BILL ANALYSIS Ó
SENATE COMMITTEE ON GOVERNANCE AND FINANCE
Senator Robert M. Hertzberg, Chair
2015 - 2016 Regular
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|Bill No: |SB 879 |Hearing |5/11/16 |
| | |Date: | |
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|Author: |Beall |Tax Levy: |No |
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|Version: |5/5/16 |Fiscal: |Yes |
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|Consultant|Grinnell |
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Affordable Housing Bond Act of 2016
Enacts the Affordable Housing Bond Act of 2016, which places a
$3 billion bond on the November, 2016, ballot to fund affordable
housing.
Background
When public agencies issue bonds, they essentially borrow money
from investors, who provide cash in exchange for the agencies'
commitment to repay the principal amount of the bond plus
interest. Bonds are usually either revenue bonds, which repay
investors out of revenue generated from the project the agency
buys with bond proceeds, or general obligation bonds, which the
public agency pays out of general revenues and are guaranteed by
its full faith and credit.
Section One of Article XVI of the California Constitution and
the state's General Obligation Bond Law guide the issuance of
the state's general obligation debt. The Constitution allows
the Legislature to place general obligation bonds on the ballot
for specific purposes with a two-thirds vote of the Assembly and
Senate. Voters also can place bonds on the ballot by
initiative, as they have for parks, water projects, high-speed
rail, and stem cell research, among others. Either way, general
obligation bonds must be ratified by majority vote of the
state's electorate. Unlike local general obligation bonds,
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approval by the state's electorate doesn't automatically trigger
an increased tax to repay the bond. The Constitution commits
the state to repay investors from general revenues above all
other claims, except payments to public education, so general
obligation bond repayment is continuously appropriated, and
therefore not part of the annual Budget Act. California voters
approved $38.4 billion of general obligation bonds between 1974
and 1999, and approximately $103 billion since 2000.
Additionally, in 2014, the Legislature enacted and voters
approved Proposition 1, which authorized $7.1 billion in bonds
for water quality and supply infrastructure (AB 1471, Rendon,
2014).
Bond acts have standard provisions that authorize the Treasurer
to sell a specified amount of bonds, and generally include
several uniform provisions that:
Establish the state's obligation to repay them, and
pledge its full faith and credit to repayment,
Set forth issuance procedures, and link the bond act to
the state's General Obligation Bond Law,
Create a finance committee with specified membership,
chaired by the State Treasurer,
Charge the committee to determine whether it is
"necessary or desirable" to issue the bonds,
Add other mechanisms necessary for the Treasurer and the
Department of Finance to implement the bond act, including
allowing the board to request a loan from the Pooled Money
Investment Board to advance funds for bond-funded programs
prior to the bond sale, among others.
In bond acts, the Legislature generally:
Sets forth categories of projects eligible for bond
funds, such as library construction or school facility
modernization,
Chooses an administrative agency to award the funds,
such as the State Librarian or the State Allocation Board,
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Details the criteria to guide the administrative
agency's funding in each category,
Enacts enforcement and audit provisions, and
Provide for an election to approve the bond act.
Should the voters approve the bond act, the Legislature then
appropriates funds to the chosen agencies to fund projects
consistent with the criteria, generally as part of the Budget
Act, although sometimes funds are continuously appropriated.
The Department of Finance then surveys agencies to determine
need for bond funds based on a project's readiness, and then
asks the Treasurer to sell bonds in a specified amount. After
the bond sale, the Department of Finance determines which bond
acts and agencies receive bond proceeds.
In 2002, the Legislature enacted the Housing and Emergency
Shelter Trust Fund Act of 2002, which authorized $2.1 billion in
general obligation bonds for various affordable housing programs
(SB 1227, Burton). Voters approved the Act as Proposition 46 in
November, 2002. In 2006, the Legislature followed up with the
Housing and Emergency Shelter Trust Fund Act of 2006, which
authorized $2.85 billion in general obligation bonds for various
affordable housing programs (SB 1689, Perata). Voters
subsequently approved the measure as Proposition 1C in November,
2006. With these bond funds almost exhausted, and the demise of
redevelopment funding, the author wants the state to issue
general obligation bonds to fund affordable housing projects in
the state.
Proposed Law
Senate Bill 879 enacts the Affordable Housing Bond Act of 2016,
which places a $3 billion bond on the November, 2016, general
election ballot. The measure creates the Affordable Housing
Bond Act Trust Fund of 2016, and states the Legislature's intent
that all bond proceeds be deposited in the Fund. The bill
allocates funds from the Fund to the following accounts:
$1.5 billion to the multifamily housing account, to be
continuously appropriated to the Multifamily Housing
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Program to construct, rehabilitate, and preserve
traditional and rental housing for persons with incomes of
up to 60% of the area median income.
$600 million to the Transit-Oriented Development and
Infill Infrastructure Account, which the bill creates
within the Fund. The bill then allocates funds from the
Account in the following ways:
o $300 million to the Transit-Oriented
Development Implementation Fund pursuant to the
Transit-Oriented Development Implementation Program.
o $300 million to the Infill Infrastructure
Financing Account, which the bill creates within the
Account, for the Legislature to appropriate by statute
for infill incentive grants to assist in the new
construction or rehabilitation of infrastructure that
supports high-density affordable and mixed-income
housing in locations designated as infill.
$600 million to the Special Populations Housing Account,
which the bill creates within the Fund. The bill then
allocates funds from the Account in the following ways:
o $300 million continuously appropriated for
transfer to the Joe Serna, Jr. Farmworker Housing
Grant Fund.
o $300 million to the Local Housing Trust Fund
Matching Grant Program Account, which the bill
creates, for the Legislature to appropriate by statute
to provide matching grants to local public agencies
and nonprofit organizations that raise money for
affordable housing.
$300 million to the Home Ownership Development Account,
which the bill creates within the Fund, and continuously
appropriates to the CalHome Program to provide direct,
forgivable loans to assist development projects involving
multiple ownership units, including single-family
subdivisions, for self-help mortgage assistance programs,
and for manufactured homes.
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SB 879 also allows the Legislature to amend any of the above
allocations, or any of the laws guiding those programs, to
improve the efficiency and effectiveness of those programs.
SB 879 utilizes the same finance committee as Proposition 1C,
comprised of the State Treasurer as chair, the Director of
Finance; the Secretary of Business, Consumer Services, and
Housing, the Director of Housing and Community Development
(HCD); and the Executive Director of the California Housing
Finance Agency, or their designated representatives. The bill
charges the Committee with the same duties to authorize the
issuance and sale of SB 879's bonds. The measure also
incorporates standard provisions in general obligation bond law,
either explicitly or by reference, with some modifications.
The measure only takes effect if enacted by voters at the
November, 8, 2016, statewide general election, makes legislative
findings and declarations supporting its provisions, and
contains an urgency clause giving the measure immediate effect
if enacted.
State Revenue Impact
No estimate.
Comments
1. Purpose of the bill . According to the author, "California is
facing a housing crisis. California is home to 21 of the 30
most expensive rental housing markets in the country, which has
had a disproportionate impact on the middle class and the
working poor. A person earning minimum wage must work three
jobs on average to pay the rent for a two-bedroom unit.
Additionally, units affordable to low-income earners, if
available, are often in serious states of disrepair. California
also faces a housing shortage: 2.2 million extremely low-income
and very low-income renter households are competing for only
664,000 affordable rental homes. Further, California has seen a
reduction $1.5 billion of annual state investment dedicated to
housing in recent years. As demonstrated through Prop 1C and
the 92,000 units it created, SB 879 will have a real and lasting
impact on the housing shortage by providing $3 billion through a
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statewide housing general obligation bond to fund existing and
successful affordable housing programs in California. Further,
SB 879 will create jobs and provide local benefits through the
construction of affordable housing. The estimated one-year
impacts of building 100 rental apartments in a typical local
area include $11.7 million in local income, $2.2 million in
taxes and other revenue for local governments, and 161 local
jobs (1.62 jobs per apartment). The additional, annually
recurring impacts of building 100 rental apartments in a typical
local area include $2.6 million in local income, $503,000 in
taxes and other revenue for local governments, and 44 local jobs
(.44 jobs per apartment)."
2. Sixteen tons . Debt is an essential part of almost every
government, business, and personal balance sheet, as borrowers
seek funds from lenders in exchange for a future commitment to
repay them. However, evaluating the State's general obligation
debt is difficult; both the State Treasurer and the Legislative
Analyst's Office suggest there's no correct amount. Instead,
experts suggest that states should look at three criteria:
affordability, comparability, and optimality:<1>
California currently has $76 billion of general obligation and
$10.8 billion of lease revenue debt outstanding, which is
affordable. The Governor's 2016 Five-Year Infrastructure Plan
states that the General Fund spent $5.2 on debt service in
2014-15, which the plan estimates will grow to $5.6 billion by
2019-20, not including special funds. The Plan calculates the
Debt Service Ratio, or the ratio between debt service and
general fund revenues, as 4.69% in 2014-15, which falls slightly
to 4.3% in 2019-2020. These totals increase to $7.2 billion in
2014-15 and $8.5 billion in 2019-20 when non-General Fund debt
service is included, but the ratio doesn't change significantly,
as the Plan estimates General Fund revenues to grow, and assumes
no new general obligation bond authorizations. The State
Treasurer calculates a debt service ratio of 6.84% in 2014-15,
and 6.79% in 2015-16; the percentages differ because the
Treasurer does not reflect offsets of federal government
subsidies or transfers from special funds. While debt service
percentages are reasonable, every dollar spent on debt service
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<1> Robert Wassmer and Ronald Fisher "Debt Burdens of California
State and Local Governments: Past, Present and Future." As
requested and supported by the California Debt and Investment
Advisory Commission. July 2011.
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reduces the funding that is available for other priorities, and
debt service is one of the fastest growing state costs in recent
years, according to the Governor's Five-Year Infrastructure
Plan. The Plan proposes only $350 million in new general
obligation bonds.
California's comparability to other states is less favorable,
but improving. The State Treasurer's 2015 Debt Affordability
Report, issued last October, contains the following chart:
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|Debt Ratios Of 10 Most Populous States, Ranked By Ratio Of Debt |
|To Personal Income |
| |
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|-----------------+------------+---------+---------+------------|
| State | Moody's/ | Debt to |Debt per |Debt as a % |
| | S&P/ |personal |capita(b)| |
| | Fitch(a) |income(b)| | of state |
| | | | |GDP(b)(c) |
|-----------------+------------+---------+---------+------------|
|Texas |Aaa/AAA/AAA | 1.0% | $406 |.71% |
| | | | | |
|-----------------+------------+---------+---------+------------|
|North Carolina |Aaa/AAA/AAA | 1.9% | $739 | 1.56% |
| | | | | |
|-----------------+------------+---------+---------+------------|
|Michigan |Aa2/AA-/AA | 1.9% | $758 | 1.74% |
|-----------------+------------+---------+---------+------------|
|Florida |Aa1/AAA/AAA | 2.4% | $973 | 2.42% |
|-----------------+------------+---------+---------+------------|
|Pennsylvania |Aa3/AA-/AA- | 2.4% | $1,117 | 2.21% |
|-----------------+------------+---------+---------+------------|
|Ohio |Aa1/AA+/AA+ | 2.7% | $1,109 | 2.27% |
| | | | | |
|-----------------+------------+---------+---------+------------|
|Georgia |Aaa/AAA/AAA | 2.8% | $1,043 | 2.32% |
|-----------------+------------+---------+---------+------------|
|California | Aa3/AA-/A+ | 5.1% | $2,407 | 4.24% |
|-----------------+------------+---------+---------+------------|
|New York |Aa1/AA+/AA+ | 5.7% | $3,092 | 4.66% |
| | | | | |
|-----------------+------------+---------+---------+------------|
|Illinois | A3/A-/A- | 5.7% | $2,681 | 4.79% |
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|-----------------+------------+---------+---------+------------|
| | | | | |
|-----------------+------------+---------+---------+------------|
|Moody's Median | | 2.5% | $1,012 | 2.21% |
|All States | | | | |
|-----------------+------------+---------+---------+------------|
|Median For The | | 2.55% | $1,076 | 2.3% |
|10 Most Populous | | | | |
|States | | | | |
|-----------------+------------+---------+---------+------------|
| | | | | |
|(a) Moody's, | | | | |
|Standard & | | | | |
|Poor's, and | | | | |
|Fitch Ratings as | | | | |
|of September, | | | | |
|2015. | | | | |
| | | | | |
|(b) Figures as | | | | |
|reported by | | | | |
|Moody's in its | | | | |
|2015 State Debt | | | | |
|Medians Report | | | | |
|released June | | | | |
|2015. As of | | | | |
|calendar year | | | | |
|end 2013. | | | | |
| | | | | |
|(c) State GDP | | | | |
|numbers have a | | | | |
|one-year lag. | | | | |
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Determining optimality or whether government is investing in the
quantity and quality of public capital desired by residents, and
financing the appropriate share with debt, is more difficult.
LAO recommends that the Legislature consider the Five-Year
Infrastructure Plan as a starting point to developing a
coordinated approach to infrastructure funding, and establish a
committee to focus on statewide infrastructure. This question
is especially difficult for affordable housing, as a broad
consensus does not exist regarding the causes of the current
lack of affordable housing, and if subsidies are necessary, who
should pay for them, and in what form. Public funding exists in
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the form of tax-exempt mortgage revenue and general obligation
bonds, and Low-Income Housing Tax Credits, among others, while
some local agencies have also adopted policies that place the
obligation on market rate housing developers through exactions,
in-lieu fees, and inclusionary zoning policies.
3. The good news . Investors ultimately determine the interest
rate paid on a bond when they buy one. However, ratings issued
from the three major credit ratings agencies often inform
investors and the public regarding the state's creditworthiness,
and assess any investment risk from investing in California
general obligation bonds. These ratings change over time in
response to a state's fiscal situation and economy, among other
factors. In 2014, ratings agencies Standard and Poor's and
Moody's both raised its ratings on California bonds, and ratings
agency Fitch has increased the state's rating twice between 2012
and 2014. Agencies identified improving revenues and fiscal
discipline when making the upgrade. Additionally, California
sold $2.95 billion in general obligation bonds in March, about
which the Treasurer cited "extremely high demand" with "the
lowest borrowing costs on 30-year bonds in the last three
decades." The Treasurer added:
"The spread between the state's new general obligation
bonds and a widely used municipal bond market benchmark was
the most favorable since 2005, and these low yields allowed
the state to refinance $1.96 billion in
higher-interest-paying bonds, saving California taxpayers
$398.5 million over the remaining life of the bonds. Both
retail and institutional investors showed extremely strong
interest in the bond offerings. Retail investors placed
$1.3 billion in orders, the most retail orders in a single
offering since 2010. Overall demand was so positive that
the Treasurer's Office increased the amount of refunding
bonds by more than $500 million. Yields on the bonds
ranged from 2.17% for 10-year maturities to 3.05% for the
longest maturity, in 2045."
4. The bad news . California has a distinct problem: of the $135
billion that voters have authorized, more than $27 billion
hasn't been issued yet. The state hasn't issued several billion
in transportation and resources bonds and $9 billion in high
speed rail bonds, plus $7.5 billion from the recently enacted
water bond. While the state has made progress reducing the
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amount of unauthorized bonds in recent years, many bond-funded
projects have not yet received required approvals. The
Treasurer generally sells about $1 billion in new money bonds
twice per year, so even if the Legislature enacts and the voters
approve this measure, many of its purposes may have to wait
several years for funding as projects funded by previously
authorized bonds get up and running.
5. Program funding . SB 879 proposes new funding for several
existing programs, which are described below, along with new
funding proposed in this bill. These programs all received
funding under Prop 1C.
Multifamily Housing Program ($1.5 billion): the
Multifamily Housing Program assists the new construction,
rehabilitation, and preservation of permanent and
transitional rental housing for lower income households
through loans to local governments and non-profit
developers. Funds are for incomes up to 60% of area median
income.
Transit-Oriented Development Implementation Program
($300 million): under this program, low-interest loans are
available as gap financing for rental housing developments
that include affordable units, and as mortgage assistance
for homeownership developments. Grants to cities,
counties, and transit agencies are for the provision of the
infrastructure necessary for the development of higher
density uses within close proximity to a transit station
and loans for the planning and development of affordable
housing within one-quarter mile of a transit station.
Infill Infrastructure Financing Grants ($300 million):
this program assists in the new construction and
rehabilitation of infrastructure that supports higher
density affordable and mixed-income housing in locations
designated as infill, such as water and sewer extensions.
Joe Serna, Jr. Farmworker Housing Grant Program ($300
million): this program finances the new construction,
rehabilitation, and acquisition of owner-occupied and
rental units for agricultural workers, with a priority for
lower income households.
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Local Housing Trust Matching Grant Program ($300
million): this provides matching grants to local
governments and non-profits that raise money for affordable
housing.
CalHome ($300 million): this program provides grants to
local public agencies and nonprofit developers to assist
individual households through deferred-payment loans. The
funds would provide direct, forgivable loans to assist
development projects involving multiple ownership units,
including single-family subdivisions. This money would
also be available to self-help mortgage assistance programs
and manufactured homes.
6. Economic benefits . While infrastructure spending leads to
increased economic activity and employment, the author points to
two pieces of research that demonstrate specific benefits of
funding affordable housing. First, the National Association of
Home Builders (NAHB) estimates that construction 100 units of
multifamily housing has a one-time impact of $11.7 million in
local income, $2.2 million in taxes and other revenue for local
agencies, and 161 local jobs for the typical metropolitan area
or nonmetropolitan county. NAHB adds that recurring benefits
total $2.6 million in local income, $503,000 in local taxes and
other revenue, and 44 jobs. Second, the California Housing
Partnership Corporation (CHPC) estimates that a $400 million
investment in the Multifamily Housing Program would result in
5700 units that would house 11,400 people, creating 9.234
one-time and 2,508 recurring jobs. CHPC adds that additional
funding to MHP leverages federal funds, and because HCD has
several years of experience allocating funding, money could be
spent quickly.
7. Related legislation . Last year, the Legislature approved
two measure intended to increase the current supply of
affordable housing: SB 377 (Beall) allowed housing developers
awarded low-income housing tax credits to sell them to other
taxpayers, and AB 35 (Chiu) which increased annual allocations
of the credits by $300 million, among other changes. However,
the Governor vetoed both measures citing financial
uncertainties, and encouraging the Legislature to consider new
and expanded tax credits as part of the Budget. Responding the
Governor's veto, legislators have advanced two proposals for
consideration in budget deliberations:
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Senate Proposal: Senate pro Tempore De León and a
bipartisan group of Senators have proposed a $2 billion
bond for permanent supportive housing for the chronically
homeless who suffer from mental illness by reallocating
funding generated by the surtax on incomes over $1 million
imposed by the Mental Health Services Act.
Assembly Democratic Proposal: Assembly Speaker Rendon
and other Assembly Democrats have proposed allocating $1.3
billion in funds and tax credits for affordable housing and
homeless shelters.
8. Incoming ! On Tuesday, May 3rd, the Committee on
Transportation and Housing approved SB 879 by a vote of 9 to 1.
This Committee is hearing the measure as the Committee of second
reference.
9. Urgency . To enable a housing bond appearing on the
November, 2016, ballot, SB 879 contains an urgency clause
providing that its provisions take effect immediately upon
enactment.
Support and
Opposition (5/5/16)
Support : California Coalition for Rural Housing; California
Housing Consortium; California Housing Partnership Corporation;
Coachella Valley Housing Coalition; Community Economics; EAH
Housing; Eden Housing; First Community Housing; Food Empowerment
Project; Gubb and Barshay, LLP; Hello Housing; League of
California Cities; Mammoth Lakes Housing; MidPen Housing
Corporation; Non-Profit Housing Association of Northern
California; Resources for Community Development; Silicon Valley
Independent Living Center; Sonoma County Board of Supervisors;
TLCS, Inc.; Marian Wolfe, Housing Advisory Commissioner, City of
Berkeley.
Opposition : Howard Jarvis Taxpayers' Association
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