Memorandum - City of Dallas
←
→
Page content transcription
If your browser does not render page correctly, please read the page content below
Memorandum DATE October 30, 2020 CITY OF DALLAS TO Honorable Mayor and Members of the City Council SUBJECT S&P Global Ratings Downgrades Love Field Airport Modernization Corp. General Airport Revenue Bonds Due to COVID-19 Pandemic – RATING ACTION Today, S&P Global Ratings (S&P) lowered its long-term rating to ‘A-’ from ‘A’ on the Love Field Airport Modernization Corp. (LFAMC) General Airport Revenue Bonds (GARBs) issued for Dallas Love Field Airport (DAL). The outlook remains negative. This downgrade follows a review by S&P at the end of March of this year in which the outlook was deemed negative and, “DAL, along with many other U.S. airport ratings, was placed on CreditWatch to reflect the material negative impact of the COVID-19 pandemic on traffic levels, expected financial performance metrics, and overall credit quality.” S&P’s rating decision reflects the expectation that, “activity levels at DAL will be depressed, unpredictable, or demonstrate anemic growth due to the COVID-19 pandemic and associated effects outside of management's control,” further based on their belief that, “a high degree of uncertainty exists regarding the trajectory of a recovery in aviation activity, complicating financial planning and increasing operational challenges”. The report from S&P notes that DAL entered the pandemic operationally and financially strong, with enplanements at an all-time peak, historically strong debt service coverage levels and good liquidity, however, “the enplaned passenger levels declined 39.1% to 5.06 million in fiscal 2020 (ended Sept. 30) from 8.31 million in fiscal 2019, following depressed activity levels since March.” According to S&P, “enplanements improved from the most severe declines experienced in April and May, but remain materially depressed.” In spite of these challenges, S&P notes DAL’s credit strengths as an “important provider of air service in the expanding Dallas-Fort Worth-Arlington MSA,” in a “good liquidity position,” with a “very strong management and governance, reflecting an effective and experienced management team that has sufficiently managed risks and operations.” S&P’s assessment follows the assumption “among health experts,” that “the pandemic may now be at, or near, its peak in some regions but will remain a threat until a vaccine or effective treatment is widely available, which might not occur until the second half of 2021.” As such, S&P “could revise the outlook to stable in the next two years with improved clarity on the trajectory of DAL's enplanement recovery and stabilization of activity levels,” evaluating if the airport's “ability to maintain financial metrics is achievable, sustainable, and consistent with the rating.” “Our Product is Service” Empathy | Ethics | Excellence | Equity
DATE October 30, 2020 SUBJECT S&P Global Ratings Downgrades Love Field Airport Modernization Corp. General Airport Revenue Bonds Due to COVID-19 Pandemic – RATING ACTION Please find attached the report provided by S&P today. If you have any questions or need further information, please do not hesitate to contact me. M. Elizabeth Reich Chief Financial Officer Attachment c: T.C. Broadnax, City Manager Majed A. Al-Ghafry, Assistant City Manager Chris Caso, City Attorney Jon Fortune, Assistant City Manager Mark Swann, City Auditor Joey Zapata, Assistant City Manager Bilierae Johnson, City Secretary Dr. Eric A. Johnson, Chief of Economic Development & Neighborhood Services Preston Robinson, Administrative Judge M. Elizabeth (Liz) Cedillo-Pereira, Chief of Equity and Inclusion Kimberly Bizor Tolbert, Chief of Staff to the City Manager Directors and Assistant Directors “Our Product is Service” Empathy | Ethics | Excellence | Equity
Summary: Love Field Airport Modernization Corp., Texas; Airport Primary Credit Analyst: Scott Shad, Centennial (1) 303-721-4941; scott.shad@spglobal.com Secondary Contact: Todd R Spence, Farmers Branch (1) 214-871-1424; todd.spence@spglobal.com Table Of Contents Rating Action Negative Outlook Credit Opinion Related Research WWW.STANDARDANDPOORS.COM/RATINGSDIRECT OCTOBER 30, 2020 1
Summary: Love Field Airport Modernization Corp., Texas; Airport Credit Profile Love Field Airport Modernization Corp AIRPORTS Long Term Rating A-/Negative Downgraded, Removed from CreditWatch Rating Action S&P Global Ratings lowered its long-term rating to 'A-' from 'A' on Love Field Airport Modernization Corp. (LFAMC), Texas' general airport revenue bonds (GARBs) issued for Dallas Love Field Airport (DAL), and removed the rating from CreditWatch, where it had been placed with negative implications Aug. 7, 2020. The outlook is negative. DAL, along with many other U.S. airport ratings, was placed on CreditWatch to reflect the material negative impact of the COVID-19 pandemic on traffic levels, expected financial performance metrics, and overall credit quality. For more information, see "U.S. Airport Ratings Placed On CreditWatch Negative On Severe Passenger Declines And Weakening Credit Metrics," published Aug. 7, 2020, on RatingsDirect. Net airport system revenues, as made available by the city under a project financing agreement with the LFAMC, secure the bonds. A debt service reserve fund funded to the lesser of the IRS maximum provides additional security to bondholders. A rate covenant (1.25x debt service coverage [DSC] based on average annual debt service) is in effect, as is an additional bonds test requiring that historical net revenues provide at least 1.1x DSC or projected net revenues provide at least 1.25x DSC, respectively. We consider the bond provisions credit neutral. As of October 2020, DAL had approximately $625.5 million in total debt outstanding, which includes $213.97 million in general airport revenue bonds (GARBs), $407.46 million in Southwest bonds (revenue credit agreement), and $4.07 million in pension obligation bonds. All debt is fixed rate with no swaps or variable-rate debt outstanding. Credit overview The rating action and negative outlook reflect our expectation that activity levels at DAL will be depressed, unpredictable, or demonstrate anemic growth due to the COVID-19 pandemic and associated effects outside of management's control. In our view, the severe drop in demand has diminished DAL's overall credit quality and will likely pressure financial metrics relative to historical levels. We view this precipitous decline not as a temporary disruption with a relatively rapid recovery, but as a backdrop for what we believe will be a period of sluggish air travel demand that could extend beyond our rating outlook horizon. DAL entered the pandemic operationally and financially strong with enplanements at an all-time peak (8.31 million enplaned passengers in fiscal 2019), historically strong DSC levels, and good liquidity. However, enplaned passenger levels declined 39.1% to 5.06 million in fiscal 2020 (ended Sept. 30) from 8.31 million in fiscal 2019, following WWW.STANDARDANDPOORS.COM/RATINGSDIRECT OCTOBER 30, 2020 2
Summary: Love Field Airport Modernization Corp., Texas; Airport depressed activity levels since March. Enplanements improved from the most severe declines experienced in April and May, but remain materially depressed; August and September enplanements declined about 58% and 56%, respectively, compared with 2019. In addition, we believe a high degree of uncertainty exists regarding the trajectory of a recovery in aviation activity, complicating financial planning and increasing operational challenges. For additional information, see "This Time Is Different: An Anemic And Uncertain Passenger Recovery Will Challenge U.S. Airports' Credit Quality," Aug. 7, 2020, and "Activity Estimates For U.S Transportation Infrastructure Show Public Transit And Airports Most Vulnerable To Near-Term Rating Pressure," June 4, 2020. The rating reflects DAL's adequate enterprise risk profile and strong financial risk profile. Our forward-looking view resulted from a weakening of DAL's market position assessment due to effects related to COVID-19, which in turn lowered our enterprise risk profile assessment to adequate from strong. Under our criteria, market position is a primary credit factor that incorporates activity level trends; passenger volatility; rate-setting flexibility; and additional considerations outside of the operator's control, including health scares. Within our overall enterprise risk profile, market position assessment is the highest-weighted factor (60%), followed by industry risk (20%), economic fundamentals (10%), and management and governance (10%). Within our overall financial risk profile, we consider such factors as financial performance (55% weight), debt and liabilities capacity (35%), and liquidity and financial flexibility (10%). For additional information regarding our criteria, see "U.S. And Canadian Not-For-Profit Transportation Infrastructure Enterprises: Methodologies And Assumptions," March 12, 2018. Our revised market position assessment for DAL results in a lower-but-still-adequate overall enterprise risk profile. This reflects our view of the airport's role as an important provider of air service within the region with strong historic enplanement growth, as well as its position as a key component of Southwest Airlines Co.'s route system, supported by a growing demand base, centered on the Dallas-Fort Worth-Arlington metropolitan statistical area (MSA). Tempering our assessment is significant air carrier concentration, with Southwest at 94% of total enplanements in fiscal 2019; local competition from Dallas Fort-Worth International Airport (DFW); and moderate exposure to connecting traffic (about 32% of total enplanements). The financial risk profile is unchanged at strong overall, as we continue to evaluate management's strategy and the shape of the traffic recovery along with the anticipated impact on financial metrics. Our financial risk profile incorporates DAL's strong financial performance, with DSC of 1.85x in fiscal 2019 (S&P Global Ratings-calculated; 5.57x GARB indenture coverage in fiscal 2019); moderate cost and debt structure ($10.27 cost per enplanement S&P Global Ratings-calculated; $77 debt per enplanement--all for 2019); debt-to-net revenues of 8.3x in fiscal 2019, with a manageable capital improvement plan and no additional near-term debt needs; and good liquidity (estimated $42.9 million in unrestricted reserves in fiscal 2020) equal to 171 days' cash and 6.7% liquidity to debt using 2019 expenditure and debt figures. We anticipate financial performance (DSC) in fiscal years 2020 (based on preliminary estimates) and 2021 will be lower than in recent years. Existing liquidity in concert with mitigation measures taken thus far to reduce expenditures, and the $53.8 million in Coronavirus Aid, Recovery, and Economic Security (CARES) Act funding will allow DAL to weather the near-term activity declines. Management applied $24 million of CARES Act money in fiscal 2020 with $4 million allocated to capital projects, $10 million to debt service requirements, and $10 million to operations and maintenance (O&M). The remaining balance will be used in fiscal 2021 to offset revenues losses from COVID-19 and is expected to be applied to debt service requirements and O&M. In response to COVID-19, DAL provided WWW.STANDARDANDPOORS.COM/RATINGSDIRECT OCTOBER 30, 2020 3
Summary: Love Field Airport Modernization Corp., Texas; Airport concessionaires relief with contracts adjusted to a percentage of rent, and also provided three months of rent abatement to rental car providers that did not receive any federal aid. Furthermore, DAL's skilled management team continues to implement measures to reduce expenses, defer capital spending, and manage rental car and concessionaire relief. Although estimated revenue impacts to DAL appear to be manageable at this time, the projected effects on future key financial metrics are subject to considerable uncertainty, in our view. We could weaken the financial risk profile if enplanements remain depressed for an extended period, further pressuring financial metrics, including DSC (S&P Global Ratings-calculated) and debt-to-net revenue. Key credit strengths, in our opinion, are DAL's: • Role as an important provider of air service in the expanding Dallas-Fort Worth-Arlington MSA, along with its position as a key component of Southwest's route system with strong historical enplanement growth prior to the COVID-19 pandemic. Tempering our assessment is significant air carrier concentration, competition from DFW, and moderate exposure to connecting traffic; • Good liquidity position, with $42.9 million in estimated unrestricted reserves in fiscal 2020 (unaudited) providing 171 days' cash on hand and 6.7% liquidity to debt based on 2019 figures, bolstered by an infusion of CARES Act funds that DAL expects to deplete in fiscal 2021; • Large and economically vibrant service area, which encompasses the Dallas-Fort Worth-Arlington MSA (fourth-largest MSA in the U.S.), supported by a large and growing population base, good economic activity as measured by GDP per capita, and ample employment opportunities despite the spike in unemployment resulting from COVID-19; and • Very strong management and governance, reflecting an effective and experienced management team that has sufficiently managed risks and operations, as demonstrated by steady financial and operational performance during periods of significant growth. Key credit weaknesses, in our opinion, are DAL's: • Exposure to potentially prolonged weak or unpredictable enplanement levels as a result of COVID-19 outbreaks and lingering associated effects (such as the pandemic-induced recession, shifts in travel restrictions, stay-at-home and social distancing restrictions, or behavioral changes with respect to air travel), making effective financial budgeting and planning challenging; • Constrained cash flow generation ability as a result of severe enplanement declines related to factors outside of management's control, pressuring financial metrics; and • Significant airline concentration, with Southwest (BBB/Negative), its largest carrier, accounting for approximately 94% of total enplanements in fiscal 2019. Environmental, social, and governance (ESG) factors Our rating action reflects health and safety risks posed by the COVID-19 pandemic and its impact on passenger activity due to mobility restrictions and behavioral changes related to travel, which we view as a social factor within our ESG factors, resulting in significant operating and financial pressures for the airport. We analyzed DAL's risks related to environmental and governance factors, and consider them to be in line with our view of the standard for the airport sector. We will continue to evaluate these risks as the situation evolves. WWW.STANDARDANDPOORS.COM/RATINGSDIRECT OCTOBER 30, 2020 4
Summary: Love Field Airport Modernization Corp., Texas; Airport Negative Outlook Downside scenario We could lower the rating if we come to believe that DAL's enplanements will remain materially depressed for longer than we expect, negatively affecting financial metrics for an extended period. Return to stable scenario We could revise the outlook to stable in the next two years with improved clarity on the trajectory of DAL's enplanement recovery and stabilization of activity levels. When making this assessment, we will evaluate if the airport's ability to maintain financial metrics is achievable, sustainable, and consistent with the rating. Credit Opinion S&P Global Ratings acknowledges a high degree of uncertainty about the evolution of the pandemic and its effect on the economy and air travel. The consensus among health experts is that the pandemic may now be at, or near, its peak in some regions but will remain a threat until a vaccine or effective treatment is widely available, which might not occur until the second half of 2021. We are using this assumption in assessing the economic and credit implications associated with the pandemic (see our research here: www.spglobal.com/ratings). As the situation evolves, we will update our assumptions and estimates accordingly. The U.S. economy has begun what looks to be a long, difficult journey to recover from its pandemic-induced slump. With consumer spending proving largely resilient through the summer of 2020 (helped by federal fiscal stimulus) and unemployment--while still notably high--softening a bit more than S&P Global Economics had forecast, third-quarter GDP is poised for a steeper rebound than many market participants expected. S&P Global Economics expects a 29.5% bounce in third-quarter U.S. GDP (6.7% annualized rate), although that will only partially offset the massive losses in the first half of the year. Our current economic forecasts anticipate ending 2020 at a negative 4.0% real GDP growth rate in 2020 and rebounding to a slower growth phase heading into 2021 with 3.9% estimated for next year, down from 5.2% in June's economic forecast and weaker than our previous 2021 estimate of 6.2%. The unemployment rate declined to 8.4% in August from its post-1947 record high of 14.75% (in April 2020); however, S&P Global Economics doesn't expect the unemployment rate to reach its pre-pandemic level until mid-2024. Our economic forecasts and macro credit implications associated with the pandemic assume a vaccine or effective treatment is widely available in the second half of 2021. As this sluggish recovery unfolds, three big risks remain: no coronavirus vaccine yet available as the country heads into flu season, a lack of new fiscal stimulus, and trade tensions with China on the rise. (See "Economic Research: The US Economy Reboots, With Obstacles Ahead," Sept. 24, 2020.) Related Research • Through The ESG Lens 2.0: A Deeper Dive Into U.S. Public Finance Credit Factors, April 28, 2020 Certain terms used in this report, particularly certain adjectives used to express our view on rating relevant factors, have specific meanings ascribed WWW.STANDARDANDPOORS.COM/RATINGSDIRECT OCTOBER 30, 2020 5
Summary: Love Field Airport Modernization Corp., Texas; Airport to them in our criteria, and should therefore be read in conjunction with such criteria. Please see Ratings Criteria at www.standardandpoors.com for further information. Complete ratings information is available to subscribers of RatingsDirect at www.capitaliq.com. All ratings affected by this rating action can be found on S&P Global Ratings' public website at www.standardandpoors.com. Use the Ratings search box located in the left column. WWW.STANDARDANDPOORS.COM/RATINGSDIRECT OCTOBER 30, 2020 6
Copyright © 2020 by Standard & Poor’s Financial Services LLC. All rights reserved. No content (including ratings, credit-related analyses and data, valuations, model, software or other application or output therefrom) or any part thereof (Content) may be modified, reverse engineered, reproduced or distributed in any form by any means, or stored in a database or retrieval system, without the prior written permission of Standard & Poor’s Financial Services LLC or its affiliates (collectively, S&P). The Content shall not be used for any unlawful or unauthorized purposes. S&P and any third-party providers, as well as their directors, officers, shareholders, employees or agents (collectively S&P Parties) do not guarantee the accuracy, completeness, timeliness or availability of the Content. S&P Parties are not responsible for any errors or omissions (negligent or otherwise), regardless of the cause, for the results obtained from the use of the Content, or for the security or maintenance of any data input by the user. The Content is provided on an “as is” basis. S&P PARTIES DISCLAIM ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE, FREEDOM FROM BUGS, SOFTWARE ERRORS OR DEFECTS, THAT THE CONTENT’S FUNCTIONING WILL BE UNINTERRUPTED OR THAT THE CONTENT WILL OPERATE WITH ANY SOFTWARE OR HARDWARE CONFIGURATION. In no event shall S&P Parties be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including, without limitation, lost income or lost profits and opportunity costs or losses caused by negligence) in connection with any use of the Content even if advised of the possibility of such damages. Credit-related and other analyses, including ratings, and statements in the Content are statements of opinion as of the date they are expressed and not statements of fact. S&P’s opinions, analyses and rating acknowledgment decisions (described below) are not recommendations to purchase, hold, or sell any securities or to make any investment decisions, and do not address the suitability of any security. S&P assumes no obligation to update the Content following publication in any form or format. The Content should not be relied on and is not a substitute for the skill, judgment and experience of the user, its management, employees, advisors and/or clients when making investment and other business decisions. S&P does not act as a fiduciary or an investment advisor except where registered as such. While S&P has obtained information from sources it believes to be reliable, S&P does not perform an audit and undertakes no duty of due diligence or independent verification of any information it receives. Rating- related publications may be published for a variety of reasons that are not necessarily dependent on action by rating committees, including, but not limited to, the publication of a periodic update on a credit rating and related analyses. To the extent that regulatory authorities allow a rating agency to acknowledge in one jurisdiction a rating issued in another jurisdiction for certain regulatory purposes, S&P reserves the right to assign, withdraw or suspend such acknowledgment at any time and in its sole discretion. S&P Parties disclaim any duty whatsoever arising out of the assignment, withdrawal or suspension of an acknowledgment as well as any liability for any damage alleged to have been suffered on account thereof. S&P keeps certain activities of its business units separate from each other in order to preserve the independence and objectivity of their respective activities. As a result, certain business units of S&P may have information that is not available to other S&P business units. S&P has established policies and procedures to maintain the confidentiality of certain non-public information received in connection with each analytical process. S&P may receive compensation for its ratings and certain analyses, normally from issuers or underwriters of securities or from obligors. S&P reserves the right to disseminate its opinions and analyses. S&P's public ratings and analyses are made available on its Web sites, www.standardandpoors.com (free of charge), and www.ratingsdirect.com (subscription), and may be distributed through other means, including via S&P publications and third-party redistributors. Additional information about our ratings fees is available at www.standardandpoors.com/usratingsfees. STANDARD & POOR’S, S&P and RATINGSDIRECT are registered trademarks of Standard & Poor’s Financial Services LLC. WWW.STANDARDANDPOORS.COM/RATINGSDIRECT OCTOBER 30, 2020 7
Memorandum DATE October 30, 2020 CITY OF DALLAS TO Honorable Mayor and Members of the City Council SUBJECT Amendments to Chapter 5, “Aircraft and Airports,” and Chapter 47A, “Transportation for Hire,” of the Dallas City Code On November 11, 2020, the Department of Aviation will seek City Council approval to amend Chapter 5, “Aircrafts and Airports,” and Chapter 47A, “Transportation-for-Hire,” of the Dallas City Code. The amendments to these chapters will seek to a) Revise definitions b) Meet recommendations provided to the Department of Aviation by the City Auditor c) Ensure agreement among the transportation-for-hire services at the state and local level d) Increase the international arrival fees due to a 35 percent increase by the Federal Government’s Customs Border Protection in their fees e) Adhere to recommendations proposed by Transportation-for-Hire stakeholder The Department of Aviation conducted stakeholder meetings with the transportation-for- hire partners. They requested an adjustment of the insurance requirements that are equitable to market competition on the state and local level, and that the Department of Aviation remove language associated with transportation network companies that are currently governed by the State of Texas. On August 24, 2020, the City Auditor briefed the Government Performance and Financial Management Committee and recommended that the Department of Aviation perform verification on at least 25 percent of the transportation-for-hire company’s websites on a quarterly basis, establish data sharing agreements with transportation network companies to obtain detailed airport trip fee activity reports, and request airport trip fee reports with sufficient information to perform revenue assurance analysis. The Department of Aviation conducted a holistic review of these chapters and discovered that specific activities, regulations, and practices were no longer applicable. Therefore, efforts were made to modify and streamline language to be current with activities, regulations, international fees, and practices of a public airport the size of Dallas Love Field in the aviation industry. Other changes contained in the proposed ordinances include, but are not limited to, changes to definitions, enforcement, policy, fees, and special events. “Our Product is Service” Empathy | Ethics | Excellence | Equity
DATE October 30, 2020 SUBJECT Amendments to Chapter 5, “Aircraft and Airports,” and Chapter 47A, “Transportation for Hire,” of the Dallas City Code The following is a breakdown of amended fees for Chapter 5, “Aircraft and Airports”: INTERNATIONAL FY 19-20 FY 20-21 ARRIVAL FEES (Current) (New) Transport Category (more than 100,000 lbs.) $750.00 $1,050.00 Large Turbine (more than 40,000 to 100,000 lbs.) $500.00 $700.00 Medium Turbine (12,500 to 40,000 lbs.) $400.00 $560.00 Light Turbine (less than 12,500 lbs.) $250.00 $350.00 Twin Engine Reciprocal Propeller $100.00 $140.00 Single Engine Reciprocal Propeller $75.00 $105.00 TRANSPORTATION SERVICE FY 19-20 FY 20-21 FEES (Current) (New) Certificate of Registration $0.00 $30.00 Transportation Services Decal $15.00 $15.00 Trip Fee Entry (Pick-Up) $2.50 $2.00 Trip Fee Exit (Drop Off) $0.00 $2.00 The following is a breakdown of amended fees for Chapter 47A, “Transportation-for-Hire” (TFH): TFH SERVICE FY 19-20 FY 20-21 FEES (Current) (New) Application Permit $133.00 $0.00 Operating Authority Permit $278.00 $1.000.00 Vehicle Permit $3.00 $30.00 Driver Permit $53.00 $76.00 Driver Permit – Duplicate $0.00 $50.00 If you have any questions or concerns, please contact Mark Duebner at 214-670-6077. Majed A. Al-Ghafry, P.E. Assistant City Manager c: T.C. Broadnax, City Manager Jon Fortune, Assistant City Manager Chris Caso, City Attorney Joey Zapata, Assistant City Manager Mark Swann, City Auditor Dr. Eric A. Johnson, Chief of Economic Development and Neighborhood Services Bilierae Johnson, City Secretary M. Elizabeth Reich, Chief Financial Officer Preston Robinson, Administrative Judge M. Elizabeth (Liz) Cedillo-Pereira, Chief of Equity and Inclusion Kimberly Bizor Tolbert, Chief of Staff to the City Manager Directors and Assistant Directors “Our Product is Service” Empathy | Ethics | Excellence | Equity
Memorandum DATE October 30, 2020 CITY OF DALLAS TO Honorable Mayor and Members of the City Council SUBJECT Dallas Housing Acquisition and Development Corporation (DHADC) Update Summary As we start a new fiscal year, staff would like to provide an update on DHADC activities, specifically inventory, acquisitions, staffing and challenges. The last 6 months have provided a number of challenges for DHADC partners and city staff as adjustments are made to account for COVID. The Housing Department is designated a Phase 3 return-to-work department and staff continues to primarily work from home with plans to return to City Hall at the end of the calendar year. In light of continuing COVID-related staff shortages and changing work priorities our partners are experiencing, we continue to explore solutions to assist in their efforts and remedy our obstacles in creating new affordable housing stock in Dallas. DHADC Inventory: • In the Fiscal Year 2019-2020, 33 affordable housing units were completed and sold to income eligible homebuyers through the Land Bank Program. These housing units were completed in an average time of 128 days and sold in an average time of 33 days with an average sales price of $185,105. The average size of the housing units sold was 1,929 square feet. Currently, the Land Bank Program has 53 housing units under construction or pending permits to start construction. Staff anticipates an additional 39 housing units to start construction in Fiscal Year 2020-2021. DHADC Acquisitions: • Staff has referred 300 properties to Linebarger, Goggan, Blair and Sampson for foreclosure consideration as the first step in the acquisition process for DHADC inventory lots. In addition, 145 properties have been “cleared” by Linebarger Goggan and referred to Republic Title for their assessment and of those, 125 have been referred to Terracon for a Limited Environmental Site Assessment. Staff “Our Product is Service” Empathy | Ethics | Excellence | Equity
DATE October 30, 2020 SUBJECT Dallas Housing Acquisition and Development Corporation (DHADC) Update intends to refer an additional 50 properties to Linebarger Goggan by the end of next month. On September 15, DHADC staff was notified by Linebarger Goggan, “we resumed filing lawsuits in June and the court hearings resumed in July. The Sheriff’s office conducted a tax sale in July, however, the sales scheduled for August – October were cancelled. The Sheriff’s office has confirmed that the private sales to the land bank will move forward as planned starting in December”. Therefore, DHADC staff along with our service providers, will continue with the preparation of the identified lots for acquisition to be ready for filing when the County resumes normal business operations. DHADC staff recently visited a Hedgestone Investments project, 2822 Pennsylvania, currently under construction on a Land Bank lot with Councilman Bazaldua to provide program updates. This project is approximately 1900 square feet and will sell for approximately $180,000 to a prospective homebuyer in the 81-115%AMI range. “Our Product is Service” Empathy | Ethics | Excellence | Equity
DATE October 30, 2020 SUBJECT Dallas Housing Acquisition and Development Corporation (DHADC) Update DHADC staff recently visited a Hedgestone Investments completed project, 2314 Wilhurt, as part of the program’s compliance review. This project is 2007 square feet and is expected to be sold for approximately $189,000 to a prospective homebuyer in the 81-115% AMI range. DHADC Staffing: • As you are aware the DHADC is supported by Housing staff and the number of individuals dedicated to the Land Bank Program has been reduced over the last year to 2, Land Bank Manager, Albert Gonzalez and Housing Project Coordinator, Alisha Palma. In addition, we have since undertaken a new program, the Land Transfer Program and soon will also be overseeing the Community Land Trust Program. Temporary help was authorized to support the additional workload and this individual came on board Monday, October 26, 2020. “Our Product is Service” Empathy | Ethics | Excellence | Equity
DATE October 30, 2020 SUBJECT Dallas Housing Acquisition and Development Corporation (DHADC) Update DHADC Improvements: • The past several months have brought on some unique challenges as most of the internal and external work groups which assist DHADC in the sale and compliance of vacant lots have shifted their processes to accommodate COVID cautionary measures. DHADC staff has implemented changes and continually looks for more solutions to address impediments to our processes. First, all monetary transactions to and from DHADC are now conducted by wire transfer or ACH. Staff has renegotiated all banking fees with Chase to account for the increased volume in such transactions. Secondly, through a third-party service provider, DHADC staff now files all Dallas County legal documents related to the properties DHADC sells or services electronically. Third, DHADC now has a signed MOU with Dallas Water Utilities to clear any City liens on DHADC properties within 48 hours. This also included staff training on the Dallas Water Utilities SAP operating system to research City liens on DHADC properties. Lastly, DHADC staff created an expedited approval of release of reverters and partial release of liens with the more active Title Companies to reduce the closing time for prospective homebuyers. Should you have any questions or require any additional information, please contact myself or David Noguera, Director, Department of Housing & Neighborhood Revitalization, at David.Noguera@DallasCityHall.com or 214-670-3619 Dr. Eric A. Johnson Chief of Economic Development and Neighborhood Services c: T.C. Broadnax, City Manager Jon Fortune, Assistant City Manager Chris Caso, City Attorney Joey Zapata, Assistant City Manager Mark Swann, City Auditor M. Elizabeth Reich, Chief Financial Officer Bilierae Johnson, City Secretary M. Elizabeth (Liz) Cedillo-Pereira, Chief of Equity and Inclusion Preston Robinson, Administrative Judge Directors and Assistant Directors Kimberly Bizor Tolbert, Chief of Staff to the City Manager Majed A. Al-Ghafry, Assistant City Manager “Our Product is Service” Empathy | Ethics | Excellence | Equity
Memorandum DATE October 30, 2020 CITY OF DALLAS TO Honorable Mayor and Members of the City Council SUBJECT Dallas Housing Finance Corporation Agenda Notifications & Public Comment This memo addresses questions raised at the October 26, 2020 Housing & Homelessness Solutions Committee concerning the Dallas Housing Finance Corporation’s (DHFC) policy for posting agendas and time allotment for public comment. Policy for Posting Agendas As with all City Boards, Commissions, and Committees, the DHFC is required to adhere to the Texas Open Meetings Act (TOMA) when conducting Board of Directors meetings. Amongst other requirements, the DHFC must post its agenda no less than 72 hours prior to the time of the meeting. Per TOMA, the agenda must also be posted in a place readily available to the public at all times. The DHFC has historically posted its agendas with the City Secretary’s Office (CSO) wherein the agenda was physically posted at City Hall and on the CSO’s website. In addition, the DHFC has recently begun posting current and past agendas and minutes of the DHFC Board of Directors meetings on the Department of Housing and Neighborhood Revitalization’s (HNR) website. The Board of Directors meets every second Tuesday of the month at 12:00PM. This provides consistency to the public, community and Board of Directors in planning, receiving, and reviewing the meeting agenda. The DHFC’s scheduled meeting time, the second Tuesday of the month at 12:00PM, is made public and posted on the CSO website as well as the HNR website. The posted agendas provide information on how the public can participate in the Board meeting. Due to COVID-19, the DHFC has conducted its Board of Directors meetings virtually via Microsoft Teams. A dial-in number is also provided for residents that may not have access to the internet to participate in the meeting. From time to time, a meeting must be cancelled due to scheduling conflicts with other City functions such as the recent Tuesday meeting of City Council on October 13, 2020. In this event, the DHFC will post an agenda informing the public that the meeting is cancelled no less than 72 hours prior to the normally scheduled meeting. A special called meeting may also be conducted from time to time to reschedule a cancelled meeting or to approve or authorize necessary DHFC business. Any special called meeting is subject to TOMA and must be posted no less than 72 hours prior to the meeting. “Our Product is Service” Empathy | Ethics | Excellence | Equity
DATE October 30, 2020 SUBJECT Dallas Housing Finance Corporation Agenda Notifications & Public Comment Concerns were raised that the 72-hour posting window did not provide the public with enough time to review and prepare comment. However, the 72-hour window required by law is necessary when preparing and planning the agenda of a DHFC Board of Directors meeting. The DHFC actively manages 5 properties, is in the process of constructing 3 new properties, and working to close on additional properties by the end of the year. The DHFC consistently has business items that must be attended to by the Board of Directors that are unknown to Staff and the Board of Directors within hours of the 72-hour posting deadline. Items such as Board authorization of replacement reserve draws for emergency HVAC spending, authorization of budget amendments to partnership properties, or even a briefing regarding potential security concerns may need to be added to the agenda at the last minute. While posting the agenda in advance of the 72-hour window would provide more opportunity for review, it would not be in the best interest of the DHFC to do so. Understanding that the community would be most interested in commenting on the development of affordable housing and not its day-to-day business matters, the DHFC requires that any applicant for a bond inducement and/or partnership meet with the neighborhood associations/organizations in the area of the proposed development. Staff directs applicants to the exhaustive neighborhood association map on Planning and Urban Design’s website as well as Council Liaisons and Staff to identify such neighborhood associations/organizations in the vicinity of the development site. These community meetings provide a much more interactive venue for residents to ask questions and provide their comments directly to the applicants and Staff. Time Allotment for Public Comment Questions were also raised over the amount of time the DHFC makes available for public comment at its Board of Directors meetings. While the October 19, 2020 special called meeting of the DHFC Board of Directors meeting limited public comment to 1 minute, the DHFC Board of Directors normally allows 3 minutes of public comment - mirroring the allowance provided by City Council. Time was limited to 1 minute on this occasion due to the fact that there were 3 applications for preliminary bond inducements and partnerships under consideration. In order to provide for ample time for Board discussion of the proposed developments, public comment time was limited to 1 minute. The DHFC Board of Directors is made up of dedicated volunteers with full-time jobs that rely on a set meeting duration and schedule to properly plan for their service commitment. The DHFC Board of Directors welcomes public comment and typically provides 3 minutes of comment time; however, for the sake of the Board’s availability and to allow for proper “Our Product is Service” Empathy | Ethics | Excellence | Equity
DATE October 30, 2020 SUBJECT Dallas Housing Finance Corporation Agenda Notifications & Public Comment deliberation on the agenda items, it was Staff’s determination (with DHFC Officer approval) to limit the public comment time to 1 minute per resident at the October 19 meeting. The DHFC fully intends to resume allowing 3 minutes of public commentary at its future meetings as was the case when there was robust community participation at the August 11, 2020 DHFC Board of Directors meeting. Should you have questions or concerns, please contact David Noguera, Director at 214- 670-3619 or david.noguera@dallascityhall.com. Dr. Eric A. Johnson Chief of Economic Development and Neighborhood Services c: T.C. Broadnax, City Manager Jon Fortune, Assistant City Manager Chris Caso, City Attorney Joey Zapata, Assistant City Manager Mark Swann, City Auditor M. Elizabeth Reich, Chief Financial Officer Bilierae Johnson, City Secretary M. Elizabeth (Liz) Cedillo-Pereira, Chief of Equity and Inclusion Preston Robinson, Administrative Judge Directors and Assistant Directors Kimberly Bizor Tolbert, Chief of Staff to the City Manager Majed A. Al-Ghafry, Assistant City Manager “Our Product is Service” Empathy | Ethics | Excellence | Equity
Memorandum DATE October 30, 2020 CITY OF DALLAS TO Honorable Mayor and Members of the City Council SUBJECT Housing Department Performance Measures Update Follow-Up This memo addresses the contents included in two categories of the “Housing Department Performance Measures Update”: Development and Other. Development The Department of Housing and Neighborhood Revitalization reports three primary measures combining all development programs administered by its staff. Units supported includes all units approved by council or the program’s associated boards, units permitted includes units that receive a build permit, and units occupied includes a measure of when a unit is sold or rented, typically measured at renter/buyer income verification or at deed transfer date. The programs that are included in these measures are federal grant and bond-funded projects, land bank and land transfer projects, and the Mixed-Income Housing Development Bonus program. Beginning October 1, 2020 this category will also include Low-Income Housing Tax Credit (LIHTC) projects and Dallas Housing Finance Corporation (DHFC) partnerships. Other The “Units Supported by Other Departments” measure contains housing units produced by incentives, staff time, and policies in other departments including Tax Increment Financing (TIF) District funding, and acquisitions and developments administered by other City departments. This category also included LIHTC and DHFC projects as these programs were housed in the Office of Economic Development at the start of fiscal year 19-20. Beginning October 1, 2020, this category will no longer include units produced by LIHTC or DHFC. Projects counted in the reported measure include the following developments: • 2400 Bryan • HighPoint at Wynnewood • Palladium Red Bird • The Magenta • Villas at Western Heights • Sphinx at Murdeaux • Ridgecrest Terrace Apartments • Sorcey Road Apartments • The Ridge at Lancaster • Juliette Fowler Residences “Our Product is Service” Empathy | Ethics | Excellence | Equity
DATE October 30, 2020 SUBJECT Housing Department Performance Measures Update Follow-Up • Gateway Oak Cliff • The Oaks • Dallas Stemmons Apartments Should you have questions or concerns, please contact David Noguera, Director at 214- 670-3619 or david.noguera@dallascityhall.com. Dr. Eric A. Johnson Chief of Economic Development and Neighborhood Services c: T.C. Broadnax, City Manager Jon Fortune, Assistant City Manager Chris Caso, City Attorney Joey Zapata, Assistant City Manager Mark Swann, City Auditor M. Elizabeth Reich, Chief Financial Officer Bilierae Johnson, City Secretary M. Elizabeth (Liz) Cedillo-Pereira, Chief of Equity and Inclusion Preston Robinson, Administrative Judge Directors and Assistant Directors Kimberly Bizor Tolbert, Chief of Staff to the City Manager Majed A. Al-Ghafry, Assistant City Manager “Our Product is Service” Empathy | Ethics | Excellence | Equity
Memorandum DATE October , 2020 CITY OF DALLAS TO Honorable Mayor and Members of the City Council SUBJECT Update on HUD OIG and Reconstruction Program Audit 2018-FW-1004 and CHDO Program Audit 2019-FW-1004 This memorandum will provide an update on three open audits that were previously briefed to the Housing and Homeless Committee on February 24, 2020, and disclosed to &LW\ Council by Taking Care of Business memorandums on August 2, 2019 and November 15, 2019, respectively, see attached links below: 2017 HOME Monitoring and OIG HOME Reconstruction Program Audit 2018-FW-1004: https://dallascityhall.com/government/citymanager/Documents/FY18- 19%20Memos/Updates-on-HUD-OIG-Audit-of-the-City%27s-HOME-Program-and- Status-of-Open-Findings-from-the-2017-On-Site-Monitoring_Memo_080219.pdf HUD OIG CHDO Program Audit 2019-FW-1004: https://dallascityhall.com/government/citymanager/Documents/FY19- 20_Memos/HUD%20OIG%20CHDO%20Program_Memo_111519.pdf As is the standard practice with HUD audits and monitoring reports, a considerable amount of negotiation is undertaken to mitigate adverse effects or consequences of any finding. The length of time required for negotiations is uncertain and repayments made to HUD have historically been less than initially identified. As disclosed in the City Council briefing dated February 24, 2020 (summary chart attached), the City was faced with a potential repayment of $60M from HUD audit findings dating from 2016-2020. To-date, the City has repaid a total of $693,433 relative to those findings. In this case, and although WKH Housing 'HSDUWPHQW does not agree with the penalties for the findings described below, after three years of negotiation with HUD and after all options were exhausted, WKHHousing'HSDUWPHQW agreed to a reduction in FY 2020-21 HOME Investment Partnership Program funds in the amount of approximately $4.3M to address the findings. Audit Finding HUD Original Agreed Penalty Amount Amount 2017 HOME Finding 7: Conversion of rental properties Monitoring to homeownership. $1.4M $739,000.26 HUD OIG HOME Finding 1C: The recommendations for the Reconstruction two deficiencies that remain open are (1) $103,000 “Our Product is Service” Empathy | Ethics | Excellence | Equity
DATE October 27, 2020 SUBJECT SUBJECT Program Audit 2018- hiring of a qualified entity to determine and $1.3M FW-1004 correct deficiencies related to eight reconstructed homes, including the structural integrity of the homes and (2) the potential for the City to repay its HOME program from non-federal funds which were misspent reconstructing homes. Finding 1: The City did not follow environmental requirements; Finding 2: HUD OIG CHDO The City did not effectively manage its Program Audit 2019- Community Housing Development FW-1004 Organizations (CHDO). $5.2M $3.46M Totals $7.9M $4,302,343.26 The $4.3M reduction in HOME Investment Partnership funds will impact production of approximately 80 new housing units anticipated for developed in 2020-21. The home repair and homebuyer assistance programs will not be impacted by this reduction. Although this is a significant impact to new housing production, WKHHousing 'HSDUWPHQW has over $17.6M in unspent CDBG and HOME funds for development activities to work through in the next few years. In addition to the annual federal funding from CDBG and HOME for development, WKH Housing 'HSDUWPHQW will receive approximately $4M in Bond funds over the next 2 years for development activities. The City of Dallas is prepared to move forward with HUD to build a stronger partnership to address community needs and close out long-standing audit findings that have taken a considerable amount of time to resolve. 7KH Housing 'HSDUWPHQW will move forward on a Preliminary Substantial Amendment to the FY 2020-21 Action Plan to reduce the HOME Program development funding and call for a public hearing. Should you have any questions concerning this matter, please contact Dr. Eric Anthony Johnson, Chief of Economic Development and Neighborhood Services. Dr. Eric A. Johnson Chief of Economic Development and Neighborhood Services c: T.C. Broadnax, City Manager Jon Fortune, Assistant City Manager Chris Caso, City Attorney Joey Zapata, Assistant City Manager Mark Swann, City Auditor M. Elizabeth Reich, Chief Financial Officer Bilierae Johnson, City Secretary M. Elizabeth (Liz) Cedillo-Pereira, Chief of Equity and Inclusion Preston Robinson, Administrative Judge Directors and Assistant Directors Kimberly Bizor Tolbert, Chief of Staff to the City Manager Majed A. Al-Ghafry, Assistant City Manager “Our Product is Service” Empathy | Ethics | Excellence | Equity
HUD Audits from 2016-Present Year Audit, Monitoring, Review Potential Results Repayment Internal Audit on Development Projects: Auditor required 10 items associated with the following two categories to be implemented: On August 21, 2019 Internal 1) Recommend the Director of the Department of Housing and Auditor report identified nine Neighborhood Revitalization develop and implement formal of the ten items were (written, approved, and dated) policies and procedures for implemented (cleared); The the following processes; final item could not be cleared 2) Recommend the Director of the Department of Housing and pending a lack of new Neighborhood Revitalization develop, implement, and retain construction projects to complete and consistent documentation for the following review. The item will be tested 2016 processes $29.9M in FY 2019-20. Entitlement Program DEC Review: HUD Ft. Worth requested copies of all documentation that the Auditor’s April 2017, Review was 2016 Office referenced in the audit report. $29.9M closed. No repayment. Pleasant Oaks OIG Audit: HUD Ft. Worth requested Pleasant Oaks Project files to provide to OIG for November 2016, Review was 2016 review. $1.6M closed. No repayment. HOME Program Financial HUD Monitoring: HUD Ft. Worth performed monitoring review of the HOME Program No Findings Issued. No 2016 financial records. $1.4M repayment. August 2016, Repayment of CDBG Housing Rehabilitation Administration DEC Review: $106,568 for ineligible DEC requested information regarding staffing and administrative costs administrative costs and 2016 associated with the housing rehabilitation program. $1.2M Finding closed Repayment of $424,634 for ineligible project costs and TBRA administrative costs; Awaiting HUD’s final review of HOME HUD Monitoring: Finding #7-Conversion of HUD Ft. Worth reviewed administration, programs, CHDOs, reporting, rental properties to 2017 financials, program income and compliance for the HOME Program. $1.4M homeownership.
HUD Audits from 2016-Present
Memorandum DATE October 30, 2020 CITY OF DALLAS TO Honorable Mayor and Members of the City Council SUBJECT Update on Sustainable Development & Construction Permit Processing The information provided below is an update to a memo to the City Council on September 11, 2020 and a briefing to the Transportation & Infrastructure Committee on September 21, 2020 regarding the Sustainable Development & Construction (SDC) department. • There is a significant reduction in the backlog of Single Family permits for new construction and additions in the prescreen process. As briefed to the Transportation & Infrastructure Committee, internal staff were temporarily reassigned and third-party staff from an existing contract with Dal-Tech Engineering were brought in to to help clear the queue for administrative screening of submittals. o On September 1, 2020: 464 applications in queue o As of October 28, 2020: 101 applications in queue • The department is working to add third-party resources through the City’s temporary staffing contract and an Administrative Action to assist with plan reviews. Plan review requires more technical skills and knowledge, so it is more difficult to assign additional resources to this step than the prescreen process. The current surge at this stage is a result of moving the backlog of applications through prescreen. The temporary hiring of staff will be vital to tackling the surge and reducing the overall permitting timeline to acceptable levels. • Information and Technology Services (ITS) continues to make performance improvements to the ProjectDox electronic plan review system. ITS is redesigning and rehosting the current system environment for greater efficiency and scalability. ITS is also conducting a deep diagnostic on the network at the Oak Cliff Municipal Center, and upgrading staff computers to include Windows 10. • SDC is dedicated to ensuring that applicants understand the ProjectDox electronic system. SDC has updated training materials available on the department’s website. Live virtual training sessions are scheduled for November and December. SDC is also creating instructional videos and FAQs to be posted to the website by December 1, 2020. “Our Product is Service” Empathy | Ethics | Excellence | Equity
DATE October 30, 2020 SUBJECT Update on Sustainable Development & Construction Permit Processing • SDC received seven (7) responses to the Request for Competitive Sealed Proposals (RFCSP) for the “Workflow Evaluation and Staffing Study” project. The Evaluation Committee includes, Dr. Eric A. Johnson, Chief of Economic Development and Neighborhood Services; Majed Al-Ghafry, Assistant City Manager; Terry Lowery, Dallas Water Utilities Director; Kris Sweckard, Director, Sustainable Development & Construction. The proposal review and selection process is underway. Council consideration of a contract-is scheduled for December, with a project launch expected in early 2021. • SDC received four (4) responses to the Request for Competitive Sealed Proposals (RFCSP) to design and develop a “Building Permit and Land Use Planning/Management System.” This information technology and process project will replace Posse, the backbone permitting system currently in use by SDC and partner departments. This replacement project is critical to more effectively review end-to-end processes and make recommendations for long- term technology to support permitting. As each entity has already presented its proposal, selection is scheduled for November. Following negotiations, the contract is anticipated for Council consideration in January. • CARES Act funding has afforded SDC the opportunity to take on additional information technology projects that due to CARES act requirements, must be completed by December 30, 2020. These projects include: o Providing electronic submittal capabilities for Real Estate (abandonment and Right-of-Way license applications) o Providing electronic submittal for platting of properties o Providing dynamic plan review for the Q-Team to utilize in expedited plan review meetings o Provide automated interface between the ProjectDox electronic plan review system and Posse permitting system to eliminate what is currently a manual process. • SDC will create and issue by December 31, 2020, a Request for Competitive Sealed Proposals (RFCSP) to contract with a consultant to design and implement a self-certification program for engineers and/or architects to obtain building permits with limited staff involvement. This program will still be subject to inspections during and at completion of construction. The scope of work for the project will include a training program for those wishing to self-certify. • As directed by the City Council during the budget process, the City Manager, through the Human Resources department, is designing a recruitment and “Our Product is Service” Empathy | Ethics | Excellence | Equity
DATE October 30, 2020 SUBJECT Update on Sustainable Development & Construction Permit Processing retention program specifically for SDC positions that are difficult to fill and retain. Recommendations will be provided to City Council for discussion and approval. • As approved in the FY20-21 budget, two additional Development Project Coordinators are being hired to provide “concierge” services for projects related to mixed income housing developments that are participating in the 1,000-Unit Affordable Housing Challenge or other City Housing programs. These positions were posted and have closed. Civil Service is reviewing candidates. While the positions are being filled, existing SDC staff is meeting with Housing & Neighborhood Revitalization staff to identify best practices for efficient and effective coordination. • SDC continues to explore avenues to replace the Oak Cliff Municipal Center. The following timeline overview illustrates the various projects and initiatives as outlined above: Initiative Oct 2020 Nov 2021 Dec 2020 Jan 2021 Feb 2021 Mar 2021 April 2021 May 2021 June 2021 July 2021 Aug 2021 Sept 2021 Oct 2021 Nov 2021 Dec 2021 Jan 2022 Temporary Staff for Prescreen Temporary Staff for Plan Review ITS technology improvements for ProjectDox Enhanced information on ProjectDox provided to applicants Workflow Evaluation and Staffing Study Building Permit and Land Use Planning/ Management System (Posse Replacement) ITS Projects Using CARES Funding for Additional Electronic Processes Self-Certification Program for Engineers and/or Architects Retention/Recruitment Program for SDC Positions Hire “Concierge” Service Positions for Affordable Housing Projects Facility Replacement The information provided above reflects the continued dedication of staff to rise to the challenges that the COVID-19 pandemic and other factors have presented. Thank you for your support as we reimagine and make efficiency improvements with Sustainable Development & Construction. “Our Product is Service” Empathy | Ethics | Excellence | Equity
You can also read