BILL ANALYSIS �
SB 450
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Date of Hearing: August 17, 2011
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Felipe Fuentes, Chair
SB 450 (Lowenthal) - As Amended: August 15, 2011
Policy Committee: Housing and
Community Development Vote: 7-0
Urgency: No State Mandated Local Program:
No Reimbursable:
SUMMARY
This bill enacts a series of new requirements governing
redevelopment agencies (RDA) and their administration of low and
moderate income housing programs. Specifically, this bill
1)Establishes new requirements for low and moderate income housing
fund (L&M fund expenditures), including establishing a cap on
administrative costs, defining administrative costs, revising
a definition of surplus funds and requiring that 75 % of L&M
fund expenditures directly assist the new construction,
acquisition, preservation or substantial rehabilitation of
housing for persons of extremely low, very low and low income.
2)Requires RDAs to transfer a specified proportion of the moneys
deposited in their L&M fund to the state for use by the
Department of Housing and Community Development (HCD) to
perform audits of RDA L&M funds.
3)Establishes a process for HCD to address major audit violations,
including referrals to the Attorney General.
4)Grants the Controller an enhanced role in reviewing RDA audits
and working to improve and correct audits, including the
authority to report to the Board of Accountancy independent
auditors whose actions are unprofessional or in violation of
law.
5)Establishes procedures and requirements for addressing and
remedying RDA violations regarding expenditures of L&M funds
and audits.
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FISCAL EFFECT
This bill will result in estimated costs of approximately
$540,000 to HCD for conducting audits, to be paid for by
transfers of L&M funds by RDAs. Additional estimated costs of
approximately $300,000 for the State Controller for carrying out
activities related to their enhanced role in overseeing audits
and auditors. There will be unknown, but likely minor costs for
the Department of Justice and the Board of Accountancy for
enforcement actions stemming from audits by HCD and audit
reviews by the Controller.
COMMENTS
1)Purpose of the bill : According to the author, while many
redevelopment agencies spend their L&M funds in a timely and
effective way that maximizes affordable housing production,
recent government and press reports have exposed a number of
agencies that spend L&M funds in inappropriate ways, including
excessive planning and administrations costs, underwriting
salaries of city staff and buying property that is never used
for affordable housing. Moreover, the author argues,
oversight of redevelopment agencies is lax as auditors hired
by the agencies themselves do not always check for or report
violations, statutes of limitations are unnecessarily short
and court remedies are weak. The author contends this bill
presents a comprehensive package of reforms relating to how
redevelopment agencies expend their housing funds and how the
state and others oversee agency compliance. The goal is to
enact clear requirements and establish robust oversight
mechanisms to ensure agencies use their L&M funds to produce
affordable housing.
2)Affordable housing . RDAs are required to use 20% of tax
increment generated in a project area into their L&M fund for
increasing, improving and preserving affordable housing. RDAs
capture approximately 12% of the state's property taxes for
their activities, which generates about $1 billion each year
for affordable housing.
3)Auditing. Existing law requires RDAs to contract with an
independent auditor each year to review the financial
statements of the agency. Independent auditors are required
to review the RDAs financial statements and identify major
audit violations. RDAs must inform the local legislative body
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of any major audit violations and correct them. The
Controller receives the audits and reviews them and has the
authority to forward a major audit violation to the Attorney
General. If it is not corrected, the Attorney General may take
action against the RDA including prohibiting it from expending
funds or incurring new debt. In past years, HCD had also
audited the L&M fund to ensure compliance; however, this
function, however, has been drastically reduced over the years
as a result of budget constraints .
4)General administration and planning . RDAs have relatively broad
authority to spend L&M funds on planning, administration and
project costs instead of the development of housing. The
general administrative and planning costs are employee
compensation, travel expenses, executive and management
salaries and consulting contracts for meeting the requirements
of creating, preserving and improving low and moderate income
housing. The program and project costs are for specific
project-related costs like monitoring of a specific housing
development project including project management, land leases,
loan agreements and similar affordable housing agreements,
redevelopment agency work on entitlements for eligible
affordable housing developments, loan processing and
servicing, inspection for new rehabilitation units,
construction monitoring and overseeing affordable housing
units.
5)Background . A recent report by the Senate Office of Oversight
and Outcomes (SOOO) looked at the housing expenditures from 12
redevelopment agencies, seven of which had showed consistently
high planning and administration expenditures and five chosen
at random. As a result of its studies, SOOO found there was
no control over spending of affordable housing funds. Agencies
had lax record keeping, unclear laws governed spending of
housing funds, impermissible spending had occurred and
unreliable audits were conducted. Press reports also have
documented cases where most of the affordable housing money
was spent on planning and administration rather than building
of units.
Analysis Prepared by : Roger Dunstan / APPR. / (916) 319-2081
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