Senate Budget and Fiscal Review Subcommittee No. 4 on State Administration and General Government

The Senate budget and fiscal review subcommittee four will come to order. We are holding our subcommittee hearing here in Room 113, and I ask all remaining members of the subcommittee to come to Room 113. So last Thursday, May 14, the governor announced revisions to his January budget proposal. During this afternoon's hearing and again tomorrow morning, the task of this subcommittee will be to review and consider the revisions relating to our jurisdiction. This afternoon, we will be taking up items relating to housing, homelessness, and economic development.

More specifically, our agenda includes May revision proposals from the California Housing and Homelessness Agency, the Housing Development Finance Committee, the California Housing Finance Agency, the California Interagency Council on Homelessness, the Housing and Community Development Department, the California Tax Credit Allocation Committee, the Civil Rights Department, the Governor's Office of Service and Community Engagement, the Governor's Office of Land Use and Climate Innovation, and the Governor's Office of Business and Economic Development. So before we begin, I want to know a few house keeping matters about today's agenda.

First, in accordance with our usual practice in the subcommittee, we will be taking public comment on all agenda items at the conclusion of this hearing. And second, in the case of some agenda items today, the subcommittee heard testimony about the program or issue in question during previous hearings this this spring. Therefore, in the interest of efficiency, we are we are waiving formal presentation of those items today.

However, we still very much welcome public comment on those items. And third, at the request of the subcommittee members we will be moving items 12 and 13 from the vote only section of the agenda to the discussion section of the agenda. For the sake of efficiency, we are taking or taking up items twelve and thirteen immediately after item four, since those items all involve the same panel of witnesses. And fourth, we will go ahead and hold open all items today rather than voting. And finally, and more generally, it is a very busy time at the Capitol. There are several hearings taking place all at the same time.

So members and witnesses may need to move between those hearings. And as a result, we may need to be flexible as we work through the agenda. I respectfully ask for your patience and understanding in advance. And before we dive into our agenda, is there comments from committee members? No?

Okay. We'll go ahead and establish a quorum. Consultant, can you please call the roll?

For purposes of establishing a quorum, Senator Hurtado?

Here.

Here.

Hurtado here. Senator Niello?

Here.

Senator Nilo here. Senator Cabaldon?

Cabaldon here. Senator Smallwood Cuevas?

Yes.

Senator Smallwood Cuevas present. Madam chair, you have a quorum.

Alright. Quorum has been established, so we'll move on to item number one on our agenda today, which involves a proposal to realign staff positions and resources in support of the governor's reorganization plan for the state's housing and homelessness operations. There are a few different state entities involved. I'd like to ask appropriate representatives to all come home forward if there are any remaining, and present this item, please. And please, please begin when you're ready to present.

Alright. Mic is on. Good afternoon, chair and members. My name is Amy Manasero, and I serve as the deputy secretary of fiscal policy and administration for BCSH. Thank you for having us here today.

A few weeks ago, you heard from our secretary, as well as some of our directors, regarding the BCSH reorganization, and the proposals included with the governor's January budget. Since that time, we've continued to move forward with the technical work it takes to get all of these organizations stood up. We will be ready to go on July 1. As well, the housing development finance committee has its first public meeting on May 26.

And has the governor has also appointed its first executive director who will start in June.

The proposal before you today builds upon all of that work we have done. Several technical adjustments were determined to be necessary by the work we did with our teams throughout the first two quarters of this fiscal year. And we've incorporated all of that work based on external and internal feedback from stakeholders. The proposal in front of you requests several technical adjustments, which we determined were necessary for business operations.

It requests a shift of two Cal ICH positions to, HCD in order to support all of the administrative work that will shift from BCSH to HCD.

And so these people who sit in these positions will be doing the same work at HCD that they're currently doing at BCSH. We also requested a shift of one position from Cal ICH as a result of a minor internal reorganization that they've done, which resulted in some efficiencies, which will better help support our agencies external partnership work, as well as all of the work we do across communications. That position will help support our deputy secretaries across the board in those key areas.

All of these adjustments result in a net zero cost transition. So there are no additional burdens on the general fund.

The proposal also requests position authority for a chief deputy director at HDFC. Part of the work we did through the fall and winter, as well as some of the proposals you have seen as part of the January budget. We got a lot of feedback from that and feel that the complexity of all those proposals adds a lot of technical things that this chief deputy can support. The role will provide day to day operational support, as well as key leadership.

And it will ensure consistent standards, align program operations, and coordinate with external partnerships to avoid any funding disruptions as a result of this transition.

This request is, again, for position authority only. And funding will come from administrative set asides from the programs that are transitioned to HDFC. Given that budget negotiations and considerations of our January proposals are still in process, this proposal reflects anticipated needs for a chief deputy director. I appreciate your time and I welcome any questions.

Thank you. Do we have any, additional questions or comments from Department of Finance?

Isabel Fairclough, Department of Finance. Nothing to add but here to take any questions.

Thank you. LAO?

Good afternoon. Paul Steenhausen with the legislative analyst office. We recommend the legislature approve this proposal. The legislature though might want to get clarification from agency on how that chief deputy position would be funded given that there's no specific funding attached to it, which is mentioned administrative set asides. Our office anyway isn't clear what that is exactly.

Other than that, no no concerns.

Okay. Thank you. Questions from committee members? Mister vice chair?

The first two items are transferring people from one place to another. Does that mean that you are reducing the overhead of the department from on a permanent basis, the department from which the position is coming?

So the work the administrative work is just moving from our agency to HCD, just because HCD will be supporting all of the administrative services for these new organizations. They're very small. It doesn't make sense to build up a whole entire team for an organization that's 42 people or 23 people. Right? So it's not increasing or decreasing any workload, but it is perhaps decreasing administrative overhead because we are consolidating and making things run more efficiently.

But in terms of budgeting and ongoing overhead, there is a permanent reduction of the overhead in the area from which the position is being transferred.

Correct.

Correct?

Okay. Now the other point is on the third bullet, it might appear that there is no additional cost to this because you have existing funds. One has to wonder why you have existing funds, but I I'll set that aside for a moment. I just want to make it clear. If you didn't do this, that would be a permanent reduction in subsequent budget years of that amount. So it is an increase in expenditures in subsequent years.

In terms of the are we talking about the chief deputy position authority specifically? So right now, those programs live elsewhere, and those programs have a 5% set aside for administrative costs. So when the programs shift, this position would be supported by those same administrative pots that already exist.

And in addition to that, you have the funding within the department to fund that. So you have the 5% budget in the departments from which the responsibility is being shifted, that to this department, which will have will be ongoing on an ongoing basis responsible for that work and therefore also for the overhead cost. The deputy director in the Housing Development Finance Committee.

Megan Tokunaga Block, Department of Finance. Just to clarify, in addition to future programs that may be transferred to the new entity, the governor's budget did propose the transfer of resources related to the affordable housing and sustainable communities program. And so that's already assumed in the budget. And of the total allocation, 5% has already been shown as state operations. Only a portion of that five percent was allocated for specific identified positions, but there was still leftover funding remaining.

And so to begin, this proposed position authority would be funded out of that program that's already been identified with a 5% admin with future admin dollars transferring in the future if sub, sorry. If subsequent programs are transferred in the future. Thank you.

Okay. Thank you.

Senator Smallwood Cuevas.

Thank you, madam chair, and, appreciated the, overview. My my question I have is the California Interagency Council on Homelessness. How does this shift or move impact what it does, in terms of the the services? Is there a a reduction in service on that side? Is that service gonna be provided now by the other agency or department?

Just curious what, what happens to the services that are being provided there.

Yeah. Thank you for that question. It does not impact any sort of programmatic functions or activities. This is simply an administrative move to relocate staff who've performed specific, like, fiscal, HR, contracts, purchasing support.

So that doesn't reduce the capacity to process administratively for the council they have?

Correct. They have the same organizational structure for all of that work. Yeah. These people currently report to me. They do not report directly to Cal ICH, because we currently support all of their administrative services. Yeah.

Okay. Thank you for the clarification. Yeah.

Senator Gopal, do you have any questions?

Yeah. Just just I wanna follow-up on my colleague's question because it's three positions moving from Cal ICH. So the what what are these what are these positions currently, and why are they not in ICH? Why what are they doing it at the at the agency level today?

So this organizational structure was formed before my time. When Cal ICH was stood up, it was folded under BCSH, And BCSH holds all of the administrative authorities to do all of the contracts and purchasing an HR on behalf of Cal ICH. So those two positions are moving to HCD to support that same work.

Is that one and a position moving to the agents to to the new agency for for communications and external affairs?

Yeah. So the third position that's moving is going to be a manager one to help support all of the external and communication work at the agency level. Cal ICH was able to find efficiencies as a result of an in like a minor reorganization that they did, specifically with their research and data division, that allowed us to kind of take a look at how can we support the agency work that's critical, and helps them as well in external affairs and communications?

I mean, the the approval of the of the new agency was principally on the housing I mean, the main purpose was on the housing side. Actually, it was one of the questions we raised last year about where is the equivalent vision on the homelessness side.

But it just strikes me on that one in particular, like the I mean, if you asked people in my district or people in my caucus, like should we be spending less on homelessness and more on communications, strategic communications and external affairs for the new agency sector.

Do that I guess I'd like to know more about that before we before this action this item is back for a vote, because three I mean, I get efficiencies, appreciate that, but I know my intention last year was not that the Interagency Council on Homelessness be down three slots so that we could support other work at the agency level or certainly not transferring over to HCD, which has is supposed to have fewer responsibilities under the reorg with the with the creation of HFDC.

No. So HCD has been tasked as part of this reorg to provide all of the administrative services and IT services for the housing and homelessness agency, Cal ICH, and HDFC. So they are picking up workload within their administrative and management division as part of this reorg. And so again, the the work that's being done at BCSH is simply for the two two positions is just moving.

And I'm happy to it sounds like you would like a more kind of detailed version of what the position does that's moving for our external affairs.

Yeah. Because that's I mean, that sounded substantively related to ICH ICH's mission on homelessness and whether or not they can find it or not. I mean, it just seems odd where when we take up the HAPP proposal later, there'll be new accountability measures and what have you.

Okay.

It just seems like an odd choice to do to be reducing funding for ICH and their staffing support when they the need there is just as strong and then moving it over for communications while we're also adding another chief deputy.

I mean, we don't even have this whole reorg is not even fully implemented yet, and we're already adding, full disclosure, I've been the Deputy Director for Communications at a state agency, so there's no shade, but we're already adding comms and executives to an agency that we haven't even launched, and we really need to stay focused on the prize here, which was to really tightly deliver these programs, not better communicate how we're delivering the programs, but really more tightly deliver them for the purpose of improving the flow of affordable housing dollars to projects that can get built.

Okay. I I would like to point out most of the HAPP workload is is placed at HCD. So all of the Cal ICH workload that they have related to research and data support, the metric metrics that they, you know, help implement, that work is not impacted as a result of this one position moving. We took a hard look at the workload analysis there.

Yeah. Fair fair ICH is not the they are not the the the administering agent for the HAPP metrics and reporting for accountability. That's that is that is correct. But ICH is our joint adviser for helping to make meaning of what this data is telling us. And it sounds like this position in its in the current budget in the current year has some responsibility in that space.

And so I don't want to pretend to understand more about this than I do because we're just hearing it today for the first time.

But that choice I think I'm particularly interested in is that justified for the purpose of adding comms to the agency when we really need as much support as we can get on the homelessness side in terms of understanding what's happening in the field, how our resources are being deployed and what to make of the new accountability measures and metrics and data as they come in. Thanks, Madam Chair.

Thank you. Senator Smallwood Cuevas.

And I just wanted to to echo, and I agree with, you know, having more detailed, information because we have heard from departments where, they were pleading for us not to cut positions because moving one position was going to deeply impact the work that they do. And you're saying we have three positions that we can easily move without any disruption to the services in the council.

I think it's a little hard to understand that given from what we hear from agencies that, you know, every person is needed. You know, that we're passing new bills that are requiring them to do more work, and we need more staffing. And so to say, we can easily move three people and have no disruption, no change in service, no means was it were you overstaffed?

Right? So I think and I don't think that's what you're that's not what you've said. So and and so and I know from our homelessness services perspective and the needs there, that would be hard to to to to justify. So I I just want it I think I agree with wanting to see more data. I think it's important that if an agency is able to lose three people and absorb it without any disruption and challenge, it it raises questions, and that's why I raised the question.

So appreciate more detail, understanding what is shifting and what is changing. What we don't wanna hear is next year, you say, we need two more positions in the inner council agency because we didn't realize that this was gonna happen. And so I think, you know, there's a little continuity here, and that's why we're asking the question. And we would like to have a more detailed response because these two these responses aren't sort of adding up with what's being requested.

Okay. We can certainly follow-up with a more detailed kind of workload analysis.

And to clarify, Isabel Fairclough, Department of Finance. Those two positions that are coming from ICH to HCD will still be doing work for ICH, doing the administrative and fiscal workload that is needed. So there wouldn't be an assumption that ICH would need those positions again in the future as they would be administered by HCD.

So they're gonna be taking on additional work in addition to

No. It's it it would be the same workload, but it's now being administered by HCD for ICH. Yes. I see. And and sorry.

If I could just add one more point. For the communications piece, this would be the communications for the agency as a whole. That includes HCD. That includes ICH. And so this would be communicating affordable housing information data.

It would be communicating HAPP. You know? So all of that would be included underneath the new housing and homelessness agency, and that's what would be included in this in this workload.

Yes, that should have been in the reorg plan. I mean, all I mean, we're with this I mean, we've talked a lot about the two, but it's not just the two, it's this other transfer. Combs is not new. We that was known when Little Hoover and this committee reviewed the proposal.

And I mean the reason I must be for my colleague, the reason I'm spending so much time on what may not seem like that big of a deal just a couple of positions is that like we are the May revise doesn't propose any new money for any housing.

So I am personally not interested in like moving positions over to have somebody for communications to explain why, hey, we've created this entire new structure. We're going to spend the money we already had in the bank. But after that, like, here's here's a press release, and we're going to do a press conference, maybe a roadshow to tell you why you can't apply for the money to build the projects that all the affordable housing developers and communities have launched.

That's what that's what's shining a spotlight here is that we and I think as Secretary Moss emphasized here, it's really important that we have like we're not obsessing about this agency and the reorg if we're not actually going to invest any money. That we're no no one wants to spend time, you know, getting precise and getting right engineering a department that is not going to have any dollars to to deploy.

And that's got to be our our top priority and it's disappointing to not seeing any of it. I will acknowledge the governor, the governor's statement in the May revise that he looks forward to the dialogue with us about that. So that's that's positive. But within the absence of real investment, it really is hard to justify moving more and more positions into a structure that is designed to deliver money that we're not appropriating.

Okay. I don't think we have any additional comments or questions from committee members. We'll go ahead and hold this item open and move on to agenda item number two. Thank you so much for your presentation. So agenda item two involves a proposal to establish and provide resources for a new disaster rebuilding fund at the California Housing Finance Agency.

I'd like to ask all the appropriate individuals to come on up and present when you're ready.

Good afternoon, chair and members of the committee. My name is Ellen Martin. I'm the director of homeownership at the California Housing Finance Agency or CalHFA. I'm happy to be here to discuss CalHFA and the proposed disaster rebuilding fund that CalHFA would be administering on behalf of the state. By way of background, CalHFA recently celebrated fifty years of providing innovative and effective financing programs to address California's housing needs.

CalHFA has a board of directors and while it often administers state and federal funds, its operating costs are completely self supported through its lending activities. I mentioned this unique governance structure because when you combine that with a strong credit rating, it gives CalHFA the flexibility and access to private capital necessary to fulfill our mission, to deliver reliable financing solutions to advance housing opportunities for Californians and to help the state address a variety of housing needs.

CalHFA programs are designed to complement the work done by our sister agencies, and we look forward to increasing the that alignment through the reorganization. At its core, CalHFA has two primary channels that address the state's continuum of housing needs. That includes multifamily financing that supports affordable rent rental housing and single family lending that supports homeownership opportunities through down payment assistance programs such as my home and the California Dream for All shared appreciation loan program.

Over the past fifteen years, CalHFA has also been administering various forms of hardship assistance, mostly to homeowners. So first, it was the keep your home California program, which supported homeowners following the 2008 housing crisis. And then more recently, CalHFA administered the COVID related California Mortgage Relief Program. Currently, we are running the NMS housing counseling program and the Calesis Mortgage Fund, which was created following the LA fires to provide grants to homeowners who saw their homes destroyed or damaged in recent disasters.

The proposed disaster rebuilding fund would combine best practices from the recent hardship programs with some of the well established framework and partnerships from our ongoing single family lending.

Following the administration's efforts such as clearing debris, expediting permitting, the development of affordable housing, mortgage relief through forbearance, the calluses mortgage fund that I previously mentioned, and more, we remain focused on the recovering and rebuilding efforts in Los Angeles. Despite those efforts, however, survivors continue to face a significant gap in between insurance proceeds and the cost to rebuild, compounded by limited access to affordable construction financing. So to help address this challenge, the disaster rebuilding fund would expand access to construction financing for disaster impacted homeowners.

The proposal includes a $100,000,000 investment, including $56,000,000 from general fund and $44,000,000 in existing national mortgage settlement funds. This investment will will be used for a combination of programs, including a loan loss guarantee program, an interest rate buy down program, and then additional tools, all of which will reduce borrowing costs and facilitate access to private financing for those who are looking to rebuild.

The targeted interventions will support eligible California homeowners who saw their homes damaged or destroyed by a qualified disaster through the reduction of construction lending risk and lower those associated financing costs. So thinking about this, need from two different but related perspectives. For lenders, construction lending presents unique challenges because it is resource intensive and it carries a significantly higher risk than traditional mortgage lending.

Few lenders offer construction loans due to the time and expertise that is required to review project scopes, to approve contractors, to manage construction draws, milestones, and inspections. For borrowers, the barriers are equally challenging.

In order just to begin construction, a homeowner must qualify for both a short term construction loan as well as the long term permanent mortgage. Even if they qualify at the outset, factors such as rising interest rates, secondary market shifts, construction delays, income changes, or credit fluctuations can really jeopardize their ability to qualify for and secure the later permanent loan. So these uncertainties increase the risk of default and delinquency, which is what makes construction financing more costly and harder to obtain.

So the financing tools offered through the disaster rebuilding fund are designed to break through these barriers. The need for these interventions is both critical and time sensitive as survivors make must make near term decisions about whether or not they can realistically rebuild.

The rebuilding fund isn't for homeowners who are considering a home remodel. The fund is for disaster survivors who've had their lives upended. They're figuring out their path to rebuild. The administration has taken many steps to reduce barriers to rebuilding and continues to work with local governments to expedite those permit approvals. But before a survivor can even pull a permit, they need to figure out how they will finance their rebuild.

The rebuilding fund will help expand those options for survivors and make it easier for them to finance their recovery. Rebuilding will still have its complexity, but the rebuilding fund will make it easier for survivors to secure financing, rebuild, and recover. And with that, happy to take any questions.

Do we have any comments from Department of Finance?

Isabel Fairclough, Department of Finance. Nothing to add, but here to answer any questions. Thank you. LAO.

Thank you. A few comments on this proposal. First, typically, when the administration is proposing a new program and submits a budget change proposal to the legislature, the document contains an analysis of alternatives, pros and cons, do other things that were considered, other approaches. Typically, at least one of the alternatives would be something that costs less money, and it can be helpful to legislature to weigh trade offs. With this budget change proposal, just point out that there is no other alternative.

It's just this proposal. And so legislature might wanna understand better how the administration and CalHFA landed on this particular model and how and why it would best meet the problem or need that was identified. Second, the proposed trailer bill language would leave program design largely to CalHFA. If you look at the trailer bill language, it would be CalHFA that would decide which financing tools to use and how much to designate to each of those tools.

Decide on the criteria for choosing which affected disaster communities to provide funding for.

Decide on the criteria for the homeowners that would be prioritized for this funding. And so if funding this proposed rebuilding program is something the legislature wants to do, Legislature might wanna think what role it expects to be part of with this program design and weighing in on it or at least opportunities to provide oversight beyond the annual report that the Trail of the Language is proposing, which would tell the legislature what CalHFA had already done after the fact.

Lastly, to have to just mention just in terms of the overall budget picture, this $56,000,000 in general fund proposed for the fund is part of what's about a billion dollars in new discretionary spending proposals by the governor between the governor's budget and the May revision. As our office has discussed, each year the budget would spend more than it's estimated to take in revenues. In the budget year and every year thereafter through at least the end of the decade.

So in effect, this new proposed spending proposal for the budget year would come from reserves. We don't think that's a good approach. Spending more on reserves at a time of very strong revenues. Instead, we recommend the legislature use this time of really booming revenues to put money into reserves. And that's way that way, the legislature will have that money if and when there's a downturn in revenue.

So you'll have that money so you can spend it on your top priorities and preserve those programs. So our office is recommending and if the legislature views this proposal as a high gen has a high general fund priority and wants to fund it, that the legislature find a commensurate reduction somewhere else in the budget. And that's done so you're not drawing down revenues even more and that you have that budget resiliency that can help legislature in the future in these uncertain times. Thank you.

Thank you. Do we have question for committee members? Senator Cabaldon?

Yep. Thank you, Madam Chair. So I'm looking at the trailer bureau language. I share the legislative analysts both analysis and concern. If I were to if Senator Small Cuavas and Senator Niello and I were to have carried a bill to do this last year, this exact same language, it seems highly likely it would have been vetoed by the governor.

Why? Because it is a general fund program that that that includes the following any may include any of the following forms of assistance. Go down the list, some of the ones that we heard about. And then number four, any additional programs the agency determines to be appropriate and consistent with the purpose of this chapter. So we would get a big, like, infinite general fund pressure analysis on a bill if we were to introduce such a thing because there is.

And there'd be no there's there's no mechanism for any sort of budget review in this in this case. So I I think that analysis is exactly right. And that's married then with an with an Administrative Procedures Act exemption. So it is we want the unfettered ability to launch any program with no no clue or hint about what it might be. And when we do that, we don't want to have to comply with any of the you know, APA is essentially CEQA for state, inside state government.

We don't want to comply with any of the transparency, or or consultation requirements or or economic analysis requirements that are in the APA. And so those together seem that the seem like a very high level of delegation that is being asked of the legislature and with a not trivial cost has been explained by Mr. Steenhausen.

So that leaves me challenged to really understand that my other questions about it, which are the specifics about, this is a my understanding from our staff, maybe it's from the BCP, is that the program isn't is whatever the program ends up being might serve just north of 730 homeowners for $100,000,000 which is not a small amount of money per person. Obviously, those aren't all grants to each individual people.

It's the mounting of the program and all of that. But it's a very large ask on a per person basis or per homeowner basis for a project. And this is and yes, they are these are I mean, I represent one of the most fire prone districts in the state. And we've, we have this experience a lot where folks aren't their insurance is inadequate and what have you, it's a very real need.

But so are so many of the other general, we're closing clinics and we both, I think, at least two of us on the floor today said, look, we're not going to be able to backfill everything that needs to be backfilled and whether people can actually survive.

And so for me at least like the policy goals, not necessarily that the state of California is going to declare that from now on we are going to as our policy obligation to make everyone whole, given the the the challenge of the insurance market that's driven by climate change and high risk and and problems in the insurance industry itself. That that's a big a big play.

So if I is it'd be easier to analyze this if it was this is a this is a loan loss reserve program. This is a, you know, this is an interest rate buy down program, and here's the mechanics of exactly how it's gonna work, and here's but it's not we don't have that. Instead, we have it can be any program the agency determines to be appropriate or consistent.

And so I would this would be very problematic for me to support in this general fund context, but it really in any context that we would need to see an actual program that we could evaluate, consider the cost and the benefits and both internal to the program, but also relative to the other general fund commitments that we're being asked to make here at this committee.

So I appreciate that the work here, this is an important issue, but I'm concerned that the scope is not properly defined and therefore our ability to really interrogate the specific policy and fiscal choices that are embedded here is not adequate to the task. So thanks, Madam Chair.

Senator Smallwood Cuevas.

Thank you, madam chair. And and I wanna say that health care is a right. Housing is a right. Safety is a right. So and then we fund a whole lot of other things.

And and so I have just fundamental questions about about the proposal. And I guess my first question is, how did we get to the assumption of 730 homeowners? Like, what what is the formula for that? How did you come to that number? There are far more residents in Altadena, for example, who need support to rebuild.

So I'm curious. How did we land on 730? I understand this is an unduplicated count, which is also interesting to me. And if that's the case, we're talking about a $137,000 per person. And I don't know if you've looked at home rebuilding prices lately in in LA County and particularly in the Altadena, Pasadena area.

They far exceed that. So I'm just trying to understand this number and and even the $144,000,000. How how do we land on these figures?

Senator, thank you so much for that question. We estimate that the the fund could support in initial years between 500 and a thousand homeowners. But I think the important thing to really underscore is that we anticipate that those funds would recycle. So to step back a little bit, the key component of the initial phase of the program would be the implementation of the loan loss guarantee. The construction loan loss guarantee would reimburse lenders for a percentage of any losses that may occur on eligible construction loans.

So the actual homeowner benefit that would occur would only occur in the in the case of a default or delinquency that created a loss for the lender. Once the project is completed, then those funds, if not committed to to reimburse a lender for any losses that have occurred on that loan, those would be available to help the next set of homeowners.

So while we think the initial fund capitalization of 56,000,000 would support construction lending on the order of 500,000,000, those funds would come back in and would be able to help additional homeowners. So that would be you know say 500 to a thousand homeowners initially with the initial capitalization of the fund and then well in excess of a thousand homeowners in the years beyond that as the funds come back through and revolve and recycle.

I think in the first two to three years of implementation, the fund could support rebuilding efforts for anywhere from about 500 to 1,000 homeowners. And then, as those projects complete, rebuilding projects take a variety of time. So if you assume it's between a year and three years, then those funds would come back and be available to help additional folks.

Alright. So there's a there's not necessarily I guess the five to one thousand was based on homeowners who may have some delinquency or a gap. I'm trying to understand how we landed on the 7, the 730 or the 5 to 1,000.

Yeah. So the initial estimates that are in the BCP are based on the lower end of the range at 500. Homeowners that would initially benefit from the fund, without consideration to that fund recycling that would occur.

Alright. So we have these homeowners in this pool who would be eligible. And I think the question that, and I don't know if I'm fully clear on how the what the what went into determining that number. I would like to have something that's just more cut and dry about what the criteria is for that. But my other question has to do about the alternatives.

So how did we decide that this would be, and I'm appreciating the LAO's point about we didn't get a lot of different sort of scenarios. So we're assuming someone ran scenarios and this became the choice. So what was considered? What were, you know, other proposed models for addressing this problem of folks having trouble rebuilding and how did we land on this as a solution?

I appreciate that question. We spent a great deal of time working with a very engaged stakeholder group to look at a number of alternatives that could support rebuilding efforts.

Stakeholder group made up of whom?

Of lenders and community based organizations and other advocates involved in the rebuilding activity. So...

Homeowners a part of that group?

We primarily focused our outreach on the lending community in order to understand the, understand the barriers associated with lending activity, but we are very engaged with the homeowners group through our CalAssist Mortgage Fund.

So we do have that benefit of the on the ground knowledge of what homeowners are facing as they're seeking to rebuild. So we did look at we looked at the loan loss guarantee, rate buy downs, and silent second concepts, and I think that's what you see written up in the BCP.

But we did also look at several other alternatives that were raised. And those have, those are things like a guaranteed permanent takeout loan, forward interest rate commitment. So essentially guaranteeing a borrower at the time that they take out a construction loan that they can get a certain interest rate on the permanent mortgage.

And then other forms of first loss funds or other risk pooling where the state might step in. So we landed on these alternatives that are before you based on really several key factors. The first is the impact and benefit for borrowers and lenders.

So what interventions could we deploy that would be most effective in terms of supporting those rebuilding efforts? And I do want to take just one tiny step back to talk about sort of the intent, like what are we trying to do when we are supporting rebuilding efforts.

The key factors are we're looking to increase access to and availability of construction financing for those disaster survivors, and we're looking to reduce the risk and the cost of construction financing for eligible homeowners. So as we're evaluating alternatives, we're really looking to identify those interventions that would be most effective in doing those things.

The second, second item that we looked at was really expediency and efficiency. What are the interventions that we have the authority and have the capability to put in place quickly in order to support these near term rebuilding efforts?

What interventions are best supported by the existing lending infrastructure that we currently have in place? And to that end, looking at our existing lending authority and infrastructure, there are some options that may also be considered in the future that could require additional discussions and negotiations between CalHFA and the GSEs or some of our other business partners.

And so those, I think, would be better deployed as part of a future phase of assistance if needed because it would take more time in order to actually determine if those options were viable, given the participation of of other partners.

And so in this in this scenario, the stakeholder group, you went through these different sort of possibilities or options, and it was sort of decided by the lenders and the housing orgs that this would be the best.

Yeah. I think it was kind of a pretty clear filtering of the options that were put on the table with regard to the infrastructure that we have in place and the authority that we have in place. And then also what are those interventions that would actually have a measurable and significant impact? It was a pretty clear filtering of the concepts on the table.

So I guess my concern is about those homeowners who may not qualify for this. Because when you talk about reducing risk and you talk about, you know, financing eligibility, I get very concerned because one of the challenges that we had in Altadena.

These are multigenerational homesteads where they are really being held together by working class families. And part of the reason why they will need assistance is because they are not qualifying for traditional insurance rates, traditional mortgage loans, refinancing.

And so I'm I guess my my question about this, especially when it's the lenders who are at the table making the choices about this rather than those impacted families who have who I believe this is, you know, the purpose is to try to accelerate them getting back into their homes. You know, you know, how do we ensure that there is equity?

What are the, in this process, how what lenders are actually eligible? There are some lenders that we know that were very predatory in the state of California, particularly around homeowners of color. What how are we defining who these lenders are?

And how, you know, how would they apply for these funds, and, you know, how would homeowners apply for assistance? We know many of these are elderly. These are folks that have digital divide. These are folks who, you know, are communities that, again, have barriers, you know, to opportunity.

And so I want I wanna understand how what you're thinking about, what safeguards are there to address equity, and then and how much of this total capital do you believe can realistically be leveraged through maybe bond bonding?

Are there other mortgage restructures that could happen? Is there federal matching? What are some other scenarios that could be utilized versus, you know, folks having to apply for yet another loan that they won't be qualified for?

I so appreciate that question. Thank you so much. So first of all, the homeowners that you identified and that you're talking about are exactly the homeowners that this fund is intended to help. When I say that we're looking to increase access to construction financing, it's exactly those type.

Those homeowners that have challenges in terms of their ability to pay, credit scores, or other difficulties in terms of accessing construction financing. So we want to make it easier for those folks to obtain a construction loan.

Part of the way that you can do that is by reducing the cost associated with construction lending. So that's where something like both the loan loss guarantee and the interest rate buy down would come in. Both of those interventions are intended to reduce the cost of capital through the reduction of risk, which would have an impact on the interest rate charged.

And then the interest rate buy down would be a direct reimbursement, a direct reduction of the interest rate so that that borrower pays a lower interest rate. Paying a lower interest rate through both of those mechanisms will help the borrower qualify for a loan.

You also asked some questions about lender eligibility. So just like our existing programs, CalHFA will establish a lender application and approval process that offers multiple avenues for different types of lenders to offer a variety of loan products. So we wanna make sure that our consumers have access to many different types of loans.

We also wanna make sure that we have a lot of lenders at the table so that we are encouraging not only market competition that will generate the best price, but also the best levels of customer service for our borrowers possible. The overarching goal is really to open the program to as many and as many different types of lenders possible so that we are accomplishing those positive outcomes for the consumer.

Lenders would be expected to meet some pretty significant minimum thresholds, namely minimum standards for construction lending experience and capability to take on this program, and ensuring that those lender partners can and will provide excellent customer service and expert advice to these homeowners that are embarking on this significant challenge.

So paramount in this effort really is consumer protection. We want to make sure that our borrowers are very well taken care of, and so we will have a very robust lender onboarding and approval process that is intended to accomplish just that. I think you also had some questions about homeowner eligibility.

So we would ensure that, just like all of our other programs, we would establish eligibility criteria that would be based on income, it would be based on residency, other factors that would be established in order to make sure that we're targeting this available funding to those borrowers that most need the assistance to rebuild.

And I just wanna reiterate. One, I hope that they're very and I agree that we we need to see more detail because that's not apparent from what was provided. And so if that's the intention, then it should be in writing. If it's not in writing, we know I have, you know, deep doubts that residents will actually get the outcomes that you're articulating here. So this plan has to be very, very clear about the safeguards.

It has to be very, very clear about equity. And if we are using traditional lending requirements for a fund that is supposed to help the most vulnerable and displaced residents, I don't see how that bridge is gonna get crossed. I think the requirements for eligibility for homeowners has to meet the needs of where folks are, and now they have been homeless for for two years. That has impacted their work, their family, their income, their way of life.

And so those things are not going to be the traditional standard.

Again, I don't see any of that in this proposal, in terms of the details. And, so I understand the need. I absolutely agree, that we have to do everything we can to make sure that these homeowners are able to return and families are able to return. But I also know that this is a system, particularly when we talk about mortgages and home lending, refinancing, This is an a sector that has done a tremendous disservice to communities of color for generations.

And if we don't have real safeguards here to ensure that we are going to help the folks that we intend to help.

We are just gonna be giving millions of dollars away, and they will skip right over the communities. And those families will still be homeless, And we will come back five years later to try to figure out what can we do to help them. So I'm looking forward to what sort of more detail and what more safeguards and what equitable requirements for both lenders and for applicants to ensure that we have the most successful outcome possible.

Chair, if I may. Megan Tokunaga Block, Department of Finance. Just one point of clarity on the level of details in the proposal and also to speak to Senator Cabaldon's earlier point. The statute that's proposed as trailer bill creates a framework for a fund that could be ongoing. More details of the proposal for the 56,000,000 general fund and in reference to the 44,000,000 in existing funds, that's detailed in the budget change proposal.

So just to clarify, the total proposal is a 100,000,000 across those two investments, and it does specify that the $56,000,000 general fund is related to the guarantee, and then the existing 44,000,000 is related to the buy down. So just to say that we understand that the statute is high level in the, goal of creating a framework that can be ongoing with the details of the investment in the budget change proposal.

Senator Cabaldon?

So the who is going to be the applicant with respect to CalHFA here? Are we talking about because this conversation, the language from the budget, whatever, are really focused on the homeowner.

But it sounds like a lot like the interface here and I'm not disagreeing with it, but it sounds like the interface is principally with the lender, not that as a homeowner facing these challenges, I'm not applying to CalHFA for this, that my lender will be submitting a set of loans that they think might be eligible for this purpose. But am I getting that wrong?

Like what's the is this a consumer program, direct to consumer program, or is it us using our limited resources to to tune the the the market options that are available?

It's a little bit of both. So it is a cons it is a consumer facing program in that the homeowner is the applicant and the but the homeowner would access the program by working through one of CalHFA's approved lenders. So this is the model that all of our existing down payment assistance programs follow because CalHFA cannot directly originate loans.

So we work through a network of approved lenders who are able to best access the consumers and best assist the consumers to identify the appropriate products that, will help them to access the type of financing that that they need. So that's the infrastructure that we would be using for this program.

It is the homeowner that is applying, and it is the homeowner that is subject to the eligibility criteria. They have to work with one of our trusted partners that will go through a rigorous, vetting and onboarding and training process in order to access that program. And we work very hard to make sure that those lenders have the appropriate collateral material, marketing information, and education in order to ensure that they are best positioned to, advise their their borrowers in this regard.

So as a homeowner, do I apply, get this, and then go off and find an approved lender? Or am I already working with the lender and the lender's like, here's your packet, submit it to CalHFA? Like, what's the like, how consumer facing is this? Or at

The consumer would first reach out to a CalHFA approved lender to discuss their eligibility for their program and the process for applying for the program, and then the lender would be the interface between the consumer and CalHFA.

Okay. And for the interest rate buy down, how does that recycle?

The interest rate buy down piece does not recycle. The concept of the loan loss guarantee and the silent second, which would be funded by the general fund, the $56,000,000 in general funds, those components would recycle. It's not anticipated that the interest rate buy down, which would be funded by other supplemental funds, would recycle.

What's that funded by the special fund that source that was in the staff analysis? So that's where the interest rate buy down is funded?

Yes. The 44,000,000 would be from available national mortgage settlement funds.

I see. Okay. I mean, the the I mean, these are things that do belong in the trailer in this in the same way that they would if we were carrying the the legislation to do that.

Because I do worry about it because the just I know how residents of my in Napa and Sonoma and other other parts of my district will see a program that is being flagged framed up as here's a program for you to costs are going up or what have you.

And this has the potential to be a very valuable program and an appropriate use of the state's leveraging power to make the private market work better than before for for more people than it was serving before.

But not to solve the like, we we the state cannot be communicating, you know, are you not getting your full insurance payment or whatever? Is the cost higher than your payout is? Don't worry, we're here to help like we're here to do that for you because the exposure there, I mean, there's essentially a whole another fair plan.

So we I just think we need to be very, very honest with ourselves and obviously also with potential consumers of the program that that this is not going to serve 10,000 people in, you know, in a in a year if there are multiple fires. And it really is trying to get somebody who's close to the line on on an affordable lending product across that line, as opposed to being here's a source that's essentially a grant from the state.

That's not what the proposal is, but it can be easily construed that way. So for me, as this comes back for next week, the sort of this open ended number four on the authorization list as in conjunction with the APA piece are important, but also getting some of these policies into the mix. And so the extent to which the general fund is just supporting revolving, you know, revolving fund components or, you know, other other design, criteria that are in the statute.

So we're doing something ambitious and impactful and meaningful, but that we we know what we're doing. And as you said the some of the other elements that you've looked at, well, you noted they will require negotiations with the industry and with others.

And that's things that do that generally require our our our sign up. So the design of additional things separate from loan loss reserve and interest rate reduction in the silent second do need to come back here and not just in the budget process and not just in a comment letter by us, but through statute.

And so we would encourage the administration if you're serious about this proposal is to make the proposal what it is that you're proposing to do now with the money that we have now that the statute should match that and future administrations and future legislatures can can examine potential proposals for further work. But but these are these are big things that you're proposing to do. It's a significant amount of money and we should focus on that first.

So thanks, Madam Chair.

Thank you so much. So my question would be around the but when it comes to this proposal would be, why is it that, this this particular proposal would be exempt from the Administrative Procedures Act, and how would CalHFA incorporate stakeholder and other, public feedback when designing it?

I can start, and then perhaps you can can step in. So CalHFA, when we prepare a, or when we stand up a program, all of our program guidelines and, materials materials are entirely public facing. So all, required program parameters would be available for review. We also would work with both stakeholder groups as well as trusted advisors that we have established relationships with and partnerships with through the Calasys mortgage funds.

That includes community based organizations, legislative offices, recovery advisors, housing counselors, local governments, other regional disaster recovery entities.

As as providers of comment and ensure that they understand what the program is and can help us to get the word out to affected homeowners.

And regarding the Administrative Procedures Act proposed exemption, we saw some similarities between this proposal and the dream for all proposal as a general fund allocation to CalHFA. And we saw an Administrative Procedures Act exemption there and used that as a starting point for our proposed language.

Okay. Well, thank you. We'll hold this item open. Appreciate your time and, answering all the questions from committee Members, and we'll hold the item open. Thank you.

And we'll go ahead and move on to agenda item number three, which involves a proposal for budget trailer bill language to to govern administration of the state's homeless housing assistance and prevention program, including the next round of H-HAPP. Anyone interested in that? I'd like to ask the appropriate, representatives though to come forward and present this item, please. Thank you.

What you're making right. Sorry. We're tight quarters.

No. No. Please. Great. So I think you can lead off the introduction. Great.

Thank you, Chair and committee Members, for the opportunity to discuss the HAPP round seven trailer bill with you today. My name is Sarah Poss. I'm the branch chief for homelessness programs and accountability at HCV. Do you wanna introduce yourself?

And, I'm Megan Kirkaby, chief deputy director for HCV, here to support Sarah, but she'll be our lead presenter today. Great.

So I'm gonna give a brief overview of the trailer bill, and then we'd be happy to answer your questions. The governor's budget proposed 500,000,000 in general fund for round seven of the homeless housing assistance and prevention, or HAPP program, contingent on enhanced accountability and performance metrics. This trailer bill seeks to establish those accountability and performance metrics. To streamline the distribution of this funding, this proposal would administer HAPP round seven alongside these metrics, and function as the third and fourth disbursements, of HAPP round six.

HAPP eligible large cities and the counties in which they are located would be required to meet certain requirements, including obtaining a pro housing designation and contributing a local match before receiving the initial and second disbursements of FY 26-27 funding that we're discussing today.

For context, all HAPP grantees received their round six awards between December 2025 and May 2026 after submitting fully compliant round six regionally coordinated homelessness action plans. HAPP grantees are still working their way through spending the second disbursement of HAPP round four, initial and second disbursements of HAPP round five, and the initial disbursements of HAPP round six.

Most grantees will become eligible for their second disbursements of HAPP round six in mid 2027 to mid 2028, and they must expend 50% and obligate 75% of that disbursement before they become eligible for the initial and second disbursements of FY 26-27 funding. To be eligible for the initial disbursement of FY 26-27 funds, HAPP eligible large cities and the counties in which they are located must have obtained pro housing designation.

If they don't have pro housing designation by the time they meet all other criteria for initial disbursement, they must obtain it within twelve months of that initial disbursement.

To be eligible for the second disbursement of FY 26-27 funds, those same jurisdictions must obtain and maintain their pro housing designation. HCD is ready to proactively provide technical assistance to the HAPP eligible five large cities, and seven counties that would be required to achieve pro housing designation that don't already have it. To be eligible for the initial disbursement of FY 26-27 funds, the same jurisdictions, HAPP eligible large cities and counties in which they are located, must demonstrate a percentage of qualifying local matching funds.

HCD will build this process to be as least administratively burdensome for grantees as possible, and we'll be modeling best practices from other HCD programs requiring matches like the emergency solutions grant and the local government matching grant. To be eligible for the second disbursement of f y twenty six twenty seven funds, those HAPP eligible large cities and the counties in which they are located must continue to demonstrate that same percent of qualifying local match, plus an additional percentage, to receive the second disbursement.

In other words, we're phasing in the match over the first and second disbursements, to give HAPP eligible large cities and their respective counties time to meet this benchmark over the course of these two disbursements. This trailer bill also proposes to streamline the California System Performance Measures or SPMs. The SPMs measure the progress and outcomes of homelessness funding programs reported by the Continuums of Care into the California Interagency Council on Homelessness, Homeless Data Integration System or HDIS.

Currently, the HAPP SPMs are listed in different parts of the statute for a HAPP rounds three through six. This proposal would carry out technical cleanup of that statute to create more clarity.

It maintains all existing HDIS report, requirements, reporting requirements, and SPM accountability requirements tied to HAPP, and streamlines the SPMs by authorizing Cal ICH to adopt and publish one consistent set of metrics across HAPP rounds. HCD considers this piece of the proposal technical in nature as it maintains all accountability and performance requirements HAPP grantees are required to meet, but streamlines the metrics so that grantees have one single source, to refer to.

Finally, this proposal also seeks to establish a more consistent framework to recapture unexpended funds across HAPP rounds by allowing HCD to reduce future allocations, beginning with these, fiscal year 26, 27 funds for grantees that fail to meet performance or expenditure requirements. And this would only be after HCD intervention and technical assistance to allow grantees to correct any technical reporting requirements. Recaptured funds would be reallocated to other eligible applicants within the same region, to the extent practicable to maximize homelessness outcomes and preserve regional investments.

And that concludes my presentation, and we're happy to take your questions.

Do we have any comments from the Department of Finance?

Isabel Fairclough, Department of Finance, here to take any questions.

LAO?

So this proposed Trailer bill Language is the administration's attempt to satisfy the accountability requirements that were part of the budget package last year. The legislature of course might have different priorities. On the pro housing designation requirement, as you just heard, a number of cities and counties have this designation already, but some do not. And there is this grace period that's proposed to give twelve months to those who do not to get it in order to get their first disbursement of $26.27, hat money.

Based on the experience of others, it'll be a big lift for cities and counties that haven't started that process.

I've seen applications and supporting documents that are more than 700 pages long for this proposed housing designation. So if the legislature were to approve this requirement, question is can HCD commit to reviewing applications in a really timely basis and providing that technical assistance as part of that process so that cities and counties can can get through this. Again, if the legislature wants to go that direction. We have a number of questions about the local match requirement. Biggest one being, what would the local match be?

And is it the intent that cities and counties would be spending more than they are now, more of their local funds and other funds than they are now on homelessness? And if so, that could have important implications for city and county budgets. So it's important detail to get more clarification on.

I'll just finally in approving funding for round seven as part of last year's budget, the legislature expressed a goal that those round seven dollars would go out as soon as possible and mentioned September 2026 is the goal to get that money out to the field so they can have it. It doesn't impact the spending and the program levels that they have now.

The proposed trillable language though would require HAPP recipients to expend 50% of their second disbursement of round six money before round seven money can be distributed to them. And you as you just heard, many grantees just this month are getting their first disbursement of round six money, that money from the 2425 budget, and they're just getting it now. So that calls into question how to reconcile this proposal with the timing, the expressed desire by legislature to get that money out by September 2026.

So some things a lot of things for legislature to think about as it reviews this proposal. Thank you.

Thank you. Do we have questions from committee Members, Mr. Vice Chair?

This has been a long, windy road in the state's approach to, homelessness to express a little bit of frustration. The we all know that for several years, we had a few dozen separate programs, all pretty much specified from the state down, sort of a top down approach. And really only one of those programs had flexible funding for counties, which now we're concentrating on because, those several years where we the state dictated exactly what local governments were going to do, didn't work.

We spent this is a story we've all heard, but just so that we're all on the same level here, we spent over $20,000,000,000 in a period of several years, and the numbers, frankly, exploded. And after we recognized that that wasn't working, the governor discovered, well, it's local government's fault.

And that's basically what he's been talking about ever since. And, all along, refusing to commit money for more than a year by year basis. Admittedly, some past years haven't even been spent yet. But the whole approach has been more of a handicap to local governments and singularly unsuccessful. But we have discovered the light.

It is local governments that counties in particular that are the health and human services providers and always have been. I don't know why we had to break that model, but, we are where we are. So how many, jurisdictions have the pro housing designation currently, or what percentage of them? And those that don't, how difficult is it to obtain?

So out of the HAPP eligible cities, there are 14. Nine of those cities are currently pro housing designated, and there are 11 counties that those 14 cities are located in, and, there are four of those counties that are currently pro housing designated. And it just wanna emphasize that as written, this proposal proposes a significant on ramp of time. So this is our signal that pro housing designation will be required by the time grantees are ready to draw down those FY 26-27 funds.

And we're prepared to begin, outreaching to those jurisdictions now, to start working with them, so that by the time they're ready to come in for that disbursement, they've worked with our team.

We have a team dedicated solely to the pro housing designation program, who would work with us to provide that technical assistance, so that by the time they come in for the disbursement, they're ready. And then, of course, there's that second time buffer that's built in, that if those jurisdictions don't obtain pro housing designation, by the time they meet all other criteria for the f y 2627 funds, there's an additional twelve months built in, that they can obtain the pro housing designation.

Now on the local match, do you have a sense of what counties might have a difficult time qualifying for the local match?

Well, we know that these jurisdictions are the largest in the state, and they have the largest proportion of of local funding, the highest population of homelessness, and they their their housing policies have the largest effect on the state's housing outcomes overall. So so, you know, the reason why this was built in was to create a framework to encourage our largest cities and counties to contribute their local resources alongside these significant state investments.

At the same time, we recognize that the fiscal realities that local governments face, and this proposal is designed to phase in those those requirements over time in a way that avoids abrupt impacts to local, budgets. And it's all also worth noting that local match requirements are already common across a number of existing programs, and housing programs that many of these same grantees participate in today, programs like, the Emergency Solutions Grant, and the Community Development Block Grant Program.

In other words, lots of calls on their own resources in order to achieve state funding. I would think that you mentioned the largest counties and cities, but we're not excluding smaller counties from program, are we?

Under this proposal, just the 11 counties that have the 14, HAPP eligible cities would be required to become pro housing

Okay.

Not other counties.

K. With regard to the local match, that would be particularly challenging also, I would think, for the smaller jurisdictions. Right?

Yes. And this proposal also just pertains to those 14 HAPP eligible cities and the 11 counties that they're located in, and not not other, not other cities and and not other counties.

Just seems to me that, again, repeating, counties are the primary health and human service providers in the state, always have been. We broke that model, in this failed attempt of a few years ago. It would just seem to me this is rather complicated. It would seem to me, why not just have counties specify what they're going to do with measurable goals and give them the money to do it and have them report what they did? This is much more complicated than that.

That's number one. Number two is, when are we gonna abandon housing first as a extremely limited, way of approaching the problems of mental illness and and substance abuse that so exist on the streets, people that are suffering from homelessness currently. That's an overarching policy, I think, that really limits counties, in their ability to address these things. That just I'm not looking for an answer because you have a proposal here that is, pretty explicit and and I think far more complicated than it ought to be.

And I think it and and with the overarching firm and inflexible policy of Housing First, it's just gotta be very discouraging to be able to see real progress on reducing homelessness.

And by reducing homelessness, by the way, I mean, the objective should be getting people to self sufficiency. I mentioned this in a floor speech the other day because I don't hear that at all. Self sufficiency as the ultimate goal. So admittedly, these are more comments than questions, but our attempts at homelessness frustrate me greatly.

Thank you. I just wanted to add on on a piece of those a piece of what you were getting to. You know, I do think one of the big things to pay that that's valuable here to the points that you're talking about is we are maturing the program and recognizing, that for most life, this program, we've been making these regions do a regionally coordinated homelessness action plan for each round of funding. We're saying here, you just finished your regionally coordinated action plan here.

You've done that work, and I think it does include that space for flexibility of, region by region, how you who how you want to, as a region, approach the issue.

And we I think we leave room for local flexibility in that way, but and also here, we're not making them do a whole new regionally coordinated action plan. We're saying, you did that plan. We can tier off of that plan.

We'll these these will effectively be additional disbursements. So we are we are at least attempting to reduce that bureaucratic layer while still getting the impact we're looking for to those pieces.

So I guess just wanted to highlight that, but and the role that we do agree, local flexibility plays here in in figuring out how are the continuum of care of the county and those any any large cities that exist within that county to to come together to make that plan and, and and come up with that shared approach. But I heard on on the other pieces as well.

Senator Cabaldon.

Thank you, Madam Chair. I appreciated the reference to the the the analogy to the community development block grant program. But there is one one thing I want to highlight about that in a moment. And also the proposal tries to it has lots of requirements for for jurisdictions. So the local match, the dedicated a dedicated funding source to make sure that there's permanent commitment here.

All of which is really interesting because there's one thing that's different about this as opposed to the community development block grant program is that there is ongoing permanent funding for the community development block grant program and there's none for HAPP.

It they I don't know if irony is the right word, but to come forward with all of these requirements for cities and counties to do in order to qualify for not a single additional dollar of proposed appropriation for HAPP, only taking credit for the budget that was done last year that included this as part of the deal on the agreement.

So we're providing no money, no dedicated money, no permanent funding, and yet to qualify for last year's money that we already approved that's in this year's fiscal year. But to qualify for that, everybody, y'all cities and counties, you must show a permanent dedicated funding source that shows your fiscal commitment to this and how you're going to pay for over a long term.

And by the way, as the Vice Chair noted, because it's a match, now we're now we are in a position of saying to the city of, Sacramento, I think they're the the main one that I that I don't represent, but I represent exactly what we're saying.

You need to match it. So if you want the same amount of money that you had from HAPP before, then you need to match that with local money that you are committing. Therefore and and if you weren't if you were not dedicating that money before, now you need to increase your spending on HAPP related activities. Right before we cut off all of HAPP money because there's no money proposed in this budget. But that's crazy.

That's crazy budgeting instructions to local governments to ramp up their spending, right at the moment where we're proposing nothing. And so like kind of like that earlier item, this item makes no sense in the context of of zero money. And it's kind of unconscionable to propose that to local communities. So we're telling them have a dedicated funding source, like a voter approved measure or something. Like, that's crazy.

Like, we've celebrated how we just do this a year at a time. Here's $5 this year, $5 next year. Who knows what's gonna happen next year? And we are insisting that local governments prove that they have a permanent dedicated source. We are requiring them to become pro housing designated cities.

My city was one of the first seven in the state to become a pro housing designated city. That program is supposed to be a program by which the best performers who are adopting the best, most forward looking policies get distinguished for their exceptional policy work here. And so we we give them extra points over here, a little extra credit over there. This would be the first time ever where we've mandated that anybody do it.

And mandating that people everybody become pro housing as the baseline will radically change the politics and the community reception and the and the willingness of cities and counties to do this.

Once it becomes, oh, we're we have to do this because the state ordered us to or threatened to take away our money, that's a very different proposition, which I can say as a former mayor. That's a very different proposition of, hey, you know what? We should really be a pro housing city. It's gonna help us get more money and but it's our decision.

And here we have, you know, an administration that's that's, you know, in this final year saying everybody should now as a baseline be this thing in exchange for doing that, we're not we're not giving you any more money.

That just doesn't seem that's, like, out of the boundaries of what we should be doing in in a in a proposal like that. So I'm obviously deep concerned about this even even if there was money, but there is no money. So the so we need to, like, exercise some humility about what it is that we are demanding that everyone else do in in this regard as cities and counties despite the rhetoric, many of them are experiencing turnarounds in this space.

So I did want to ask one specific question that is because it was referenced, you know, the governor has been, you know, for several years saying and I 100% agree with him, we need we need real accountability about the outcomes that people care about. That's why the system performance metrics that are in the current law, are, you know, the number of people experiencing homelessness, the average length of time experiencing homelessness, the percentage of people exiting homelessness, and so on and so forth.

They are not out they are not outputs. They're not activities. They're not money spent. They're not contacts made. They are they are the outputs and the outcomes that that Californians really want to know.

Are we are we solving the problem, making it safe, bringing people bringing people inside? That's all being crossed out in the law. Now you indicated that the and it's being as far as I mean, in the in most of the laws being replaced with performance measures that are adopted by the interagency council on homelessness, but with no specific measures. And then the only specific measures that I can see in the trailer bill are these pro housing and, you know, other other things.

So are you indicated, I think, in the at the beginning of the presentation that the system performance measures were just being moved around.

This was a technical change. But are they being moved or are they being moved to the interagency council to make that decision on an ongoing basis?

So, I wanna be clear that this proposal does not delete the SPMs, rather it seeks to streamline the SPMs, by authorizing Cal ICH to adopt and publish one consistent set of metrics, which we don't currently have, across HAPP rounds while maintaining all of the HDIS reporting requirements, all of the SPM accountability and performance requirements across all rounds. We're looking to make the data consistent, the the reporting requirements consistent for all grantees throughout all of the rounds.

So just wanna be clear, there would be no change to the SPMs. They would be, the same SPMs that have been collected and reported over the past few years.

Can I is it and is are you are you assuring us that's what will happen, or does the trailer bill actually assure that will be the case? Because all I read is that ICH will figure it out and your intent is that's what they do.

But there will no longer be any, like, there will no longer be any legal requirement, legislative requirement that reporting and being held accountable for the number of people entering homelessness, returning to homelessness, so on and so forth, that those metrics, yes, they'll still be in the data system, but will they be part of HAPP accountability?

The governor insisted on that originally, and I agreed with him then and simply moving us into ICH to decide based on and the metrics applying then only to COCs, not to cities and counties. I'm concerned that we are back stepping from what the governor himself has said he's wanted to do for the last four years.

Yes. And so I would say just in complete agreement on that. Like, we are absolutely trying to ensure that the SPMs that and and if we need to work on the language, we should work on the language, but we are our our intent is twofold here. Just to acknowledge what Sarah said, right now, we're in a funny space where HAPP three, HAPP four, HAPP five, HAPP six have slightly different worded versions of the same SPMs.

And effectively, because this data is taken from the HMIS system that then feeds into the HDIS system, there's there's fixed reporting coming through that platform.

So even if we change certain words in statute, we can't we can't actually change that that source of of data as we get it. And so part of sorry. There's noise behind me. But part of what we're acknowledging here is the things that we've heard about the the administrative burden and reporting.

And so if we have California system performance measures, that are written in such a way that they cannot be tracked through that HMIS, HDIS system, then that's additional reporting we're having to come and get through our grantees.

And as we've worded that slightly differently through the years, it's created some confusion. And so what we're trying to say is there is a set there is today, there is a set of California system performance measures that we are judging our grantees by, and we're trying to to honest to be to very be very coherent about that.

The Cal ACH component is to allow for if the legislature does wish to ask for things we haven't asked for in the past, we do wanna make sure Cal ACH is part of that conversation if we wanna change the California SPMs in the future, because we wanna make sure that anything we do ask is something we can actually pull out of the HDIS system for that specific California SPM piece.

But there are reporting requirements we pull outside of that data, but this is a way we we do wanna make sure I know I got a little wonky here, but I do want part of what we're trying to do is acknowledge there really is truly one set, even today, of California SPMs that we system performance measures that we're judging everyone by. We aren't actually judging them by these, like, slightly different versions of each other.

So we're trying to shore that up, make it cleaner, make it clearer. But there is one one system we're judging folks off of, but leave open that door that if if the legislature if if if there are reasons to ask different questions, we're involving our state's experts in the HDIS system to help us update that. And and and again, point back it is the intention to point back to one set of SPMs versus round by round SPMs.

So I know I droned on a little there, but hopefully some of that got through. But to agree with your main point, which is we're not trying to we we wanna continue to judge people by the SPMs we have today to clarify that that it is one one rubric, and then if changes are needed, involve Cal ICH in that.

Yeah. I appreciate the challenge, and in terms of getting the metrics and whatever to match up, also the data system issues. In the end, obviously, the legislature and governor, the statutory accountability for the efforts and the investments that we're making, the data system is in service of that, not the other way around.

That's right.

So it is not the case that our accountability measures are that we so that pulling them out of statute and saying, we're going to we'll rely on what HMIS and HAIS is the exact opposite of the way that this policy process should work. So I would just strongly encourage the administration at a minimum to on this particular part of it to take another look at this.

I don't think it's a great idea for the legislature to be passing or for the governor to be signing a statute that erases every indicator that that the California public is interested in. You know, aligning them in a way that that can make sense over rounds, all of that makes sense. But to simply take all of those out, I think is not is not the optimal way to try to address the the implementation challenges that you've been describing.

Yeah.

And open to that feedback that I think you understand the point that we're trying to make of just the the currently, different versions live in statute, and there's probably a better or I should say, we're open to that conversation about, is there a better way to make this clarification? And so thank you for that input and feedback.

Harris Smallwood Cuevas?

Thank you, Madam Chair. Really appreciating this discussion, and, obviously, this is an issue that is very important to our communities. My city and my county, in the last ten years, we passed bond measures. Our people have taxed ourselves.

We have asked for more resources. We've asked for the continuation of HAPP. And for the first time, the city of LA is seeing an 18% reduction in homelessness, the highest reduction in homelessness in the nation under the leadership of our mayor. And so it's really concerning that now, when we should be swinging for the fences to really double down on these strategies that are working, this is a proposal that reduces the amount of funding and then adds a whole bunch of new requirements.

And I appreciate, the Vice Chair's point about self sufficiency, but for every person that gets out of homelessness in my county, 15 more fall in.

And primarily, it's a wage problem. The majority of our folks who see rising homelessness are seniors who've worked all their lives and cannot afford a retirement, students who are sleeping in their cars, and working families. Yes. There are mentally ill. There are folks who are addicted to drugs, but they are not the majority of the people who are homeless.

Why? Because 60% of the jobs that are created in LA County are low wage. And in South Central, a studio apartment costs about $2 a month. And we used to be the haven for affordable housing. No longer.

So we've gotta figure out a way to one, deal with, I think, this paradigm that we have of needing more investment in homelessness services in HAPP, funding it to the full amount, but also how do we get the money out? How do we get the money out faster?

And, you know, and I heard the conversation about the metrics that we're using, and and that sounds like, you know, would be nice, but not necessary for what our goal is, which is to expedite the funds to help folks get off the streets. The same with the pro housing designation. Would be nice, but does it actually help cities like the city of LA where we are moving forward and showing progress?

I am just saying we've got to figure out and what my constituents are saying is that we've gotta figure out how to get money out because we just wanna get more folks off of the street and into housing. When our homelessness dollars remain unspent or delayed, again, we have to ask whether the problem is not just our funding level, but our ability to move the resources quickly.

And I have not heard in these solutions that is going to be the outcome, and so I would love to hear you talk more about that. The other thing is the accountability side, and I absolutely agree. We need to hold people accountable at the local level to the dollars that we're spending so that we can get the data that shows the progress on the outcome, which is we want to take people off of the street.

Right? So but I do think that if we make it more complicated, if we're shifting in the midst of success, then we're doing more harm than good in assisting our our jurisdiction, especially smaller jurisdictions and the community based organizations. Because a lot of the success that's happening in places like LA County and the city are the CBOs, the nonprofits, the street interventionists, the street medicine folks, the the the the folks who are working with communities at risk of being homeless.

And these are organizations that cannot pivot into new systems of data collection easily. And it will take resources out of the actual work for their very small capacity to try to maneuver around these new requirements that are gonna be handed down to them.

And, again, delaying the disbursement of funds to get on the street. So I think the public just doesn't care whether the delay is administrative and that there's a new system that is technical. They just wanna make sure that the people who are unhoused, that they have the funding that they need to get into to housing.

And so I do have some questions about the, proposal, but I want to just say what has been presented to me is not helping me understand why, and how this helps to expedite the need. But question on the trailer bill language, these new requirements that are included that jurisdictions now have to meet, It historically has taken ACD well over a year to disperse funds just through the system that is in place.

If we are if the, if the process is changing, if it becomes bureaucratic, it takes even longer. How can we ensure that these new funds and how long do we suspect these new funds could create further delays? And is there an opportunity to maybe phase in these requirements that you think would be nice to have and would have real impact longer term on the system? Is there a way to phase this in versus all of this at once?

So I'll take those two questions, and then I have several one.

Like, what's the evidence that this expedites our goal? And then if we if these are necessary, and and I'm trying to understand what priority that is, what are we expecting the delays will be in terms of these new requirements?

Absolutely. You know, first, I would say, you know, a key piece of this proposal is is something we have never done before, which is putting out a new tranche of funding as continued disbursements of already approved applications. Grantees put a significant amount of work and planning into their regionally coordinated homelessness action plans for around six. We understand that. We don't want them to have to redo that process to receive these FY 26-27 funds.

And so that's part of the streamlining of how we how this proposal proposes to get these funds out quicker. No new application and and instead, implementing the accountability and performance metrics that exist for other rounds. We are absolutely working on getting disbursements out quicker. I hear your feedback there, and we understand it's it's important to get these dollars out into the hands of grantees as expeditiously as possible.

And we believe this trailer bill implements a phased in approach for the pro housing requirement, for the local match requirement, but we're absolutely open to continuing to engage in discussions with you, the committee, and staff on how we might be able to phase those in in a way that that works for both the administration and and the legislature.

And I just wanted to add to that because of your region in particular. You know, I think something, you all have heard me present to this committee over time is that not all of our grantees are the same. That, we have grantees that have not been successful in using up all of their HAPP funding over time, which to a region like LA seems absurd. Right? You your one of your region is one of the most expeditious, utilizers of your HAPP funds.

One of the things that this is recognizing is not just what Sarah mentioned about, okay, we're gonna cut out the entire part of the timeline of submitting an application, going through review with us. That's that's not happening. We just made you do that. We're not making you do that again. So this is effectively allowing regions to just come and say, okay.

I'm ready for my next disbursement. Yes. As long as we meet these accountability criteria, but that's a much, a much less administratively burden action than going through the the stakeholder outreach, the creation of an entirely new regionally coordinated action plan. So this will be the first round of HAPP with with no requirement for that aspect. And then also recognizing that that some of the things that we're doing here around, around the funding, for those grantees that don't meet their requirements, to spend the funds.

If they we are recognizing here, under prior law, if, grantees didn't spend their funds in time, we'd be asking for that money back. This sets up a mechanism where we can deploy, like, rather than having to request funds, receive them back, those would go back to the general fund for the legislature to then figure out what they wanted to do with again. This is an expeditious way to get that money directly into the hands of other grantees instead.

And so for those grantees that aren't able to spend all of their HAPP dollars, their forthcoming allocations would be reduced by that amount they were unable to spend, and then that's new money that's available for those grantees that are are able to deploy their HAPP funding more quickly. And if the first attempt would be to spend it within that region, if there are other grantees within that region that that are able to deploy funds more quickly.

But then if not we need to have discussions about but that still brings additional funding that's available to the pot more broadly to to be used by grantees that are which this round of hap can be reducing administrative burden, increasing expediency. I think we have that. And then I think the other pieces you see are us being responsive to what was negotiated last year about accountability.

But we're trying to look for those opportunities to have accountability with without increasing administrative burden on the grantees and also keeping that expeditious tenure along the way.

Yeah. I just am very concerned that this is a one size that doesn't fit all. And if there are regions and agencies where the money is coming in, it's being spent expeditiously, it the reporting and data and accountability metrics is working, then why are we why are then we creating a whole new system that will disrupt, the successful system?

So I just think in terms of understanding how you know, and I understand you're saying that these are phased in, but they will disrupt the ways in which those systems that have been working and are working are going to have to readjust. And so I wanna work with you and to see what are the ways that we can look at not disrupting systems that are working, and that will take resources and capacity away from getting getting the work done.

My other question, is in several places in the trailer bill, there's some there's some vague language there that talks about to the extent practicable, sufficient progress, department satisfaction, very broad. And I feel like leaves a lot of discretion to HCD about how to interpret their practice.

And is the administration open to some greater clarity to help set more precise standards? Because we wanna make sure we're building trust. We also wanna avoid disputes, and certainly, we don't want to see decreased funding or interruption of funding and services for communities who need it, because we're misinterpreting what we mean by progress.

I mean, yes. Absolutely. We are open to that. This trailer bill is really a starting place to engage, and so we're we're open to discussing clarifying language that will establish clear requirements for grantees, but also for HCD as well. Okay.

And then the question about the local funding match, because as you know, our cities and counties are in deep, deep budget crisis right now. They are struggling just to pay for health care, especially our counties, with all of the HR cuts, and other cuts impact that are impacting them by this administration. So what kind of local matching percentage are you considering? What does that look like? Is there some kind of prerequisite for what that first disbursement would look like for for round seven?

You know, I think this is a really tough time, and that means our homelessness rates are gonna climb, Because like I said, folks are choosing between basic health care, basic services at the county, and the ends are just not meeting. So what does that look like, and what are you proposing?

Yeah. There are, there are specific sources, that were laid out in the trailer bill proposal, including, dedicated local or regional source of, homelessness funding, a new local or regional source of funding, impact fee deferrals or impact fee waivers, land donations or philanthropic contributions, in kind resources, local government contributions in the form of rental assistance and other permanent housing or interim housing, or supportive services. And then, certain, sources of state originated funding. And we're absolutely willing to engage in discussions about other ideas for the local match.

We are looking to implement something that is reasonable and that is mutually agreeable.

Well, thank you for for clarifying. I think my point is that we still need to have a really honest conversation about how we ensure that we have adequate funding, and that we are creating if we're making significant changes, that we're doing in a way that does not interrupt service delivery or the ability for our communities to secure HAPP funding. This is a lot at this stage of the game to roll out.

I mean, we have a new administration next year and I mean, this is a lot to ask counties, especially areas that are making progress. And I wanna stress for me, I have a real problem with the reduction in funding and all of these new requirements.

As we are making progress, we need to see an increase in the funding, and we need to make sure that we aren't interfering with those folks who are delivering the results.

Okay. I think we have no additional other comments or questions from Committee Members. We appreciate you answering the questions today and your presentation, and we'll hold this item open. We got several more agenda items to go through.

And we are going and moving on to agenda number item four, which which involves a budget trailer bill proposal intended to reduce the imposition of local development impact fees on state funded affordable housing projects. And when you are ready to present, please feel free to begin.

Alright. Thank you, Chair and Members. I'm Spike Friedman, Assistant Deputy Director of Legislation at HCD. Here to speak about the trailer bill proposal on impact fees. Now this proposal aims to reduce local development impact fees on state funded affordable housing projects to help ensure local state housing resources or limited state housing resources are used to build affordable housing rather than simply being recycled back into locally imposed fee structures.

Before I get into the two pronged approach this trailer bill takes, I wanna say, importantly, these policies are structured as conditions related to projects applying for competitive multifamily state housing funding. These are not statewide mandates on local fee authorities. Specifically, this proposal takes a two pronged approach, beginning with NOFAs issued after July 1, 2027 by departments under the new CHHA agency.

First, this would prohibit local governments from charging development impact fees on affordable housing projects specifically and only when the local government is directly applying or co-applying for competitive multifamily state housing funding.

Secondly, it also incentivizes local governments to voluntarily reduce or waive development impact fees by considering fee reductions or waivers in the development of competitive state multifamily housing funding program guidelines and allowing those waivers or reductions to qualify as local contributions for the purposes of scoring in those programs.

Because this proposal is structured as a condition tied to competitive state funding, it preserves local flexibility and control over local impact fee policies. At the same time, it establishes the jurisdictions seeking the limited state housing funding that we have would be expected to meet these new conditions rather than simply using state resources to subsidize locally imposed costs. Now why do this?

The Terner Center for Housing Innovation has found that local impact fees can add up to $20,000 per unit of new affordable housing. Reducing these costs and importantly providing certainty for affordable housing developers as to the potential reduction of those costs improves project feasibility, reduces total development costs by aggressively reducing soft costs for affordable housing projects.

And this leads to an increase of affordable housing production by reducing per unit costs across our funding programs. As the state looks for ways to build housing faster and more cost effectively and to more efficiently use our resources, this is the type of targeted, narrow policy change that can help maximize the impact of our limited state housing dollars. I'll pause for questions.

Carolyn Chu from Legislative Analyst Office. We just would raise a few issues for consideration for the legislature under this proposal. As was noted by the department, this concept comes from the Terner study that cites the increase in cost that results from these impact fees.

And while this could potentially mitigate the cost of development, it would mean that local governments have less resources available to support the infrastructure that they often need to develop when these projects are undertaken.

It also raises a question of how other overlapping jurisdictions would be impacted, special districts potentially in particular, who, excuse me, who may also levy impact fees to support their operations and infrastructure. With that, we're happy to answer questions.

Do we have any comments from the Department of Finance?

Blair Huxman, Department of Finance. I have nothing to add.

Thank you. Questions from Committee Members? Mr. Vice Chair.

More policy in the budget. This is really just another housing policy being handled by a trailer bill. It is complicated. Many stakeholders involved. We're hearing it here in a committee of four people. This should go through the policy process. This has no business being a trailer bill as part of the budget. I don't have any questions. It just shouldn't be here.

Senator Cabaldon.

Thanks. Thanks, Madam Chair. I wish we would do items in between these so that I'm not constantly beating up on the, on Megan and Megan. But first, I want to pick up on the comment by LAO, just before I forget it, which is, and it's a real one that municipalities are organized in many different ways. And so in my own city in West Sacramento, it's a full service city.

And so the impact fees that are imposed or that would need to be waived or otherwise reduced as part of this proposal have to cover everything, police, fire, water, sewer, the whole thing. The City of Elk Grove is not a full service city, so they don't operate their own. They don't have their own police facilities, they don't offer their own sewer plant or what have you.

So what they are they are not required to waive any of their of their actual infrastructure costs for sewer service or water service in the same way that our city is. So it is and that's because some cities may have overlapping community service districts, fire districts, water districts, reclamation districts, and some don't.

And so the attention to the actual life on the ground for these fees, even the way we talk about. These hearings are always about these impact fees or like there's some there are these things out there that we did not cause to be created.

The combination of the voters through Proposition 13 and our own actions have caused these. So under the California Mitigation Fee Act, cities and counties have to adopt an impact fee, next to study. So if you're if you have to do a master plan for your sewer plant.

And your sewer plant has to grow because because another agent inside of HCD says, hey, you're not meeting your RHNA numbers, grow by 5%, add these households. And if you don't, then we're gonna, the AG is gonna send you all to jail. So you must do it.

You must you must grow your population, and unless unless there's some law, you know, some some law I'm not aware of, you're not allowed to discriminate people who who produce sewage by living in your city. So you must then have an 18 inch, you have to have an 18 inch sewer pipe instead of a 12 inch.

Now you need to expand the capacity of the plant. Those are not discretionary choices. They are in the moment, but they don't, they're not. You must do that in order to not have everybody's toilets back up and hazardous materials all over all over your gutters and all over your city.

So you must do it. And under California mitigation fee law, you then are required to set mitigation fees that appropriately apply the cost of that, makes it proportional for each of the of the causes, each of the users that are contributing to that.

And you can charge no more than what that user is responsible for. And this is also in the constitutional decisions around impact fees from the US Supreme Court as well. You cannot charge more than what that specific, you know, user or resident or company or whatever is responsible for.

And therefore, if if I'm an affordable housing project and I and the and the city must waive the sewer impact fees and the road fee and the transit fee for me or substantially reduce it, and Senator Smallwood-Cuevas is just a regular old apartment building and Senator Niello is a coffee shop, you cannot spread the... You cannot say everybody else will pay a little bit more to cover the back, the loss.

So you have an actual legal obligation to grow your sewer plant. That's this much money. Your impact fees must add up to that total. They can't go over, but within that, each of the impact fee classes have to pay their fair share and not a penny more.

So when you when we impose limits on impact fees for those kind of critical infrastructure, there is no alternative. There's no other way forward. It just means you're underfunding sewer, water, and other critical infrastructure projects. And so this is the problem with thinking about impact fees as some sort of trick that local governments use to enrich themselves. They cannot enrich themselves.

They can't fund their general fund. They can't pay their mayor more as a result of impact fees. They are doing them because they must comply with the prices of their of their infrastructure. And this proposal, like most in this topic area, don't acknowledge that there are real infrastructure costs. And we know that.

HCD obviously knows this very well because it is administered the Infill Infrastructure Grant Program and and the statewide ballot and bond measures for transportation and parks and everything else that go along with it.

So we all know that, but then we have these these, like, very simple minded approaches of, well, let's just tell people don't charge the fee or reduce it. There's no path forward for this year. Now I understand that some impact fees are more discretionary than others.

How much parkland per how much open space and parks do you want for a resident? And there are folks in the development community should say that, oh, that should be as little as possible. Like, we don't want to pay more than $800 for a park impact fee. And so, you know, don't try it. And there is discretion there, but it's not unfettered discretion.

And the challenge that the proposals like this present is that communities like my colleague and like my own, where there have been historic centuries long underinvestment, both in baseline infrastructure in sewer and water. For those that are enjoying the A's games right now might be surprised to know that we had wooden pipes and no sewer, just septic tanks when that stadium was built.

But our parks have been under invested in everything else. And so the the cost of impact fees in, let's say, the Los Angeles parks in Senator Smallwood-Cuevas district are higher than they are in in Culver City. Why?

Because the systemic underinvestment over time means there are more infrastructure needs to that need to get met, not that Culver City doesn't have none. But there and the same thing is true in my district and everywhere else across the state.

And so proposals like this really that systemically disadvantage poor, poorer communities, communities that have already been the subject of of discriminatory disinvestment over time. And so just as a broad matter of policy, I think these are challenging.

Because what we need to do is solve the infrastructure finance challenge, while also get at some of the abuses of the impact fees where folks are creating, you know, bespoke programs that do that create impact fees. But those are the edge cases.

Those aren't the majority of these impact fees. And even in those cases, in many cases, we're driving them. You know, the CEQA. Yes. My traffic impact fee is ridiculously high. Part of that is state rules. Part of it is a CEQA compliance, like a whole bunch of stuff that the state is not an innocent bystander on that makes, you know, adding a stop sign or widening a road or adding a bike lane prohibitively expensive.

So we've got to deal with the actual challenge here, which is the infrastructure, not the fee, because otherwise, we won't there we won't we won't have the bus stop. We won't have people sewers will be backing up, and we have to resolve that. So I have serious concerns about this proposal.

I agree with my both of my colleagues. It is a policy issue, and it's a complicated one, and we need to engage it, and we haven't. We've been either simple minded or folks in city government said, please don't look at my impact fees.

We need smart people spending the time on this that we can't do between now and next Thursday to figure this out. It's also why the governor called for the housing bond measure to include money for housing supportive infrastructure to why it does include that in both versions in the Assembly and the Senate.

Impact fee reform married with some form of investment in infrastructure would make a lot of sense, but that's not what this proposal is. This proposal just does this on infrastructure, and it does it through the lens of affordable housing, which is also not discretionary. Right?

We don't we want cities to be lead applicants for multifamily housing projects along with highly qualified and capable affordable housing developers. We don't wanna create an arm that's like, oh, no. Don't put me on that because if you do, you know, we'll have to cut our fees. That that's not a good outcome. These are hard enough projects to deliver as they are.

And I guess the last thing I would say about is that I think the theory here is that because, you know, like, the state the state shouldn't be paying for the local cost of the thing. Well, should the state be paying for the labor cost? Should the state be paying for anything else? No.

We're here to, the state funding programs are to deliver housing, and housing costs more than, affordable housing costs more than it should. But we're here to support that as the state because we believe in making sure everybody has a place to live and to be safe and to be secure and to take care of their family.

We're not here picking and choosing. If the state's putting you know, through through the bond or through if when we when we used to fund it in the budget, these affordable housing projects, we're there we're doing it to to develop to to develop the housing itself.

We're not picking and choosing my money is for this for for this thing and not that thing. So I know HCD understands a lot of these issues. I think we and the Terner Center and everybody else need to really put our heads onto this issue, but this is this is too simplistic with lots of very inequitable implications both for different kinds of cities.

But especially for places in California that are just trying to make up for a century or more of disinvestment and redlining in their communities by trying to lift themselves up through their bootstrap, trying to take advantage of the fact that they're that that they're they're grappling with gentrification and part of that deal in the local communities that will at least at least we'll finally get that park.

At least finally we'll be able to look through and drink clean water without a filter. And that's too much of a that's too much that's too far of a road to get down as part of a simply a BCP in this in this regard. So I've got major concerns about this. I'd have a hard time if we were taking this off our vote today to support it. Thank you, Madam Chair.

Thank you. Senator Smallwood-Cuevas.

And I agree with that last statement from my colleague. And part of it is if we are going to reduce local jurisdictions' ability to implement their impact fee structure, it's really hard to do that with no money in the budget for affordable housing. I mean, there's I think I'm not clear how those two things can work at the same time. And, you know, fundamentally, and this is not what you've come to talk to us about.

But in other countries and other places, states have the authority. They don't have Article 34. They can identify their land. They can acquire land, and they can control, build their housing through the state and control all the costs, and ensure that there is public housing that addresses the needs of our communities.

And so we through a very racist and regressive backwards backlash on public housing investment, we are here. So this is part of a 60 year problem that we are still trying to dig our way out of. But I guess my question that I had, and I just had one real question on this, and that is the intent of the proposal.

Are we saying that that applicants, local jurisdictions that are applicants for state affordable housing funding from charging development impact fees or any affordable housing project? Or is it just the affordable housing projects which the local jurisdiction is seeking funding for?

It is just the projects for which they are seeking funding that would be under the prohibition. Yeah.

Because that is not, to me, that that wasn't very clear in the language. And the other question I had was the proposal makes it harder to obtain the state affordable housing awards unless the local jurisdiction in question is willing to contribute the cost of any associated impacts.

Is there a risk that this will dissuade local jurisdictions from supporting affordable housing? Meaning, we are going to say no to affordable housing because we need our impact fees to do exactly what my colleague just laid out. And it doesn't take much if you have not seen what's happening at the local jurisdiction to stop affordable housing projects.

Well... No, you you go.

Yeah. I will say from the incentive side of this, we view this as an option. Right? It's not a pass fail. It is not about for affordable housing projects where the city is not a lead applicant, this is an option. This is an ability to get a local match.

And that local match is to be designed through the HDFC guidelines. Right? It's not going to necessarily be dollar for dollar each program. Hey, you've waived $20,000 of impact fee. We will be doing our work as an agency, as departments to ensure that this is implemented in a way that takes equity into account.

And so, and again, this only would apply for state funded affordable housing projects. So for, broadly speaking, this shouldn't be a deterrent in any meaningful way for most applications for state housing. You know, if you're coming in from HP, for example, there's no expectation that the city is going to be a lead applicant and therefore would have a prohibition associated with it.

It's an option for the city to waive or reduce fees to potentially increase the scoring for that project if they would like to pursue that. But again, it is not a pass fail there. I think the question, and I think it ties to Senator Cabaldon's comments around would it potentially dissuade a city from being a lead applicant in the narrow realm of programs for which they often are. It could potentially, to a small degree, impact the decision making there.

That said, the ability for a city to potentially control the financing of a project, to bring in tens of millions of dollars in affordable housing funding, counterbalanced against that is a comparatively narrow impact, for a lack of a better way to put it, on the decision making there. Might a city make decisions accordingly?

It is possible. But again, this is designed to be very narrowly tailored towards a limited subset of programs where there's a prohibition in place. The rest of this proposal is incentive based and is about the optionality for jurisdictions to waive fees.

And for a full service city like West Sacramento, that is a broader range of fees that they would be able to waive towards that end, while special districts are not eligible, or fees directly imposed by special districts would not be eligible for either aspect of this proposal.

And I think just one thing to add on to that is, yes, on the incentive side, this is actually more expansive than we've been in the past. So a lot of city, almost every single program has some kind of leverage requirement saying that the locals have to be contributing dollars.

This is actually saying, we know that there's more than one way for a city to contribute to a program and they should receive credit for that. Right? So like, some cities want to give dollars to a project, but some cities might want to give land. Some cities might want to do fee deferral.

Some cities might want to do fee waivers. And so the incentive side of this is really actually recognizing that cities have different ways to contribute to the project and wanting to recognize that that expand a more expansive definition of what leverage could mean. So I do wanna just make that point clear.

And then the place I will, I think, stay firm on, and I think it speaks back to something you you said, Senator, is, or we're talking about in the in the LA region is we, part of what we're saying in the other half of the proposal is that we are when we are in this together, the outcomes are stronger.

And so we're trying what we're asking for here is recognition that when cities are applying for state funds for affordable housing projects, this is something we're asking that they bring to the project so that it is happening in a more cost effective way, that we are we're giving from both sides to make sure that this project gets through.

And I think I think there are more more than one way to recognize that as well, but it feels important, I think, to the scale of what Spike was sharing. You know, we're bringing large state dollars to this project. We want to see the local doing a piece of that puzzle as well. And so that I think you asked about where the goals of this were coming from, and and that's where it lies is in trying to make sure that we are we are working on this together.

Yeah. And I appreciate that. I just think it's important that, you know, we have some evidence that it's not doing the opposite, which is giving folks a reason to deny affordable housing projects because, you know, of this whole question of losing revenue that the communities need to provide basic services.

My last question, and I think you spoke to this. You talked about the incentives. But I'm also thinking that when value for impact waivers is weighted by the amount of fees waived, could this result in a reward for jurisdictions that charge higher fees?

Right? Because no two communities are the same, and some of the smaller communities, their their numbers may look different, but their need for housing is is greater because of, you know, the demographics of that community. So I'm just curious, how do you prevent that from happening? Or and is that do you see that as a real possibility?

And Spike, feel free to comment here. But I think I think to the point I was making is the goal of the incentive piece is really to recognize a broader a broader array of things that could be leveraged, but I think I think in doing so, that piece, it would be discussed in guidelines.

And so there would be at least two rounds of public comment for contribution on that. But I think your point is valid that that that would be the wrong way to do it. Maybe that's the best way to say it.

Yeah. I think that's right. And I'll just add, these affordable housing fee waivers, these are programs that already exist in a lot of jurisdictions. They already take on this work. City of Sacramento, for example, has a I believe it's a 10,000 per unit cap, but they have an absolute fee waiver on affordable housing serving specific populations.

So this is not a novel idea in that regard. This is tested to some degree, but absolutely that is heard in terms of, and also to Senator Cabaldon's point earlier, jurisdictions have to undertake nexus studies to ensure the proportionality of their fees, that federal law, that state law.

So again, we will, the guidelines process will take that into account so that if a jurisdiction has high fees and those are proportional, that is not simply a pathway for them to be able to be, you know, unfairly advantaged in a process.

I just think as, and I'm glad this is gonna be held open, and we'll have hopefully more details. But I think those are some of the guardrails that need to be articulated in the trailer bill. Because we can say we it might not or it doesn't look like, but we've got, you know, if this if it's not there, we know it will happen.

And we've gotta figure out how we actually have language that says it will not. And this is how we prevent that. So there's gotta be some evidence to show these are the steps that will prevent x from happening. Right? So we'll see this when it comes back before us. Thank you.

Yeah. Here here to that. I mean, I mean, the statute needs to describe these issues, not the guidance by a non local government agency. I was a mayor of a city that was one of the very top housing producers in the state per capita and affordable housing as well. I would have voted for hardly any of the projects if they had this prohibition on imposing any development impact fees.

You cannot, you cannot, that for a 100 a 100 unit project, it's $2 million. Out of what account is that supposed to come from? It can't, there's no such thing as an impact fee waiver. In the end, there's no such there's no such thing as a waiver because of the nexus requirements. It has to come from somewhere.

And at that level, we would never participate. And as was said, this has to be a team effort. Like I the, you know, the two of the projects coming into the to into to the to the Tower Bridge on the Parkway on the right, those were the hard, two of the hardest projects we ever did.

There's no way they would have happened if the city wasn't a core partner in that project because you had to make sure well because the transit stops and he's got to deal with PG&E, the city has power that the affordable housing developer doesn't have. You've got a line of $5 over here, and this will change over there.

We everything that we should that we organize our resources around should be to encourage, to insist that local governments are primary applicants for these projects, not the the contrary. And that this this disincentive to participate and to say, well, good luck to you bridge housing. Good luck to you.

Somebody else go do this on your own because you can't afford and we can't afford for us to be wrapped into this impact fee thing is overwhelming. And so I this is why we've got a ground test stuff with people who are actually making these decisions, which are hard enough even in the most pro housing cities that there are.

This would be a substantial change in the incentive structure, but not the one that you're anticipating, and it would dramatically affect housing production. So, we're gonna hold this item open. We're gonna move on expeditiously because I'm told that the Assembly Budget Subcommittee is wondering when we're gonna let HCD out of here. So we will as soon as we're ready. But we are gonna proceed.

And in that regard, we're gonna jump forward to item 12 on the agenda, which is the re-appropriation of the unused Infill Infrastructure Grant Program. So if you're, I know this was originally for vote only, and we wanna we wanna have at least some questions about it. So if you would be up for prepare for a brief presentation, would be terrific. Thanks.

And I think we can be briefer. But hopefully, who knows? But you have me again, Megan Kirkeby, Chief Deputy for HCD. The IIG, the 2021 infill infrastructure general fund technical adjustment proposal extends our encumbrance deadline for the Infill Infrastructure Grant Program of 2019.

This was a general fund appropriation included in the 2021 Budget Act for three years, from 2026 to 2029. And this would be, allow us to take these recaptured funds and redeploy them. And so we are requesting provisional language to effectuate that change. This would extend the encumbrance deadline for 6.95 million in remaining funding that could be utilized by that program.

And obviously, the I think the committee is familiar with this program. But I'm happy to talk more about it and what we can do with this flexible funding that that can be used for many many things that have been talked about even today.

Utility service connections, street improvements, transit, bicycle and pedestrian linkages, parks, other infrastructure that help support affordable housing and denser, support denser and infill supportive infill affordable housing. So if we if we reverted these funds instead of extending them, we'd forego several projects that could add up to approximately a 150 housing units.

And all of these funds advance housing and climate goals through the Infill Infrastructure Grant Program statute or under the Infill Infrastructure Grant Program statute. Every time we've deployed funds of this type, there's been significant demand for these dollars, so we wouldn't anticipate any delay there. And happy to take any questions.

Department of Finance, any additional comments? Legislative Analyst Office.

Carolyn Chu, LAO. We would just highlight the trade offs between the priorities of facilitating the infrastructure required for additional housing and the general underlying general fund condition to which this could represent savings.

Alright. Thank you. Senator Smallwood-Cuevas.

So I, you know, we know we have this affordable housing crisis, especially for very low income communities. And, you know, when we have unspent dollars, it just means that more of our developments are not moving forward.

And in my district, we've spent years trying to unlock a former EDD site at 54th and Crenshaw, right along the rail. And it's been deteriorating for over a decade. Legal, bureaucratic barriers, all of the things. And during that time, the site, you know, ended up being an encampment.

And so my office and the community have been working to with DGS to to get that cleared and get it secured. So, you know, we've got some of the largest numbers of unhoused individuals in the country. We are in a community, largely African American, which has the highest density of unhoused community members.

We have this property, which through a bill that I did, we finally created a pathway to transfer that property for deeply affordable housing, workforce development to serve South LA. But again, it's been a struggle to really think through and work with developers around resources to be able to do that. And so, you know, here we have an example of we the resources again went unutilized.

So my question that I and what I'm struggling with is, you know, how do we ensure that our local governments, our nonprofits, you know, community land trusts, you know, folks who are working to address the need by converting these these public structures into a relevant use for housing, how are we ensuring that these resources are getting in the hands of the communities who are prepared to build?

And more specifically, you know, I wonder is there a strategy for making sure that we can avoid this in the future, and what is the way that we can think about, you know, how could a project like the one in my district be able to get access to these funds so that we don't have a situation where it could be clawed back for the general fund, as the LAO is, you know, suggesting. So how do we...

You I think this is this is where I'll speak strongly in support of what we're trying to do under the Housing Development and Finance Committee. That will allow us to effectively make awards that are one and done. That, you know, if we if a project is ranked and scored to receive state affordable housing funding, we would be giving it all the resources it needs to move directly into readiness deadlines.

Some what you've heard me speak about in relation to that proposal is for a long time, more than twenty years, affordable housing developers have had to go collect a bunch of sources separately. And through that process, that delay can lead to increased costs and uncertainty that can lead to a project no longer being able to meet the original commitments that they promised in order to get that award.

We see that the biggest thing we can do to change that, which is totally unrelated to this this request for an extension, but in order in answer your question, I think it's one of the things that will ensure a lot more of our funds are deployed to those that are ready and that we see those projects go to fruition because they'll be getting the resources they need all at once.

And I appreciate the reorganization process, and Secretary Moss laid that out when she was here. But in this proposal in particular, it's to reappropriate the unused funds directly. And rather than just reopening a new round of grants. So I'm just curious, you know, what was the rationale for making that choice in this when there are so many ready to go projects out there?

So this this was funding from the past that that did come back to us from, that was deployed, that came back to us. But if we want to redeploy it, we need to extend the deadline on those dollars so they have a, they, you know... Anytime that we're given funding, it has an encumbrance deadline. This would allow us to, we are we are only asking for an extension on that encumbrance deadline here.

So this is money we have today, but rather than giving it back to the general fund, we would ask for an extension on that deadline so we could give it to another, you know, another several projects and allow them to deploy it. But in order to do that, we need to move the encumbrance deadline further out from what it was the first time the money was appropriated.

Okay. So it doesn't, so it it is going to go back out, and is does it delay having to go through this extension re-appropriation process? Does it delay the ability for the money to hit the ground?

No. This is this is just extending that that deadline of the encumbrance deadline.

And why was it 7 million unspent, about 7 million unspent? What was the...

When we when we deploy funds, your hope would be that a 100% of every award you make comes meets all of their readiness deadlines and comes to complete completion. But some projects self disencumber, let us know that their project isn't actually ready to move forward and they return funds.

And are there safeguards for that? I mean, now is there a lesson learned out of this situation? Because that's a lot of money. It's not...

Yeah. I mean, I think I think it speaks to the situation we've been in of a a very long backlog. You know, we ended up with quite a a long backlog at our, for our tax credit and bond allocations, where the bond used to be sort of an over the counter process. And when we deployed so much funding, that led to greater delays there. You know, that's part of it.

Also, just what I talked about of having to go collect multiple funds from different places can lead a project to not be able to meet the timelines they'd originally thought, and so they have to sort of go back, rejigger the project. But it can be any number of reasons.

Not, I will say I think there's lessons learned, and I think that's we're working toward that, but this is also our milestones working, you know, and making sure that the funding we give out is is tied to deadlines that and if they can't be met, that we'd be able to redeploy those funds.

Alright. Thank you. So we're gonna proceed to our, we'll hold that item open, proceed to our final HCD item, which is item 13, savings from the administration of the Encampment Resolution Fund.

And myself again, we are just proposing a reversion of 603,000 one time general fund from this is our own administrative funds, the 5% of round two of encampment resolution funding. These are savings from HCD, as the programmatic funds from round two have been fully awarded and expended. I'm happy to answer questions on that.

Department of Finance. Legislative Analyst Office.

No concerns.

Senator Smallwood-Cuevas.

Question I had was why, given the need, especially in counties where we are trying to in cities trying to stay ahead of the encampment spread, why would the dollars be reverted back versus going out to support service delivery?

So when we administer funds, we can use up to 5% of those for state operations, the work that goes into application reviews and monitoring those projects. And typically, if we don't use all of that, we would return those state operations side to the general fund. I don't know if DOF wants to speak to, like, why it doesn't, why it works that way, but that that is that's the typical path.

Meagan Tokunaga Block, Department of Finance. We would just add that this round of funding has been fully exhausted at this point, and so there's no remaining dollars to be administered.

Okay. Thanks. I thought there was additional funds left over.

And so there are other round three and round four are still still out there.

Thank you.

Alright. We're gonna hold that item open and also say thank you and excuse our colleagues from the Department of Housing and Community Development and Finance. Thank you both very much.

And thank you for your thoughtfulness and time today.

All right. We're now going to return to agenda item five, which is the California Tax Credit Allocation Committee staffing and resources augmentation to support the response to recent federal Low Income Housing Tax Credit policy changes. And we'll do items five and six together.

Great. Thank you, Chair and Members. Marina Wiant. I'm the Executive Director of the Tax Credit Allocation Committee, also the Executive Director of the Debt Limit Allocation Committee as it relates to this as well.

So you heard from me briefly last month talking about the increase in our workload just as related to HR 1, and our swift implementation of the 25% test, which is allowing us to award double the number of projects that we have previously been able to.

So therefore I'm here today to request an addition of one supervisor 1 position and six analysts 2 positions in our development section to accommodate this increased workload. Just as an example, last year in round three, we awarded 10,000 more units than we had previously in the previous year.

And we just completed last week round one of our three rounds of 2026, where we awarded 75 projects, compared to 34 projects that were awarded last year. So this is real and tangible, and I thank you for your consideration. Additionally, for item six, we are requesting an additional manager 1 and two analyst 2 positions in our compliance section to accommodate an ongoing workload created by the operation of the program.

Our implementation of of the affordable housing preservation law and our work there as well as an expansion of duties as required by AB 846, which was chartered in 2024 related to setting rent caps in our program and the questions and related workload associated with that.

Thank you. Department of Finance, any comments?

Eric Thomas, Department of Finance. No additional comments. Open for questions.

Thank you. Legislative Analyst.

Carolyn Chu, Legislative Analyst Office. We would offer just a couple of questions as related to this proposal. While as noted under the changes in federal law, there's increased demand for the credits, the administration also has a sort of sister proposal in the California Debt Limit Allocation Committee to set aside a certain percentage of private activity bonds.

And we would offer to the legislature to ask TCAC the extent to which these two proposals may interact and affect workload in such a way as to mitigate the increased demand or increased workload, excuse me, not demand.

Alright. Well, why don't we ask TCAC the question that you just posed?

Great. Happy to address that. So, you know, the way our program operates, we've been already implementing a lot of streamlining strategies to help offset workload increase within TCAC and CDLAC, and we're moving to a single application review process. So currently or prior to this, CDLAC would do a review of an application and then pass it to TCAC to review an application, and we are integrating that.

The way the proposal the proposal by the administration around the reorg and the creation of the HDFC and a set aside within CDLAC wouldn't, while it would have some impact on our application reviews because our team would no longer be scoring applications, our team at CDLAC and TCAC would continue to be reviewing all those projects to meet federal requirements.

And our proposal was focused on adding staff to TCAC because TCAC can bear sort of that additional cost of workload compared to CDLAC. And so should there be a reduction of workload on the front end, TCAC has ongoing needs that come on the back end. Once a project has been completed, the projects get rereviewed by staff to ensure that the project has met the requirements at that they committed to at application.

And then the project moves into a compliance phase where our staff monitor compliance both physically and through the files. And so should there be a reduction in workload on the development side, we would be able to move that staff to the compliance side.

So then how do we, how can we be sure that TCAC, the payers into the TCAC fund, essentially, through the fees and whatever, are not are not are not subsidizing CDLAC inappropriately or the private activity bond program that the administration is proposing?

Right now, we charge fees independently. So CDLAC has their fees, and TCAC has their fees, and those have we made changes to that fee structure. And it's just that the workload at TCAC is larger and therefore more flexible. So I, yeah.

Finance, do you have any comments on on this on just the question of the assignment of the expenditures to the appropriate funds between both CDLAC and TCAC but also with the new private activity bond proposal?

Yes. We would just echo that both CDLAC and TCAC, right, currently independently offer these fees, and we would defer to the program staff as to how they would implement that going going into going forward.

And the private activity bond program is gonna, is funded administratively how?

We both programs are funded through application fees, and then reservation fees. So for CDLAC, for example, after a bond issuance, there is a fee that they pay that's a percentage of the bond issuance. And so with the increase of the over the reduction of the 25% test, while we're doing more volume at CDLAC, the cost is actually kind of going down on a per applicant rate.

If I mean, if we really want this housing though, I mean, why shouldn't you be waiving all the fees?

Yeah. I mean, I would say there's significant demand on our programs where people are happy to pay the fees.

Okay. All right. Then if there's no further questions, we're going to hold this item open. Thank you very much, both of the items. So now we'll proceed to item seven, the Governor's Office of Land Use and Climate Innovation.

And item seven is the statutory authority to charge fees for submission of CEQA documents, so I assume you're also not proposing to waive.

Good afternoon. Natalie Kuffel. I'm the Deputy Director of Land Policy in the State Clearinghouse at the Governor's Office of Land Use and Climate Innovation. As you stated, they May Revision, proposes statutory changes that would authorize the state clearinghouse to charge a fee on electronic submissions submitted, to the clearinghouse to support the cost of maintaining its technology platforms, which include CEQA Submit and CEQAnet.

By charging this small fee, we expect that we would be able to recover all of our annual administrative costs related to these systems, allow for the maintenance of a new database platform, which is expected to save time and reduce costs for all CEQA projects for all public agencies throughout the state that currently must use this technology when compliant with the existing law.

Happy to answer any questions.

Courtney Massengale, Department of Finance. Nothing to add, but open for questions.

Legislative Analyst Office.

Gökçe Sencan with the Legislative Analyst Office. As the department presented, the proposed trail bill language is asking for authorization for LCI to develop and charge a fee to maintain the State Clearinghouse. This is just for the maintenance of the database. No staff costs would be covered through this fee from our understanding. And the State Clearinghouse acts as the state's single point of contact for the environmental review process.

It hosts CEQA documents, and the Administrative Procedures Act will be used in the rule making process to give the opportunity, for public input into the fee levels. Our office recommends approval of this proposal. We find it appropriate that change charging users for the operation and maintenance costs is appropriate and consistent with the beneficiary PACE principle. Happy to answer any questions.

Yeah. So what is? I don't understand the basis of this fee or why we why we would claim that the local agencies are the beneficiary here. I mean, it is literally the State Clearinghouse mandated by state law. Users are not voluntary. They're required to submit under state law to achieve a state purpose.

We've developed the electronics submission system, not principally from a customer service perspective, but because it advances state purposes. So, what's the - on what basis do we believe that local agencies should be paying for the maintenance of our own clearinghouse?

Yeah. Happy to answer that. So, we do expect that it will benefit local agencies that assist with public noticing. It's not just the submission, but it's also access to the data that is contained within CEQAnet. So, with improvements to this technology, local agencies would able to streamline their CEQA process by figuring out, you know, if there's related precedents nearby, relevant studies, what's already known about that parcel, certain species, mitigation measures, which all should lead to efficiencies.

Well, sure. But I mean, the, you know, as taxpayers in California often ask why they have to pay for electronic payment options and what have you. And we say, well, you know, you're you're getting this convenience and it costs us money to operate the system. But the worst outcome would be if all taxpayers said, "You know what: because of the fee, we're just we're just gonna submit paper documents by mail."

You know, we're not gonna use the system that's supposedly for our benefit because it is actually the benefit the principal beneficiary is us and the government. I mean, we don't want, I mean, we don't want cities and counties and and the producers of environmental documents to to send, you know, 10,000 pages of paper documents. That's in our interest. I mean, it's not it's not a service that we're developing because we're trying to be responsive to the needs of of the the locals.

Like, we have mandated this, that they engage in this activity.

And now, and for our benefit, which we are we've made it digital and electronic and what have you, and for the public's benefit. But that's but the benefits to the submitting entities are ancillary in that whole we're the principal beneficiary in the maintenance of our own clearing house.

So, it just it I mean, it just seems odd that we would mandate people to do something that they wouldn't otherwise do in CEQA, and require that they do it under entirely under our terms and then digitize it for ourselves and then require that a fee be charged.

So, I mean, I understand the I mean, the reason: we want we want we want the cash, but it just feels - I just don't see the bait the the legitimate governance governance basis for why, you know, San Bernardino County should be paying us a fee for this for this purpose other than we think despite HR 1 that they have money, to spare when we don't.

So, I will say, Senator, when we used a mailing system, which we did before it moved to electronic, local agencies would have to submit 15 copies of what they wanted us to distribute then to the relevant state agencies, which was incredibly expensive. You can imagine mailing 15 copies of a draft environmental impact report to Sacramento. And then we would have to turn around and then send those to the state agencies that have to review it in order for their CEQA process to proceed.

Sometimes that meant sending it back to a field office down, in rural San Diego County. They would get it, you know, five days before the comment period ended, then we'd have to submit that comment letter, back to the public agency.