BILL ANALYSIS
SB 454
Page 1
Date of Hearing: June 30, 2010
ASSEMBLY COMMITTEE ON HOUSING AND COMMUNITY DEVELOPMENT
Norma Torres, Chair
SB 454 (Lowenthal) - As Amended: May 27, 2010
SENATE VOTE : 34-0
SUBJECT : Land use: zoning regulations.
SUMMARY : Deletes the sunset date on three sections of law
requiring the owners of affordable housing to provide notice to
tenants and governmental entities before converting a property
to market rate and giving a limited priority to preservation
purchasers in the event the owner wishes to sell, and makes
minor changes to the requirements. 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)Requires 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
of at least five years' duration with a public entity to
continue or replace subsidies to the property and to
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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
developments in which 25% or less of the units on the property
are 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)Requires owners of assisted housing development who intend not
to extend or renew participation in a subsidy program to
notify every affected tenant currently residing in the
development and any affected public entities of the proposed
change at least 12 months prior, and again six months prior,
to the termination of the subsidy contract or expiration of
rental restrictions (Government Code Section 65863.10).
2)Requires owners of assisted housing development who intend not
to extend or renew participation in a subsidy program to
provide an opportunity to submit an offer to purchase the
development to various entities, including the tenant
association of the development and affordable housing
developers and operators (Government Code Section 65863.11).
3)Requires that the notice of opportunity to offer to purchase
be provided prior to or concurrent with the required notice to
tenants and affected public agencies (Government Code Section
65863.11).
4)Specifies that during the first 180 days from the date the
owner files the notice of opportunity to submit an offer to
purchase, the owner can only accept offers from qualified
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entities (Government Code Section 65863.11).
5)Defines a qualified entity as one that agrees to maintain the
affordability of the development for 30 years or for the
remaining term of the existing federal assistance, whichever
is longer, and that is capable of managing the housing and
related facilities for its remaining useful life, either by
itself or through a management agent (Government Code Section
65863.11).
6)Allows the owner, after the initial 180-day period, to accept
offers from any person or entity for the next 180 days, so
long as the owner first gives any qualified entity that
submitted an offer to purchase an opportunity to match the
pending offer at the same terms and conditions (Government
Code Section 65863.11).
FISCAL EFFECT : Unknown
COMMENTS :
Background
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 specified
periods of time. Examples of such subsidy programs include
project-based Section 8, Federal Housing Administration (FHA)
mortgages, low-income housing tax credits, the state's
Multifamily Housing and Farmworker Housing Grant programs, and
city and county redevelopment funds. The affordability
restrictions on assisted units typically last 30 to 55 years,
depending on the program. Once affordability obligations
expire, owners may preserve the affordability of the units by
renewing assistance or by refinancing with new public subsidies,
or they may convert the development to market rate. Under some
federal programs, owners can also terminate affordability
restrictions early by prepaying the underlying mortgage or
opting out of the rental assistance contract. According to the
state-chartered California Housing Partnership Corporation,
California has already lost more than 20,000 units of housing
affordable to low-income households to such market rate
conversions, and 82,000 more units are considered at risk of
conversion in the next five years.
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Existing law requires that a property owner cannot convert an
affordable property to market rate without first providing
notice to tenants, local and state governments, and potential
preservation purchasers (i.e., those who may wish to purchase
the development in order to preserve the affordability
restrictions). The owner must provide a first notice at least
12 months prior to conversion informing recipients of the
possibility that the development will convert, that
affordability restrictions may be lost, whether other
governmental assistance will be available to tenants at the time
of conversion, and that the owner will provide more detailed
information at least six months prior to conversion. An owner
may satisfy this 12-month notice requirement by providing
recipients with a federally-required notice.
At least six months prior to conversion, the owner must then
provide these same recipients with a second, more detailed
notice that includes:
The anticipated date of conversion.
The current rent and the anticipated rental rate for the first
year after conversion.
A statement of the owner's intention to participate in any
replacement subsidy program.
Contact information for the local government, the state
Department of Housing and Community Development (HCD), and
legal services organizations for tenants to obtain more
information about their rights.
In addition, the owner must provide HCD and the local government
with information on the number of affected units, bedrooms, and
tenants and on the ages and incomes of these tenants.
During this one-year notice period, current law also provides
preservation purchasers with limited priority to purchase the
property if the owner is inclined to sell. Prior to or
concurrent with the delivery of the 12-month notice described
above, the owner must notify prospective preservation purchasers
who have contacted the owner directly or who are on a list
maintained by HCD of the opportunity to submit a purchase offer.
The owner is not required to accept any offer but may only
accept offers from preservation purchasers for 180 days after
the purchase offer notice. If the owner rejects a purchase
offer during this time, the owner must give the preservation
purchaser who made the offer an opportunity to match and preempt
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any offer from a non-preservation purchaser accepted during the
second 180 days after the purchase offer notice. These
requirements and priorities also apply if an owner seeks to sell
or otherwise dispose of a property that is eligible for
conversion in the next five years.
In general, an owner is exempt from both the notice requirements
and priority purchase provisions if he or she or a successor
owner agrees to retain existing tenants and extend the
affordability of the units for at least 30 years.
The Purpose of This Bill
SB 454 makes permanent these notice requirements and priority
purchase provisions by deleting the January 1, 2011, sunset
date. The bill also restructures 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 in which 25% or less of the units are
affordable from the financial disclosure requirements. In
addition, the bill allows 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.
Arguments in Support
According to the author, California has a dire shortage of
affordable rental housing and faces the prospect of losing much
of its existing stock as current affordability terms expire.
Replacing lost affordable housing is much more expensive than
preserving the affordability of existing units. By giving local
governments and affordable housing developers both time and the
opportunity to develop and execute a preservation strategy when
a particular property is eligible for conversion, the current
notice requirements and priority purchase provisions are the
centerpiece of the state's preservation strategy. Equally
important, the notice requirement ensures that tenants are
informed of how they will be affected if the property does in
fact convert to market rate. These provisions have proven
beneficial in preserving existing affordable housing and have
not raised concerns among affordable housing owners.
Eliminating the sunset will ensure that the state, local
governments, and affordable housing developers will have both
the information and the opportunity to preserve current and
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future projects when they become eligible to convert to
market-rate housing.
Double referred : The Assembly Committee on Rules referred SB
454 to the Committee on Local Government and Housing and
Community Development. The bill passed the Committee on Local
Government on June 16, 2010, by a vote of 9 to 0.
REGISTERED SUPPORT / OPPOSITION :
Support
California Coalition for Rural Housing (sponsor)
California Rural Legal Assistance Foundation (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 : Anya Lawler / H. & C.D. / (916)
319-2085