• City of Cambridge Maryland
  • City of Cambridge Maryland
  • City of Cambridge Maryland
  • City of Cambridge Maryland
  • City of Cambridge Maryland
  • City of Cambridge Maryland
  • City of Cambridge Maryland
  • City of Cambridge Maryland
  • City of Cambridge Maryland
  • City of Cambridge Maryland
  • City of Cambridge Maryland
  • City of Cambridge Maryland
  • City of Cambridge Maryland
  • City of Cambridge Maryland
  • City of Cambridge Maryland
  • City of Cambridge Maryland
  • City of Cambridge Maryland
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City Council Meeting Minutes

March 31, 2015
The City Council met in special regular session on Monday, March 31, 2015 in Council Chambers. A quorum being present, Mayor Victoria Jackson-Stanley called the meeting to order at 5:00 p.m. Those Commissioners in attendance were Commissioners Vickers, Sydnor, Cooke, Thomas, and Hanson. Mayor Victoria Jackson-Stanley asked for a moment of silence. Commissioner Hanson led in the Pledge of Allegiance.

PILOT (payment in lieu of taxes) for renovations at the Housing Authority of Cambridge- Genevra L. Farrare, Executive Director of the Housing Authority, gave Council written documentation outlining the communities in the United States that have been approved for the RAD program (Rental Assistance Demonstration). It is a program by HUD which is a voluntary program to preserve public housing. Congress did not allocate the money to HUD for necessary repairs. The response to the RAD program has been overwhelming. When she became the Executive Director in 2012, the Housing Authority was in trouble. HUD put the Housing Authority on a recovery agreement. It was in trouble physically, financially, and everything else. The units needed repairs. HUD said the only way the Housing Authority will be able to remain viable is to apply for the RAD program. This program is a HUD-approved proposal. They want to privatize public housing because they cannot afford to repair it but they cannot have people displaced. There are 190 units in Cambridge housing 625 people. It would be a grave injustice to their residents who range in age from 1 to 89 if this program is not approved. HUD is not foreclosing on their property. This is a HUD property. When HUD approved the recovery agreement, they were given a timeline in which things had to be done. They had two years to get things done. HUD is granting extensions to housing authorities throughout the country in order to get this work done. If they don't get this in, these buildings will not be rehabilitated. The buildings will become an eyesore. The resident will not have a place to live. There is nowhere for them to go. When they applied for RAD, HUD approved them for $11 million. At that time, they were going to have HUD funding only. Because the property is 49 years old, there are more repairs needed than they anticipated. She had to seek other sources so they could pursue the tax credits. They did the recovery and submitted all the information to HUD.

HUD owns the property. At the end of each fiscal year, Congress votes and approves what the housing authorities can get and cannot get. They receive operating funds and capital funds. That is the only funding they get. At one point, the property was receiving approximately $140,000 a month. Since that time it has been cut down and now they receive around $40,000 to $47,000 per month. In addition the residents pay rent which is either 30% of their income or a flat rate. The property is structurally sound; however, there are things in those units that need to be repaired. They are outdated. They had boiler systems that went out during the winter.

Commissioner Hanson asked if private people could buy the property from HUD and rehabilitate it. Ms. Farrare said they could not. Commissioner Hanson said that is exactly what they are doing now. Andy Botticello, Innovative Development Solutions (IDS), said they are a developer that is partnering with the Housing Authority. This would be a public/private partnership. The program would allow the private sector to invest in public housing. This would be one of the first deals in Maryland to close. They will manage the property and own the property once the conversion is completed. HUD is getting out in that they are not going to be funding the project in the same way they are doing now. They are not going to be funding capital improvements. The big issue is the capital improvements-not ongoing subsidies. They have enough funding now to fund the operations of the Housing Authority. They do not have funding to improve it. IDS will raise about $20 million in funding to help improve the public housing project. If they do not get a PILOT from the City, they are out. It reduces the amount of money they can borrow. The lenders want a building that is rehabilitated and ready to go for the next 30 years. It is $12 million in debt they are borrowing and another $8 or $9 million in equity that would be coming from the sale of the tax credits. The tax credit component of the program requires 30 years of affordability. They are getting an FHA mortgage that is a 40-year mortgage. The HUD component of it is 20 years and it renews every 20 years. The goal is not to displace residents at any time. Instead of moving everybody out and completing the construction in six or eight months, they will move people around within the current project.

Commissioner Hanson said Mr. Botticello told them at their last meeting that if they were to do this deal, they would pay the other two or three years that the Housing Authority owes the City. Mr. Botticello said it would happen when they close. Rob Collison said the original cooperation agreement has not been formally amended since its creation in August 1963. That document provides that there be no lien against the project, or assets of the local authority shall attach, nor shall interest or penalties accrue if payments are not made. What they discussed last week was a PILOT of $35,000 (later $47,500 based on $200/unit was discussed) with a built-in escalator clause each year (not less than 2%) and that if the payments were not made by September 30th of each year, they would be collected the same as taxes in which case there would be a 1% interest accrual each month thereafter. Mr. Botticello said with a private owner, the City would have more say over what happens to this property than they do now. Sometimes they would allow private individuals or governments to foreclose, but they will require that the affordability restrictions remain in place and survive the foreclosures. The City may be able to do that to try to collect back taxes, but they wouldn't be able to change the affordability of the project. There is nothing that is going to change that will allow this project to be changed from the affordability that it has now in any of these programs. Commissioner Sydnor said the PILOT will be for police protection, fire protection, and street maintenance. They pay their own their own water and garbage disposal and everything else. If the City goes along with the $46,500, they have increased that amount considerably. Commissioner Thomas said it is due in part because of history and new escalator clause and we are now going to be setting up something else that is going to go ahead 30, 40, or 50 years. Commissioner Sydnor said they are changing the PILOT for the benefit of the City because they are also adding in rental registration. The escalator clause will be governed by HUD.

Mr. Botticello said HUD cannot sell public housing. There is no legal mechanism for them to do that except for their specific programs and this is one of few instances they are allowed to sell public housing under the RAD program. Commissioner Hanson asked if another company could come in, do everything that Mr. Botticello is proposing, work with HUD, rehab the buildings, and pay full taxes. Mr. Botticello said the RAD program is the way to do that. Right now if they do not move forward, the approval for RAD that Ms. Farrare got a year and a half ago will expire. There is no guarantee that whatever group this is or whatever mechanism they are using would get the approval again. The RAD is what allows them to borrow the $20 million. Someone could potentially manage the property but even that is problematic with HUD. All HUD does when they take over a bad project is put new management in. They don't provide any additional money. His experience is that they have done three public housing renovations in the District of Columbia and they were all in much worse shape than this one when they started but there is nothing HUD can do without these programs. You end up with a project that starts to go downhill. They are trying to put good management in place and apply enough resources to it so the City will have a project they are proud.

Commissioner Sydnor said he has been on Council for 10 years and has never seen any funds from the City transferred to Cambridge Housing Authority for operations. The idea that we are bailing them out is false. The funds will come the other way through the PILOT. The only time we have put funds there was for social programs when funds were given to other organizations at the same time.

Mr. Botticello said as a private owner, they are under a different obligation to pay taxes and water bills. They will be just like any other apartment owner. They wouldn't think about not paying real estate taxes. Under their agreement with FHA, FHA will call the City to figure out the water bills, taxes will be under the PILOT, and they will collect that money from IDS as a mortgage payment and that money gets escrowed and they will send in the payments.

Mayor Stanley asked if the rents will go up. Ms. Farrare said the rents will not go up. The residents will still pay 30% of their adjusted gross income.

Commissioner Vickers asked Commissioner Thomas what the tax would be on this property. Commissioner Thomas said he thinks Commissioner Cooke figured out based on today's assessment it is about $175,000 for both City and County taxes. Commissioner Sydnor said the County would get the largest portion of that. If they are paying $46,500 plus another $8,000 for rental registration, not including the escalator clause, they are covering themselves. He knows we are talking about economics and bricks and mortar but we have humans that we are dealing with. That is where there should be some consideration. He would not want to go home and wonder how long his home would be here before someone comes and takes it away from him. Nobody wants to be in that position so we have to consider the human factor. Commissioner Thomas said with the PILOT program, we have the opportunity for a win/win/win situation. A win for the residents of the communities; a win for the City of Cambridge; and a win for dedicating the funds coming into blighted areas of our City. It could further enhance the City. Mayor Stanley said it will improve the appearance of our community. Commissioner Vickers said the $46,000 is not going to pay the taxes. It comes close but it doesn't. You cannot require the units be rented to local people which means anybody else can come in as well. Then you have the problem that bothers her. It is our local taxpayers who are going to have to subsidize the tax payment we are not getting. Mayor Stanley said we are not getting it now so this is getting more than we were getting. Mr. Botticello said there is an existing PILOT that has a calculation that would probably result in lower payment than he is suggesting. If nothing is done and Council does not approve the PILOT, he thinks the payments under the current PILOT would be lower. That PILOT does not expire; it continues as long as it is public housing. Commissioner Vickers said they have not paid their PILOT in three years. Mr. Botticello said as the developer, they are going to take care of that. They will pay any payments in arrears at closing.

Commissioner Hanson said he looked at the word PILOT on Wikipedia. It looked good until the end. It said the president of the Council of Baltimore recently stated that his City loses $120 million annually from those foregone taxes. There is a give and take and it is on the backs of the taxpayers to make up the difference. Commissioner Sydnor said there are other enterprise funds that we have that the City is currently bailing out. We have paid over $2.5 million. We have a budget this year for $218,000. We're going to have to pay another $3 million. That's a bailout. This is not what they are asking for.

Rob Collison asked about the term of the PILOT agreement. Mr. Botticello said it stays in place as long as the affordability restrictions are in place. There is a 20 year term that HUD has that they automatically renew after 20 years. Tax credits go 15 years and then another 15 years automatically. The FHA mortgage is 40 years. As long as they are doing the goal of the PILOT - providing affordable housing - the PILOT would stay in place. The minimum would be 40 years because FHA wants to make sure they understand what the costs of the project are for the length of their loan. The shortest period would be 40 years.

Commissioner Cooke said the recovery agreement went back to 2012. He thinks one of the problems is the lack of communication between the Housing Authority and the City Council. The recovery agreement was entered into and Council knew nothing about it. We still do not have the details (exhibit or addendum) which describes what the problems were. We do not know what the action plan was. The City was supposed to oversee that and Council knew nothing about it. The Mayor signed it. The Housing Authority's record is poor in communicating with the City and getting the City involved with their problems and payment. Mayor Stanley said she, Commissioner Thomas, and Commissioner Hanson were elected in 2008. In 2010 the Board of Directors brought her up to speed about the problems. They actively moved to resolve the problems. Commissioner Sydnor, Commissioner Saunders, and Mayor Stanley worked with the Housing Authority to identify and resolve the problems. From 2010 to 2012 they were under the leadership of Mrs. Elliott and others on the Board to resolve from problem development to recovery development. The development problems were resolved and under the leadership of Ms. Farrare and with the Board of Directors of the Housing Authority, they worked to identify how they were going to resolve-not just the recovery, but improvement. The Council at the time was informed but a written report was not given. She can give Council the written documentation tomorrow. When she was brought up to speed most recently about these new plans, she knew it needed to come to Council. This program is for 629 people. It's about money but it's about people who deserve the support of Council. Commissioner Sydnor said the City Council does not have the authority over the Housing Authority of Cambridge. They appoint the Board of Directors. That is the extent of their involvement. Commissioner Cooke said the recovery agreement requires that City Council monitor the activities and that was not done. Carlton Stanley said the recovery agreement was under the supervision of HUD-not of the City of Cambridge. The City was made aware of it by HUD under the recovery agreement. Commissioner Cooke said the agreement states that the City commits to oversee and monitor its dually appointed agents. Commissioner Cooke said he still does not know what the problems were.

Commissioner Vickers asked about an audit. Ms. Farrare said they had an audit in 2013 and they have a clean audit; no findings. She will provide copies for Council.

Commissioner Sydnor made a motion that the City enter into an agreement with the Housing Authority of Cambridge for the PILOT program and within that PILOT program, the PILOT would be a flat fee of $46,500 per year with an escalator clause that will be determined by HUD; they will be entered into the rental registration program; there will be a 1 percent per month late fee; and the payment of any funds that are in arrears during the closing. This will be a 40-year term. Commissioner Thomas seconded the motion. Commissioner Vickers voted no; Commissioner Sydnor voted yes; Commissioner Cooke voted no; Commissioner Thomas voted yes; and Commissioner Hanson voted no. The motion failed.

Mr. Botticello asked if there was anything they could do. The PILOT would be positive in all respects. It solves the problem of public housing so it benefits the residents. It increased the amount of money that is coming to the City through tax collections. It is an investment by private sector of $20 million in the City of Cambridge.

Commissioner Cooke said it would be helpful for Mr. Botticello to tell them his financial plan; what the bankers are going to get; soft money and where is it going; how much the people are actually going to get out of it; the audits being referred to; the problems in the past; and the stuff that is being discussed but not told to Council.

Commissioner Sydnor said the distribution of funds in the City of Cambridge is disproportionate. The City is in the process of building the wharf at a price of $4 million from the State and $2.5 million from the City. This is in Ward 5. The City purchased some property on Route 50 for approximately $1 million in Ward 5. We are re-doing Maryland Avenue (Ward 5) at a cost of approximately $1 million. The City is looking at spending $800,000 proposed in the budget for the 300 block of High Street (Ward 1 and possibly 3). We have a DNR matching grant of $400,000 for Long Wharf (Ward 1). We just completed some work at Long Wharf at a cost of over $100,000 (Ward 1). There are other wards in the City but the Council is going to isolate this particular one. The enterprise fund he was previously referring to was the marina.

Commissioner Hanson said he wants to see this done but he thinks there are other mechanisms to do it. He is concerned that they have had three years without even a little bit of taxes. Mayor Stanley said they are recovering. They were in trouble and did not have any money to draw from.

Mr. Botticello asked if it would help if they could pay the money sooner than closing. The issue seems to be the trust between the Council and the Housing Authority. Commissioner Vickers said she has had complaints about the Cambridge Housing Authority. Most people in this community do not understand what the Cambridge Housing Authority is.

Rob Collison said he will draft the substantive terms and the terms that were discussed and what they indicated that they could provide as exhibits to those submittals. This could give the Council further consideration.

Commissioner Thomas said as leaders of the community, it is up to Council to come up with solutions. He asked the prevailing side what could be proposed to make it agreeable. He thinks Mr. Botticello is willing to pay the fees early. Commissioner Hanson said it is about moving forward to the future. Commissioner Thomas said he thinks they have outlined some requirements that are far better and more traditional in lending. Rob Collison said it is only the RAD program that has been sanctioned by HUD to address the public housing through finance or renovation. You are not going to be able to go on the open market to achieve that. The City is left with the existing agreement from 1963 that provides us with no options for failure to pay. Commissioner Hanson said Mr. Chaney is a local contractor that refurbishes dilapidated houses and puts up new houses. He asked if any private builder could work with the federal government and what would be the mechanism for them to do it. He talked to several builders who would not mind buying this property. Mr. Chaney said there would be channels they would have to go through. He has never talked to HUD about anything like this. He would not work with HUD. He would pay full taxes and run his own show. Mr. Botticello said they are a private sector developer. They do affordable housing and market-rate housing. If he could buy the property from HUD and do something else with it that would preserve affordable housing but put something else in it, they would do that. That program is not available. Even though it might not work better for the residents and for the City, they have to work with the rules they have from HUD, and that is what they have with the RAD program. It is very constraining on what they can do. This is something new. It took a while to get through HUD. Before last year, there was not any answer. This is their mechanism for working with the private sector in this type of project.

Commissioner Vickers asked what HUD would do if Mr. Botticello's company has problems with it and it goes. Mr. Botticello said it is not HUD any more. They have a division that approves these things. Once they are done, it is actually owned by Innovative Development Solutions and the Housing Authority in a joint venture. In this case, they are borrowing money from HUD. It is a different division of HUD, it is FHA. FHA is the one who would foreclose on the property. It is securitized and they get bonds. The bonds are coming from CDA.

Commissioner Hanson said when they talked about who owned this property, Ms. Farrare said HUD owns them. He has done research and there are also private people associated with HUD who get money from these communities. There are profit takers out there. He understands HUD sends them back some portion to fix up stuff, appliances, etc. There is a big gap between what the Housing Authority gets and what the people who rent these houses get and their bang for the buck against the profit takers. Mayor Stanley said the City deals with developers that go after making a profit in anything that they do. Commissioner Hanson said not when they ask on the other side for a tax break. Mayor Stanley said they have asked for a PILOT as well. Commissioner Hanson said they are making money off the rest of us who pay taxes on these properties through our taxation. Mayor Stanley said the City has said yes to most PILOTs.

Mr. Botticello said in this case they are not asking for more money; they are asking for less. There is a PILOT in place for $15,000 or $20,000. They are asking to bring it up. It is possible that the existing PILOT could stay in place and they could just use that. They are trying to clarify what they are doing and being open about what is happening. Like any other economic development project, you have to gage what the City is going to get. This is a $20 million investment in 190 units of newly-renovated housing. As far as economic development goes, this is a very efficient project for the City. There is no money being requested from the City. Commissioner Vickers said there is with taxes. The public has to pick up the difference. Mr. Botticello said they have offered to increase the taxes. Mayor Stanley said if the will of the Council stays as is and nothing changes, and the current PILOT that has been in place since 1963 stays in place, the City of Cambridge would receive $14,000. The PILOT that they are suggesting for the City of Cambridge going forward is $46,500 so we are not really losing anything. Commissioner Vickers said it still does not pay as if they were a free enterprise. Mayor Stanley said it will never be free enterprise because it has the HUD stamp of approval. Mr. Botticello said if the private sector was doing this, they would mix the income to bring in people with higher income and that is where the extra money comes from. Commissioner Hanson said he would also honor the vouchers like he does now. Mr. Botticello said HUD limits the amount of money they can collect. Unlike a regular voucher program which is based on the market value, their program is based on what the Housing Authority currently gets. That is why this is more expensive to operate than if it was privatized. HUD is fixing the levels of rent they are collecting at the current levels the Housing Authority is getting. It does not work exactly like Section 8 vouchers in the free market.

Ms. Farrare said that up until 2012 when she came on, this property was in trouble. This is the first time in three years that this property has not been on HUD's trouble list. They have done everything that HUD has required them to do. They have 600+ people who will be displaced because eventually these places are going to fall down because they cannot make the repairs. They are structurally sound but if you go inside, it is a totally different story.

Carlton Stanley said that Commissioner Hanson said the City doesn't have any trust in the Housing Authority making an obligation. You can look at the records to see how many times they have missed over the last 40+ years. The late payments started when they started the RAD program because of some upfront money they had to have. At the closing, all these payments will be made.

Commissioner Thomas asked if this can be structured as such to be in some acceptable form to give the assurances that we want going forward as far as the financials. Commissioner Cooke said he does not have enough information right now. In the present situation, there are no remedies if they do not pay, if they do not perform, if they do not manage. We cannot do anything about it. That is a great concern. The question was whether we need HUD's permission to do it. Rob Collison said the new agreement will provide for those. That is what the City is gaining.

Commissioner Thomas suggested a work session to get this resolved. Commissioner Vickers asked if they are going to keep the employees who are currently working for the Housing Authority. Mr. Botticello said not necessarily. They are bringing in a private management company and they will interview everyone who is there now and make a determination.

A motion by Commissioner Hanson to hold a work session on Monday, April 6th at 6:00 pm was seconded. Commissioners Hanson and Thomas voted for the motion. Commissioners Vickers and Cooke were opposed. Commissioner Sydnor was out of the room so Mayor Stanley broke the tie. The motion passed 3:2.

A motion by Commissioner Hanson to adjourn the meeting was seconded and approved.

With no further business, Mayor Victoria Jackson-Stanley adjourned the meeting at 6:17 p.m. I hereby certify that the foregoing is a true and accurate account of the special regular session on Monday, March 31, 2015, insofar as I personally am aware.



Oden C. Wheeler, Jr.
Acting Clerk & Treasurer