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POLICY OBJECTIVE Providing affordable housing options in our community has long been identified as a priority for the City and the Roseville Housing and Redevelopment Authority thru the City's Comprehensive Plan and the RHRA Housing Policies. BUDGET IMPLICATIONS The costs for issuing the original bond was paid for by the developer. City and RHRA staff on this matter have not been billed to the developer, but the time for Sriggs and Morgan, the City's bond counsel to review the matter will be charged back to the developer. DISCUSSION Minnesota State Statutes 474A.047 describe the requirements that projects must adhere to if they are using Residential Rental Sonds. One of the requirements is that at least 20% of the units do not exceed the area fair market rent. Section 474A.047(3) discusses penalties: 474A.047 Subd. 3.Penalty. The issuer shall monitor project compliance with the rental rate and income level requirements under subdivision 1. The issuer may issue an order ofnoncompliance if a project is found by the issuer to be out of compliance with the rental rate or income level requirements under subdivision 1. The owner or owners of the project shall pay a penalty to the issuer equal to one-half of one percent of the total amount of bonds issued for the project under this chapter if the issuer issues an order ofnoncompliance. For each additional year a project is out of compliance, the annual penalty must be increased by one-half of one percent of the total amount of bonds issued under this chapter for the project. The issuer may waive insubstantial violations. The statutes are very clear that the penalty is a fixed amount. In Centennial Gardens case, the penalty would be $60,000 if the City finds the development out of non-compliance. In talking to City bond counsel, the statutes do not allow the issuer (the City) to levy a lesser or greater penalty. In the case of "insubstantial violations" the issuer may waive the penalty. In determining on whether to issue a penalty, the City Council should first discuss whether or not the violations of charger higher rent than allowed was an "insubstantial violation" or not. A total of 31 tenants were overcharged a total of $1,687, with individual tenants being overcharged a total of $10 - $180. The developer originally acknowledged that they miscalculated the rents when applying the 20% affordable standard but that it was an oversight and not intentional and have since lowered the rent and refunded the overpayments to those that were overcharged. However on February 27, 2009, the City received a letter dated February 26, 2009 from the developer's attorney, Norm Jones which stated a slightly different perspective on Centennial Gardens non- compliance than was previously communicated in the Fall of 2008. Mr. Jones indicates that based on his interpretation, rent is defined as payable directly by the tenant, and therefore, any tenant receiving a Section 8 voucher, is often paying less than the fair marked rent out of their own pocket. Mr. Jones, further states that, based on his interpretation, that the project was only in violation in the months of July, August, and September of 2008. Mr. Jones concludes that although various legal issues (from their point of view) remain unclear and would have to be tested in the courts, the developer has Page 2 of 3