BILL ANALYSIS Ó Senate Appropriations Committee Fiscal Summary Senator Kevin de León, Chair SB 391 (DeSaulnier) - California Homes and Jobs Act of 2013. Amended: May 7, 2013 Policy Vote: T&H 6-3; G&F 5-2 Urgency: Yes Mandate: Yes Hearing Date: May 13, 2013 Consultant: Mark McKenzie This bill meets the criteria for referral to the Suspense File. Bill Summary: SB 391, an urgency measure, would impose a fee of $75 on the recording of real estate documents, except those recorded in connection with a property transfer, as specified. Fee revenues would be available for expenditure for affordable housing purposes, upon appropriation by the Legislature. Fiscal Impact: Unknown fee revenue gains ranging from $300 million to $720 million per year depending on the volume of recorded documents (California Homes and Jobs Trust Fund - CHJ Trust Fund). Estimated annual administrative costs of approximately $5.4 million (CHJ Trust Fund) to fund up to 47 positions at the Department of Housing and Community Development (HCD). All HCD administrative costs are fully covered by fees collected. Costs in the range of $250,000 to $350,000 (CHJ Trust Fund) in 2016-17 to the Bureau of State Audits (BSA) to conduct an initial audit. Ongoing periodic audit costs in the range of $150,000 to $250,000 (CHJ Trust Fund). All BSA audit costs are fully covered by fees collected. Unknown local mandate costs, not state-reimbursable. The bill authorizes the county recorder to deduct actual and necessary costs to administer to collection of recordation fees prior to transmitting the balance to the state. Background: The Department of Housing and Community Development and the California Housing Finance Agency (CalHFA) administer numerous programs designed to make housing more affordable for California families and individuals, including: the Multifamily SB 391 (DeSaulnier) Page 1 Housing Program, which funds construction, rehabilitation, and preservation of housing for lower income households; the Joe Serna, Jr. Farmworker Housing Program, which funds the development of ownership or rental homes for agricultural workers; the Emergency Housing Assistance Program, which funds emergency shelters and transitional homes for homeless individuals and families; the CalHome Program, which funds downpayment assistance, home rehabilitation, counseling, self-help mortgage assistance programs, and technical assistance; and the California Homebuyer Downpayment Assistance Program, which aids first-time homebuyers with down payment and/or closing costs. The state has typically funded state housing programs through the issuance of general obligations bonds. Most recently, voters approved Proposition 46 in 2002, which provided $2.1 billion in housing bonds, and Proposition 1C in 2006, which authorized the issuance of an additional $2.85 billion in general obligation bonds for various housing programs. Nearly all of the Propositions 46 and 1C bond funds that support affordable housing projects and programs have been allocated, although the State Treasurer has not yet issued bonds to finance all of the programs that have received an allocation. Apart from general obligation bonds, tax increment revenues provided pursuant to the Community Redevelopment Law have also been a major source of affordable housing funds. Specifically, existing law required redevelopment agencies to deposit 20% of all tax increment revenue available to the agency into their Low and Moderate-Income Housing Funds to increase, improve, and preserve the community's supply of low and moderate income housing available at an affordable housing cost. In the 2009-10 fiscal year, $1.075 billion of redevelopment property tax increment revenues were set aside for affordable housing. As part of a General Fund solution in the 2011-12 budget, however, ABx1 26 (Blumenfield) was enacted to eliminate redevelopment agencies, thereby eliminating a significant source of housing funds. This bill is intended to provide a permanent source of affordable housing funds to partially offset the loss of funding due to the elimination of redevelopment tax increment funds and the impending depletion of housing bond funds. SB 391 (DeSaulnier) Page 2 Proposed Law: SB 391 would enact the California Homes and Jobs Act of 2013. Specifically, this bill would impose a fee of $75 at the time of recording of specified real estate instruments, papers, or notices, not including those recorded in connection with a transfer subject to the imposition of a documentary transfer tax (property transfers). After deducting administrative costs incurred by the county recorder, the fee revenues would be sent to HCD on a quarterly basis for deposit in the California Homes and Jobs Trust Fund (CHJ Trust Fund), created by the bill. The funds would be available, upon appropriation by the Legislature, for support of the development, acquisition, rehabilitation, and preservation of housing affordable to low and moderate income households, and to cover HCD administrative costs, as well as costs for periodic audits. Specified purposes for the funds include foreclosure mitigation, homeownership opportunities, emergency shelters, and transitional and permanent rental housing, including necessary service and operating subsidies. This bill would require the Bureau of State Audits (BSA) to conduct periodic audits, beginning two years after enactment, to ensure that the annual allocation to individual programs is awarded by HCD in a timely fashion. SB 391 would also require HCD to include information in its existing annual report on how the funds provided by the bill were expended in the previous year, including efforts to promote a geographically balanced distribution of funds. Related Legislation: SB 1220 (DeSaulnier), a nearly identical bill, failed passage on the Senate Floor in 2012 on a vote of 25-13. Staff Comments: HCD estimates that revenues from a $75 per document recording fee on the specified real estate related documents would generate approximately $300 million annually during years when real estate transactions are at lowest levels and up to $720 million annually during years when transactions are at their highest point. Based on historical staffing levels for rental and homeowner programs previously administered by HCD, the Department estimates the need for up to 47 positions in the first full year of operation at an estimated cost of $5.4 million as a result of this bill. This assumes that revenues from the new fee would SB 391 (DeSaulnier) Page 3 primarily be used for expenditure on existing programs. There could be additional costs associated with structuring new programs or revising existing programs to accommodate the priorities of the Legislature or the Administration when the funds are appropriated. The bill does not currently provide detail on how the funds would be allocated. The redirection of existing HCD staff dedicated to current bond-funded programs to any new programs supported by fee revenues would occur as a part of the annual budget process. HCD and CalHFA, the likely administrators of the housing programs to be funded by this measure, have historically maintained administrative costs at 5% or less of the funding allocated for existing state-administered housing programs. This bill continues this practice by explicitly authorizing up to 5% of the funds deposited in the CHJ Trust Fund for administering housing programs that receive an appropriation from the fund. Under the Joint Rules of the Senate and Assembly, Rule 37.4 (b) specifies that "any bill requiring action by the Bureau of State Audits shall contain an appropriation for the cost of any study or audit." To comply with this requirement, the bill explicitly authorizes funds appropriated by the Legislature from the CHJ Trust Fund to be used to pay for costs of periodic audits, as specified. Staff notes that Legislative Counsel has determined that this bill would result in a change in state taxes for the purpose of increasing state revenues within the meaning of Section 3 of Article XIIIA of the California Constitution, and would thus require the approval of 2/3 of the membership of each house of the Legislature for passage. Prior to 2010, specified fees could be enacted by majority vote, but this authority was significantly limited by Proposition 26 (2010).