SB 686: Housing programs: financing.
- Session Year: 2025-2026
- House: Senate
- Latest Version Date: 2025-10-10
Current Status:
Passed
(2025-10-10: Chaptered by Secretary of State. Chapter 523, Statutes of 2025.)
Introduced
In Committee
Awaiting First Chamber Vote
Passed First Chamber
In Committee
Awaiting Second Chamber Vote
Passed Second Chamber
Enacted
Existing law, the Zenovich-Moscone-Chacon Housing and Home Finance Act, among other things, establishes the Department of Housing and Community Development and requires it to administer various programs intended to promote the development of housing and to provide housing assistance and home loans. Existing law sets forth various general powers of the department in implementing these programs, including authorizing the department to enter into long-term contracts or agreements of up to 30 years for the purpose of servicing loans or grants or enforcing regulatory agreements or other security documents.
Existing law requires the department, subject to certain conditions, to allow property owners subject to a regulatory agreement with the department to take out additional debt on the development in order to finance, with the departments approval, the rehabilitation of the property or investment in new affordable housing. Under existing law, one of those conditions is that any extracted equity is required to meet at least one of several conditions, as specified. Existing law defines extracted equity for these purposes to mean debt added to a department-regulated property that is not used in prescribed ways.
This bill would, additionally, require the department to allow property owners to take out additional debt, as described above, if any extracted equity is utilized for reimbursement of borrower advances for predevelopment costs, unreimbursed capital improvements, and unreimbursed operating deficits. The bill would revise the definition of extracted equity to mean debt distributed funds that are financed with debt that is secured by a department-regulated property and is not used in prescribed ways.
Existing law, the Zenovich-Moscone-Chacon Housing and Home Finance Act, among other things, establishes the Department of Housing and Community Development and requires it to administer various programs intended to promote the development of housing and to provide housing assistance and home loans. Existing law sets forth various general powers of the department in implementing these programs, including authorizing the department to enter into long-term contracts or agreements of up to 30 years for the purpose of servicing loans or grants or enforcing regulatory agreements or other security documents.
Existing law requires the department, subject to certain conditions, to allow property owners subject to a regulatory agreement with the department to take out additional debt on the development in order to finance, with the departments approval, the rehabilitation of the property or investment in new affordable housing. Under existing law, one of those conditions is that any extracted equity is required to meet at least one of several conditions, as specified. Existing law defines extracted equity for these purposes to mean debt added to a department-regulated property that is not used in prescribed ways.
This bill would, additionally, require the department to allow property owners to take out additional debt, as described above, if any extracted equity is utilized for reimbursement of borrower advances for predevelopment costs, unreimbursed capital improvements, and unreimbursed operating deficits. The bill would revise the definition of extracted equity to mean debt distributed funds that are financed with debt that is secured by a department-regulated property and is not used in prescribed ways.
Existing law, the Zenovich-Moscone-Chacon Housing and Home Finance Act, among other things, establishes the Department of Housing and Community Development and requires it to administer various programs intended to promote the development of housing and to provide housing assistance and home loans. Existing law sets forth various general powers of the department in implementing these programs, including authorizing the department to enter into long-term contracts or agreements of up to 30 years for the purpose of servicing loans or grants or enforcing regulatory agreements or other security documents.
Existing law requires the department, subject to certain conditions, to allow property owners subject to a regulatory agreement with the department to take out additional debt on the development in order to finance, with the departments approval, the rehabilitation of the property or investment in new affordable housing. Under existing law, one of those conditions is that any extracted equity is required to meet at least one of several conditions, as specified. Existing law defines extracted equity for these purposes to mean debt added to a department-regulated property that is not used in prescribed ways.
This bill would, additionally, require the department to allow property owners to take out additional debt, as described above, if any extracted equity is utilized for reimbursement of borrower advances for predevelopment costs, unreimbursed capital improvements, and unreimbursed operating deficits. The bill would revise the definition of extracted equity to mean debt distributed funds that are financed with debt that is secured by a department-regulated property and is not used in prescribed ways.
Existing law, unless an extension of a department loan, the reinstatement of a qualifying unpaid matured loan, the subordination of a department loan to new debt, or an investment of tax credit equity would result in a rent increase for tenants of a development, authorizes the Department of Housing and Community Development to approve an extension, reinstatement, subordination, or investment pursuant to specified rental housing finance programs, as specified, or if the department determines that a project has, or will have after rehabilitation or repairs, a potential remaining useful life equal to or greater than the term of the restructured loan. Existing law authorizes the department to charge a monitoring fee to cover the aggregate monitoring costs in years the loan is extended and a transaction fee to cover its costs for processing restructuring transactions, and requires developer fee limitations to be consistent with specified laws and regulations, including regulations by the California Tax Credit Allocation Committee.This bill would revise and recast these provisions, including additionally authorizing the department to approve the payoff of a department loan in whole or part before the end of its term and the extraction of equity from a development for purposes approved by the department. The bill would specify eligible uses of loan and equity sources, if the department determines that a project has, or will have after rehabilitation or repairs, a potential remaining useful life equal to or greater than the term of the departments regulatory agreement for purposes of approving an extension, reinstatement, subordination, payoff, extraction, or investment, as described above. The bill would prohibit the extension, reinstatement, subordination, payoff, extraction, or investment, as described above, if it would result in a rent increase for tenants of a development over and above the annual adjustment to the tenants rents under the departments regulatory agreement.This bill would recast certain provisions related to regulatory agreements, including authorizing the department to add another regulatory agreement and authorizing the department to waive specified requirements in the regulatory agreement if the loan is paid off, including requiring occupancy and financial reports. The bill would authorize the department to charge additional fees as necessary to cover its costs for processing restructuring transactions, and would provide that the monitoring fees continue until the end of the term of the departments regulatory agreement, as specified. The bill would limit developer fees to the amount allowed by the California Tax Credit Allocation Committee or to 25% of actual rehabilitation costs, as applicable. Existing law, known as the No Place Like Home Program, requires the department to award up to $2,000,000,000 among counties to finance capital costs, including, but not limited to, acquisition, design, construction, rehabilitation, or preservation, and to capitalize operating reserves, of permanent supportive housing for the target population, as specified.This bill would define capitalized operating reserves for purposes of the Zenovich-Moscone-Chacon Housing and Home Finance Act and the No Place Like Home Program.Existing law, the Zenovich-Moscone-Chacon Housing and Home Finance Act, among other things, establishes the Department of Housing and Community Development and requires it to administer various programs intended to promote the development of housing and to provide housing assistance and home loans. Existing law sets forth various general powers of the department in implementing these programs, including authorizing the department to enter into long-term contracts or agreements of up to 30 years for the purpose of servicing loans or grants or enforcing regulatory agreements or other security documents.
Existing law, unless an extension of a department loan, the reinstatement of a qualifying unpaid matured loan, the subordination of a department loan to new debt, or an investment of tax credit equity would result in a rent increase for tenants of a development, authorizes the Department of Housing and Community Development to approve an extension, reinstatement, subordination, or investment pursuant to specified rental housing finance programs, as specified, or if the department determines that a project has, or will have after rehabilitation or repairs, a potential remaining useful life equal to or greater than the term of the restructured loan. Existing law authorizes the department to charge a monitoring fee to cover the aggregate monitoring costs in years the loan is extended and a transaction fee to cover its costs for processing restructuring transactions, and requires developer fee limitations to be consistent with specified laws and regulations, including regulations by the California Tax Credit Allocation Committee.
This bill would revise and recast these provisions, including additionally authorizing the department to approve the payoff of a department loan in whole or part before the end of its term and the extraction of equity from a development for purposes approved by the department. The bill would specify eligible uses of loan and equity sources, if the department determines that a project has, or will have after rehabilitation or repairs, a potential remaining useful life equal to or greater than the term of the departments regulatory agreement for purposes of approving an extension, reinstatement, subordination, payoff, extraction, or investment, as described above. The bill would prohibit the extension, reinstatement, subordination, payoff, extraction, or investment, as described above, if it would result in a rent increase for tenants of a development over and above the annual adjustment to the tenants rents under the departments regulatory agreement.
This bill would recast certain provisions related to regulatory agreements, including authorizing the department to add another regulatory agreement and authorizing the department to waive specified requirements in the regulatory agreement if the loan is paid off, including requiring occupancy and financial reports. The bill would authorize the department to charge additional fees as necessary to cover its costs for processing restructuring transactions, and would provide that the monitoring fees continue until the end of the term of the departments regulatory agreement, as specified. The bill would limit developer fees to the amount allowed by the California Tax Credit Allocation Committee or to 25% of actual rehabilitation costs, as applicable.
Existing law, known as the No Place Like Home Program, requires the department to award up to $2,000,000,000 among counties to finance capital costs, including, but not limited to, acquisition, design, construction, rehabilitation, or preservation, and to capitalize operating reserves, of permanent supportive housing for the target population, as specified.
This bill would define capitalized operating reserves for purposes of the Zenovich-Moscone-Chacon Housing and Home Finance Act and the No Place Like Home Program.
Notwithstanding any other law, and to the extent permitted under federal law and the California Constitution, the department shall allow an owner of a property subject to a regulatory agreement with the department to take out additional debt on the development to finance, with the departments approval, rehabilitation of the property or investment in new affordable housing, if all of the following conditions are met:
(a)(1)All hard debt, including the additional debt, is underwritten with a debt-service coverage ratio of at a minimum 1.15 and is demonstrated to project positive cash flow for 15 consecutive years.
(2)For the purposes of this subdivision, hard debt means debt that must be repaid via an amortizing payment or at a specified maturity date.
(b)Any new debt is subordinate to the departments lien and regulatory agreement, as applicable, unless the department reasonably determines that subordination of the departments lien is necessary for the feasibility of a project and to fund reasonable rehabilitation or improvements, including soft costs.
(c)(1)Any extracted equity is any of the following:
(A)With the departments approval, contributed to other projects that will increase or improve the supply of deed-restricted affordable housing serving low-income households in the state.
(B)Utilized in the purchase of a limited partner interest of a tax credit investor in the project, provided that the amount used to purchase that interest shall be subject to the guidelines adopted pursuant to subdivision (h) of 50560.
(C)Utilized in the payment of any unpaid deferred developer fee for the project pursuant to any applicable department regulations.
(D)Applied toward payment for necessary repairs and rehabilitation of the project.
(E)Utilized for the establishment or replenishment of department-approved project reserves.
(F)Utilized for reimbursement of borrower advances for predevelopment costs, unreimbursed capital improvements, and unreimbursed operating deficits.
(G)Utilized for any other purposes approved by the department.
(2)For the purposes of this subdivision, extracted equity means distributed funds that are financed with debt that is secured by a department-regulated property and is not used for any of the following purposes:
(A)Approved project rehabilitation work.
(B)To pay off existing debt.
(C)Replenishment of reserves.
(D)Other department-approved project specific uses.
(d)The departments regulatory agreement remains in place for the project for its remaining term. If equity is extracted for purposes of paragraph (1) of subdivision (c), the departments regulatory agreement will be recorded in a senior position.
(e)The department continues to be entitled to receive monitoring fees to ensure compliance with the existing regulatory agreement.
Notwithstanding any other law, and to the extent permitted under federal law and the California Constitution, the department shall allow an owner of a property subject to a regulatory agreement with the department to take out additional debt on the development to finance, with the departments approval, rehabilitation of the property or investment in new affordable housing, if all of the following conditions are met:
(a)(1)All hard debt, including the additional debt, is underwritten with a debt-service coverage ratio of at a minimum 1.15 and is demonstrated to project positive cash flow for 15 consecutive years.
(2)For the purposes of this subdivision, hard debt means debt that must be repaid via an amortizing payment or at a specified maturity date.
(b)Any new debt is subordinate to the departments lien and regulatory agreement, as applicable, unless the department reasonably determines that subordination of the departments lien is necessary for the feasibility of a project and to fund reasonable rehabilitation or improvements, including soft costs.
(c)(1)Any extracted equity is any of the following:
(A)With the departments approval, contributed to other projects that will increase or improve the supply of deed-restricted affordable housing serving low-income households in the state.
(B)Utilized in the purchase of a limited partner interest of a tax credit investor in the project, provided that the amount used to purchase that interest shall be subject to the guidelines adopted pursuant to subdivision (h) of 50560.
(C)Utilized in the payment of any unpaid deferred developer fee for the project pursuant to any applicable department regulations.
(D)Applied toward payment for necessary repairs and rehabilitation of the project.
(E)Utilized for the establishment or replenishment of department-approved project reserves.
(F)Utilized for reimbursement of borrower advances for predevelopment costs, unreimbursed capital improvements, and unreimbursed operating deficits.
(G)Utilized for any other purposes approved by the department.
(2)For the purposes of this subdivision, extracted equity means distributed funds that are financed with debt that is secured by a department-regulated property and is not used for any of the following purposes:
(A)Approved project rehabilitation work.
(B)To pay off existing debt.
(C)Replenishment of reserves.
(D)Other department-approved project specific uses.
(d)The departments regulatory agreement remains in place for the project for its remaining term. If equity is extracted for purposes of paragraph (1) of subdivision (c), the departments regulatory agreement will be recorded in a senior position.
(e)The department continues to be entitled to receive monitoring fees to ensure compliance with the existing regulatory agreement.
Notwithstanding any other law, and to the extent permitted under federal law and the California Constitution, the department shall allow an owner of a property subject to a regulatory agreement with the department to take out additional debt on the development to finance, with the departments approval, rehabilitation of the property or investment in new affordable housing, if all of the following conditions are met:
(a)(1)All hard debt, including the additional debt, is underwritten with a debt-service coverage ratio of at a minimum 1.15 and is demonstrated to project positive cash flow for 15 consecutive years.
(2)For the purposes of this subdivision, hard debt means debt that must be repaid via an amortizing payment or at a specified maturity date.
(b)Any new debt is subordinate to the departments lien and regulatory agreement, as applicable, unless the department reasonably determines that subordination of the departments lien is necessary for the feasibility of a project and to fund reasonable rehabilitation or improvements, including soft costs.
(c)(1)Any extracted equity is any of the following:
(A)With the departments approval, contributed to other projects that will increase or improve the supply of deed-restricted affordable housing serving low-income households in the state.
(B)Utilized in the purchase of a limited partner interest of a tax credit investor in the project, provided that the amount used to purchase that interest shall be subject to the guidelines adopted pursuant to subdivision (h) of 50560.
(C)Utilized in the payment of any unpaid deferred developer fee for the project pursuant to any applicable department regulations.
(D)Applied toward payment for necessary repairs and rehabilitation of the project.
(E)Utilized for the establishment or replenishment of department-approved project reserves.
(F)Utilized for reimbursement of borrower advances for predevelopment costs, unreimbursed capital improvements, and unreimbursed operating deficits.
(F)(G)Utilized for any other purposes approved by the department.
(2)For the purposes of this subdivision, extracted equity means debt added to distributed funds that are financed with debt that is secured by a department-regulated property that and is not used for any of the following purposes:
(A)Approved project rehabilitation work.
(B)To pay off existing debt.
(C)Replenishment of reserves.
(D)Other department-approved project specific uses.
(d)The departments regulatory agreement remains in place for the project for its remaining term. If equity is extracted for purposes of paragraph (1) of subdivision (c), the departments regulatory agreement will be recorded in a senior position.
(e)The department continues to be entitled to receive monitoring fees to ensure compliance with the existing regulatory agreement.
SEC. 2.Section 50560 of the Health and Safety Code is amended to read:50560.(a)Subject to the requirements of this chapter, the department may approve an extension of a department loan, the reinstatement of a qualifying unpaid matured loan, the subordination of a department loan to new debt, the payoff of a department loan in whole or part before the end of its term, the extraction of equity from a development for purposes approved by the department, or an investment of tax credit equity under one or more of the following rental housing finance programs: the original Rental Housing Construction Program established by Chapter 9 (commencing with Section 50735), the Special User Housing Rehabilitation Program established by Section 50670, the Deferred-Payment Rehabilitation Loan Program established by Chapter 6.5 (commencing with Section 50660), the rental component of the California Natural Disaster Assistance Program established by Chapter 6.5 (commencing with Section 50671), the State Earthquake Rehabilitation Assistance Program established by Chapter 6.5 (commencing with Section 50671), the rental component of the California Housing Rehabilitation Program established by Section 50668.5, the component of the Rental Housing Construction Program funded with bond proceeds governed by Section 50771.1, the Family Housing Demonstration Program established by Chapter 15 (commencing with Section 50880), the Families Moving to Work Program established by Chapter 15 (commencing with Section 50880), the Multifamily Housing Program established by Chapter 6.7 (commencing with Section 50675), and any and all other multifamily housing loans funded or monitored by the department.(b)Once the department has approved a loan extension, reinstatement of a qualifying unpaid matured loan, subordination, payoff of a department loan in whole or part before the end of its term, extraction of equity from a development for purposes approved by the department, or tax credit investment pursuant to this chapter, the statutes enumerated in subdivision (a), and the regulations or guidelines promulgated pursuant to these statutes, shall no longer apply to developments restructured pursuant to this chapter. These developments shall instead be governed by this chapter and guidelines adopted pursuant to subdivision (h).(c)All projects restructured pursuant to this chapter shall comply with the affirmative marketing and language accessibility requirements set forth in Section 50736 of this code and Section 65863 of the Government Code.(d)The department may approve an extension of a loan, the reinstatement of a qualifying unpaid matured loan, the subordination of a department loan to new debt, the payoff of a department loan in whole or part before the end of its term, the extraction of equity from a development for purposes approved by the department, or an investment of tax credit equity if it determines that the project has, or will have after rehabilitation or repairs, a potential remaining useful life equal to or greater than the term of the departments regulatory agreement. Eligible uses of loan and equity sources under this subdivision include, but are not limited to, the purchase of a limited partner interest of a tax credit investor in the project, payment of any unpaid deferred developer fee for the project, payment for necessary repairs and rehabilitation of the project, and the establishment or replenishment of department-approved project reserves.(e)The department may subordinate its loan to refinance existing senior debt for eligible activities pursuant to subdivision (d) and to reimburse borrower advances for predevelopment costs, capital improvements, and operating deficits, only if the departments security is not jeopardized, as determined by the department. The department shall not withhold consent unreasonably.(f)The department shall not approve the extension of a department loan, the reinstatement of a qualifying unpaid matured loan, the subordination of a department loan to new debt, the payoff of a department loan in whole or part before the end of its term, the extraction of equity from a development for purposes approved by the department, or an investment of tax credit equity if it will result in a rent increase for tenants of a development exceeding the annual adjustment to the tenants rents under the departments regulatory agreement. The department may only subordinate a loan to senior debt if necessary to increase the feasibility of a project and to fund reasonable rehabilitation or improvements including soft costs. The application to refinance shall include a third-party analysis that supports the need for refinancing.(g)The department may approve additional senior debt for eligible activities pursuant to subdivision (d), and only as necessary to finance rehabilitation or repairs, including soft costs, that are reasonable in size, scope, and cost, as determined by the department. In approving additional senior debt, the department may consider information from third-party capital needs assessment reports.(h)It is the intent of the Legislature in enacting this chapter to provide to the department the flexibility necessary to maintain the quality of the affordable rental housing units for which the state has already made a significant public investment. The department may implement this chapter through guidelines that shall not be subject to Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code. These guidelines shall be developed through the following process:(1)The department shall provide a notice of proposed action as described in Section 11346.5 of the Government Code to the public at least 21 days before the close of the public comment period.(2)The department shall schedule at least one public hearing as described in Section 11346.8 of the Government Code before the close of the public comment period.(3)The department shall maintain a rulemaking file as described in Section 11347.3 of the Government Code.(4)The final version of the guidelines shall be accompanied by a final statement of reason as described in subdivision (a) of Section 11346.9 of the Government Code.(5)The rules and guidelines shall be effective immediately upon adoption by the department.SEC. 3.Section 50561 of the Health and Safety Code is amended to read:50561.(a)The department may approve an extension of an existing rental housing development loan or regulatory agreement, if the extension facilitates the reinstatement of a qualifying unpaid matured loan, the subordination of a department loan to new debt, the extraction of equity from a development for purposes approved by the department, or an investment of tax credit equity, only if the rental housing development is being operated in a manner consistent with the regulatory agreement and the development requires an extension in order to continue to operate in a manner consistent with this chapter. Each extension shall be for a period of not less than 10 years and each extension shall not exceed 55 years, or 58 years if needed to match the term of tax credit restrictions. The interest rate shall be 3 percent simple interest. All loan payments shall be deferred for the full term of the loan, except for residual receipts payments. These residual receipts payments shall be structured to avoid reducing the amount of payments on local public agency loans resulting solely from changes in the payment terms on the departments loan, and not resulting from fees or other payments to the borrower, and shall otherwise be consistent with the provisions of the departments Uniform Multifamily Regulations or successor regulations. The department may charge a monitoring fee to cover the aggregate monitoring costs it incurs from the date of the recordation of the loan or regulatory documents regarding any of the eligible activities pursuant to this subdivision, and may charge a transaction fee or other fees to cover its costs for processing restructuring transactions. The monitoring fees shall continue until the end of the term of the department regulatory agreement, notwithstanding any payoff of the department loan, and the monitoring fees shall not be diminished in the event of any paydown of the department loan. The department may waive or defer some or all fees, if it determines that a particular development or class of developments does not have the ability to make these payments. In determining the fees and payments to be charged, the department shall seek to share monitoring activities with other regulatory agencies and to minimize the impact on tenants with the lowest incomes and on the capacity of the developments to support private debt or secure tax credit investments.(b)To the minimum extent necessary to support new debt to pay for rehabilitation, but not for extraction of equity, rents for assisted units in these developments may be adjusted pursuant to the department guidelines and Section 42 of the Internal Revenue Code. This rehabilitation shall be determined by the department to be demonstrably necessary, based on third-party assessment and on the departments own inspection, if the department deems an inspection necessary. Assisted units in developments with a specific, department-approved plan to undertake the necessary rehabilitation, at a level that equals or exceeds the minimum per-unit rehabilitation cost standards under the low-income housing tax credit program, may be adjusted as follows:(1)For developments originally financed under the bond-funded component of the Rental Housing Construction Program pursuant to Section 50771.1, and the Family Housing Demonstration Program, rents may be increased up to a maximum of 30 percent of 60 percent of area median income, for units designated in the developments original regulatory agreement as lower income units, and up to a maximum of 30 percent of 35 percent of area median income, for units designated in the developments original regulatory agreement as very low income units.(2)For developments originally financed under other programs, rents for at least 35 percent of the assisted units, or as specified in the original regulatory agreement governing the development, whichever is greater, shall be restricted to the midlevel target used by the Multifamily Housing Program. Rents for the balance of the assisted units may be increased up to a maximum of 30 percent of 60 percent of area median income. For purposes of this paragraph, midlevel target used by the Multifamily Housing Program shall mean either of the following:(A)For counties with an area median income of 110 percent or less of state median income, it shall mean 30 percent of 30 percent of state median income, expressed as a percentage of area median income.(B)For counties with an area median income that exceeds 110 percent of the state median income, it shall mean 30 percent of 35 percent of state median income, expressed as a percentage of area median income.(c)Rent increases for tenants living in assisted units at the time of restructuring pursuant to this chapter shall be limited as follows:(1)For existing tenants with incomes not exceeding 35 percent of area median income, increases shall be limited to 5 percent per year, until the rents reach the levels set under subdivision (b).(2)For existing tenants with incomes exceeding 35 percent of area median income, increases shall be limited to 10 percent per year, until they reach the levels specified in paragraphs (1) and (2) of subdivision (b) of Section 50561.(3)It is the intent of the Legislature that rent increases for existing tenants authorized by this subdivision shall not be greater than necessary to ensure the financial feasibility of the project. The projected maximum rent for tenants in assisted units, as determined by subdivision (b), shall not exceed 50 percent of the households actual income. This requirement shall be applied using maximum rent levels and household incomes determined at the time of restructuring or at the time of the departments approval of the restructuring.(4)If the refinance of a loan results in a rent increase, the project sponsor shall provide tenants with the following notifications:(A)Notice six months before the scheduled rent increase with an estimate of the amount of the increase.(B)Notice 90 days before the actual increase with the exact amount of the new rent.(d)If existing tenants move, the rent for these units may be increased immediately up to the level specified in paragraphs (1) and (2) of subdivision (b). The income limit for new tenants shall correspond with the rent limit set pursuant to paragraphs (1) and (2) of subdivision (b).(e)Once rents achieve the levels set forth in paragraphs (1) and (2) of subdivision (b), income levels and rent limits shall be calculated consistent with the calculation methodology used under the Low Income Housing Tax Credit program and the Multifamily Housing Program, and rent increases shall be based on increases in the area median income.(f)Eligible households displaced as a result of rehabilitation pursuant to this section shall be accorded first priority in occupying comparable units in the development from which they were displaced, subsequent to rehabilitation. Tenants of rental housing developments repaired with assistance provided under this chapter who are temporarily or permanently displaced as a result of rehabilitation or other repair work, shall be entitled to relocation benefits pursuant to, and subject to, the requirements of Section 7260 of the Government Code. Sponsors of assisted rental housing developments shall be responsible for providing the benefits and assistance. The costs of the benefits and the assistance provided to tenants shall be eligible for funding by a loan provided pursuant to this section.(g)The guidelines adopted by the department pursuant to subdivision (h) of Section 50560 shall be patterned after the regulations governing the Multifamily Housing Program, including the Uniform Multifamily Regulations, except that the department may adopt different standards for the following factors:(1)Commercial vacancy loss assumptions must reflect project operating history.(2)Debt service coverage ratios.(3)Payment terms and principal amount of senior debt, considering financial market conditions, including costs and department risk, as determined by the department.(4)Developer fee limitations shall be consistent with California Tax Credit Allocation Committee regulations for inclusion in the basis for projects receiving 9 percent tax credits, for projects receiving the special rent increases contemplated by this chapter, and, consistent with the requirements of other funding sources, for projects not receiving special rent increases, but developer fees shall not exceed the amount allowed by the California Tax Credit Allocation Committee regulations for projects receiving 9 or 4 percent tax credits, as applicable, and shall not exceed 25 percent of actual rehabilitation costs where there is no tax credit resyndication. Developer fees shall only be payable in the event of a resyndication involving major rehabilitation, as defined by the California Tax Credit Allocation Committee in regulations.(5)Replacement reserve deposit amounts must be based on projected costs over 20 years, adjusted for inflation, and as shown in an independent replacement reserve analysis.(h)It is the intent of the Legislature in enacting this section that the department shall manage its reserves for the original Rental Housing Construction Program in a manner that will allow for the continuation of benefits to current low-income tenants for the longest period of time possible up to the term of the original regulatory agreement or the depletion of the annuity funds, whichever occurs first. Accordingly, rents for those households in units subsidized by the annuity fund established pursuant to Section 50748 may be increased to 30 percent of household income. A household affected by the rent increase permitted by this subdivision shall be given at least 90 days advanced notice of the increase.(i)(1)The department shall, within available resources, post on its internet website information regarding household incomes and rents for developments approved for restructuring.(2)The information shall be provided within six months of a restructuring and, thereafter, no less than every three years.(3)The information shall include the following or similar information:(A)The monthly rent of each household at the time of restructuring.(B)The current monthly rent of each household.(C)The annual income of each household as a percentage of area median income at the time of restructuring.(D)The current income of each household as a percentage of area median income.SEC. 4.Section 50562 of the Health and Safety Code is amended to read:50562.(a)If a department loan is extended, subordinated, or paid off before the end of its term, the department approves the reinstatement of a qualifying unpaid matured loan, the department approves the extraction of equity from a development, or a new tax credit investment occurs, then the department shall enter into a new regulatory agreement with the developments owner, or amend the existing agreement, and may add another regulatory agreement if the department determines it necessary. The agreement shall be binding upon the developments owner and successors in interest upon sale or transfer of the development property, regardless of any prepayment of the loan. The agreement shall be recorded in the office of the county recorder in the county in which the development is located. The new or amended regulatory agreement shall:(1)Set standards for tenant selection to ensure occupancy by the eligible households.(2)Govern the terms of occupancy agreements.(3)Restrict rents for assisted units, consistent with this chapter.(4)Provide for periodic inspections by the department.(5)Require occupancy and financial reports, and financial audits for the development, unless waived by the department if the department loan is paid off and the waiver may be rescinded in the sole determination of the department.(6)Govern the use of operating income for the development, unless waived by the department if the department loan is paid off and the waiver may be rescinded in the sole determination of the department.(7)Govern the use of reserves for the development, unless waived by the department if the department loan is paid off and the waiver may be rescinded in the sole determination of the department.(8)Have a term for not less than the term of the loan, including any extension.(9)Include other provisions necessary to carry out the purposes of this chapter, including the requirement that any extraction of equity from the development is subject to being shared with the department in an amount determined solely by the department, but not greater than an amount proportionate to the amount of the department loan secured by such project to the total construction costs of the project.(b)The developments owner shall agree to replace or amend any other loan document to accomplish the purposes of this chapter.SEC. 5.Section 5849.2 of the Welfare and Institutions Code is amended to read:5849.2.As used in this part, the following definitions shall apply:(a)At risk of chronic homelessness includes, but is not limited to, persons who are at high risk of long-term or intermittent homelessness, including persons with mental illness exiting institutionalized settings, including, but not limited to, jail, mental health, and substance use disorder facilities, who were homeless prior to admission, transition-age youth experiencing homelessness or with significant barriers to housing stability, and others, as defined in program guidelines.(b)Authority means the California Health Facilities Financing Authority established pursuant to Part 7.2 (commencing with Section 15430) of Division 3 of Title 2 of the Government Code.(c)Capitalized operating reserves has the same meaning as defined in Section 50058.8 of the Health and Safety Code.(d)Chronically homeless has the same meaning as defined in Section 578.3 of Title 24 of the Code of Federal Regulations as that section read on May 1, 2016, or as otherwise modified or expanded by the State Department of Health Care Services.(e)Commission means the Behavioral Health Services Oversight and Accountability Commission established by Section 5845.(f)Committee means the No Place Like Home Program Advisory Committee established pursuant to Section 5849.3.(g)County includes, but is not limited to, a city and a city and county receiving funds pursuant to Section 5701.5.(h)Department means the Department of Housing and Community Development.(i)Development sponsor has the same meaning as sponsor as defined in Section 50675.2 of the Health and Safety Code.(j)Fund means the No Place Like Home Fund established pursuant to Section 5849.4.(k)Homeless has the same meaning as defined in Section 578.3 of Title 24 of the Code of Federal Regulations as that section read on May 1, 2016. (l)Permanent supportive housing has the same meaning as supportive housing, as defined in Section 50675.14 of the Health and Safety Code, except that permanent supportive housing shall include associated facilities if used to provide services to housing residents.(m)(1)Program means the process for awarding funds and distributing moneys to applicants established in Sections 5849.7, 5849.8, and 5849.9 and the ongoing monitoring and enforcement of the applicants activities pursuant to Sections 5849.8, 5849.9, and 5849.11.(2)Competitive program means the portion of the program established by Section 5849.8.(3)Distribution program means the portion of the program described in Section 5849.9.(n)Target population means individuals or households, as provided in Section 5600.3, who are homeless, chronically homeless, or at risk of chronic homelessness.(o)This section shall become operative on January 1, 2025, if amendments to the Mental Health Services Act are approved by the voters at the March 5, 2024, statewide primary election. REVISIONS: HeadingLine 3.Capitalized operating reserves means capitalized funds for assisted units for the purpose of covering potential or projected operating deficits over time, including, but not limited to, operations, supportive services, and rent subsidies.
SEC. 2.Section 50560 of the Health and Safety Code is amended to read:50560.(a)Subject to the requirements of this chapter, the department may approve an extension of a department loan, the reinstatement of a qualifying unpaid matured loan, the subordination of a department loan to new debt, the payoff of a department loan in whole or part before the end of its term, the extraction of equity from a development for purposes approved by the department, or an investment of tax credit equity under one or more of the following rental housing finance programs: the original Rental Housing Construction Program established by Chapter 9 (commencing with Section 50735), the Special User Housing Rehabilitation Program established by Section 50670, the Deferred Payment Deferred-Payment Rehabilitation Loan Program established by Chapter 6.5 (commencing with Section 50660), the rental component of the California Natural Disaster Assistance Program established by Chapter 6.5 (commencing with Section 50671), the State Earthquake Rehabilitation Assistance Program established by Chapter 6.5 (commencing with Section 50671), the rental component of the California Housing Rehabilitation Program established by Section 50668.5, the component of the Rental Housing Construction Program funded with bond proceeds governed by Section 50771.1, the Family Housing Demonstration Program established by Chapter 15 (commencing with Section 50880), the Families Moving to Work Program established by Chapter 15 (commencing with Section 50880), the Multifamily Housing Program established by Chapter 6.7 (commencing with Section 50675), and any and all other multifamily housing loans funded or monitored by the department.
(b)Once the department has approved a loan extension, reinstatement of a qualifying unpaid matured loan, subordination, payoff of a department loan in whole or part before the end of its term, extraction of equity from a development for purposes approved by the department, or tax credit investment pursuant to this chapter, the statutes enumerated in subdivision (a), and the regulations or guidelines promulgated pursuant to these statutes, shall no longer apply to developments restructured pursuant to this chapter. These developments shall instead be governed by this chapter and guidelines adopted pursuant to subdivision (h).
(c)All projects restructured pursuant to this chapter shall comply with the affirmative marketing and language accessibility requirements set forth in Section 50736 of this code and Section 65863 of the Government Code.
(d)The department may approve an extension of a loan, the reinstatement of a qualifying unpaid matured loan, the subordination of a department loan to new debt, the payoff of a department loan in whole or part before the end of its term, the extraction of equity from a development for purposes approved by the department, or an investment of tax credit equity if it determines that the project has, or will have after rehabilitation or repairs, a potential remaining useful life equal to or greater than the term of the restructured loan. departments regulatory agreement. Eligible uses of loan and equity sources under this subdivision include, but are not limited to, the purchase of a limited partner interest of a tax credit investor in the project, payment of any unpaid deferred developer fee for the project, payment for necessary repairs and rehabilitation of the project, and the establishment or replenishment of department-approved project reserves.
(e)The department may subordinate its loan to refinance existing senior debt only as necessary for project feasibility eligible activities pursuant to subdivision (d) and to reimburse borrower advances for predevelopment costs, recent capital improvements, and recent operating deficits. deficits, only if the departments security is not jeopardized, as determined by the department. The department shall not withhold consent unreasonably.
(f)If The department shall not approve the extension of a department loan, the reinstatement of a qualifying unpaid matured loan, the subordination of a department loan to new debt, the payoff of a department loan in whole or part before the end of its term, the extraction of equity from a development for purposes approved by the department, or an investment of tax credit equity if it will result in a rent increase for tenants of a development, development exceeding the annual adjustment to the tenants rents under the departments regulatory agreement. The department may only subordinate a loan to senior debt if necessary to increase the feasibility of a project and to fund reasonable rehabilitation or improvements including soft costs. The application to refinance shall include a third-party analysis that supports the need for refinancing.
(g)The department may approve additional senior debt for eligible activities pursuant to subdivision (d), and only as necessary to finance rehabilitation or repairs, including soft costs, that are modest reasonable in size, scope, and cost, as determined by the department. In approving additional senior debt, the department may consider information from third-party capital needs assessment reports.
(h)It is the intent of the Legislature in enacting this chapter to provide to the department the flexibility necessary to maintain the quality of the affordable rental housing units for which the state has already made a significant public investment. The department may implement this chapter through guidelines that shall not be subject to Chapter 2.5 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code. These guidelines shall be developed through the following process:
(1)The department shall provide a notice of proposed action as described in Section 11346.5 of the Government Code to the public at least 21 days before the close of the public comment period.
(2)The department shall schedule at least one public hearing as described in Section 11346.8 of the Government Code before the close of the public comment period.
(3)The department shall maintain a rulemaking file as described in Section 11347.3 of the Government Code.
(4)The final version of the guidelines shall be accompanied by a final statement of reason as described in subdivision (a) of Section 11346.9 of the Government Code.
(5)The rules and guidelines shall be effective immediately upon adoption by the department.
SEC. 3.Section 50561 of the Health and Safety Code is amended to read:50561.(a)The department may approve an extension of an existing rental housing development loan, loan or regulatory agreement, if the extension facilitates the reinstatement of a qualifying unpaid matured loan, the subordination of a department loan to new debt, the extraction of equity from a development for purposes approved by the department, or an investment of tax credit equity as long as equity, only if the rental housing development is being operated in a manner consistent with the regulatory agreement and the development requires an extension in order to continue to operate in a manner consistent with this chapter. Each extension shall be for a period of not less than 10 years and each extension shall not exceed 55 years, or 58 years if needed to match the term of tax credit restrictions. The interest rate shall be 3 percent simple interest. All loan payments shall be deferred for the full term of the loan, except for residual receipts payments. These residual receipts payments shall be structured to avoid reducing the amount of payments on local public agency loans resulting solely from changes in the payment terms on the departments loan, and not resulting from fees or other payments to the borrower, and shall otherwise be consistent with the provisions of the departments Uniform Multifamily Regulations or successor regulations. The department may charge a monitoring fee to cover the aggregate monitoring costs it incurs in years that the from the date of the recordation of the loan is extended or regulatory documents regarding any of the eligible activities pursuant to this subdivision, and may charge a transaction fee or other fees to cover its costs for processing restructuring transactions. The monitoring fees shall continue until the end of the term of the department regulatory agreement, notwithstanding any payoff of the department loan, and the monitoring fees shall not be diminished in the event of any paydown of the department loan. The department may waive or defer some or all fees, if it determines that a particular development or class of developments does not have the ability to make these payments. In determining the fees and payments to be charged, the department shall seek to share monitoring activities with other regulatory agencies and to minimize the impact on tenants with the lowest incomes and on the capacity of the developments to support private debt or secure tax credit investments.
(b)To the minimum extent necessary to support new debt to pay for rehabilitation, but not for extraction of equity, rents for assisted units in these developments may be adjusted. adjusted pursuant to the department guidelines and Section 42 of the Internal Revenue Code. This rehabilitation shall be determined by the department to be demonstrably necessary, based on third-party assessment and on the departments own inspection. inspection, if the department deems an inspection necessary. Assisted units in developments with a specific, department-approved plan to undertake the necessary rehabilitation, at a level that equals or exceeds the minimum per-unit rehabilitation cost standards under the low-income housing tax credit program, may be adjusted as follows:
(1)For developments originally financed under the bond-funded component of the Rental Housing Construction Program pursuant to Section 50771.1, and the Family Housing Demonstration Program, rents may be increased up to a maximum of 30 percent of 60 percent of area median income, for units designated in the developments original regulatory agreement as lower income units, and up to a maximum of 30 percent of 35 percent of area median income, for units designated in the developments original regulatory agreement as very low income units.
(2)For developments originally financed under other programs, rents for at least 35 percent of the assisted units, or as specified in the original regulatory agreement governing the development, whichever is greater, shall be restricted to the midlevel target used by the Multifamily Housing Program. Rents for the balance of the assisted units may be increased up to a maximum of 30 percent of 60 percent of area median income. For purposes of this paragraph, midlevel target used by the Multifamily Housing Program shall mean either of the following:
(A)For counties with an area median income of 110 percent or less of state median income, it shall mean 30 percent of 30 percent of state median income, expressed as a percentage of area median income.
(B)For counties with an area median income that exceeds 110 percent of the state median income, it shall mean 30 percent of 35 percent of state median income, expressed as a percentage of area median income.
(c)Rent increases for tenants living in assisted units at the time of restructuring pursuant to this chapter shall be limited as follows:
(1)For existing tenants with incomes not exceeding 35 percent of area median income, increases shall be limited to 5 percent per year, until the rents reach the levels set under subdivision (b).
(2)For existing tenants with incomes exceeding 35 percent of area median income, increases shall be limited to 10 percent per year, until they reach the levels specified in paragraphs (1) and (2) of subdivision (b) of Section 50561.
(3)It is the intent of the Legislature that rent increases for existing tenants authorized by this subdivision shall not be greater than necessary to ensure the financial feasibility of the project. The projected maximum rent for tenants in assisted units, as determined by subdivision (b), shall not exceed 50 percent of the households actual income. This requirement shall be applied using maximum rent levels and household incomes determined at the time of restructuring or at the time of the departments approval of the restructuring.
(4)If the refinance of a loan results in a rent increase, the project sponsor shall provide tenants with the following notifications:
(A)Notice six months prior to before the scheduled rent increase with an estimate of the amount of the increase.
(B)Notice 90 days prior to before the actual increase with the exact amount of the new rent.
(d)If existing tenants move, the rent for these units may be increased immediately up to the level specified in paragraphs (1) and (2) of subdivision (b). The income limit for new tenants shall correspond with the rent limit set pursuant to paragraphs (1) and (2) of subdivision (b).
(e)Once rents achieve the levels set forth in paragraphs (1) and (2) of subdivision (b), income levels and rent limits shall be calculated consistent with the calculation methodology used under the Low Income Housing Tax Credit program and the Multifamily Housing Program, and rent increases shall be based on increases in the area median income.
(f)Eligible households displaced as a result of rehabilitation pursuant to this section shall be accorded first priority in occupying comparable units in the development from which they were displaced, subsequent to rehabilitation. Tenants of rental housing developments repaired with assistance provided under this chapter who are temporarily or permanently displaced as a result of rehabilitation or other repair work, shall be entitled to relocation benefits pursuant to, and subject to, the requirements of Section 7260 of the Government Code. Sponsors of assisted rental housing developments shall be responsible for providing the benefits and assistance. The costs of the benefits and the assistance provided to tenants shall be eligible for funding by a loan provided pursuant to this section.
(g)The guidelines adopted by the department pursuant to subdivision (h) of Section 50560 shall be patterned after the regulations governing the Multifamily Housing Program, including the Uniform Multifamily Regulations, except that the department may adopt different standards for the following factors:
(1)Commercial vacancy loss assumptions must reflect project operating history.
(2)Debt service coverage ratios.
(3)Payment terms and principal amount of senior debt, considering financial market conditions, including costs and department risk, as determined by the department.
(4)Developer fee limitations shall be consistent with California Tax Credit Allocation Committee regulations for inclusion in the basis for projects receiving 9 percent tax credits, for projects receiving the special rent increases contemplated by this chapter, and, consistent with the requirements of other funding sources, for projects not receiving special rent increases. increases, but developer fees shall not exceed the amount allowed by the California Tax Credit Allocation Committee regulations for projects receiving 9 or 4 percent tax credits, as applicable, and shall not exceed 25 percent of actual rehabilitation costs where there is no tax credit resyndication. Developer fees shall only be payable in the event of a resyndication involving major rehabilitation, as defined by the California Tax Credit Allocation Committee in regulations.
(5)Replacement reserve deposit amounts must be based on projected costs over 20 years, adjusted for inflation, and as shown in an independent replacement reserve analysis.
(h)It is the intent of the Legislature in enacting this section that the department shall manage its reserves for the original Rental Housing Construction Program in a manner that will allow for the continuation of benefits to current low-income tenants for the longest period of time possible up to the term of the original regulatory agreement or the depletion of the annuity funds, whichever occurs first. Accordingly, rents for those households in units subsidized by the annuity fund established pursuant to Section 50748 may be increased to 30 percent of household income. A household affected by the rent increase permitted by this subdivision shall be given at least 90 days advanced notice of the increase.
(i)(1)The department shall, within available resources, post on its Internet Web site internet website information regarding household incomes and rents for developments approved for restructuring.
(2)The information shall be provided within six months of a restructuring and, thereafter, no less than every three years.
(3)The information shall include the following or similar information:
(A)The monthly rent of each household at the time of restructuring.
(B)The current monthly rent of each household.
(C)The annual income of each household as a percentage of area median income at the time of restructuring.
(D)The current income of each household as a percentage of area median income.
SEC. 4.Section 50562 of the Health and Safety Code is amended to read:50562.(a)If a department loan is extended extended, subordinated, or subordinated, paid off before the end of its term, the department approves the reinstatement of a qualifying unpaid matured loan, the department approves the extraction of equity from a development, or a new tax credit investment occurs, then the department shall enter into a new regulatory agreement with the developments owner, or amend the existing agreement. agreement, and may add another regulatory agreement if the department determines it necessary. The agreement shall be binding upon the developments owner and successors in interest upon sale or transfer of the development property, regardless of any prepayment of the loan. The agreement shall be recorded in the office of the county recorder in the county in which the development is located. The new or amended regulatory agreement shall:
(1)Set standards for tenant selection to ensure occupancy by the eligible households.
(2)Govern the terms of occupancy agreements.
(3)Restrict rents for assisted units, consistent with this chapter.
(4)Provide for periodic inspections by the department.
(5)Require occupancy and financial reports, and financial audits for the development. development, unless waived by the department if the department loan is paid off and the waiver may be rescinded in the sole determination of the department.
(6)Govern the use of operating income for the development. development, unless waived by the department if the department loan is paid off and the waiver may be rescinded in the sole determination of the department.
(7)Govern the use of reserves for the development. development, unless waived by the department if the department loan is paid off and the waiver may be rescinded in the sole determination of the department.
(8)Have a term for not less than the term of the loan, including any extension.
(9)Include other provisions necessary to carry out the purposes of this chapter. chapter, including the requirement that any extraction of equity from the development is subject to being shared with the department in an amount determined solely by the department, but not greater than an amount proportionate to the amount of the department loan secured by such project to the total construction costs of the project.
(b)The developments owner shall agree to replace or amend any other loan document to accomplish the purposes of this chapter.
SEC. 5.Section 5849.2 of the Welfare and Institutions Code is amended to read:5849.2.As used in this part, the following definitions shall apply:
(a)At risk of chronic homelessness includes, but is not limited to, persons who are at high risk of long-term or intermittent homelessness, including persons with mental illness exiting institutionalized settings, including, but not limited to, jail, mental health, and substance use disorder facilities, who were homeless prior to admission, transition age transition-age youth experiencing homelessness or with significant barriers to housing stability, and others, as defined in program guidelines.
(b)Authority means the California Health Facilities Financing Authority established pursuant to Part 7.2 (commencing with Section 15430) of Division 3 of Title 2 of the Government Code.
(c)Capitalized operating reserves has the same meaning as defined in Section 50058.8 of the Health and Safety Code.
(c)(d)Chronically homeless has the same meaning as defined in Section 578.3 of Title 24 of the Code of Federal Regulations as that section read on May 1, 2016, or as otherwise modified or expanded by the State Department of Health Care Services.
(d)(e)Commission means the Behavioral Health Services Oversight and Accountability Commission established by Section 5845.
(e)(f)Committee means the No Place Like Home Program Advisory Committee established pursuant to Section 5849.3.
(f)(g)County includes, but is not limited to, a city and a city and county receiving funds pursuant to Section 5701.5.
(g)(h)Department means the Department of Housing and Community Development.
(h)(i)Development sponsor has the same meaning as sponsor as defined in Section 50675.2 of the Health and Safety Code.
(i)(j)Fund means the No Place Like Home Fund established pursuant to Section 5849.4.
(j)(k)Homeless has the same meaning as defined in Section 578.3 of Title 24 of the Code of Federal Regulations as that section read on May 1, 2016.
(k)(l)Permanent supportive housing has the same meaning as supportive housing, as defined in Section 50675.14 of the Health and Safety Code, except that permanent supportive housing shall include associated facilities if used to provide services to housing residents.
(l)(m)(1)Program means the process for awarding funds and distributing moneys to applicants established in Sections 5849.7, 5849.8, and 5849.9 and the ongoing monitoring and enforcement of the applicants activities pursuant to Sections 5849.8, 5849.9, and 5849.11.
(2)Competitive program means the portion of the program established by Section 5849.8.
(3)Distribution program means the portion of the program described in Section 5849.9.
(m)(n)Target population means individuals or households, as provided in Section 5600.3, who are homeless, chronically homeless, or at risk of chronic homelessness.
(n)(o)This section shall become operative on January 1, 2025, if amendments to the Mental Health Services Act are approved by the voters at the March 5, 2024, statewide primary election.
|
Date
|
Status
|
|---|---|
| Oct 10, 2025 | Chaptered by Secretary of State. Chapter 523, Statutes of 2025. |
| Oct 10, 2025 | Approved by the Governor. |
| Sep 22, 2025 | Enrolled and presented to the Governor at 2 p.m. |
| Sep 11, 2025 | Assembly amendments concurred in. (Ayes 40. Noes 0. Page 2927.) Ordered to engrossing and enrolling. |
| Sep 9, 2025 | Ordered to special consent calendar. |
| Aug 28, 2025 | In Senate. Concurrence in Assembly amendments pending. |
| Aug 28, 2025 | Read third time. Passed. (Ayes 74. Noes 0. Page 2777.) Ordered to the Senate. |
| Aug 21, 2025 | Read second time. Ordered to consent calendar. |
| Aug 20, 2025 | From committee: Do pass. Ordered to consent calendar. (Ayes 15. Noes 0.) (August 20). |
| Aug 20, 2025 | Coauthors revised. |
| Jul 16, 2025 | From committee: Do pass and re-refer to Com. on APPR. with recommendation: To consent calendar. (Ayes 12. Noes 0.) (July 16). Re-referred to Com. on APPR. |
| Jul 7, 2025 | From committee with author's amendments. Read second time and amended. Re-referred to Com. on H. & C.D. |
| Jun 5, 2025 | Referred to Com. on H. & C.D. |
| May 29, 2025 | In Assembly. Read first time. Held at Desk. |
| May 29, 2025 | Read third time. Passed. (Ayes 38. Noes 0. Page 1328.) Ordered to the Assembly. |
| May 27, 2025 | Ordered to special consent calendar. |
| May 23, 2025 | Read second time. Ordered to third reading. |
| May 23, 2025 | From committee: Do pass. (Ayes 6. Noes 0. Page 1209.) (May 23). |
| May 16, 2025 | Set for hearing May 23. |
| Apr 21, 2025 | April 21 hearing: Placed on APPR. suspense file. |
| Apr 4, 2025 | Set for hearing April 21. |
| Apr 2, 2025 | From committee: Do pass and re-refer to Com. on APPR. with recommendation: To consent calendar. (Ayes 11. Noes 0. Page 609.) (April 1). Re-referred to Com. on APPR. |
| Mar 13, 2025 | Set for hearing April 1. |
| Mar 5, 2025 | Referred to Com. on HOUSING. |
| Feb 24, 2025 | Read first time. |
| Feb 24, 2025 | From printer. May be acted upon on or after March 24. |
| Feb 21, 2025 | Introduced. To Com. on RLS. for assignment. To print. |
|
Date
|
Description
|
Location
|
Votes
|
|
|---|---|---|---|---|
| Sep 11, 2025 | Special Consent SB686 Reyes et al. | Senate Floor |
Passed |
|
| Aug 28, 2025 | SB 686 Reyes Consent Calendar Second Day Regular Session | Assembly Floor |
Passed |
|
| Aug 20, 2025 | Do pass. To Consent Calendar. | Assembly Standing Committee on Appropriations |
Passed |
|
| Jul 16, 2025 | Do pass and be re-referred to the Committee on [Appropriations] with recommendation: To Consent Calendar | Assembly Standing Committee on Housing and Community Development |
Passed |
|
| May 29, 2025 | Special Consent SB686 Reyes et al. | Senate Floor |
Passed |
|
| May 23, 2025 | Do pass | Senate Standing Committee on Appropriations |
Passed |
|
| Apr 21, 2025 | Placed on suspense file | Senate Standing Committee on Appropriations |
Passed |
|
| Apr 1, 2025 | Do pass, but first be re-referred to the Committee on [Appropriations] with the recommendation: To Consent Calendar | Senate Standing Committee on Housing |
Passed |
This list shows positions taken on this bill by organizations on the date displayed, which is linked to the original source.
Positions by individuals are not included.
|
Organization
|
Position
|
Date
|
|---|---|---|
| Affirmed Housing | ** Support | |
| Affordable Housing Development Corporation | ** Support | |
| AMCAL | ** Support | |
| Blieu Companies | ** Support | |
| Bowman & Company | ** Support | |
| BUCKINGHAM PROPERTY MANAGEMENT | ** Support | |
| California Building Industry Association | ** Support | |
| California Council For Affordable Housing | ** Support | |
| California Housing Consortium | ** Support | |
| California Housing Partnership | ** Support | |
| CBIA | ** Support | |
| Century Housing Corporation | ** Support | |
| Cohn Reznick LLP | ** Support | |
| COMMUNITY DEVELOPMENT PARTNERS | ** Support | |
| Community Revitalization & Development Corporation | ** Support | |
| CRP Affordable Housing and Community Development | ** Support | |
| Danco Communities | ** Support | |
| Dawson Holdings INC | ** Support | |
| Eden Housing | ** Support | |
| Highridge Costa | ** Support | |
| Housing Action Coalition | ** Support | |
| Housing Authority of the County of Santa Barbara | ** Support | |
| Housing California | ** Support | |
| Mbs Property Management INC | ** Support | |
| META HOUSING | ** Support | |
| MidPen Housing Corporation | ** Support | |
| Palm Communities | ** Support | |
| People'S Safe-Help Housing | ** Support | |
| R4 Capital | ** Support | |
| Red Stone Equity Partners | ** Support | |
| Resources for Community Development | ** Support | |
| Sabelhaus & Strain Pc | ** Support | |
| Southern California Housing Collaborative | ** Support | |
| Tenderloin Neighborhood Development Corporation | ** Support | |
| The Armony Companies | ** Support | |
| The Pacific Companies | ** Support | |
| USA Properties Fund, Inc. | ** Support | |
| Western Community Housing | ** Support | |
| Wnc & Associates | ** Support |
SENATE RULES COMMITTEE Office of Senate Floor Analyses (916) 651-1520 Fax: (916) 327-4478 | SB 686 |
UNFINISHED BUSINESS
Bill No: SB 686
Author: Reyes (D), et al.
Amended: 10/10/25
Vote: 21
SENATE HOUSING COMMITTEE: 11-0, 4/1/25
AYES: Wahab, Seyarto, Arreguín, Cabaldon, Caballero, Cortese, Durazo, Gonzalez, Grayson, Ochoa Bogh, Padilla
SENATE APPROPRIATIONS COMMITTEE: 6-0, 5/23/25
AYES: Caballero, Seyarto, Cabaldon, Grayson, Richardson, Wahab
NO VOTE RECORDED: Dahle
SENATE FLOOR: 38-0, 5/29/25
AYES: Allen, Alvarado-Gil, Archuleta, Arreguín, Ashby, Becker, Blakespear, Cabaldon, Caballero, Cervantes, Choi, Cortese, Dahle, Durazo, Gonzalez, Grayson, Grove, Hurtado, Jones, Laird, McGuire, McNerney, Menjivar, Niello, Ochoa Bogh, Padilla, Pérez, Richardson, Rubio, Seyarto, Smallwood-Cuevas, Stern, Strickland, Umberg, Valladares, Wahab, Weber Pierson, Wiener
NO VOTE RECORDED: Limón, Reyes
ASSEMBLY FLOOR: 74-0, 8/28/25 (Consent) - See last page for vote
SUBJECT: Housing programs: financing
SOURCE: California Council for Affordable Housing
California Housing Consortium
DIGEST:
This bill authorizes the Department of Housing and Community Development (HCD) to approve the payoff of an HCD loan in whole or part, prior to the end of its term, and the extraction of equity from a development for purposes approved by HCD.
Assembly Amendments
of 7/7/25 provide that extracted equity may also include funds utilized for reimbursement of specified borrower advances, and make other clarifying changes.
ANALYSIS:
Existing law:
- Allows HCD to approve an extension of a department loan, the reinstatement of a qualifying unpaid matured loan, the subordination of a department loan to new debt, or an investment of tax credit equity under various older HCD rental housing finance programs.
- Allows HCD to approve an extension of a loan, the reinstatement of a qualifying unpaid matured loan, or the subordination of an HCD loan to new debt or an investment of tax credit equity if it determines that the project will have after rehabilitation of repairs, a potential remaining useful life equal to or greater than the term of the restructured loan.
- Provides that HCD may subordinate its loan to refinance existing senior debt only as necessary for project feasibility and to reimburse borrower advances for predevelopment costs, recent capital improvements, and recent operating deficits.
This bill:
- Authorizes HCD to approve the payoff of an HCD loan in whole or part, prior to the end of its term, and the extraction of equity from a development for purposes approved by HCD.
- Allows a housing sponsor to use a loan and equity payments for all of the following eligible uses: the purchase of a limited partner interest of a tax credit investor in the project, payment of any unpaid deferred developer fee for the project, payment for necessary repairs and rehabilitation of the project, and the establishment or replenishment of department-approved project reserves.
- Prohibits the extension, reinstatement, subordination, payoff, extraction, or investment, as specified, if it would result in a rent increase for tenants of a development over the annual adjustment to the tenants’ rents under HCD’s regulatory agreement.
- Authorizes HCD to charge additional fees, as necessary, to cover its costs for processing restructuring transactions, and provides that the monitoring fees continue until the end of the term of HCD’s regulatory agreement, as specified.
- Limits developer fees that may be paid from equity payments from a restructured loan to the amount allowed by the California Tax Credit Allocation Committee (CTCAC) and to 25% of actual rehabilitation costs, as applicable.
- Authorizes HCD to waive specified requirements in the regulatory agreement if a loan is paid off, including requiring occupancy and financial reports and governing the use of operating income and reserves for the development.
- Provides that any extraction of equity from a development is subject to being shared with HCD in an amount determined solely by the department, but not greater than an amount proportionate to the amount of the department loan secured by such project to the total construction costs of the project.
- Prohibits HCD from limiting the amount a housing sponsor may spend on supportive service costs paid as operating expenses, except as follows:
- The cost of staff supervision shall not exceed 10% of the cost of onsite staff salaries; and
- Administrative overhead expenses, including accounting and human relations, shall not exceed 15% of the total supportive services costs paid as operating expenses.
Background
Affordable Housing Finance. The state finances affordable multifamily rental housing using a combination of loans, tax credits, and private activity bonds. Unlike market rate housing, affordable housing does not have the cash-flow from rents to support traditional financing. To qualify, very low-income tenants must make 60% or less of the area median income (AMI) and lower-income tenants must make only 80% or less of AMI. Tenants in affordable housing are only required to pay 30% of their income toward rent, so the state provides enough long term subsidy to reduce the overall debt service on a development. HCD loans serve as the permanent financing that comes in once a development is complete to take out the predevelopment and construction loans a developer took on to construct the development. HCD loans are secured with a lien in first position on the property. Developments are also subject to a 55-year recorded regulatory agreement which runs with the project. If a developer pays off an HCD loan before the covenants expire, the regulatory agreement is not extinguished and the developer must continue to provide the units at an affordability rent for the length of the regulatory agreement to lower-income tenants.
Comments
Author’s statement. “HCD currently has a prohibition on loan repayments or partial repayments for loans the state lends to affordable housing developers. This prohibition can lead to the original developer losing ownership of the project to an owner who does not preserve the project as an affordable housing development. It’s imperative that we do not allow bureaucratic policies to exacerbate the housing crisis. Allowing HCD loans to be prepaid in whole or in part would free up funding that can be loaned out sooner for new affordable housing projects. SB 686 will allow for HCD to authorize the sale and refinancing of HCD financed projects. This will let HCD approve the pay-off of the HCD loan in whole or in part, prior to the end of its term, and would generate funding that could be used for various affordable housing purposes, including costs related to the repair and rehabilitation needs of a project. It is critical that we find creative ways to free up funding that could support the creation of additional affordable housing opportunities.”
HCD Prepayments and Equity Withdrawals. Developers with older HCD loans would like the option to sell developments with multifamily housing program (MHP) loans and pay off the loans or to refinance the loans to take cash out to pay developer fees, rehabilitate a development, or re-deploy the funds to develop more affordable housing. This could generate millions of dollars to create new affordable housing.
MHP regulations suggest that HCD does have some discretion to allow for prepayment and limited ability to allow for a refinance of a loan.
HCD also administers a Loan Portfolio Restructuring Program (LPRP) to preserve and rehabilitate existing HCD-funded developments, including those with MHP loans. To qualify, developments must have expired regulatory agreements or the regulatory agreements must be set to expire by 2032. The LPRP does not allow cash payments to the developer or any cash-out of their equity except if the cash payment is held in a restricted account, contributed to the project during the development period, and remains with the project as permanent funding.
This bill would authorize HCD to approve the payoff of a department loan in whole or part before the end of its term and the extraction of equity from a development for purposes approved by the department. Any modification to the loan or equity payment to the developer could not result in in a rent increase for tenants of a development over and above the annual adjustment to the tenants’ rents under the department’s regulatory agreement.
Supportive Services. The MHP program provides loans to permanent supportive housing developments that provide both housing and supportive services to people experiencing homelessness. The loan is long-term and an equity investment in the development which keeps the rents at very low or extremely low levels. When an applicant applies for a loan, they can request funds to capitalize the operating reserves, or additional funds that are provided to support the supportive services and staff to provide supportive services for the development. HCD currently caps the amount of operating reserves that can be dedicated to supportive services. This bill would require HCD to eliminate the cap in regulations governing MHP. Using MHP funds to fund supportive services reduces the overall amount available for constructing affordable housing; however, it is a necessary trade off because there very limited long-term funding sources available for supportive services for supportive housing.
FISCAL EFFECT: Appropriation: No Fiscal Com.: Yes Local: No
SUPPORT: (Verified 8/28/25)
California Council for Affordable Housing (Source)
California Housing Consortium (co-source)
Affirmed Housing
Affordable Housing Development Corporation
Amcal
Blieu Companies
Bowman & Company
Buckingham Property Management
California Building Industry Association
California Housing Partnership
Cbia
Century Housing Corporation
Cohn Reznick Llp
Community Development Partners
Community Revitalization & Development Corporation
Crp Affordable Housing and Community Development
Danco Communities
Dawson Holdings INC
Eden Housing
Highridge Costa
Housing Authority of The County of Santa Barbara
Housing California
Mbs Property Management INC
Meta Housing
Midpen Housing Corporation
Palm Communities
People's Safe-help Housing
R4 Capital
Red Stone Equity Partners
Resources for Community Development
Sabelhaus & Strain Pc
Southern California Housing Collaborative
Tenderloin Neighborhood Development Corporation
The Armony Companies
The Pacific Companies
USA Properties Fund, INC.
Western Community Housing
Wnc & Associates
OPPOSITION: (Verified 8/28/25)
None received
ASSEMBLY FLOOR: 8/28/25 74-0
AYES: Addis, Aguiar-Curry, Ahrens, Alanis, Arambula, Ávila Farías, Bains, Bauer-Kahan, Bennett, Boerner, Bonta, Bryan, Calderon, Caloza, Carrillo, Castillo, Chen, Connolly, Davies, DeMaio, Dixon, Ellis, Flora, Fong, Gabriel, Garcia, Gipson, Jeff Gonzalez, Mark González, Hadwick, Haney, Harabedian, Hart, Hoover, Irwin, Jackson, Kalra, Krell, Lackey, Lee, Lowenthal, Macedo, McKinnor, Muratsuchi, Nguyen, Ortega, Pacheco, Papan, Patel, Patterson, Pellerin, Petrie-Norris, Quirk-Silva, Ramos, Ransom, Celeste Rodriguez, Michelle Rodriguez, Rogers, Blanca Rubio, Sanchez, Schiavo, Schultz, Sharp-Collins, Solache, Soria, Stefani, Ta, Tangipa, Wallis, Ward, Wicks, Wilson, Zbur, Rivas
NO VOTE RECORDED: Alvarez, Berman, Elhawary, Gallagher, Valencia
Prepared by: Alison Hughes / HOUSING / (916) 651-4124
7/17/26 11:37:44
**** END ****
SENATE RULES COMMITTEE Office of Senate Floor Analyses (916) 651-1520 Fax: (916) 327-4478 | SB 686 |
UNFINISHED BUSINESS
Bill No: SB 686
Author: Reyes (D), et al.
Amended: 7/7/25 in Assembly
Vote: 21
SENATE HOUSING COMMITTEE: 11-0, 4/1/25
AYES: Wahab, Seyarto, Arreguín, Cabaldon, Caballero, Cortese, Durazo, Gonzalez, Grayson, Ochoa Bogh, Padilla
SENATE APPROPRIATIONS COMMITTEE: 6-0, 5/23/25
AYES: Caballero, Seyarto, Cabaldon, Grayson, Richardson, Wahab
NO VOTE RECORDED: Dahle
SENATE FLOOR: 38-0, 5/29/25
AYES: Allen, Alvarado-Gil, Archuleta, Arreguín, Ashby, Becker, Blakespear, Cabaldon, Caballero, Cervantes, Choi, Cortese, Dahle, Durazo, Gonzalez, Grayson, Grove, Hurtado, Jones, Laird, McGuire, McNerney, Menjivar, Niello, Ochoa Bogh, Padilla, Pérez, Richardson, Rubio, Seyarto, Smallwood-Cuevas, Stern, Strickland, Umberg, Valladares, Wahab, Weber Pierson, Wiener
NO VOTE RECORDED: Limón, Reyes
ASSEMBLY FLOOR: 74-0, 8/28/25 (Consent) - See last page for vote
SUBJECT: Housing programs: financing
SOURCE: California Council for Affordable Housing
California Housing Consortium
DIGEST:
This bill authorizes the Department of Housing and Community Development (HCD) to approve the payoff of an HCD loan in whole or part, prior to the end of its term, and the extraction of equity from a development for purposes approved by HCD.
Assembly Amendments
of 7/7/25 provide that extracted equity may also include funds utilized for reimbursement of specified borrower advances, and make other clarifying changes.
ANALYSIS:
Existing law:
- Allows HCD to approve an extension of a department loan, the reinstatement of a qualifying unpaid matured loan, the subordination of a department loan to new debt, or an investment of tax credit equity under various older HCD rental housing finance programs.
- Allows HCD to approve an extension of a loan, the reinstatement of a qualifying unpaid matured loan, or the subordination of an HCD loan to new debt or an investment of tax credit equity if it determines that the project will have after rehabilitation of repairs, a potential remaining useful life equal to or greater than the term of the restructured loan.
- Provides that HCD may subordinate its loan to refinance existing senior debt only as necessary for project feasibility and to reimburse borrower advances for predevelopment costs, recent capital improvements, and recent operating deficits.
This bill:
- Authorizes HCD to approve the payoff of an HCD loan in whole or part, prior to the end of its term, and the extraction of equity from a development for purposes approved by HCD.
- Allows a housing sponsor to use a loan and equity payments for all of the following eligible uses: the purchase of a limited partner interest of a tax credit investor in the project, payment of any unpaid deferred developer fee for the project, payment for necessary repairs and rehabilitation of the project, and the establishment or replenishment of department-approved project reserves.
- Prohibits the extension, reinstatement, subordination, payoff, extraction, or investment, as specified, if it would result in a rent increase for tenants of a development over the annual adjustment to the tenants’ rents under HCD’s regulatory agreement.
- Authorizes HCD to charge additional fees, as necessary, to cover its costs for processing restructuring transactions, and provides that the monitoring fees continue until the end of the term of HCD’s regulatory agreement, as specified.
- Limits developer fees that may be paid from equity payments from a restructured loan to the amount allowed by the California Tax Credit Allocation Committee (CTCAC) and to 25% of actual rehabilitation costs, as applicable.
- Authorizes HCD to waive specified requirements in the regulatory agreement if a loan is paid off, including requiring occupancy and financial reports and governing the use of operating income and reserves for the development.
- Provides that any extraction of equity from a development is subject to being shared with HCD in an amount determined solely by the department, but not greater than an amount proportionate to the amount of the department loan secured by such project to the total construction costs of the project.
- Prohibits HCD from limiting the amount a housing sponsor may spend on supportive service costs paid as operating expenses, except as follows:
- The cost of staff supervision shall not exceed 10% of the cost of onsite staff salaries; and
- Administrative overhead expenses, including accounting and human relations, shall not exceed 15% of the total supportive services costs paid as operating expenses.
Background
Affordable Housing Finance. The state finances affordable multifamily rental housing using a combination of loans, tax credits, and private activity bonds. Unlike market rate housing, affordable housing does not have the cash-flow from rents to support traditional financing. To qualify, very low-income tenants must make 60% or less of the area median income (AMI) and lower-income tenants must make only 80% or less of AMI. Tenants in affordable housing are only required to pay 30% of their income toward rent, so the state provides enough long term subsidy to reduce the overall debt service on a development. HCD loans serve as the permanent financing that comes in once a development is complete to take out the predevelopment and construction loans a developer took on to construct the development. HCD loans are secured with a lien in first position on the property. Developments are also subject to a 55-year recorded regulatory agreement which runs with the project. If a developer pays off an HCD loan before the covenants expire, the regulatory agreement is not extinguished and the developer must continue to provide the units at an affordability rent for the length of the regulatory agreement to lower-income tenants.
Comments
Author’s statement. “HCD currently has a prohibition on loan repayments or partial repayments for loans the state lends to affordable housing developers. This prohibition can lead to the original developer losing ownership of the project to an owner who does not preserve the project as an affordable housing development. It’s imperative that we do not allow bureaucratic policies to exacerbate the housing crisis. Allowing HCD loans to be prepaid in whole or in part would free up funding that can be loaned out sooner for new affordable housing projects. SB 686 will allow for HCD to authorize the sale and refinancing of HCD financed projects. This will let HCD approve the pay-off of the HCD loan in whole or in part, prior to the end of its term, and would generate funding that could be used for various affordable housing purposes, including costs related to the repair and rehabilitation needs of a project. It is critical that we find creative ways to free up funding that could support the creation of additional affordable housing opportunities.”
HCD Prepayments and Equity Withdrawals. Developers with older HCD loans would like the option to sell developments with multifamily housing program (MHP) loans and pay off the loans or to refinance the loans to take cash out to pay developer fees, rehabilitate a development, or re-deploy the funds to develop more affordable housing. This could generate millions of dollars to create new affordable housing.
MHP regulations suggest that HCD does have some discretion to allow for prepayment and limited ability to allow for a refinance of a loan.
HCD also administers a Loan Portfolio Restructuring Program (LPRP) to preserve and rehabilitate existing HCD-funded developments, including those with MHP loans. To qualify, developments must have expired regulatory agreements or the regulatory agreements must be set to expire by 2032. The LPRP does not allow cash payments to the developer or any cash-out of their equity except if the cash payment is held in a restricted account, contributed to the project during the development period, and remains with the project as permanent funding.
This bill would authorize HCD to approve the payoff of a department loan in whole or part before the end of its term and the extraction of equity from a development for purposes approved by the department. Any modification to the loan or equity payment to the developer could not result in in a rent increase for tenants of a development over and above the annual adjustment to the tenants’ rents under the department’s regulatory agreement.
Supportive Services. The MHP program provides loans to permanent supportive housing developments that provide both housing and supportive services to people experiencing homelessness. The loan is long-term and an equity investment in the development which keeps the rents at very low or extremely low levels. When an applicant applies for a loan, they can request funds to capitalize the operating reserves, or additional funds that are provided to support the supportive services and staff to provide supportive services for the development. HCD currently caps the amount of operating reserves that can be dedicated to supportive services. This bill would require HCD to eliminate the cap in regulations governing MHP. Using MHP funds to fund supportive services reduces the overall amount available for constructing affordable housing; however, it is a necessary trade off because there very limited long-term funding sources available for supportive services for supportive housing.
FISCAL EFFECT: Appropriation: No Fiscal Com.: Yes Local: No
SUPPORT: (Verified 8/28/25)
California Council for Affordable Housing (Source)
California Housing Consortium (co-source)
Affirmed Housing
Affordable Housing Development Corporation
Amcal
Blieu Companies
Bowman & Company
Buckingham Property Management
California Building Industry Association
California Housing Partnership
Cbia
Century Housing Corporation
Cohn Reznick Llp
Community Development Partners
Community Revitalization & Development Corporation
Crp Affordable Housing and Community Development
Danco Communities
Dawson Holdings INC
Eden Housing
Highridge Costa
Housing Authority of The County of Santa Barbara
Housing California
Mbs Property Management INC
Meta Housing
Midpen Housing Corporation
Palm Communities
People's Safe-help Housing
R4 Capital
Red Stone Equity Partners
Resources for Community Development
Sabelhaus & Strain Pc
Southern California Housing Collaborative
Tenderloin Neighborhood Development Corporation
The Armony Companies
The Pacific Companies
USA Properties Fund, INC.
Western Community Housing
Wnc & Associates
OPPOSITION: (Verified 8/28/25)
None received
Prepared by: Alison Hughes / HOUSING / (916) 651-4124
8/28/25 16:50:14
**** END ****
Date of Hearing: August 20, 2025
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Buffy Wicks, Chair
SBPCA Bill Id:SB 686
Author:(Reyes) – As Amended Ver:July 7, 2025
Policy Committee: | Housing and Community Development | Vote: | 12 - 0 |
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| ||
|
|
Urgency: No State Mandated Local Program: No Reimbursable: No
SUMMARY:
This bill revises trailer bill language in AB 130 (Committee on Budget), Chapter 22, Statutes of 2025, that authorized the Department of Housing and Community Development (HCD) to allow owners of developments with affordable housing funding from HCD to extract equity for specified purposes.
Specifically, this bill:
- Adds to the list of eligible uses of extracted equity the reimbursement of borrower advances for predevelopment costs, unreimbursed capital improvements, and unreimbursed operating deficits.
- Revises the definition of “extracted equity” to mean “distributed funds that are financed with debt secured by a department-regulated property” rather than “debt added on to a department-regulated property.”
FISCAL EFFECT:
HCD anticipates no costs resulting from these changes.
COMMENTS:
- Purpose. According to the author:
With the passage of AB 130, HCD may now accept the early repayment of loans by housing developers. With the approval of HCD, developers can now leverage extracted equity to create more affordable housing projects or for the preservation of existing affordable housing. [This bill’s] previous language was included in [AB 130] and will unlock millions of dollars to be used on more affordable housing projects. [This bill] now seeks to follow up on this investment by addressing the lack of clarity involving permitted uses of the extracted equity and better define the term “extracted equity.”
- Background. The state finances affordable multifamily rental housing using a combination of loans, tax credits, and private activity bonds. Unlike market rate housing, affordable housing does not have the cash flow from rents to support traditional financing. Advocates assert affordable housing developments are facing financial challenges due to several factors, including the depletion of operating reserves resulting from the COVID-19 rent moratorium and unprecedented increases in insurance rates.
In response, the Legislature passed AB 130, a recently signed budget trailer bill, which, among other things, authorized HCD to allow affordable housing developers with projects funded by the department to utilize their equity for affordable housing purposes. AB 130 gave HCD complete discretion to allow an extraction of equity and provides a list of allowable uses of equity withdrawals, including, among other uses, approved project repair and rehabilitation, payment of unpaid deferred developer fees, and replenishment of project reserves. AB 130 also gave HCD broad authority to approve other uses.
AB 130 further required new debt be subordinated to HCD’s lien and regulatory agreement unless the department determines that subordination of its lien is necessary for the feasibility of the project and to fund the rehabilitation or improvements.
This bill revises the definition of “extracted equity” and adds to the list of its eligible uses under AB 130. According to the California Council for Affordable Housing and the California Housing Consortium, co-sponsors of the bill, these changes help facilitate the use of the financing tool authorized under AB 130. The sponsors indicate they are in discussions with HCD about the need to make these changes, which the sponsors view as clarifying.
- Related Legislation. AB 913 (Celeste Rodriguez), of this legislative session, authorizes HCD to take specified actions to improve the fiscal integrity of an affordable housing development financed by the department. AB 913 is pending in the Senate Appropriations Committee.
- Prior Legislation. AB 2638 (Ward), of the 2023-24 Legislative Session, would have authorized HCD to, among other things, approve the extraction of equity from a development for purposes approved by HCD. AB 2638 was held on the Senate Appropriations Committee suspense file.
Analysis Prepared by: Jennifer Swenson / APPR. / (916) 319-2081
Date of Hearing: July 16, 2025
ASSEMBLY COMMITTEE ON HOUSING AND COMMUNITY DEVELOPMENT
Matt Haney, Chair
SBPCA Bill Id:SB 686
Author:(Reyes) – As Amended Ver:July 7, 2025
SENATE VOTE: 38-0
SUBJECT: Housing programs: financing
SUMMARY: Changes recently passed trailer bill language in AB 130 (Committee on Budget), Chapter 22, Statutes of 2025 that authorized the Department of Housing and Community Development (HCD) to allow owners of developments with affordable housing funding from HCD to extract equity for specified purposes. Specifically, this bill:
- Adds to the list of eligible uses of extracted equity, reimbursement of borrower advances for predevelopment costs, unreimbursed capital improvements, and unreimbursed operating deficits.
- Revises the definition of “extracted equity” to mean “distributed funds that are financed with debt that is secured by a department-regulated property” rather than “debt added on to a department-regulated property.”
EXISTING LAW:
- Authorizes HCD, to the extent permitted under federal law and the California Constitution, to allow an owner of a property subject to a regulatory agreement with the department to take out additional debt from a development to finance rehabilitation of the property or investment in new affordable housing if all of the following conditions are met:
- All hard debt, including the additional debt, is underwritten with a debt-service coverage ratio of at a minimum 1.15 and is demonstrated to project positive cash flow for 15 consecutive years. For the purposes of this subdivision, “hard debt” means debt that must be repaid via an amortizing payment or at a specified maturity date;
- Any new debt is subordinate to the department’s lien and regulatory agreement, as applicable, unless the department reasonably determines that subordination of the department’s lien is necessary for the feasibility of a project and to fund reasonable rehabilitation or improvements, including soft costs;
- Any extracted equity is any of the following:
- With HCD’s approval, contributed to other projects that will increase or improve the supply of deed-restricted affordable housing serving low-income households in the state;
- Utilized in the purchase of a limited partner interest of a tax credit investor in the project, provided that the amount used to purchase that interest shall be subject to the guidelines adopted, as specified;
- Utilized in the payment of any unpaid deferred developer fee for the project pursuant to any applicable department regulations;
- Applied toward payment for necessary repairs and rehabilitation of the project;
- Utilized for the establishment or replenishment of department-approved project reserves; or
- Utilized for any other purposes approved by the department.
- The department’s regulatory agreement remains in place for the project for its remaining term. If equity is extracted for purposes allowed, the department’s regulatory agreement will be recorded in a senior position; and
- The department continues to be entitled to receive monitoring fees to ensure compliance with the existing regulatory agreement. (Health and Safety Code (HSC) Section 50406.4)
- Defines “extracted equity” to mean debt added to a department-regulated property that is used for any of the following purposes:
- Approved project rehabilitation work;
- To pay off existing debt;
- Replenishment of reserves; or
- Other department-approved project specific uses. (HSC 50406.4)
FISCAL EFFECT: Unknown.
COMMENTS:
Author’s Statement: According to the author, “California is in a serious deficit of affordable housing supply. Investing and financing affordable housing are key tools to addressing the housing supply deficit. With the passage of AB 130, the Department of Housing and Community Development (HCD) may now accept the early repayment of loans by housing developers. With the approval of HCD, developers can now leverage extracted equity to create more affordable housing projects or for the preservation of existing affordable housing. SB 686’s previous language was included in this trailer bill and will unlock millions of dollars to be used on more affordable housing projects. The bill now seeks to follow up on this investment by addressing the lack of clarity involving permitted uses of the extracted equity and better define the term extracted equity.”
Affordable Housing Finance: The state finances affordable multifamily rental housing using a combination of loans, tax credits, and private activity bonds. Unlike market rate housing, affordable housing does not have the cash-flow from rents to support traditional financing. Affordable housing is provided to tenants whose household income is below the area median income (AMI). To qualify, very low-income tenants must make 60% or less of the AMI and lower-income tenants must make 80% or less of AMI. Tenants in affordable housing are only required to pay 30% of their income toward rent, so the state provides enough long term subsidy to reduce the overall debt service on a development. HCD loans serve as the permanent financing that comes in once a development is complete to take out the predevelopment and construction loans a developer took on to construct the development. HCD loans are secured with a lien in first position on the property. Developments are also subject to a 55-year recorded regulatory agreement which runs with the project. If a developer pays off an HCD loan before the covenants expire, the regulatory agreement is not extinguished and the developer must continue to provide the units at an affordability rent for the length of the regulatory agreement to lower-income tenants.
Challenges Facing Affordable Housing Developments: Due to several factors including the depletion of operating reserves resulting from the COVID-19 eviction moratorium and unprecedented increases in insurance rates, affordable housing developments are facing financial challenges. Enterprise Community Partners recently conducted a survey of 130 affordable properties and found that on average the developments were experiencing insurance cost increases of 70%, with some providers reporting increases up to 500%. Because rents are capped, these properties have fewer options to cover these increases. In some cases, the situation is made worse because the project’s operating reserves have not recovered from the eviction moratorium. Due to these financial pressures some properties are at risk of foreclosing or becoming market-rate developments, which would eliminate vital affordable housing units.
Recent Trailer Bill: Just last month, the Legislature approved and the Governor signed a budget trailer bill, AB 130 (Committee on Budget), Chapter 22, Statutes of 2025, which authorized HCD to allow owners of affordable housing developments financed with HCD loans to extract equity from the development for specified purposes. HCD has ultimate authority to allow an extraction of equity and while there is a list of specified uses of equity withdrawals including, approved project rehabilitation work, to pay off existing debt, and replenishment of reserves, the bill also gave HCD broad authority to approve other uses. Any new debt must be subordinated to HCD’s lien and regulatory agreement unless the department determines that subordination of its lien is necessary for the feasibility of the project and to fund the rehabilitation or improvements.
This bill would add to the list of eligible uses of extracted equity, reimbursement of borrower advances for predevelopment costs, unreimbursed capital improvements, and unreimbursed operating deficits. In addition, this bill revises the definition of “extracted equity” to mean “distributed funds that are financed with debt that is secured by a department-regulated property” rather than “debt added on to a department-regulated property.” According to the sponsors, they are in discussions with the department about the need to make these changes which they view as clarifying.
Arguments in Support: According to the bill’s cosponsor, the California Council for Affordable Housing, “The amendments in SB 686 serve as essential clarifying revisions to the language in the budget trailer bill. These amendments provide clarification on the following points:
- Amendment 1: Section 50406.4(c)(1) – This language clarifies that the permitted uses for extracted equity include reimbursements for borrower advances for predevelopment costs, unreimbursed capital improvements, and unreimbursed operating deficits and that these things are allowable. This amendment makes the language consistent with the permitted uses described in 50560(e).
- Amendment 2: Section 50406.4(c)(2). – The language in the budget bill describes extracted equity as ‘debt added’ to a property. This is confusing and inaccurate because, in these circumstances the purpose of the law is to allow for the debt to be repaid to HCD, effectively removing the debt rather than adding debt. This amendment clarifies that ‘distributed funds that are financed with debt that is secured by a department-regulated property…’ which more accurately describes the action.”
Arguments in Opposition: None on file.
Related Legislation:
AB 130 (Committee on Budget), Chapter 22, Statutes of 2025: Authorized HCD, to the extent permitted under federal law and the California Constitution, to allow an owner of a property subject to a regulatory agreement with the department to take out additional debt from a development to finance rehabilitation of the property or investment in new affordable housing if specified conditions are met.
AB 913 (Celeste Rodriguez), of this legislative session, would authorize HCD to take specified actions to improve the fiscal integrity of an affordable housing development financed with department resources. This bill is pending a hearing in the Senate Appropriations Committee.
AB 2638 (Ward, 2024) would have authorized HCD to approve the payoff of an HCD loan in whole or part, prior to the end of its term, and the extraction of equity from a development for purposes approved by HCD. This bill was held on the Senate Appropriations Committee suspense file.
AB 515 (Ward, 2023) would have authorized HCD to approve the payoff of an HCD loan in whole or part, prior to the end of its term, and the extraction of equity from a development for purposes approved by HCD. This bill was held on the Senate Appropriations Committee suspense file.
REGISTERED SUPPORT / OPPOSITION:
Support
California Council for Affordable Housing (Sponsor)
California Housing Consortium (Co-Sponsor)
California Housing Partnership
Housing Action Coalition
Housing California
MidPen Housing Corporation
Resources for Community Development
Opposition
None on file.
Analysis Prepared by: Lisa Engel / H. & C.D. / (916) 319-2085
SENATE RULES COMMITTEE Office of Senate Floor Analyses (916) 651-1520 Fax: (916) 327-4478 | SB 686 |
THIRD READING
Bill No: SB 686
Author: Reyes (D), et al.
Introduced: 2/21/25
Vote: 21
SENATE HOUSING COMMITTEE: 11-0, 4/1/25
AYES: Wahab, Seyarto, Arreguín, Cabaldon, Caballero, Cortese, Durazo, Gonzalez, Grayson, Ochoa Bogh, Padilla
SENATE APPROPRIATIONS COMMITTEE: 6-0, 5/23/2025
AYES: Caballero, Seyarto, Cabaldon, Grayson, Richardson, Wahab
NO VOTE RECORDED: Dahle
SUBJECT: Housing programs: financing
SOURCE: California Council for Affordable Housing
California Housing Consortium
DIGEST:
This bill authorizes the Department of Housing and Community Development (HCD) to approve the payoff of an HCD loan in whole or part, prior to the end of its term, and the extraction of equity from a development for purposes approved by HCD.
ANALYSIS:
Existing law:
- Allows HCD to approve an extension of a department loan, the reinstatement of a qualifying unpaid matured loan, the subordination of a department loan to new debt, or an investment of tax credit equity under various older HCD rental housing finance programs.
- Allows HCD to approve an extension of a loan, the reinstatement of a qualifying unpaid matured loan, or the subordination of an HCD loan to new debt or an investment of tax credit equity if it determines that the project will have after rehabilitation of repairs, a potential remaining useful life equal to or greater than the term of the restructured loan.
- Provides that HCD may subordinate its loan to refinance existing senior debt only as necessary for project feasibility and to reimburse borrower advances for predevelopment costs, recent capital improvements, and recent operating deficits.
This bill:
- Authorizes HCD to approve the payoff of an HCD loan in whole or part, prior to the end of its term, and the extraction of equity from a development for purposes approved by HCD.
- Allows a housing sponsor to use a loan and equity payments for all of the following eligible uses: the purchase of a limited partner interest of a tax credit investor in the project, payment of any unpaid deferred developer fee for the project, payment for necessary repairs and rehabilitation of the project, and the establishment or replenishment of department-approved project reserves.
- Prohibits the extension, reinstatement, subordination, payoff, extraction, or investment, as specified, if it would result in a rent increase for tenants of a development over the annual adjustment to the tenants’ rents under HCD’s regulatory agreement.
- Authorizes HCD to charge additional fees, as necessary, to cover its costs for processing restructuring transactions, and provides that the monitoring fees continue until the end of the term of HCD’s regulatory agreement, as specified.
- Limits developer fees that may be paid from equity payments from a restructured loan to the amount allowed by the California Tax Credit Allocation Committee and to 25% of actual rehabilitation costs, as applicable.
- Authorizes HCD to waive specified requirements in the regulatory agreement if a loan is paid off, including requiring occupancy and financial reports and governing the use of operating income and reserves for the development.
- Provides that any extraction of equity from a development is subject to being shared with HCD in an amount determined solely by the department, but not greater than an amount proportionate to the amount of the department loan secured by such project to the total construction costs of the project.
- Prohibits HCD from limiting the amount a housing sponsor may spend on supportive service costs paid as operating expenses, except as follows:
- The cost of staff supervision shall not exceed 10% of the cost of onsite staff salaries; and
- Administrative overhead expenses, including accounting and human relations, shall not exceed 15% of the total supportive services costs paid as operating expenses.
Background
Affordable Housing Finance. The state finances affordable multifamily rental housing using a combination of loans, tax credits, and private activity bonds. Unlike market rate housing, affordable housing does not have the cash-flow from rents to support traditional financing. To qualify, very low-income tenants must make 60% or less of the area median income (AMI) and lower-income tenants must make only 80% or less of AMI. Tenants in affordable housing are only required to pay 30% of their income toward rent, so the state provides enough long term subsidy to reduce the overall debt service on a development. HCD loans serve as the permanent financing that comes in once a development is complete to take out the predevelopment and construction loans a developer took on to construct the development. HCD loans are secured with a lien in first position on the property. Developments are also subject to a 55-year recorded regulatory agreement which runs with the project. If a developer pays off an HCD loan before the covenants expire, the regulatory agreement is not extinguished and the developer must continue to provide the units at an affordability rent for the length of the regulatory agreement to lower-income tenants.
Comments
1) Author’s statement. “HCD currently has a prohibition on loan repayments or partial repayments for loans the state lends to affordable housing developers. This prohibition can lead to the original developer losing ownership of the project to an owner who does not preserve the project as an affordable housing development. It’s imperative that we do not allow bureaucratic policies to exacerbate the housing crisis. Allowing HCD loans to be prepaid in whole or in part would free up funding that can be loaned out sooner for new affordable housing projects. SB 686 will allow for HCD to authorize the sale and refinancing of HCD financed projects. This will let HCD approve the pay-off of the HCD loan in whole or in part, prior to the end of its term, and would generate funding that could be used for various affordable housing purposes, including costs related to the repair and rehabilitation needs of a project. It is critical that we find creative ways to free up funding that could support the creation of additional affordable housing opportunities.”
2) HCD Prepayments and Equity Withdrawals. Developers with older HCD loans would like the option to sell developments with Multifamily Housing Program (MHP) loans and pay off the loans or to refinance the loans to take cash out to pay developer fees, rehabilitate a development, or re-deploy the funds to develop more affordable housing. This could generate millions of dollars to create new affordable housing.
MHP regulations suggest that HCD does have some discretion to allow for prepayment and limited ability to allow for a refinance of a loan.
HCD also administers a Loan Portfolio Restructuring Program (LPRP) to preserve and rehabilitate existing HCD-funded developments, including those with MHP loans. To qualify, developments must have expired regulatory agreements or the regulatory agreements must be set to expire by 2032. The LPRP does not allow cash payments to the developer or any cash-out of their equity except if the cash payment is held in a restricted account, contributed to the project during the development period, and remains with the project as permanent funding.
This bill would authorize HCD to approve the payoff of a department loan in whole or part before the end of its term and the extraction of equity from a development for purposes approved by the department. Any modification to the loan or equity payment to the developer could not result in in a rent increase for tenants of a development over and above the annual adjustment to the tenants’ rents under the department’s regulatory agreement.
3) Supportive Services. The MHP program provides loans to permanent supportive housing developments that provide both housing and supportive services to people experiencing homelessness. The loan is long-term and an equity investment in the development which keeps the rents at very low or extremely low levels. When an applicant applies for a loan, they can request funds to capitalize the operating reserves, or additional funds that are provided to support the supportive services and staff to provide supportive services for the development. HCD currently caps the amount of operating reserves that can be dedicated to supportive services. This bill would require HCD to eliminate the cap in regulations governing MHP. Using MHP funds to fund supportive services reduces the overall amount available for constructing affordable housing; however, it is a necessary trade off because there very limited long-term funding sources available for supportive services for supportive housing.
FISCAL EFFECT: Appropriation: No Fiscal Com.: Yes Local: No
According to the Senate Appropriations Committee:
- HCD estimates ongoing costs of approximately $1.38 million and 6.0 PY of staff to implement and administer the expansion of the LPR Program to provide for loan payoffs and extraction of equity, as specified. Staff notes that while ongoing administrative costs are likely to be offset by transaction and monitoring fees charged to applicants and program participants, HCD is likely to incur significant one-time costs in the first year to engage with stakeholders, develop and adopt amendments to LPR Program guidelines, research and develop specialized legal criteria related to excess equity extraction, create staff tools and processes to analyze specialized transactions, and make revisions to forms, processes, and IT systems. (General Fund)
- Unknown revenue gains related to additional transaction and monitoring fee collections, which will be used to cover HCD’s ongoing administrative costs, as noted above, and for accelerated loan repayments and equity extractions that are shared with HCD. Revenue gains resulting from loan repayments and equity extractions would likely be used for additional funding allocations for new affordable housing projects across various programs in future fiscal years. (various funds)
SUPPORT: (Verified 5/23/25)
California Council for Affordable Housing (co-source)
California Housing Consortium (co-source)
Affirmed Housing
Affordable Housing Development Corporation
Amcal
Blieu Companies
Bowman & Company
Buckingham Property Management
California Building Industry Association
California Housing Partnership Corporation
Cbia
Century Housing Corporation
Cohn Reznick Llp
Community Development Partners
Community Revitalization & Development Corporation
Crp Affordable Housing and Community Development
Danco Communities
Dawson Holdings INC
Eden Housing
Highridge Costa
Housing Authority of The County of Santa Barbara
Housing California
Mbs Property Management INC
Meta Housing
Palm Communities
People's Safe-help Housing
R4 Capital
Red Stone Equity Partners
Resources for Community Development
Sabelhaus & Strain Pc
Southern California Housing Collaborative
Tenderloin Neighborhood Development Corporation
The Armony Companies
The Pacific Companies
USA Properties Fund, INC.
Western Community Housing
Wnc & Associates
OPPOSITION: (Verified 5/23/25)
None received
Prepared by: Alison Hughes / HOUSING / (916) 651-4124
5/26/25 13:27:03
**** END ****
SENATE COMMITTEE ON
Senator Anna Caballero, Chair
2025 - 2026 Regular Session
SB 686 (Reyes) - Housing programs: financing
Version: | Policy Vote: |
Urgency: | Mandate: |
Hearing Date: | Consultant: |
Bill Summary:
SB 686 would amend the Loan Portfolio Restructuring Program (LPR Program) to authorize the Department of Housing and Community Development (HCD) to approve the payoff of a department loan prior to the end of its term, and the extraction of equity from a development for purposes approved by the department, as specified.
Fiscal Impact:
- HCD estimates ongoing costs of approximately $1.38 million and 6.0 PY of staff to implement and administer the expansion of the LPR Program to provide for loan payoffs and extraction of equity, as specified. Staff notes that while ongoing administrative costs are likely to be offset by transaction and monitoring fees charged to applicants and program participants, HCD is likely to incur significant one-time costs in the first year to engage with stakeholders, develop and adopt amendments to LPR Program guidelines, research and develop specialized legal criteria related to excess equity extraction, create staff tools and processes to analyze specialized transactions, and make revisions to forms, processes, and IT systems. (General Fund)
- Unknown revenue gains related to additional transaction and monitoring fee collections, which will be used to cover HCD’s ongoing administrative costs, as noted above, and for accelerated loan repayments and equity extractions that are shared with HCD. Revenue gains resulting from loan repayments and equity extractions would likely be used for additional funding allocations for new affordable housing projects across various programs in future fiscal years. (various funds)
Background:
Existing law, the LPR Program, authorizes HCD to approve an extension of a department loan, the reinstatement of a qualifying unpaid mature loan, the subordination of a loan to new debt, or an investment of tax credit equity under the following rental housing finance programs:
- The original Rental Housing Construction Program.
- The Special User Housing Rehabilitation Program.
- The Deferred Payment Rehabilitation Loan Program.
- The rental component of the California Natural Disaster Assistance Program.
- The State Earthquake Rehabilitation Assistance Program.
- The rental component of the California Housing Rehabilitation Program.
- The bond-funded component of the Rental Housing Construction Program.
- The Family Housing Demonstration Program.
- The Families Moving to Work Program.
- The Multifamily Housing Program (MHP).
- Any and all other multifamily housing loans funded or monitored by HCD.
Existing law specifies that loans may only be restructured at HCD’s discretion if a development is in compliance with the existing regulatory agreement, the development requires a restructuring in order to continue to operate, and the development has, or will have after rehabilitation and repairs, a potential remaining useful life of at least as long as the new loan term. An extension must be for a period of at least 10 years and up to 55 years, at an interest rate of 3 percent. Rents may be adjusted upward to the minimum extent necessary to support the new debt to pay for rehabilitation, and subject to specified limits to maintain affordability. Existing law authorizes HCD to charge loan processing and monitoring fees to an applicant to generate sufficient revenue to cover initial and ongoing monitoring requirements of the program.
Proposed Law:
SB 686 would amend the LPR Program to also authorize HCD to approve the payoff of a department loan prior to the end of its term, and the extraction of equity from a development for purposes approved by the department, as specified. The bill would also revise and recast provisions of the LPR Program, and do the following:
- Define “capitalized operating reserves,” for purposes of specified programs, as capitalized funds for assisted units for the purpose of covering potential or projected operating deficits over time, including operations, supportive services, and rent subsidies.
- Authorize a housing sponsor to use a loan and equity payments for all of the following purposes: the purchase of a limited partner interest of a tax credit investor in the project, payment of any unpaid deferred developer fee for the project, payment for necessary repairs and rehabilitation of the project, and the establishment or replenishment of HCD-approved project reserves.
- Authorize HCD to subordinate its loan to refinance existing senior debt for those eligible purposes and to reimburse advances for predevelopment costs, capital improvements, and operating deficits, only if HCD’s security is not jeopardized, as determined by HCD.
- Prohibit the extension, reinstatement, subordination, payoff, extraction of equity, or investment of tax credit equity, as provided, if it would result in a rent increase for tenants of a development exceeding the annual rent adjustment under HCD’s regulatory agreement, as specified.
- Authorize HCD to consider information from third-party capital needs assessment reports in approving additional senior debt under the program.
- Authorize HCD’s monitoring fees to be charged from the date of recordation of the loan or regulatory documents for any LPR Program restructuring activities, and require monitoring fees to continue until the end of the term of HCD’s regulatory agreement, regardless of any loan payoffs, and shall not be diminished in the event of any paydown of the department loan.
- Require program guidelines to limit developer fees to the amount allowed by the California Tax Credit Allocation Committee regulations, as specified, and no more than 25% of actual rehabilitation costs where there is no tax credit resyndication.
- Authorize HCD to add another regulatory agreement, if necessary, in addition to new regulatory agreements entered into as a result of an LPR Program activity.
- Authorize HCD to waive specified requirements in regulatory agreements regarding operating income, use of reserves, and reports and audits if a loan is paid off.
- Require that any extraction of equity authorized under the LPR Program is subject to being shared with HCD in an amount determined solely by the department, but not greater than the amount proportionate to the amount of the department loan secured by such project to the total construction costs of the project.
Related Legislation:
AB 2638 (Ward), which was held on this Committee’s Suspense File last year, was nearly identical to this bill, except AB 2638 included an urgency clause.
AB 515 (Ward), which was held on this Committee’s Suspense File in 2023, was substantially similar to this bill.
AB 1699 (Torres), Chap. 780/2012, established the LPR Program and authorized HCD to approve an extension of a department loan, the subordination of a loan to new debt, or an investment of tax credit equity under older rental housing finance programs, as specified.
Staff Comments:
The Administration has proposed trailer bill language as part of the Governor’s Proposed 2025-26 Budget under the heading “Accessing Equity to Facilitate Housing Production.” The trailer bill language is nearly identical to the changes proposed by this bill, but also includes a provision allowing an owner of a property subject to a regulatory agreement with HCD to take out additional debt on the development to finance rehabilitation or investment in new affordable housing, as specified. HCD background on the proposal indicates that leveraging excess equity from current projects to create new and preserve existing affordable housing projects is a cost-effective solution that can increase the impact of prior state investments and support ongoing preservation without additional state funding. This item was taken up by the Senate Budget and Fiscal Review Committee (Subcommittee 4) on February 27, 2025 as a discussion item, but no final action was taken at that time. Staff notes that the proposed budget does not appear to provide additional positions or resources in 2025-26 to implement the provisions of the trailer bill.
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SENATE COMMITTEE ON HOUSING
Senator Aisha Wahab, Chair
2025 - 2026 Regular
Bill No: SB 686 Hearing Date: 4/1/2025
Author: | Reyes | ||
Version: | 2/21/2025 Introduced | ||
Urgency: | No | Fiscal: | Yes |
Consultant: | Alison Hughes | ||
SUBJECT: Housing programs: financing
DIGEST: This bill authorizes the Department of Housing and Community Development (HCD) to approve the payoff of an HCD loan in whole or part, prior to the end of its term, and the extraction of equity from a development for purposes approved by HCD.
ANALYSIS:
Existing law:
- Allows HCD to approve an extension of a department loan, the reinstatement of a qualifying unpaid matured loan, the subordination of a department loan to new debt, or an investment of tax credit equity under various older HCD rental housing finance programs.
- Allows HCD to approve an extension of a loan, the reinstatement of a qualifying unpaid matured loan, or the subordination of an HCD loan to new debt or an investment of tax credit equity if it determines that the project will have after rehabilitation of repairs, a potential remaining useful life equal to or greater than the term of the restructured loan.
- Provides that HCD may subordinate its loan to refinance existing senior debt only as necessary for project feasibility and to reimburse borrower advances for predevelopment costs, recent capital improvements, and recent operating deficits.
This bill:
- Authorizes HCD to approve the payoff of an HCD loan in whole or part, prior to the end of its term, and the extraction of equity from a development for purposes approved by HCD.
- Allows a housing sponsor to use a loan and equity payments for all of the following eligible uses: the purchase of a limited partner interest of a tax credit investor in the project, payment of any unpaid deferred developer fee for the project, payment for necessary repairs and rehabilitation of the project, and the establishment or replenishment of department-approved project reserves.
- Prohibits the extension, reinstatement, subordination, payoff, extraction, or investment, as specified, if it would result in a rent increase for tenants of a development over the annual adjustment to the tenants’ rents under HCD’s regulatory agreement.
- Authorizes HCD to charge additional fees, as necessary, to cover its costs for processing restructuring transactions, and provides that the monitoring fees continue until the end of the term of HCD’s regulatory agreement, as specified.
- Limits developer fees that may be paid from equity payments from a restructured loan to the amount allowed by the California Tax Credit Allocation Committee (CTCAC) and to 25% of actual rehabilitation costs, as applicable.
- Authorizes HCD to waive specified requirements in the regulatory agreement if a loan is paid off, including requiring occupancy and financial reports and governing the use of operating income and reserves for the development.
- Provides that any extraction of equity from a development is subject to being shared with HCD in an amount determined solely by the department, but not greater than an amount proportionate to the amount of the department loan secured by such project to the total construction costs of the project.
- Prohibits HCD from limiting the amount a housing sponsor may spend on supportive service costs paid as operating expenses, except as follows:
- The cost of staff supervision shall not exceed 10% of the cost of onsite staff salaries; and
- Administrative overhead expenses, including accounting and human relations, shall not exceed 15% of the total supportive services costs paid as operating expenses.
Background
Affordable Housing Finance. The state finances affordable multifamily rental housing using a combination of loans, tax credits, and private activity bonds. Unlike market rate housing, affordable housing does not have the cash-flow from rents to support traditional financing. To qualify, very low-income tenants must make 60% or less of the area median income (AMI) and lower-income tenants must make only 80% or less of AMI. Tenants in affordable housing are only required to pay 30% of their income toward rent, so the state provides enough long term subsidy to reduce the overall debt service on a development. HCD loans serve as the permanent financing that comes in once a development is complete to take out the predevelopment and construction loans a developer took on to construct the development. HCD loans are secured with a lien in first position on the property. Developments are also subject to a 55-year recorded regulatory agreement which runs with the project. If a developer pays off an HCD loan before the covenants expire, the regulatory agreement is not extinguished and the developer must continue to provide the units at an affordability rent for the length of the regulatory agreement to lower-income tenants.
Comments
1) Author’s statement. “HCD currently has a prohibition on loan repayments or partial repayments for loans the state lends to affordable housing developers. This prohibition can lead to the original developer losing ownership of the project to an owner who does not preserve the project as an affordable housing development. It’s imperative that we do not allow bureaucratic policies to exacerbate the housing crisis. Allowing HCD loans to be prepaid in whole or in part would free up funding that can be loaned out sooner for new affordable housing projects. SB 686 will allow for HCD to authorize the sale and refinancing of HCD financed projects. This will let HCD approve the pay-off of the HCD loan in whole or in part, prior to the end of its term, and would generate funding that could be used for various affordable housing purposes, including costs related to the repair and rehabilitation needs of a project. It is critical that we find creative ways to free up funding that could support the creation of additional affordable housing opportunities.”
2) HCD Prepayments and Equity Withdrawals. Developers with older HCD loans would like the option to sell developments with MHP loans and pay off the loans or to refinance the loans to take cash out to pay developer fees, rehabilitate a development, or re-deploy the funds to develop more affordable housing. This could generate millions of dollars to create new affordable housing.
MHP regulations suggest that HCD does have some discretion to allow for prepayment and limited ability to allow for a refinance of a loan.
HCD also administers a Loan Portfolio Restructuring Program (LPRP) to preserve and rehabilitate existing HCD-funded developments, including those with MHP loans. To qualify, developments must have expired regulatory agreements or the regulatory agreements must be set to expire by 2032. The LPRP does not allow cash payments to the developer or any cash-out of their equity except if the cash payment is held in a restricted account, contributed to the project during the development period, and remains with the project as permanent funding.
This bill would authorize HCD to approve the payoff of a department loan in whole or part before the end of its term and the extraction of equity from a development for purposes approved by the department. Any modification to the loan or equity payment to the developer could not result in in a rent increase for tenants of a development over and above the annual adjustment to the tenants’ rents under the department’s regulatory agreement.
3) Supportive Services. The MHP program provides loans to permanent supportive housing developments that provide both housing and supportive services to people experiencing homelessness. The loan is long-term and an equity investment in the development which keeps the rents at very low or extremely low levels. When an applicant applies for a loan, they can request funds to capitalize the operating reserves, or additional funds that are provided to support the supportive services and staff to provide supportive services for the development. HCD currently caps the amount of operating reserves that can be dedicated to supportive services. This bill would require HCD to eliminate the cap in regulations governing MHP. Using MHP funds to fund supportive services reduces the overall amount available for constructing affordable housing; however, it is a necessary trade off because there very limited long-term funding sources available for supportive services for supportive housing.
4) Third times a charm. This bill is identical to AB 2683 (Ward, 2024), and similar to AB 515 (Ward, 2023). Both bills were held on suspense in the Senate Appropriations Committee.
Related/Prior Legislation
AB 2683 (Ward, 2024) — Authorizes the Department of Housing and Community Development (HCD) to approve the payoff of an HCD loan in whole or part, prior to the end of its term, and the extraction of equity from a development for purposes approved by HCD. This bill was held in the Senate Appropriations Committee.
AB 515 (Ward, 2023) — would have required HCD, to the extent permitted under federal law and the California Constitution, to allow prepayment of any loans related to housing or housing projects administered by HCD, as specified. This bill was held in the Senate Appropriations Committee.
FISCAL EFFECT: Appropriation: No Fiscal Com.: Yes Local: No
POSITIONS: (Communicated to the committee before noon on Wednesday,
March 26, 2025.)
SUPPORT:
California Council for Affordable Housing (Co-sponsor)
California Housing Consortium (Co-sponsor)
Affirmed Housing
Affordable Housing Development Corporation (AHDC)
Amcal
Buckingham Property Management
California Building Industry Association
California Housing Partnership
Century Housing Corporation
Cohn Reznick Llp
Community Revitalization & Development Corporation (CRDC)
Crp Affordable Housing and Community Development
Danco Communities
Dawson Holdings INC
Highridge Costa
Housing Authority of The County of Santa Barbara
Housing California
Mbs Property Management INC
Meta Housing
Palm Communities
R4 Capital
Red Stone Equity Partners
Resources for Community Development
Sabelhaus & Strain Pc
Southern California Housing Collaborative
Tenderloin Neighborhood Development Corporation
USA Properties Fund, INC.
OPPOSITION:
None received.
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