The 2022-23 Budget: The Governor's Housing Plan

2022-23 BUDGET The 2022-23 Budget: The Governor’s Housing Plan Summary Housing Affordability Is a Serious and Widespread Challenge in California. Californians spend a larger share of their income on rent than households in the rest of the nation at every income quartile. Households with the lowest income face the highest cost pressures. Building Less Housing Than People Demand Drives High Housing Costs. While many factors have a role in driving California’s high housing costs, the most important is the significant shortage of housing, particularly within urban coastal communities. Recent Housing-Related Spending. Recent budget actions reflect the increased role of the state in helping spur housing development. The state budget provided nearly $5 billion in 2021-22 for housing-related programs. Legislature Has Adopted Major Housing Legislation. While fiscal actions to address affordability are one critical element of addressing California’s housing challenges, perhaps more important are policy solutions pursued by the Legislature to increase the supply of housing, which can address housing affordability. In recent years, legislation has continued to make headway in helping to facilitate housing development in the state. Housing Budget Package. The Governor’s 2022-23 budget proposes $2 billion General Fund one time for several major housing proposals, largely reflecting expansions of existing programs. LAO Comments. We raise the following issues for the Legislature’s consideration. • We suggest the Legislature devote attention to overseeing recent augmentations. • The Governor’s interest in aligning housing and climate goals is meritorious, but more concerted efforts will be necessary over the long term to build new, and protect existing, housing from the impacts of climate change. • Assess how the Governor’s housing package moves the state towards meeting goals set out in recent policy changes. • Consider evaluating distribution of housing development to ensure equitable support. • The state’s capacity to fully utilize proposed funding is unclear. • Consider the state’s long-term fiscal strategy in addressing housing development and affordability. • When crafting a housing package, consider the state appropriations limit. • For any authorized funds, set clear expectations and establish metrics to assess performance. GABRIEL PETEK | LEGISLATIVE ANALYST FEBRUARY 2022 www.lao.ca.gov 1 2022-23 BUDGET BACKGROUND Housing Affordability Is a Serious and climate change will affect demand for housing in Widespread Challenge in California. Californians certain communities. For example, wildfire risk or spend a larger share of their income on rent seal-level rise may decrease demand for housing than households in the rest of the nation at in some communities and push demand elsewhere. every income quartile. Households with the Today, an average California home costs 2.3 times lowest income face the highest cost pressures. the national average. California’s average monthly In California, around 2.5 million low-income rent is about 50 percent higher than the rest of households are cost burdened (spending more the country. Though the exact number of new than 30 percent of their incomes on housing). housing units California needs to build to address Over 1.5 million low-income renters face even more housing affordability is uncertain, the state would dire cost pressures—spending more than half of need to annually build roughly twice as much their income on housing. Housing affordability housing as it does today so that housing costs in challenges even middle-income households. California increase at the same rate as housing About 900,000 households at or above the costs nationally. California median income (households earning Actions to Address Affordability. Historically, above $80,000 annually) in the state are cost federal, state, and local governments have burdened (representing 15 percent of households). implemented a variety of programs aimed at helping High housing costs drive California’s official Californians, particularly low-income Californians, poverty rate from 11 percent (about the national afford housing. These programs generally work average) to 15 percent (only the District of Columbia in one of three ways: (1) increasing the supply of has a higher rate) under the Census Bureau’s moderately priced housing, (2) paying a portion Supplemental Poverty Measure, which considers of households’ rent costs, or (3) limiting the food, clothing, shelter, and utilities. Additionally, prices and rents property owners may charge housing prices have increased rapidly during the for housing. As the housing affordability crisis COVID-19 pandemic. While we do not know what has become more acute over time, the state has effect the pandemic will have on housing in the long significantly increased its fiscal role by largely term, we know the pandemic has made the housing expanding existing programs and establishing problem more acute in the near term. some new programs that help subsidize housing Building Less Housing Than People Demand development at the local level. While affordable Drives High Housing Costs. While many factors housing programs are important, these programs have a role in driving California’s high housing help only a small fraction of the Californians that costs, the most important is the significant are struggling to cope with the state’s high housing shortage of housing, particularly within urban costs. Expanding existing housing programs to coastal communities. A shortage of housing fully address needs would require a significant along California’s coast means households expansion of existing state programs and wishing to live there compete for limited housing. necessitate funding increases orders of magnitude This competition increases home prices and larger than existing program funding. rents. Some people who find California’s coast Legislature Has Adopted Major Housing unaffordable turn instead to California’s inland Legislation. While fiscal actions to address communities, causing prices there to rise as well. affordability are one critical element of addressing This dynamic can result in longer commutes, which California’s housing challenges, perhaps more in turn can contribute to increased greenhouse gas important are policy solutions pursued by the (GHG) emissions and climate change. Moreover, Legislature to increase the supply of housing, which because some degree of climate change already can address housing affordability. In 2017, the is occurring and more changes are inevitable, Legislature passed a package of 15 bills aimed at 2 LEGISLATIVE ANALYST’S OFFICE 2022-23 BUDGET addressing the high cost of housing in California, Recent Housing-Related Spending. Recent including streamlining approval processes, budget actions reflect the increased role of the state creating and preserving affordable housing, and in helping spur housing development. Figure 1 strengthening accountability and enforcement summarizes major recent housing spending actions. of housing laws. In subsequent years, additional Summary of Major Housing Proposals. legislation has continued to make headway in The Governor’s 2022-23 budget proposes $2 billion helping to facilitate housing development in the General Fund one time for several major housing state. Most recently, in the 2021 legislative session, proposals, largely reflecting expansions of existing the Governor signed over 30 bills related to programs. Figure 2 on the next page provides an streamlining home building, addressing barriers to overview of the housing budget proposals. building affordable housing, addressing systemic Below, we provide an update on some major bias by elevating fair housing principles, and recent state budget actions related to housing, strengthening local government accountability. describe the Governor’s budget proposals, and raise issues for the Legislature’s consideration. Figure 1 Major Recent State Housing Spending (In Millions) Program Amounta Funding Type State Administrator 2019-20 State Low Income Housing Tax Credits $500 One-time CTCAC Mixed-Income Program 200 Temporary CalHFA Infill Infrastructure Grant Program 300 One-time HCD Planning Grants to Local Governments 250 One-time HCD Total $1,250 2020-21 State Low Income Housing Tax Credits $500 One-time CTCAC National Mortgage Settlement 331 One-time CalHFA, Judicial Branch Mixed-Income Program 50 Temporary CalHFA Total $881 2021-22 Affordable Housing Backlog $1,750 One-time HCD Regional Planning Grants 600 One-time HCD State Low Income Housing Tax Credits 500 One-time CTCAC Foreclosure Prevention and Preservation Program 500 One-time HCD Student Housing and Campus Expansion 500 Temporaryb CCC, CSU, UC Affordable Housing Preservation 300 One-time HCD Infill Infrastructure Grant Programc 250 One-time HCD Homebuyer Assistance 100 One-time CalHFA Accessory Dwelling Unit Financing 81 One-time CalHFA Farmworker Housing 50 One-time HCD Golden State Acquisition Fund 50 One-time HCD Mixed-Income Program 45 One-time CalHFA Scaling Excess Lands Development 45 One-time HCD Legal Assistance for Renters 40 Temporaryd Judicial Branch Total $4,811 a All fund sources. b The budget also authorized $750 million in 2022-23 and $750 million in 2023-24 for student housing and campus extension. c The budget also reallocates $284 million in remaining Proposition 1 (2018) funds for the Infill Infrastructure Grant Program. d The budget also authorized $20 million in 2022-23 and $20 million in 2023-24 for legal assistance for renters. CTCAC = California Tax Credit Allocation Committee; CalHFA = California Housing and Finance Agency; and HCD = Housing and Community Development. www.lao.ca.gov 3 2022-23 BUDGET Figure 2 Major 2022-23 Housing Budget Proposals (In Millions) Fund State Proposal 2022-23 2023-24 Source Administrator Housing Development Infill Infrastructure Grant Program $225 $275 General Fund HCD Affordable Housing and Sustainable Communities Program 75 225 General Fund HCD State Excess Sites 25 75 General Fund HCD Adaptive Reuse 50 50 General Fund HCD Affordable Housing State Low Income Housing Tax Credits $500 — General Fund CTCAC Mixed-Income Program 50 $150 General Fund CalHFA Portfolio Reinvestment Program 50 150 General Fund HCD Mobilehome Park Rehabilitation and Resident Ownership Program 25 75 General Fund HCD HCD = Housing and Community Development; CTCAC = California Tax Credit Allocation Committee; and CalHFA = California Housing and Finance Agency. HOUSING DEVELOPMENT Governor’s Housing Development Package that assesses project readiness, affordability, Primarily Expands Existing Programs. density, access to transit, proximity to amenities, The Governor proposes $1 billion in one-time and consistency with regional plans. Originally, General Fund over two years to expand housing bond funding was provided for the program through development. The administration notes a climate the Housing and Emergency Shelter Trust Fund benefit of these proposals primarily because Act of 2006 (Proposition 1C) and the Veterans and these programs support more dense housing Affordable Housing Bond Act of 2018 (Proposition 1). development, thereby reducing vehicle miles Recent Budget Actions Allocated General traveled (VMT) and GHG emissions. Fund for IIG Program. More recently, the state provided the program General Fund resources. INFILL INFRASTRUCTURE Specifically, the 2019-20 budget provided GRANT PROGRAM $300 million General Fund for the IIG Program. The allocation included a $90 million set aside for Background small jurisdictions—counties with populations under Infill Infrastructure Grant (IIG) Program. The IIG 250,000 and the cities located within those counties. Program was created in 2007 within the Department The 2021-22 budget provided HCD $250 million of Housing and Community Development (HCD) to one-time General Fund and maintained the provide funding for infrastructure improvements that $90 million set aside for small jurisdictions. support higher-density affordable and mixed-income Update on IIG Program Spending. The funding housing in locations designated as infill. Under provided in 2019-20 has been fully allocated. The the program, developers and local entities can funding for large jurisdictions was oversubscribed partner to apply for infrastructure funding, including by $112 million, while the small jurisdiction the development or rehabilitation of parks or allocation was oversubscribed by $6 million. Among open space; water, sewer, or other utility service large jurisdictions, just over half of available funding improvements; streets; roads; sidewalks; and was allocated to projects in Northern California, environmental remediation. The funding generally is about 45 percent to Southern California, and available through a competitive application process 2 percent to Central California. Small jurisdictions 4 LEGISLATIVE ANALYST’S OFFICE 2022-23 BUDGET in Central California received a significantly • Anticipated Outcomes. HCD estimates higher proportion of the small jurisdiction set this funding would support approximately aside—28 percent, while Northern California 108 new projects and support the creation received 60 percent and Southern California of 13,000 housing units. received 11 percent. The Notice for Funding • Implementation Plan. For the 2022-23 Availability (NOFA) for the remaining Proposition 1 augmentation, HCD anticipates releasing funding is expected in March 2022, while the the NOFA in January 2023 and announcing NOFA for the 2021-22 General Fund appropriation awards in June 2023. For the 2023-24 is expected in April 2022. Figure 3 provides an augmentation, HCD anticipates releasing update on IIG Program spending since the program the NOFA in January 2024 and announcing was first established. awards in June 2024. Governor’s 2022-23 Budget Proposal AFFORDABLE HOUSING AND Augments Funding for IIG Program. SUSTAINABLE COMMUNITIES The budget proposes $225 million General Fund in 2022-23, and $275 million in 2023-24, for the IIG PROGRAM Program focused on development in infill areas and locations that facilitate a reduction in VMTs. Unlike Background the other recent General Fund augmentations for Affordable Housing and Sustainable IIG, this proposal does not specify a set aside Communities (AHSC) Program. Administered by for small jurisdictions. However, the department the Strategic Growth Council and implemented by would have the authority to identify a percentage of HCD, the AHSC Program funds land-use, housing, funds in the NOFA targeted to small jurisdictions. transportation, and land preservation projects to Additionally, proposed budget-related legislation support infill and dense development that reduces is intended to facilitate program administration. GHG emissions. Therefore, the AHSC Program Some existing program rules, such as the definition not only provides funding for the development of a qualifying infill area, vary between the IIG of affordable housing, it also supports activities Program of 2007, which apply to the bond-funded that allow residents to more easily move in their portions of the program and the IIG Program of community. For example, by supporting dedicated 2019, which apply to the General Fund portions of bus lanes or establishing a bike share program. the program. The proposed legislation is intended Funding for the AHSC Program is provided from to bring alignment and consistency to the program the Greenhouse Gas Reduction Fund (GGRF), requirements—making more projects in small an account established to receive cap-and-trade jurisdictions eligible. Finally, the program would set auction proceeds. While factors inherent in the aside up to 5 percent of the proposed augmentation cap-and-trade market means there is significant for state operations. Figure 3 Infill Infrastructure Grant Program Spending (Dollars in Millions) Remaining Next Funding Awarded Units Fund Source Total Funding Release Projects Created Proposition 1C (2006) $850 — N/A 178 24,000 Proposition 1 (2018) 300 $140 March 2022 34a 4,300 General Fund (2019-20) 300b — N/A 60 6,800 General Fund (2021-22) 250c 250 April 2022 N/A N/A a Based on a partial release of available funding. b $90 million set aside for small jurisdictions. c $90 million set aside for small jurisdictions. www.lao.ca.gov 5 2022-23 BUDGET volatility in annual GGRF revenue, AHSC generally STATE EXCESS SITES receives 20 percent of the proceeds. Figure 4 shows how GGRF revenue allocated towards the Background AHSC program has changed over time. Building Affordable Housing on Excess State Update on AHSC Program Spending. In all, Property. In 2019-20, the Governor issued an the AHSC Program has allocated nearly $2.5 billion executive order directing the state to identify excess GGRF over six rounds of funding through state properties that are suitable for affordable and 2020-21 and has contributed to the creation of mixed-income housing development. Ultimately, 16,400 housing units. Across all six rounds, the the Governor aimed to solicit affordable housing projects are estimated to reduce pollutants in the developers to build demonstration projects on excess air equivalent to getting about 90,000 cars off the state property that use creative and streamlined road for one year. Typically, the program releases a approaches to building (for example, using modular NOFA in October of each year—once proceeds from construction). The administration indicated that this that year’s cap-and-trade auctions are known— approach was likely to produce housing units more applications are accepted through February of each quickly and cost-efficiently than traditional projects year and awards are announced annually in June. because housing developers would not need up-front capital to purchase the land and would not need to Governor’s 2022-23 Budget Proposal wait for local review processes. Proposes General Fund for AHSC Program. However, in exploring the feasibility of affordable The budget proposes $75 million General Fund in housing development on state excess sites, HCD and 2022-23, and $225 million in 2023-24, to support the Department of General Services (DGS) indicate land-use, housing, transportation, and land they encountered two recurring problems: (1) lack of preservation projects for infill and more compact funding for environmental assessment and cleanup development that reduces GHG emissions. and (2) lack of financing for affordable housing The continuous appropriation from GGRF for development. The 2021-22 budget provided HCD the AHSC Program would not be affected by $45 million one-time American Rescue Plan (ARP) this proposal. Act fiscal relief funds to expand the state excess sites • Anticipated Outcomes. program with funding for brownfield remediation, and HCD estimates that this funding would incentivize the creation Figure 4 of 1,600 housing units through GGRF Revenue for AHSC Program Over Time projects completed as a result of (In Millions) this proposal—400 housing units due to the 2022-23 funding and 1,200 housing units due to the $700 2023-24 funding. 600 • Implementation Plan. For the 500 2022-23 augmentation, HCD 400 anticipates releasing the NOFA in October 2022 and announcing 300 awards in June 2023. HCD 200 anticipates the same schedule 100 for the 2023-24 augmentation. 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21 2021-22a a Estimated revenue. GGRF = Greenhouse Gas Reduction Fund and AHSC = Affordable Housing and Sustainable Communities. 6 LEGISLATIVE ANALYST’S OFFICE 2022-23 BUDGET budget-related legislation to expand the state excess a new adaptive reuse incentive grant program. sites program with local government matching grants Adaptive reuse is the process of adapting and that aim to incentivize further affordable housing rehabilitating unutilized or under-utilized, generally development on excess lands. commercial, buildings for housing. Adaptively Update on State Excess Sites Program. repurposing these buildings can entail obstacles The state’s review of excess properties has resulted that can make it difficult for developers to offer the in a dynamic list of sites that are suitable for housing at affordable rents. For example, (1) these development. So far, 18 sites have been authorized types of buildings were built to different code to move forward with development and between requirements and must be updated to residential 3,800 and 4,500 units of housing are anticipated building codes; (2) older buildings may need on these properties. Additionally, 5 to 10 more sites updating to meet seismic standards for residential are expected to move forward with development occupancies, as well as remediating materials that in the current year. Currently, HCD and DGS have pose environmental hazards, such as asbestos identified 125 sites that are suitable and available for and lead-based paint; and (3) converting interior development across the state. HCD plans to release spaces of large office buildings or warehouses may the NOFA for $30 million (of the $45 million provided be challenging since these areas are not adjacent in 2021-22) in March 2022 and anticipates making to windows. According to the administration, the awards to facilitate excess site development in program would prioritize projects located in infill June 2022. HCD transferred the remaining $15 million and low-VMT areas. The administration recently has to DGS through an architectural revolving fund in proposed budget-related legislation to implement September 2021 for the investigation and remediation this proposal, we are reviewing the language. of environmental conditions on excess sites. • Anticipated Outcomes. HCD estimates that the funding would be awarded to 20 projects Governor’s 2022-23 Budget Proposal and incentivize the creation of 1,460 to 1,960 Augments Funding for State Excess Sites housing units in total. Program. The budget proposes $25 million • Implementation Plan. For the 2022-23 General Fund in 2022-23, and $75 million in 2023-24, augmentation, HCD plans to offer the to expand affordable housing and adaptive reuse funding in conjunction with the upcoming opportunities on state excess land sites. Recently October 2022 AHSC Program NOFA, as this released budget-related legislation would provide is the department’s next planned release of additional details about the proposal. We continue to funding. HCD indicates a strong interest in review the legislation. moving quickly in order to take advantage • Anticipated Outcomes. HCD has not of opportunities created by commercial quantified the increase in affordable housing property vacancies due to the COVID-19 supply this proposal could generate. pandemic. Awards would be anticipated in • Implementation Plan. HCD has not identified the fourth quarter of 2022-23. If funds were dates for key milestones associated with this not fully awarded, HCD would release the proposal but notes general activities they would remaining funds concurrent with the 2022-23 undertake, such as continued collaboration “SuperNOFA,” with awards anticipated for with DGS and technical assistance to local spring 2023. For the 2023-24 augmentation, entities to ensure excess sites are ready for HCD plans to offer the funding in a similar housing development. matter—in conjunction with the October 2023 AHSC NOFA and, if funds remained, in the spring SuperNOFA. Awards would be ADAPTIVE REUSE anticipated in late 2023-24 for AHSC and early Governor’s 2022-23 Budget Proposal in the 2024-25 for the SuperNOFA. Establishes New, Temporary Adaptive Reuse Program. The budget proposes $50 million General Fund in 2022-23, and $50 million in 2023-24, for www.lao.ca.gov 7 2022-23 BUDGET AFFORDABLE HOUSING Affordable Housing Package Primarily Governor’s 2022-23 Budget Proposal Expands Existing State Programs. The Governor Continues One-Time Expansion of State proposes $1 billion in one-time General Fund Low Income Housing Tax Credits. In addition over the next several years for affordable to the $100 million annually that the state makes housing development. available for housing tax credits, the Governor’s budget proposes $500 million for tax credits to STATE LOW INCOME builders of rental housing affordable to low-income HOUSING TAX CREDITS households. This would be the fourth consecutive year in which the Governor has proposed a Background one-time expansion of the state’s housing tax State Low-Income Housing Tax Credit credit, for a total of $2 billion in tax credits. As with Program. The state Low-Income Housing Tax the prior expansions, up to $200 million would be Credit Program provides tax credits to builders available for the development of mixed-income of rental housing affordable to low-income housing projects. households. The program was created to promote private investment in affordable housing MIXED-INCOME HOUSING for low-income Californians. The California Tax Credit Allocation Committee (CTCAC) administers Background the federal and state Low-Income Housing Tax Mixed-Income Program (MIP). Administered Credit Programs. The state has historically made by the California Housing and Finance Agency about $100 million available annually for this (CalHFA), MIP provides loans to developers for purpose. Since 2019-20 the budget has authorized new mixed-income rental housing development. consecutive $500 million one-time expansions of Specifically, these developments serve renters with the state Low-Income Housing Tax Credit Program. incomes between 30 percent and 80 percent of This additional tax expenditure brings total credits the Area Median Income (AMI), with an option to to $1.5 billion across the past three years. Each serve renters with incomes up to 120 percent of of these one-time expansions of the program AMI. The program was established in 2019 after have made up to $200 million available for the Chapter 91 of 2017 (SB 2, Atkins) established an development of mixed-income housing. annual appropriation to CalHFA for the purpose Update on State Low-Income Housing of creating mixed-income multifamily residential Tax Credit Program. CTCAC received housing for lower- to moderate-income households. 110 applications for the tax credits authorized To fund these efforts, CalHFA receives 15 percent by the 2019-20 budget. All of the 2019-20 tax of SB 2 funds. CalHFA expects to have a total of credits have been allocated. Of the 72 projects $65 million available for MIP in 2022. In addition that received tax credits, 18 projects shared the to the continuous appropriation from SB 2, recent $200 million set aside for mixed-income housing. budget actions have authorized General Fund Collectively, these tax credits have resulted in augmentations for the program. While the 2019-20 the new construction of 6,550 low-income units. budget provided MIP $500 million General Fund The 2021 annual report, which would provide over four years, subsequent budget reversions details on the tax credits authorized by the 2020-21 associated with the COVID-19 pandemic made budget, is not yet available. only $250 million available to the program over two years. The 2021-22 budget provided $45 million one-time General Fund for MIP. Figure 5 depicts how SB 2 revenues for MIP have changed over time. 8 LEGISLATIVE ANALYST’S OFFICE 2022-23 BUDGET Update on MIP. The $300 million in funding Governor’s 2022-23 Budget Proposal awarded to date—$128 million SB 2 funding and Expands and Augments Funding for Portfolio $172 million General Fund—has contributed to the Reinvestment Program. The budget proposes creation of 5,500 housing units. $50 million General Fund in 2022-23, and $150 million in 2023-24, to preserve targeted units Governor’s 2022-23 Budget Proposal in infill and low-VMT areas and continue bolstering Augments Funding for MIP. In addition to the state’s affordable housing stock. Budget related the $65 million available for MIP in 2022 through legislation would preserve affordable HCD-funded SB 2 revenue, the budget proposes an additional multifamily rental projects at risk of converting $50 million General Fund in 2022-23, and to market-rate within the next ten years, beyond $150 million in 2023-24, for MIP. Up to 5 percent the five years authorized for the 2021-22 funding. of this funding could be used for state operations Funds would be used for rehabilitation, including by CalHFA. upgrading systems to promote energy efficiency • Anticipated Outcomes. CalHFA anticipates and reduce GHG emissions, operating cost the proposal would support the development assistance, and recapitalizing project reserves. of 5,000 additional housing units. Projects that receive this funding would have to • Implementation Plan. CalHFA’s budget recommit to remaining affordable. proposal does not identify dates for key • Anticipated Outcomes. HCD anticipates milestones associated with awarding preserving between 570 and 800 affordable this funding. housing units. • Implementation Plan. HCD anticipates PORTFOLIO releasing the NOFA in 2022-23 and awarding REINVESTMENT PROGRAM funds in 2023-24. Background Portfolio Reinvestment Program. The 2021-22 Figure 5 budget provided HCD $300 million one-time SB 2 Revenue for MIP Over Time ARP fiscal relief funds for capital improvements to (In Millions) affordable housing developments with affordability covenants that are due to expire within five years— $100 December 2026. These housing units would transition to market-rate housing if the covenants 80 expire. As a result, the funding is intended to preserve the state’s affordable housing stock 60 because projects that receive this funding are required to recommit to affordability covenants. 40 This newly created program was intended to provide the department the flexibility necessary to 20 maintain the supply and quality of the affordable rental housing units for which there has already 2019a 2020 2021 2022a been a significant public investment. Update on Portfolio Reinvestment Program a Partial year revenue. MIP = Mixed-Income Program. Spending. HCD has completed program design and intends to issue the NOFA in March 2022, with awards starting October 2022. www.lao.ca.gov 9 2022-23 BUDGET MOBILEHOME PARK in 2022-23, and $75 million in 2023-24, to finance preservation and conversion of affordable mobile REHABILITATION AND RESIDENT home parks. Recently introduced budget-related OWNERSHIP PROGRAM legislation would change the MPRROP name to the Manufactured Housing Opportunity and Revitalization Background (MORE) Program and expand its authority to provide Mobilehome Park Rehabilitation and Resident funding to support climate goals and conditions in Ownership Program (MPRROP). The program mobilehomes and mobilehome parks. We continue helps to preserve affordable mobilehome parks to review the legislation. by offering loans (1) so a resident organization, • Anticipated Outcomes. The budget proposal nonprofit entity, or local public agency can indicates that under a possible funding purchase (convert) a mobilehome park; (2) for structure, 40 percent of funds could support rehabilitation or relocation of a purchased park; park infrastructure and clean-up, 35 percent and (3) so low-income residents can purchase a could support repairs and replacements of share or space in a converted park or to pay for the manufactured homes, 20 percent could support cost to repair low-income residents’ mobilehomes. park acquisition and conversion, and 5 percent MPRROP was established in 1984 and is funded could support program administration. through a registration fee on some manufactured The administration does not commit to this homes and loan repayments from prior loans. specific breakdown. All manufactured homes sold new on or after July 1, 1980 pay local property tax and are not • Implementation Plan. HCD anticipates subject to the annual fee. Therefore, over time, developing guidelines by January 2023 and the number of manufactured homes registered releasing the NOFA in May 2023. Applications annually have declined. There are currently would be evaluated as they are received. 208,700 mobilehomes and manufactured homes Depending on when applications were received, subject to annual registration. HCD does not have a awards could be announced as soon as projection on the rate of reduction. As mobilehomes July 2023 and would continue on a flow basis are installed on foundation systems and until the open application period ends or the mobilehome owners convert to property taxes, amount available has been awarded, whichever the amount of funding available diminishes each occurs first. year. The budget does not propose changes to this fee revenue Figure 6 sources. Figure 6 depicts how MPRROP revenues have changed MPRROP Revenue Over Time over time. (In Millions) Update on MPRROP Spending. The most recent MPRROP NOFA $7 announced the availability of 6 approximately $34 million to award. 5 Since its inception, MPRROP has awarded approximately $70 million, 4 supporting approximately 3 70 mobilehome parks. 2 1 Governor’s 2022-23 Budget Proposal 2016-17 2017-18 2018-19 2019-20 2020-21 2021-22a Expands and Proposes General a Estimated revenue. Fund for MPRROP. The budget MPRROP = Mobilehome Park Rehabilitation and Resident Ownership Program. proposes $25 million General Fund 10 LEGISLATIVE ANALYST’S OFFICE 2022-23 BUDGET LAO COMMENTS OVERALL HOUSING COMMENTS state is strategic in building new housing. While increased housing development is of foremost Devote Attention to Overseeing Recent importance to address the state’s housing Augmentations. We suggest the Legislature affordability challenges, increased focus on where dedicate the early part of the budget process housing is built will be necessary to mitigate to overseeing the implementation of last year’s and adapt to the current and growing impacts of significant augmentations. In our examination of climate change. Many of the Governor’s budget recent investments, described above, we have proposals would support more dense housing learned about the status of funding disbursements, development—near jobs, schools, and other when unawarded funds are anticipated to be community amenities—that can be accessed with released, and have an initial understanding about public transportation, reducing dependence on the number of housing units that may be created vehicles, and limiting GHG emissions. In addition through recent augmentations. However, there is to helping to mitigating climate change, some of more to learn as the Legislature conducts oversight these proposals would help the state respond to of these programs, assesses their performance, the current impacts of climate change. For example, and identifies opportunities to improve their the proposed MPRROP funding could support operation. For instance, (1) what were the weatherization activities to make manufactured challenges and successes in standing up some of homes more resilient to the impacts of extreme the newer programs, such as the State Excess Sites heat. These are meritorious goals, but additional Program and the Portfolio Reinvestment Program; action is needed over the long term to build new, (2) what are the demonstrated program successes and protect existing, housing from the impacts of and/or are there opportunities for improving these climate change. programs; (3) are there capacity constraints that Assess How Governor’s Housing Package are limiting the effectiveness of these programs; Moves State Forward Towards Addressing (4) where are resources being allocated and for Housing Goals. Collectively, the Governor’s what purposes; (5) when will housing units start to housing proposals would help build more housing come on line; and (6) are state, local, and regional across the state, however, precisely how much entities coordinating effectively? Prior to authorizing and where is unclear. For each component of increased funding for the activities proposed in the Governor’s housing proposal, we suggest the 2022-23 budget, ensuring that the housing the Legislature engage the administration in a efforts authorized in prior budgets are operating discussion of the (1) allocation process, (2) eligible effectively will be important. Ultimately, assessing activities and program guidelines, and (3) expected the performance of current programs and taking housing production achievements. Another element stock of how prior actions collectively have moved to consider is the extent to which the proposed forward the state’s housing response could inform augmentations align with the recent land use and the Legislature’s budget decisions in 2022-23. housing policy changes the state has enacted. Governor’s Interest in Aligning Housing and Recent policy changes made by the Legislature Climate Goals Meritorious, More Concerted could have significant impact over time. Are there Efforts Necessary to Achieve Alignment. ways in which budget actions could help ensure As has been the case in recent years, the their success, as well as better support local Governor’s budget continues to acknowledge the planning efforts? For example, now that the state significant need for additional housing in the state has streamlined the process for homeowner to and proposes programs that support housing create a duplex and/or subdivide their property, development. At the same time, the 2022-23 should the state provide incentives for people to housing package reflects a secondary benefit leverage this legal flexibility? related to meeting climate change goals when the www.lao.ca.gov 11 2022-23 BUDGET Consider Evaluating Distribution of Housing State Appropriations Limit (SAL) Development to Ensure Equitable Support. Considerations. The SAL constrains how the Beyond the general benefits of greater housing Legislature can spend revenues that exceed a supply, there also are benefits from targeting specific threshold. Given recent revenue growth, housing resources to ensure equitable support. the SAL has become an important consideration While households across the state face housing in the state budget process and will continue affordability challenges, some regions of the state to constrain the Legislature’s choices in this have a more acute housing crisis. Furthermore, some year’s budget process. However, certain types communities, have faced historical inequities that of spending, like some funding for capital outlay, make it more difficult for them to access housing are excluded from this limit. Some prior housing that is both affordable and suits their needs. The funding—such as General Fund spending on IIG— Legislature may wish to consider how to target has met the SAL definition of capital outlay and has resources to support housing development in been excluded from the limit. As the Legislature locations, and among communities, most in need of crafts its housing package, allocating funding to additional affordable housing. To help the Legislature housing programs excluded from the SAL could inform this assessment, the Legislature could allow the state to allocate more funds to those assess if there are inequities is how funds have been programs than it otherwise could. disbursed and consider solutions, such as geographic For Any Authorized Funds, Set Clear set asides, to address any issues identified. Expectations and Establish Metrics to Assess State’s Capacity to Fully Utilize Proposed Performance. We recommend the Legislature Funding Unclear. In many cases, the proposed consider how the state would coordinate work funding is many orders of magnitude above what related to these proposals across programs and has been provided previously for programs. While departments. Setting clear expectations through directing augmentations to existing programs helps to statute and establishing reporting requirements to expedite release of funding compared to establishing facilitate oversight over the state’s progress towards new programs, do these existing programs have addressing the housing crisis will be critical. capacity to absorb the proposed funding? The state’s ability to spend the major augmentations within the PROPOSAL SPECIFIC COMMENTS proposed time lines is unclear. Affordable Housing and Sustainable Consider Longer-Term Plan for Expanded State Role in Housing. The scale of the housing crisis in Communities Program California is significant. Addressing this crisis requires Volatile GGRF Revenue Makes Predicting a complex combination of fiscal resources and policy Annual AHSC Program Funding Difficult. solutions. The Governor continues to rely on one-time Revenue from quarterly cap-and-trade auctions resources to address the state’s ongoing housing is deposited into the GGRF, and the funds are challenge. As more information about recent state allocated to various climate-related programs. efforts becomes available, we suggest the Legislature The auction proceeds are a very volatile revenue assess which programs appear most effective at source, which makes predicting the annual amount quickly and cost-effectively producing housing. As the going to AHSC difficult. impact of recent budget augmentations and policy Modifications to GGRF Continuous changes start to come to light, this will better position Appropriation Could Provide AHSC Program the Legislature to determine where continued actions More Funding Predictability. The Legislature are necessary and help guide the state’s long-term could consider a variety of modifications to the fiscal strategy in addressing housing development and continuous appropriations to help address the affordability. For instance, the state could consider revenue volatility. For example, the Legislature establishing a housing fund for use over multiple years could consider allocating a specific annual amount in order to support housing development. to each continuously appropriated program, rather than a set percentage of auction revenue. 12 LEGISLATIVE ANALYST’S OFFICE 2022-23 BUDGET This approach would provide a more consistent Mobilehome Park Rehabilitation and funding amount for these programs. Plus, if annual Resident Ownership Program revenue continues to grow, this structure would Existing Revenue Source Is Declining. allow the Legislature to use the annual budget Revenue from the annual mobilehome registration process to determine how to allocate the additional fee has declined significantly since 2016-17. funding in a way that best reflects its changing In 2021-22, the administration estimates the priorities. Furthermore, most of the continuous fee will generate $3 million. Current revenues appropriations were established as part of the are insufficient to support the current program 2014-15 budget, and legislative priorities may objectives. In the near term, how the fee revenue have changed over the last several years. If the supporting the existing program would interact with Legislature were to determine that the AHSC the proposed MORE Program is unclear. Would the Program were a much higher priority than other fee revenue roll over to the MORE Program? programs receiving GGRF revenue, the continuous Details on Focus of Proposed New Program appropriations could be reset accordingly. Will Be Important. Recently introduced Are One-Time General Fund Revenues budget-related legislation will significantly change Better Allocated to Housing Programs Without the scope and purpose of program. While we Ongoing Revenue Source? Despite its volatility, simultaneously continue to review the language, GGRF is a continuously available source of revenue we suggest the Legislature ask: (1) how would for the AHSC Program. Many HCD housing the scope of eligible recipients change; (2) what programs operate through bond proceeds or activities could be funded through the program; one-time General Fund. We suggest the Legislature (3) what criteria would the state use to evaluate assess how much total funding it wishes to allocate applications and make funding decisions; (4) what towards the AHCS Program, then assess if there steps would the state take to ensure geographic is a gap between interest and available GGRF equity of awarded funds; (5) how would the state revenue. Any gap in funding could be addressed allocate funds among the various spending through a General Fund appropriation. categories, such as clean-up and acquisitions; and (6) how the state will help preserve long-term affordability of manufactured homes? CONCLUSION Addressing California’s housing crisis is one assess opportunities to enhance the effectiveness of the most difficult challenges facing the state’s of recent legislation by allocating resources towards policy makers. Millions of Californians struggle those efforts. Ultimately, the enormity of California’s to find housing that is both affordable and suits housing challenges suggest that policy makers their needs. While the Governor proposes funding engage on a variety of solutions. The crisis also is a for specific programs that expand the availability long time in the making, the culmination of decades of affordable housing and expand housing of shortfalls in housing construction. And just as development, the Legislature could assess if the the crisis has taken decades to develop, it will take focus of these programs align with the Legislature’s many years or decades to correct. priorities. Furthermore, the Legislature could www.lao.ca.gov 13 2022-23 BUDGET 14 LEGISLATIVE ANALYST’S OFFICE 2022-23 BUDGET www.lao.ca.gov 15 2022-23 BUDGET LAO PUBLICATIONS This report was prepared by Lourdes Morales, and reviewed by Ginni Bella Navarre and Carolyn Chu. The Legislative Analyst’s Office (LAO) is a nonpartisan office that provides fiscal and policy information and advice to the Legislature. To request publications call (916) 445-4656. This report and others, as well as an e-mail subscription service, are available on the LAO’s website at www.lao.ca.gov. The LAO is located at 925 L Street, Suite 1000, Sacramento, California 95814. 16 LEGISLATIVE ANALYST’S OFFICE