BILL ANALYSIS Ó
AB 2319
Page 1
Date of Hearing: April 19, 2016
ASSEMBLY COMMITTEE ON JOBS, ECONOMIC DEVELOPMENT, AND THE ECONOMY
Eduardo Garcia, Chair
AB 2319
(Gordon) - As Introduced February 18, 2016
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|Committee |Votes|Ayes |Noes |
| | | | |
| | | | |
| | | | |
|----------------+-----+----------------------+--------------------|
|Housing |6-1 |Chiu, Steinorth, |Beth Gaines |
| | |Burke, Chau, Lopez, | |
| | |Mullin | |
| | | | |
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SUBJECT: California Infrastructure and Economic Development Bank
SUMMARY: Authorizes the financing of an affordable housing project by
the California Infrastructure and Economic Development Bank (IBank),
including financing through the Infrastructure State Revolving Fund
(ISRF). Specifically, this bill:
1)Removes the prohibition on the development of housing from the
definition of economic development facility.
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2)Expands the definition of a project to include affordable housing.
3)Authorizes the issuance of bonds and the loaning of funds from ISRF
for the financing of affordable housing.
4)Defines "affordable housing" to mean a dwelling available for
purchase or lease by persons and families who qualify as low- or
moderate-income, as defined, very low income households, as defined,
or extremely low income households, as defined.
EXISTING LAW:
1)Establishes the IBank within the Governor's Office of Business and
Economic Development (GO-Biz) and authorizes it to undertake a
variety of infrastructure related financial activities including,
but not limited to, the administration of the ISRF, oversight of the
Small Business Finance Center, and the issuance of tax-exempt and
taxable revenue bonds.
2)Defines an "economic development facility" to mean real and personal
property, structures, buildings, equipment, and supporting
components thereof that are used to provide industrial,
recreational, research, commercial, utility, goods movement, or
service enterprise facilities, community, educational, cultural, or
social welfare facilities and any parts or combinations thereof, and
all facilities or infrastructure necessary or desirable in
connection therewith, including provision for working capital,
excluding housing .
3)Defines a "project" to mean designing, acquiring, planning,
permitting, entitling, constructing, improving, extending,
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restoring, financing, and generally developing public development
facilities or economic development facilities within the state.
These projects may be funded through the ISRF. Projects for the
purpose of financing transition costs or the acquisition of
transition property, or both, may be funded through a financing
order by the Public Utilities Commission, as specified.
4)Defines a "public development facility" to mean real and personal
property, structures, conveyances, equipment, thoroughfares,
buildings, and supporting components thereof, excluding any housing,
that are directly related to providing the following:
a) City streets, county highways, and state highways, as
specified;
b) Drainage, water supply, and flood control, as specified;
c) Sewage collection and treatment, as specified;
d) Solid waste collection and disposal including, but not limited
to, vehicles, transfer stations, recycling centers, sanitary
landfills, and waste conversion facilities;
e) Water treatment and distribution; as specified;
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f) Educational facilities including libraries, child care
facilities, and employment training facilities;
g) Environmental mitigation measures, as specified;
h) Public safety facilities including, but not limited to, police
stations, fire stations, court buildings, jails, juvenile halls,
and juvenile detention facilities;
i) Parks and recreational facilities, as specified;
j) Port facilities including, but not limited to, airports,
landports, waterports, railports, docks, harbors, ports of entry,
piers, ships, and marinas, as specified;
aa) Power and communications including facilities for the
transmission or distribution of electrical energy, natural gas,
and telephone and telecommunications service.
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bb) Public transit, including, but not limited to, air and rail
transport, airports, passenger stations, maintenance and storage
yards, and related structures, as specified;
cc) Defense conversion including, but not limited to, facilities
necessary for successfully converting military bases consistent
with an adopted base reuse plan;
dd) Military infrastructure, including, but not limited to,
facilities on or near a military installation, that enhance the
military operations and mission of one or more military
installations in this state; and
ee) Goods movement-related infrastructure including, but not
limited to, port facilities, roads, rail, and other facilities
and projects that move goods, energy, and information.
5)Defines persons and families of low- or moderate-income to mean
persons and families whose income does not exceed 120% of area
median income, adjusted for family size and revised annually, as
specified.
6)Defines "very low income households" to mean persons and families
whose incomes do not exceed the 50% of area median income, adjusted
for family size and revised annually, as specified.
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7)Defines "extremely low income households" to mean persons and
families whose incomes do not exceed 30% of area median income,
adjusted for family size and revised annually, as specified. and
revised annually.
FISCAL EFFECT: Unknown
POLICY ISSUE FRAME
California's rising housing costs have prompted the Legislature to
seek additional funds and financing methods for affordable housing.
This measure proposes to authorize the redirection of ISRF funds
currently used for local infrastructure development, including sewer
and water quality projects, for this purpose.
The analysis provides background on the IBank, the current uses for
the ISRF funds, and the need for a comprehensive and balanced approach
to addressing the state's affordable housing crisis. A range of
amendments are discussed in Comment #8, including requiring that a
separate funding source be identified should the Members wish to
expand the financing authority of the IBank.
COMMENTS:
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1)Author Purpose: According to the author, "California is in the
middle of a housing crisis, and affordability is one of the biggest
challenges. Over 2.2 million low-income households compete for only
664,000 affordable rental homes. This leaves over 1.5 million in the
lowest-income population without access to affordable housing.
The elimination of redevelopment agencies together with the
expiration of state housing bonds has left the state with fewer
options to finance housing projects and leverage federal dollars.
Uncertainty in financing creates obstacles to building and improving
homes. Increased funding for affordable housing is critical to
stimulating development, improving local economies, and creating new
construction jobs.
The California Infrastructure and Economic Development Bank (I-Bank)
was created to provide low-cost financing options to eligible
borrowers for a wide range of projects. However, 'affordable
housing' projects are not included in the list of those eligible to
apply. The housing shortage coupled with significant cuts in state
and federal funding for affordable housing has reduced the
opportunities for state and local partnerships.
AB 2319 recognizes that the state requires regional development
strategies to incorporate housing, transportation, land use, and
anticipated growth into long-term planning. This bill would provide
housing developers, agencies, and local governments with access to
an existing funding tool by allowing the IBank to accept financing
applications for affordable housing projects."
2)Background on the IBank: The IBank was established in 1994 to
finance public infrastructure and private development that promotes
a healthy climate for jobs, contributes to a strong economy, and
improves the quality of life in California communities. Housed
within GO-Biz, it is governed by a five-member board of directors
comprised of the Director of GO-Biz (chair), the State Treasurer,
the Director of the Department of Finance, the Secretary of the
Transportation Agency, and an appointee of the Governor. The
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day-to-day operations of the IBank are directed by the Executive
Director who is an appointee of the Governor and is subject to
confirmation by the California State Senate.
The IBank does not receive any ongoing General Fund support, rather
it is financed through fees, interest income and other revenues
derived from its public and private sector financing activities.
The IBank administers three core programs: (1) the ISRF which
provides direct low-cost financing for public infrastructure
projects and economic development facilities; (2) the Conduit Bond
Program which provides financing for manufacturing companies, public
benefit nonprofit organizations, public agencies and other eligible
entities; and (3) the Small Business Finance Center which assists
small businesses access to private financing through loan
guarantees, direct loans, and performance bond guarantees. There is
no pledge of IBank or state general funds for any of the conduit
revenue bonds.
Since its inception, the IBank has loaned, financed, or participated
in over $34.7 billion in infrastructure and economic expansion
projects. This includes over $400 million to local and state
agencies, developing a high-level of expertise in the financing of
public infrastructure. The IBank also serves as the state's only
general purpose financing authority with broad statutory powers to
issue revenue bonds, make loans, and provide guarantees. Over $33
billion in conduit revenue bonds have been issued by the IBank since
2000.
3)Highlights from 2014-15 Annual Report: In December 2015, the I-Bank
issued its annual report for the 2014-15 fiscal year. Among other
activities, the IBank recapitalized the ISRF Program and launched a
new green infrastructure bank. Additional details on these projects
and other highlights are provided below:
a) Clean Energy Finance Center: The IBank established the
California Lending for Energy and Environmental Needs Center or
CLEEN Center to support the state in meeting its greenhouse gas
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emission reduction goals. Among other clean energy and
environmental projects, the new center will finance projects that
support energy generation, distribution, transmission and storage
of electrical energy, energy conservation measures, environmental
mitigation measures, and water treatment and distribution. Its
first program will be the Statewide Energy Efficiency Program
(SWEEP), which will provide low-cost financing to state and local
governments for energy efficiency projects.
Funding: Governor is requesting funding through the Legislative
Budget process. The issue was heard in the Assembly Budget
Subcommittee 4 on March 28, 2016 and held open by the
Subcommittee in order that it be considered with other requests
for cap-and-trade auction revenues.
b) Infrastructure Funds: The IBank issued $90 million in ISRF
Bonds to recapitalize the revolving loan fund. A portion of bond
proceeds were used to refund ISRF bonds which were issued in
2008, resulting in $1,372,007 savings to the state. The 2015
ISRF bonds received high rating from the Standard and Poor's
Rating Services (AAA rating), Fitch Ratings (AAA rating), and
Moody's Investors Service (Aa1).
c) Conduit Revenue Bonds: The IBank issued $270.3 million in
conduit revenue bonds for qualified 501(c)(3) nonprofit entities
and a California manufacturing company to create and retain jobs
in the state, enhance the economic status of communities,
facilitate research and cultural endeavors, and for other public
purposes.
4)The Infrastructure State Revolving Fund: The ISRF provides
financing to public entities, nonprofit organizations, and private
entities to assist in the development of a wide variety of
infrastructure and economic development projects. ISRF Program
funding is available in amounts ranging from $50,000 to $25,000,000,
with loan terms of up to 30 years.
Examples of eligible projects include, but are not limited to:
drainage, water supply and flood control; libraries and other
educational facilities; environmental mitigation measures; sewage
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collection and treatment; solid waste collection and disposal; water
treatment and distribution; and public safety facilities.
The IBank recently approved $56.3 million in loans to state and
local governmental entities and local government-sponsored
not-for-profit organizations for necessary infrastructure and
economic expansion projects. The total ISRF loan outstanding
balance, as of October 2015, was $294 million. The chart below
shows the ISRF's 2015-16 project pipeline.
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| Infrastructure State Revolving Fund - March 22, 2016 |
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| |
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|--------------------+----------+--------------------------------|
| State of Project |Number of | Dollar Amounts |
| Review |Applicatio| |
| | ns | |
| | | |
| | | |
|--------------------+----------+--------------------------------|
|In Review | 10 | $127,436,448 |
| | | |
| | | |
|--------------------+----------+--------------------------------|
|Pending | 4 | $36,400,000 |
|Applications | | |
| | | |
| | | |
|--------------------+----------+--------------------------------|
|In Underwriting | 4 | $55,467,916 |
| | | |
| | | |
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| Source: California Infrastructure and Economic Development |
| Bank, March 2016|
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This past fiscal year, the I-Bank assisted the California Department
of Public Health (CDPH) by making an ISRF short-term loan of
$17,904,020. This loan provided matching funds, which were required
to drawdown a federal capitalization grant for the Safe Drinking
Water State Revolving Fund (SDWSRF). The SDWSRF finances
infrastructure improvements to water systems throughout California
that are necessary to bring drinking water into compliance with
applicable federal and state standards.
The ISRF Program operates as a "leveraged loan program," which means
its funding is derived through the issuance of revenue bonds secured
by the repayments received from approved ISRF Program Financings.
IBank has issued several series of tax-exempt revenue bonds to
provide additional ISRF Program financing. Since inception, the
IBank has issued five rounds of tax exempt revenue bonds for a total
of $338,575,000 million. ISRF bonds are paid solely from repayments
received from ISRF borrowers, and are neither backed nor guaranteed
by the state or other IBank funds.
5)Unscheduled Update to the State Housing Plan: In response to
rapidly rising housing costs, especially in California's coastal
areas, the Department of Housing and Community Development (HCD)
issued an unscheduled update to the State Housing Plan in 2014.
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Among other concerns, HCD's update underscored the following:
Lower income households were disproportionately being impacted
by the worsening trend in housing affordability. As both
employment gains and wages continued to lag, renters were facing
higher rents and potential homebuyers are having to contend with
tightening lending standards;
Building starts were continuing to be sluggish, even as
storages in housing supply continued to increase in coastal
areas;
Tens of thousands of affordable housing units were at-risk of
converting to market rents within the next five years;
Aging baby boomers and young millennials were shifting
traditional housing demands to meet their different lifestyle
choices; and
The effects of the financial crisis were continuing to impact
households, who never recovered losing their homes, loss of
employment, lower credit scores due to old debt, and other
pre-crisis lifestyle opportunities.
The update to the State Housing Plan also identified the impacts of
the housing crisis on California renters, which included the
overpayment for rent and increasingly overcrowded conditions. For
prospective homeowners, prices were rising too quickly for
households to rationally keep pace. While the financial crisis
resulted in significant foreclosures, HCD's Housing Plan update
noted that these units were not adequate to meet the housing need
based on type, tenure, and location. In February 2014, the median
sales price of a home was $404,250, which was over 21% higher than
in February 2013.
In its conclusion, the update to the State Housing Plan called for
not only more housing, but noted that production was only one part
of the solution. The state needed an integrated approach to housing
development, a strategy that also considered such things as
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education, health, access to economic opportunity, and
transportation. Further, that the interconnectivity between jobs,
housing, health care, and infrastructure was particularly important
to vulnerable populations.
1)Not an Integrated Community Development Model: AB 2319 would, among
other things, authorize the use of infrastructure funds for the
purchase and lease of homes affordable to moderate- and low-income
families. While there is a great need for affordable housing, there
is also a significant unmet need for infrastructure to address
deficiencies in public health, community facilities, and economic
growth. As noted in the update to the State Housing Plan,
California needs an integrated approach to community development.
2)Legislative Analyst's Study on Housing Needs and Impact on the Poor:
In March 2015, the Legislative Analyst's Office (LAO) issued a
report on the state's rising housing costs and impacts. The report
shows that only Hawaii has higher housing prices than California.
In fact, California housing costs are more than double that of the
U.S average, $437,000 v. $179,000. The report also notes that
housing costs vary within California, with the highest being in the
coastal areas. Increasing housing costs, however, are not limited
to the coastal counties.
Rising costs, the report notes, have been particularly challenging
for lower income households who have been forced to spend a greater
share of their income for shelter, live in crowded housing
conditions, commute further to work, and, sometimes, having to
change jobs. Higher housing costs also impair the ability of
renters to save to purchase a home. California's homeownership rate
(55.3%) is well below the national average of 64.9%.
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Among other reasons, the LAO report identifies the lack of new
construction one of the primary reasons housing costs are rising.
Other contributing factors include higher land and building costs in
coastal areas. While this analysis seems to provide a very straight
forward market resolution thorough supply and demand, the LAO report
also noted that the private market has not responded in a way that
would historically have been expected. As other economists have
looked at similar unusual patterns, there is a growing awareness
that high levels of poverty and income inequality distort general
market mechanisms.
The LAO report identifies further examples of traditional market
breakdowns. Housing construction in Seattle was twice that of San
Francisco and San Jose over the past two decades with construction
in California's coastal metro areas remaining low by both national
and historical standards, between 1980 and 2010. The report
estimates if housing production in California had kept pace with the
national average, the state would have added up to 100,000
additional units per year between 1980 and 2010. These units would
have been predominantly in coastal areas, a higher percentage in
inner cities, and have been considerably denser. The consequence of
not producing more housing units is that shelter has become a
greater burden on household finances. For low-income households,
paying for housing costs require spending 67% of their income, which
leaves very little left for food, health care, education,
transportation, and emergencies.
In addition, the LAO report notes other significant housing
challenges that inordinately impact certain areas of the state and
groups of people, including: (1) facilitating housing options for
the state's homeless individuals and families; (2) mitigating
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adverse health effects related to living in substandard housing or
housing near sources of pollution; and (3) removing noneconomic
barriers to housing, such as race, ethnicity, gender, and disability
status.
3)Balancing Needs and Setting Priorities: Should the Committee wish
to move forward on the measure, there are a range of options. The
scope of the bill could be limited to the most vulnerable
populations, including low- and very low-income. Alternatively or
in addition to, homeownership could be excluded. Given the rise in
housing prices in California, the new authority in AB 2319 could
inadvertently become a moderate-income housing program. Without
deep subsidies, which the ISRF does not provide, low-income
households would have a difficult time qualifying for homeownership.
Another approach to addressing the policy challenges posed by the
bill, would be to require separate capitalization of the affordable
housing program. At some point, the IBank may be in a unique place
to finance affordable housing relative to HCD or the California
Housing Finance Agency. Currently, however, the ISRF is simply a
loan program, which could be implemented at another state
department.
By requiring separate capitalization, the new housing authority
would be treated similarly to other new IBank programs. When the
Small Business Loan Guarantee Program was transferred to the I-Bank
in 2014, it came with its own money and statutory limitations on the
funds that could be used to implement programs. More recently, the
Governor's 2016-17 budget proposes the use of $20 million in
cap-and-trade auction revenues to be used to capitalize the new loan
program at the CLEEN Energy Finance Center.
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4)Related Legislation: There is no related legislation. The JEDE
Committee records, going back to 2005, indicate that there has not
been a bill to expand I-Bank financing authority to housing.
5)Double Referral: This measure has been double referred to the
Assembly Committee on Housing and Community Development (HCD) and
the Assembly Committee on Jobs, Economic Development, and the
Economy. AB 2319 passed HCD on a vote of 6 to 1.
REGISTERED SUPPORT / OPPOSITION:
Support
American Planning Association, California Chapter
California Apartment Association
California Association of Realtors
California State association of Counties
City of Lakeport
City of Oakland
City of San Carlos
City of Sunnyvale
League of California Cities
Opposition
None Received
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Analysis Prepared by: Toni Symonds / J., E.D., & E. / (916) 319-2090