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