BILL ANALYSIS
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|SENATE RULES COMMITTEE | SB 454|
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THIRD READING
Bill No: SB 454
Author: Lowenthal (D)
Amended: 12/17/09
Vote: 21
SENATE TRANSPORTATION & HOUSING COMMITTEE : 8-0, 1/12/10
AYES: Lowenthal, Huff, Ashburn, DeSaulnier, Kehoe,
Oropeza, Pavley, Simitian
SENATE APPROPRIATIONS COMMITTEE : 8-0, 1/19/10
AYES: Kehoe, Cox, Corbett, Denham, Leno, Liu, Price, Yee
NO VOTE RECORDED: Alquist, Walters, Wyland
SUBJECT : Preservation of existing affordable housing
SOURCE : California Coalition for Rural Housing
California Rural Legal Assistance Foundation
DIGEST : This bill deletes the sunset date on three
sections of law requiring the owners of affordable housing
to provide notice to tenants and governmental entities
before converting a property to market rate and giving a
limited priority to preservation purchasers in the event
the owner wishes to sell.
ANALYSIS : Since the 1960s, developers have constructed
approximately 425,000 units of affordable rental housing in
California with the assistance of federal, state, and local
subsidies that require owners to maintain rents at
affordable levels for specified periods of time. Examples
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of such subsidy programs include project-based Section 8,
Federal Housing Administration (FHA) mortgages, low-income
housing tax credits, the state's Multifamily Housing and
Farmworker Housing Grant Programs, and city and county
redevelopment funds. The affordability restrictions on
assisted units typically last 30 to 55 years, depending on
the program. Once affordability obligations expire, owners
may preserve the affordability of the units by renewing
assistance or by refinancing with new public subsidies, or
they may convert the development to market rate. Under
some federal programs, owners can also terminate
affordability restrictions early by prepaying the
underlying mortgage or opting out of the rental assistance
contract. According to the state-chartered California
Housing Partnership Corporation, California has already
lost more than 20,000 units of housing affordable to
low-income households to such market rate conversions, and
82,000 more units are considered "at risk" of conversion in
the next five years.
Notice requirements
Existing law requires that a property owner cannot convert
an affordable property to market rate without first
providing notice to tenants, local and state governments,
and potential preservation purchasers (i.e., those who may
wish to purchase the development in order to preserve the
affordability restrictions). The owner must provide a
first notice at least 12 months prior to conversion
informing recipients of the possibility that the
development will convert, that affordability restrictions
may be lost, whether other governmental assistance will be
available to tenants at the time of conversion, and that
the owner will provide more detailed information at least
six months prior to conversion. An owner may satisfy this
12-month notice requirement by providing recipients with a
federally-required notice.
At least six months prior to conversion, the owner must
then provide these same recipients with a second, more
detailed notice that includes:
1. The anticipated date of conversion.
2. The current rent and the anticipated rental rate for the
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first year after conversion.
3. A statement of the owner's intention to participate in
any replacement subsidy program.
4. Contact information for the local government, the
Department of Housing and Community Development (HCD),
and legal services organizations for tenants to obtain
more information about their rights.
In addition, the owner must provide HCD and the local
government with information on the number of affected
units, bedrooms, and tenants and on the ages and incomes of
these tenants.
Priority for preservation purchasers
During this one-year notice period, current law also
provides preservation purchasers with limited priority to
purchase the property if the owner is inclined to sell.
Prior to or concurrent with the delivery of the 12-month
notice described above, the owner must notify prospective
preservation purchasers who have contacted the owner
directly or who are on a list maintained by HCD of the
opportunity to submit a purchase offer. The owner is not
required to accept any offer but may only accept offers
from preservation purchasers for 180 days after the
purchase offer notice. If the owner rejects a purchase
offer during this time, the owner must give the
preservation purchaser who made the offer an opportunity to
match and preempt any offer from a non-preservation
purchaser accepted during the second 180 days after the
purchase offer notice. These requirements and priorities
also apply if an owner seeks to sell or otherwise dispose
of a property that is eligible for conversion in the next
five years.
In general, an owner is exempt from both the notice
requirements and priority purchase provisions if he/she or
a successor owner agrees to retain existing tenants and
extend the affordability of the units for at least 30
years.
Both the notice requirements and priority purchase
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provisions sunset on January 1, 2011.
This bill deletes the sunset date on, and thereby makes
permanent, these notice requirements and the priority
purchase provisions.
Comments
According to the author's office, California has a dire
shortage of affordable rental housing and faces the
prospect of losing much of its existing stock as current
affordability terms expire. Replacing lost affordable
housing is much more expensive than preserving the
affordability of existing units. By giving local
governments and affordable housing developers both time and
the opportunity to develop and execute a preservation
strategy when a particular property is eligible for
conversion, the current notice requirements and priority
purchase provisions are the centerpiece of the state's
preservation strategy. Equally important, the notice
requirement ensures that tenants are informed of how they
will be affected if the property does in fact convert to
market rate. These provisions have proven beneficial in
preserving existing affordable housing and have not raised
concerns among affordable housing owners. Eliminating the
sunset will ensure that the state, local governments, and
affordable housing developers will have both the
information and the opportunity to preserve current and
future projects when they become eligible to convert to
market-rate housing.
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: No
According to the Senate Appropriations Committee:
Fiscal Impact (in thousands)
Major Provisions 2010-11 2011-12
2012-13 Fund
HCD administration absorbable costs to
approve notice Special*
forms, and compile/maintain lists
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of
prospective preservation purchasers
* Various special funds associated with affordable
housing programs
SUPPORT : (Verified 1/21/10)
California Coalition for Rural Housing (co-source)
California Rural Legal Assistance Foundation (co-source)
California Housing Partnership Corporation
City of Los Angeles
Western Center on Law and Poverty
JJA:mw 1/25/10 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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