BILL ANALYSIS Ó
SENATE COMMITTEE ON TRANSPORTATION AND HOUSING
Senator Jim Beall, Chair
2015 - 2016 Regular
Bill No: AB 723 Hearing Date: 8/9/2016
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|Author: |Chiu |
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|Version: |8/4/2015 Amended |
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|Urgency: |Yes |Fiscal: |Yes |
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|Consultant|Alison Dinmore |
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SUBJECT: Community Development Block Grant Program and Housing
Finance
DIGEST: This bill permits the Department of Housing and
Community Development (HCD) to allow an applicant with one or
more Community Development Block Grant (CDBG) agreements, signed
in 2012 or later, to apply for and receive an award of funds, at
the determination of the HCD director, without regard to whether
the applicant has expended at least 50% of their existing
awards, and makes changes to California Housing Finance Agency
(CalHFA) statutes.
ANALYSIS:
Existing law:
1)Establishes the CDBG Program in HCD. Funds allocated to the
state pursuant to the federal CDBG program and administered by
HCD shall meet the housing and economic development needs of
persons and families of low or moderate income.
2)Prohibits, pursuant to HCD regulations and beginning in 2013,
an applicant with one or more current CDBG grant agreements
signed in 2012 or later, for which the expenditure deadline
established in the grant agreement(s) has not yet passed, from
being eligible to apply for any additional CDBG funds, unless
the applicant has expended at least 50% of CDBG funds awarded.
3)Prohibits rental payments on units required for occupancy by
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very low-income households paid by persons occupying the units
from exceeding 30% to 50% of area median income (AMI), and
sets forth occupancy assumptions for adjusting rents for
household size, as specified.
4)Provides that the financing for multifamily rental housing
developments through CalHFA may be financed from the proceeds
of the sale of tax-exempt bonds.
5)Requires that in a multifamily rental housing development
located within a federally targeted area, not less than 15% of
the units financed by CalHFA shall be occupied by lower income
households. Not less than 50% shall be occupied by very
low-income households.
This urgency bill:
1)Permits HCD to allow an applicant with one or more CDBG
agreements, signed in 2012 or later, to apply for and receive
an award of funds without regard to whether the applicant has
expended at least 50% of their existing awards. The awarding
of funds under these circumstances shall be determined by the
HCD director and evaluated on the basis of eligibility, need,
benefit, or readiness.
2)Adds that CalHFA shall, in adjusting rents for household size,
have the option to utilize occupancy assumptions that it
determines to be appropriate and commercially reasonable for
financing.
3)Increases the occupancy eligibility for lower income
households from 50% to 80% AMI in multifamily rental housing
developments financed by CalHFA.
4)Removes existing references to the use of the sale of bond
proceeds to finance CalHFA programs.
5)Adds that, upon approval of the CalHFA board, CalHFA may waive
the priority requirements for very low-income households in
federally targeted areas upon a determination that the housing
needs of a substantial number of lower income households will
not otherwise be met.
COMMENTS:
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1) Purpose. According to the author, HCD has approximately $114
million in CDBG funding that can be used at the local level
for infrastructure projects and housing construction. This
backlog of unspent funds is a result of a regulation adopted
by HCD requiring that a city or county spend 50% of their
program funds before drawing down new funds. Since some
projects take longer than others, this has become a barrier.
To expedite the release of these funds to worthy projects,
this bill allows HCD to make grants to cities and counties
that have not spent down 50% of an existing grant before
receiving new funding without making a regulatory change.
This bill would also modernize CalHFA's occupancy standards to
make them consistent with other state housing programs,
including the low-income housing tax credit program. Finally,
this bill would give CalHFA the flexibility to participate in
the funding of projects that reserve at least 20% of their
units for households serving between 60-80% AMI. This change
would allow CalHFA to participate in the financing of more
mixed-income projects. The subsidies needed for these
projects will not be as deep as those needed for lower income
housing, and will also contain a percentage of market rate
units that do not need subsidy. This subset of low income
households are almost always excluded from projects that also
receive funding from tax credits or other state subsidies, as
those programs are limited to the financing of very low- and
low-income housing units at or below 60% AMI.
2)CDBG changes. The CDBG program was established by the United
States Housing & Community Development Act of 1974 (HCD Act)
and is administered at the federal level by the U.S.
Department of Housing and Urban Development (HUD). Among the
many uses of CDBG funds are infrastructure improvements and
activities in support of the construction of housing for
persons of low and moderate income.
Congress amended the HCD Act in 1981 to give each state the
opportunity to administer CDBG funds for small cities and
counties, called "non-entitlement areas." Eligible applicants
in "non-entitlement areas" include counties with fewer than
200,000 residents in unincorporated areas and cities with
fewer than 50,000 residents that do not participate in the HUD
CDBG entitlement program. Since 1983, HCD has administered
the state CDBG program in California, and releases a notice of
funding availability each year including CDBG-eligible
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activities. The state program awards grants to
non-entitlement areas to develop and preserve decent
affordable housing.
According to HUD, California currently has five times its most
recent grant amount (i.e., $114 million) in balance in the
state's CDBG line of credit, which HUD calls "unprecedented."
HCD attributes this backlog of unspent funds to the "50%
rule." The rule, a state regulation, states that a
jurisdiction has to have spent 50% of its program funds before
drawing down new funds. This rule was put in place to prevent
some local jurisdictions from "sitting on their funds" rather
than expending them.
Despite best efforts, some jurisdictions have been unable to
expend their awards below the 50% requirement, precluding them
from even applying for new funds. HCD believes that the
build-up of state funds has occurred for a number of reasons,
including the recession, that some projects take longer than
others, and that some delayed projects may make up a large
share of the funds held by a jurisdiction. While there is no
federal rule which requires HCD to expend its grant amount,
federal funds are dispensed on a needs basis; if these funds
are not expended, California runs the risk of losing future
federal funds.
This bill would provide that jurisdictions that do not meet
the requirements of the 50% rule may apply for additional CDBG
funds. These jurisdictions would be eligible to apply for and
draw down from the $114 million balance of funds. These
applications would be evaluated based upon eligibility, need,
benefit, and readiness and would be determined by the HCD
director. This bill does not guarantee an award, but merely
provides jurisdictions the opportunity to apply for additional
funds.
It should be noted that while this change could be made in
state regulations, a regulatory change would take at least a
year to adopt through the Administrative Procedures Act.
Given the real needs at the local level for these funds and
potential risk of loss of future federal funds, the change in
statute would permit this change to occur more quickly so that
the existing funds may be dispersed.
3)CalHFA's occupancy standards. State statutes that govern
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CalHFA regarding income and rent limits (and the related issue
of occupancy standards) do not provide CalHFA with the
flexibility to adopt criteria that are consistent with federal
programs that create and preserve affordable housing. This
inconsistency creates a conflict with multifamily rental
housing projects that receive federal subsidies. On the other
hand, HCD and the Tax Credit Allocation Committee (TCAC) have
the flexibility to adopt criteria that allows those programs
to be consistent with the requirements for federal subsidies.
Because CalHFA lacks this flexibility, it uses income and rent
limit requirements that are different from other state
programs, which makes it difficult for affordable housing
developers to coordinate financing. At a minimum, this leads
to confusion and additional effort for developers, and in some
instances, means that developers do not or cannot utilize
CalHFA financing. In the end, developers will need more gap
financing to complete these projects. Alternatively, projects
can seek financing from local agencies, which could result in
higher rent for some units.
This bill would permit CalHFA's regulatory requirements to
mirror other state and federal regulations and to remain
consistent with changes that occur at the federal and state
level.
4)Financing units for the "missing middle." Most federal and
state affordable housing programs provide rental subsidies to
households earning 60% AMI or below. In areas that have
particularly high housing costs, families earning between 60%
and 80% AMI are having an increasingly difficult time finding
housing that they can afford. This population, which earns
too much for housing assistance but not enough to afford
current market rents, is often referred to as "the missing
middle." Additionally, current CalHFA statutes governing
CalHFA's multifamily lending activity also requires projects
funded by CalHFA to have a certain percentage of the units
reserved for lower income households and additional targets
for very low-income households.
This bill provides CalHFA with the flexibility to participate
in the funding of projects that reserve at least 20% of their
units for households earning 80% AMI or below. This would
allow CalHFA to participate in the financing of 100%
affordable developments for 80% AMI households and below and
more mixed-income projects and low-income developments that do
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use low-income housing tax credits. These projects often
cannot be developed because existing state subsidies, such as
low-income housing tax credits, are limited to the financing
of units available to incomes below 60% AMI.
5)CalHFA's financing authority. In prior years, CalHFA relied
almost entirely on tax-exempt bond proceeds to finance its
lending programs. Following the recession, this has not been
a reliable source of funding. CalHFA recently developed other
business models to achieve its lending goals, including
selling loans directly to Fannie Mae and Freddie Mac to
minimize financial risk to the Agency. Additionally, CalHFA
has been partnering with federal agencies to share the risk
associated with lending for affordable multifamily housing.
This bill would update CalHFA's governing statutes to permit
the agency to use these new models, which had not been
contemplated when the statute was originally drafted.
6)Gut-and-amend. This bill was gut-and-amended on August 2 in
Senate Appropriations from a bill dealing with the replacement
of plumbing in rental properties, and sent to this committee
for a policy hearing.
FISCAL EFFECT: Appropriation: No Fiscal Com.: Yes
Local: No
POSITIONS: (Communicated to the committee before noon on
Wednesday,
August 3, 2016.)
SUPPORT:
None received
OPPOSITION:
None received
-- END --
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