BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                     AB 723


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          Date of Hearing:  August 25, 2016


               ASSEMBLY COMMITTEE ON HOUSING AND COMMUNITY DEVELOPMENT


                                  David Chiu, Chair


          AB 723  
          (Chiu) - As Amended August 18, 2016


          SUBJECT:  Housing:  finance




          SUMMARY:  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. Specifically, 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)Gives CalHFA the option, in adjusting rents for household  
            size, to utilize occupancy assumptions that it determines to  








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            be appropriate and commercially reasonable for financing. 


          3)Gives the CalHFA board of directors' discretion to waive the  
            priority requirements for very low-income households in  
            designated geographic areas upon a determination that the  
            housing needs of a substantial number of lower income  
            households will not otherwise be met. 


          4)Removes existing references to the use of the sale of bond  
            proceeds to finance CalHFA programs. 


          5)Includes intent language stating that nothing in this bill can  
            be interpreted to modify the terms of any regulatory agreement  
            recorded on or before August 31, 2016. 


          6)Includes an urgency clause. 



          EXISTING LAW: 


          1)Requires at least 20% of the total number of units in a  
            multifamily rental housing development financed from the  
            proceeds of bonds issued by CalHFA to be occupied on a  
            priority basis by lower income households.


          2)Requires in a targeted area, defined as qualified census tract  
            or an area of chronic economic distress, that not less than  
            15% of the total number of units financed by CalHFA be  
            occupied on a priority basis by lower income households, and  
            no less than one- half of the units required for lower income  
            households be provide on a priority basis to very low- income  
            households.








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          3)Restricts the rental payments that can be charged to very  
            low-income households to not more than 30% of 50% of the area  
            median income (AMI).


          4)Requires CalHFAto in determining rents for household size to  
            assume that one person will occupy a studio unit, two people  
            will occupy a one-bedroom unit, three people will occupy a  
            two-bedroom unity, four people will occupy a three bedroom  
            unit, and five people will occupy a four bedroom unit.   


          FISCAL EFFECT:  According to the Senate Appropriations  
          Committee:


          1)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.

          2)Minor and absorbable administrative costs to HCD (General  
            Fund) and CalHFA (special funds).





          COMMENTS:  


          CDBG Program. 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  








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          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  








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          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  
          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. 





          California Housing Finance Agency (CalHFA): CalHFA is the  
          state's affordable housing lender. CalHFA funds its programs by  
          issuing bonds and then repays the bonds with loan proceeds. The  
          agency is completely self-supporting and receives no General  
          Fund money.  The agency provides low interest rate mortgages to  
          low and moderate income homebuyers in California, as well as  
          down payment and closing costs assistance. Since inception,  
          CalHFA has provided $19.6 billion in mortgages to 153,000  
          first-time homebuyers. CalHFA loans are used for the  
          acquisition, rehabilitation and permanent financing to preserve,  
          maintain and increase the supply of affordable multi-family  








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          rental housing.  Since its creation, CalHFA has made $192  
          million in loans for affordable housing.  





          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 also modernizes CalHFA's occupancy standards to make  
          them consistent with other state housing programs, including the  
          low-income housing tax credit program.  In addition, this bill  
          gives 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 allows CalHFA to  
          participate in financing 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.










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          This bill was substantially amended from the previous version  
          which dealt with the replacement of plumbing in rental  
          properties.   





          


          REGISTERED SUPPORT / OPPOSITION:




          Support


          California Association of Counties


          City of Dublin 


          City of Santa Monica  




          Opposition




          None on file. 








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