BILL ANALYSIS Ó AB 2200 Page 1 Date of Hearing: April 20, 2016 ASSEMBLY COMMITTEE ON EDUCATION Patrick O'Donnell, Chair AB 2200 (Thurmond) - As Amended March 17, 2016 [The bill was double referred to the Committee on Housing and Community Development and was heard by that committee as it relates to issues under its jurisdiction.] SUBJECT: School Employee Housing Assistance Program SUMMARY: Requires California Housing Finance Agency (CalHFA) to administer a grant program to provide development financing assistance to qualified school districts for the creation of affordable rental housing for school districts employees, including teachers. Specifically, this bill: 1)Defines "affordable rental housing" to mean housing that serves persons and families of low or moderate income as defined in the Health and Safety Code (Section 50093). 2)Defines "qualified developer" to mean a developer that has partnered with a qualified school district to create affordable rental housing for school district employees, including teachers. AB 2200 Page 2 3)Defines "qualified school district" to mean a school district that satisfies the following: a) Has acquired and designated surplus land from a school district, special district, or city; b) Has a high average cost for the recruitment of teachers; c) Has a low retention rate; and d) Has 60% of its students participating in the National School Lunch Program. 4)Provides that CalHFA shall provide financial assistance in the form of predevelopment grants to qualified school districts and loans to qualified developers. 5)Requires CalHFA to do all of the following to administer the grant program: a) Be responsible for overseeing the program; b) Award predevelopment grants to qualified school districts; c) Make loans to qualified developers; and d) Publish deadlines and written procedures for the program. AB 2200 Page 3 6)Requires a school district seeking a predevelopment grant to apply to the California Department of Education (CDE) for certification as a qualified school district. 7)Requires the CDE to certify that a school district seeking a predevelopment grant meets the definition of a qualified school district. 8)Requires a qualified school district seeking a predevelopment grant to do both of the following: a) Apply for a predevelopment grant in the form and manner prescribed by CalHFA; and b) Submit the certification provided by the California Department of Education (CDE). 9)Creates the School Employee Housing Assistance Fund (the Fund) in the State Treasury. 10)Continuously appropriates $100,000,000 from the General Fund to the Fund. 11)Requires the CalHFA to make loans to qualified developers using a project selection process it establishes that meets all of the following requirements: a) To the extent feasible, ensures a reasonable geographic distribution of funds AB 2200 Page 4 b) Requires applications for projects to meet minimum threshold requirements, including, but not limited to, all of the following: i) The proposed project is located within reasonable proximity to public transportation and services; ii) Development costs for the proposed project are reasonable compared to costs of comparable projects in the area; and iii) The proposed project is feasible. c) The proposed project leverages other funds where they are available. 12)Requires loans to be made for a term on not less than 55 years. 13)Provides that principal and accumulated interest is due and payable upon completion of the term of the loan, and the loan shall bear simple interest at the rate of 3% per year. 14)Requires any moneys received in repayment of loans, including interest, be deposited in the Fund. 15)Specifies the maximum loan amount shall be $10 million. AB 2200 Page 5 EXISTING LAW: Defines eligible basis certification as a certification from a certified public accountant or tax attorney that project costs included in applicant's calculation of eligible basis are allowed by IRC Section 42, as amended, and are presented in accordance with standard accounting procedures. If the project uses HOME Investment Partnership Program funds, then the tax professional must further certify as to the treatment of HOME Program funds for purposes of eligible basis calculations. (Tax Credit Allocation Committee regulations for the Low Income Housing Tax Credit Program) FISCAL EFFECT: Total effect unknown. Includes an appropriation from the General Fund of $100,000,000. COMMENTS: Background. California has seen a drastic decline in funding to support the construction of affordable housing for very low-, low- and moderate-income families. Historically, the state has invested in low- and moderate-income housing primarily by providing funding for construction. Because of the high cost of land and construction and the subsidy needed to keep housing affordable to residents, affordable housing is expensive to build. Developers typically use multiple sources of financing, including voter-approved housing bonds, state and federal low-income housing tax credits, private bank financing, and local matching dollars. Voter-approved bonds have been an important source of funding to support the construction of affordable housing. Proposition 46 of 2002 and Proposition 1C of 2006 together provided $4.95 billion for affordable housing. These funds financed the AB 2200 Page 6 construction, rehabilitation, and preservation of 57,220 affordable apartments, including 2,500 supportive homes for people experiencing homelessness, and over 11,600 shelter spaces. In addition, these funds have helped 57,290 families become or remain homeowners. Nearly all of these funds have been awarded. In addition, prior to their dissolutions redevelopment agencies generated as much as $1.7 billion a year in local funding to support affordable housing. CalHFA, the state's affordable housing bank, provides down payment assistance to qualified low- and moderate-income buyers through a loan secured on the property that is repaid when a home sells. In addition, CalHFA provides loans to multifamily housing developers to construct housing affordable housing. CalHFA does not receive funding from the General Fund and pays for its programs by issuing bonds which are then repaid from loan proceeds. The Department of Housing and Community Development (HCD) operates a variety of programs that support the acquisition, rehabilitation and construction of affordable housing to very low-, low- and moderate-income households. The Multi-Family Housing Program provides gap financing to affordable housing developers. Developments financed using MHP or CalHFA's multi-family loans agree to provide the housing for a term of 55 years. This bill requires CalHFA to create and administer a grant program to provide both predevelopment grants and development grants to qualified school districts for the creation of affordable rental housing for school employees, including teachers. Only school districts with a high average cost for recruiting teachers and a low retention rate would be eligible for the grant. Purpose of this bill. According to the author, "There is no existing program that allows financially-strained school districts to receive funding for the development of school AB 2200 Page 7 employee housing. Some school districts in California have begun to increase teacher retention by providing housing to teachers. School districts in Los Angeles and Santa Clara, with San Francisco considering such a plan, have teachers in district-sponsored housing. However, for financially-strapped districts in high-cost areas, such a proven solution is not an option for attracting new teachers into the district. And while the Extra Credit Teacher Home Purchase Program does incentivize homeownership for school employees, for many new teachers beginning their career, rental housing is the first step prior to homeownership-a step that those in high-cost areas cannot take. AB 2200 seeks to close the achievement gap by allowing school employees, including teachers, to remain in the cities where they work. Specifically, the bill creates a $100 million grant program which will provide financial assistance to school districts that cannot independently fund housing for school employees. Gap financing will be given to school districts which: (1) have acquired land for development (2) can show high recruitment costs and low retention rates (3) have 60% of students participating in the Free and Reduced Lunch Program. The grant allocates 5% of its funds towards predevelopment costs that school districts that cannot independently fund. " Arguments in support. According to the sponsor of the bill, the City of Oakland, "statistics show that the price of housing in California has risen exponentially in the last decade, while educator's wages have remained largely stagnant. This is especially true in the Bay Area where starting teacher salaries remain in the low $50,000 range and median home process are over $1,000,000." K-12 Policy considerations: 1) This bill requires grants be made for "affordable rental housing" for school district employees including teachers, however it does not define the income levels that would be AB 2200 Page 8 eligible for the housing. This bill also does not require that the affordable housing units be restricted by affordability covenants to ensure that the housing remains affordable. 2) This bill requires CalHFA to assist a school district that is not eligible to receive a development grant to apply for other a public funds. It is unclear what other public funds would be used for; in addition, CalHFA likely does not have the expertise to assist a school district in applying for public funds. 3) This bill requires the CDE to certify that a school district seeking a predevelopment grant meets the definition of a qualified school district. To meet that definition, a school district must, in addition to other criteria, have a high average cost for the recruitment of teachers and a low retention rate. These are imprecise metrics, which leaves it to the discretion of the CDE to determine what is a high cost of recruitment and what is a low retention rate. Moreover, the CDE does not currently collect data on the cost of recruitment or retention rates. Therefore, it is unclear how the CDE would make these certifications. 4) This bill defines "qualified districts" to be, among other criteria, a district in which at least 60% of its pupils are enrolled in the National School Lunch Program. According to the author's office, the purpose of this bill is to help "financially strapped" districts provide housing assistance for their employees, but this criterion misidentifies financially strapped districts. Under the local control funding formula (LCFF) which was enacted in 2013, districts that enroll large numbers and percentages of pupils who are eligible for free and reduced-price meals, English learners, or in foster care receive AB 2200 Page 9 additional funding in the form of supplemental grant and concentration factor funding. By contrast, districts that have few pupils in these categories receive little or no supplemental grant and concentration factor funding and, under LCFF, are more financially strapped than districts with 60% or more of their pupils in the lunch program. In addition, a district that does not meet the 60% requirement (such as many Silicon Valley districts) is more likely to be located in an area with higher housing costs and a larger gap between housing costs and employee pay. 5) This bill transfers $100 million from the General Fund to the School Employee Housing Assistance Fund. Because the original source of the grants would be the General Fund, any predevelopment grants awarded to qualified school districts likely would count toward the Proposition 98 minimum school funding guarantee. Accordingly, funding for ongoing Proposition 98 programs would be reduced by an amount equal to predevelopment grants awarded to school districts. 6) This bill requires a school district to acquire and designate surplus land to be eligible for the funds. Once property is designated as "surplus," existing law requires the property to be offered to charter schools and local governments. If the author intends to require the use of district property for teacher housing, the author may wish to consider striking the requirement that land be designated as "surplus." REGISTERED SUPPORT / OPPOSITION: Support AB 2200 Page 10 California Catholic Conference, Inc. California Teachers Association City of Walnut Creek Oakland Unified School District State Building and Construction Trades Council of California One individual Opposition None received Analysis Prepared by:Rick Pratt / ED. / (916) 319-2087 AB 2200 Page 11