BILL ANALYSIS
AB 2293
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Date of Hearing: May 12, 2010
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Felipe Fuentes, Chair
AB 2293 (Torres) - As Amended: April 20, 2010
Policy Committee: Housing and
Community Development Vote: 8 - 0
Urgency: No State Mandated Local Program:
No Reimbursable:
SUMMARY
This bill gives the Department of Housing and Community
Development (HCD) authority to contract with construction
lenders, or reserve funds for awards for certain programs.
Specifically, this bill:
1)Allows HCD to contract with a construction lender to make
permanent loan funds available for a project during the
construction period.
2)Allows HCD to reserve or set aside funds for a project in an
escrow account to be used as collateral for private
construction lenders willing to make construction loans.
3)Allows the alternate financing to be used for the following
programs:
a) The Multifamily Housing Program (MHP).
b) Transit-Oriented Development Program (TOD)
c) Joe Serna, Jr. Farmworker Grant Program (Serna)
FISCAL EFFECT
1)Up-front GF administrative costs of up to $100,000 for HCD to
create the bid process and work with interested lenders on the
construction loan option created by this bill. Ongoing costs
would likely be absorbable within existing HCD resources.
2)Up-front administrative costs of up to $50,000 for HCD to
develop the escrow program. On-going costs would likely be
absorbable within existing resources.
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3)Costs for the State Controller's Office to manage the escrow
accounts would be minor and absorbable within existing
resources.
COMMENTS
1)Rationale . According to the author, when the Pooled Money
Investment Board froze Propositions 46 and 1C bond funds in
2008 it drove construction lenders away from the lending
market for developments funded by those bond funds. This bill
is intended to create two new vehicles for providing these
bond funds to developers. The bill allows HCD to contract
directly with private lenders to make construction loans using
the bond money. Alternatively, the bill allows HCD to place
bond proceeds in an escrow account to be used as collateral
for construction loans.
The sponsors, Housing California, note that prior to the
freeze, lenders made construction loans trusting the state
would keep its commitment to pay off the loans with permanent
"take out" financing. When the state stopped selling bonds in
an effort to conserve the state's cash, lenders lost
confidence that permanent financing would be available.
Despite the freeze being lifted, lenders appear to be
reluctant to return to the market.
2)HCD Program Financing . 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.
3)Key Issue . This bill would require General Obligation (GO)
bonds to be issued and held in escrow while an affordable
housing project is being constructed. GO Bonds would be
issued prior to construction starting, two or three years in
advance of the construction loan coming due. That money would
be tied to a specific construction project and the state would
be paying debt service during the construction period which
may be problematic on several levels. First, because this
money will sit in escrow for a specific project, the bond
proceeds cannot be used in the interim for any other
short-term purpose (i.e. paying off prior loan or getting
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another project up and running.) Second, the state will pay
debt service while the money is sitting idle in an escrow
account. The escrow account would earn interest but the rate
of return on the Pooled Money Investment Account (0.588% as of
April 2010) is less than what the state would pay in debt
service.
Analysis Prepared by : Julie Salley-Gray / APPR. / (916)
319-2081