BILL ANALYSIS �
AB 1699
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Date of Hearing: April 11, 2012
ASSEMBLY COMMITTEE ON HOUSING AND COMMUNITY DEVELOPMENT
Norma Torres, Chair
AB 1699 (Torres) - As Introduced: February 15, 2012
SUBJECT : Affordable housing
SUMMARY : Allows the Department of Housing and Community
Development (HCD) to establish guidelines to allow for the
refinancing or restructuring of loans made through the Rental
Housing Construction Program (RHCP), Deferred Payment
Rehabilitation Loan Program (DPRLP), California Housing
Rehabilitation Program (CHRP), and the Family Housing
Demonstration Program (FHDP). Specifically, this bill :
1)Includes legislative findings and declarations.
2)Allows HCD to approve an extension or subordination of a loan
or an investment of tax credit equity for affordable housing
developments financed through RHCP, DPRLP, CHRP, and FHDP.
3)Allows HCD to adopt new guidelines developed through a process
that includes public input not subject to the review of the
Office of Administrative Law.
4)Provides that HCD may extend the term of an existing rental
housing development loan with the following conditions:
a) The development is being operated consistent with the
regulatory agreement;
b) The development requires an extension in order to
continue to operate; and
c) The interest rate of the new loan is three percent.
1)Provides that the extension of terms for an existing rental
housing development loan must be for a period of not less than
10 year and the total term shall not exceed 55 years or not
more than 58 years if necessary to match tax credit
restrictions.
2)Provides that for developments financed through RHCP the rent
for low-income units may be increased up to a maximum of 30%
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of 60% of area median income (AMI) and for very-low income
units up to a maximum of 30% of 35% of AMI.
3)Provides that for developments financed under DPRLP, CHRP, and
FHDP rents may be increased as follows:
a)In counties with an AMI of 110% or less of state AMI rents for
at least 35% of assisted units must be restricted to no more
than 30% of 30% of state median income; and
b)In counties with an AMI of more than 110% of state AMI rents
for at least 35% of assisted units shall be restricted to no
more than 30% of 35% of state median income and rents for the
balance of assisted units may be increased to up to a maximum
of 30% of 60% of area median income.
1)Provides that for existing tenants in a development financed
by any program, rents may be increased as follows:
a) For existing tenants with incomes that are not more than
35% of AMI, increases must be limited to 5% per year until
the rents reach the levels described above;
b) For existing tenants with incomes more than 35% of AMI,
increases are limited to 10% per year until they reach the
rent levels described above; and
c) For existing tenants who move, rents may be increased
immediately to the rent levels described above.
1)Provides that once rents reach their new ultimate level, any
future increase will be in response to increases in the AMI.
2)Provides that when a tenant vacates a unit, the new tenants
income level must correspond to the new income limits
described above.
3)Provides that when a development is refinanced or
restructured, the income levels and rent limits will be
calculated consistent with the methodology used for the
Low-Income Housing Tax Credit Program and the Multifamily
Housing Program.
4)Provides that when a loan is extended or subordinated or when
a new tax credit investment occurs, the regulatory agreement
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must include provisions that do the following:
a) Include standards for tenant selection to ensure
eligible households;
b) Restrict rents for assisted units;
c) Provide for periodic inspection, occupancy, and
financial reports and financial audits of the development;
d) Govern the use of operating income and reserves for the
development; and
e) Have a term that is not less than the term of the loan,
including extensions.
1)Provides that a new or amended regulatory agreement is binding
on the development's owner and successor regardless of
pre-payment of the loan.
2)Requires the new or amended regulatory agreement to be
recorded in the county recorder's office in which the
development is located.
EXISTING LAW :
Allows HCD, when requested by a borrower, to extend the terms of
existing loans made under the Rental Housing Construction
Program (RHCP), Special User Housing Rehabilitation Program
(SUHRP), and Deferred Payment Rehabilitation Loan Program
(DPRLP) programs (Heath & Safety Code Section 50515.2).
FISCAL EFFECT : Unknown
COMMENTS :
The Department of Housing and Community Development (HCD) has
financed a variety of affordable multi-family housing projects
under different state-funded programs. From 1980 to 1995, HCD
operated multiple programs that provided low-interest loans for
affordable multifamily housing including: the Rental Housing
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Construction Program-Bond, Family Housing Demonstration Program,
and California Hosing Rehab Program-Rental. The programs
provided three percent interest rate, deferred payment loans for
rehabilitation or new construction of housing for low-income
families, single room occupancy hotels, and other special needs
populations. Many of these housing developments are 20 to 30
years old and are in need of capital improvements. The terms of
the loan agreements do not give HCD authority to renegotiate the
financing of these projects to allow for additional debt to fund
needed improvements to make these projects viable in the long
term. This bill gives HCD authority to extend the terms of an
existing rental housing development loan and the period of
repayment for as long as the housing is being operated in a
manner consistent with the regulatory agreement and the
development requires the extension in order to continue to
operate.
HCD's current program to finance affordable rental housing is
the Multifamily Housing Program (MHP). Created in 1999, this
program is the department's omnibus rental housing program, able
to finance different types of rental housing for various
populations under a uniform structure. This program funds the
new construction, rehabilitation, and preservation of affordable
rental housing through loans to local governments, non-profit
developers, and for-profit developers. Affordable units are
those affordable to households earning no more than 60% of the
area (county) median income (AMI), but HCD gives heavy priority
to projects that serve households at even lower income levels.
Loans are for a term of 55 years at a rate of three percent
simple interest. All payments are deferred except for a
standard annual interest payment (currently .42%) to cover HCD's
ongoing monitoring and management duties.
In 2007, SB 707 (Ducheny), Chapter 658, gave HCD authority to
refinance loans made under several programs originated in the
1970s and 1980s, the Rental Housing Construction Program,
Special User Housing Rehabilitation Program and Deferred Payment
Rehabilitation Loan Program. HCD restructured these older loans
to conform to the MHP guidelines. SB 707 gave parameters for
the refinance and restructuring of loans and allowed HCD to
adopt the new provisions through guidelines rather than
regulations. This bill would give HCD authority to do the same
for a different set of loan programs.
AB 1699 gives HCD the authority to extend and modernize the
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loans in its older portfolio through conversion to MHP. As
noted above, many of these loans were awarded in the late 1990s
and are coming close to their term. Once the loan is paid off,
the regulatory agreement which requires the units to remain
affordable is extinguished. Many affordable housing providers
would like to keep their projects affordable but need to take on
additional debt financed with a low interest rate. By extending
the loans on those projects this bill could preserve numerous
affordable housing units currently in existence.
Tenants rents : The addition of new debt or restructuring of
existing debt will require rents to be increased. This bill
specifies the extent to which rents can be increased in order to
cover the additional debt and keep the units affordable for
low-income tenants. The original rent for these programs was
capped at either 35% or 60% of AMI. AB 1699 allows rents to be
increased but still remain affordable. The bill does not
specify the type of notice that tenants must receive prior to
rent increases. This issue should be addressed to ensure that
tenants have adequate notice of rent increases.
Regulations versus guidelines : AB 1699 allows HCD to implement
a restructuring and refinancing program for older loans through
guidelines rather than through the regulatory process. The bill
requires that the guidelines be developed through a process that
allows for public input prior to adoption. The regulatory
process can be expensive and long; however some stakeholders
have expressed a desire that the regulatory process be used to
insure adequate public input.
Committee amendments :
Delete Section 2 of the bill.
REGISTERED SUPPORT / OPPOSITION :
Support
Non-Profit Housing Association of Northern California
Opposition
None on file.
AB 1699
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Analysis Prepared by : Lisa Engel / H. & C.D. / (916) 319-2085