BILL ANALYSIS Ó SB 858 Page 1 SENATE THIRD READING SB 858 (Committee on Budget and Fiscal Review) As Amended August 18, 2016 2/3 vote. Urgency SENATE VOTE: 25-11 -------------------------------------------------------------------- |Committee |Votes|Ayes |Noes | | | | | | | | | | | | | | | | |----------------+-----+-----------------------+---------------------| |Budget |20-5 |Ting, Bloom, Bonta, |Obernolte, Travis | | | |Campos, Chiu, Cooper, |Allen, Chávez, | | | |Gordon, Holden, Irwin, |Harper, Patterson | | | |Kim, Lackey, McCarty, | | | | |Melendez, Mullin, | | | | |Nazarian, O'Donnell, | | | | |Rodriguez, Thurmond, | | | | |Wilk, Williams | | | | | | | | | | | | -------------------------------------------------------------------- SUMMARY: Makes necessary statutory and technical changes to implement the Budget Act of 2016 related to the No Place Like Home (NPLH) Program. Specifically, this bill: 1)Provides that the California Health Facilities Financing SB 858 Page 2 Authority (CHFFA) may issue taxable or tax exempt revenue bonds in an amount not to exceed $2 billion, for the purposes of financing permanent supportive housing pursuant the NPLH Program and through loans under subdivision (d). 2)Allows CHFFA to utilize bond proceeds to fund necessary reserves for principal and interest, capitalized interest, credit enhancements or liquidity costs, costs of insurance, administrative expenses under Section 5849.4 of the Welfare and Institutions Code, and to reimburse loans under Section 5849.14 of the Welfare and Institutions Code. 3)Adds that the authority may provide for the issuance of bonds of the authority for the purpose of redeeming, refunding, or retiring any bonds or any series or issue of bonds then outstanding issued under subdivision (b), including the payment of any redemption premium and any interest accrued or to accrue to the date of redemption, purchase, or maturity of the bonds. 4)Provides that the CHFFA may make secured or unsecured loans to the Department of Housing and Community Development (HCD) in connection with financing permanent supportive housing pursuant to NPLH Program or to refund bonds previously issued pursuant to the section, in accordance with an agreement between the authority and HCD. 5)Clarifies that loan proceeds to be used to fund reserves for principal and interest, capitalized interest, credit enhancement and liquidity costs, expenses of funding, financing, and refinancing, administrative expenses under Section 5849.4 of the Welfare and Institutions Code, and to reimburse loans under Section 5849.14 of the Welfare and Institutions Code. SB 858 Page 3 6)Allows CHFFA to enter into any agreement for credit enhancement or liquidity, execute any instruments, and do any other acts it deems necessary, convenient, or desirable in connection with revenue bonds issued pursuant to this section. 7)Provides that this section is a complete, additional, and alternative method for performing acts authorized and shall be constructed as supplemental and additional to powers conferred by other laws; provided, however that the issuance of the bonds and refunding bonds and the execution of any agreements under this section are not subject to, and need not comply with, the requirements of any other law applicable to the issuance of those bonds or refunding bonds and the execution of those agreements, including, but not limited to the California Environmental Quality Act (CEQA). 8)States that the funding or financing under this section shall not exempt the permanent supportive housing from the requirements of any other law otherwise applicable to the permanent supportive housing, except as provided in Section 15463 (e)(1). 9)Includes new findings and declarations related to the Mental Health Services Act, including the following: a) HCD is the state entity with sufficient expertise to implement and oversee a grant or loan program for permanent supportive housing of the target population. b) CHFFA is authorized by law to issue bonds and to consult with the Mental Health Services Oversight and Accountability Commission and the State Department of SB 858 Page 4 Health Care Services (DHCS) concerning the implementation of a grant program for California counties. c) Use of bond funding will accelerate the availability of funding for the grant or loan program to provide permanent supportive housing for the target population as compared to relying on annual allocations from the Mental Health Services Fund and better allow counties to provide permanent supportive housing for homeless individuals living with mental illness. 10) Defines "authority" to mean CHFFA established pursuant to Part 7.2 (commencing with Section 15430) of Division 3 of Title 2 of the Government Code. 11) Defines "Commission" to mean the Mental Health Services Oversight and Accountability Commission established by Section 5845 of the Welfare and Institutions Code. 12) Amends the definition of "County" to include, but is not limited to, a city and county, and a city receiving funds pursuant to Section 5701.5. 13) Amends the definitions of "Program" to mean the process for awarding funds and distributing moneys to applicants established in Sections 5849.7, 5849.8, 5849.9 and the ongoing monitoring and enforcement of the applicants' activities pursuant to Section 5849.8, 5849.9, and 5849.11. 14) Provides that the authority may do the following: a) Consult with the commission and DHCS concerning the SB 858 Page 5 implementation of the NPLH Program, including review of the annual reports provided to the authority by the department pursuant to this section. b) Enter into one or more contracts with HCD for HCD to provide, and CHFFA to pay HCD for providing services described in Sections 5849.7, 5849.8, 5849.9, related to permanent supportive housing for the target population. Prior to entering into any contract pursuant to the paragraph, the executive director of CHFFA shall transmit to the Commission a copy of the contract in substantially final form. The contract shall be deemed approved by the commission unless it acts within 10 days to disapprove the contract. c) On or before June 15 and December 15 of each year, the authority shall certify to the Controller the amounts the authority is required to pay as provided in Section 5890 for the following six month period to the department pursuant to any service contact entered. 15) Provides that HCD may do the following: a) Enter into one or more contracts with CHFFA to provide services described in Sections 5849.7, 5849.8, 5849.9, related to permanent supportive housing for the target population. Payments received by HCD under any service contract authorizes by this paragraph shall be used, prior to any other allocation or distribution, to repay loans from CHFFA pursuant to Section 15463 of the Government Code. b) Enter into or more loan agreements with CHFFA as security for the repayment of the revenue bonds issued by SB 858 Page 6 CHFFA. HCD shall deposit the proceeds of these loans, excluding any refinancing loans to redeem, refund, or retire bonds, into the fund. HCD's obligation to make payments under these loan agreements shall be limited obligations payable solely from amounts received pursuant to its service contracts with CHFFA. c) May pledge or assign its right to receive all or a portion of the payments under the service contracts entered pursuant to paragraph (1) directly to CHFFA or its bond trustee, for the payment of principal, premiums, if any, and interest under any loan agreement authorized by paragraph (2). 16) Includes the following additional findings and declarations: a) The consideration to be paid by CHFFA to HCD for the services provided pursuant to the contracts authorized by paragraph (2) of subdivision (a) and paragraph (1) of subdivision (b) is fair and reasonable and in the public interest. b) The services contracts and payments made by CHFFA to HCD pursuant to a service contract authorized by paragraph (2) of subdivision (a) and paragraph (1) of subdivision (b) and the loan agreements and loan repayments made by HCD to CHFFA pursuant to a loan agreement authorized by paragraph (2) of subdivision (b) shall not constitute a debt or liability, or a pledge of the faith and credit, of the state or any political subdivision. 17) Requires the state to hereby covenant with the holders from time to time of any bonds issued by CHFFA pursuant to Section SB 858 Page 7 15463 of the Government Code that it will not alter, amend, or restrict the provisions of this section, subdivision (f) of Section 5890, or subdivision (b) of Section 5891 in any manner adverse to the interests of those bondholders so long as any of those bonds remain outstanding. CHFFA may include this covenant in the resolution, indenture or other documents governing the bonds. 18) Amends the NPLH Fund to be continuously appropriated to HCD, CHFFA, and the Treasurer, not just HCD. 19) Allows accounts and subaccounts to be created with the fund as needed. 20) Amends the language relating to the NPLH Fund, to state that any moneys from the receipt of the loan proceeds by HCD derived from the issuance of bonds by CHFFA under subdivision (b) of Section 15463 of the Government Code. 21) States that in order to finance permanent supportive housing the target population, HCD may enter into one or more contacts with CHFFA. States that HCD shall use its best efforts to provide or cause to be provided permanent supportive housing for the target population in consideration for service contract payments to be received from CHFFA. 22) Provides that for the measurement of dollar limit on amounts to be distributed by HCD shall be based on the principal amount of bonds issued by CHFFA and loaned to HCD, exclusive of any refunding bonds but including any net premium derived from the sale of the bonds, for deposit in the fund. 23) Provides that there is no dollar limit on the distribution SB 858 Page 8 of moneys in the fund derived from the sources described in paragraphs (2) and (3) of subdivision (b) of Section 5849.4. 24) Clarifies that the 8% set aside for small counties is for a competitive program. 25) Clarifies that HCD shall award funds in at least 4 rounds for the competitive program. 26) Clarifies that the first request for proposal shall be issued 180 days after the effective date of a final judgment, with no further opportunity for appeals, in any court proceeding affirming the validity of the contracts authorized by the authority and the department. 27) Requires HCD to monitor county compliance with applicable program regulations, loan agreements and regulatory agreements and any agreements related to the program that designate HCD as a third party beneficiary, and enforce those regulations and agreements to the extent necessary and desirable in order to provide to the greatest degree possible, the successful provision of permanent supportive housing. 28) Requires HCD to report annually to the authority the status of its efforts. 29) Allows HCD to provide technical assistance to counties or developers of supportive housing to facilitate the construction of permanent supportive housing for target populations. 30) Requires a county receiving funds to commit to provide SB 858 Page 9 mental health services and coordinate the provision of, or referral to, other services, including, but not limited to, substance abuse treatment services, to the tenants of the supportive housing development for at least 20 years. Services shall be provided onsite at the supportive housing development or at a location otherwise easily accessible to the tenants. 31) Changes from 60 days to150 days, after the effective date of a final judgment, whit no further opportunity for appeals, in any court proceeding affirming the validity of the contracts authorized by the authority and the department for the department to make the first allocation of moneys pursuant to this section. 32) Requires HCD to submit a report to CHFFA by December 31 of each year, commencing with the year after the first full year in which the program is in effect, that contains the information, for all counties participating in the program and the services that have been provided. 33) Repeals Section 5849.13 of the Welfare and Institution Code. 34) Requires that an action to determine the validity of any contract or loan authorized pursuant to Section 5849.35 or any bond authorized to be issued pursuant to Section 15463 of the Government Code, and any contracts related to those bonds, may be brought in accordance with Section 17700 of the Government Code. 35) Allows the Department of Finance (DOF) to authorize one or more loans from the General Fund to the NPLH fund for cash flow purposes. Increases from an aggregate amount not to SB 858 Page 10 exceed $1 million to an amount not to exceed $2 million, assuming the loans are for either of the following conditions: a) To allow HCD to begin program implementation activities, including but not limited to, drafting program guidelines and regulations. b) To all HCD, CHFFA, and the Treasurer to implement Section 5948.35 of this Welfare and Institutions Code and Section 15463 of the Government Code, including but not limited to, payment for financial advisory and legal services to prepare for, and in connections with, any validation action pursuant to Section 5849.13 of any other court action regarding this part or Section 15463 of the Government Code. 36) Creates the Supportive Housing Program Subaccount within the Mental Health Services Fund. All moneys in the subaccount are reserved and continuously appropriated, without regard to fiscal years, to the CHFFA to provide funds to meet its financial obligations pursuant to any service contracts entered into pursuant to Section 58849.35. 37) Requires the Controller, starting no later than the last day of each month, prior to any transfer, or expenditure from the fund for any other purpose for the following month, transfer from the Mental Health Services Fund to the Supportive Housing Program Subaccount an amount which has been certified by the CHFFA, but not to exceed an aggregate amount of $140 million per year. 38) Requires any shortfall to be carried over to the next month if in any month the amounts in the subaccount are insufficient to fully pay the amount certified by the CHFFA. SB 858 Page 11 39) Prohibits moneys in the Supporting Housing Subaccount to be loaned to the General Fund. 40) Exempts the Supportive Housing Program Subaccount created by subdivision (f) of Section 5890 or any moneys paid by CHFFA to HCD as a service fee pursuant to a service contract authorized by Section 5849.35. 41) Makes various technical amendments necessary to the implementation of the NPLH Program. 42) Makes findings and declarations that this act furthers the intent of the Mental Health Services Act, enacted by Proposition 63 at the November 2, 2004, statewide general election. 43) Provides a continuous appropriation related to the budget. EXISTING LAW: 1) Existing law includes the Mental Health Services Act (MHSA), an initiative enacted by the voters as Proposition 63, at the November 2, 2004, statewide general election, imposes a 1% tax on that portion of a taxpayer's taxable income that exceeds $1 million and requires that the revenue from the tax be deposited in the Mental Health Services Fund to fund various county mental health programs. 2) Existing law creates the NPLH Program, which requires SB 858 Page 12 the Department of Housing and Community Development to award $2 billion among counties to finance capital costs, including but not limited to, acquisition, design, construction, rehabilitation, or preservation, and to capitalize operating reserves, of permanent supportive housing for a target population. FISCAL EFFECT: Includes a continuous appropriation for the Supportive Housing Program Subaccount created in the Mental Health Services Fund. COMMENTS: 1)This trailer bill provides the bond financing language necessary to implement the No Place Like Home Program. 2)Under this program, up to $140 million is transferred from the first revenues into the Mental Health Services Act Fund to a subaccount for the CHFFA each year. 3)Through a services contract between CHFFA and HCD, CHFFA agrees to pay HCD up to $140 million annually for HCD to implement and administer grants or loans to counties for supportive housing. The services contract is a contingent obligation of CHFFA, which is an exception to the constitutional debt limit provision. Without the exception, the bond language would be subject to approval by the voters. 4)Under this proposal CHFFA issues bonds and loans the proceeds, not to exceed $2 billion to HCD. HCD deposits proceeds into the NPLH to fund grants or loans to counties for supportive housing, as administered by HCD. SB 858 Page 13 5)Under a loan agreement between CHFFA and HCD, CHFFA agrees to loan bond proceeds to HCD in exchange for HCD agreeing to assign its services payments received to CHFFA for use as debt service on the bonds. 6)Under the NPLH Program passed in June, there is a 5% cap on administrative costs. 7)With respect to the CEQA language included in WIC 5849.35(e) and GC 15463(e)(1), where the services contract and all the bond documents may be approved much earlier than when the counties may be ready to apply for grants or loans, the language clarifies that the approval of a service contract between HCD and CHFFA is not an "approval of a project triggering (and thereby violating) CEQA. The language does not exempt the housing projects from the CEQA process. Analysis Prepared by: Genevieve Morelos / BUDGET / (916) 319-2099 FN: 0004308