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HOUSING AND EMERGENCY SHELTER TRUST FUND ACT OF 2006
Legislative Bond Act

QUESTION

Should the state sell $2.9 billion in general obligation bonds to fund housing for lower-income residents and development in urban areas near public transportation?

BACKGROUND

Under existing law, there are programs providing assistance for, among other things, multifamily housing, emergency housing, farm-worker housing, homeownership for very low and low-income households, and down-payment assistance to first-time homebuyers.

State funds can go directly to residents to assist with homeownership or repairs or to subsidize low-cost housing. For instance, the state provides low-interest loans or grants to developers (private, nonprofit and governmental) to subsidize construction costs. Typically the housing must be sold or rented to people with low incomes.

While the state provides financial assistance through such programs, cities and counties are responsible for the zoning and approval of new housing as well as providing infrastructure-related services to new housing.

California has 21 of the 25 least affordable metropolitan areas in the country, and only 14 percent of families in California can own median-priced homes of $561,000. Traffic and congestion are growing as working families seek affordable housing outside of urban areas in which they work. California has nine out of the ten least affordable counties nationwide for renters. California has 360,000 homeless residents living on the street.

In 2002, voters approved Proposition 46, which provided a total of $2.1 billion of general obligation bonds to fund state housing programs. The bonds financed construction, rehabilitation or preservation of 17,700 affordable apartments, created or rehabilitated 9,055 shelter spaces, and helped 18,000 families become or remain homeowners. The Legislative Analyst estimates that about $350 million of the Proposition 46 funds will be unspent as of November 1, 2006.

There continues to be a lack of affordable, low-cost housing, particularly in urban areas. In trying to solve those problems, cities and counties must grapple with the cost of infrastructure-related services to new housing--such as water, sewer, roads and parks. In addition, traffic and congestion continue to grow as California working families seek affordable housing outside of areas in which they work.

PROPOSAL

This measure authorizes borrowing $2.85 billion through the sale of general obligation bonds--about half for existing housing programs to provide affordable, low-cost housing and shelters and half for a new development program. The major allocations are as follows:

Housing construction and homebuyer programs: $1.5 billion

• $345 million for construction of multi-family housing
• $300 million for Self-Help Fund for down-payment assistance, home rehabilitation, "sweat equity," mortgage assistance and shared housing
• $200 million for California Homebuyer Down Payment Assistance Program
• $195 million for supportive* and transitional housing
• $135 million for farm worker housing
• $125 million for BEGIN (Building Equity and Growth in Neighborhoods)
• $100 million for a newly created Affordable Housing Innovation Fund to foster creative approaches to producing or preserving affordable housing
• $50 million for housing for homeless foster youth
• $50 million for homeless shelters

*Supportive housing means housing for people with special needs and with no limit on stay; it is linked to off-site services to assist tenants to improve their health status, and to maximize their ability to live and possibly work in the community.

Development Programs $1.35 billion

• $850 million for regional planning, housing, and infill incentives, which will be further defined by future legislation. Includes grants for:
• preservation of open space,
• capital outlay related to infill development, including but not limited to urban parks, water, sewer, transportation improvements and traffic mitigation
• $300 million for transit-oriented development
• $200 million for housing-related parks in urban, suburban and rural areas

The funds would be allocated over ten years. The measure provides the Legislature broad authority to make future changes to these programs to ensure their effectiveness.

FISCAL EFFECT

Bond costs. The cost to pay off these bonds would depend primarily on the following two factors:

1. Payment period. The state would likely make principal and interest payments on the bonds from the state's General Fund over a period of about 30 years.
2. Interest rate. Usually the interest on bonds issued is exempt from both state and federal taxes because the bonds are for public purposes. This results in lower debt service payments for the state. Some programs proposed by this measure, however, would not be eligible for the federal tax exemptions, resulting in a higher interest rate. This is because the housing programs provide funds for private purposes. (The estimate is that 60 percent of the bonds would not be eligible for federal tax exemptions.)

If the federally taxable bonds were sold at an average rate of 6.5 percent and the remaining bonds at an average rate of five percent, the cost to the state would be about $6.1 billion to pay off both the principal ($2.85 billion) and the interest ($3.3 billion). The average annual payment would be about $204 million.

Administrative costs. The Department of Housing and Community Development and the California Housing Finance Agency would experience increased costs to administer the various housing and urban development programs. A portion of the programs' allocations--probably between $100 million and $150 million of the total bond funds--would be used to pay these administrative costs over time.

WHAT A YES OR NO VOTE MEANS

A YES vote means the state could sell $2.9 billion in general obligation bonds to support a variety of housing and urban development programs, including housing for lower-income residents and development in urban areas near public transportation?

A NO vote means the state could not sell $2.9 billion in general obligation bonds for these purposes.

SUPPORTERS SAY

• Proposition 1C addresses problems we cannot afford to ignore: housing affordability for working families is at a new low; 360,000 Californians are homeless every night; and last year 5,108 women and children were turned away from domestic violence shelters because they were full.
• Proposition 1C would create 87,000 jobs and would help improve the state's economy.
• Safe shelter is fundamental to a decent life.

OPPONENTS SAY

• Debt repayment has the top priority in government spending. That could mean cuts for other desirable state services and could lead to pressure to raise taxes.
• In a state of 37 million people with more than 12.1 million housing units, what $2.85 billion can buy will be a drop in the bucket.
• For every dollar borrowed, we and our children will repay that dollar plus a dollar in interest.

SUPPORT AND OPPOSITION

Ballot arguments in support are signed by Cheryl Keenan, Executive Director, San Diego Habitat for Humanity; Marivic Mabanag, Executive Director, California Partnership to End Domestic Violence; Tom Porter, State Director AARP; Hank Lacayo, President, Congress of California Seniors; Peter Cameron, President, Vietnam Veterans of California.

Ballot arguments against are signed by Assemblyman Chuck Devore, Member, Assembly Budget Committee; Bill Leonard, Member, California State Board of Equalization; Mike Spence, President, California Taxpayer Protection Committee.

FOR MORE INFORMATION

Supporters

Let's Rebuild California, 916-448-1401, www.ReadForYourself.org

Opponents

Assemblyman Chuck DeVore, 916-991-9300. www.NoProp1C.com

Web Resources

Analysis by the Legislative Analyst's office

Voter Information Guide (ballot pamphlet)

Reports of campaign expenditures for ballot measures