Existing law, the Veterans and Affordable Housing Bond Act of 2018, which was approved by the voters as Proposition 1 at the November 6, 2018, statewide general election, authorizes the issuance of bonds in the amount of $4,000,000,000 pursuant to the State General Obligation Bond Law and requires the proceeds from the sale of these bonds to be used to finance various housing programs and a specified program for farm, home, and mobilehome purchase assistance for veterans, as provided.

This bill would enact the California Family Home Construction and Homeownership Bond Act of 2023 (bond act), which, if adopted, would authorize the issuance of bonds in the amount of $25,000,000,000 pursuant to the State General Obligation Bond Law to finance the California Family Home Construction and Homeownership Program, established as part of the bond act. The bill would authorize the California Housing Finance Agency to award California Socially Responsible Second Mortgage Loans to eligible applicants to use as a down payment or to pay closing costs on the purchase of a new home. The bill would also authorize the agency to award Family Homeownership Opportunity Infrastructure Improvement Loans to developers to be used for predevelopment infrastructure improvements and other upfront costs typically incurred in connection with new home construction, under specified conditions. The bill would require that moneys received from a loan recipient for the repayment of financing provided under the program be used to pay debt service when due on bonds issued pursuant to the bond act. The bill would also authorize the agency to issue revenue bonds for the purposes of financing the program, as specified.

This bill would declare that it is to take effect immediately as an urgency statute.

Existing law, the Veterans and Affordable Housing Bond Act of 2018, which was approved by the voters as Proposition 1 at the November 6, 2018, statewide general election, authorizes the issuance of bonds in the amount of $4,000,000,000 pursuant to the State General Obligation Bond Law and requires the proceeds from the sale of these bonds to be used to finance various housing programs and a specified program for farm, home, and mobilehome purchase assistance for veterans, as provided.

This bill would enact the California Family Home Construction and Homeownership Bond Act of 2023 (bond act), which, if adopted, would authorize the issuance of bonds in the amount of $25,000,000,000 pursuant to the State General Obligation Bond Law to finance the California Family Home Construction and Homeownership Program, established as part of the bond act. The bill would authorize the California Housing Finance Agency to award California Socially Responsible Second Mortgage Loans to eligible applicants to use as a down payment or to pay closing costs on the purchase of a new home. The bill would also authorize the agency to award Family Homeownership Opportunity Infrastructure Improvement Loans to developers to be used for predevelopment infrastructure improvements and other upfront costs typically incurred in connection with new home construction, under specified conditions. The bill would require that moneys received from a loan recipient for the repayment of financing provided under the program be used to pay debt service when due on bonds issued pursuant to the bond act. The bill would also authorize the agency to issue revenue bonds for the purposes of financing the program, as specified.

This bill would declare that it is to take effect immediately as an urgency statute.

Date of Hearing: July 12, 2023

ASSEMBLY COMMITTEE ON HOUSING AND COMMUNITY DEVELOPMENT

Buffy Wicks, Chair

SBPCA Bill Id:SB 834

Author:(Portantino) – As Amended Ver:May 2, 2023

SENATE VOTE: 28-9

SUBJECT: Housing: California Family Home Construction and Homeownership Bond Act of 2023

SUMMARY: Authorizes $25 billion in general obligations bonds through the California Family Home Construction and Homeownership Bond Act of 2022 to fund second mortgages and construction of for-sale housing. Specifically, this bill:

1. Establishes the California Family Home Construction and Homeownership Program administered by the California Housing Finance Agency (CalHFA).
2. Requires CalHFA to adopt rules and regulations to achieve all of the following:
3. Establish preferences in providing loans;
4. Prescribe and determine the qualifications under the program;
5. Establish an application fee;
6. Identify Californians who have faced discrimination or otherwise faced difficulty accessing homeownership. Sets aside 25 percent of bond funds to assist these individuals in purchasing a home. These funds may be diverted if insufficient demand exists for these populations; and
7. Report annually to the Legislature on the program.
8. Establishes the California Family Home Construction Fund and requires that the proceeds of bonds authorized by this Act be allocated as follows:
9. $18 billion into the Homeownership Fund to increase homeownership opportunities by providing secondary mortgages to qualified homebuyers; and
10. $7 billion into the Family Home Construction Fund for targeted home building infrastructure improvement loans.
11. Authorizes CalHFA to transfer funds between the Homeownership Fund and the Family Home Construction Fund if funds are not utilized.
12. Requires money deposited in the Homeownership Fund to fund California Socially Responsible Second Mortgage Loans for secondary mortgage loans to eligible applicants to use for downpayments or closing costs to purchase a home.
13. Requires applicants for secondary mortgages to meet all of the following criteria:
14. Have an income below 180 percent of the area median income (AMI), adjusted for household size and geographic location;
15. Be a first time owner-occupant of the home financed by the secondary mortgage loan;
16. Agree to pay all principal, interest, and other amounts due with respect to the secondary mortgage loan upon transferring or refinancing the home financed by the secondary mortgage loan; and
17. Complete a homeowner education course and financial counselling before receiving a secondary mortgage.
18. Authorizes secondary mortgages to finance properties that meet all of the following requirements:
19. A newly constructed single-family home, townhome, row-house, condominium or manufactured home; or
20. A condominium or other residential unit in a building that satisfies either of the following:
    1. Within the previous five years the unit was a nonresidential structure and was retrofitted or repurposed for residential use; or
    2. The unit was vacant for the 12 months prior to the applicant’s purchase and was rehabilitated using federal funds, as specified.
21. The final sale of the property does not exceed an unspecified percent of the median price for newly constructed homes in the area;
22. The first mortgage debt on the property must be for a term of at least 15 years;
23. The terms of financing must require the property to be held in fee simple or through a long-term ground lease with a first right of refusal to purchase the property; and
24. Contractors and subcontractors performing work on the residential property being financed are required to use a skilled and trained work force.
25. Establishes Family Homeownership Opportunity Infrastructure Improvement Loans to provide secured infrastructure loans to qualified homebuilders to be used for predevelopment infrastructure improvements and other upfront costs typically incurred in connection with new home construction.
26. Requires a project receiving a Family Home Construction Infrastructure Loan to satisfy all of the following:
    1. All contractors and subcontractors performing work on the residential property being financed must pay prevailing wages and use a skilled and trained workforce;
    2. The project must satisfy all state safety, renewable energy, and efficiency standards applicable to the project;
    3. The qualified homebuilder must provide a written commitment to CalHFA demonstrating that a minimum percentage of the homes being constructed are expected to be sold on terms that will qualify purchasers to utilize second mortgage loans. The qualified homebuilder must enter a binding commitment with the agency to work with CalHFA to ensure secondary mortgage loans are made available to eligible purchasers;
    4. Project must be located in an urbanized area or urban cluster, or within one mile of transit or a major transit stop; and
    5. Residential mixed-income projects may be eligible for a loan if at least two-thirds of square footage of the structure is designated as a residential use.
27. Authorizes a project to use a streamlined, ministerial process created by SB 35 (Wiener, Chapter 366, Statutes of 2017) if it satisfies all the following:
28. The project satisfies one of the following:
    • 1. If the project is required to provide 10 percent affordable units at 80 percent AMI as required for SB 35 streamlining, the project seeking approval must instead dedicate 10 percent affordable units to households making below 100 percent AMI. If a local inclusionary ordinance requires greater affordability requirements, that ordinance would not apply; or
      2. If the project is required to provide 50 percent affordable units at 80 percent AMI as required to qualify for SB 35 streamlining, the project seeking approval must instead dedicate 25 percent affordable units to households making below 100 percent AMI. If a local inclusionary ordinance requires greater than 10 percent affordable units at 100 percent AMI, that ordinance would not apply.
29. All other requirements under SB 35 apply.
30. Provides that a project that meets the requirements under the California Environmental Quality Act (CEQA) is exempt if the project is for the construction of new single-family homes and meets the following requirements:
31. The project consists of the division of property in urbanized areas zoned for residential, commercial, or industrial uses into 50 or fewer parcels when the division is in conformance with the general plan and zoning;
32. No variances or exceptions are required;
33. All services and access to the proposed parcels pursuant to local standards are available; and
34. The parcel does not have an average slope greater than 20 percent.
35. Requires CalHFA to set the interest rates and other payment terms on financing at levels necessary to pay the interest on the bonds issued and to defray costs of administration.
36. Authorizes the principal balance of the loans to be amortized over a period fixed by CalHFA, not exceeding 40 years, together with interest or other consideration for the state, as specified.
37. Authorizes CalHFA on a case-by-case basis, for good cause, to defer or extend the payment of the whole or any part of any loan payment, upon terms CalHFA determines.
38. Requires all causes of action seeking damages arising from a latent defect of a new construction project authorized by the Act to be subject to specified limitations and statute of limitations identified in existing law related to improvements to real property.
39. Establishes a committee solely for the purpose of issuing the sale of the bonds, and is comprised of the State Controller, State Treasurer, and Director of Finance.
40. States the intent of the Legislature and the voters in enacting this bill that the bonds shall be backed by the full faith and credit of the State of California but will be self-liquidating to the extent mortgage loans are repaid.
41. Includes an urgency clause.

EXISTING LAW:

1. Authorizes CalHFA to make loans to housing sponsors for housing developments and to qualified mortgage lenders, among others. Provides that the primary purpose of CalHFA is to meet the housing needs of persons and families of low- or moderate-income.
2. Provides that CalHFA is administered by a board of directors and is supervised on a day-to-day basis by an executive director.
3. Establishes a number of housing assistance programs for affordable housing at the Department of Housing and Community Development (HCD).
4. Authorized, upon approval by the voters as Proposition 1 in the November 6, 2018 general election, the issuance of $3 billion in general obligation (GO) bonds for several affordable housing construction programs at HCD.
5. Authorized, upon approval by the voters as Proposition 2 in the November 6, 2018 general election, the issuance of $2 billion in GO bonds for the No Place Like Home Program at HCD.

FISCAL EFFECT: Unknown.

COMMENTS:

Author’s Statement: According to the author, “The housing market in California is the center of the American housing crisis. The high cost of building new housing imposes a significant drag on the state’s economy, squeezes household budgets, and deprives Californians of opportunities to build wealth through home equity. In recent years, production of new housing across the state has lagged far behind the growth in jobs and household formation. We have a responsibility to create more opportunities for first time – and often left-behind – homebuyers to purchase a home, thrive in the middle class, and build generational wealth. SB 834 will place a $25 billion voter-approved general obligation bond on next statewide general election to finance homeownership opportunities and promote new home construction.”

Housing Costs: California currently has 13 of the 14 least affordable metropolitan areas for homeownership in the nation; it also has the second highest rate of renter households paying more than 30 percent of their income for housing, at 52 percent. Home values and rents in California are among the most expensive in the nation, and supply shortages continue to put upward pressure on housing prices. Over the last decade, the state averaged fewer than 80,000 new homes annually—far below the estimated need of 180,000 additional units each year, according to HCD. Overall homeownership rates are at their lowest since the 1940s. The majority of Californian renters — more than 3 million households — pay more than 30 percent of their income toward rent, and nearly one-third — more than 1.5 million households — pay more than 50 percent of their income toward rent. According to a survey conducted but the Public Policy Institute of California, more than half (56 percent) of young adults age 18-34 have seriously thought about moving due to housing costs—including four in ten who have considered leaving the state—compared to 38 percent of adults over 55.

Homeownership for Black Californians: California, like the nation as a whole, has lower homeownership rates among communities of color. According to Census data, 65 percent of white Californians are homeowners while Asian/Asian-Americans have a homeownership rate that is six percentage points lower at 59 percent. About one in two Californians of Native/Indigenous descent are homeowners (49 percent), while the rate of homeownership amongst the Latinx population is 44 percent. Black Californians have the lowest rate of homeownership across racial/ethnic groups California with only about 1 in 3 owning their home (35 percent).

For Black Californians who do own homes, racial disparities also exist in the valuation of their assets. Black-owned homes in majority-Black areas of both the San Francisco-Oakland-Hayward Metropolitan Statistical Area (MSA) and the Los Angeles-Long Beach-Anaheim MSA are worth substantially less than equivalent homes with the same structural characteristics and neighborhood amenities in non-majority-Black areas. In the Bay Area, the average devaluation of homes in majority-Black neighborhoods is 22.3 percent, and in the Los Angeles area it is 17.1 percent. Differences in credit scores also contribute to racial disparities in homeownership. About 54 percent of Black Americans report having no credit or a credit score of below 640. About 41 percent of Latinx Americans report falling into this category as well. In contrast, 37 percent of white Americans and 18 percent of Asian Americans report similar credit circumstances. Home Mortgage Disclosure Act (HMDA) data show that Black applicants are denied loans at twice the rate of white applicants, controlling for income and gender. Even when approved for home loans, HMDA data also show that Black and Latinx borrowers are more likely to be offered higher-cost mortgages.

CalHFA: CalHFA, the state’s affordable housing lender, operates several programs to assist first-time homebuyers, including down payment assistance and low interest first-mortgage products. CalHFA issues bonds to fund the mortgages and uses the proceeds of mortgage repayments to repay the bonds. Down payment assistance is funded by voter-approved bonds and through repayment of assistance as buyers sell or refinance their homes. CalHFA provides first-mortgages to buyers who income qualify. CalHFA is not a direct lender but partners with qualified lenders that offer their products.

MyHome offers a deferred-payment junior loan of an amount up to the lesser of 3.5 percent of the purchase price or appraised value to assist with down payment and/or closing costs, with a cap of $15,000. There is no cap on the amount that buyers can receive if they are veterans, school employees, have an income of 80 percent of AMI or less, and are purchasing a new home, manufactured home, or a home with an accessory dwelling unit (ADU). Buyers must be first time homeowners (have not owned a home in the last three years), complete homebuyer education, and meet the income qualifications (which extend to households up to 150 percent of AMI in high cost areas). CalHFA received $150 million for home purchase assistance from Proposition 1 (2018) bond funds to provide first and junior loan options for low- to moderate-income families, including low to zero interest rate down payment assistance loans.

California Dream for All Program: The 2022-23 State Budget (AB 197 (Committee on Budget)) established the California Dream for All Program, a revolving shared appreciation loan program designed to increase access to homeownership for low- and moderate-income Californians. The 2022-23 budget included $300 million which was awarded to 2,500 homeowners with an average appreciation loan of $112,000. The 2023-24 budget includes an additional $200 million for the program with a requirement that the program be revamped to focus on providing down payment assistance to homebuyers who would not otherwise be able to purchase a home.

Recent GO Bond Bills: In 2018, voters approved Proposition 1, which dedicated $4 billion in GO bonds for housing, including $1 billion to the Cal-Vet Farm and Home Loan Program and $3 billion to housing programs for low- and moderate-income persons. In the same year, voters also approved Proposition 2, which dedicated $2 billion in bond proceeds from the Mental Health Services Act (MHSA). MHSA was approved by voters in 2004 through the passage of Proposition 63 to invest in the development of permanent supportive housing for persons who are in need of mental health services and are experiencing homelessness, chronic homelessness, or are at risk of chronic homelessness.

There are two other housing bills pending in the Legislature. AB 1657 (Wicks) authorizes $10 Billion in GO bonds to fund a variety of existing affordable housing programs, including $1 Billion to be split between CalHOME and the MyHome Program. AB 531 (Irwin) would authorize $4.6 Billion in GO bonds for veterans supportive housing, supportive housing, and residential settings for people experiencing homelessness or at-risk of homelessness with behavioral health challenges.

The California Family Homeownership Program: SB 834 directs proceeds from the sale of its bonds to California Socially Responsible Second Mortgage Loans, which can be used as a down payment or to pay closing costs on the purchase of a new home for applicants who:

• Have income below 180 percent of AMI;
• Are the first owner-occupant of the home financed by the loan;
• Agree to pay all principal, interest, or other amounts due with respect to the loan upon transferring or refinancing the home; and
• Complete homeowner education and financial counselling courses.

The bill specifies that loans can only be made to a property that:

• Is a newly constructed single-family home, townhome, row-house, condominium, or manufactured home. If the home is a condominium, it must have been part of a building retrofitted or repurposed for residential use, or vacant for 12 months prior and where the cost of rehabilitation was at least 10 percent of the building’s most recent sales price;
• The final sales price does not exceed an unspecified percentage of the median price for newly constructed homes in that county;
• The first mortgage debt has a term of at least 15 years;
• The applicant holds the property in fee simple, or through a long-term ground lease with a right of first refusal to purchase the property; and
• Where all contractors and subcontractors performing work on the residential property being financed use a skilled and trained workforce, as defined.

The CalHFA Executive Director can adjust loan limits, secondary mortgage loan interest rates, shared equity loan terms, minimum credit scores, and debt-to-income ratios at their discretion to support its funds or to satisfy federal standards and requirements established by Fannie Mae, Freddie Mac, or the Federal Housing Administration. The bill also requires the CalHFA Executive Director to establish consumer protection requirements on secondary mortgage loans, such as limits on interest rates, limits on bank fees, and a prohibition on early payment penalties.

The California Home Construction Program: SB 834 directs proceeds from the sale of its bonds to Family Homeownership Opportunity Infrastructure Improvement Loans, secured infrastructure loans to qualified homebuilders for predevelopment infrastructure improvements and other upfront costs typically incurred in connection with new home construction. To be eligible for a loan, a project:

• Must have all contractors and subcontractors performing work on the project use a skilled and trained workforce;
• Must satisfy all state safety, renewable energy, and efficiency standards applicable to the project;
• Have a qualified homebuilder who provides a written commitment to CalHFA demonstrating that a minimum percentage of the homes being constructed, as determined by CalHFA’s Executive Director, are expected to be sold on terms that will qualify purchasers to utilize second mortgage loans originated under the bill;
• Have a qualified homebuilder who enters a binding commitment with the agency to work with the CalHFA Executive Director to ensure secondary mortgage loans are made available to eligible purchasers;
• Must be located within an urbanized area or urban cluster, as defined by the United States Census Bureau, or located within one mile of a public transit or major transit stop, as defined, or a major transit stop that is included in an applicable regional transportation plan; and
• Must be a residential, mixed-use project if at least two-thirds of the square footage is designated for residential use.

CalHFA may require borrowers under either program to provide information that will allow the agency to determine their eligibility and qualifications. The agency may also contract with banks and federally chartered financial institutions to originate or finance the bill’s loan programs.

CEQA Exemption: SB 834 exempts from CEQA a project for the construction of new single-family homes if the project is eligible for the bill’s home construction program, and:

• The project consists of the division of property in urbanized areas zoned for residential, commercial, or industrial uses into 50 or fewer parcels when the division is in conformance with the general plan and zoning;
• No variances or exceptions are required;
• All services and access to the proposed parcels pursuant to local standards are available; and
• The parcel does not have an average slope greater than 20 percent.

SB 35 (Wiener): SB 35 (Wiener), Chapter 366, Statutes of 2017 created a streamlined ministerial approval process for housing developers on infill sites. To qualify, developers are required to restrict a percentage of units in the development to households at or below 80 percent of AMI. This bill would authorize projects that receive funding from the Family Homeownership Opportunity Infrastructure Improvement Loans to use SB 35 streamlining for new housing construction. However, the bill would change the affordability requirements for the restricted units. Unlike under SB 35, where a project would be required to restrict at least 10 percent of the units to be affordable to households at 80 percent AMI or below, this bill instead requires 10 percent of units to be restricted to households at 100 percent AMI, even if there is a local ordinance requiring higher. If SB 35 requires 50 percent of the units to be affordable to households at 80 percent AMI, this bill requires that the project provide only 25 percent of the units affordable to households up to 100 percent AMI, and overrides a local ordinance if it requires over 10 percent affordable units.

SB 35 and other streamlining bills (AB 2011 (Wicks), Chapter 647, Statutes of 2022 and AB 2162 (Chiu), Chapter 753, Statutes of 2018) passed by the Legislature allow local governments with higher inclusionary ordinances to apply a higher percentage of affordability requirements to projects. SB 834 would eliminate this option. Local governments adopt local inclusionary ordinances that require developers to either include a percentage of affordable housing on site in a development or pay fees to support affordable housing construction elsewhere in the community. These ordinances are a key tool local governments use to increase the supply of affordable housing. The committee may wish to consider restoring this authority.

Who Benefits from this Bond: This bond includes two policies that direct the bond resources by income level. If a developer uses the SB 35 streamlining option in the bill, a development would be required to restrict 10 percent of the units for households making 100 percent of AMI. A homeowner who accesses the second mortgage product could make up to 180 percent of the AMI. As noted above, existing streamlining in SB 35 requires deeper income targeting than what is proposed in this bill. MyHOME has an income cap of 150 percent of AMI in high cost areas, with an incentive for even deeper income targeting by placing no cap on the amount of down payment a buyer at or below 80 percent of AMI can receive. It is unclear if the results of the bond funding in this bill will be to subsidize purchasers who may already be able to purchase a home. The lack of deeper income targeting does not support the goals of reaching historically under-served households who are lower-income.

No Mechanism for Targeting Historically Under-Represented Populations: As discussed above, Black and Brown families have faced barriers in entering the homeownership market. The intent of this bill, as outlined in the findings, is to address the “inequities in homeownership, remove systematic barriers to homeownership, and create equity-building opportunities for Californians who have been left behind by targeting a portion of funds to expand homeownership in underserved and economically disadvantaged communities.” The bill requires CalHFA to identify Californians who have faced discrimination or otherwise faced difficulty accessing homeownership and set aside 25 percent of bond funds to assist these individuals in purchasing a home. The high income limits on the second mortgage program (180 percent of AMI) are not an effective metric in targeting assistance to those who are not already able to buy a home. To focus on those who have not been able to enter the market, this bill should at a minimum be limited to first-time homebuyers, who have not owned a home in the last three years, and who will live in a home as a primary residence.

Size of the Bond: This bill would authorize $25 billion in GO bonds for homeownership. Although the lack of homeownership opportunities represents a significant challenge to the state, other equally challenging issues exist, including the lack of affordable rental housing and the growing homelessness crisis. Funding from the last affordable housing bond, Prop 1, will be exhausted next year and the Legislature may want to ask the voters to approve more GO bonds for affordable rental housing. This may be difficult if voters approve a bond as significant as the California Family Home Construction and Homeownership Bond Act of 2022. The committee may wish to consider including some authority for multi-family affordable rental housing in SB 834 or reducing the amount of the GO bond authority to allow space for a future bond for affordable rental housing.

Labor Requirements: This bill has several labor requirements. The second mortgage program can only provide mortgage assistance to a homebuyer that is purchasing a home that was constructed using a skilled and trained workforce. The home construction program requires that developers use a skilled and trained workforce to construct units subsidized by the program. Historically, the Legislature has not applied labor standards to funding programs. It has, however, provided specified labor provisions as a condition of ministerial approval by a local government or exemption of a development from CEQA.

This bill includes two options for streamlining. A developer has the option to use SB 35 streamlining, which includes labor provisions. SB 423 (Wiener), currently making its way through the Legislative process, would extend the sunset date on SB 35 and make changes to the labor standards. SB 35 requires a skilled and trained workforce on developments where 10 percent of the units are restricted to lower income households. However, this streamlining has not been used to date. SB 423 will revise those standards to require prevailing wage and health care for workers for all developments, and for developments of 85 feet or higher the developer would be required to use a skilled and trained workforce. SB 35 also requires a developer to include a percentage of affordable units (as discussed above) to access streamlining. In addition, it prohibits the use of streamlining on a list of sensitive environmental sites because streamlining means no CEQA analysis is required on the site.

This bill would also create a CEQA exemption for a developer receiving funds for the home construction program. The CEQA exemption has no labor standards, does not require a percentage of affordable housing, and does not exclude sensitive sites like SB 35 does. The committee may wish to consider deleting the CEQA exemption. SB 35 streamlining provides the same benefits as a CEQA exemption and includes labor standards, requires a percentage of affordable housing to access streamlining, and exempts sensitive sites.

Arguments in Support: Several cities write in support that this bill will provide resources to finance homeownership opportunities and promote new homeownership construction. The California State Building and Construction Trades Council supports this bill because it creates more opportunities for homeownership and includes a requirements for prevailing wages and a skilled and trained workforce.

Arguments in Opposition: Various statewide affordable housing organizations are opposed to this bill and raise concerns with the size of the bond. The last affordable housing bond, Proposition 1, will be exhausted next year and new funding will be needed to address the state’s affordable rental housing needs. In addition, according to this group, “this bill lessens the percentage of affordability and broadens the income eligibility of families served in developments seeking SB 35 streamlining. Likewise, it overrides affordability requirements in local inclusionary zoning ordinances. These provisions actually undermine California’s efforts to address affordable housing challenges by reducing the number of homes that lower-income households will be able to buy.”

Committee Amendments:

1. Target the mortgage assistance funding in the bill to lower income households by requiring that assistance be provided to families at 80 percent of AMI or below, except that in high cost areas mortgage assistance may be provided to households up to 150 percent of AMI.
2. Delete the labor provisions in the bill in the sections that apply to the funding programs, the Homeownership Fund and the Family Home Construction Fund.
3. Delete the CEQA exemption.
4. As part of streamlining, allow local governments to apply a higher local inclusionary requirement if one exists.

Related Legislation:

SB 1457 (Hertzberg) of 2022 would have dedicated $25 billion in general obligation bonds, subject to voter approval, for homeownership opportunities, including $18 billion for mortgage loans for first time homebuyers and $7 billion in infrastructure loans for new home construction, as specified. This bill died pending a hearing in the Assembly Housing and Community Development Committee.

AB 2011 (Wicks), Chapter 647, Statutes of 2022: Enacted the “Affordable Housing and High Road Jobs Act of 2022” to create a ministerial, streamlined approval process for 100 percent affordable housing projects in commercial zones and for mixed-income housing projects along commercial corridors, as specified. The bill also imposed specified labor standards on those projects, including requirements that contractors pay prevailing wages, participate in apprenticeship programs, and make specified healthcare expenditures.

SB 35 (Wiener), Chapter 765, Statutes of 2017: Created a streamlined, ministerial approval process for specified infill housing developments.

REGISTERED SUPPORT / OPPOSITION:

Support

California Faculty Association
City of Pleasanton
City of Thousand Oaks
State Building and Construction Trades Council of CA

Support If Amended

California Association of Realtors

Opposition

Howard Jarvis Taxpayers Association (HJTA)

Oppose Unless Amended

California Housing Consortium
California Housing Partnership Corporation

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

 THIRD READING  

Bill No: SB 834

Author: Portantino (D)

Amended: 5/2/23

Vote: 27 - Urgency

SENATE HOUSING COMMITTEE: 8-2, 4/18/23

AYES: Wiener, Blakespear, Caballero, Cortese, McGuire, Skinner, Umberg, Wahab

NOES: Ochoa Bogh, Seyarto

NO VOTE RECORDED: Padilla

SENATE GOVERNANCE & FIN. COMMITTEE: 6-2, 4/26/23

AYES: Caballero, Blakespear, Durazo, Glazer, Skinner, Wiener

NOES: Seyarto, Dahle

SENATE APPROPRIATIONS COMMITTEE: 5-2, 5/18/23

AYES: Portantino, Ashby, Bradford, Wahab, Wiener

NOES: Jones, Seyarto

SUBJECT: Housing: California Family Home Construction and Homeownership Bond Act of 2023

SOURCE: Author

DIGEST:

This bill dedicates $25 billion in general obligation bonds, subject to voter approval, for homeownership opportunities, including $18 billion for mortgage loans for first time homebuyers and $7 billion in infrastructure loans for new home construction, as specified.

ANALYSIS:

Existing law:

1. Authorizes the California Housing Finance Agency (CalHFA) to make loans to housing sponsors for housing developments and to qualified mortgage lenders, among others. Provides that the primary purpose of CalHFA is to meet the housing needs of persons and families of low- or moderate-income.
2. Establishes the California Dream for All Program at CalHFA.

This bill:

1. Creates the California Family Home Construction and Homeownership Program, which shall be administered by CalHFA.
2. Requires CalHFA to adopt rules and regulations approved by a board of directors (Board) to achieve the following:

• 1. Establish preferences in providing loans.
  2. Prescribe and determine the qualifications of applicants under the program.
  3. Establish an application fee, which shall not exceed the reasonable amount incurred by CalHFA to process an application.
  4. Identify Californians who have faced discrimination or otherwise faced difficulty in accessing homeownership and make available up to 25% of bonds to assist these individuals in purchasing a home.
  5. Report annually to the Legislature on the activities of the agency in implementing the program, including the number of loans made, the characteristics of the borrowers, and the performance of the portfolio of the loans, including repayment rates.

1. Requires proceeds of the bonds issued and sold pursuant to this part be allocated as follows:
   1. Up to $18 billion to be deposited in a Homeownership Fund to increase homeownership opportunities by providing secondary mortgages to qualified homebuyers, including first-time home buyers, renters, and Californians who have historically faced discrimination in accessing homeownership.
   2. Up to $7 billion to fund home building infrastructure improvement loans.

First Time Homebuyer Mortgage Assistance Funds

1. Requires money for the Homeownership Fund to provide secondary mortgage loans to eligible applicants to use as a down payment or to pay closing costs on the purchase of a newly constructed home. Eligible applicants include:
   1. An applicant who has an income below 180% area median income.
   2. An applicant who is a first owner-occupant of the home being financed.
   3. The applicant shall agree to pay all principal, interest, and other amounts due with respect to the secondary mortgage loan upon transferring or refinancing the home financed by the secondary mortgage loan, except as otherwise provided by CalHFA.
   4. An applicant shall be required to complete homeowner’s education courses and financial counseling before receiving a second mortgage loan.
2. Requires a secondary mortgage loan be made to finance property that meets all the following requirements:
   1. The property for a secondary mortgage loan shall be either:
      1. A newly constructed single-family home, townhome, row-house, condo, or manufactured home, or
      2. A condominium or other residential unit in a building that satisfied either of the following:
         1. Within the previous five years, the unit was a nonresidential structure, and was retrofitted or repurposed for residential use; or
         2. The unit was vacant for the 12 months prior to the applicants purchase and was rehabilitated using federal funds, as specified.
   2. The final sales price of the property does not exceed an unspecified percentage of the median price for newly constructed homes in the county.
   3. The first mortgage debt of the property shall have a term of at least 15 years.
   4. The terms of the financing provide that the applicant will hold the property in fee simple or hold the property through a long-term ground lease with a right of first refusal to purchase the property.
   5. All contractors and subcontractors performing work on the residential property being financed used or will use a skilled and trained workforce.

New Construction Infrastructure Loans

1. Requires money for the Family Home Construction Fund to provide secured infrastructure loans to qualified homebuilders to be used for predevelopment infrastructure improvements and other upfront costs typically incurred in connection with new home construction.
2. Requires a project receiving a Family Home Construction Infrastructure Loan to satisfy all of the following:
   1. All contractors and subcontractors performing work on the residential property being financed used or will use a skilled and trained workforce.
   2. The project will satisfy all state safety, renewable energy, and efficiency standards applicable to the project.
   3. The qualified homebuilder provides a written commitment to the CalHFA demonstrating that a minimum percentage of the homes being constructed are expected to be sold on terms that will qualify purchasers to utilize second mortgage loans (see 4 & 5 above). The qualified homebuyer will enter a binding commitment with the agency to work with CalHFA to ensure secondary mortgage loans are made available to eligible purchasers.
3. Requires all causes of action seeking damages arising from a latent defect of a new construction project authorized by (6) above, shall be subject to specified limitations and statute of limitations identified in existing law related to improvements to real property.
4. Establishes a committee solely for the purpose of issuing the sale of the GO bonds, and is comprised of the State Controller, State Treasurer, and Director of Finance.

Streamlining and CEQA exemptions

1. Authorizes a project to use a streamlined, ministerial process created by SB 35 (Wiener, Chapter 366, Statutes of 2017) if it satisfies all the following:
   1. The project satisfies one of the following:
      1. If the project is required to provide 10% affordable units at 80% area median income (AMI) as required for SB 35 streamlining, the project seeking approval shall instead dedicate 10% affordable units at to households making below 100% AMI. If a local inclusionary ordinance requires greater affordability requirements, that ordinance shall not apply.
      2. If the project is required to provide 50% affordable units at 80% AMI as required to qualify for SB 35 streamlining, the project seeking approval shall instead dedicate 25% affordable units at to households making below 100% AMI. If a local inclusionary ordinance requires greater than 10% affordable units at 100% AMI, that ordinance shall not apply.
   2. All other requirements under SB 35 apply.
2. Provides that a project that meets the requirements under the California Environmental Quality Act (CEQA) shall be exempt if the project is for the construction of new single-family homes and meets the following criteria:
   1. The project consists of the division of property in urbanized areas zoned for residential, commercial, or industrial uses into 50 or fewer parcels. when the division is in conformance with the general plan and zoning.
   2. No variances or exceptions are required.
   3. All services and access to the proposed parcels to local standards are available.
   4. The parcel does not have an average slope greater than 20%.

Background

CalHFA is the state’s affordable-housing bank. CalHFA borrows money from the private financial market at below-market interest rates by issuing tax-exempt revenue bonds. CalHFA passes these interest rate savings on to low- and moderate-income first-time homebuyers and affordable rental housing developers by offering below market-rate mortgages. These bonds are backed only by CalHFA revenues and not by the state General Fund. CalHFA also provides down payment assistance in the form of deferred, “silent second” mortgages (i.e., the borrower makes no monthly payments but repays the loan at sale or refinance) for families who need extra assistance achieving homeownership. In order to be eligible for CalHFA’s down payment assistance programs, the applicant must be: (a) be a first-time homebuyer; (b) occupy the property as a primary residence; non-occupant co-borrowers are not allowed; (c) complete homebuyer education counseling and obtain a certificate of completion through an eligible homebuyer counseling organization; and (d) meet CalHFA income limits for this program. Eligible properties include: single-family, one-unit residences, including approved condominium; guest houses, granny units and in-law quarters; or manufactured housing.

The Legislature created the California Dream for All program in the 2022-23 budget. This program, which is still in design process, authorizes CalHFA to provide shared-appreciation loans to help low- and moderate-income first-time homebuyers achieve homeownership.

Comments

1. California Family Home Construction and Homeownership Bond Act of 2023. This bill authorizes the issuance of $25 billion in GO bonds to finance loans for new home ownership construction ($7 billion) and mortgage assistance for first time homebuyers ($18 billion) for homeowners making less than 180% of the area median income. The program is to be administered by CalHFA with a newly established Committee made up of the Treasurer, Controller, and Director of Finance. All property financed by the bond shall use a skilled and trained workforce.
2. New CEQA exemption and SB 35 streamlining. Some housing projects can be permitted by city or county planning staff ministerially or without further approval from elected officials. Projects reviewed ministerially require only an administrative review designed to ensure they are consistent with existing general plan and zoning rules, as well as meet standards for building quality, health, and safety. Most large housing projects are not allowed ministerial review. Instead, these projects are vetted through both public hearings and administrative review. Most housing projects that require discretionary review and approval are subject to review under CEQA while projects permitted ministerially generally are not.

This bill authorizes projects funded by this bill to use SB 35 streamlining for new housing construction. Unlike SB 35, if a project would otherwise require at least 10% of the units to be affordable to households at 80% AMI or below, this bill instead requires 10% at 100% AMI on the project, even if there is a local ordinance requiring higher; if SB 35 requires 50% of the units to be affordable to households at 80% AMI, this bill provides that the project provide only 25% of the units affordable to 100% AMI, and overrides a local ordinance if it requires over 10% affordable units.

This bill also creates a new CEQA exemption if it is new construction for single family homes and: (a) the project consists of the division of property in urbanized zone for residential, commercial, or industrial use in 50 or fewer parcels when the division is in conformity with the general plan; (b) no variances or exceptions are required; (c) all services and access to the proposed parcels to local standards are available; (d) the parcel does not have an average slope of greater than 20%.

FISCAL EFFECT: Appropriation: No Fiscal Com.: Yes Local: No

According to the Senate Appropriations Committee:

• Bond costs: Total principal and interest costs of approximately $42.1 billion to pay off the bonds ($25 billion in principal and $17.1 billion in interest), with average annual debt service payments of $1.4 billion (General Fund and the California Family Home Construction Homeownership Bond Payment Fund [Bond Payment Fund]), when all bonds are sold, and assuming a 30-year maturity and an interest rate of 3.5%. If interest rates increase to 5% in the near future, annual debt service would be approximately $1.626 billion (General Fund and Bond Repayment Fund) and total principal and interest costs over the repayment period would be approximately $48.79 billion. Staff notes that the general obligation bonds are intended to be “self-liquidating” to the extent the loan repayments deposited into the Bond Payment Fund are dedicated to retirement of the bonds, but mortgage loans are not repaid until the home is sold or refinanced. All debt service payments on the bonds must be paid from the General Fund unless and until loan repayments are sufficient to fully cover bond debt service. See staff comments.
• Administrative costs: The California Housing Finance Agency (CalHFA) estimates it would incur one-time costs of approximately $13.6 million and ongoing annual costs of approximately $8.6 million for staffing and operating the California Socially Responsible Second Mortgage Loan Program, as well as one-time costs of approximately $22.5 million and ongoing annual costs of approximately $8.1 million for staffing and operating the California Family Homeownership Opportunity Infrastructure Improvement Loans Program (General Fund and California Housing Finance Fund). Staff notes that one-time startup costs, and initial staffing costs will require an appropriation of funds, potentially from the General Fund, but the bill provides for cost-recovery for ongoing administrative costs. See staff comments for a breakdown of anticipated CalHFA costs and funding sources.
• Ballot costs: One-time Secretary of State (SOS) costs in the range of $784,000 to $984,000 for printing and mailing costs to place the measure on the ballot for the next statewide general election. (General Fund)

SUPPORT: (Verified 5/18/23)

Catalysts for Local Control
Mission Street Neighbors

OPPOSITION: (Verified 5/18/23)

California Housing Consortium
California Housing Partnership Corporation
Western Center on Law & Poverty

ARGUMENTS IN SUPPORT: According to the author, “The housing market in California is the center of the American housing crisis. The high cost of building new housing imposes a significant drag on the state’s economy, squeezes household budgets, and deprives Californians of opportunities to build wealth through home equity. In recent years, production of new housing across the state has lagged far behind the growth in jobs and household formation. We have a responsibility to create more opportunities for first-time – and often left-behind – homebuyers to purchase a home, thrive in the middle class, and build generational wealth. SB 834 will place a $25 billion voter-approved general obligation bond on next statewide general election to finance homeownership opportunities and promote new home construction.”

ARGUMENTS IN OPPOSITION: The California Housing Partnership Corporation, California Housing Consortium, and Western Center on Law and Poverty are all opposed to this bill. These groups are concerned that this bill would propose homeownership opportunities only when prior housing bonds for lower-income rentals are running dry; a bond of this size would likely crowd out other bonds, including for rentals. This bill would also undermine the affordability provisions in SB 35 (Wiener) and override local inclusionary ordinances.

CHC and CHPC are further concerned that the labor provisions set a precedent for housing programs generally. In the current constrained labor market, getting at least three bids for prevailing wage contracts is a challenge. This bill would limit the eligible labor pool even further. “There are parts of the state where union labor is scarce and the program simply could not function under such a requirement.

Even in parts of the state with greater unionized labor force, this will result in non-competitive bids, significantly raising costs and the feasibility of development.”

Prepared by: Alison Hughes / HOUSING / (916) 651-4124

5/20/23 13:09:48

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SENATE COMMITTEE ON APPROPRIATIONS

Senator Anthony Portantino, Chair

2023 - 2024 Regular Session

SB 834 (Portantino) - Housing: California Family Home Construction and Homeownership Bond Act of 2023

Bill Summary:

SB 834, an urgency measure, would enact the California Family Home Construction and Homeownership Bond Act of 2023, which authorizes the issuance of $25 billion in general obligation bonds, upon approval by voters at the next statewide general election. Bond funds would be used to provide secondary mortgage loans to qualified homebuyers and loans to qualified homebuilders for predevelopment infrastructure improvements, as specified.

Fiscal Impact:

• Bond costs: Total principal and interest costs of approximately $42.1 billion to pay off the bonds ($25 billion in principal and $17.1 billion in interest), with average annual debt service payments of $1.4 billion (General Fund and the California Family Home Construction Homeownership Bond Payment Fund [Bond Payment Fund]), when all bonds are sold, and assuming a 30-year maturity and an interest rate of 3.5%. If interest rates increase to 5% in the near future, annual debt service would be approximately $1.626 billion (General Fund and Bond Repayment Fund) and total principal and interest costs over the repayment period would be approximately $48.79 billion. Staff notes that the general obligation bonds are intended to be “self-liquidating” to the extent the loan repayments deposited into the Bond Payment Fund are dedicated to retirement of the bonds, but mortgage loans are not repaid until the home is sold or refinanced. All debt service payments on the bonds must be paid from the General Fund unless and until loan repayments are sufficient to fully cover bond debt service. See staff comments.
  
• Administrative costs: The California Housing Finance Agency (CalHFA) estimates it would incur one-time costs of approximately $13.6 million and ongoing annual costs of approximately $8.6 million for staffing and operating the California Socially Responsible Second Mortgage Loan Program, as well as one-time costs of approximately $22.5 million and ongoing annual costs of approximately $8.1 million for staffing and operating the California Family Homeownership Opportunity Infrastructure Improvement Loans Program (General Fund and California Housing Finance Fund). Staff notes that one-time startup costs, and initial staffing costs will require an appropriation of funds, potentially from the General Fund, but the bill provides for cost-recovery for ongoing administrative costs. See staff comments for a breakdown of anticipated CalHFA costs and funding sources.
  
• Ballot costs: One-time Secretary of State (SOS) costs in the range of $784,000 to $984,000 for printing and mailing costs to place the measure on the ballot for the next statewide general election. (General Fund)

Background:

CalHFA is an independent public instrumentality and political subdivision of the state that was established in 1975 as the state’s affordable housing lender. The agency is governed by its own Board of Directors, and is financially self-supporting, with its own credit rating. While the annual Budget Act may appropriate funds for specific purposes, CalHFA’s operations are not funded through the state budget. Funding for its programs and operations comes from the sales of tax-exempt and taxable revenue bonds, and it sets its loan interest rates slightly higher than debt service costs and charges fees for specific services to cover its lending costs and risks. Historically, CalHFA has provided housing assistance in three areas: (1) below-market interest rate mortgages and downpayment assistance for first-time homebuyers, most of whom are low- and moderate income families and ethnic minorities not well-served by market rate products, (2) insurance for single-family home purchase mortgages, and (3) loans for the development of multifamily rental housing. These financial products are funded through sale of revenue bonds secured by the mortgage products and the underlying property. The operating costs of the agency are funded by origination and service fees, and the spread between the interest paid on its outstanding debt and the interest charged on the loans made.

CalHFA provides downpayment assistance loans to qualified borrowers in the form of deferred, “silent second” mortgages; the borrower makes payments on the first mortgage, but not the silent second, which is paid from proceeds when the borrower either sells or refinances the home. The agency received $150 million in general obligation bond funds for home purchase assistance from Proposition 1 (2018) to provide first and junior loan options for low- to moderate-income families, including low to zero interest rate down payment assistance loans. CalHFA also provides downpayment assistance through its MyHome program, which received a $100 million appropriation in the 2021-22 Budget Act. In order to be eligible for the agency’s downpayment assistance programs, an applicant must be: (a) be a first-time homebuyer; (b) occupy the property as a primary residence; non-occupant co-borrowers are not allowed; (c) complete homebuyer education counseling and obtain a certificate of completion through an eligible homebuyer counseling organization; and (d) meet specified income limits. Eligible properties include: single-family housing, one-unit residences, including approved condominiums; guest houses, granny units and in-law quarters; or manufactured housing.

More recently, the 2022-23 Budget Act included $500 million in one-time funding for CalHFA to implement the California Dream for All First Time Homebuyers Program, which provides shared-appreciation loans to first-time homebuyers with incomes below specified limits who complete a homebuyer education course. CalHFA-approved mortgage lenders generally issue loans to provide 20% of the purchase price, with a conventional mortgage covering the remaining 80%, and the Dream for All loan is paid in full when the home is sold or refinanced, and CalHFA retains 20% of any appreciation. The initial Budget Act allocation seeks to establish a revolving loan fund from which new loan applications are funded out of proceeds from repayments of previously-issued loans. In light of projected General Fund budget deficits, the Governor’s proposed 2023-24 Budget proposes to revert $200 million of the $500 million allocated last year. As of April 7, 2023, CalHFA announced that all available funds for the Dream for All program have been reserved.

Proposed Law:

SB 834, an urgency measure, would enact the California Family Home Construction and Homeownership Bond Act of 2022, which authorizes the issuance of $25 billion in general obligation bonds, upon approval by voters at the next statewide general election. The bill would establish the California Family Home Construction and Homeownership Program, require the allocation of up to $18 billion in bond proceeds to the California Homeownership Fund, and up to $7 billion to the California Family Home Construction Fund, and require CalHFA to implement and administer the program.

Regarding program administration, the bill would do the following:

• Require CalHFA to adopt rules and regulations approved by its board of directors to achieve the following:
  • Establish preferences providing loans.
  • Prescribe and determine qualifications of loan applicants.
  • Establish an application fee, not to exceed the reasonable amounts incurred by CalHFA to process an application.
  • Identify Californians who have faced discrimination or otherwise faced difficulty in accessing homeownership, and make available up to 25% of bond funds to assist these individuals in purchasing a home. CalHFA may redirect these funds if demand is insufficient.
  • Report annually to the Legislature on the activities of the agency in implementing the program, including the number of loans made, the characteristics of the borrowers, and the performance of the portfolio of loans, including repayment rates.
• Authorize CalHFA to issue revenue bonds in the principal amount it deems necessary to provide sufficient funding for financing the new loan programs.
• Authorize CalHFA to adjust loan limits, secondary mortgage loan interest rates, shared equity loan terms, minimum credit scores, and debt-to-income ratios at their discretion to support its funds or to satisfy federal standards and requirements established by Fannie Mae, Freddie Mac, or the Federal Housing Administration.
• Require CalHFA to establish consumer protection requirements on secondary mortgage loans, such as limits on interest rates, limits on bank fees, and a prohibition on early payment penalties.
• Authorize CalHFA to contract with state or federally chartered banks or savings and loan associations or other financial institutions for originating or servicing financing authorized by the bill.
• Require loan applicants to provide CalHFA with any information that will enable the agency to determine eligibility and qualifications.

California Homeownership Fund: SB 834 would require bond funds deposited into the Homeownership Fund to be continuously appropriated to CalHFA and used to fund California Socially Responsible Second Mortgage Loans, which would be used as a down payment or to pay closing costs on the purchase of a new home by an eligible applicants who satisfies all of the following criteria:

• Has income below 180% of AMI, as specified.
• Is the first owner-occupant of the home financed by a secondary mortgage loan.
• Agrees to pay all principal, interest, or other amounts due with respect to the loan upon transferring or refinancing the home, except as specified by CalHFA.
• Completes homeowner education and financial counselling courses before receiving a loan.

SB 834 would require a property financed with a secondary mortgage loan to meet all of the following requirements:

• The property must by a newly constructed single-family home, townhome, row-house, condo, or a manufactured home. If the property is a condominium, it must either have been part of a building retrofitted or repurposed for residential use within the last five years, or was vacant for 12 months prior and where the cost of rehabilitation was at least 10% of the building’s most recent sales price.
• The final sales price does not exceed an unspecified percentage of the median price for newly constructed homes in that county.
• The first mortgage debt has a term of at least 15 years.
• The applicant holds the property in fee simple, or through a long-term ground lease with a right of first refusal to purchase the property.
• All contractors and subcontractors performing work on the residential property being financed were or will be required to use a skilled and trained workforce, as defined.

California Family Home Construction Fund: SB 834 would require bond funds deposited into the Construction Fund to be continuously appropriated to CalHFA and used to provide Family Homeownership Opportunity Infrastructure Improvement Loans to qualified homebuilders for predevelopment infrastructure improvements and other upfront costs typically incurred in connection with new home construction. The bill would require a project eligible for a loan, including residential mixed-use projects with 2/3 of the square footage dedicated to residential uses, to satisfy all of the following:

• All contractors and subcontractors performing work on the project must have use or will use a skilled and trained workforce, and pay prevailing wages, as specified.
• The project must satisfy all state safety, renewable energy, and efficiency standards applicable to the project.
• The qualified homebuilder must provide a written commitment to CalHFA demonstrating that a minimum percentage of the homes being constructed, as determined by CalHFA’s executive director, are expected to be sold on terms that will qualify purchasers to utilize second mortgage loans originated under the bill. The homebuilder must enter a binding commitment with the agency to ensure secondary mortgage loans are made available to eligible purchasers.
• The project must be located within an urbanized area or urban cluster, as defined, or located within one mile a public transit or major transit stop, as specified.

SB 834 would entitle a project that satisfies the above requirements to qualify for the streamlined, ministerial approval process provided under SB 35 (Wiener), Chap. 366/2017, if it meets either of the following criteria and all other requirements in SB 35 are met:

• Instead of providing 10% of units affordable at 80% AMI under SB 35, the project can instead dedicate 10% affordable at to households making below 100% AMI. If a local inclusionary ordinance requires greater affordability requirements, the bill provides that the ordinance do not apply.
• Instead of providing 50% of units affordable at 80% area of AMI under SB 35, the project can instead dedicate 25% of units affordable at below 100% AMI. If a local inclusionary ordinance requires greater than 10% affordable units at 100% AMI, the bill provides that the ordinance does not apply.

SB 834 would also provide an exemption under the California Environmental Quality Act (CEQA) for a project for the construction of single-family homes that meets the requirements for a loan under the program and meets the following requirements:

• The project consists of the division of property in urbanized areas zoned for residential, commercial, or industrial uses into 50 or fewer parcels when the division is in conformance with the general plan and zoning.
• No variances or exceptions are required
• All services and access to the proposed parcels to local standards are available.
• The parcel does not have an average slope greater than 20%.

SB 834 states that the four-year limitation on causes for action for patent or readily discoverable construction defects applies to all causes action for latent defects if a project meets the requirements for the home construction program. The bill would also require CalHFA to establish enforcement mechanisms, including the imposition of fines and deed restrictions to ensure that homebuilders who take advantage of SB 35 streamlining, the CEQA exemption, or the construction defect liability provisions comply with all program requirements.

Repayment Fund: SB 834 would establish the California Family Home Construction and Homeownership Bond Payment Fund (Payment Fund) in the State Treasury as a revolving special fund, and specify that moneys in the Payment Fund are continuously appropriated to the State Treasurer for the sole purpose of paying debt service on bonds issued under the bill. The bill includes codified intent language indicating that, although bonds are backed by the full faith and credit of the State of California, they are intended to be self-liquidating to the extent loan repayments under the bill’s programs are sufficient, over time to retire the housing bonds. Specifically, this bill would do the following:

• Require CalHFA to set interest rates and other payment terms on financing under the bill’s programs at a level necessary, to the extent possible, to pay the interest on the general obligation bonds and to defray CalHFA’s administrative costs.
• Authorize CalHFA to amortize program loans over a period of up to 40 years, and to defer or extend loan payments on a case-by-case basis and for good cause.
• Authorize a borrower to pay any or all remaining loan balances at any time.
• Specify that if a borrower dies, all rights and obligations would devolve to the borrower’s heirs, devisees, or personal representatives, as specified.
• Require all moneys that CalHFA receives as a result of financing provided under the bill, including loan payments, loan prepayments, and from the sale or other disposition of loans, to be deposited in the Payment Fund and used for bond debt service, as specified.
• Authorize CalHFA to transfer funds in the Payment Fund to the Construction Fund or Homeownership Fund if moneys in the Payment Fund are not immediately needed for debt service, and an adequate reserve is maintained in the Payment Fund.

As long as any SB 834 bonds are outstanding, CalHFA’s executive director must require a survey of the financial condition of the funds “together with a projection of the funds” operations, by an independent public accountant of recognized standing. The accountant must return the results of the survey to the agency and the Legislature.

Related Legislation:

SB 1457 (Hertzberg), which was passed by the Senate last year, but never heard in the Assembly, was nearly identical to this bill.

SB 140 (Committee on Budget and Fiscal Review), Chap.111/2021, required the STO, in consultation with the CalHFA, HCD, and other relevant stakeholders to develop a framework for the California Dream for All First Time Homebuyers Program to reduce barriers to homeownership, and submit a report to the Legislature as soon as April 1, 2022, and no later than July 19, 2022.

SB 3 (Beall), Chap. 365/2017, authorized the issuance of $4 billion in general obligation bond for various existing housing programs, including $1 billion for the CalVet Home Loan Program, upon approval by the voters at the 2018 general election. This measure was approved by the voters as Proposition 1 of 2018.

Staff Comments:

CalHFA was initially established as the state’s affordable housing lender, with an independent and autonomous governance structure that allows it to effectively access capital markets and provide more affordable housing in the state. The independence provided to CalHFA allows it to be nimble and effectively navigate financial and capital markets, and to insulate the state from the inherent risks in the mortgage market. As noted above, CalHFA has its own established credit rating and is fully self-supporting and not subject to the state budget process, although funding has been provided to the agency through the budget at times to enhance its programs. By establishing two new programs that would be funded with general obligation bonds that are backed by the full faith and credit of the state, with an expectation for self-liquidation, this bill represents a departure from CalHFA’s financial independence.

CalHFA would need significant one-time and ongoing resources to establish and administer the programs established by this bill, including significant upgrades to existing systems and a substantial expansion of existing operations. Staff notes that CalHFA’s one-time startup costs noted below must be incurred prior to program implementation, and that the bill only provides for recovery for ongoing program administration costs. Absent the availability of other funding, staff assumes that CalHFA would need a significant appropriation, potentially from the General Fund, to cover its one-time startup costs. All ongoing annual administrative costs are expected to be covered through the interest rates and payment terms on financing provided under the new programs, as specified in the bill. CalHFA estimates a need for the following resources:

Homeownership Fund / Secondary Mortgage Loans: CalHFA estimates it would incur one-time startup costs of approximately $13.55 million to implement the homeownership program, including the following: (1) $10.5 million for a marketing campaign; (2) $500,000 to set up a new indenture; (3) $2 million for IT hardware and contracting support for programming; (4) $500,000 for additional state overhead, workstations, and supplies; and (5) $50,000 to set up an outside legal instrumentality. In addition, CalHFA estimates it would incur an additional $8.6 million in recurring annual costs in operating this program, including $5.3 million in costs for 37.0 PY of new staff and the following costs: (1) $200,000 for audit contracting; (2) $500,000 for IT consulting costs; (3) $2 million for lien recording and reconveyances; (4) $250,000 for outside counsel contracts; (5) $200,000 for additional office space; and (6) $100,000 for supplies and maintenance agreements.

Construction Fund / Infrastructure Improvement Loans: CalHFA estimates it would incur one-time startup costs of approximately $22.55 million to implement the construction program, including the following: (1) $2.5 million for a marketing campaign; (2) $50,000 to set up an outside legal instrumentality; (3) $500,000 to set up a new indenture; (4) $8 million for outside IT contracting for programming support; (5) $1 million for new IT hardware; (6) $500,000 for additional state overhead, workstations, and supplies; and (7) $10 million for a master servicer for construction loan processing. In addition, CalHFA estimates it would incur an additional $8.07 million in recurring annual costs in operating this program, including $5.3 million in costs for 28.0 PY of new staff and the following costs: (1) $1 million for IT consulting and systems support; (2) $1 million for outside legal counsel contracts; (3) $200,000 for audit contracting; (4) $500,000 for appraisal, title, and credit contracts; (5) $250,000 for third-party construction inspection contracts; and (6) $200,000 for additional office space.

Bond repayment: SB 834 provides for the issuance of $25 billion in general obligation bonds, upon approval by the voters in the next general election. While the bonds are secured by the full faith and credit of the State of California, the bill specifies that it is the intent of the Legislature, and voters adopting the measure, that the bonds will be “self-liquidating” to the extent that loan repayments are sufficient over time to retire the bonds. Staff notes that secondary mortgage loans are not due and payable until the home is sold or refinanced, and the bill also authorizes CalHFA to defer or extend loan payments. Repayment on secondary mortgage loans may be deferred for many years, but general obligation bonds must be repaid on a set schedule. The timing of loan repayments can depend upon a number of factors related to a borrower’s individual circumstances and overall economic forces. Staff assumes that it will likely be a number of years before loan repayments are sufficient to fully cover bond debt service. The General Fund must repay all of the bond debt in the early years of debt repayment, and to cover any shortfalls in future years in which loan repayments are insufficient to pay bond debt. Any loan payments not needed for bond debt service may be transferred to the Homeownership fund or the Construction Fund to provide additional loans.

SOS costs: SOS indicates that printing and mailing costs associated with placing a measure on the statewide ballot are estimated to be approximately $123,000 per page, based on the average for the last three elections, and depending on the length of the ballot. The fiscal estimates noted above reflect the addition of 6-8 pages in the Voter Information Guide. Actual costs would depend upon the length of the title and summary, analysis by the Legislative Analyst’s Office, proponent and opponent arguments, and text of the proposal.

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SENATE COMMITTEE ON GOVERNANCE AND FINANCE

Senator Anna M. Caballero, Chair

2023 - 2024 Regular

Housing: California Family Home Construction and Homeownership Bond Act of 2023

Enacts the California Family Home Construction and Homeownership Bond Act of 2023.

Background

California’s housing challenges. California faces a severe housing shortage. In its most recent statewide housing assessment, the Department of Housing and Community Development (HCD) estimated that California needs to build an additional 100,000 units per year over recent averages of 80,000 units per year to meet the projected need for housing in the state. A variety of causes have contributed to the lack of housing production. Recent reports by the Legislative Analyst’s Office (LAO) and others point to local approval processes as a major factor. They argue that local governments control most of the decisions about where, when, and how to build new housing, and those governments are quick to respond to vocal community members who may not want new neighbors. The building industry also points to challenges associated with California Environmental Quality Act (CEQA) review, and housing advocates note the lack of a dedicated source of funds for affordable housing.

CalHFA. The Legislature established the California Housing Agency (CalHFA) in 1975 to “make financing opportunities available for the construction, rehabilitation, and purchase of housing for persons and families of low or moderate income by borrowing in the securities markets and relending to housing sponsors, developers, and homeowners and insuring loans made by the agency or by others for the same purposes.” CalHFA is governed by its own Board of Directors, and is financially self-supporting. While the annual Budget Act may appropriate funds for specific purposes, CalHFA’s operations are not funded by the annual Budget Act.

CalHFA’s programs are authorized by its Board and carried out by the agency. Among these, CalHFA’s MyHome program provides down payment assistance in the form of deferred, “silent second” mortgages, equal to 3-3.5% of the purchase price of the home. The borrower makes payments on the first mortgage, but not the silent second, which is paid from proceeds when the borrower sells or refinances the home. CalHFA does not make direct loans, instead providing its services through over 200 CalHFA approved lenders who issue the first and second mortgage. CalHFA then purchases the mortgages, and bundles them into a mortgage-backed security, which is then sold to investors. CaHFA only purchases first mortgages that conform to rules set by federal Government-Sponsored Entities (GSEs), including the Federal National Mortgage Association (FNMA or ‘Fannie Mae’), the Federal Home Loan Mortgage Corporation (Freddie Mac), both regulated by the Federal Housing Finance Authority, the Federal Housing Administration or Veterans Administration.

The MyHome program assists between 8,000 and 13,000 purchasers each year, equal to 10% of California first-time homebuyers, and issues between $2 and $4 billion in mortgage backed securities each year. CalHFA indicates it has sufficient resources to meet current demand, which varies due to home prices, interest rates, and location within California. To qualify, applicants must:

• Be a first-time homebuyer;
• Occupy the property as a primary residence; non-occupant co-borrowers are not allowed;
• Complete homebuyer education counseling and obtain a certificate of completion through an eligible homebuyer counseling organization; and
• Meet CalHFA income limits.

While CalHFA is financially self-supporting and generally implements its own programs at the direction of its Board, it has implemented programs funded by bonds and the Budget Act, including:

• $150 million for home purchase assistance from Proposition 1 (2018) bond funds to provide first and junior loan options for low- to moderate-income families, including low to zero interest rate down payment assistance loans.
• $100 million in the 2021-22 Budget Act to expand the MyHome program, including to fund a Forgivable Equity Builder Loan, which gives first-time homebuyers a head start with immediate equity in their homes via a loan that is forgivable if the borrower continuously occupies the home as their primary residence for five years after closing.

California Dream for All. In 2021, the Legislature required the State Treasurer in coordination with CalHFA, HCD and other relevant stakeholders to develop a framework for the California Dream for All First Time Homebuyers Program (AB 140, Committee on Budget). The Treasurer selected the nonprofit organization, California Forward, to develop the framework to implement the program. The 2022-23 Budget Act included $500 million one-time General Fund for CalHFA to implement the program pursuant to statute (SB 197, Committee on Budget and Fiscal Review), which it did earlier this year. However, the Governor’s 2023-24 Budget proposes to revert $200 million of the $500 million appropriated last year.

The Dream for All program provides shared-appreciation loans to first-time homebuyers with incomes below specified limits who complete a homebuyer education course. Issued by CalHFA-approved mortgage lenders, loans generally provide 20% of the purchase price of a home, with a conventional mortgage paying the other 80%. The Dream for All loan is not paid monthly like the conventional one; instead, the borrower repays the loan in full when they sell or refinance, plus 20% of any appreciation to CalHFA (or 15% for borrowers under 80% of area median income (AMI). The initial Budget Act allocation seeks to establish a revolving loan fund from which new loan applications are funded out of proceeds from repayments from previously issued ones. Loans must be made in conjunction with first mortgage loan financing provided by CalHFA, and the agency must adopt policies implementing the program that ensure sustainability for the agency without significantly adversely affecting its borrowing capacity or ability to meet other affordable housing or agency needs.

CalHFA announced that all funds for the California Dream For All Shared Appreciation Loan program had been reserved as of April 7, 2023. News reports indicate that CalHFA allocated $288 million in initial funding to 2,564 homebuyers; however, the news reports stated that the homebuyers were disproportionately white, non-Latino, and living in the Sacramento area.^[1]

General Obligation (GO) bonds. When public agencies issue bonds, they essentially borrow money from investors, who provide cash in exchange for the agencies’ commitment to repay the principal amount of the bond plus interest in the future. Bonds are usually either revenue bonds, which repay investors out of revenue generated from the project the agency buys with bond proceeds or from a specific dedicated revenue source, or GO bonds, which the public agency pays out of general revenues and are guaranteed by its full faith and credit.

Section One of Article XVI of the California Constitution and the state’s GO Bond Law guide the issuance of the state’s GO debt. The Constitution allows the Legislature to place GO bonds on the ballot for specific purposes with a two-thirds vote of the Assembly and Senate. Voters also can place bonds on the ballot by initiative, as they have for parks, water projects, high-speed rail, and stem cell research, among others. Either way, GO bonds must be ratified by majority vote of the state’s electorate. Unlike local GO bonds, approval by the state’s electorate does not automatically trigger an increased tax to repay the bond. The Constitution commits the state to repay investors from general revenues above all other claims, except payments to public education.

California voters approved $38.4 billion of GO bonds between 1974 and 1999, which increased significantly to $112 billion between 2000 and 2010, then decreased to slightly less than $28 billion between 2010 and 2018. In 2020, voters approved Proposition 14, which authorized $5.5 billion state bonds for stem cell and other medical research, but rejected Proposition 13, which would have authorized the issuance of $15 billion in bonds to finance capital improvements for public and charter schools statewide.

Bond acts have standard provisions that authorize the State Treasurer to sell a specified amount of bonds, and generally include several uniform provisions that:

• Establish the state’s obligation to repay them, and pledge its full faith and credit to repayment;
• Set forth issuance procedures, and link the bond act to the state’s GO Bond Law;
• Designate a finance committee with specified membership, chaired by the State Treasurer;
• Charge the committee with determining whether it is “necessary or desirable” to issue the bonds; and
• Add other mechanisms necessary for the State Treasurer and the Department of Finance (DOF) to implement the bond act, including allowing the board to request a loan from the Pooled Money Investment Board to advance funds for bond-funded programs prior to the bond sale, among others.

In bond acts, the Legislature generally:

• Sets forth categories of projects eligible for bond funds, such as library construction or school facility modernization;
• Chooses an administrative agency to award the funds, such as the State Librarian or the State Allocation Board;
• Details the criteria to guide the administrative agency’s funding in each category;
• Enacts enforcement and audit provisions; and
• Provides for an election to approve the bond act.

Should the voters approve the bond act, the Legislature generally appropriates funds to the chosen agencies to fund projects consistent with the criteria, generally as part of the Budget Act. However, some bond acts do not require direct legislative appropriation, such as school facility bonds. DOF surveys agencies to determine the need for bond funds based on a project’s readiness, and then asks the State Treasurer to sell bonds necessary to fund those projects. After the bond sale, DOF determines which bond acts and agencies receive bond proceeds.

In 2018, voters approved Proposition 1, the Veterans and Affordable Housing Bond Act of 2018, which authorized the issuance of $3 billion in GO bonds for several affordable housing construction programs at HCD. According to the State Treasurer, $2.54 billion of Proposition 1 bonds remain unissued.

SB 35. In 2017, the Legislature enacted a substantial package of legislation aimed at addressing the state’s housing crisis. Among others, the Legislature enacted SB 35 (Wiener, 2017) to provide a streamlined, ministerial process for approving housing developments that comply with the applicable objective local planning standards - including the general plan, zoning ordinances, and objective design review standards. In addition, to be eligible for streamlining under SB 35, a specified percentage of the total housing units in the development must be affordable to lower-income households (those under 80 percent of area median income), as follows:

• 10 percent, if the locality has not issued building permits for enough above moderate-income - greater than 120 percent of AMI - units to meet their regional housing needs allocation (RHNA);
• 50 percent, if the locality has not issued building permits for enough lower-income units to meet their regional housing needs allocation; or
• The percentage in a local inclusionary zoning ordinance if it is higher than the requirements above.

All but 29 cities and counties in California are subject to some streamlining under SB 35 because they have not issued building permits to housing units sufficient to meet their RHNA at one or more income levels. SB 35 also included certain requirements for labor standards, such as the use of a skilled and trained workforce on an eligible project. However, SB 35 exempts projects of 10 housing units or less from the affordability requirements and labor standards.

CEQA. CEQA requires lead agencies with the principal responsibility for carrying out or approving a proposed discretionary project to prepare a negative declaration, mitigated declaration, or environmental impact report for this action, unless the project is exempt from CEQA. CEQA provides a process for evaluating the environmental effects of a project, and includes statutory exemptions, as well as categorical exemptions in the CEQA guidelines. If a project is not exempt from CEQA, an initial study is prepared to determine whether a project may have a significant effect on the environment. If the initial study shows that there would not be a significant effect on the environment, the lead agency must prepare a negative declaration. If the initial study shows that the project may have a significant effect on the environment, the lead agency must prepare an environmental impact report. When local agencies approve housing developments under SB 35, they do so ministerially, so CEQA does not apply to them.

Construction defect litigation. In California, lawsuits alleging defects in construction are governed by two special construction statutes: California Code of Civil Procedure §337.1 sets a four-year limit on the right to commence an action based on patent, or readily discoverable defects, but §337.15, imposes a ten-year limitation on the right to commence an action based on latent, or hidden defects. These two sections set explicit time limits on the right to initiate construction defect lawsuits against developers, contractors or design professionals.

Debt collections. California generally limits creditors from filing a lawsuit to collect a debt based on a written agreement to four years, which applies to credit card debts, auto loans, personal loans, private student loans, and medical debts. Judgment liens enforced on a borrower's property can last for as long as 10 years, even if the ownership of the property changes.

Seeking to increase home ownership in California, the author wants the state to issue $25 billion in GO bonds to fund second mortgage and construction loan programs implemented by CalHFA, and make changes to SB 35, CEQA, and construction defect litigation to spur additional housing construction.

Proposed Law

Senate Bill 834 enacts the California Family Home Construction and Homeownership Bond Act of 2023, which:

• Creates the California Family Home Construction and Homeownership Program to be administered and implemented according to rules and regulations set by CalHFA’s Board;
• Expands SB 35’s expedited ministerial process;
• Provides a CEQA exemption for projects eligible for the bill’s construction loan program and that meet additional criteria set by the bill;
• States that the shorter time limit for construction defects applies to any housing project eligible for its home construction loan program;
• Devolves any debt obligation under the program to the borrower’s heirs, devisees, or personal representatives; and
• Authorizes the issuance of $25 billion in GO bonds, and enacts provisions to create a repayment fund.

As part of implementation, SB 834 directs CalHFA to:

• Establish preferences providing loans.
• Prescribe and determine loan eligibility.
• Establish an application fee, not to exceed the reasonable amounts incurred by CalHFA to process an application.
• Identify Californians who have faced discrimination or otherwise faced difficulty in accessing homeownership. The bill sets aside 25% of bond funds for these Californians, although CalHFA may redirect them if demand is insufficient.
• Report annually to the Legislature on the activities of the agency in implementing the program, including the number of loans made, the characteristics of the borrowers, and the performance of the portfolio of loans, including repayment rates.

The California Family Homeownership Program. SB 834 directs proceeds from the sale of its bonds to California Socially Responsible Second Mortgage Loans, which can be used as a down payment or to pay closing costs on the purchase of a new home for applicants who:

• Have income below 180% of AMI;
• Are the first owner-occupant of the home financed by the loan;
• Agree to pay all principal, interest, or other amounts due with respect to the loan upon transferring or refinancing the home; and
• Complete homeowner education and financial counselling courses.

The bill specifies that loans can only be made properties that:

• Are a newly constructed single-family home, townhome, row-house, condo, or manufactured home. If the property is a condo, it must either have been part of a building retrofitted or repurposed for residential use, or was vacant for 12 months prior and where the cost of rehabilitation was at least 10% of the building’s most recent sales price.
• The final sales price does not exceed an unspecified percentage of the median price for newly constructed homes in that county.
• The first mortgage debt has a term of at least 15 years.
• The applicant holds the property in fee simple, or through a long-term ground lease with a right of first refusal to purchase the property.
• Where all contractors and subcontractors performing work on the residential property being financed used or will use a skilled and trained workforce, as defined.

The CalHFA executive director can adjust loan limits, secondary mortgage loan interest rates, shared equity loan terms, minimum credit scores, and debt-to-income ratios at their discretion to support its funds or to satisfy federal standards and requirements established by Fannie Mae, Freddie Mac, or the Federal Housing Administration. The bill also requires the CalHFA executive director to establish consumer protection requirements on secondary mortgage loans, such as limits on interest rates, limits on bank fees, and a prohibition on early payment penalties.

The California Home Construction Program. SB 834 directs proceeds from the sale of its bonds to Family Homeownership Opportunity Infrastructure Improvement Loans, which are secured infrastructure loans to qualified homebuilders for predevelopment infrastructure improvements and other upfront costs typically incurred in connection with new home construction. To be eligible for a loan, a project:

• Must have all contractors and subcontractors performing work on the project use a skilled and trained workforce.
• All contractors and subcontractors performing work on the project were or will be required to pay at least the general prevailing rate of per diem wages for the type of work and geographic area, as determined by the Director of Industrial Relations, except that apprentices registered in programs approved by the Chief of the Division of Apprenticeship Standards may be paid at least the applicable apprentice prevailing rate.
• Workers and their representatives have a practicable means of monitoring and enforcing compliance with the above labor standards.
• Must satisfy all state safety, renewable energy, and efficiency standards applicable to the project.
• Have a qualified homebuilder who provides a written commitment to CalHFA demonstrating that a minimum percentage of the homes being constructed, as determined by CalHFA’s executive director, are expected to be sold on terms that will qualify purchasers to utilize second mortgage loans originated under the bill.
• Have a qualified homebuilder who enters a binding commitment with the agency to work with the CalHFA executive director to ensure secondary mortgage loans are made available to eligible purchasers.
• Is located within an urbanized area or urban cluster, as defined by the United States Census Bureau, or located within one mile of a public transit or major transit stop, as defined, or a major transit stop that is included in an applicable regional transportation plan.
• Is a residential, mixed-use project if at least two-thirds of the square footage is designated for residential use.

CalHFA may require borrowers under either program to provide information that will allow the agency to determine their eligibility and qualifications. The agency may also contract with banks and federally chartered financial institutions to originate or finance the bill’s loan programs. CalHFA must also establish enforcement mechanisms, including the imposition of fines and deed restrictions, to ensure that builders of homes receiving infrastructure improvement loans or who make use of any of the bill’s benefits comply with all its requirements.

SB 35. SB 834 states that SB 35’s expedited ministerial approval process applies to projects that meet either of the following criteria, so long as all other requirements in SB 35 are met:

• Instead of providing 10% of units affordable at 80% AMI under SB 35, the project can instead dedicate 10% affordable units to households making below 100% AMI. If a local inclusionary ordinance requires greater affordability requirements, the bill provides that the ordinance does not apply.
• Instead of providing 50% of units affordable at 80% AMI under SB 35, the project can instead dedicate 25% of units affordable at below 100% AMI. If a local inclusionary ordinance requires greater than 10% affordable units at 100% AMI, the bill provides that the ordinance does not apply.

CEQA. SB 834 exempts from CEQA a project for the construction of new single-family homes if the project is eligible for the bill’s home construction program, and:

• The project consists of the division of property in urbanized areas zoned for residential, commercial, or industrial uses into 50 or fewer parcels when the division is in conformance with the general plan and zoning.
• No variances or exceptions are required.
• All services and access to the proposed parcels to local standards are available.
• The parcel does not have an average slope greater than 20%.

Construction defect litigation. SB 834 states that the four-year limitation on causes for action for patent or readily discoverable construction defects applies to all causes for action for latent defects if a project meets the requirements for the home construction program.

Debt collection. SB 834 states that if a borrower indebted to CalHFA under the bill’s programs dies, the borrower’s rights and obligations under a financing contract entered into devolve upon their heirs, devisees, or personal representatives, subject to all rights, claims, and charges of CalHFA. The bill also states that if the borrower’s heir, devisee, or personal representative then defaults, it has the same effect as would default on the part of the borrower.

GO bonds. SB 834 places before voters at the November, 2022, statewide general election an authorization to issue $25 billion in bonds, $18 billion of which are allocated to the measure’s homeownership program, and the remaining $7 billion to its home construction program. Once the bonds are sold, the measure deposits bond proceeds into the appropriate fund, and continuously appropriates them to CalHFA to implement the bill’s programs. However, the bill allows CalHFA’s executive director to transfer money from one fund to another if they are not utilized.

The bill directs the Treasurer to prepare, execute, issue, sell, pay and redeem its bonds as provided in the GO Bond Law, and incorporates standard provisions in Bond Acts, including pledging the state’s full faith and credit in punctual repayment of principal and interest as they become due and payable. The measure also requires that the state collect revenues necessary to pay principal and interest on the bonds as they become due each year, and continuously appropriates funds from the General Fund to do so.

The bill creates the California Family Home Construction and Homeownership Act Finance Committee, consisting of the Controller, the Treasurer, the Director of DOF, and CalHFA’s executive director, and charges it with determining whether it is necessary and desirable to issue bonds. Unlike other bonds, the bill permits the Committee to authorize the Treasurer to sell its bonds at less than par value.

Repayment Fund. If approved by voters, SB 834 authorizes the issuance of GO bonds, backed by the state’s full faith and credit and continuously appropriates funds from the General Fund to do so. However, the measure also enacts provisions for the purpose of paying debt service on its bonds from money received from loan repayments.

First, the bill directs CalHFA to set interest rates and other payment terms on financing at levels necessary, to the greatest extent possible, to pay the interest on the bonds issued under the bill and to pay its costs of administration. CalHFA may amortize loans for up to 40 years. Borrowers may pay any or all of the balance due on any loan payment date. The agency may defer or extend payment for good cause.

Next, the bill provides that all moneys received in receipt from financing under the bill must be deposited in the payment funds, which the bill creates for both the homeownership and construction loan programs, which are continuously appropriated to the Treasurer to pay debt service. Once moneys are in the fund, the bill precludes the General Fund from borrowing or transferring them, and states that they are not surplus funds for state investment purposes.

However, the bill permits the executive director of CalHFA to transfer moneys in the payment funds not immediately needed for paying principal and interest on the bonds back to the Homeownership Fund or the California Family Home Construction Fund, provided that an adequate reserve is maintained in the payment fund. Lastly, the measure includes funds deposited in the payment funds as part of the amounts transferred from the General Fund to make payments of principal and interest due on its bonds.

As long as any SB 834 bonds are outstanding, CalHFA’s executive director must require a survey of the financial condition of the funds' together with a projection of the funds’ operations, by an independent public accountant of recognized standing. The accountant must return the results of the survey to the agency and the appropriate policy committees dealing with housing and consumer finances in the Senate and the Assembly.

The bill also authorizes CalHFA to issue revenue bonds in amounts it deems necessary. The bill allows the Legislature to amend SB 834’s program to improve its efficiency and effectiveness of the program, or to further the goals of the program. SB 834 also defines several terms, creates funds in the State Treasury for its programs, and makes legislative findings and declarations supporting its purposes.

State Revenue Impact

No estimate.

Comments

1. Purpose of the bill. According to the author, “The high cost of building new housing in California imposes a significant drag on the state’s economy, squeezes household budgets, and deprives Californians of opportunities to build wealth through home equity. In recent years, production of new housing across the state has lagged far behind the growth in jobs and household formation. We have a responsibility to create more opportunities for first-time – and often left-behind – homebuyers to purchase a home, thrive in the middle class, and build generational wealth. SB 834 will place a $25 billion voter-approved general obligation bond on next statewide general election to finance homeownership opportunities and promote new home construction.”

2. Big problem, big money. To respond to one of its most pressing public policy problems, SB 834 proposes the single largest bond authorization in California’s history. If approved by voters, SB 834 would increase California’s amount of outstanding GO bonds by 27% ($67.9 billion to $92.9 billion), and would almost double its authorized but unissued GO bonds ($27 billion to $52 billion. These figures do not include other GO bonds introduced in the Senate (see Comment #9). While the Treasurer will not sell the bill’s entire authorized amount at once, approving GO bonds trigger a greater percentage of the General Fund being dedicated to debt service, which reduces funds available for other General Fund programs. Additionally, SB 834 bonds will carry higher interest rates than other state GO debts because investors won’t be able to exclude interest payments from state or federal interest rates because proceeds don’t fund public works. While SB 834 includes provisions intended to repay state debt service costs from repayments, the Committee may wish to consider whether adding $25 billion in GO debt is worth the potential risk to the General Fund to meet its future obligations.

3. Repayments. As a GO bond under the California Constitution, SB 834 includes provisions intended to repay state debt service costs, directing funds from loan repayments into funds from which the state repays its bondholders. The General Fund’s obligations are reduced or erased to the extent that loan repayments transferred exceed debt service. However, whether repayment will equal debt service costs, or will be received on the same schedule as principal and interest payments come due is difficult to know with certainty, and depends on future events. While the bill allows borrowers to repay loans at any time, repayments will generally occur once a homeowner with an SB 834 loan sells or refinances. If home prices continue growth of recent years, borrowers will soon be able to sell or refinance, and repay CalHFA quickly. If not, it will take longer for a borrower owning property financed with an SB 834 loan to repay the loan. However, GO bonds must be repaid according to schedules agreed upon when the bonds are sold. SB 834 contains provisions allowing the state to defer debt service payments in the form of zero coupon or capital appreciation bonds, but investors demand even higher interest rates if payments are deferred, which further increases debt service costs. Additionally, after many years of historically low interest rates, the state’s borrowing costs have increased in the last year (see Comment #7), and after a significant increase during the COVID-19 pandemic, since 2022, the state’s median home price has fallen 16.5% to hit $751,330 in January, according to the California Association of Realtors. The Committee may wish to assess the risk that repayments will not match debt service obligations, especially in an environment of higher interest rates and slowing home price growth.

4. Duplicating efforts. SB 834 directs CalHFA to implement its program, which overlaps with the MyHome and Dream for All programs, with some key differences. CalHFA’s current programs can recycle funds quickly and pose little credit risk because its silent second loans are only 3-3.5% of the purchase price, and the agency only buys loans guaranteed by GSEs. SB 834 does not set a limit on its loan amounts, and does not apply solely to GSE loans. The Dream for All program is similar to SB 834 as it finances the down payment and closing costs, and is secured by a silent second mortgage that is satisfied when the borrower sells or refinances the home; however, borrowers under Dream for All must repay a portion of any appreciation to CalHFA when satisfying the silent second.

5. SB 35. SB 834 expands the streamlined ministerial process enacted by SB 35 by both lowering the AMI threshold for restricted units, and providing that SB 834 projects need not comply with higher affordability requirements in local ordinances. Unlike SB 35, a project that would otherwise be required to restrict at least 10 percent of the units to be affordable to households at 80 percent AMI or below, would only need to restrict 10 percent at 100 percent AMI under SB 834. If SB 35 requires 50 percent of the units to be affordable to households at 80 percent AMI, this bill provides that the project provide only 25 percent of the units affordable to 100 percent AMI, and overrides a local ordinance if it requires over 10 percent affordable units. SB 35 and other streamlining bills such AB 2162 (Chiu, 2018) allow local governments with higher inclusionary ordinances to apply a higher percentage of affordability requirement, which SB 834 eliminates for its projects. Local governments adopt local inclusionary ordinances that require developers to either include a percentage of affordable housing on site in a development or pay a fee to support affordable housing construction elsewhere in the community, and are often a key tool local governments use to increase the supply of affordable housing.

6. Something new. While CalHFA currently operates a successful first time homebuyer assistance program, it does not currently directly make loans to homebuilders before construction commences. CalHFA does make permanent first and subordinate loans to builders upon the completion of construction for individual affordable projects. To implement the bill, the agency would have to hire new staff with the expertise to assess risks necessary to underwrite construction loans, and pay for facilities and information technology for them to use. Additionally, it’s unclear whether construction firms currently lack the ability to obtain financing on good terms from banks and financial institutions, and whether a state-operated program would provide a superior option.

7. Rates. In March 2020, in response to the COVID-19 pandemic, the Federal Open Markets Committee cut the federal funds rate twice, setting the range between zero and 0.25%. One year later, in response to rising inflation, the Committee began a series of rate increases, with a current range of 4.75% to 5%. Changes in the federal funds rate has broad effects on the economy, including for states when issuing GO bonds; higher interest rates mean that borrowers pay more when borrowing the same amount of debt, all else equal. The conflict in Ukraine, the lingering impacts from the COVID-19 pandemic, and other trends have caused market fluctuations in interest rates for governments issuing tax-exempt debt. According to the DAR, until October 2021, tax-exempt rates lagged and remained low through the end of December; however, starting in January 2022, tax-exempt interest rates began to rise sharply, snapped back briefly in May and early June, but those gains reversed very quickly. Data from the state’s last four bond sales demonstrates these fluctuations:

• Bond sales between March 2020 and 2021 generally had all-in interest costs just above 2%, and yields between 0.06% and 2.58% depending on duration.
• The March 2022 sale of $2.3 billion in bonds had an all-in true interest cost of 3.09%, and yields ranging from .94% to 3.29%.
• The September 2022 sale of $2.3 billion in bonds had an all-in true interest cost of 3.93%, and yields ranging from 2.34% to 4.3%.
• The April 2023 sale of $2.6 billion in bonds had an all-in true interest cost of 3.63%, and yields ranging between 2.21% to 3.98%.

Given recent fluctuations in interest rates, it’s unclear what the true cost to the state’s General Fund will be when currently authorized, or any newly approved, bonds are sold. For example, a taxable $25 billion bond with a 30 year maturity issued at a 4% interest rate would have a total debt service of $43.3 billion, or $1.45 billion per year. The same bond issued at a 6% interest rate has a total debt service of $54.4 billion, or $1.8 billion per year, assuming the same inflation rate and yield.

8. Help from our friends. The Senate Rules Committee ordered a double-referral for SB 834 to the Committees on Housing and Governance and Finance. However, the measure also fell within the jurisdiction of the Committee on Judiciary. The Judiciary Committee noted the following with regard to this bill:

“This bill decreases existing statute of limitations for bringing a cause of action for a latent defect against a developer of any project that receives financing from the Fund from 10 years to 4 years. This would result in certain property owners having different rights under the law. It is unclear the policy justification for this differential treatment and whether it is warranted or equitable. Notice of these differential rights should be provided to purchasers of these properties so they are aware they have different rights under the law.”

“Section 51572 of the bill essentially provides that if a person indebted to the agency under a financing contract dies, the bill would, by operation of law, transfer to the borrower’s heirs, devisees, or personal representative that debt, regardless if the heirs, devisees, or personal representative themselves signed the contract for financing, and would provide that default by an heir, devisee, or personal representative of the deceased borrower would have the same effect as a default on the part of the borrower with respect to any right, claim, or charge of the agency. There is no other analogous provision of law in existing statutes. There are provisions of law that hold the community estate liable for the debts of a deceased spouse, but none that would pass a debt on to a decedent’s other heirs, devisees, or personal representative. The ramifications and unintended consequences of making the debt of a borrower legally the responsibility of their heirs, devisees, or personal representative, instead of having it be handled in the same manner as other debts under existing law could be vast and lacks a clear justification.”

9. Future attractions. In addition to SB 834’s proposed $25 billion for home ownership, three other Senate Bills seek to place authorizations for GO bonds before voters:

• SB 28 (Glazer) proposes $15.5 billion for preschool, K-12, CSU, and UC facilities. The Committee on Education approved the bill by a vote of 7 to 0 on March 22, and by the Governance & Finance Committee by a vote of 6 to 1 at its April 19^th hearing.
• SB 638 (Eggman) proposes $6 billion general obligation bond before voters in the November 2024, general election to finance flood control efforts. The Natural Resources Committee approved the bill by a vote of 9 to 0 on March 28^th, and the Governance & Finance Committee by a vote of 7 to 1 at its April 19^th hearing.
• SB 867 (Allen) proposes $15.5 billion for drought, wildfire, and other climate resilience projects. The measure is also set for hearing in the Governance and Finance Committee on April 26^th.

10. Incoming! The Committee on Housing approved SB 834 by a vote of 8 to 2 on April 18^th. The Committee on Governance and Finance is hearing the measure as the committee of second reference.

11. Urgency. In addition to being a GO Bond Act, as an urgency statute, SB 834 must be approved by 2/3 vote of each house of the Legislature. Regular legislation takes effect on the January 1 following its passage, but urgency bills take effect as soon as they are passed, signed, and chaptered.

Support and Opposition

(4/21/23)

Support: Mission Street Neighbors

Opposition: California Housing Consortium
California Housing Partnership Corporation
Western Center on Law & Poverty, INC.
1 Individual

-- END --

1. Alexander Lazo and Ben Christopher (April 11, 2023). “California approved $300 million in state-backed home loans. Who got the money?” Cal Matters. https://calmatters.org/housing/2023/04/california-first-time-homebuyer-assistance-demographics/ ↑

SENATE COMMITTEE ON HOUSING

Senator Scott Wiener, Chair

2023 - 2024 Regular

Bill No: SB 834 Hearing Date: 4/18/2023

SUBJECT: Housing: California Family Home Construction and Homeownership Bond Act of 2023

DIGEST: This urgency bill dedicates $25 billion in general obligation bonds, subject to voter approval, for homeownership opportunities, including $18 billion for mortgage loans for first time homebuyers and $7 billion in infrastructure loans for new home construction, as specified.

ANALYSIS:

Existing law:

1. Authorizes the California Housing Finance Agency (CalHFA) to make loans to housing sponsors for housing developments and to qualified mortgage lenders, among others. Provides that the primary purpose of CalHFA is to meet the housing needs of persons and families of low- or moderate-income.
2. Provides that CalHFA is administered by a board of directors and is supervised on a day-to-day basis by an executive director.
3. Establishes the California Dream for All Program at CalHFA.
4. Establishes a number of housing assistance programs for affordable housing at the Department of Housing and Community Development (HCD).
5. Authorized, upon approval by the voters as Proposition 1 in the November 6, 2018 general election, the issuance of $3 billion in general obligation (GO) bonds for several affordable housing construction programs at HCD.
6. Authorized, upon approval by the voters as Proposition 2 in the November 6, 2018 general election, the issuance of $2 billion in GO bonds for the No Place Like Home Program at HCD.

This urgency bill:

1. Creates the California Family Home Construction and Homeownership Program, which shall be administered by CalHFA.
2. Requires CalHFA to adopt rules and regulations approved by a board of directors (Board) to achieve the following:

• 1. Establish preferences in providing loans.
  2. Prescribe and determine the qualifications of applicants under the program.
  3. Establish an application fee, which shall not exceed the reasonable amount incurred by CalHFA to process an application.
  4. Identify Californians who have faced discrimination or otherwise faced difficulty in accessing homeownership and make available up to 25% of bonds to assist these individuals in purchasing a home.
  5. Report annually to the Legislature on the activities of the agency in implementing the program, including the number of loans made, the characteristics of the borrowers, and the performance of the portfolio of the loans, including repayment rates.

1. Requires proceeds of the bonds issued and sold pursuant to this part be allocated as follows:
   1. Up to $18 billion to be deposited in a Homeownership Fund to increase homeownership opportunities by providing secondary mortgages to qualified homebuyers, including first-time home buyers, renters, and Californians who have historically faced discrimination in accessing homeownership.
   2. Up to $7 billion to fund home building infrastructure improvement loans.

First Time Homebuyer Mortgage Assistance Funds

1. Requires money for the Homeownership Fund to provide secondary mortgage loans to eligible applicants to use as a down payment or to pay closing costs on the purchase of a newly constructed home. Eligible applicants include:
   1. An applicant who has an income below an unspecified moderate-income limit.
   2. An applicant who is a first owner-occupant of the home being financed.
      
   3. The applicant shall agree to pay all principal, interest, and other amounts due with respect to the secondary mortgage loan upon transferring or refinancing the home financed by the secondary mortgage loan, except as otherwise provided by CalHFA.
   4. An applicant shall be required to complete homeowner’s education courses and financial counseling before receiving a second mortgage loan.
2. Requires a secondary mortgage loan be made to finance property that meets all the following requirements:
   1. The property for a secondary mortgage loan shall be either:
      1. A newly constructed single-family home, townhome, row-house, condo, or manufactured home, or
      2. A condominium or other residential unit in a building that satisfied either of the following:
         1. Within the previous five years, the unit was a nonresidential structure, and was retrofitted or repurposed for residential use; or
         2. The unit was vacant for the 12 months prior to the applicants purchase and was rehabilitated using federal funds, as specified.
   2. The final sales price of the property does not exceed an unspecified percentage of the median price for newly constructed homes in the county.
   3. The first mortgage debt of the property shall have a term of at least 15 years.
   4. The terms of the financing provide that the applicant will hold the property in fee simple or hold the property through a long-term ground lease with a right of first refusal to purchase the property.
   5. All contractors and subcontractors performing work on the residential property being financed used or will use a skilled and trained workforce.

New Construction Infrastructure Loans

1. Requires money for the Family Home Construction Fund to provide secured infrastructure loans to qualified homebuilders to be used for predevelopment infrastructure improvements and other upfront costs typically incurred in connection with new home construction.
2. Requires a project receiving a Family Home Construction Infrastructure Loan to satisfy all of the following:
   1. All contractors and subcontractors performing work on the residential property being financed used or will use a skilled and trained workforce.
   2. The project will satisfy all state safety, renewable energy, and efficiency standards applicable to the project.
   3. The qualified homebuilder provides a written commitment to the CalHFA demonstrating that a minimum percentage of the homes being constructed are expected to be sold on terms that will qualify purchasers to utilize second mortgage loans (see 4 & 5 above). The qualified homebuyer will enter a binding commitment with the agency to work with CalHFA to ensure secondary mortgage loans are made available to eligible purchasers.
3. Authorizes a project to use a streamlined, ministerial process created by SB 35 (Wiener, Chapter 366, Statutes of 2017) if it satisfies all the following:
   1. The project satisfies one of the following:
      1. If the project is required to provide 10% affordable units at 80% area median income (AMI) as required for SB 35 streamlining, the project seeking approval shall instead dedicate 10% affordable units at to households making below 100% AMI. If a local inclusionary ordinance requires greater affordability requirements, that ordinance shall not apply.
      2. If the project is required to provide 50% affordable units at 80% AMI as required to qualify for SB 35 streamlining, the project seeking approval shall instead dedicate 25% affordable units at to households making below 100% AMI. If a local inclusionary ordinance requires greater than 10% affordable units at 100% AMI, that ordinance shall not apply.
   2. All other requirements under SB 35 apply.
4. Provides that a project that meets the requirements under the California Environmental Quality Act (CEQA) shall be exempt if the project is for the construction of new single-family homes and meets the following requirements:
   1. The project consists of the division of property in urbanized areas zoned for residential, commercial, or industrial uses into 50 or fewer parcels when the division is in conformance with the general plan and zoning.
   2. No variances or exceptions are required.
   3. All services and access to the proposed parcels to local standards are available.
   4. The parcel does not have an average slope greater than 20%.
5. Requires CalHFA to set the interest rates and other payment terms on financing at levels necessary to pay the interest on the bonds issued and to defray costs of administration.
6. Authorizes the principal balance of the loans to be amortized over a period fixed by CalHFA, not exceeding 40 years, together with interest or other consideration for the state, as specified.
7. Authorizes CalHFA on a case-by-case basis, for good cause, to defer or extend the payment of the whole or any part of any loan payment, upon terms CalHFA determines proper.
8. Requires all causes of action seeking damages arising from a latent defect of a new construction project authorized by (6) above, shall be subject to specified limitations and statute of limitations identified in existing law related to improvements to real property.
9. Establishes a committee solely for the purpose of issuing the sale of the GO bonds, and is comprised of the State Controller, State Treasurer, and Director of Finance.
10. States the intent of the Legislature and the voters in enacting this bill that the bonds shall be backed by the full faith and credit of the State of California but will be self-liquidating to the extent repayments of mortgage loans.

COMMENTS:

1. Author’s statement. “The housing market in California is the center of the American housing crisis. The high cost of building new housing imposes a significant drag on the state’s economy, squeezes household budgets, and deprives Californians of opportunities to build wealth through home equity. In recent years, production of new housing across the state has lagged far behind the growth in jobs and household formation. We have a responsibility to create more opportunities for first-time – and often left-behind – homebuyers to purchase a home, thrive in the middle class, and build generational wealth. SB 834 will place a $25 billion voter-approved general obligation bond on next statewide general election to finance homeownership opportunities and promote new home construction.”
2. CalHFA background. CalHFA is the state’s affordable-housing bank. CalHFA borrows money from the private financial market at below-market interest rates by issuing tax-exempt revenue bonds. CalHFA passes these interest rate savings on to low- and moderate-income first-time homebuyers and affordable rental housing developers by offering below market-rate mortgages. These bonds are backed only by CalHFA revenues and not by the state General Fund. CalHFA also provides down payment assistance in the form of deferred, “silent second” mortgages (i.e., the borrower makes no monthly payments but repays the loan at sale or refinance) for families who need extra assistance achieving homeownership. CalHFA received $150 million for home purchase assistance from Proposition 1 (2018) bond funds to provide first and junior loan options for low- to moderate-income families, including low to zero interest rate down payment assistance loans.

In order to be eligible for CalHFA’s down payment assistance programs, the applicant must be: (a) be a first-time homebuyer; (b) occupy the property as a primary residence; non-occupant co-borrowers are not allowed; (c) complete homebuyer education counseling and obtain a certificate of completion through an eligible homebuyer counseling organization; and (d) meet CalHFA income limits for this program. Eligible properties include: single-family, one-unit residences, including approved condominium; guest houses, granny units and in-law quarters; or manufactured housing.

1. California Dream for All Program. In addition to the programs listed in Comment 2, the Legislature created the California Dream for All program in the 2022-23 budget. This program, which is still in design process, authorizes CalHFA to provide shared-appreciation loans to help low- and moderate-income first-time homebuyers achieve homeownership. The shared appreciation loans will provide funding to assist with down payments and closing costs.
2. Recent GO Bond bills. In 2018, voters approved Proposition 1, which dedicates $4 billion in GO bonds for housing, including $1 billion to the Cal-Vet Farm and Home Loan Program and $3 billion to housing programs for low- and moderate-income persons. In the same year, voters also approved Proposition 2, which dedicated $2 billion in bond proceeds from the Mental Health Services Act (MHSA). MHSA was approved by voters in 2004 through the passage of Proposition 63 to invest in the development of permanent supportive housing of persons who are in need of mental health services and are experiencing homelessness, chronic homelessness, or are at-risk of chronic homelessness.
3. Zoning ordinances. Cities and counties enact zoning ordinances to implement their general plans. Zoning determines the type of housing that can be built. In addition, before building new housing, housing developers must obtain one or more permits from local planning departments and must also obtain approval from local planning commissions, city councils, or county board of supervisors. A zoning ordinance may be subject to CEQA if it will have a significant impact upon the environment. The adoption of accessory dwelling unit (ADU) ordinances, however, are explicitly exempt from CEQA. In addition, several statutory exemptions provide limited environmental review for projects that are consistent with a previously adopted general plan, community plan, specific plan, or zoning ordinance.
4. Streamlined Approval Processes. Some housing projects can be permitted by city or county planning staff ministerially or without further approval from elected officials. Projects reviewed ministerially require only an administrative review designed to ensure they are consistent with existing general plan and zoning rules, as well as meet standards for building quality, health, and safety. Most large housing projects are not allowed ministerial review. Instead, these projects are vetted through both public hearings and administrative review. Most housing projects that require discretionary review and approval are subject to review under CEQA while projects permitted ministerially generally are not.
5. California Family Home Construction and Homeownership Bond Act of 2023. This bill authorizes the issuance of $25 billion in GO bonds to finance loans for new home ownership construction ($7 billion) and mortgage assistance for first time homebuyers ($18 billion). The program is to be administered by CalHFA with a newly established Committee made up of the Treasurer, Controller, and Director of Finance. All property financed by the bond shall use a skilled and trained workforce.
6. New CEQA exemption and SB 35 streamlining. This bill would authorize projects funded by this bill to use SB 35 streamlining for new housing construction. Unlike SB 35, if a project would otherwise require at least 10% of the units to be affordable to households at 80% AMI or below, this bill instead requires 10% at 100% AMI on the project, even if there is a local ordinance requiring higher; if SB 35 requires 50% of the units to be affordable to households at 80% AMI, this bill provides that the project provide only 25% of the units affordable to 100% AMI, and overrides a local ordinance if it requires over 10% affordable units.

This bill also creates a new CEQA exemption if it is new construction for single family homes and: (a) the project consists of the division of property in urbanized zone for residential, commercial, or industrial use in 50 or fewer parcels when the division is in conformity with the general plan; (b) no variances or exceptions are required; (c) all services and access to the proposed parcels to local standards are available; (d) the parcel does not have an average slope of greater than 20%.

1. Setting a precedent. The committee has very serious concerns about the labor provisions in this bill. This bill, for the first time ever, would require the use of a skilled and trained workforce as a condition for the funding of 100% affordable housing projects through a state housing financing program. It is not clear that in all areas of the state there are enough workers available today -- or will be available in the near future -- to meet the skilled and trained workforce requirement in this bill.  According to US Census Data, there are about 920,000 construction industry workers in California’s labor force; 123,000 workers completed apprenticeship programs – including non-union programs – between the years 2000 and 2021.  According to the Nort Cal Carpenters Union, this means that fewer than 1 in every 7 California construction workers has completed an apprenticeship program in the last 21 years.  Because most apprenticeship program graduates work on nonresidential buildings, the Nor Cal Carpenters estimate that fewer than 1 in every 10 blue-collar residential worker meets the “skilled and trained” workforce criteria.  By adding requirements that could prohibit certain workers and contractors from performing work on affordable housing developments, this provision could stop desperately needed affordable housing units from being built.  Moving forward, the committee strongly urges the author to instead including strong labor protections to ensure workers on these projects are paid prevailing wages and full health benefits, while seeking additional ways to grow the pipeline of workers who can meet the “skilled and trained” standards in the future.  The goal should be to ensure workers are paid high wages while also meeting the housing needs for the lowest income Californians.
2. Seeing Double. This bill is identical to SB 1457 (Hertzberg, 2022), which would have dedicated $25 billion in general obligation bonds, subject to voter approval, for homeownership opportunities. That bill died in the Assembly Housing and Community Development Committee.
3. Opposition. The California Housing Partnership Corporation (CHPC), California Housing Consortium (CHC), and Western Center on Law and Poverty are all opposed to this bill. These groups are concerned that this bill would propose homeownership opportunities only when prior housing bonds for lower-income rentals are running dry; a bond of this size would likely crowd out other bonds, including for rentals. This bill would also undermine the affordability provisions in SB 35 (Wiener) and override local inclusionary ordinances.

CHC and CHPC are further concerned that the labor provisions set a precedent for housing programs generally. In the current constrained labor market, getting at least three bids for prevailing wage contracts is a challenge. This bill would limit the eligible labor pool even further. “There are parts of the state where union labor is scarce and the program simply could not function under such a requirement. Even in parts of the state with greater unionized labor force, this will result in non-competitive bids, significantly raising costs and the feasibility of development.”

1. Double-referral. This bill was also referred to the Senate Governance and Finance Committee.

Related Legislation:

SB 197 (Committee on Budget and Fiscal Review, Chapter 70, Statutes of 2022) — among other things related to the budget, established the California Dream for All program at CalHFA.

SB 1457 (Hertzberg, 2022) — would have dedicated $25 billion in general obligation bonds, subject to voter approval, for homeownership opportunities, including $18 billion for mortgage loans for first time homebuyers and $7 billion in infrastructure loans for new home construction, as specified. This bill died in the Assembly Housing and Community Development Committee.

SB 140 (Committee on Budget and Fiscal Review, Chapter 111, Statutes of 2021) — required the STO, in consultation with the CalHFA, HCD, and other relevant stakeholders to develop a framework for the California Dream for All First Time Homebuyers Program to reduce barriers to homeownership, and submit a report to the Legislature as soon as April 1, 2022, and no later than July 19, 2022.

SB 35 (Wiener, Chapter 765, Statutes of 2017) — created a streamlined, ministerial approval process for specified infill housing developments.

FISCAL EFFECT: Appropriation: No Fiscal Com.: Yes Local: No

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

March 15, 2023.)

SUPPORT:

Catalysts for Local Control

Mission Street Neighbors

OPPOSITION:

California Housing Consortium

California Housing Partnership Corporation

Western Center on Law & Poverty

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