California lacks a sound, well-coordinated plan for how to most effectively use its financial resources to support affordable housing, according to a new report from the state auditor.
“California is failing to build enough affordable homes for lower-income residents in part because the state lacks an effective approach to planning and financing development of affordable housing at both the state and local levels,” says Elaine M. Howle, state auditor, in the report. “For example, the state does not have a clear plan describing how or where its billions of dollars for housing will have the most impact. In fact, the absence of a comprehensive and coordinated plan allowed the Debt Limit Committee to mismanage and ultimately to lose $2.7 billion in bond resources with little scrutiny, a loss that the committee failed to publicly disclose and struggled to explain. These bond resources could have helped support the construction of more affordable housing.”
The findings come at a time when 3 million renter households are cost burdened, meaning they are spending more than 30% of their income on housing costs. About 1.6 million renter households are severely cost burdened, paying more than half of their income on housing.
The review focused on financing from four key state agencies—the California Department of Housing and Community Development (HCD), the California Housing Finance Agency, the California Tax Credit Allocation Committee (CTCAC), and the California Debt Limit Allocation Committee (CDLAC).
“The state’s lack of a coordinated housing plan is also evident in the four agencies’ misaligned and inconsistent requirements for the affordable housing programs they administer. The resulting approval process for the programs’ financial resources is cumbersome for developers who need state resources to support their projects,” says the report.
Because developers often use multiple sources of funding for their developments to be financially feasible, the misaligned requirements can slow development and increase project costs. “In addition, the Tax Committee’s and Debt Limit Committee’s review processes for projects are redundant in several respects because the committees review most of the same projects, contributing to our recommendation to streamline the funding process and consolidate these two committees,” the report says.
State law designates TCAC to award housing tax credits and CDLAC to allocate the tax-exempt bond resources. However, they often make awards to the same projects.
The auditor says the state Legislature should:
• Eliminate the CDLAC and transfer its authority to CTCAC to manage tax-exempt bonds, including its responsibilities for reviewing applications and allocating bond resources;
• Require HCD to prepare an annual addendum to the state’s housing plan that identifies all of the financial resources the state possesses for the development of affordable housing, the number of affordable units those resources are expected to help build, the amount the state will need to obtain from other sources, where the state’s resources will have the most impact, and outcomes to measure the success of its investments;
• Create an interagency workgroup to develop consistent program requirements for awarding financing resources to multifamily housing projects to maximize affordable housing built and remove administrative barriers;
• Strengthen existing standards for mitigating barriers on potential affordable housing sites to ensure that local jurisdictions conduct streamlined reviews and do not unduly restrict the number of units developers can build on each site; and
• Create an appeals process for developers to resolve disputes over eligible affordable housing projects in a timely and fair manner.
The report says the lack of an effective plan has allowed at least one instance of “mismanagement of available resources to occur with little scrutiny.”
The auditor says it found that CDLAC let roughly $2.7 billion in bond resources expire from 2015 to 2017.
“These bond resources could have helped finance thousands of units of affordable housing and potentially made an additional $1 billion in total tax credits available for that purpose, since those tax credits are contingent on a bond allocation,” says the report. “Despite the magnitude of this mismanagement, the Debt Limit Committee did not disclose the $2.7 billion loss in its public meeting minutes and corresponding documents, and during our audit, committee staff struggled to identify and explain the extent and cause of the loss.”
The expired $2.7 billion was part of the $3.5 billion the agency allocated as lump sums to the California Pollution Control Financing Authority from 2012 through 2014 (expiring in 2015 through 2017, respectively). Because Pollution Control used only $800 million of the $3.5 billion within three years, the remaining resources expired and were no longer available for any purpose, according to the report.
The state Treasurer’s Office, which oversees CDLAC and CTCAC, notes in a letter that the executive director of CDLAC and Pollution Control during that time are no longer with the agencies, and the current treasurer Fiona Ma took office in 2019.
It also says that CDLAC has recently developed a new carryforward policy to utilize the state’s volume cap.
The auditor’s recent assessment also says the state’s affordable housing shortage is also attributable to barriers created by local jurisdictions, such as the restrictions on the number of units developers can build or lengthy processes for approving projects.
“Each local jurisdiction is responsible for planning to accommodate a designated portion of the state’s needed affordable housing units; state law requires jurisdictions to adopt what are called housing elements (local housing plans) that identify sites suitable to accommodate these units, and also requires them to include actions to mitigate potential barriers to development,” says the report. “However, state law does not currently ensure that local jurisdictions actually mitigate such barriers.”
The recent study found that as of June 2019, local jurisdictions had collectively reported issuing building permits for only 11% of the affordable housing units in their current housing plans.