Date of Hearing: April 10, 2019

ASSEMBLY COMMITTEE ON HOUSING AND COMMUNITY DEVELOPMENT

David Chiu, Chair

ABPCA Bill Id:AB 738 (

Author:Mullin) – As Amended Ver:March 21, 2019

SUBJECT: Regional housing need allocation: County of San Mateo

SUMMARY: Enables jurisdictions within the County of San Mateo to be credited for funding affordable housing construction in another jurisdiction within the county. Specifically, this bill:

1. Provides that if a jurisdiction within the County of San Mateo contributes affordable housing funds to a deed-restricted affordable housing development in another jurisdiction within the County of San Mateo, both jurisdictions may agree to allow the jurisdiction contributing the funds to report the associated entitlements, building permits, and certificates of occupancy on the contributing jurisdiction’s annual housing element production report to the Department of Housing and Community Development (HCD) if all of the following conditions are met:
   1. The fund contribution meets one of the following:
      1. It is from the County of San Mateo to a city in the County of San Mateo;
      2. It is from a city in the County of San Mateo to another city in the County of San Mateo; or
      3. It is from the County of San Mateo or a city in the County of San Mateo to a housing joint powers authority serving the County of San Mateo and then to another jurisdiction in the County of San Mateo where the proposed deed-restricted affordable housing development will be constructed.
   2. Each jurisdiction has adopted a housing element that HCD has determined to be in substantial compliance;
   3. Each jurisdiction has submitted to HCD their annual housing element production report within the preceding 12 months;
   4. The units that the donating jurisdiction can credit towards its annual housing element production report cannot exceed their proportional share of the units in the new affordable housing development, in terms of project’s overall cost;
   5. Each jurisdiction documents the contribution of funds in its annual housing element production report;
   6. The jurisdiction where the proposed deed-restricted affordable housing development will be constructed does not also report the applicable completed entitlements, building permits, and certificates of occupancy reported in the annual housing element production report;
   7. The legislative body of each jurisdiction approves the proposed agreement, subject to the following:
      1. Before approving the proposed agreement, the legislative body of each jurisdiction shall hold a public hearing providing an opportunity for public comment on the proposed agreement;
      2. The proposed agreement shall contain information sufficient to demonstrate compliance with the requirements of this subdivision and shall identify the site location of the proposed deed-restricted affordable housing development and include the total number of units to be constructed in each income category and the total number of units to be reported in the annual housing element production report of each jurisdiction; and,
      3. Each jurisdiction makes findings, in writing, based on substantial evidence, that the proposed agreement complies with the requirements of this subdivision and that the proposed agreement will not cause or exacerbate racial, ethnic, or economic segregation;
   8. The proposed deed-restricted affordable housing development will not be located in a census tract where more than 50 percent of its population are very low income households unless the site of the proposed affordable housing development is within one-half mile of a major transit stop or high-quality transit corridor; and
   9. Caps the number of units that a jurisdiction contributing funds to another jurisdiction or a housing joint powers authority can report on its annual housing element production report to no more than 25 percent of its housing needs allocation for low-income and very -ow income housing combined.
2. Establishes that the provisions of this section shall be inoperative on January 31, 2031, and as of that date are repealed.
3. Enables jurisdictions within the County of San Mateo to incorporate these units into their housing production annual housing element production report to HCD.
4. Provides that the Legislature finds and declares that a special statute is necessary and that a general statute cannot be made applicable within the meaning of Section 16 of Article IV of the California Constitution because of the unique circumstances relating to the allocation of regional housing needs in the County of San Mateo.

EXISTING LAW:

1. Requires every city and county to prepare and adopt a general plan containing seven mandatory elements, including a housing element (Govt. Code Sections 65300 and 65302).
2. Requires a housing element to identify and analyze existing and projected housing needs, identify adequate sites with appropriate zoning to meet the housing needs of all income segments of the community, and ensure that regulatory systems provide opportunities for, and do not unduly constrain, housing development (Govt. Code Section 65583).
3. Requires local governments located within the territory of a metropolitan planning organization (MPO) to revise their housing elements every eight years following the adoption of every other regional transportation plan. Local governments in rural non-MPO regions must revise their housing elements every five years (Govt. Code Section 65588).
4. Requires, prior to each housing element revision, that each council of governments (COG), in conjunction with the Department of Housing and Community Development (HCD), prepare a regional housing needs assessment (RHNA) and allocate to each jurisdiction in the region its fair share of the housing need for all income categories. Where a COG does not exist, HCD determines the local share of the region's housing need (Govt. Code Sections 65584-65584.09).
5. Requires housing elements to include an inventory of land suitable for residential development that identifies enough sites that can be developed for housing within the planning period to accommodate the local government's entire share of the RHNA (Govt. Code Sections 65583 and 65583.2).
6. Allows a local government to do either of the following in order to show that a site is adequate to accommodate some portion of its share of the RHNA for lower-income households:
   1. Provide an analysis demonstrating that the site is adequate to support lower-income housing development at its zoned density level, and requires the analysis to include, but not be limited to, factors such as market demand, financial feasibility, or information based on development project experience within a zone or zones that provide housing for lower income households; or
   2. Zone the site at the jurisdiction's "default" density level.

(Govt. Code Section 65583.2)

1. Requires a housing element to include an analysis of potential and actual governmental constraints upon the maintenance, improvement, or development of housing for all income levels and for persons with disabilities, including land use controls, building codes and their enforcement, site improvements, fees and other exactions required of developers, and local processing and permit procedures.
2. Requires the analysis described above in 7) to demonstrate local efforts to remove governmental constraints that hinder the local government from meeting its share of the RHNA and from meeting the need for housing for persons with disabilities, supportive housing, transitional housing, and emergency shelters.
3. Requires a housing element to include an analysis of potential and actual nongovernmental constraints upon the maintenance, improvement, or development of housing for all income levels, including the availability of financing, the price of land, and the cost of construction.
4. Requires a housing element to address and, where appropriate and legally possible, remove governmental constraints to the maintenance, improvement, and development of housing, including housing for all income levels and housing for persons with disabilities. The program shall remove constraints to, and provide reasonable accommodations for housing designed for, intended for occupancy by, or with supportive services for, persons with disabilities (Government Code Section 65583).
5. Defines a “major transit stop” to mean a site containing an existing rail transit station, a ferry terminal served by either a bus or rail transit service, or the intersection of two or more major bus routes with a frequency of service interval of 15 minutes or less during the morning and afternoon peak commute periods.
6. Defines “high quality transit corridor” means a corridor with fixed route bus service with service intervals no longer than 15 minutes during peak commute hours.
7. Requires cities and counties to plan and zone for housing of all income levels within their jurisdictional boundaries. In addition those jurisdictions must submit an annual report to the Department of Housing and Community Development (HCD) that indicates the number of housing units have been permitted and built during the previous year (production report).
8. Requires HCD to determine the existing and projected need for housing in each region throughout the state. HCD or the local Counsel of Government (COG) then determines the number of units each individual jurisdiction is required to plan for.

FISCAL EFFECT: Unknown

COMMENTS:

Purpose of the Bill: According to the author, “Many communities in San Mateo County have affordable housing fund balances available to help subsidize an affordable development project. Unfortunately, in many instances the balance is not sufficient to develop a project of more than a few units. Existing law creates a disincentive for communities to share or otherwise pool funds which would create a more substantial subsidy to develop a larger project. AB 738 will allow communities in San Mateo County to pool resources and share credit on their production report based on their proportionate share of funds contributed to fund the proposed affordable project in the other district. AB 738 will created a greater incentive for local jurisdictions to share resources which will create greater opportunities to develop affordable housing.”

Background: Like the rest of the Bay Area, there is an acute need for affordable housing in San Mateo County. In the past 25 years, inflation-adjusted median rents have nearly doubled, from $1,490 per month to $2,730 per month. In the same period, inflation-adjusted household incomes have decreased for the lowest 20%, from $50,000 per month to $42,000 per month. Therefore, the poorest 20% of residents in San Mateo would need to spend over 75% of their income to pay for the median rent.

According to the Housing Leadership Council of San Mateo, the cost to build new affordable housing is, at a minimum, $500,000 per unit. Local jurisdiction typically contribute about 40% of that cost. New affordable housing development in California is reliant on the state’s tax credits. A development must be a minimum of 40 units to be eligible for tax credits. Therefore, developing new affordable housing may cost a local jurisdiction at least $8 million.

San Mateo County has a total population of just over three-quarters of a million people. It includes 20 incorporated cities and towns. The largest city, Daly City has approximately 106,000 people, and there 15 other jurisdictions with at least 10,000 people. The County and most of the cities have adopted impact fees, in-lieu fees, or both to support construction of affordable housing. As such, many have affordable housing fund balances available to help subsidize an affordable development project. However, because of their small size, in many instances the balance in these funds is not sufficient to develop a project that meets the threshold for the tax credit funds that make such developments economically feasible.

In San Mateo County, there are multiple countywide strategies to facilitate the development of affordable housing. This includes the Affordable Housing Fund, established in 2013, and seeded with funding returned to the County after the dissolution of redevelopment agencies, and replenished with a 2016 half-cent sales tax. Additionally, all of the cities within the county and the County itself are members of the Housing Endowment and Regional Trust (HEART), a housing-related Joint Powers Authority (JPA). HEART is a housing trust fund, a public/private vehicle to finance the construction and rehabilitation of homes affordable to middle- and low-income residents. Since its inception in 2003, HEART has invested over $12 million to fund nearly a thousand affordable homes.

Pooling Affordable Housing Resources: This bill creates an 11-year pilot program that incentivizes the jurisdictions and the housing JPA within the County of San Mateo to pool their resources to build deed-restricted affordable housing. The bill stipulates that, by agreement of both parties, the jurisdiction contributing funding to a recipient jurisdiction may report the associated entitlements, building permits, and certificates of occupancy on the contributing jurisdiction’s annual housing element production report to the Department of Housing and Community Development (HCD). This pooling of resources can only occur if the following conditions are met:

• Each jurisdiction has adopted a housing element that HCD has determined to be in substantial compliance;
• Each jurisdiction has submitted to HCD their annual housing element production report within the preceding 12 months;
• The proposed deed-restricted affordable housing development will not be located in a census tract where more than 50 percent of its population are very low income households unless the site of the proposed affordable housing development is within one-half mile of a major transit stop or high-quality transit corridor;
• The number of units that a jurisdiction contributing funds to another jurisdiction reports on its annual housing element production report must be no more than 25 percent of its housing needs allocation for low-income and very low income housing combined;
• The legislative body of each jurisdiction approves the proposed agreement, subject to the following:
  • That before approving the proposed agreement, the legislative body of each jurisdiction shall hold a public hearing providing an opportunity for public comment on the proposed agreement;
  • That the proposed agreement must contain information sufficient to demonstrate compliance with the requirements of this bill;
  • That the proposed agreement must identify the location of the proposed deed-restricted affordable housing development and include the total number of units to be constructed in each income category and the total number of units to be reported in the annual housing element production report of each jurisdiction; and
  • That each jurisdiction makes findings, in writing, based on substantial evidence, that the proposed agreement complies with the requirements of this subdivision and that the proposed agreement will not cause or exacerbate racial, ethnic, or economic segregation.

In determining how this effects the amount of entitlements, building permits, and certificates of occupancy to report in the annual housing element production report, the jurisdiction contributing the funds may include no more than their proportional share of the deed-restricted affordable housing development in the other jurisdiction. The recipient jurisdiction may not include those units in their own annual housing element production report. Each jurisdiction must document the contribution of funds in their annual housing element production report.

Staff Comments: This bill enables local jurisdictions to receive credit for funding affordable housing in other jurisdictions. As such, it contradicts the longstanding policy in housing element law that requires local jurisdictions to be held responsible for production affordable housing within their own borders. This policy is based on a fairness and equity argument that local jurisdictions should be accountable to look after their own people, and that wealthier areas should not be able to buy their way out of meeting their responsibility to provide a diversity of housing options. This longstanding policy was reinforced with the passage of SB 35 (Wiener, 2017), that makes affordable housing developments approvable by-right in jurisdictions that do not issue their share of building permits for affordable housing to meet their regional housing needs.

At the same time, the problem that this bill seeks to address is a real one. It may take many years for smaller jurisdiction to accumulate the funding necessary to build an affordable housing project. San Mateo County includes many such jurisdictions. By incentivizing jurisdictions to pool their resources, they can build affordable housing faster and be more nimble to seize opportunities when they arise. In San Mateo, this pooling also leverages the financial and technical infrastructure established in their housing JPA.

Given the acute affordable housing crisis in San Mateo County, and its unique circumstances, it may be wise to enable a pilot program to expedite production of affordable housing within the county. However, this should only occur if enough protections are applied to avoid the creation of a slippery slope away from the intent of current policy should other jurisdictions seek to participate in this program. As such, the Committee may wish to consider amendments to ensure that the intent of this bill is met and to limit the risks of subverting longstanding housing policy, particularly should this program be expanded to other jurisdictions.

Committee Amendments: To address the issues raised above, the Committee may wish to consider the following amendments:

• To ensure that the pooling of resources only occurs to address an existing opportunity, require that the money cannot be transferred from the donating jurisdiction until the receiving one has entitled the associated deed-restricted affordable housing project.
• To promote high-quality life outcomes for low-income residents, and to ensure that wealthier parts of the County are providing their fair share of affordable housing, require that affordable housing project to be located in Moderate, High, or Highest Resources areas as defined by the California Tax Credit Allocation Committee/HCD Opportunity Map. This locational provision should replace the existing one, which required that the deed-restricted affordable housing development must not be located in a census tract where more than 50 percent of its population are very low income households unless the site of the proposed affordable housing development is within one-half mile of a major transit stop or high-quality transit corridor;
• To ensure that the pooling is serving residents in the same commute-shed, require that the jurisdictions must be within 25 miles of each other;
• To ensure that jurisdictions are not donating amounts that could reasonably build affordable housing within their own borders, the maximum amount donated by any jurisdiction during their 8-year housing element cycle is $2 million;
• To promote this pooling occurs only in areas that are approaching housing from a regional lens, require that participating jurisdictions are voting members of a countywide housing-focused Joint Powers Authority; and
• To ensure that jurisdictions are still responsible for the preponderance of their affordable housing responsibilities, require the maximum contribution to be amended from a maximum of 25% of the local share of the regional housing need to 20% or 40 units, whichever is less, and do not allow the contributing units to count for purposes of calculating eligibility for by-right development as established by SB 35 (Wiener), Chapter 366, Statues of 2017.

Related Legislation:

AB 1487 (Chiu) (2019) would establishes the San Francisco Bay Regional Housing Finance Act and creates a regional housing agency for the San Francisco Bay area. The bill will be heard in this committee on April 10, 2019.

SB 35 (Wiener), Chapter 366, Statutes of 2017: This bill requires in jurisdictions that have not met their Regional Housing Needs Assessment to allow for a ministerial, streamlined process for infill housing approvals.

Double referred: This bill was also referred to the Assembly Committee on Local Government where it will be heard should it pass out of this committee.

REGISTERED SUPPORT / OPPOSITION:

Support

City of San Mateo

San Mateo County Board of Supervisors

Town of Colma

Opposition

None on file.

Analysis Prepared by: Steve Wertheim / H. & C.D. / (916) 319-2085