BILL ANALYSIS Ó
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|SENATE RULES COMMITTEE | AB 723|
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THIRD READING
Bill No: AB 723
Author: Chiu (D) and Thurmond (D)
Amended: 8/18/16 in Senate
Vote: 27 - Urgency
PRIOR VOTES NOT RELEVANT
SENATE TRANS. & HOUSING COMMITTEE: 11-0, 8/9/16
AYES: Beall, Cannella, Allen, Bates, Gaines, Galgiani, Leyva,
McGuire, Mendoza, Roth, Wieckowski
SENATE APPROPRIATIONS COMMITTEE: 7-0, 8/11/16
AYES: Lara, Bates, Beall, Hill, McGuire, Mendoza, Nielsen
SUBJECT: Housing: finance
SOURCE: Author
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.
Senate Floor Amendments of 8/18/16 clarify that CalHFA's option
to utilize occupancy assumptions for financing shall not be
interpreted to modify the terms of any regulatory agreement on
or before August 31, 2016, and makes other technical changes.
ANALYSIS:
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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
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 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,
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have the option to utilize occupancy assumptions that it
determines to be appropriate and commercially reasonable for
financing.
3)Removes existing references to the use of the sale of bond
proceeds to finance CalHFA programs.
Comments
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 its
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 also modernizes CalHFA's occupancy standards to make
them consistent with other state housing programs, including
the low-income housing tax credit program. Finally, this bill
gives CalHFA the flexibility to participate in the funding of
projects that reserve at least 20% of their units for
households between 60% and 80% of the area median income
(AMI). This change allows 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 is 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
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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
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 provides 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
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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)Gut-and-amend. This bill was gut-and-amended on August 2 in
the Senate Appropriations Committee from a bill dealing with
the replacement of plumbing in rental properties, so the votes
in the Assembly do not apply to this bill.
FISCAL EFFECT: Appropriation: No Fiscal
Com.:YesLocal: No
According to the Senate Appropriations Committee:
Accelerated expenditure of CDBG funds, likely in the tens of
millions annually over several years (federal funds). Staff
notes that current regulations appear to be preventing the
expenditure of current available federal funds. Absent the
bill, future allocations of federal funding may be at risk.
Minor and absorbable administrative costs to HCD (General
Fund) and CalHFA (special funds).
SUPPORT: (Verified 8/11/16)
City of Santa Monica
League of California Cities
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OPPOSITION: (Verified8/11/16)
None received
Prepared by:Alison Dinmore / T. & H. / (916) 651-4121
8/22/16 9:42:11
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