BILL ANALYSIS SB 454 Page 1 Date of Hearing: August 4, 2010 ASSEMBLY COMMITTEE ON APPROPRIATIONS Felipe Fuentes, Chair SB 454 (Lowenthal) - As Amended: May 27, 2010 Policy Committee: Local GovernmentVote:9-0 Housing and Community Development 8-0 Urgency: No State Mandated Local Program: No Reimbursable: SUMMARY This bill 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 makes related changes to the noticing requirements. Specifically, the bill: 1)Repeals the January 1, 2011 sunset date on current-law provisions that: (a) require affordable housing owners to provide notice to tenants and governmental entities before converting a property to market-rate apartments; (b) require affordable housing owners to provide notice of a "bona fide opportunity to submit an offer to purchase" to tenants, local and state governments, and potential preservation purchasers at least 12 months prior to conversion; and (c) provide an exemption from noticing requirements if specified conditions are contained in a regulatory agreement recorded against the property. 2)Adds the requirement that the "bona fide opportunity to submit an offer to purchase" notice indicate whether the owner: (a) intends to maintain the current number of affordable units and level of affordability; (b) has an interest in selling the property; and (c) 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 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. SB 454 Page 2 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. FISCAL IMPACT Minor and absorbable costs to the Department of Housing and Community Development to approve notice forms and maintain lists of prospective preservation purchasers (various special funds). COMMENTS 1)Rationale . The bill is intended to preserve affordable housing and mitigate the impact of conversions on tenants, by making permanent and modestly expanding the current-law noticing requirements. The author indicates that these noticing requirements are the centerpiece of the state's affordable housing preservation strategy, which is important given that preserving existing affordable housing is much less expensive than constructing new units. The notice requirement also ensure that tenants are informed of how they will be affected if the property does in fact convert to market rate. 2)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. 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. Existing law requires that a property owner cannot convert an SB 454 Page 3 affordable property to market rate without first providing notice to tenants, local and state governments, and potential preservation purchasers (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, and a more detailed notice six months prior to the conversion. 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. 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. 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. Analysis Prepared by : Brad Williams / APPR. / (916) 319-2081