Hearing and vote on bond financing for Capitola Manor affordable housing at 1098 38th Avenue

In plain English

MidPen Housing Corporation, through MP Rail Trail Associates, L.P., wants to use tax-exempt bonds to help pay for a 52-unit rental housing project at 1098 38th Avenue in Capitola, known as Capitola Manor Apartments. The bonds would be issued by the California Municipal Finance Authority, not the City, in an amount not to exceed $40,000,000, and would cover buying, building, improving and equipping the project. Federal tax law requires the elected body where the project sits to hold a public hearing and then approve the financing plan. A yes vote gives that federal approval so the bonds can be tax-exempt; it does not commit Capitola to repay anything.

The vote affects whether the developer can get lower-cost tax-exempt financing for 52 rental units at 1098 38th Avenue, and Capitola expects to receive a share of the bond issuance fee as a grant to its general fund, usable for any lawful City purpose.

Key facts

Bonds in an outstanding principal amount not to exceed $40,000,000, issued and reissued from time to time by the California Municipal Finance Authority (CMFA).
The project is a 52-unit qualified residential rental project at 1098 38th Avenue in the City of Capitola.
Borrower is MP Rail Trail Associates, L.P.; developer is MidPen Housing Corporation, a California nonprofit public benefit corporation.
The City will have no financial, legal, moral obligation, liability or responsibility for the project or for repaying the bonds; all financing documents will state the bonds are not obligations of the City or the State of California.
Approval is required under Section 147(f) of the Internal Revenue Code of 1986 (the TEFRA hearing requirement); bonds may be issued within a three-year period starting when the first series is issued.

Reasons to support

Tax-exempt bond financing lowers borrowing costs for the 52-unit rental project, and the City's approval is the step federal law requires for the bonds to qualify as tax-exempt.
Repayment comes solely from funds provided by the borrower; the City takes on no financial or legal liability.
CMFA shares part of its issuance fees with member communities, and a portion of the fee attributable to Capitola is expected to be granted to the City's general fund for any lawful purpose.

Reasons to oppose or change it

Tax-exempt bonds mean the interest paid to bondholders is not taxed, so the public subsidizes the financing indirectly even though Capitola itself pays nothing.
The resolution approves a plan of finance allowing bonds to be issued and reissued from time to time up to $40,000,000 over a three-year period, so the Council is signing off on future issuances it will not vote on individually.
Residents who object to the project at 1098 38th Avenue itself have this hearing as the point to speak against using tax-exempt bonds for it, since approval is limited to the financing and the City keeps no oversight over repayment.

Official wording

Conduit financing for 1098 38th Avenue Affordable Housing Project: Capitola Manor Apartments Recommended Action: 1) Conduct the public hearing under the requirements of TEFRA and the Internal Revenue Code of 1986, as amended (the “Code”); 2) Adopt the resolution approving the issuance of the Bonds by the CMFA for the benefit of MidPen Housing Corporation, a California nonprofit public benefit corporation (the “Developer”), on behalf of MP Rail Trail Associates, L.P., a California limited partnership (the “Borrower”), to provide for the financing of the Project, such adoption is solely for the purposes of satisfying the requirements of TEFRA, the Code and the California Government Code Section 6500 (and following).

Official agenda

Summary written by claude-opus-5 from the agenda and the Staff report (agenda packet, pages 90-93). It can contain mistakes. The official documents govern.