BILL ANALYSIS
Senate Appropriations Committee Fiscal Summary
Senator Christine Kehoe, Chair
2293 (Torres)
Hearing Date: 08/09/2010 Amended: 06/22/2010
Consultant: Mark McKenzie Policy Vote: T&H 9-0
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BILL SUMMARY: AB 2293, an urgency measure, would require the
Department of Housing and Community Development (HCD) to offer
specified construction financing alternatives to project
sponsors receiving awards under bond-funded housing programs
until June 30, 2013. Specifically, when making awards to
sponsors under the Multifamily Housing Program (MHP), the Joe
Serna, Jr. Farmworker Housing Grant Program, and the
Transit-Oriented Development (TOD) Program, HCD would be
required to:
Contract with a construction lender to make permanent loan
funds available for a project during the construction period.
Escrow, reserve, or set aside permanent loan funds for the
project as of the date of closing of the construction loan.
This bill would also require HCD, within three months of the
enactment date, to establish and publish standards and
requirements online for implementing these options, including
application deadlines and prioritization criteria. HCD would be
prohibited from exercising these options for projects receiving
an award after December 18, 2008 until HCD has access to bond
funds to cover all projects within the same program that
received an award prior to that date
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Fiscal Impact (in thousands)
Major Provisions 2010-11 2011-12 2012-13 Fund
HCD startup costs $200 Bond*
Accelerated debt service unknown acceleration of debt
service General
payments to the extent HCD sells bonds
prior to construction, rather than upon
completion
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* Housing Rehabilitation Loan Fund, Transit-Oriented Development
Fund, and the Joe Serna, Jr. Farmworker Housing Grant Fund
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STAFF COMMENTS: This bill meets the criteria for referral to the
Suspense File.
Proposition 1C provides general obligation bond funds for
numerous housing programs administered by HCD, including the
MHP, Farmworker Housing, and TOD Programs, all of which provide
long-term financing of housing projects in the form of permanent
loans. Project sponsors typically obtain a short-term
construction loan from a private lender after receiving an award
notice, and pay off the construction loan when HCD releases bond
funds for the permanent loan once construction is complete.
Prior to 2008, construction lenders would loan funds to
developers based on the security of a developer receiving an
award of bond funds from HCD. Once the project was
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AB 2293 (Torres)
completed, HCD provided funds to the developer from the Pooled
Money Investment Account (PMIA), which was paid back upon the
sale of the general obligation bonds. The state's cash crisis,
the temporary inability of the state to sell bonds in a timely
manner, and the general tightening of credit markets worldwide
made construction lending more risky and many lenders refused to
make construction loans without assurances that permanent
financing would be available upon completion of construction.
This left developers unable to initiate construction, even with
an award promise from HCD in hand.
This bill is intended to mitigate the inability of developers to
access traditional construction loans by requiring HCD to make
permanent loan funds available during construction through a
contract with a private lender, or to set aside permanent loan
funds in an escrow account to secure a developer's construction
loan.
AB 2293 requires HCD to establish standards and criteria for
both of these programs within three months of the bill's
enactment. One-time costs to establish these programs would be
in the range of $200,000. HCD would assume increased risk as a
construction lender that does not occur in the current process
of providing permanent loan funds when construction is complete,
which would require more intensive underwriting standards.
Currently, HCD verifies compliance with contract requirements
when construction is complete at the closing of the permanent
loan, but under this bill, HCD would dedicate more staff time
when the construction loan is funded and throughout the
construction process to track progress and ensure the project
sponsor meets its obligations.
Since PMIA funds are no longer available to provide accessible
payments to bond program award recipients, HCD has changed the
model for funding projects. Rather than selling bonds after
loans are funded through the PMIA, HCD annually estimates the
amount and timing of funding needs, sells the bonds in
anticipation of these needs, and holds the cash until needed.
HCD currently has over $1 billion in bond funds on hand for
various housing bond fund programs for which it anticipates
allocating funds in the current year. AB 2293 would require HCD
to either use funds it currently has on hand, thereby displacing
funding for other projects, or sell additional bonds to provide
permanent loan funds for deposit into escrow accounts. To the
extent HCD is required to sell additional bonds during the
construction phase rather than upon completion of construction,
this bill could result in accelerated General Fund debt service
payments. Staff estimates that this could result in accelerated
payments of over $6 million per year if $100 million in bond
funds are sold two to three years sooner than they would
otherwise be sold. Some of this amount would be offset by
interest earned while the funds are deposited in escrow.
Staff notes that the author will offer amendments while the bill
is on the Suspense File to delete the provisions that would
require HCD to contract with a construction lender during the
construction period, and to cap the amounts that HCD would set
aside for escrow accounts at $100 million.