BILL ANALYSIS
SB 454
Page 1
Date of Hearing: August 4, 2010
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Felipe Fuentes, Chair
SB 454 (Lowenthal) - As Amended: May 27, 2010
Policy Committee: Local
GovernmentVote:9-0
Housing and Community Development 8-0
Urgency: No State Mandated Local Program:
No Reimbursable:
SUMMARY
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 makes related changes to the noticing
requirements. Specifically, the bill:
1)Repeals the January 1, 2011 sunset date on current-law
provisions that: (a) require affordable housing owners to
provide notice to tenants and governmental entities before
converting a property to market-rate apartments; (b) require
affordable housing owners to provide notice of a "bona fide
opportunity to submit an offer to purchase" to tenants, local
and state governments, and potential preservation purchasers
at least 12 months prior to conversion; and (c) provide an
exemption from noticing requirements if specified conditions
are contained in a regulatory agreement recorded against the
property.
2)Adds the requirement that the "bona fide opportunity to submit
an offer to purchase" notice indicate whether the owner: (a)
intends to maintain the current number of affordable units and
level of affordability; (b) has an interest in selling the
property; and (c) has executed a contract or agreement of at
least five years' duration with a public entity to continue or
replace subsidies to the property, and to maintain an equal or
greater number of units at an equal or deeper level of
affordability, and, if so, the length of the contract or
agreement.
SB 454
Page 2
3)Exempts from specified financial disclosure requirements
developments in which 25% or less of the units on the property
are subject to affordability restrictions or a rent or
mortgage subsidy contract.
FISCAL IMPACT
Minor and absorbable costs to the Department of Housing and
Community Development to approve notice forms and maintain lists
of prospective preservation purchasers (various special funds).
COMMENTS
1)Rationale . The bill is intended to preserve affordable housing
and mitigate the impact of conversions on tenants, by making
permanent and modestly expanding the current-law noticing
requirements. The author indicates that these noticing
requirements are the centerpiece of the state's affordable
housing preservation strategy, which is important given that
preserving existing affordable housing is much less expensive
than constructing new units. The notice requirement also
ensure that tenants are informed of how they will be affected
if the property does in fact convert to market rate.
2)Background. Since the 1960s, developers have constructed at
least 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. 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.
Existing law requires that a property owner cannot convert an
SB 454
Page 3
affordable property to market rate without first providing
notice to tenants, local and state governments, and potential
preservation purchasers (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, and a more detailed notice six
months prior to the conversion.
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. 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.
In general, an owner is exempt from both the notice
requirements and priority purchase provisions if he or she or
a successor owner agrees to retain existing tenants and extend
the affordability of the units for at least 30 years.
Analysis Prepared by : Brad Williams / APPR. / (916) 319-2081