BILL ANALYSIS                                                                                                                                                                                                    

                                                                  SB 454
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          SB 454 (Lowenthal)
          As Amended  May 27, 2010
          Majority vote 

           SENATE VOTE  :34-0  
           LOCAL GOVERNMENT        9-0     HOUSING             8-0         
          |Ayes:|Smyth, Caballero,         |Ayes:|Torres, Arambula,         |
          |     |Arambula, Bradford,       |     |Bradford, Eng, Gilmore,   |
          |     |Davis, Knight, Logue,     |     |Knight, Torlakson, Tran   |
          |     |Solorio, Swanson          |     |                          |

           APPROPRIATIONS      17-0                                        
          |Ayes:|Fuentes, Conway,          |
          |     |Bradford,                 |
          |     |Charles Calderon, Coto,   |
          |     |Davis,                    |
          |     |De Leon, Gatto, Hall,     |
          |     |Harkey, Miller, Nielsen,  |
          |     |Norby, Skinner, Solorio,  |
          |     |Torlakson, Torrico        |
          |     |                          |
           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.  

           FISCAL EFFECT  :  According to the Assembly Appropriations  
          Committee, minor and absorbable costs to the Department of  
          Housing and Community Development (HCD) to approve notice forms  
          and maintain lists of prospective preservation purchasers.

           COMMENTS  :  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  


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          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 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  
          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; statement of the owner's intention to  
          participate in any replacement subsidy program; and contact  
          information for the local government, HCD, and legal services  
          organizations for tenants to obtain more information about their  
          rights.  In addition, the owner must provide HCD and the local  


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          government with information on the number of affected units,  
          bedrooms, and tenants and on the ages and incomes of these  

          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  
          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.

          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.  

           Analysis Prepared by  :    Anya Lawler / H. & C.D. / (916)  


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