Appropriate grant award of $35 million for Section 108 Loan Guarantee Program

This ordinance allows the City to appropriate $35,000,000 in funds awarded by the U.S. Department of Housing and Urban Development (HUD) for the Section 108 Loan Guarantee 2025 Legacy Challenge to support the creation of an affordable housing loan fund targeted to projects that create or preserve housing affordable to low- and moderate-income households. In June 2025, the City of Portland through PHB submitted an application to the U.S. Department of Housing and Urban Development (HUD) for the Section 108 Loan Guarantee 2025 Legacy Challenge for $35 million to support the creation of an affordable housing loan fund targeted to projects that create or preserve housing affordable to low- and moderate-income households. PHB had previously applied and been awarded Section 108 funds in 2009 and created a similar loan fund. In May 2026, HUD notified the City that our application was approved and sent a grant agreement for review.

Legislation is not expected to impact the cost of doing business, but rather to increase the feasibility of affordable housing development, preservation, and operations for affordable housing providers. Many of the affordable housing providers within the City of Portland are non-profit organizations, but there are also for-profit businesses, as well as Home Forward (our region's Housing Authority). The legislation may result in increased job production in the real estate development, construction, engineering, architecture and related industries as a result of activities funded through the loan fund. As the loan funds are Federal, construction labor will be compensated at Davis Bacon wage rates, which is expected to increase the financial well-being of people working in those trades. All projects will also be required to demonstrate compliance with PHB's Apprenticeship Workforce requirement, which supports the City's goals to (a) ensure that City contracting dollars provide fair and equal opportunities to all Portlanders, including the City's diverse populations; and (b) contract with equitably aware and environmentally responsible businesses. PHB posted the draft proposal for public comment and held a public hearing on May 7, 2025, to include planned Section 108 Loan resources and activities in the 2024 Action Plan. The public comment period was April 28 –May 27, 2025. Feedback included the importance of targeting more deeply affordable housing (up to 50% AMI), as well as rehabilitation for its cost efficiency over new construction. These concepts will be incorporated into implementation, when developing Notices of Funding Availability. The legislation is not expected to have adverse impacts.

The proposed Affordable Housing Loan Fund seeks to address Portland's need to add 38,000 units of affordable to households earning 0-80% AMI by 2045, as described in the City's 2023 Housing Needs Analysis. Alongside this expected need for new units, preservation efforts are critical to avoid displacement of low-income tenants and ensure housing production gains are not offset by loss of existing affordable housing. As a result, the legislation is expected to most directly impact all low-income households including those most vulnerable to displacement such as Black, Indigenous, and People of Color households; seniors; people with disabilities; and families with children. Funds will be made available to projects City-wide; however, projects may leverage local tax increment financing (TIF) resources from the Gateway, Central City, East Portland, and Cully TIF districts. The City's Section 108 loan proposal was informed by the intensive community engagement conducted for the Housing Production Strategy (HPS) and the 2021-2025 Consolidated Plan, as well as ongoing engagement with technical advisors and industry partners including other public agencies, developers/owners, lenders, and service providers. The priorities outlined in the Housing Production Strategy and Consolidated Plan were informed by years of prior community engagement and project-specific outreach. Outreach for the HPS included an online open house and survey for community members, as well as workshops and presentations with Community-Based Organizations and their members. Outreach for the Consolidated Plan followed the requirements outlined in the Consortium's Public Participation Plan and included two hearings on public needs and three Action Plan hearings. All events were advertised in the Portland Tribune, the Gresham Outlook, newsletters, email lists, and on the jurisdiction's webpages. Citizen participation was also encouraged via surveys and comment cards. Lastly, outreach for the Consolidated Plan included consultation with community services and housing partners.

PHB will only draw down on Section 108 Loan funds after the Bureau has awarded projects through a competitive solicitation and closed on financing. Once PHB closes on the first loan, the City will begin making ongoing debt payments to HUD. To support repayment, PHB will structure loans it makes to development partners as amortizing, must-pay debt in first position loans. PHB anticipates passing on the HUD interest rate to awarded borrowers. The City will also pay a fee to HUD at the time of each loan advance using CDBG entitlement or program income funds, which will be reimbursed by an origination fee passed onto borrowers. If borrowers fail to make timely payments and PHB fails to make a required payment on its notes, HUD will deduct that payment from the City's CDBG Letter of Credit. In accepting this loan guarantee, the City will pledge its CDBG entitlement funds and program income as security for the guarantee. For additional collateral, PHB will assign to HUD the third-party housing loan agreement, note, deed of trust, and other security interests for individual projects as applicable. In the immediate term this amends the budget by appropriating an additional $35 million toward contingency. As projects are selected through solicitations the budget will be updated to show anticipated disbursals for the relevant fiscal year. It is anticipated that initial implementation of the loan fund will be supported by current staffing capacity. It's possible that in the future, one FTE may need to be added to support this work. The action requested includes a new Federal award agreement with HUD.

Both new construction projects and projects completing substantial rehabilitation with twenty units or more and who are awarded funds through the loan fund equivalent to 10% or more of project costs will be required to adhere to all components of PHB's Green Building Policy. In addition to other measures, the policy seeks to create more energy efficient projects and encourage the use of renewable energy.