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HOUSING AND EMERGENCY SHELTER TRUST FUND ACT OF 2002

Legislative Bond Act

THE QUESTION

Should the state create a trust fund by selling two billion one hundred million dollars ($2,100,000,000) in general obligation bonds to fund twenty-one types of housing programs--including multifamily, individual, and farmworker housing?

PROVISIONS

This measure allows the state to sell $2.1 billion of general obligation bonds to fund 21 types of housing programs. General obligation bonds are backed by the state, meaning that the state is required to pay the principal and interest on these bonds. General Fund revenues would be used to pay these costs over about 30 years. Once bonds are approved by a super majority of the California Senate and Assembly, they must be placed on the ballot, where they need only a simple majority to pass. As the Legislative Analyst's Office outlines, the major allocations of the bond proceeds are as follows:

• Multifamily Housing Programs ($1.11 Billion). This measure would fund a variety of housing programs aimed at the construction of rental housing projects, such as apartment buildings. These programs generally provide local governments, non-profit organizations, and private developers with low-interest (3 percent) loans to fund part of the construction cost. In exchange, a project must reserve a portion of its units for low-income households for a period of 55 years. This measure gives funding priority to projects in already-developed areas and near existing public services (such as public transportation).

• Homeownership Programs ($405 Million). A number of the programs funded by this measure would encourage home ownership for low- and moderate-income homebuyers. Most of the funds would be used to provide down payment assistance to homebuyers through low-interest loans or grants. Typically, eligibility for this assistance would be based on the household's income, the cost of the home being purchased, and whether it is the household's first home purchase. Projects will be approved using so-called "smart growth" criteria; i.e., extra priority points will be allotted to homes situated near transit, jobs, schools and parks. In addition, the state government will place limits on the prices of the homes.

• Farmworker Housing ($200 Million). These funds would be used to provide loans and grants to the developers of housing for farm workers. Program funds would be used for both rental and owner-occupied housing.

• Other Programs ($385 Million). Additional funds would be allocated for the construction of homeless shelters, payments to cities and counties based on their approval of housing units, provision of mortgage insurance for high-risk homebuyers, and capital needs of local code enforcement departments.

Most of the program funds probably would be allocated over a three- to five-year period. For many of the programs, the measure limits the length of time available for the funds to be spent. If after a specified length of time--between 18 and 48 months--a program's funds were unspent, they would be reallocated to a different housing program.

The measure gives the Legislature broad authority to make future changes to the programs funded by the measure. The measure also requires the State Auditor to perform periodic audits of the agencies administering the funds and the recipients of the funds.

Impact of Funds. The funds from this measure typically would be used together with other government monies to provide housing assistance. In total, the bond funds would provide annual subsidies for about 25,000 multifamily and 10,000 farm worker households. The funds would also provide down payment assistance to about 60,000 homebuyers and help provide space for 30,000 homeless shelter beds.

Figure 1 below describes the programs and the amount of funding that each would receive under the measure. Most of the funds would go to existing state housing programs. A number of the programs, however, are new, with details to be established by subsequent legislation that is expected to be in place by November 2002.

BACKGROUND

About 150,000 houses and apartments are built in California each year. Most of these units are built entirely with private dollars. Some, however, receive subsidies from federal, state, and local governments. For some of the units that receive state funds, the state provides low-interest loans or grants to developers (private, nonprofit, and local governments). Typically, there is a requirement that the housing built be sold or rented to Californians with low incomes. Other state programs provide homebuyers with direct financial assistance to help with the costs of a down payment.

The amount of funds that the state has provided to these types of housing programs has varied considerably over time. In 1988 and 1990, voters approved a total of $600 million of general obligation bonds to fund state housing programs. (These funds have been spent.) Since that time, the state typically has spent less than $20 million annually in General Fund revenues on state housing programs. On a one-time basis, however, the state recently provided more than $350 million in General Fund revenues for these purposes.

FISCAL EFFECT

According to the Legislative Analyst's Office, if the bonds were sold at an average interest rate of 6.25 percent (the current rate for this type of bond) and repaid over 30 years, the cost would be about $4.7 billion to pay off both the principal ($2.1 billion) and interest ($2.6 billion). The average payment would be about $157 million per year.

Bond Costs. The cost of these bonds would depend upon their interest rates and the time period over which they are repaid. Generally, the interest on bonds issued by the state is exempt from both state and federal income taxes--lowering the payment amounts for the state. Historically, the type of bonds proposed by this measure has not received the federal tax exemption--resulting in a higher interest rate for the bonds.

Administrative Costs. Several agencies would experience increased costs to administer the various housing programs funded by this measure. Under existing law, a portion of the programs' allocations from the bond funds--up to about $100 million--could be used for these administrative costs. The measure also authorizes some recipients to be charged for administrative costs, thus increasing funds available for this purpose.

IMPACT OF YES OR NO VOTE

A YES vote means the state could sell $2.1 billion in bonds to be deposited in a trust fund to provide housing opportunities for battered women, senior citizens, homeless families with children, and military veterans, as well as to make repairs and accessibility improvements to apartments for families and handicapped people.

A NO vote means the state would not be able to sell $2.1 billion in bonds for these purposes.

SUPPORTERS SAY

• Provides safe shelter that is fundamental to a decent life.
• Provides affordable housing for working people, accessibility improvements to apartments for disabled, and loan assistance for military veterans, teachers, police and firefighters.
• Will double the number of emergency shelter beds for homeless and battered women/children.
• Will be paid out of existing state resources without raising taxes.
• Includes provisions to ensure proper administration of the bond proceeds at both the state and local levels.

OPPONENTS SAY

• Adds to the state's debts at a time when California is already on the brink of bankruptcy.
• Does not have accompanying legislation that addresses liability issues.
• Does not contain enough support for first-time homebuyers.
• Will not reduce red tape that homebuilders go through.
• Does nothing to address the barriers that exist to providing affordable, abundant housing in California.

SUPPORT AND OPPOSITION

Official ballot arguments in support are signed by Pete Major, Executive Director, Habitat for Humanity, Orange County; Barbara Inatsugu, President, League of Women Voters of California; Dr. Kathie Mathis, Executive Director, Association to Aid Victims of Domestic Violence; Tom Porter, State Director, AARP; Dan Terry, President, California Professional Firefighers.

Official ballot arguments in opposition are signed by California State Senator Ray Haynes; Assemblyman Anthony Pescetti; Jon Coupal, President, Howard Jarvis Taxpayers Association; Marilee Monagan, Past Board Member, Women Escaping a Violent Environment (WEAVE); Lew Uhler, President, National Tax Limitation Committee.

For more information:

Supporters

Julie Snyder, Housing California, (916) 447-0531, www.prop46yes.org

Opponents

Senator Ray Haynes, (916) 445-9781

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