The Board of County Commissioners of Brevard County, Florida, met in workshop session with the Brevard County Housing Finance Authority at 1:30 p.m. on July 18, 1995 in the Government Center Multipurpose Room, Building C, 2725 St. Johns Street, Melbourne, Florida. Present were Chairman Nancy Higgs, Commissioners Truman Scarborough, Randy O'Brien, Mark Cook and Scott Ellis, County Manager Tom Jenkins, and County Attorney Scott Knox.

Members of the Housing Finance Authority present were: Chairman Eugene Terkoski, Sally Hutchison, George Khoury, Hugh Normile, Alan Coburn and Authority Attorney Angela Abbott.

INTRODUCTION, RE: BREVARD COUNTY HOUSING FINANCE AUTHORITY

Eugene Terkoski, Chairman of the Brevard County Housing Finance Authority, thanked the Board for the opportunity to meet and discuss issues and get a better level of comfort of what they are doing and to explain the parameters and operation. He introduced members of the Authority Vice Chairman Hubert Normile, Secretary/Treasurer Alan Coburn, Assistant Secretary/Treasurer George Khoury, and Sally Hutchison, supporting personnel Authority Attorney Angela Abbott, Finance Advisor Ann Kopelousos, Bond Counsels Mark Mustian and Dan Livermore, Underwriters Jim Davis and Ray Hopkins, Tom Hargrave, Ken O'Donnell with Citizens Federal Savings & Loan, one of the investors, Pat Canahan with Leader Corporation, and Ms. Mercado and John Fox representing Sun Bank, Trustee. He advised Angela Abbot will give a legal overview, Sally Hutchison will speak on the impact their activities have on the community, George Khoury will talk about the history of the Authority, and Hugh Normile will give a summary.

OVERVIEW, RE: LAWS CREATING THE AUTHORITY

Attorney Angela Abbott advised in 1978, the Legislature, by Chapter 159, Part IV, known as the Florida Housing Finance Authority law, determined there was a shortage of available housing that the average person can afford which could not be relieved except through encouragement of investment of private enterprise, stimulation of construction, and rehabilitation of housing through the use of public financing; the law allowed for the creation of local authorities to meet housing needs of low to moderate and middle income residents; and in 1979, the Board of County Commissioners recognized that need in Brevard County and created the Brevard County Housing Finance Authority under Ordinance No. 79-09 which was amended in 1984 by Ordinance No. 84-16. She stated the unique and important function of the Authority was not only to assist low-income, but also moderate and middle-income residents; and they accomplish that through the issuance of primarily tax-exempt bonds, which means the investors in the bonds receive interest that is exempt from federal income taxation; therefore, certain federal tax laws will dictate the parameters of the Authority's issues. She stated under the single-family issues, there are requirements for first-time home buyers, maximum family income limits, and maximum home purchase prices; and under the multifamily, the income of the residents and the project. Ms. Abbott advised the Authority developed policies and adopted rules to conform with federal tax laws, real estate, and local tax laws to preserve that its bond issues are tax exempt; the bonds that are issued by the Authority are payable solely from revenues generated from those bonds and does not pledge the credit of the County; and they are issued in the name of the Authority and not in the name of Brevard County. She stated over the past years, the Authority has operated autonomously in carrying out its function; the law requires the Board to grant approval of the public hearing that the Authority holds prior to the issuance of each bond issue; and County Attorney Scott Knox prepared a thorough memorandum that outlines what the Board's roll is in interacting with the Authority.

PRESENTATION, RE: COMMUNITY IMPACT

Sally Hutchison advised through the mortgage revenue bonds, the Housing Finance Authority has created approximately 6,760 loans for individual first-time home buyers and made available nearly 4,000 rental units; and the mortgage revenue bonds not only fill the needs for adequate housing, but also provide jobs, help businesses, widen the ad valorem tax base, and strengthen the economy. She stated the bond issues encourage new construction and preservation of existing moderately priced homes and rental units, as well as updating target areas; they provide work for carpenters, electricians, plumbers, and other tradesmen; and they provide customers for suppliers of goods, such as construction materials, landscaping, home furnishings, etc. and suppliers of services such as builders, mortgage originators, processors, servicers, title companies, appraisers, surveyors, and insurance companies. Ms. Hutchison advised tax revenues are increased on federal, state and local levels; according to the National Association of Home Builders, for every 250 new homes there is a gain of 612 jobs for one calendar quarter, 6.7 million dollars of federal tax revenues, and 2.5 million dollars of state and local tax revenues. She stated for resale of existing single-family homes, the recent Price Waterhouse Study found in 1990 each resale transaction contributed an average of $10,717 dollars to the local economy. She noted mortgage revenue bond issues allow families who have been unable to qualify for higher interest rate loans to participate in home ownership, obtain more suitable housing, purchase more goods and services, and have the flexibility in their monthly budgets for unexpected expenses which results in more financially stability. She stated the availability of affordable housing is an important factor to any company that would be considering relocating to Brevard County.

PRESENTATION, RE: HISTORY OF ACHIEVEMENTS OF THE AUTHORITY

George Khoury advised the purpose of the Authority is to make quality housing available to persons of low and moderate income and issue quality bonds which enables the Authority to fulfill that purpose; the Authority issues two types of tax-exempt bonds, single-family and multifamily; single-family programs provide affordable housing for first-time home buyers; and the programs have been developed over the past 15 years, utilizing the Authority's experience with the lending community, builders, and borrowing community. He stated the program parameters must be viable for the lending community to participate, otherwise there will be no program; multifamily programs were developed in the early to mid-1980's because rental housing was scarce and expensive; as a result of tax law changes in 1986, and the success of the programs in supplying rental housing, there have been no new multifamily programs since the mid-1980's; however, from time to time the Authority does consider refinancing or restructuring of its older issues to help keep the affordable rental housing stock, meet commitments made in the original bond documents, and improve the economic viability of the project or bonds. Mr. Khoury advised since the inception of the Authority about 15 years ago, it has issued over 400 million dollars in single-family bonds providing more than 6,500 homes, and 140 million dollars in multifamily bonds providing 4,000 rental units; and all of that was achieved at no cost to the taxpayers of Brevard County. He stated the Authority is not now and has never been funded by the County; its operating costs are paid from funds derived from the bond issues; the Authority operates very economically with no staff, office, or overhead expenses; and its members are appointed and not paid. He stated they give freely of their time and expertise and serve the community well. Mr. Khoury advised the Authority has professionals on retainer to assist in the operation--its attorney, financial advisor, and auditor; the other members of the team include bond counsel, trustee, and underwriters whose services are negotiated and paid for by each bond issue; and the Authority and its legal and financial team work together well. He stated they demonstrate professionalism, expertise, integrity, and willingness to help the Authority in every way; and to them the reputation of the Authority and public confidence in the bond issues of the Authority take priority over earning a fee at closing. He stated there is mutual trust and respect on both sides.

SUMMARY

Vice Chairman Hubert Normile advised the Board appointed all the members of the Authority; at least four members have been on the Board for close to six years and some longer; Mr. Khoury has been on it forever and is certainly someone they look up to because of his expertise; and what he said demonstrates a lot of wisdom and what the Authority is all about. He stated the whole issue of the Finance Authority and issuing bonds is something that is economically driven; it is driven by the bond markets, financial markets, lending markets, and local economy; and what the Authority has the responsibility of doing every time it considers whether or not it can issue any bonds or if it is a timely thing to issue bonds, is to weigh all those factors and determine the economic feasibility of the proposed issue. He stated to do that they have consultants to counsel them; the financial advisor, bond counsel and underwriters give the Authority information needed to weigh all those circumstances and decide whether an issue should be made or not made; and on more than one occasion since he has been on the Authority, the recommendation has been not to do it because the economic times were not right, and the markets were not correct to issue a bond. Mr. Normile advised they try to get an issue into the community at the right time so it benefits the most people who are first-time home buyers; and that brings him to an issue that concerns him. He stated the Board of County Commissioners is now involved in reviewing the feasibility of the Authority's issues; the memorandum from Scott Knox issued November, 1994, says the Board has no active role in reviewing the substance or qualifications of the projects under the applicable laws empowering the Authority to issue the bonds; and the responsibility by law is vested in each of the authorities. He stated that is the responsibility he thought the Board gave the Authority, to determine the economic feasibility of the issues, exercise its best judgment, and get sufficient counsel so they make those correct decisions. Mr. Normile advised the memo also states as a practical matter the Board of County Commissioners has adopted a policy which requires applicants to submit their applications for private activity bonds to the County for a review of economic feasibility; that is a bureaucratic layering and duplication of effort; their financial advisor sends them a bill and they pay for that advice; and now they will be paying twice for the County's financial advisor to review it. He stated it was something that was on his mind and wanted to share it with the Board since they were having the workshop today. He stated they have been doing a good job; their issues have been hitting the market for the most part in a timely fashion; and they have been used by the populous. Mr. Normile advised he looked into the 1995 issue and how it has been distributed, what cities and areas of the County have taken advantage of it; and it is interesting because they are hitting the targeted market areas. He stated he has two children; one has bought a first home; they are not experiencing the same standard of living that he did in the 1970's and 1980's; so there is still a need for these types of programs to help first-time home buyers have the benefit of what is an American dream. He stated it is an investment and makes more sense than paying rent; so he feels the Authority still has an important charge to the young people of the community to provide them a means of getting their first home and give them a benefit by the lower interest rate that allows them to qualify for better housing than they would otherwise be able to qualify for. He stated it is a privilege and honor to serve on the Housing Finance Authority; it has been a wonderful learning experience; he has benefited greatly by it; and he appreciates the opportunity to serve on the Authority.

Mr. Terkoski advised Mr. Normile said something they all feel; it is a great privilege to serve on the Authority. He stated the Board has their workbook and a chance to review it; that completes their presentation; and they or their advisors will answer any questions the Board may have.

QUESTIONS AND ANSWERS

Commissioner Ellis inquired what are the goals of the Authority, what is it doing in the community, and who is it trying to help with the bond money. He stated he remembers times when people stood in line to get bond money and it ran out; and inquired if it makes sense to have bond money for houses up to $150,000 with situations like that. He stated it does not make sense when there is a limited amount of bond money to go around; so his thoughts are to lower the amount of home price that can be purchased with bond money and open it up to more buyers. Mr. Terkoski advised most of the homes they finance are far below that figure, but without flexibility, the whole bond issue will go down the tubes; there would not be adequate demand; and there are several letters from lending institutions that indicate if the Authority were to limit the amounts permitted, they would not take part in the program. Commissioner Ellis inquired if Mr. Terkoski is saying there will be no lending institutions; and Commissioner Cook stated that is not what he got from the letters. Commissioner Ellis stated there will be fewer but not none; and it may be a slight inconvenience because of the limited number of lending institutions they can go to. Commissioner Cook stated one of the letters indicated not to go below $65,000.

Ms. Hutchison advised what the lender is saying is in order to assume the risk of participating in the bond, it has to have a spread; lenders make money on highs and lows as a matter of business practice; they lend money on the lower end knowing in their business environment they have a certain spread so they will make up at the high end what they are losing on the low end. She stated low dollar amount loans are more labor intensive for lenders; people are less experienced in borrowing and require more hands on from the staff of the lender; the spread the lender receives from the mortgage funds is much less; so in a business environment, they need a spread in order to make it economically feasible for them to participate at all. Ms. Hutchison advised building and construction prices are such that builders cannot construct new houses below a certain level; the Authority wants to encourage new construction in Brevard County and participation of builders in the program; and the profit for a builder of low-income housing is extremely small. Commissioner Ellis stated the Authority is to help people get into their first homes, and if they want a nicer and bigger home, they have to work their way up.

Commissioner Cook stated he does not see the letters saying they are going to pull out of the program; their preference would be a larger span; and Commissioner Ellis makes a good point of who are they trying to address with the program.

Mr. Khoury advised the first-time home buyer is not necessarily a single person or young couple; they can be grandparents with three or four grandchildren who cannot get by with a 1,200 square-foot home and need a larger home; and if the family income is adequate to get the larger home, then it should be allowed. He stated if the Board is going to restrict them to those figures, it is not going to get them to participate; and it is like falling through the cracks where someone has to suffer. Commissioner Ellis stated normally people who are buying a home will move into something bigger than what they come from; with Mr. Khoury responding that is true, but circumstances change. Commissioner Ellis stated he thought the Authority was to get everybody in a house and make that first house affordable.

Mr. Terkoski advised the program is established not only for the very low income, but the moderate income also; and that would take it up into the higher figures. Commissioner Cook stated that may be true, and he could support $75,000 instead of $65,000. He stated the higher the limit, the less bond money will be available to other people; and if they are financing houses at $110,000 that is a substantial price for a home, even though it may be about average. He stated going into the $100,000 range makes it legitimate to ask who are they trying to serve.

Ann Kopelousos, Financial Advisor for the Authority, advised the initial philosophy the federal and state legislatures had when they created housing finance authorities was basically that the programs were to be aimed at moderate and middle-income families; they felt government had programs to help low-income families, but there were no programs to help the middle class buy a home which was becoming increasingly difficult to do; and that was the main reason the programs were enabled in the late 1970's and early 1980's. She stated it was primarily to help moderate and middle-income families, and while they were at it the low income as well because there was no reason to make them ineligible. She stated while it is true that the maximum sale price for new construction goes to $110,000, the graphs in Section K of the Report show the demographics of the borrowers in the 1995 program so far; and the vast majority are clustered in the middle in the purchase price and annual income. Ms. Kopelousos advised it also shows the program, as it is structured, even with the higher purchase price and income limits, is hitting the target market the Board is concerned about; however, what would happen if they were to lower the limits so that only those people qualify is that the program would have to be smaller because they would lose lenders. She stated even though they may not be used frequently, the higher sales price gives the lenders comfort that the money will be attractive to a large segment of the middle-class population; therefore, increasing their involvement because they pay to play in the program. Commissioner Cook stated they will still make money at $65,000 and the letters do not indicate they will pull out of the program. Ms. Kopelousos advised the interest would be less for most of the lenders which dictates that they have a smaller program; there are certain fixed costs for doing bonds that have to be covered by the lenders and builders' commitment fees plus the master servicer and so forth, otherwise, the points charged to the home buyer will go up to help fund the cost of the bond issue; so what the Board would be doing by limiting the program is decreasing the size of the program, increasing the cost for the remaining people who are eligible, and making it more expensive for the lower-income people to buy a home than if the parameters were left as they are.

Commissioner O'Brien stated if someone wants $100,000, he will pay more points; and if ten people want $10,000 each, it is the same $100,000 but serves more people. Mr. Coburn stated they would have ten loans to be administered by the bank as opposed to one loan. Commissioner O'Brien inquired who is driving the program, the banks or Housing Authority. He stated other communities have gone to the banks and said they have a community obligation, so they do not lose control; if the cap is lower, it will open more doors for middle-class people and more customers for banks; and inquired if it is a machine created to make money for banks or to create bond money at low interest rates to get people into houses for the first time. Mr. Coburn stated it is not an either or proposition; they are in the business of providing housing for people who may not otherwise be able to afford them; and the by-products are economic development, loan originators, surveyors, etc. He stated if ten lots have to be surveyed that is ten times as much work for the industry. Commissioner O'Brien stated he thinks the objective is to rape the funds by having people buy $110,000 houses and the banks will make money; and that is financial rape. Mr. Normile inquired who is being raped; with Commissioner O'Brien responding shifting the number higher than $75,000 is tantamount to financial rape; and if a person can afford a $100,000 loan, he does not need the program. Mr. Normile stated by allowing the limits at that level, it allows a number of people who could not afford to get a $100,000 home to get that home, which has a ripple effect to the economy. He stated $75,000 is an arbitrary limit; the Board cannot give any justification for picking $75,000 out of the air; and they can give the Board justification for $100,000 because those are in the federal guidelines. Commissioner Cook stated no one is pulling anything out of the sky, and it was a policy decision on the part of the Board.

Commissioner Ellis stated the demographic chart does not match up; the charge for annual income shows 90% under $40,000 and he was told the median is $41,000. Ms. Kopelousos stated those are the people who actually borrowed money under the program and the purchase prices of the homes they have purchased. Commissioner Ellis inquired what is the value of a middle-class home; with Mr. Normile responding it varies from community to community. Ms. Kopelousos stated the maximum set by the federal government is 90% of the median for new and existing homes. Chairman Higgs inquired if that is $100,000; with Ms. Kopelousos responding 90% of $110,000 is the median. Commissioner Ellis inquired if that is a middle class home; with Ms. Kopelousos responding she presumes median would be what the Board refers to as middle class. Commissioner Ellis stated he disagrees with that; he can go a few square miles in Eau Gallie, Palm Bay, and Titusville and have values nowhere near $110,000. Ms. Kopelousos advised $123,000 is the median for new construction in Brevard County; and $100,000 is the median for existing construction in Brevard County according to the federal government. Commissioner Ellis inquired if the program is set up for people to buy homes on the beach or rivers. He stated what he considers middle-class neighborhoods is not where home prices are $110,000; the issue gets down to a policy decision of whether they are here to help everybody get into their first homes or to help people who do not need it; and if they can afford a $100,000 home or $90,000 home under the program, they can afford a $80,000 home without the program. He inquired if it is helping someone get more home. Ms. Kopelousos advised it helps families get homes rather than single individuals; and the more the maximum sale price is brought down, the more skewed the program will become. Commissioner Ellis stated he does not understand that reasoning; with Ms. Kopelousos responding smaller homes mean smaller family size. Commissioner Ellis stated his neighborhood has a lot of children and all the homes are well under $100,000; so he does not think that is so; and in fact it is satisfying higher income people with less children. He inquired if they are trying to get people into their first homes or not; with Mr. Khoury responding the federal guidelines say the cap is $110,000, but it should not have a bearing. He stated Tab K shows the breakdown of houses by areas; Titusville shows 26 loans from $39,000 to $88,000, and only three are above $70,000; Cocoa had 37 loans from $40,000 to $70,000; Palm Bay had 79 loans from $36,000 to $103,000; so the fact that there is a $110,000 limit does not mean they are going to get all the people rushing in to buy $110,000 homes. He stated the majority are below $70,000. Commissioner Ellis stated if that is the case, what is the problem with lowering it; with Mr. Coburn inquiring what is the benefit to lowering it. Commissioner Ellis stated it is unfair for someone living in a $50,000 home and making do having their taxes supporting someone buying a $100,000 home. He stated any time a tax-free bond is issued, that is revenue foregone by the federal government that will be made up somewhere else in the tax structure; and everybody pays taxes at all levels. Mr. Normile stated the tax roll motivates economics; it has traditionally and is always going to the way government causes things to happen; and that is the environment they are in right now.

Commissioner Cook advised the question is where does the County want to target areas; by their own admission, it is apparently very few homes; so he does not see a big problem to focus on certain areas. Mr. Coburn inquired what is the benefit; with Commissioner Cook responding he should not answer a question with a question, but if it affects very few homes, what is the difference. Mr. Khoury stated it would have people falling through the cracks because they have families with three or four children plus grandparents, and they are being told not to come to the Authority to get a home. Commissioner Cook stated he does not know a lot of families and people with children who live in $100,000 homes, but they have nice homes and are happy; and he knows the federal government says it is the median home price, but he has a different perspective.

Chairman Higgs advised the program they issued in 1995 had an average price of the loan at $64,000 and average family income of $28,900 for that home; $40,000 may be the median income, but a family making $28,000 is worthy of assistance from the Authority; and it fits into the category of hard working folks who are trying. Commissioner Cook stated it is under $65,000; with Chairman Higgs responding yes, and the average family income is $28,000, so they are not looking at people making huge incomes. She stated the concern is that middle-income people are getting limited assistance; this is a program that is helping middle-income working people; the program is not designed to take people who are not making income and assist them; and the statistics do not show that the Authority is helping an exorbitant number of people in the upper income level. She stated all the statistics she has seen on the program show it is helping people who are buying less than the medium income house. Commissioner Cook stated the figure was right on target with most of the people they are helping. Commissioner Ellis stated that is the mean. Chairman Higgs stated the mean takes the low and high; and in order to service people in a range and for the private sector to participate, there has to be high profit and low profit accounts to make it work. Commissioner Cook stated he thought Commissioner Higgs was people oriented and is sure she is, so if she can help ten people buy a home instead of one, would she rather do that. Ms. Abbott stated if the limit is dropped, they could not get lenders to participate as shown by the survey in Tab N. Mr. Coburn stated it shows a steady decline in willingness to participate as the cap gets lower, and as it gets down to about $65,000, almost everyone has dropped out. He noted as the cap goes down, there is a constant erosion of the willingness to participate.

Patt Denihan advised she helped to administer a similar program before becoming a provider; she was Director of Home Ownership Programs in Ohio for seven years; so she has been on the side of the table with the people who were providing the programs. She stated the intent of the federal law is to house people, not for a short period of time; Congress said it did not want people buying a home, selling it for profit, and moving out in five to seven years; as a consequence of its intent, Congress imposed recapture on the program to keep people in the homes for at least ten years; if they sold the home in the first ten years, they could incur a penalty; so the intent was for people to plan on being in that home. She stated the market dictated that while 15 years ago people sold homes in five to seven years and moved up, that is not the case any more; the average age of the first time home buyer 15 years ago was 25 to 35, but now they are families in their mid-30's who are buying their first homes; and it took them that long to save the money. She stated they are working harder and making less money; they have two incomes and two cars, and it takes them longer to accumulate the money necessary to buy a home; so if they focus on the people who are participating in the program, the plan is not a short-range plan, it is designed to be long-range; and to force people into a situation that will eventually cost them a penalty does not seem to be doing them a favor. Ms. Denihan advised the program as designed with the recapture provision ensures people will stay in those homes for a longer period of time; particularly in Florida, there are extended families coming to live together; they are not rich people, but middle class who have to take care of the elderly in their families or family members who cannot afford to live alone; and the program has provided homes for a lot of single parents. She stated it provides a very broad spectrum by allowing what is happening in the market to happen naturally; and if the Board could see the people they are serving, it would not question the value of offering the big menu. She stated a 46-year old single parent with three children has been provided a newly constructed home with the space she deserves under the program; retired persons who owned homes and sold them now own homes after 10 to 15 years because they cannot afford to live in apartments any more; and the Board has offered them the opportunity to own a home again.

Commissioner Cook advised the Board agrees with the point of the program, it is just where to focus it; he has been house hunting; and inquired if Ms. Denihan is saying there are no livable homes for $65,000, because he has seen some very nice houses; with Ms. Denihan responding she is not saying that. Commissioner Ellis inquired what the value of the home is; with Ms. Denihan responding $100,000. Commissioner Ellis stated his brother and brother's wife both work and have two children, and they cannot afford a $100,000 home. Ms. Denihan advised she has seven children, is a single parent, and cannot help her children attain home ownership; it has changed since her first child bought a home; and all of her children who are married have both people working. She stated another issue is segregation; and inquired if the Board wants to segregate the first time home buyers into particular types of housing in particular neighborhoods. She stated the more open markets there are, the more economically diverse the community will be; and the more natural things happen, the better.

Commissioner O'Brien inquired about people who owned homes, sold them, and after ten years become first time home buyers again; with Ms. Denihan responding someone who has not owned or occupied his or her principal residence in the last three years qualifies. Commissioner O'Brien inquired if they can sell the house, take the one-time deduction for capital gain, wait three years and get a loan; with Ms. Denihan responding that is not happening, and since they have taken the one-time deduction, they will not get it for another home.

Commissioner Ellis inquired if they have to show a capital gain and substantial increase in income when they sell a home for them to look at recapture; with Mr. Terkoski responding Tom Hargrave from Dellwood Corporation will give the Board insight on that.

Vice President of Dellwood Corporation Mortgage Bankers Tom Hargrave advised they participate with a lot of low-moderate income families; they also participate with Holiday Builders, Mercedes, and Maronda; the problem is housing keeps going up; and because of impact fees and other expenses, they will continue to go up. He stated the Board is going to start establishing some type of limit on the program; the program is already successful; right now $65,000 is the average sale price; but it will eliminate half the people who would participate by setting $65,000 as the limit. He inquired who is to say it should be $65,000, $75,000 or $85,000; and the Board is anticipating that the majority of the people who are participating are in that realm; and it is saying the majority of the loans are in Palm Bay, so Palm Bay is the bond area and that is where the people who will participate in the program are going to have to buy new housing. He stated the Board may say new housing is not everything, and that is true, there are existing houses; but as a new first time home buyer, it would be nice to move into a house where the appliances are under warranty and the builder will come back after six months to make sure everything was done right. Mr. Hargrave stated a lot of builders they participate with have been around for years; they are experts in the bond program and want to continue to be experts; it attracts buyers; they are good advertisements for the County and their sales people will educate the public on what is available; but that will be eliminated if the builders get out and find another means to attract that kind of buyer. He stated the County has an attractive program; maybe $110,000 is too high, but at $65,000 there is no way to continue to build at that price; and if they do, builders will make adjustments to the house and it will become a bond house. He stated it is important to have first time home buyers fit into the community that has diverse housing, close to schools they want, and close to where they work; and the Board may be starting to pigeon hole them to a particular project. Mr. Hargrave stated he does not know what the solution is; maybe it is not $110,000, but it is not $65,000 either; there will not be builder participation in the future if that is the case; and the Board needs to understand it is in competition with other agencies. He stated Florida Housing is still out there and participates here; and he does not know how that will be perceived when people find out they can get bond money through the state and not the County because the County arbitrarily set a maximum level. He stated the Board may feel it will have twice as many people at $675,000 than at $110,000; but if it looks at the statistics, it does not work out that way; the majority of the people it will have are going to be in the $65,000 to $75,000 range; but it should not eliminate some communities.

Commissioner O'Brien stated Melbourne's total loans were 47; of the 47, 27 were over $81,000; that is more than 50%; yet Melbourne advertises as the most affordable city in the United States. Mr. Coburn advised the question of affordability is the result of comparing housing prices with income levels; housing prices can be very high if income levels are also very high and the housing becomes affordable; so a high priced home does not rule out affordability. Commissioner Ellis stated Melbourne also includes Viera and Suntree.

Mr. Coburn advised Tab K is the 1995 single-family bond issue; Tab L is the 1994 bond issue; both were about $22,000,000; this year 14.5 million dollars were applied for; and there is still 7.5 million dollars out there, plus over $8,000,000 of last year's issue. He stated the program is not being raped by high income people buying high priced homes and taking houses away from people who lined up overnight to be there to get the money; there is plenty of money left in the program; they are not taking houses out of the hands of people at the bottom of the income scale to buy higher priced homes; and the facts speak for themselves that there is $15,000,000 still available.

Commissioner Scarborough advised the guy buying a house for $60,000 who is not in the program and sees in the paper people getting a house for twice as much with government assistance; there is a great disparity; and the community does not understand what type of program it is. He stated even though the Authority has a point, the community does not understand, so it raises the question why do they have $100,000 homes being assisted. He stated he is reflecting comments from constituents.

Mr. Terkoski advised they are not buying $100,000 homes with a $28,000 budget; in order to qualify, they cannot pay more than 26% of their income for a house and cannot pay more than 38% of total monthly payments including housing; so people are not buying $100,000 houses that do not qualify.

Commissioner Cook advised he knows someone who qualified to buy a $90,000 and makes $32,000 a year; he has been hunting for a house and looked at them from $50,000 to $90,000; he saw a lot of three bedroom/two bath homes at $65,000 that he would be proud to live in; and they are not segregated in certain communities. He stated he saw them in Golfview Estates in Rockledge which is a nice community, for $70,000; so he has a problem trying to say the Board is excluding people from nice housing just because it lowered the limit.

Mr. Khoury advised they are one housing finance authority of many in the State; not all counties have housing finance authorities, but there is a State finance agency that issues bonds; and all other housing finance authorities issue bonds. He stated if the Board sets the cap and does not go by whatever federal guidelines they are operating under right now, it will have the distinction of being the only Housing Finance Authority in the State to set a figure other than what is established by federal guidelines. He stated it is not necessary; the Board should let economic factors do their thing and let the Authority do the work it has been doing well for the last 15 years; and he hopes the Board appreciates that. He encouraged the Board not to change it or attempt to tamper with it, to leave it alone, and let them do their work.

Chairman Higgs advised she did not hear that from the majority of the Board; there seems to be discomfort with the levels they dealt with; perhaps there is some place in between where all will be comfortable; but she does not hear that the Authority has the majority of the Board comfortable with the $110,000 level. She stated she assumes when the Board confronts another issue, the Authority will have to come up with another number the Board can be comfortable with.

Mr. Normile advised he heard that philosophically Commissioner Ellis does not like the program; with Commissioner Ellis responding he does not like a portion of the program. Mr. Normile stated he does not like the program because the government is helping people in the $75,000 to $85,000 home range; it is a program that taxpayers have to pick up the bill for in order to provide tax free money to bondholders; maybe there is a problem on the National level; and if there is, it should be dealt with on that level. He stated if the Board wants to change the program, it should change it on the national level, but until it is changed, it should let the citizens of Brevard County benefit from it and not be discriminated against by not having the same benefits as people in other counties. He stated it will have a negative economic impact that is not expected; some people prefer the community not grow; but it will affect people and have a trickle down effect if they cannot successfully do a bond program or are limited so it does not have significant effect in the community as it should have. He stated he has a problem with political philosophies being imposed on this situation. Commissioner Ellis stated he wants out of bonds; and inquired, speaking as one who lives in a segregated low-income neighborhood, if Mr. Normile looks at a situation and thinks something is wrong and everybody else is doing it, does it make it right; with Mr. Normile responding no. Commissioner Ellis stated Mr. Normile is right, it is a philosophical issue; it is wrong for people in the country to be drawing tax free bonds to buy homes that are nicer than those of people who are subsidizing the program; and that is why when he looks at a first time home buyer program, he looks at what would be a starter home at $50,000 to $60,000. He stated he could draw a one-mile radius around the area he lives in and not find a dozen homes over $100,000; it is one of the dense areas of Brevard County; and inquired if it is fair for people living in those homes and just getting by to make payments to enable someone to buy a home that is worth twice as much. Mr. Normile stated his concern is imposing an artificial limit; the middle class in Brevard County is different from other counties; but what he is concerned about is the possibility of doing a disservice to the citizens of this community, the Board's constituents and his neighbors. He stated Commissioner Scarborough said he heard comments; he has not heard those comments and only heard comments from the community in general of what a good program it is; and he is interested to know where those types of comments are coming from. He stated the program is serving the community well; he is concerned the Board is going to put the Authority in a separate category; and if they want to change the program because it is not good and government should not be involved in this sector of people's lives and the economy, then they should do it through the appropriate channels.

Commissioner Scarborough stated he did not say the program is being criticized; it is when there is aid to those who are making it rather than directing federal assistance to those who really need it; people do not want to eliminate assistance programs in the country; but they want to re-examine it to make sure the aid is going to those who should get it; and when there are people buying homes for $50,000 and someone is subsidized at 100% more, there is an issue of disparity. He stated he does not know what the magic number is; maybe it is $75,000; that was his point in raising the issue; and the majority do not want to disband all assistance programs even though there are those who are saying they do in the country.

Chairman Higgs advised an individual who buys a $50,000 house will pay property taxes on $25,000 after the $25,000 homestead exemption; but the person who buys $100,000 home will pay taxes on $75,000; so there are other perspectives as well. Commissioner Scarborough stated they could finance a million dollar house and have that much more taxes. Chairman Higgs stated the Board is not financing them; it is giving tax-fee bonds; and she is not sure it should not look at other economic factors as well. Commissioner Scarborough stated if the program is to drive the economy to give jobs to surveyors, bankers, mortgage lenders, and bring more ad valorem tax revenue, then it should be open to all persons who want to build homes and subsidize all loans. He stated the federal government said $110,000 is where it should be cut off; philosophically the target is too high; and it is not the program, but how high will it go.

Commissioner O'Brien stated Mr. Khoury mentioned bonds; Florida Municipal Bond Newsletter noted in February, Brevard County Housing Finance Authority's Single Family Mortgage Revenue Bond, Series 1995 had an ARPG of 7.699%; in contrast, Broward County had 6.53%, Orange County had 6.47%, and Palm Beach County had 6.48%; within two weeks everybody else got their bonds in at less than a full point than Brevard County; and inquired what happened; with a representative from William R. Hough & Company responding the Division of Bond Financing used the mortgage rate on Brevard County instead of the arbitrage. Ms. Kopelousos stated that figure should be 6.598%. The representative stated the law allows one and one-eighth spread including the points to the mortgagors; they did all the issues cited in the report; and because Brevard County was priced in a higher market, it is running 15 basis points higher than those others, but the rates go up and down every week. He noted last year Brevard County was lucky enough to guess better than the others; this time it is a couple of weeks off; so it is a few basis points higher.

Bond Counsel Mark Mustian advised the lenders are required to do the program; when the Authority starts the program, the lenders start making investment decisions; they have to put cash down to reserve an allocation of the money; so they are thinking whether to make the investment and whether than can lend the money. He stated there are a lot of things that go into the mechanics of the program; and if rates go down to the same or lower level than the bonds, they cannot lend their allocations. He stated the survey in Tab N where the Authority asked lenders if the cap was set at $75,000 would they participate, 8 out of 13 lenders said they would get out, four said they would do it at reduced rates, and one said it would participate. Commissioner Cook stated they were talking about $65,000. Mr. Mustian agreed it was $65,000, and stated if the lenders do not participate, they cannot do the program; and he does not want Commissioner Ellis to be misled that there will be a savings to the taxpayers, because the way it works is an allocation is made for the provision of housing per state; so if Brevard County does not do the program, Orange County could have a bigger program. Mr. Mustian advised one way it may work out is for the Authority to go back to the lenders and see if they would set a level and initially for a certain period of time the money would be available on a priority basis for those people on that level; and after that time, if it has not been loaned out, have an opportunity to do it for people at a higher level within the federal guidelines; and maybe the lenders will say they can make that work. He stated he does not know, but it is an idea that may work out and get the Authority where it wants to go; and most of the loans are in the range the Board wants them to be anyway. Commissioner Ellis stated the Board cannot judge that without a median number; they were given a mean but not a median; and without a median he cannot judge where most of the loans fall. Ms. Kopelousos stated every loan is listed in the book. Commissioner Ellis inquired where does $65,000 fall in terms of percentage.

Chairman Higgs advised the Board has concerns; if and when the Authority comes back to the Board with an issue, it needs to be honest and come up with some other way of doing it than it did the last time; and perhaps the Authority can look at and get them to that comfort level. She stated she wants to discuss the way the bonds are issued, competitive sale and placement, etc.

Commissioner O'Brien stated the Board set $65,000, but he is willing to discuss it and raise it which is what the Authority is asking the Board to do by educating them; but what he does not like is for local banks such as Barnett saying if it drops below $100,000, it is not going to participate. Commissioner Cook stated that is their business decision, and he is not incumbered by whether or not they participate in the program.

Commissioner Scarborough stated the Board threw something out and the Authority heard its concerns; and he would like to ask the Authority to come back with a number the Board can consider. He stated they may not agree with the philosophy, but they need to come closer together; and that would be the fair thing to do. He stated the Authority understands what is viable; there are not that many big numbers; so he cannot buy that one $100,000 loan is what makes it work for the banks. He suggested deferring to the Authority for consideration and that it be brought back as an Agenda item. Chairman Higgs stated until they are ready to issue another bond, there is no issue to come to agreement on.

Mr. Coburn inquired if any cap that may be imposed would be retroactive to outstanding bond issues; with Chairman Higgs responding they cannot go back and do that; and the position of the Board is the one it will take in the future until it reaches some other position.

Mr. Khoury inquired if the Board wants a recommendation from the Authority as far as what it considers a cap or does it prefer stating what its cap should be; with Commissioner Scarborough responding he wants the Authority to go back and discuss it further and see, with the Board's thoughts and the lenders thoughts, where they can get some common ground. Commissioner O'Brien advised it is not only Commissioner Ellis who has a philosophy; he is only one of five Commissioners; they are a little more flexible perhaps, but the general consensus of the Board is where are they trying to head with the program and are they subsidizing people who have varying income. He stated it is not fair for a guy to buy a $65,000 house with sweat equity and subsidize a neighbor's $100,000 home.

Commissioner Cook inquired if the cap applies to all applications received after April 25, 1995; with Chairman Higgs responding that is the internal program. Commissioner Cook inquired if it is still in effect; with Chairman Higgs responding they are different programs; and the Board has not taken action. She stated a number of governments were slammed because they have been involved in bond issues where there were noncompetitive sales and sweetheart deals for bond houses; and asked the Authority to tell her why she will not get slammed in the future and why the Board should not be concerned about the process they use for the placement of their bonds.

Mr. Terkoski advised the process for a housing program is somewhat different than an ordinary bond program where they put it out for bid; they have to apply to the state for an allocation of bond money, then check with the banks and administrators to see whether or not it is practical; but there is a time constraint, as they only have 90 days to get the bond out. Ms. Kopelousos advised they have 90 days to use their allocation, but the question surrounds whether they do competitive or negotiated sales; and in housing it is the custom to do negotiated sales. She stated housing issues are very different from general obligation issues, sewer issues, or road issues; and housing issues require very complex cash flow structures, etc. that do not lend themselves to doing competitive sales. She stated in the early 1980's, the State agency attempted to do competitive issues and found it could not do it and switched back to negotiated sales; and all the issues done in Florida and the vast majority around the country are negotiated sales.

Chairman Higgs inquired if the Authority negotiates with the same entity; with Ms. Kopelousos responding they have had this set of underwriters as part of the financial team since 1990; they are the leading underwriters of housing bonds in the State of Florida; the philosophy of the Authority and her philosophy is if you have the best, why switch; and they believe they have the best by the statistics of their issues. She stated every issuer in the state speaks to their expertise and the kind of company they are. Chairman Higgs inquired if nobody else does it in the State; with Ms. Kopelousos responding nobody does it as well as William R. Hough and Smith Barney who are their underwriters. She stated the others who do housing deals in Florida do not have the experience and expertise that their underwriters have. Chairman Higgs stated she is not in the position to judge underwriters and only knows that a number of government entities were slammed because of competitive and noncompetitive bond deals; and it makes her uneasy that since 1990, there have been no other underwriters for the Authority. She stated she cannot say they are not wonderful, but there could be people watching bond issues who would have concerns about the competitive issue, and she also has concerns.

Commissioner Cook stated there have been numerous instances where those questions came up; as elected officials they get inundated with those questions more so than the average person; but those are the things people expect answers to when they ask. He stated sometimes it may be perception, but that is reality, and if they have had the same underwriters since 1990, there is some question to that.

Commissioner Ellis stated the easy way to measure their expertise is to have comparisons of benchmark. He stated they could take a period of time and determine what Hough, Paine Webber, and Lehman Brothers did to show whether Hough comes in better. He stated they must have something that is relative to make the statement that they are better; and that will help the Board, when they have non-competitive sales, that the firm consistently outperformed the other underwriters. Mr. Coburn stated, assuming they have competition, if they make the ultimate determination on anything other than price, the Board will still be subject to the same criticism. Commissioner Ellis stated at least it will have the basis to reply. He stated the worst thing that can happen to the Board is for someone to say it went through a noncompetitive bid with Hough and at the same time Paine Webber did a bond issue that was better. Ms. Kopelousos stated bond issues are never identical. Commissioner Ellis stated if that is the case, how can they make a value judgment that Hough is the best; with Ms. Kopelousos responding it is based on level of service and rates they produce, plus the expertise of the firm and capabilities that exist within the firm.

Chairman Higgs stated when the Board ultimately approves a bond issue, it is in a position to be subjected to scrutiny for the deal the Authority made; and she would like to have some input if and when they get another issue, that gives her comfort on the continued use of a single underwriter. Ms. Kopelousos stated they can supply the Board with comparable statistics Hough versus the other underwriters of the world. Chairman Higgs noted the Board is in a position to ask those questions.

Chairman Higgs thanked the Housing Finance Authority for the meeting and their volunteer work.

Upon motion and vote, the workshop adjourned at 3:15 p.m.

ATTEST:

SANDY CRAWFORD, CLERK

(S E A L)

NANCY N. HIGGS, CHAIRMAN

BOARD OF COUNTY COMMISSIONERS

BREVARD COUNTY, FLORIDA