BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                  AB 1699
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          Date of Hearing:   April 11, 2012

               ASSEMBLY COMMITTEE ON HOUSING AND COMMUNITY DEVELOPMENT
                                 Norma Torres, Chair
                 AB 1699 (Torres) - As Introduced:  February 15, 2012
           
          SUBJECT  :   Affordable housing 

           SUMMARY  :  Allows the Department of Housing and Community 
          Development (HCD) to establish guidelines to allow for the 
          refinancing or restructuring of loans made through the Rental 
          Housing Construction Program (RHCP), Deferred Payment 
          Rehabilitation Loan Program (DPRLP), California Housing 
          Rehabilitation Program (CHRP), and the Family Housing 
          Demonstration Program (FHDP). Specifically,  this bill  :  

          1)Includes legislative findings and declarations. 

          2)Allows HCD to approve an extension or subordination of a loan 
            or an investment of tax credit equity for affordable housing 
            developments financed through RHCP, DPRLP, CHRP, and FHDP.  

          3)Allows HCD to adopt new guidelines developed through a process 
            that includes public input not subject to the review of the 
            Office of Administrative Law. 

          4)Provides that HCD may extend the term of an existing rental 
            housing development loan with the following conditions:

             a)   The development is being operated consistent with the 
               regulatory agreement;

             b)   The development requires an extension in order to 
               continue to operate; and 

             c)   The interest rate of the new loan is three percent.

          1)Provides that the extension of terms for an existing rental 
            housing development loan must be for a period of not less than 
            10 year and the total term shall not exceed 55 years or not 
            more than 58 years if necessary to match tax credit 
            restrictions. 

          2)Provides that for developments financed through RHCP the rent 
            for low-income units may be increased up to a maximum of 30% 








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            of 60% of area median income (AMI) and for very-low income 
            units up to a maximum of 30% of 35% of AMI.

          3)Provides that for developments financed under DPRLP, CHRP, and 
            FHDP rents may be increased as follows:

          a)In counties with an AMI of 110% or less of state AMI rents for 
            at least 35% of assisted units must be restricted to no more 
            than 30% of 30% of state median income; and 

          b)In counties with an AMI of more than 110% of state AMI rents 
            for at least 35% of assisted units shall be restricted to no 
            more than 30% of 35% of state median income and rents for the 
            balance of assisted units may be increased to up to a maximum 
            of 30% of 60% of area median income.   

          1)Provides that for existing tenants in a development financed 
            by any program, rents may be increased as follows:

             a)   For existing tenants with incomes that are not more than 
               35% of AMI, increases must be limited to 5% per year until 
               the rents reach the levels described above;

             b)   For existing tenants with incomes more than 35% of AMI, 
               increases are limited to 10% per year until they reach the 
               rent levels described above; and 

             c)   For existing tenants who move, rents may be increased 
               immediately to the rent levels described above. 

          1)Provides that once rents reach their new ultimate level, any 
            future increase will be in response to increases in the AMI. 

          2)Provides that when a tenant vacates a unit, the new tenants 
            income level must correspond to the new income limits 
            described above. 

          3)Provides that when a development is refinanced or 
            restructured, the income levels and rent limits will be 
            calculated consistent with the methodology used for the 
            Low-Income Housing Tax Credit Program and the Multifamily 
            Housing Program. 

          4)Provides that when a loan is extended or subordinated or when 
            a new tax credit investment occurs, the regulatory agreement 








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            must include provisions that do the following:

             a)   Include standards for tenant selection to ensure 
               eligible households;

             b)   Restrict rents for assisted units;

             c)   Provide for periodic inspection, occupancy, and 
               financial reports and financial audits of the development;

             d)   Govern the use of operating income and reserves for the 
               development; and 

             e)   Have a term that is not less than the term of the loan, 
               including extensions.

          1)Provides that a new or amended regulatory agreement is binding 
            on the development's owner and successor regardless of 
            pre-payment of the loan.

          2)Requires the new or amended regulatory agreement to be 
            recorded in the county recorder's office in which the 
            development is located.  





           EXISTING LAW  : 

          Allows HCD, when requested by a borrower, to extend the terms of 
          existing loans made under the Rental Housing Construction 
          Program (RHCP), Special User Housing Rehabilitation Program 
          (SUHRP), and Deferred Payment Rehabilitation Loan Program  
          (DPRLP) programs (Heath & Safety Code Section 50515.2). 

           FISCAL EFFECT  :   Unknown 

           COMMENTS  :   

          The Department of Housing and Community Development (HCD) has 
          financed a variety of affordable multi-family housing projects 
          under different state-funded programs.  From 1980 to 1995, HCD 
          operated multiple programs that provided low-interest loans for 
          affordable multifamily housing including: the Rental Housing 








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          Construction Program-Bond, Family Housing Demonstration Program, 
          and California Hosing Rehab Program-Rental. The programs 
          provided three percent interest rate, deferred payment loans for 
          rehabilitation or new construction of housing for low-income 
          families, single room occupancy hotels, and other special needs 
          populations.  Many of these housing developments are 20 to 30 
          years old and are in need of capital improvements.  The terms of 
          the loan agreements do not give HCD authority to renegotiate the 
          financing of these projects to allow for additional debt to fund 
          needed improvements to make these projects viable in the long 
          term.  This bill gives HCD authority to extend the terms of an 
          existing rental housing development loan and the period of 
          repayment for as long as the housing is being operated in a 
          manner consistent with the regulatory agreement and the 
          development requires the extension in order to continue to 
          operate.   

          HCD's current program to finance affordable rental housing is 
          the Multifamily Housing Program (MHP).  Created in 1999, this 
          program is the department's omnibus rental housing program, able 
          to finance different types of rental housing for various 
          populations under a uniform structure.  This program funds the 
          new construction, rehabilitation, and preservation of affordable 
          rental housing through loans to local governments, non-profit 
          developers, and for-profit developers.  Affordable units are 
          those affordable to households earning no more than 60% of the 
          area (county) median income (AMI), but HCD gives heavy priority 
          to projects that serve households at even lower income levels.  
          Loans are for a term of 55 years at a rate of three percent 
          simple interest.  All payments are deferred except for a 
          standard annual interest payment (currently .42%) to cover HCD's 
          ongoing monitoring and management duties.

          In 2007, SB 707 (Ducheny), Chapter 658, gave HCD authority to 
          refinance loans made under several programs originated in the 
          1970s and 1980s, the Rental Housing Construction Program, 
          Special User Housing Rehabilitation Program and Deferred Payment 
          Rehabilitation Loan Program.  HCD restructured these older loans 
          to conform to the MHP guidelines.  SB 707 gave parameters for 
          the refinance and restructuring of loans and allowed HCD to 
          adopt the new provisions through guidelines rather than 
          regulations.   This bill would give HCD authority to do the same 
          for a different set of loan programs. 

          AB 1699 gives HCD the authority to extend and modernize the 








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          loans in its older portfolio through conversion to MHP.  As 
          noted above, many of these loans were awarded in the late 1990s 
          and are coming close to their term.  Once the loan is paid off, 
          the regulatory agreement which requires the units to remain 
          affordable is extinguished.  Many affordable housing providers 
          would like to keep their projects affordable but need to take on 
          additional debt financed with a low interest rate.  By extending 
          the loans on those projects this bill could preserve numerous 
          affordable housing units currently in existence.

           Tenants rents  :  The addition of new debt or restructuring of 
          existing debt will require rents to be increased.  This bill 
          specifies the extent to which rents can be increased in order to 
          cover the additional debt and keep the units affordable for 
          low-income tenants.  The original rent for these programs was 
          capped at either 35% or 60% of AMI.  AB 1699 allows rents to be 
          increased but still remain affordable.    The bill does not 
          specify the type of notice that tenants must receive prior to 
          rent increases.  This issue should be addressed to ensure that 
          tenants have adequate notice of rent increases. 

           Regulations versus guidelines  :  AB 1699 allows HCD to implement 
          a restructuring and refinancing program for older loans through 
          guidelines rather than through the regulatory process.  The bill 
          requires that the guidelines be developed through a process that 
          allows for public input prior to adoption.   The regulatory 
          process can be expensive and long; however some stakeholders 
          have expressed a desire that the regulatory process be used to 
          insure adequate public input.    

           Committee amendments  :

           Delete Section 2 of the bill. 


           REGISTERED SUPPORT / OPPOSITION  :   

           Support 
           
          Non-Profit Housing Association of Northern California 

           Opposition 
           
          None on file. 
           








                                                                 AB 1699
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          Analysis Prepared by  :    Lisa Engel / H. & C.D. / (916) 319-2085