BILL ANALYSIS
AB 2293
Page 1
ASSEMBLY THIRD READING
AB 2293 (Torres)
As Amended May 28, 2010
2/3 vote. Urgency
HOUSING 8-0 APPROPRIATIONS 17-0
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|Ayes:|Torres, Arambula, |Ayes:|Fuentes, Conway, Ammiano, |
| |Bradford, Eng, Gilmore, | |Bradford, Charles |
| |Knight, Saldana, Tran | |Calderon, Coto, Davis, |
| | | |Monning, Ruskin, Harkey, |
| | | |Miller, Nielsen, Norby, |
| | | |Skinner, Solorio, |
| | | |Torlakson, Torrico |
| | | | |
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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)Allows HCD to 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
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received awards after December 18, 2008, until determining
that there are enough bond funds available 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 HCD to charge a fee to cover the cost of performing the
duties associated with the implementation of this Act.
6)Sunsets the provisions of the bill on June 30, 2013.
7)Adds an urgency clause allowing this bill to take effect
immediately upon enactment.
FISCAL EFFECT : Up-front 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. 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. Costs for the State
Controller's Office to manage the escrow accounts would be minor
and absorbable within existing resources.
COMMENTS : 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
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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
recently, that they would be releasing NOFAs for programs with
remaining bond fund approval including MHP, 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 created a program to
entice lenders into lending 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.
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.
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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
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 in which they received their awards, if projects are
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.
Analysis Prepared by : Lisa Engel / H. & C.D. / (916) 319-2085
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