Housing is a Hot Topic at the California Capitol

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In its February 2018 Statewide Housing Assessment, the California Housing and Community Development Department stated that 180,000 homes would need to be produced annually between 2015-2025 to keep up with projected population and household growth. This is a goal that will likely go unmet, as California has only built an average of 80,000 homes per year over the last 10 years. As a result, California legislators have introduced multiple housing bills, many of which are aimed at streamlining housing production, increasing the state’s ability to control land use at the local level, and developing financing tools to fund increased housing production. A few of these bills, most notably ACA 1, SCA 1, AB 68, and SB 9 will significantly impact the state’s ability to meet its housing target. Here is a brief summary of these bills:

·         ACA 1 is focused on providing an additional funding source to enable construction of affordable housing and infrastructure. The additional funding would be available at a local level and would be focused on "workforce housing" (up to 150% AMI), thereby including the “missing middle” that is often neglected in housing legislation.  ACA 1 accomplishes this by reducing the local vote threshold (from a two-thirds vote to a 55-percent majority) for approval of an ad valorem tax to service bond indebtedness incurred to fund the construction, reconstruction, rehabilitation, or replacement of public infrastructure or affordable housing.

ACA 1 also includes provisions requiring that annual performance audits be made available to the public and a citizens’ oversight committee be formed, allowing the public to track progress and hold the issuer accountable for expenditures related to applicable projects. However, lawmakers should consider the administrative burden that these accountability provisions may create, as operation expenses will not be a cost covered by debt issuance. Link to bill.

·         SCA 1 would streamline the approval process for affordable housing developers and municipalities. SCA 1 would repeal Article 34 of the California Constitution, which was enacted in 1950 and prohibits the development, construction, or acquisition of a low-rent housing project by any state public body until electors of the public body approve the project with a majority vote. By requiring voter approval, Article 34 has slowed the approval process and increased the cost of affordable housing drastically. Link to bill.

·         AB 68 seeks to increase residential housing density in California by requiring that streamlined approval be given to permit applications for the development of Accessory Dwelling Units (ADUs) and Junior Accessory Dwelling Units (JADUs). This bill also prohibits a local ordinance from imposing minimum lot size, lot coverage, or floor area ratio requirement on ADUs.  Link to bill.

·         SB 9 is a financing tool that seeks to incentivize investment in affordable housing development. This bill authorizes a developer that is awarded a low-income housing tax credit to sell that credit to investors for each taxable year the credit is allowed indefinitely, thereby removing a January 1, 2020 sunset provision in existing law. Therefore, this change spurs investment in affordable housing projects for a longer, indefinite period of time than current law allows. Link to bill.

Senate Bill 2 Planning Grants Available Now!

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Does your community need funding to come up with a local solution to the housing crisis? Good news, Senate Bill 2 (“SB2”) might be the answer to your needs! With the passage of SB2, $123 million have become available to assist local governments with the implementation of planning activities to accelerate housing production.

Our first look at SB2 was in 2017 when it was one of the 15 bills in the 2017 Legislative Housing Package. We learned then that it establishes a permanent funding source for affordable housing and is designed to help local governments tackle the challenges of our housing crisis. This will be done by providing funding and technical assistance for the implementation of qualifying activities. Such activities include, but are not limited to, updates to general plans, local process improvements, updates to zoning ordinances, infrastructure financing plans, and pre-approved architectural and site plans, among many others. Can any of these address the needs of your community?

If your jurisdiction is currently considering the implementation of planning activities to increase housing production, SB2 Technical Assistance grants may provide the necessary financial assistance to implement such actions. Still confused, or wondering if your project qualifies? RSG is here to answer all your questions! Contact Irlanda Martinez (imartinez@webrsg.com) with any inquiries regarding SB2. Awards range from a minimum of $25,000, to a maximum of $625,000, depending on population size. Applications are due November 30, 2019 but RSG is here to help now!

Housing California Conference April 15-17 at the Sacramento Convention Center

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RSG employees Tara (Principal), Greg (Senior Associate) and Irlanda (Analyst) will be traveling from our headquarters in Irvine to Sacramento, CA to attend the Housing California conference next week! We are so excited to chat with all of you about new legislation, shifts in trends and the progression of housing in California. Currently we are very focused on SB 35 and would also love your insight on how cities can increase their housing supply to fit the needs of their residents. We will have on display some tools and interesting compliance facts pertaining to SB 35. If you will be attending the conference this year, feel free to stop by booth 50 to see some friendly RSG faces!

SB 128

Enhanced Infrastructure Finance Districts, commonly known as EIFDs, were revamped by SB 628 in 2014 and AB 313 in 2015 and are being revamped again in 2019 through SB 128. EIFDs became legislatively popular as a “replacement” for redevelopment in the wake of dissolution, as they allow for multiple cities, counties, or agencies to form Joint Powers Agreements (JPAs) in which each cooperating entity pledges a portion of its share of tax increment to issue debt and fund infrastructure projects that will have widespread community benefit. Examples include  West Sacramento's Bridge District Specific Plan and the Los Angeles River Revitalization.

SB 128 is a useful piece of legislation because while EIFDs currently require no voter approval in formation, there is a 55% voter approval requirement to authorize bonds. Because Tax Increment Financing (TIF) is not approving a new tax, simply an alternate use of existing tax revenues (usually with direct benefits to taxpayers), voter approval becomes an extra burden when EIFDs attempt to issue debt. There is a public hearing process for EIFD formation that allows taxpayers to involve themselves early in the progression of the EIFD, which this legislation does not remove.  

SB 128 is a simple change to existing law, but one that should create an easier more streamlined process that will hopefully increase the use of EIFDs to fund infrastructure projects and economic development throughout the state.

Maximizing the Opportunity of Opportunity Zones

Opportunity Zones are designated census tracts that offer investors special tax incentives. The program was created by the Tax Cuts and Jobs Act of 2017 (i.e., the federal tax reform bill), and the zones have been designated by each state around the country. California designated 879 census tracts throughout the state, ranging from parts of Downtown Los Angeles and Oakland to Death Valley National Park and Modoc National Forest. By nature of the variation of the designated tracts, some Opportunity Zones will be more suitable and attractive for investment than others.

A few California cities have already gotten ahead of the Opportunity Zone curve, including Berkeley, which discussed how to utilize this new tool at its most recent City Council meeting. Some Californians see the law as something that only benefits the wealthy, who will get federal tax breaks by investing their capital gains in these zones, but in Berkeley, the City Council is combatting this by seeking to implement policies that take advantage of this tool to generate affordable housing. 

For those cities who haven’t begun formal processes yet, an inter-agency workgroup from the State has prepared an Opportunity Zone Portal with a lot of great information, and CALED has its own page with recommendations and resources for communities seeking to understand Opportunity Zones better. It’s important to keep in mind that Opportunity Zones are not a source of “free” money. Investors will only consider projects with a reasonable return for their equity investment. Opportunity zones are simply meant to tilt the scales to increase the expected return by reducing the tax liability of any gains.

For communities that have an Opportunity Zone, the State developed a step-by-step “Get Ready” guide. Steps include:

  • designating a point person to direct overall efforts,

  • creating a local story to leverage local strengths and stand out from other areas,

  • building a list of potential projects,

  • hiring a “deal jockey” to coordinate investment,

  • being proactive by reaching out to developers and investors,

  • seeking partners who can spur investment without displacement,

  • revisiting regulations and other incentives affecting development in Opportunity Zones, and

  • engaging with the State and Statewide agencies and organizations.

One form that this preparation can take is a prospectus, which delineates the purpose for which a community seeks investment, provides investors with the community’s profile, and even identifies investment opportunities. This can be useful if there are strong opportunities to publicize. There are also other steps to take. Even if a locality has strong investment attraction without taking any action, it should get ready to process increased development applications to ensure a smooth investment process.

The City of Stockton has already created an investment prospectus, its marketing strategy and economic development policy that indicates to investors the City’s goals. This is another way to combat the use of Opportunity Zones as tools for gentrification and displacement, and garner needed investments in these areas.  The City of Long Beach is also marketing their opportunity zones, and it has created an online mapping application to show the locations, zoning, and where certain entitlements would be allowed, letting developers know ahead of time what could be built there.

Even for communities without an Opportunity Zone, many of these same steps are still valuable to attract investment. A local champion can help to drive projects forward that target established community goals. It’s still important to understand a locality’s strengths when seeking investment. Similarly, being proactive in seeking opportunities, reviewing regulations and incentives, and engaging with public and private partners are key to any economic development effort.

For most communities, Opportunity Zones are one more tool to attract development. Like CRIAs, EIFDs, density bonuses, overlay zoning, Community Facilities Districts, and infrastructure investment, —a fundamental understanding of how communities can leverage and package these tools is the most important need today.

There’s still a big question about Opportunity Zones. The IRS has yet to publish the final rules governing Opportunity Zone investment and tax benefits. Interim guidance publicized in October 2018 offers some direction, but many investors, especially those interested in bolder projects, are waiting for the detailed clarity of final rules, including how the program will interact with other tax incentive programs. Once the final rules are released, analysts expect most Opportunity Zone investments to occur in 2019, to maximize the potential tax benefits. It’s important for jurisdictions to prepare now, so that they can target investment where they have an Opportunity Zone and build the foundation to attract investment where they don’t.

CALED “State of California Economic Development”

With changes in resources and economic trends, the approach to economic development efforts in California have changed significantly in recent years. Prior to 2012, cities could rely on tax increment funding from Redevelopment Agencies (RDAs) to fund economic development. With Redevelopment dissolution, cities now must get more creative with limited funding sources. These trends have made this a challenge for local authorities. Economic development efforts have become more concentrated, shifting the focus from programs to projects. Furthermore, cities rely more heavily on regional economic development efforts or even developing multi-city strategies to market an area. Additionally, multiple partners, investors, and stakeholders, have increased transparency, which can lead to more complexity to getting a project done.

Nevertheless, local governments can do a lot to support economic growth in their jurisdictions, the following are some examples:

  • When selling city owned property, officials should aim to leverage those assets for the greatest economic impact, rather than just seeking the highest sale price.

  • With assets they continue to hold, local governments should also evaluate opportunities to leverage them for greater economic benefit.

  • Cities need to understand what it means to be “business friendly” and seek process improvements in order to attract more businesses to locate in their city.

  • Cities should embrace housing projects at all income levels. Recognizing the role that housing affordability plays in attracting and retaining a talented workforce, not to mention helping people improve their quality of life, some cities have started to warm up to housing developments, but many are still slow to react.

  • Cities should be aware of legislation at the state level that may affect resources and opportunities, and make their voices heard in order to inspire legislators to add tools for local economic development.

CALED 2019 Training Conference

RSG is counting down the days until the California Association for Local Economic Development’s (CALED) 2019 training conference on March 27-29! This year, the conference will be held in Anaheim, and the theme is “Make It Happen.” With four general sessions and 24 breakout sessions, the conference will focus on how economic developers are improving California communities by building meaningful relationships, crafting and executing strategic plans, and connecting to key resources.

 RSG is proud to be a part of the CALED community. Principal and President Jim Simon is on CALED’s Advisory Board Committee and co-chairs the Economic Development, Finance, and Real Estate (EDFRE) Committee. Senior Associate Suzy Kim serves as a member of the EDFRE Committee. Associate Dominique Clark is on the 2019 CALED Conference Steering Committee and manages CALED’s Local Economic Advisory Program (LEAP) in Southern California.

Upcoming Conferences and RSG Events

RSG is excited to be leading the discussions on community development with several events coming up over the next two months.  We hope to see you there!

CALED ANNUAL CONFERENCE, MARCH 27-29, ANAHEIM

Each year approximately 350 economic developers come together in the largest gathering in California to discuss emerging trends, celebrate successes, and network with our peers.  This year marks the 39th anniversary of the training conference, which will be hosted jointly by CALED, the City of Anaheim and SBDC.  Jim Simon, President and Principal of RSG will be offering opening remarks at the opening reception and several RSG team members will be on-site to discuss how housing and economic development are partners in solving community development solutions.  Special thanks to RSG Associate Dominique Clark, who volunteered her time as an Annual Conference Planning Committee member.

For more information or registration, please visit www.caled.org.

HOUSING CALIFORNIA ANNUAL CONFERENCE, APRIL 15-17, SACRAMENTO

This year marks the 40th anniversary of the Housing California Annual Conference! Housing California works to prevent and end homelessness and increase the variety and supply of affordable housing throughout the State.  Each year this conference draws over 1,500 attendees that are focused on addressing affordable housing issues. This year RSG will be an exhibitor at the event and we would love it if you stopped by to say hello. We will have some pretty cool swag to give away and always have chocolates! Tara Matthews, Principal, Greg Smith, Senior Associate, and Ya-yin Isle, Associate will be anxiously waiting for you so we can “talk housing” with you!

WHAT YOU NEED TO KNOW ABOUT HOUSING RIGHT NOW (TRAINING), APRIL 24, RSG HEADQUARTERS – IRVINE

A slew of housing bills has passed in the last two years and more are on the way.  The State has made it clear that cities must increase housing supply or face repercussions. With so many requirements, how do communities know what they can/should do and what funding is available? What will happen to communities that resist? Tara Matthews and Hitta Mosesman, RSG Principals, and Kathy Jenson and Bill Ihrke from Rutan and Tucker will present the important information you need to know now.

 Please join us for a complimentary training on housing requirements (what are they and what do they mean for my city?) and funding sources available on April 24 from 3:00 pm to 5:00 pm with a complimentary reception to follow at RSG’s Irvine office, Conference Center (1st floor), 17872 Gillette Avenue, Irvine CA. Adult beverages, soft drinks and snacks will provided immediately following the training in our office in Suite 350.

 Space is limited to the first 50 respondents – invitations will be sent out the week of March 25 so check your inbox!

Point-Counterpoint!

And now let’s join RSG Principals Tara Matthews and Jim Simon do their impression of Jane Curtin and Dan Aykroyd debating the changes they’d like to see to help California communities, moderated by Suzy Kim, Senior Associate. 


Suzy:  So, we know the new “gigamajority” of Democratic control in the California State Legislature and a new governor have got people buzzing about more tax increment financing tools to bring capital back to local communities.  With EIFDs, CRIAs, NIFTI’s and other tools, does California really need “Redevelopment 2.0” and “Affordable Housing and Infrastructure Agencies” proposed by Assembly Bill 11 (Chiu), or Local-State Sustainable Investment Incentive Program proposed by Senate Bill 5 (Beall)?  We’ve asked two of our Principals to debate these questions.  First off is Tara Matthews, Principal from our Vista office.  Tara’s work tends to focus around the areas of affordable housing.  Tara is also a member of the San Diego Housing Federation.  Tara will be debating with Jim Simon, Principal from our Irvine office who is also an Advisory Boardmember and technical committee co-chair of the California Association for Economic Development (CALED).

Starting with you Tara, how do you feel the current tools available to communities meet the needs for affordable housing and economic developers?

Tara: What tools? Just kidding, there have been efforts to generate a permanent source of funding, but I honestly don’t think they are very effective which is why we haven’t seen them utilized by many communities.  Many of the tools double or even triple dip on revenue generated in communities, meaning that the “bucket of money” everyone is fighting for is very limited. This coupled with the costly process to get your hands on the bucket of money makes the tools very inefficient.
Jim: Like Tara, I’d agree that the current tools offer limited financial incentives to communities unless other agencies participate. 

Suzy: And why are these issues in your opinion?

Jim: Because we are asking a single taxing agency to bear the risk for stimulating economic growth that benefits all taxing agencies, as well as the state itself.  This is particularly true in the case of economic development investments that can expand the economic base, provide living wage jobs, and fund needed infrastructure investment.  As it stands now, communities with the greatest needs aren’t afforded any advantage over those that simply have the fortune of having a larger share of the property tax base.
Tara: Plainly stated, there is no great incentive to use these tools to address economic and housing issues. After you run the numbers and look at various legal requirements and restrictions, the drawbacks often outweigh the benefits.  Many of the other taxing agencies that have a greater share of the revenue just don’t want to part with it.

Suzy: What kinds of changes do you feel are needed to make these tools better?

Tara: Finding a way to make these tools benefit more of the taxing agencies and thus enticing more participation to reach common goals. One idea is to more clearly define a pass-through payment formula and removing “opt-in” provisions.  Thus, making it easier to create a permanent financing source for capital projects.
Jim: I think AB 11 needs to establish some formula for any pass-through negotiations, with either a fixed formula or a maximum share. 

Suzy: Ok, let’s talk about SB 5 and AB 11.  Do you feel that either of these bills is going the help communities with affordable housing or economic development?

Jim: I’m not sure yet.  I like the idea of the State finally getting involved in supporting community development again, but there are a lot of unknowns here.  
Tara: TBD. SB 5 is very intriguing since it’s the most different from existing tools and provides a clearer path to funding. But I agree with Jim that it is exciting to see the focus on community development again coming from the State Legislature.

Suzy: What would you like to see changed in SB 5 or AB 11 to improve the situation?

Tara: Lessen reporting requirements if the entities illustrate collaborative solutions or meet specific goals, such as creating affordable housing in proportion to RHNA requirements working in collaboration with County or State entities, while improving surrounding infrastructure.  I guess an easy way to say this is – reward good behavior.  Some of the administrative burdens placed on communities makes it difficult to administer and takes away funding that could be used towards completing projects.
Jim: First, it feels like the amount of oversight the State needs to play is a bit heavy to me.  I also think they need to give local communities an opportunity to make a program work by requiring some basic level of participation from at least a few taxing agencies. And, maintenance should be an allowable use of expenditures.

Suzy: Finally, how much should be set aside for affordable housing in your opinion?

Jim: I personally feel that anything more than 50% is too much.  There is very little funding available for local communities to create a sustainable economic development program to combat issues like gentrification, stagnant wages, and limited wealth building in communities. 
Tara: Well affordable housing is my passion and I would love to see as large of a set-aside as possible.  But I also recognize that the communities must balance multiple issues and failing infrastructure is a major issue. Additionally, once housing is built those residents need a thriving community to live in, meaning that economic development is also a critical need. So, I think I would be willing to say that a 50/50 split would be fair, though I’d like to see the 50% that isn’t set-aside for housing spent in or around areas that are serving affordable housing projects and housing development.

Suzy: So are you saying that affordable housing funding is a bigger priority than economic development?

Tara: Since you are putting me on the spot, I have to stay true to my passion…yes.  But I feel that a thriving community is at the intersection affordable housing, a strong business community, and workforce training options.  When it comes to economic development, everything is interlinked.
Jim: I believe affordable housing is a key aspect of a successful economic development program, but not the only one.