BILL ANALYSIS                                                                                                                                                                                                    


          |SENATE RULES COMMITTEE            |                   SB 454|
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                              UNFINISHED BUSINESS

          Bill No:  SB 454
          Author:   Lowenthal (D)
          Amended:  5/27/10
          Vote:     21

          AYES:  Lowenthal, Huff, Ashburn, DeSaulnier, Kehoe,  
            Oropeza, Pavley, Simitian

           SENATE APPROPRIATIONS COMMITTEE  :  8-0, 1/19/10
          AYES:  Kehoe, Cox, Corbett, Denham, Leno, Liu, Price, Yee
          NO VOTE RECORDED:  Alquist, Walters, Wyland

           SENATE FLOOR  :  34-0, 1/25/10
          AYES:  Aanestad, Calderon, Cedillo, Cogdill, Corbett,  
            Correa, Cox, Denham, DeSaulnier, Ducheny, Dutton,  
            Hancock, Harman, Hollingsworth, Huff, Kehoe, Leno, Liu,  
            Lowenthal, Negrete McLeod, Oropeza, Padilla, Pavley,  
            Price, Romero, Runner, Simitian, Steinberg, Strickland,  
            Wiggins, Wolk, Wright, Wyland, Yee
          NO VOTE RECORDED:  Alquist, Ashburn, Florez, Maldonado,  
            Walters, Vacancy

           ASSEMBLY FLOOR  :  65-9, 8/16/10 - See last page for vote

           SUBJECT  :    Preservation of existing affordable housing

           SOURCE  :     California Coalition for Rural Housing
                      California Rural Legal Assistance Foundation



                                                                SB 454

           DIGEST  :    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 giving a  
          limited priority to preservation purchasers in the event  
          the owner wishes to sell. 

           Assembly Amendments  modify the information required to be  
          included in the initial notice of a "bona fide opportunity  
          to submit an offer to purchase."

           ANALYSIS  :    Since the 1960s, developers have constructed  
          approximately 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.  

           Notice Requirements

           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  


                                                                SB 454

          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:

          1. The anticipated date of conversion.

          2. The current rent and the anticipated rental rate for the  
             first year after conversion.

          3. A statement of the owner's intention to participate in  
             any replacement subsidy program.

          4. Contact information for the local government, the  
             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.  

           Priority for Preservation Purchasers

           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  


                                                                SB 454

          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/she or  
          a successor owner agrees to retain existing tenants and  
          extend the affordability of the units for at least 30  

          Both the notice requirements and priority purchase  
          provisions sunset on January 1, 2011.
           This bill:

          1. Deletes the sunset date on, and thereby makes permanent,  
             these notice requirements and the priority purchase  

          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.

          3. Exempts from specified financial disclosure requirements  
             developments in which 25 percent or less of the units on  
             the property are subject to affordability restrictions  
             or a rent or mortgage subsidy contract.
          According to the author's office, California has a dire  
          shortage of affordable rental housing and faces the  


                                                                SB 454

          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  
          future projects when they become eligible to convert to  
          market-rate housing.  

           FISCAL EFFECT  :    Appropriation:  No   Fiscal Com.:  Yes    
          Local:  No

          According to the Senate Appropriations Committee:

                          Fiscal Impact (in thousands)

             Major Provisions                2010-11     2011-12     
             2012-13               Fund  

            HCD administration            absorbable costs to  
            approve notice      Special*
                                forms, and compile/maintain lists  
                                prospective preservation purchasers

            * Various special funds associated with affordable  
            housing programs

           SUPPORT  :   (Verified  8/16/10)

          California Coalition for Rural Housing (co-source)
          California Rural Legal Assistance Foundation (co-source)


                                                                SB 454

          California Housing Partnership Corporation
          City of Los Angeles
          Western Center on Law and Poverty

           ASSEMBLY FLOOR : 
          AYES:  Adams, Ammiano, Arambula, Beall, Bill Berryhill, Tom  
            Berryhill, Block, Blumenfield, Bradford, Brownley,  
            Buchanan, Caballero, Carter, Chesbro, Conway, Coto, De La  
            Torre, De Leon, Eng, Evans, Feuer, Fletcher, Fong,  
            Fuentes, Fuller, Furutani, Galgiani, Garrick, Gatto,  
            Gilmore, Hagman, Hall, Hayashi, Hernandez, Hill, Huber,  
            Huffman, Jones, Knight, Lieu, Logue, Bonnie Lowenthal,  
            Ma, Mendoza, Miller, Monning, Nava, Nestande, Nielsen, V.  
            Manuel Perez, Portantino, Ruskin, Salas, Saldana,  
            Skinner, Solorio, Audra Strickland, Swanson, Torlakson,  
            Torres, Torrico, Tran, Villines, Yamada, John A. Perez
          NOES:  Anderson, DeVore, Gaines, Harkey, Jeffries, Niello,  
            Norby, Silva, Smyth
          NO VOTE RECORDED:  Bass, Blakeslee, Charles Calderon, Cook,  
            Davis, Vacancy

          JJA:mw  8/17/10   Senate Floor Analyses 

                         SUPPORT/OPPOSITION:  SEE ABOVE

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