) grant. Other actions, namely those outlined in the AHFP’s limited and surplus budgetary scenario proposals, will be brought forth for Council consideration and approval as the budgetary shortfalls and budgetary surpluses to merit them arise.
In addition to guiding the implementation of the City’s Housing Element and General Plan, a motivating factor for the creation of the AHFP is a growing need for a financial management strategy for the Commercial Linkage Fee Fund that was created in 2018. While the Commercial Linkage Fee generates considerable revenue overall, it is prone to “boom or bust” cycle fluctuations tied to the City’s commercial real estate market performance. For example, during Fiscal Year (FY) 2020-2021 the fee’s annual revenue generation increased from $4,957,461 to $5,375,874, only to fall to just $3,077,684 in FY 21-22. By FY 22-23, however, the amount more than doubled to $7,499,156.
As of May 2025, the City has entitled enough commercial real estate projects to generate over $200 million in revenue for the Commercial Linkage Fee Fund. However, whether these projects move forward is dependent on the commercial real estate market’s recovery. For the past few years, the market has been notably chilled due to the financial stress the industry is facing from high office vacancies, high interest rates, and falling asset values. This has resulted in both less than anticipated revenue generation to date and more cautious projections for the fund over the next few years. Looking forward, Table 1 below provides revenue estimates for Fund 823 for FY 2025-26 through FY 2027-28:
Table 1: Commercial Linkage Fee (Fund 823) Projected Revenue FY25-26 Through FY27-28
As indicated in Table 1, over the next three fiscal years, the City’s current projections indicate roughly $29.2 million of revenue for Fund 823. While these numbers are projections and thus could change according to real estate market performance, there are a few inferences that could be drawn. For example, whereas 66% of this total is expected to be paid out during FY 2026-27, only 28.9% is expected in FY 2027-28 and just 5.1% in FY 2025-26. Financial planning of Fund 823 is critical to ensure sustainable use of the fund towards the City’s housing objectives. This includes strategizing the timing of property acquisitions, notice of funding availability (NOFA), and property rehabilitations around the expected payout dates of commercial linkage fees. Likewise, this could include seeding funding towards either a revolving loan fund or a rainy-day set-aside during abundant payout years to stabilize housing fund performance over time.
Current State of Housing Programs
The City has adopted numerous policies and programs to advance the above-mentioned housing goals, including the following:
1. Emergency Rental Assistance
One of the most effective tools the City has in preventing homelessness and displacement is its rental assistance program. The YMCA Community Resource Center, located on Huntington Avenue in South San Francisco, administers the program, providing rental assistance to low-income South San Francisco residents experiencing an immediate financial hardship. The program was instrumental in assisting residents impacted by COVID-19 and the Shelter in Place Order. Since February 2020, Council has allocated $1,025,000 towards direct rental assistance and $146,500 for the program administration. As of May 2025, the program has assisted 798 individuals, 324 being under the age of 18. During FY 2024-25, Council appropriated $177,000 for this program.
2. Housing Nonprofits
Through its CDBG program and housing funds, the City supports several nonprofit community organizations that provide critical housing resources, including shelters, home repairs, legal assistance, and referral services. While CDBG funding to local jurisdictions has been steadily declining over the past two decades, the City received a total entitlement award of $443,482 during FY 2024-25. Furthermore, not all CDBG funds go directly to housing nonprofits; the City is limited to spending 15% of its entitlement on public service grantees (nonprofits). The remainder of the entitlement can be spent on public improvement projects, minor home repair, and administration.
3. Inclusionary Housing Ordinance
For years, the City has had an inclusionary housing ordinance requiring developers of market rate, for-sale housing to include a set-aside of below market rate units. In 2018, following State legislation allowing it, the City Council voted to expand the inclusionary housing ordinance to market rate, rental housing developments. These inclusionary housing policies ensure that a percentage of all housing units constructed since 2018 in South San Francisco are set aside for households earning under 120% of the area median income. Eligible applicants can view listings and apply for these below market rate units using the regional portal known as Doorway <https://housingbayarea.mtc.ca.gov/>.
4. Program Administration
Critical to the success of the City’s housing program is its administration. City staff monitor existing affordable housing units, review annual rent increases for rental units and ensure for-sale units are occupied according to their deed restrictions, and negotiate affordable housing agreements for new developments. Central to the administration of the housing program is publishing publicly available guidelines, such as the Procedures and Guidelines for Inclusionary Housing Units that assist property owners and residents alike in navigating the City’s housing programs and policies. City staff also undertake long-range planning efforts such as preparing the City’s Housing Element and Anti-Displacement Roadmap to ensure the City’s programs are aligned with State and Federal regulatory requirements and community needs.
General Plan & Housing Element Policies
The City adopted a comprehensive update to the General Plan (GP) in 2022 and received State certification for its 2023-2031 Housing Element. While the General Plan and the Housing Element each have their respective goals, the goals are intended to align as a uniform strategy to further the City’s housing priorities. These housing priorities are generally as follows:
• Prevent displacement and homelessness
• Preserve affordable housing units
• Promote housing production at all income levels
• Source and utilize federal, state, and regional housing resources
The AHFP incorporates the above-mentioned housing priorities by:
• Citing the corresponding Housing Element policy being furthered for each funding proposal
• Accounting for projects and programs that are either statutorily required or would greatly benefit the City’s competitiveness for State and Federal grants
• Providing pathways for the expected, limited, and surplus financing scenarios to ensure the City’s overarching housing priorities are met
Benchmarking Research
In developing a strategic plan to guide financial spending of affordable housing funds, staff conducted research on comparable plans peer jurisdictions have pursued to identify best practices to incorporate. Staff has discovered that what the City endeavors to create is quite innovative, for there are only a handful of analogous examples available. Staff found the following examples from the City of Seattle and the City of San Francisco to be informative in structuring the AHFP.
City of Seattle
The City of Seattle’s Housing Levy Administrative and Financial Plan was established by ordinance in 2023 to guide spending of the City’s $970 million Housing Levy funded by property tax levies. It is a biennial plan managing funding commitments to projects that also includes program guidelines for funded projects, including loans and local grant programs. While Seattle’s plan is not comprehensive of all City housing funds, it still serves as a benchmarking example for the City of South San Francisco given the focus on aligning housing fund spending with policy priorities as well as the robustness of programs under the plan’s purview. Specifically, Seattle’s plan includes financial strategies for housing development on publicly owned sites, capital funding projects, and non-profit’s programs for services such as minor home repair-all of which are likewise pursued by the City of South San Francisco.
City of San Francisco
The City of San Francisco’s Affordable Housing Funding and Financing Recommendations Report resulted from a Mayoral directive to the Housing Leadership Council and Housing Office to develop a funding strategy to assist the implementation of the City’s 2022 Housing Element Update. It is primarily focused on providing policy recommendations for sourcing more funding and making existing spending more efficient, though it also outlines funding availability and funding projections. While the San Francisco plan is a one-time directive without a commitment for regular updates, it is comprehensive of all City housing funds and programs. Like the AHFP, it intends to support implementation of existing policy goals rather than to set new policy or requirements.
DISCUSSION
The AHFP is structured to provide:
• Current and projected funding availability
• Funding and policy parameters
• A comprehensive two-year financing pathway for the expected funding availability scenario, with annual reviews.
• Surplus and expected scenario financing pathways
In the funding availability section, the AHFP includes the following tables that serve as the basis for the financing pathways:
Table 2: Projected FY 2024-25 Year End Balances of Affordable Housing Funds
Table 3: Grant Award Funding Availability
Table 2 and 3 above denote the funding availability of each source. While there are multiple conclusions to be drawn from Table 2 and 3, the AHFP emphasizes two important caveats. Firstly, while all sources generate revenue, the primary purpose of Fund 205 and 241 is to hold funds for revenue generated or passing through from other sources. These funds themselves only generate a small amount of revenue directly from sources such as loan repayments. Secondly, every funding source carries restrictions, either from its authorizing legislation or grant agreement. This requires the City to “puzzle piece” projects with corresponding funds in a strategic way, which is the intent of the financing pathway sections.
The AHFP’s financing pathways are based on funding availability scenarios. Whereas the “expected” plan takes primacy and thus includes a project level breakdown of financing priorities, the “limited” and “surplus” scenarios are more express and focus on evaluation criteria for programmatic addition or subtraction for when and if the scenario arises. In all scenarios, however, the programs and project examples included are largely those that are either legally required, Council directed, or are already underway.
The AHFP is drafted to provide a structure for Council priorities while also incorporating a range of possible strategies for consideration. This comprehensive approach allows the City to consider interconnected financial strategies at once, rather than evaluating funding decisions in isolation. While each of the subsequent strategies outlined below will return for formal Council action, consideration of them now will allow Council to shape the overall direction of these proposals prior to being brought forward for formal approval.
Realign Financial Resources to Address Evolving Economic Realities and Community Priorities
As economic realities and community needs evolve over time, so does the need for re-evaluating funding decisions and structures to ensure the City is maximizing the use of limited housing dollars. This is especially true given the rapid rise of interest rates since 2022, a stagnant commercial real estate market, and the declining availability of State and Federal grants following budgetary and shifting policy priorities. Moreover, because State and Federal funding programs often narrowly stipulate how funds may be spent, the AHFP serves a critical purpose to timely align funding opportunities effectively with the highest priority housing goals and programs of the moment. To this end, staff will be bringing forward a series of agenda items over the next few months concerning funding re-allocations proposed in the AHFP for Council consideration. These include, but are not limited to:
• Resolutions re-allocating LHTF funds from the now canceled 201 Baden Ave affordable housing project to the proposed Bridge Housing 100% affordable project at 1051 Mission Road (May 14, 2025)
• Resolution to appropriate $890,000 from Fund 823 to Fund 205 in order to receive a $890,000 match from HCD through the PIP grant award (May 28, 2025)
• Public Hearing on CDBG PY 2025-2026 Annual Action Plan that will include a proposal to pivot the City’s nonprofit housing service programs to more flexible funding sources and re-allocate CDBG funds to City-directed public improvements projects (May 28, 2025)
• Resolution to approve amending the City’s PLHA Year 3 award to shift program funds towards homeownership opportunities and the City’s Economic Advancement Center (June 11, 2025)
Revolving Loan Fund
Given the fluctuating nature of Commercial Linkage Fee revenue generation as discussed earlier, one possibility for stabilizing Fund 823 would be to establish a revolving loan fund. A revolving loan fund is a fund that uses circular debt financing to create a self-sustaining program that generates consistent and predictable revenue over time from interest payments and loan repayments. For example, the City could set aside seed money from a combination of grant funding and Commercial Linkage Fees (from surplus years) that would be loaned out to an initial round of affordable housing projects that could, over time through debt repayment, be used to loan out funds to future rounds of projects.
Preferred Limited Financing Scenario
While the AHFP was drafted to incorporate conservative financing estimates in the expected funding pathway, it also outlines risk factors that could result in a budgetary shortfall. In this scenario, the City has three options:
• Establish a new revenue generating stream
• Re-allocate funds from non-housing specific funds
• Scale back housing programs
While AHFP is not intended to create a comprehensive contingency plan with scheduled actions, it is at least worth reflecting Council priorities if and when such a scenario arises. One vulnerability staff have identified would be the scenario in which the City’s Community Development Block Grant (CDBG) allocation is significantly reduced by the federal government. CDBG funds are currently used to fund the City’s nonprofit housing and community services that are vital to the City’s housing preservation priority. Consequently, staff is soliciting Council input on re-allocating CDBG funds towards flexible public improvement projects and away from critical housing and community services that often serve as a lifeline for South City residents.
FISCAL IMPACT
There is no fiscal impact in adopting the AHFP; the AHFP is a guidance document that requires no appropriation of new funding. While the AHFP does recommend minor spending proposals to meet State grant local match requirements, these spending proposals will be brought forward to Council separately as noted in the discussion section. Moreover, the AHFP is likely to contribute to more fiscally responsible financial planning of the City’s housing funds through its recommendations and strategies. This could allow for a more efficient and priorities driven use of City housing funds over time.
CONCLUSION
Staff recommends that the City Council provide feedback on a proposed Affordable Housing Financing Plan (AHFP) that would guide the City’s annual housing funding priorities in relation to existing housing goals, policies, programs, and funding availability. While the AHFP is an administrative document without need for formal Council adoption, feedback provided during the May 14, 2025 Council meeting will help inform a series of forthcoming proposed Council action items originating in the AHFP to restructure the City’s housing funds and programs.