BILL ANALYSIS                                                                                                                                                                                                    



                                                                  SB 454
                                                                  Page  1

          Date of Hearing:  June 16, 2010

                       ASSEMBLY COMMITTEE ON LOCAL GOVERNMENT
                                Cameron Smyth, Chair
                    SB 454 (Lowenthal) - As Amended:  May 27, 2010

           SENATE VOTE  :  34-0
           
          SUBJECT  :  Land use: zoning regulations.

           SUMMARY  :  Makes permanent three sections of law pertaining to  
          notification requirements 
          for owners of affordable housing by repealing sunset dates,  
          revises the contents of what the owner of an assisted housing  
          development must include in the statement giving notice of the  
          opportunity to purchase, and creates an exemption from  
          notification requirements in specific instances.  Specifically,  
           this bill  :   

          1)Repeals the January 1, 2011, sunset date in current law that:

             a)   Requires affordable housing owners to provide notice to  
               tenants and governmental entities before converting a  
               property to market-rate apartments;

             b)   Requires affordable housing owners to first provide  
               general notice to tenants, local and state governments, and  
               potential preservation purchasers at least 12 months prior  
               to conversion; and,

             c)   Contains an exemption from noticing requirements if  
               specified conditions are contained in a regulatory  
               agreement recorded against the property.

          2)Revises the contents of the initial notice of a bona fide  
            opportunity to submit an offer to purchase to include a  
            statement that addresses all of the following:

             a)   Whether the owner intends to maintain the current number  
               of affordable units and level of affordability; 

             b)   Whether the owner has an interest in selling the  
               property; and,

             c)   Whether the owner has executed a contract or agreement  








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               of at least five years' duration with a public entity to  
               continue or replace subsidies to the property and to  
               maintain an equal or greater number of units at an equal or  
               deeper level of affordability, and, if so, the length of  
               the contract or agreement.

          3)Exempts, from specified financial disclosure requirements,  
            those developments with 25% or less of the units on the  
            property subject to affordability restrictions or a rent or  
            mortgage subsidy contract.

          4)Allows a corporation or a public entity to share information  
            obtained on the financial disclosure statement with other  
            prospective purchasers.

          5)Provides that a corporation or public entity that shares  
            information shall not be required to sign a confidentiality  
            agreement as a condition of receiving or sharing this  
            information, providing that the information is used for the  
            purpose of attempting to preserve the affordability of the  
            property.

           EXISTING LAW  : 

          1)Contains specific requirements for owners of affordable  
            housing to provide notification to tenants, governmental  
            entities and potential purchasers before converting a property  
            to market-rate housing.

          2)Provides for a list of entities that must be notified by an  
            owner of an assisted housing development of an opportunity to  
            purchase including the tenant association of the development,  
            local nonprofit organizations and public agencies, regional or  
            national nonprofit organizations and regional or national  
            public agencies, profit-motivated organizations or  
            individuals.

          3)Provides that the initial notice of a bona fide opportunity to  
            submit an offer to purchase shall contain all of the  
            following:

             a)   A statement that the owner will make available to each  
               of the types of entities listed above, within 15 business  
               days of receiving a request therefore, the terms of  
               assumable financing, if any, the terms of the subsidy  








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               contract, if any; and proposed improvements to the property  
               to be made by the owner in connection with the sale, if  
               any;

             b)   A statement that each of the types of entities listed  
               above has the right to purchase the development;

             c)   A statement that the owner will make available to each  
               of the types of entities listed above, within 15 business  
               days of receiving a request therefore, itemized lists of  
               monthly operating expenses, capital improvements as  
               determined by the owner made within each of the two  
               preceding calendar years, the amount of project reserves,  
               and copies of the two most recent financial and physical  
               inspection reports on the development, if any, filed with  
               federal, state, or local agencies; and,

             d)   A statement that the owner will make available to each  
               of the entities listed above, within 15 business days of a  
               request therefore, the most recent rent roll listing the  
               rent paid for each unit and the subsidy, if any, paid by a  
               governmental agency as of the date the notice of intent,  
               and a statement of the vacancy rate at the development for  
               each of the two preceding calendar years.

           FISCAL EFFECT  :  According to the Senate Appropriations  
          Committee, SB 454 contains absorbable costs for the Department  
          of Housing and Community Development on a prospective basis to  
          approve notice forms, and compile and maintain lists of  
          preservation purchasers.

           



          COMMENTS  :   

          1)Since the 1960s, developers have constructed at least 425,000  
            units of affordable rental housing in California with the  
            assistance of federal, state, and local subsidies that require  
            owners to maintain rents at affordable levels for specific  
            periods of time.  The affordability restrictions on these  
            units typically last 30 to 55 years, depending on the program.  
             Once affordability obligations expire, an owner may preserve  
            the affordability of the units by renewing assistance or by  








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            refinancing with new public subsidies, or the owner may  
            convert the units to market rate housing.

          2)In order to facilitate the preservation of at-risk affordable  
            housing, current law requires that owners first provide  
            general notice to tenants, local and state governments, and  
            potential preservation purchases (potential purchasers that  
            may want to purchase the development in order to preserve the  
            affordability restrictions) at least 12 months prior to  
            conversion. During the one-year notice period, current law  
            also provides preservation purchasers with limited priority to  
            purchase the property if the owner is inclined to sell.   
            During the first six months, the owner is not required to  
            accept any offer to sell, but may only accept offers from  
            preservation purchasers.  If the owner rejects an offer during  
            this time, the owner must give the preservation purchaser who  
            made the offer an opportunity to match and pre-empt any offer  
            from a non-preservation purchaser accepted during the second  
            six-month time period.

          3)SB 454 deletes the January 1, 2011, sunset date contained in  
            three sections of law dealing with notification requirements  
            for owners of affordable housing.  One section of law,  
            Government Code Section 65863.11, which specifies the  
            requirements of affordable housing owners to notify tenants,  
            local and state governments, and potential preservation  
            purchasers at least 12 months prior to conversion, has been in  
            existence since 1990 and has had the sunset date extended  
            several times over the last 20 years.  The other two sections  
            of law contained in this bill, Government Code Sections  
            65863.10 and 65863.13, were added to the Government Code in  
            1998 and 2001, respectively.

            Amendments to the bill taken on May 27, 2010, also restructure  
            the section of law that lists what an owner must include on  
            the statement of "initial notice of a bona fide opportunity to  
            submit on offer to purchase" and exempts developments with 25%  
            or less affordable units from this financial disclosure  
            requirement.  The recent amendments also allow a corporation  
            or a public entity to share information that is compiled from  
            these financial disclosure requirements with prospective  
            purchases without the requirement to sign a confidentiality  
            agreement as long as the information is used for the purpose  
            of attempting to preserve the affordability of the property.   
            The amendments address concerns raised by the California  








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            Apartment Association.

          4)The preservation of existing affordable units is important to  
            cities and counties.  Under current law, the Department of  
            Housing and Community Development (HCD) is required to  
            allocate the region's share of the statewide housing need to  
            Councils of Governments (COGs) based on Department of Finance  
            population projections and regional population forecasts used  
            in preparing regional transportation plans.  The COG develops  
            a Regional Housing Need Plan which allocates the region's  
            share of the statewide housing need to cities and counties  
            within the region.  The Regional Housing Need Allocation  
            (RHNA) is a minimum 
          projection of additional housing units needed by a jurisdiction  
            - a city or county - to 

          accommodate projected household growth of all income levels by  
            the end of the housing element's statutory planning period.   
            While cities and counties are required to plan for the  
            additional housing units needed, including those units that  
            are affordable to very low- and low-income levels, local  
            governments also have a vested interest in maintaining the  
            existing stock of affordable units, and the provisions of SB  
            454 assist local governments in doing this.

           5)Support Arguments  :  Supporters argue that eliminating the  
            sunsets will ensure that the state and local governments and  
            affordable housing developers have both the information and  
            the opportunity to preserve current and future projects when  
            they become eligible to convert to market-rate housing.  Also,  
            the noticing requirements ensure that tenants are informed of  
            how they will be affected if the property does convert to  
            market rate.  

            According to the City of Los Angeles, the "State Notification  
            Law" has been an effective and critical tool in ensuring the  
            preservation of hundreds of rental assisted housing units in  
            Los Angeles, and implementation of this law has "enabled the  
            City to develop a preservation strategy that utilizes this law  
            to enforce the notification requirements and helps to bring  
            willing sellers and preservation buyers together to facilitate  
            the preservation of the existing affordable housing stock."

             Opposition Arguments  :  Staff notes that there is no registered  
            opposition to SB 454; however, property rights advocates may  








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            have concerns about the existing notification requirements for  
            owners contained in current law.  The Committee may wish to  
            consider the policy of whether an owner should have the option  
            to convert to market-rate units as long as the owner has  
            fulfilled all contractual obligations.

            Additionally, the Committee may wish to consider the policy of  
            deleting sunset dates and thereby creating permanent statutes.  
             On one hand, needing to introduce legislation every few years  
            to extend a sunset date may not be an efficient use of  
            legislative resources, but on the other hand, statutes with  
            sunset dates allow for periodic oversight by legislators and  
            staff on the implementation and effectiveness of those  
            statutes.

          6)This bill is double-referred to the Committee on Housing and  
            Community Development.
           
          REGISTERED SUPPORT / OPPOSITION  :

           Support 
           
          California Coalition for Rural Housing [CO-SPONSOR]
          California Rural Legal Assistance Foundation [CO-SPONSOR]
          California Apartment Association
          California Housing Partnership Corporation
          City of Los Angeles
          Western Center on Law and Poverty
           
            Opposition 
           
          None on file

           Analysis Prepared by  :    Debbie Michel / L. GOV. / (916)  
          319-3958