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Sergeant House Expansion - Response to CPC Questions 1 Sergeant House Expansion – Responses to CPC Questions – October 2017 Please explain the decision not to capitalize a replacement reserve. At this time, we have not included a capitalized replacement reserve because the building, after construction, will either be new construction or be substantially renovated. Some State funders object to including a capitalized replacement reserve, while some investors require one. It is possible a replacement reserve will be included in the final project budget in response to investor requirements. The operating budget has been increased since the previous CPA application, which may well be more realistic. However, this appears to result in operations going negative after 5 years, so that an operating reserve has now been established. Since the Committee only asked for a 5 year operating pro forma, it is not clear how long the reserve is anticipated to last. Could you provide this information, as well as any thoughts on sustaining the financial viability of operations. The prior application included $140,000 in “Capitalized Reserves.” This was an operating reserve though not specifically labelled as such; the version of the 5-year operating budget submitted to the CPC prior also went negative after 5 years. Although the CPA application requests only a 5-year operating budget, we have internally prepared a 20 year operating budget and have ensured (and our State funders will require) that the operating reserve is sufficient to cover at least a 20 year period. We budget using “adverse trending” for operating projections assuming that revenues increase annually by 2% while expenses increase annually by 3%. It is not uncommon for this trending to cause long-range operating budgets to show negative cash flow in outlying years. Will this be the first pre-application to DHCD? If one was previously submitted, what feedback was provided by DHCD. Have there been any discussions concerning a likely funding timeline? The first pre-application to DHCD was just submitted (October 5, 2017) so we do not yet have formal feedback from DHCD. We have had several phone conversations with DHCD staff that have been positive, although staff cautions that the queue for tax credit funding remains long. What’s behind the decision not to apply for state LIHTC. (The previous CPA application anticipated applying for those credits.) In one of our conversations with DHCD staff, we were advised to not apply for state LIHTC if at all possible because that source is especially scarce at present. DHCD encouraged seeking additional federal LIHTC (which we have done) and other soft debt sources (which we have also done). In addition, we include a new private source of funds, the Federal Home Loan Bank Affordable Housing Program (AHP). We applied for those funds in early September for the maximum grant amount of $500,000. What has been done with the $50,000 the CPC allocated last cycle? 2 Although $50,000 in CPC funds was committed, the funds were not released to Valley CDC. We have / will make effective use of the CPC commitment to increase the competitiveness of other funding applications, such as to the Federal Home Loan Bank and to DHCD. It is typical that the City holds CPC funds until a housing project has raised all other sources and is ready for implementation (construction). Given limited CPC funding, which of these two projects (Village Hill Apartments and Sergeant House Expansion) is the highest priority? We are not in a position to advise which project is the highest priority. We believe they are both highly needed and worthy projects that serve different target populations. We assume that timing and readiness to proceed may inform the CPC’s decision-making. Can you provide further details about plans for energy efficiency and the possibility of photovoltaics. Yes, please see the attached architect letter that highlights a number of planned energy efficiency measures. At this time, we hope to include a PV array mounted on the roof of the new addition. We are planning for this by making sure that building systems are “solar ready;” by including panels in the plans; and by including a line-item in the development budget. However, because solar panels are not essential to the operation of the building, they are subject to availability of funds and may be more or less financially feasible at a future point in time based upon utility incentive programs, which can change annually. How was the $450,000 figure derived? If we were unable to fund the project in full, would partial funding be helpful? The request for this project in the last CPC round was $500,000, of which the CPC awarded $50,000 leaving a balance of $450,000 that we are requesting in this round. Valley CDC is seeking this amount because, as we tally the cost of the project and assemble potential sources, that is the amount that is needed. Although this amount is higher than some past CPC awards for affordable housing projects, this project meets several CPC priorities—it provides housing for extremely low income, vulnerable persons and it involves historic restoration of a building in a high visibility location in close proximity to Historic Northampton. As with any funding source, if the CPC were to commit a lesser amount, we would try to adjust in order to complete the project. If full funding of the entire project does not come through, will the CPC funds be returned to CPC? If sufficient funds are not raised to complete the project, CPC funds will not be released to Valley CDC. The CPC will retain the funds and can re-allocate them to another project.