Survey Of California Legislation Affecting Affordable Housing And Public Finance

10.23.13

News & Publications

The 2013 California legislative session ended on October 13th, with Governor Brown signing (and vetoing) a number of bills that will have a significant effect upon affordable housing finance and development. The following is a quick summary of the most meaningful legislative highlights. In a number of instances, what did not become law is as relevant as what did become law. Governor Brown hinted that some bills that were vetoed or did not advance might be worthy of reconsideration next year. This is particularly true for the efforts to revamp Infrastructure Financing Districts to make them more useful funding substitutes in lieu of redevelopment agencies. For further information, please contact our Affordable Housing Practice Group.

Funding and Inclusionary Housing Programs. A number of new housing funding proposals and developments were introduced in the legislature this year.

• Senate Bill 391, The California Home and Jobs Act of 2013, was the latest attempt by affordable housing advocates to create a renewable source of state financing for affordable housing. SB 391 made progress this year but was eventually slow-tracked and will be taken up again next year. SB 391 would have imposed a $75 transfer fee on certain real estate transactions to be used to fund approximately $300–700 million in affordable housing financing programs each year. This proposal, and its variations, was opposed in the past by realtor and builder coalitions. SB 391 passed the Senate this year and is being held in the Assembly where its future is uncertain, pitting powerful elements of the affordable housing community against equally powerful elements of the real estate lobby.

• Assembly Bill 1229 would have overturned court restrictions on inclusionary housing programs and expressly authorized municipalities to impose inclusionary housing mandates as a condition to development. AB 1229 was intended to overturn a California Supreme Court decision, Palmer v. City of Los Angeles, which struck down inclusionary housing requirements. After having passed the Assembly and Senate, in somewhat of a surprise move, the Governor vetoed AB 1229 citing his experience as Mayor of Oakland that inclusionary housing programs can have the perverse effect of interfering with the production of affordable housing.

• Assembly Bill 1299 provides grants for making broadband access available to affordable housing communities. AB 1299 passed the Assembly and Senate on party lines and was signed into law by the Governor on October 3, 2013, to be effective January 1, 2014. AB 1299 authorizes the Public Utilities Commission to appropriate $20 million from the Broadband Infrastructure Grant Account to fund grants for deployment of broadband services and the adoption of programs in publicly supported housing communities.

• Assembly Bill 639 was passed by the Assembly and Senate without opposition and was swiftly signed into law by the Governor. AB 639 establishes the Veterans Housing and Homeless Prevention Bond Act of 2014 to restructure $600 million of the $900 million in bonds approved by the voters for the CalVet Home Loan Program in 2008 and use them to fund the acquisition, construction, rehabilitation, and preservation of multifamily supportive housing, affordable transitional housing, affordable rental housing, and related facilities for veterans and their families. The move would leave CalVet with $530 million in bonds for its home loan program. The law tasks the California Department of Housing and Community Development (HCD), CalVet, and the California Housing Finance Agency with jointly administering the new funding program and restricts the use of bond proceeds to housing units designated for veterans and their families. Restructuring the bonds requires voter approval, which would be sought at the June 3, 2014, statewide election.

Tax Credits. Only one significant piece of tax credit legislation was produced this year.

• Assembly Bill 952 passed the Senate and Assembly unanimously and was signed into law by the Governor on October 12th. AB 952 allows for state low income housing tax credits to be used in projects located in Difficult to Develop Areas (DDAs) or Qualified Census Tracts (QCTs) if such projects also receive federal low income housing tax credits. The public policy rationale is that allowing state credits to be used in DDAs and QCTs would increase the equity that projects could generate from tax credits because those projects can already qualify for more federal tax credits than projects outside of a DDA or a QCT. AB 952 also allows for state credits to be used in projects that dedicate at least 50% of the units toward special needs populations. The public policy rationale is that projects serving special needs populations need greater subsidy in order to support rents at low or extremely low levels. Under existing federal law, projects can receive 30% more federal tax credits if they are located in a DDA or QCT. AB 952 allows projects to receive state tax credits of up to an additional 30% of a project's eligible basis. As an example, if a project qualifies for $10 million in eligible basis in a DDA or QCT, the project could get up to 130% of that basis in federal tax credits, which means the project sponsor would have $13 million in federal credits to sell to an investor. This bill would allow that project to get an additional 30% in state tax credits against the $10 million in eligible basis, which would create an additional $3 million in state tax credits.

Labor/Prevailing Wage. While the Governor is a notable supporter of labor, he took action this year against labor's interests in a manner that was beneficial to affordable housing. Most important:

• Assembly Bill 302 would have gutted a very valuable carve-out from prevailing wage requirements that has been used effectively by affordable housing developers over the years. AB 302 would have effectively eliminated an exception from prevailing wage requirements for "de minimis" amounts of public funds. AB 302 passed the Senate and Assembly on party lines but was vetoed by the Governor, who indicated in his veto message that the de minimis exception has been a useful exemption for developers and should be preserved. The Governor also indicated that in his view, and in keeping with a line of Department of Industrial Relations public works determination letters issued over the years, de minimis meant 2% of the cost of the project.

Redevelopment Agencies and Finance. Since the demise of redevelopment agencies several years ago, a number of legislative proposals have been put forward to roll back some of the impact of the loss of redevelopment dollars for affordable housing. Many of these proposals have focused on the expansion of Infrastructure Financing Districts (IFDs). Generally, the slew of IFD bills has not progressed due in part to the Governor's expressed reluctance to expand these financing options until the fallout from the demise of redevelopment agencies has settled. Several bills this session focused on these efforts:

• Senate Bill 341 passed the Senate and Assembly virtually unopposed and was signed by the Governor quickly. SB 341 replaces the current provisions relating to planning and administrative costs and income targeting with provisions that are designed to reflect the fact that redevelopment agency successors will have greatly diminished roles in the future. SB 341 makes a myriad of technical changes to surviving redevelopment law. These changes include, among others, allowing available funds to be used first for the purpose of monitoring and preserving the long-term affordability of units; and allowing housing successor agencies that have fulfilled outstanding housing replacement and production requirements to expend up to $250,000 per year for homeless prevention and assistance.

Other changes include applying income targeting requirements only to funds remaining after permitted expenditures monitoring and preserving long-term affordability and homeless prevention services, and requiring housing successors to spend all such remaining funds on the development of housing affordable to lower-income households (no more than 80% of area median income (AMI)), with at least 30% for rental housing for extremely low-income households (no more than 30% of AMI), and no more than 20% for households earning between 60-80% of AMI.

Additional changes include relaxing the current senior housing limitation, allowing no more than 50% of housing financed by the jurisdiction over a ten-year period to be limited to seniors; and allowing housing successors to transfer funds among themselves for the purpose of developing affordable units in transit priority projects, permanent supportive housing, farmworker housing, or special needs housing, subject to a number of conditions.

• Assembly Bill 564 would have prohibited the Department of Finance (DOF) from future modification or reversal of an action of approval by an oversight board for specified enforceable obligations of a successor agency once a finding of completion is issued. AB 564 passed the Assembly and Senate without any opposition and then was vetoed by the Governor on October 13, 2013. In his veto message, the Governor indicated again his desire to wind down redevelopment agencies according to his original plan in 2011 and indicated he would not hesitate to oppose efforts to limit DOF's great oversight concerning successor agencies.

• Assembly Bill 662 would have greatly expanded the utility of IFDs and made a number of technical corrections to the redevelopment agency successor laws that would have provided greater certainty as to successor agency actions on redevelopment activities. AB 662 passed the Assembly and Senate without any opposition and then was vetoed by the Governor on October 13, 2013. In his veto message, the Governor indicated that he supported much of AB 662 (seemingly including the IFD proposals) but was concerned about the impact of the bill's redevelopment provisions on the state's general fund. The Governor pledged to work with the legislature on fixing these issues, which may augur well for IFDs next year.

• Senate Bill 33 would have greatly expanded the utility of IFDs by eliminating the voter requirement for forming IFDs, and mirroring many of the features of redevelopment agencies. While SB 33 passed the Senate, it has been held up in the Assembly and placed on the inactive file.

• Senate Bill 628 would have allowed a city or county to create an IFD to implement a transit priority project without having to hold an election and would require the local entity to use 25% of the resulting revenues for affordable housing. While versions of SB 628 passed both the Senate and the Assembly, the bill was withdrawn.

• Assembly Bill 243, another of the many competing IFD bills, would have greatly expanded the flexibility and use of IFDs. While versions of AB 243 passed both the Senate and the Assembly, the bill has been placed on the inactive file.

• Assembly Bill 229, yet another of the IFD bills, passed both the Senate and the Assembly in different versions. AB 229 is substantially similar to the IFD provisions of AB 662 which was vetoed by the Governor for other reasons. The Governor intimated that he would look favorably upon a new bill with similar IFD provisions.

• Assembly Bill 523 would have authorized the HCD to rewrite "soft loans" in its portfolio in order to assist housing developers in meeting the "true debt" analysis for tax purposes. While AB 523 would have been a useful tool for affordable housing developers, it was held up in the Senate this year after having passed the Assembly.