BILL ANALYSIS
AB 2293
Page 1
Date of Hearing: April 14, 2010
ASSEMBLY COMMITTEE ON HOUSING AND COMMUNITY DEVELOPMENT
Norma Torres, Chair
AB 2293 (Torres) - As Amended: April 5, 2010
SUBJECT : Multi-family Housing Program: bond proceeds:
construction loans
SUMMARY : Gives the Department of Housing & Community
Development (HCD) authority to contract with construction
lenders or reserve funds for awards for the Multifamily Housing
Program (MHP), Transit-Oriented Development Program (TOD), and
the Joe Serna, Jr. Farmworker Grant Program (Joe Serna).
Specifically, this bill :
1)Provides if HCD determines that it has sufficient funds to
meet commitments to projects that have relied upon an estoppel
certificate to start construction, HCD may do either of the
following:
a) Contract with a construction lender to make permanent
loan funds available for a project during the construction
period for a MHP, TOD, or Joe Serna project that has
received an award; and
b) Reserve or set-aside funds for a project as of the date
of the closing of the construction loan for a MHP, TOD, or
Joe Serna project that has received an award.
2)Requires if HCD contracts with a construction lender to
co-engage a construction inspector with the construction
lender or utilize the report or the construction inspector
engaged by the construction lender.
3)Requires HCD to develop a procedure for determining which
projects qualify to have funds escrowed.
4)Provides HCD may not offer this option to projects that
received awards after December 18, 2008 until determining that
there is enough bond funding for all projects of the same
class of tax-exempt or taxable bonds projects that received an
award prior to December 18, 2008.
5)Allows the HCD to charge a fee to cover the cost of performing
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the duties associated with the implementation of this Act.
6)Sunsets June 30, 2013.
EXISTING LAW:
The Housing and Emergency Trust Fund Act of 2002 and the Housing
and Emergency Trust Fund Act of 2006 provided $2.1 billion and
$2.85 billion for affordable housing programs respectively.
FISCAL EFFECT : Unknown
COMMENTS :
Background: In 2002, California voters approved Proposition 46,
the $2.1 billion Housing and Emergency Shelter Trust Fund Act.
Funds provided under Proposition 46 were mostly exhausted by the
end of 2006. In November 2006, California voters approved
Proposition 1C, the Housing and Emergency Trust Fund Act of
2006.
In December 2008, the Pooled Money Investment Board (PMIB) voted
to freeze all bond expenditures from the Pooled Money Investment
Account (PMIA). The decision was based on the lack of money
available in the PMIA and the state's inability to sell bonds.
Prior to the freeze, bond-approved housing programs relied upon
loans from the PMIA to fund projects while bonds were being
sold.
As a result of the bond freeze, HCD placed a temporary freeze on
releasing any Notice of Funding Availability (NOFA) for all bond
funded programs, including MHP, Infill, TOD, and CalHOME. At
the time of the bond freeze several programs had open NOFA's,
HCD made awards in those programs but awardees received a
conditional award, which informed them that their award was
subject to the success of future bond sales.
HCD received a total of $942 million from three bond sales, two
in early 2009 and one in late 2009. In March of 2010, HCD
received approximately $800 million in bond funds. There are
approximately $1.3 billion in pre-freeze awards and $714 million
in post-freeze awards that have not been funded. HCD announced
earlier this week, that they would be releasing NOFAs for
programs with remaining bond fund approval including MHP,
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Emergency Housing Assistance Program Capital Development
(EHAP-CD), Building Equity and Growth in Neighborhoods (BEGIN),
and Joe Serna.
The MHP, TOD, and Serna program provide permanent long-term
financing for affordable projects in the form of deferred
payment loans at low interest rates. Funding for these projects
is provided once the project is complete, to pay off the
construction loan, and provide enough permanent subsidies for
the project to make the units affordable. As a result of the
bond freeze, construction lenders have been unwilling to make
loans to affordable projects which are relying upon Proposition
46 or 1C bond funds as permanent financing. Lenders are
concerned that the state will not have sufficient bond funds at
the time the construction completes.
The State Treasurer's Office (STO) recently has created a
program to entice lenders into starting to lend again to
affordable housing projects that have Proposition 46 or 1C
commitments. The Housing Bond Private Placement Option Program
(Option Program) allows the STO to enter into an agreement with
a lender who agrees to provide a construction loan on a project
that received an award to purchase directly from the State a
general obligation bond in the amount of the HCD loan committed
to the project. The lender may exercise the option if and when
the project is complete but no funds are on hand to fund the HCD
loan. Early indications are that at least one bank is willing
to participate in this program. STO has authority to enter into
Option Agreements for $100 million for Proposition 46 and $250
million for Proposition 1C.
Purpose of this bill : Affordable housing projects are financed
through multiple layers of funding and investors. Projects that
are targeted at low-income residents can have state bond funds,
equity investors through the state and federal tax credit
programs, local funds from cities and counties and loans from
conventional lenders. When one funding source is called in to
question, the other sources may also be jeopardized.
AB 2293 provides several additional options for moving stalled
Proposition 46 and 1C projects forward that have not been able
to move because they have not been able to secure the needed
construction loan. The sponsor of this bill, Housing
California, surveyed their members and identified affordable
housing projects which could produce 849 housing units, 1,129
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construction jobs, and 441 permanent jobs if they could secure
construction loans and move forward.
This bill gives HCD several options to help move MHP, TOD and
Joe Serna projects forward. Under the provisions of the bill,
HCD could contract with private lenders to provide construction
loans to projects by making the permanent loan funds available
during the time of construction. The lender would monitor the
construction of the project as they normally would, but the
upfront bond funding would reduce the size of the private
construction loan.
During the construction process, lenders engage a construction
inspector to oversee the project; HCD would be required to
co-engage the inspector so that they are aware of the progress
of the project. The bill also gives HCD the option to reserve
funds for projects that meet an established procedure. The
procedure would need to consider whether or not the project is
realistically ready to start construction, HCD could at their
discretion develop a requirement that the project be ready to
start construction within a specified period of time before
reserving funds. HCD currently reserves funds for projects that
receive grants under the Infill Incentive Grant program to
insure that the funds will be available for draws throughout the
projects.
The two options described above would be offered to awardees in
the order which they received their awards, if projects were not
in a position to take advantage of one of these options at the
time the offer is made, HCD would move onto the next award.
Committee amendments:
In order to give HCD flexibility to determine the best criteria
for determining whether a project is eligible for reserving
funds based on its readiness, the committee may wish to consider
deleting the list of criteria included in the bill:
On page 2, on line 27 delete, "The procedure shall consider
the amount of time needed to close the funding, the
existence of local approvals for the project, and
commitments from other funding sources"
The option provided in the bill, are intended to be offered to
projects, only if HCD determines it has enough bond funds to
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fund pre-freeze awards. The bill includes language stating this
in two places; the committee may wish to consider the following
amendment to remove the redundancy:
On page 2, line 13, delete "If" and on page 2, delete lines
14-16.
REGISTERED SUPPORT / OPPOSITION :
Support
Housing California (sponsor)
Affordable Housing Associates, Berkeley
Cabrillo Economic Development Corporation, Ventura
Century Housing, Culver City
Community Economics, Inc., Oakland
Community Housing Improvement Systems and Planning Association,
Salinas
San Luis Obispo County Housing Trust Fund
South County Housing, Gilroy
Southern California Association of Non-Profit Housing
Opposition
None on file.
Analysis Prepared by : Lisa Engel / H. & C.D. / (916) 319-2085