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By Lookout Staff

April 22 -- Worried the City could lose opportunities to build affordable housing with only $10 million a year in hand, the City Council voted to establish a $50 million line of credit Tuesday night.

Under its current “pay-as-you-go” strategy, the annual funding produces roughly 25 two and three-bedroom units, which falls far short of meeting the need in Santa Monica’s skyrocketing rental market, City officials said.

The line of credit from Bank of America -- which can be increased to $75 million -- allows the City’s Redevelopment Agency to accelerate “the near-term funding of affordable housing by expanding available capital to take advantage of opportunities as they arise,” housing officials said.

“This leveraging of set-aside funds enhances the City’s ability to more immediately address the need for affordable housing and avoids inflationary increases in land and construction costs,” James Kemper, the City’s acting housing administrator, wrote in a report to the City Council.

A $50 million line of credit, Kemper said, “represents a balance between creating new affordable housing finance opportunities and the cost of the bank commitment fee associated with a line of credit.”

The current financing method “does not leverage the Agency’s ongoing revenue stream and results in missed affordable housing opportunities if sufficient funding is unavailable when desirable properties emerge,” Kemper wrote.

The line of credit increases the near-term funding available for affordable housing development while retaining several million dollars annually for pay-as-you-go funding, he wrote.

Staff proposed the line of credit after determining it would be a better strategy than borrowing from the City’s revolving investment funds, officials said.

Bank of America was chosen over Citigroup and JP Morgan, because it “provided the best proposal regarding the overall cost of establishing the line of credit, including origination and commitment fees, and the interest rate,” Kemper wrote.

“The goal of leveraging affordable housing revenue is to accelerate near-term affordable housing development (this includes newly constructed housing and acquisition and rehabilitation of existing housing) to better meet the community’s immediate needs,” according to the report.

The credit line will be needed to keep up with the rising cost of producing affordable housing -- which has steadily increased in recent years from $150,000 a unit to nearly $400,000.

The five-year line of credit will cost the City $250,000 to administer, according to staff.