Existing law authorizes local agencies, upon making specified findings, to provide low-interest loans to owners of buildings within their jurisdiction for the purpose of making seismic safety upgrades to eligible buildings, as defined, in order to meet current earthquake safety codes. Existing law authorizes these local entities to issue bonds in order to finance these loans which are secured by a lien on the subject property.

This bill would establish the Safe and Livable Housing Revolving Loan Fund, in the State Treasury, as specified. Moneys in the fund would be available, upon appropriation by the Legislature, to the California Housing Financial Agency to distribute appropriate the sum of $20,000,000 from the General Fund to the Department of Housing and Community Development to provide financing to local agencies for the purpose of funding low-interest loans made by those agencies to building owners, who meet specified eligibility requirements, in order to rehabilitate eligible buildings, as defined, and bring them up to current building standards for occupancy. The bill would provide that financing under this program, along with other liens on the subject property, could not exceed 80% of the appraised value of the property. The bill would make findings and declarations in support of these provisions.

The Planning and Zoning Law, among other things, requires the legislative body of each county and city to adopt a general plan for the physical development of the county or city and authorizes the adoption and administration of zoning laws, ordinances, rules, and regulations by counties and cities. The State Housing Law regulates buildings used for human habitation and requires specified local agencies to enforce building standards.

This bill would state the intent of the Legislature to enact legislation that would establish a financing mechanism to provide property owners with financial assistance to upgrade properties to meet habitability standards consistent with building standards and zoning laws.

SENATE COMMITTEE ON APPROPRIATIONS

Senator Ricardo Lara, Chair

2017 - 2018 Regular Session

SB 305 (Skinner) - Housing: code compliance: low-interest loans

This bill meets the criteria for referral to the Suspense File.

Bill Summary:

SB 305 would appropriate $20 million from the General Fund to the Department of Housing and Community Development (HCD) to provide financing to local agencies to make low-interest loans for funding improvements to unsafe multifamily residential or live-work buildings, as specified.

Fiscal Impact:

• One-time $20 million General Fund appropriation in 2017-18.
  
• Unknown HCD costs to establish and administer a new financing program, likely in the mid-hundreds of thousands annually. (General Fund).

Background:

Existing law, the Seismic Safety Rehabilitation Loan Act, authorizes a local agency to issue bonds for financing loans to owners of certain unsafe buildings to make eligible improvements that would bring those structures into compliance with seismic safety standards or regulations. The loans are secured by a lien on the property and loan repayments pay off the bonds. Financing provided by a local agency, when combined with existing liens on the property, must not exceed 80 percent of the appraised value of the property.

Existing law establishes the California Building Standards Commission (BSC) and the process for adopting state building codes. The BSC updates and publishes the California Building Standards Code every three years, which serves as the basis for the design and construction of buildings in California. Existing law authorizes local governments to amend the state building standards to allow for more restrictive requirements that are reasonably necessary because of local climatic, geological, or topographical conditions.

Existing law requires a building to be declared substandard if certain conditions in a building containing dwelling units result in a danger to the health and safety of building occupants or the public. Among these conditions are: the lack of a proper water closet, lavatory, bathtub, shower, or ventilating equipment; lack of adequate heating, or hot or cold running water; general dilapidation or improper maintenance; dampness of habitable rooms; and infestation of insects, rodents, or vermin.

Existing law establishes a number of housing finance programs that are administered by HCD, including the Multifamily Housing Program (MHP) and the CalHome Program. The MHP funds new construction, rehabilitation, and preservation of permanent and transitional rental homes for lower-income households through loans to local governments, and both non-profit and for-profit developers. The CalHome Program provides grant and loan funding for downpayment assistance, home rehabilitation, counseling, self-help mortgage assistance programs, and technical assistance for self-help and shared housing. Both of these programs have been primarily funded through voter-approved general obligation bonds, and these funding sources have been exhausted.

Proposed Law:

SB 305 would appropriate $20 million from the General Fund to HCD to provide financing to local agencies to make low-interest loans to owners of eligible buildings for specified expenditures that would bring that building into compliance with state and local building codes if the local agency makes one of the following findings:

• The building owner is unable to qualify for, or cannot afford, financing from private lenders.
• Absent the availability of the loan, the building would pose a health and safety risk to occupants.
• Absent the availability of the loan, the costs of modifying the building to meet reconstruction standards would cause severe economic hardship to the businesses in the building.
  

The bill prohibits the loan, when combined with existing liens on the property, from exceeding 80 percent of the current appraised value, unless the existing lienholders consent in writing to a higher loan-to-value ratio. The local agency would be required to provide a notice to existing lienholders of the intention to provide financing to the building owner at least 30 days prior to any local agency vote to provide the loan.

The bill authorizes financing for improvements to a multifamily or live-work building identified as a hazard to resident safety due to noncompliance with state and local building code, including seismic and fire codes. Eligible expenditures would include costs of design, preparation, and inspections for making structural or other modifications that are required to meet state and local building code reconstruction standards, including costs to provide for the safety of the building’s exterior and interior, and of fixtures and appurtenances.

Staff Comments:

This structure of this bill is modeled after provisions in the existing Seismic Safety Rehabilitation Law, which authorizes local agencies to provide loans to owners of seismically unsafe buildings to make eligible improvements that would bring those buildings into compliance with seismic safety standards. One key distinction, however, is that this bill is funded through a one-time General Fund appropriation, while the existing seismic safety program is funded locally through the issuance of revenue bonds secured by a lien on the property. Under the existing program, the building owners’ loan payments are used for bond debt service. Staff notes that the bill does not specify a use for the payments that building owners make to local agencies. The Committee may wish to determine whether the funds should be returned to HCD or retained locally for additional building improvement loans.

Staff notes that eligible expenditures under the existing MHP include the provision of loans to local agencies for rehabilitation of dwelling units, which appears to be aligned with the intent of this bill. There are currently no funds available for MHP allocations. The Committee may wish to consider whether it would be more efficient to provide funding for an existing program, rather than setting up a new program with one-time funding.

Staff assumes that HCD would adopt regulations for the administration of the financing program, including guidance on how to distribute the funds to local agencies, determining borrower eligibility criteria, procedures and actions to be taken in the event of a default, and oversight and monitoring requirements.

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SENATE COMMITTEE ON TRANSPORTATION AND HOUSING

Senator Jim Beall, Chair

2017 - 2018 Regular

Bill No: SB 305 Hearing Date: 4/25/2017

SUBJECT: .

DIGEST: This bill establishes the “Safe and Livable Housing Revolving Loan Fund” (Fund). Money shall be appropriated in the annual budget and available to the California Housing Finance Agency (CalHFA) to provide financing to local agencies to make low-interest loans to owners of eligible properties that are not in compliance with state and local building codes.

ANALYSIS:

Existing law:

1. Establishes the California Building Standards Commission (CBSC) within the Department of General Services, and requires any building standards adopted or proposed by state agencies to be submitted to, and approved by, the CBSC prior to codification into the California Building Standards Code.
2. Requires the CSBC to adopt, approve, codify, and publish building standards providing the minimum standards for the design and construction of state buildings, including buildings constructed by the Trustees of the California State University and, to the extent permitted by law, to buildings designed and constructed by the Regents of the University of California.
3. Requires the State Fire Marshal to develop building standards to implement the state’s fire and life safety policy, and transfers any responsibilities of the State Fire Marshal to adopt building standards through a formal rulemaking process to the CBSC.
4. Requires, under the State Housing Law, lists various conditions that, if they exist in a building containing dwelling units to an extent that there is a danger to health and safety to the public or occupants of the building, require the building be declared substandard. This includes, among other things, lack of, or improper water closet, lavatory, or bathtub or shower, kitchen sink, or ventilating equipment; lack of adequate heating or hot and cold running water; general dilapidation or improper maintenance; dampness of habitable rooms; and infestation of insects, vermin, or rodents.
5. Authorizes CalHFA to make loans to housing sponsors for housing developments and to qualified mortgage lenders, among others.
6. Establishes several housing financing programs in the Department of Housing and Community Development (HCD), including:
7. Multifamily Housing Program, which funds the new construction, rehabilitation, and preservation of permanent and transitional rental homes for lower income households through loans to local governments, non-profit developers, and for-profit developers.
8. CalHome Program, which funds downpayment assistance, home rehabilitation, counseling, self-help mortgage assistance programs and technical assistance for self-help and shared housing through grants and loans.

This bill:

1. Establishes the “Safe and Livable Housing Revolving Loan Fund” (Fund). Money shall be appropriated in the annual budget and available to the California Housing Finance Agency (CalHFA) to provide financing to local agencies to make low-interest loans to owners of eligible buildings to pay for eligible costs if a locality makes one of the following findings:
   1. The owner, to whom financing would be available, is unable to qualify for or could not afford financing for eligible costs from private lending institutions.
   2. Absent the availability of funding from this bill, the eligible building would pose a health and safety risk to its occupants.
   3. Absent the availability of funding from this bill, the costs of modifying the eligible building to meet reconstruction standards would cause severe and economic hardship to the business in the building.
2. Defines “eligible costs” as all costs, including costs of design, preparation, and inspection incurred in making structural or other modifications to an eligible building, which are required to meet reconstruction standards established by state or local building code, and including costs necessary to provide for the reasonable safety of the exterior and interior of the eligible building and of interior fixtures and appurtenances.
3. Defines “eligible building” as a multifamily residential or live-work building existing on effective date of this section that is identified as a hazard to the safety of its residents due to noncompliance with state and local building code, including but not limited to:
   1. Buildings that fail to meet seismic code.
   2. Buildings that fail to meet fire code.

4) Prohibits financing, when combined with existing liens on the property, exceed 80% of the current appraised value of the property, as determined by an independent and certified appraiser, unless existing lienholders consent in writing to a higher loan-to-value ratio. Notice of the intention to provide financing to the owner of the property shall be given to existing lienholders of record not less than 30 days prior to any vote of the local agency authorizing the provision of financing to the owner of the property.

COMMENTS:

1. Purpose of the bill. According to the author, “in 2016, an Oakland warehouse, known as Ghost Ship caught fire killing 36 individuals. This illegal dwelling unit was home to roughly 20 to 25 of Oakland’s local artists. The impacts of the Ghost Ship fire tragedy revealed the true severity of California’s housing crisis. With the state’s poverty rate at 19.4%, there is simply not enough housing to accommodate our residents. Individuals cannot match California’s high cost of living, and reside in warehouses or live-work spaces that are not up to basic health and safety code and residential use. These illegal units lack basic living standards like electricity and plumbing, while owners do not have the money to restore existing properties. Tenants’ live in a constant fear of eviction from illegal warehouse units and live-work spaces. While property owners struggle with allowing residents either continue to live illegally or kick them out onto the streets.”
2. California Building Standards Commission (CBSC) Background. The California Building Standards Law established the CBSC and the process for adopting state building codes. Under this process, relevant state agencies propose amendments to model building codes, which the CBSC must then adopt, modify, or reject. For example, the Division of the State Architect is responsible for public schools, community colleges, and accessibility in public accommodations and public housing. The Office of the State Fire Marshal is responsible for life and life safety for hotels, apartments, dwellings, and assembly and high-rise buildings. HCD is the relevant state agency for residential building codes, and the Office of Statewide Health Planning and Development is the relevant state agency for hospitals and clinics. Not all buildings fall under the jurisdiction of a relevant state agency. Most commercial, industrial, and manufacturing structures are considered “local buildings,” over which local governments may determine applicable building standards. The CBSC is responsible for developing building standards for state-owned buildings, including university and state college buildings, and for developing green building standards for most buildings except for housing, public schools, and hospitals.

Every three years, the CBSC adopts a new version of the CBC, known as the triennial update. The building codes apply to all building occupancies and related features and equipment throughout the state. The CBSC also sets requirements for structural, mechanical, electrical, and plumbing systems, and requires measures for energy conservation, green design, construction and maintenance, fire and life safety, and accessibility.

While the CBSC is responsible for developing standards for state buildings and local jurisdictions are responsible for developing standards for commercial structures, commercial builders often look to the CBC for further guidance, particularly when a jurisdiction is silent on an issue.

1. The “Ghost Ship” Tragedy. Initially constructed in 1930, the Ghost Ship was a two-story warehouse located in the Fruitvale neighborhood of the City of Oakland. It was purchased in 1988 by its current owner, who also owns an adjacent empty lot and two nearby properties. In 2013, the owner leased the warehouse to a lessee, who subleased to the space to other tenants – artists that lived and worked within the building – at rates significantly below the median Oakland rent. The Ghost Ship was also periodically used for events, including concerts. The parcel was zoned as a warehouse and neither residential or assembly uses were legally permitted by the city.

Records released by the City of Oakland show that the Oakland Building and Planning Department documented the 39 code enforcement inspections and 10 code enforcement complaints of the warehouse and the adjacent vacant lot between 2004 and 2016. Other city departments had also responded to calls at these addresses as well, including 19 calls to the Police Department and three emergency medical services calls to the Fire Department.

Late on the night of December 2, 2016, the Oakland Fire Department responded to a 9-1-1 call reporting a fire at the Ghost Ship. At the time of the fire, a concert was in progress on the second story of the Ghost Ship, attended by approximately 50 people. The fire resulted in the deaths of 36 individuals by smoke inhalation, the highest death toll for a structure fire in the U.S. in over 10 years.

1. Eligible buildings. The author’s intent is to ensure that live-work buildings are eligible for funding for rehabilitation and upgrades under existing housing programs so that the funds may be distributed more expeditiously. A live-work unit is a dwelling or sleeping unit in which a portion of the space includes a nonresidential use that is operated by the tenant. One such live-work housing development is the Warehouse Artist Lofts, a mixed-use, mixed-income community for artists located in downtown Sacramento’s Historic R Street District. The community includes 116 rental apartments, ranging from studios to three-bedroom units, and ground floor commercial/retail space. The lofts are a place for creative individuals and households to live, work, learn and collaborate with one another. The buildings and units include features specifically designed for Sacramento-area artists, and local artwork is on display throughout.

This bill would establish a loan fund to provide localities with low-interest loans to help property owners bring otherwise illegal buildings up to code. At least two programs known to the committee already provide funding to locals for rehabilitation and retrofitting, both administered by HCD, including CalHome and the Multifamily Housing Program. CalHFA, on the other hand, does not provide loans directly to local agencies.

While HCD believes that their existing programs could be utilized to finance live-work units, they were not able to confirm the technical requirements written in the program statutes and regulations by the time this analysis was written. The author has committed to work with HCD going forward to ensure these funds align with existing programs. Given that HCD administers two housing programs that provide funding for rehabilitation, the author has agreed to amend the bill to provide the funding to HCD, instead of CalHFA.

1. Author’s Amendments. Neither the CalHome nor the Multifamily Housing Program have any funding in them. The author is proposing to amend this bill to provide HCD with $20 million for the purposes of financing rehabilitation of multifamily residential or live-work building that are not up to code.

FISCAL EFFECT: Appropriation: Fiscal Com.: Local:

POSITIONS: (Communicated to the committee before noon on Wednesday,

April 19, 2017.)

SUPPORT:

City of Oakland (sponsor)

OPPOSITION:

None received.

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