April 25, 2024 - Transactions to the Below Market Rate (BMR) Affordable Housing Fund (AHF)
CITY COUNCIL INFORMATIONAL MEMORANDUM
Date: April 25, 2024
To: Cupertino City Council
From: Pamela Wu, City Manager
Re: Transactions to the Below Market Rate (BMR) Affordable Housing Fund (AHF)
Background
The memo is to provide additional information and update of the current BMR fund
expenditures.
The City of Cupertino commissioned a nexus study in 1992 to evaluate the relationship
between land use and affordable housing. The study showed that new developments create
additional housing needs and placed strain on the City's affordable housing programs. As
a result, in 1995 the City adopted a Housing Mitigation Procedural Manual in order to
establish requirements for residential and office/industrial developers to mitigate those
additional housing needs. An updated nexus study was commissioned in 2015 for linkages
between residential and non-residential developments in the City and the demand for
additional affordable housing.
In accordance with the City of Cupertino’s Housing Element, all new residential and/or
non- residential developments are required to help mitigate project related impacts on
affordable housing needs. As required by Section 19.172.030 of the Cupertino Municipal
Code, the BMR Housing Mitigation Program Procedural Manual (BMR Manual) establishes
procedures for implementing the affordable housing mitigation provisions of the City’s
BMR program. City Council previously in 2015 and 2020 adopted updated versions of the
BMR Manual which establishes procedures to implement housing mitigation as required
by the General Plan 2015-2022 Housing Element.
The BMR Housing Mitigation Program also identifies the mitigation fees. The Non-
residential and Residential Housing Mitigation Programs are applicable to all non-
residential and/or residential projects that result in an increase of gross floor area and/or the
number of net new units in a development. The Affordable Housing Mitigation Fee was set
by the City Council to benefit the needs of the low-income community as identified in the
nexus study and help mitigate project-related impacts on affordable housing needs. All fees
are deposited into the City’s BMR Affordable Housing Fund (AHF). The BMR AHF can be
OFFICE OF COMMUNITY DEVELOPMENT
CITY HALL
10300 TORRE AVENUE • CUPERTINO, CA 95014-3255
(408) 777-3308 • FAX (408) 777-3333 • planning@cupertino.org
utilized for a variety of uses as identified in the BMR Manual section 2.2.2, including
program administration.
In February, 2024, the City was informed of an issue regarding the miscoding of transactions
to the BMR AHF, specifically those involving attorney fees in the Housing Element
litigation. The City has identified this issue and has taken immediate steps to implement
controls to prevent similar miscodings in the future. The new implementation procedure
involves staff education of permissible BMR expenditures, more detailed identification of
transactions, and an additional approval requirement prior to processing transactions.
BMR AHF has been used for a variety of different purposes that are related to low income
housing. The City’s BMR Housing Program contains 141 rental units and 119 ownership
units, and the administration of this program is covered by BMR AHF, including
consultants and city staff costs. The City also provides a public service grant to a nonprofit
organization called Project Sentinel for the provision of fair housing services to Cupertino
residents. In addition, in 2017, BMR AHF was provided to assist with the development of
The Veranda, which is a 19-unit affordable senior citizen housing development located in
the city.
To correct these errors, staff is conducting a review of all transactions processed to the fund
over the past five years from 2019 to 2024. Any misclassified expenses will be reclassified to
the appropriate fund. Due to the significant volume of transactions posted to the fund, we
anticipate this process will take some time to complete.
Sustainability Impact
No sustainability impact.
Fiscal Impact
No fiscal impact.
_____________________________________
Prepared by: Benjamin Fu, Director of Community Development Department
Reviewed by: Matt Morley, Assistant City Manager
Christopher Jensen, City Attorney
Approved for Submission by: Pamela Wu, City Manager