Workforce housing is rapidly becoming a popular solution in cities where the high cost of living outpaces salary growth. We’ve previously written about workforce housing for teachers and how it can improve a school district’s recruitment and retention, and even increase school attendance. But for the districts that need it most — those in extraordinarily expensive areas, like Silicon Valley — financing a workforce housing project is more challenging than it seems. Despite the high cost of living, teachers often make too much to meet federal income guidelines for affordable housing financed with tax credits. So if tax credits aren’t an option for your school district, what are the best strategies for funding a workforce housing development? We’ll explore three options: certificates of participation, bonds, and public-private partnerships.
Certificates of Participation for Workforce Housing Development
Certificates of Participation allow investors to share in the revenue of a project. For workforce housing developments, that ongoing revenue comes from rent collected once the project is complete. Selling certificates of participation (COPs) can be a good solution where there’s a strong local economy but otherwise carries a potential liability. The risk is, if rental rates decrease, the school district might have to use their general fund to cover the payments.
Still, selling certificates of participation (COPs) is an option for districts that want to avoid federal low-income requirements. Santa Clara Unified School District in San Jose used this method to help finance one of the first affordable housing developments for teachers in the country, Casa del Maestro, back in 2002. Their housing units remain popular with teachers, and there’s even a waitlist to move in.
General Obligation Bonds
Instead of using rent revenue to pay for a project, general obligation bonds are backed by the taxing power and credit of the issuing jurisdiction. Bonds are especially appealing to high-income regions like the Bay Area because the interest income generated is usually exempt from federal taxes. School districts are generally leaning more towards bonds to avoid putting the general fund at risk. The benefit of bonds is also their potential to generate substantial revenue to the district over the life of the bond.
The catch is, of course, that bonds need to be approved by local taxpayers. San Francisco recently voted to approve the largest affordable housing bond in the city’s history, $600 million, which will be split between low-income, middle-income, senior, and educator housing.
Another viable option is a partnership between the school district and a private housing developer that does mixed-income housing. Usually, districts will make a deal with a developer to build on unused district property with the stipulation that a certain number of units be reserved at a lower-than-market rate for district employees. DCG is currently working on a number of these mixed-income teacher housing projects.
Financing workforce housing with one, or a combination of these solutions, ensures that your housing project stays open to those that need it: your district employees. To learn more about the best options for your school district, contact the experts at DCG Strategies. We’re experienced at finding the perfect funding solutions and facilitating partnerships with both public and private entities.