COPA financial assumptions don’t withstand scrutiny
Many cities in the Bay Area have considered COPA but all have declined (except SF) because of complexity, overhead, and unpredictable funding sources. COPA grants privileged and exclusive rights to qualified nonprofits (QNP) to make the first offer and review the last offer on the purchase of multifamily apartments. The majority of these will be the rent-controlled apartments owned by small market housing providers.
The reason other cities said no is that COPA is rife with overly complicated false financial assumptions that make taxpayers ultimately responsible for what will likely be a never-ending treadmill of funding requests from the non-profits entering the property market.
Here is a quick summary of COPA’s financial shortcomings.
The “Loan” from SJ is really a giveaway to nonprofits
COPA relies heavily on dangerous math behind loans that would be granted to QNPs. The QNP would get a normal 30-year loan from a commercial source (hard loan) and would need additional funding directly from the City of San Jose — a soft loan for 55 years. The San Jose loan is basically a gift; a privileged sweetheart deal where the QNP would not have to pay back the loan even if they sold the property for a profit.
The projected business model for nonprofits does not make sense
The math gets dangerous when you look at the QNP purchasing a multiunit property for market rate. Usually, a new owner must wait years to break even and then later still to make a profit. Many small unit owners hold multiple jobs to keep the property financially afloat because rents do not cover expenses. But the QNP will purchase a multi-unit at market rate and then charge substantially less rent for most renters. The formula allows the QNP to charge 30% of the renters’ income, whatever the income amount. This creates a buy on the high side of expense and rent on the low side of income; meaning cashflow is upsidedown and will always run a loss. When this loss gathers steam over the years, who will the QNP look to for a bailout to keep them going? Consider the nonprofit multi buildings in LA that are running a $14M deficit every year. One of skid row’s largest housing providers faces financial implosion
Sadly, the QNP would be allowed to evict a tenant should they not pay their rent; but there is a double standard when the QNP needs to repay the loan to SJ — that’s not required. And this encourages poor management.
COPA ignores one of the most important financial issues in property management: ongoing costs
One thing is clear about affordable housing, it can demand substantial services to make it work correctly and be acceptable to the surrounding community.
Without breaking even each month, how will QNPs deal with the increasing variable costs of: services, security, property maintenance, property management, repairs, saving for capital improvements such as a new roof, increasing utility costs, and staffing?
Again, the taxpayers will be asked to support the folly of the QNP. Naturally occurring affordable apartments, that were once run independently without taxpayer funding, will instead rely on a regular stream of financial assistance from the City.
Let’s remember that Second Street Studios just required an influx of $1M simply to improve their security and other unanticipated costs. SSS unanticipated repairs, flood prevention due to fires, security
COPA hollows out property tax revenue
And finally, are all the cities in Santa Clara County paying attention? San Jose drives the most property taxes for the County and once the QNP purchases the property they will no longer pay property taxes. And is San Jose listening? Because although we only get 30% of our property taxes back from the County, this revenue stream the keeps the City running.
The Housing Department expects 3–10 units be sold to QNP per year but ramps up into the hundreds after the first few years. This is a far cry from SF which hopes to have 30% of rentals owned by QNP. SF COPA If COPA passes, we can expect an initial drop in property tax revenue and as COPA gains traction much more revenue will be lost. This loss will need to be made up in ways that are currently unknown.
Nonprofits are not accountable to their funders –the taxpayer
Let’s also note the QNP will not be required to be transparent and accountable directly to the taxpayers. At least with the City of San Jose a taxpayer can submit a public records request to hold the City better accountable; but not so with the QNP.
In summary
All this, to preserve affordable housing that without COPA is already naturally occurring affordable housing. We are not making more housing, we are not making the currently affordable housing more affordable, and we are not stopping evictions. We have already spent $950,000 from Measure A — it’s all gone. And now we are taking Measure E money, that voters thought would go toward creating housing, and using it as gift-loans to QNPs.
For all the bad math, misappropriating Measure E, lack of transparency, and potential lawsuits — we need to ask ourselves — is COPA worth it?
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Irene Smith, JD, PhD
