BACKGROUND
About 200,000 houses and apartments are built
in California each year. Most of these housing units
are built entirely with private dollars. Some units,
however, receive subsidies from federal, state, and
local governments. For instance, the state provides
low-interest loans or grants to developers (private,
nonprofit, and governmental) to subsidize housing
construction costs. Typically, the housing must 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 downpayment.
While the state provides financial assistance
through these programs, cities and counties are
responsible for the zoning and approval of new
housing. In addition, cities, counties, and other
local governments are responsible for providing
infrastructure-related services to new housing—such as water, sewer, roads, and parks.
In 2002, voters approved Proposition 46, which
provided a total of $2.1 billion of general obligation
bonds to fund state housing programs. We estimate
that about $350 million of the Proposition 46 funds
will be unspent as of November 1, 2006.
PROPOSAL
This measure authorizes the state to sell $2.85
billion of general obligation bonds to fund 13 new
and existing housing and development programs.
(See “An Overview of State Bond Debt” for basic information on state general obligation
bonds.) Figure 1 describes the
programs and the amount of funding that each
would receive under the measure. About one-half
of the funds would go to existing state housing
programs. The development programs, however,
are new—with details to be established by the
Legislature. The major allocations of the bond
proceeds are as follows:
- Development Programs ($1.35 Billion). The
measure would fund three new programs aimed at
increasing development. Most of the funds would
be targeted for development projects in existing
urban areas and near public transportation. The
programs would provide loans and grants for a
wide variety of projects, such as parks, water,
sewage, transportation, and housing.
- Homeownership Programs ($625 Million). A
number of the programs funded by this measure
would encourage homeownership for low- and
moderate-income homebuyers. The funds would
be used to provide downpayment 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.
- Multifamily Housing Programs ($590 Million). The measure also would fund programs aimed at
the construction or renovation of rental housing
projects, such as apartment buildings. These
programs generally provide local governments,
nonprofit 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).
- Other Housing Programs ($285 Million). These funds would be used to provide loans and
grants to the developers of homeless shelters
and housing for farmworkers. In addition, funds
would be allocated to pilot projects aimed at
reducing the costs of affordable housing.
The funds would be allocated over a number
of years. The measure provides the Legislature
broad authority to make future changes to these
programs to ensure their effectiveness.
|
FIGURE 1 |
|
|
|
Proposition 1C: Uses of Bond Funds |
|
|
| |
|
Amount
(In Millions) |
| Development Programs |
|
|
|
Development in urban areasa |
Grants for various projects—including parks, water, sewer, transportation, and environmental cleanup—to facilitate urban "infill" development.
|
$850 |
| Development near public transportationa |
Grants and loans to local governments and developers to encourage more
dense development near public transportation.
|
300 |
| Parksa |
Grant funding for parks throughout the state. |
200 |
| |
|
$1,350 |
| Homeownership Programs |
|
|
| Low-income households |
Variety of homeownership programs for low-income households.
|
$290 |
| Downpayment assistance |
Deferred low-interest loans up to 6 percent of home purchase price for first-time low-or moderate-income homebuyers.
|
200 |
| Local governments |
Grants to local governments which reduce barriers to affordable housing. Funds would be used for homebuyer assistance.
|
125 |
| Self-help construction |
Grants to organizations which assist low- or moderate-income households in building or renovating their own homes. |
10 |
| |
|
$625 |
Multifamily Housing Programs
|
|
|
| Multifamily housing |
Low-interest loans for housing developments for low-income renters.
|
$345 |
| Supportive housing |
Low-interest loans for housing projects which also provide health and
social services to low-income renters.
|
195 |
| Homeless youth |
Low-interest loans for housing projects which provide housing for homeless young people. |
50 |
|
|
$590 |
Other Housing Programs
|
|
|
| Farmworker housing |
Low-interest loans and grants for developing housing for farmworkers.
|
$135 |
| Pilot programsa |
Grants and loans for pilot projects to develop housing at reduced costs.
|
100 |
| Homeless shelters |
Grants for developing homeless shelters. |
50 |
|
|
$285
|
|
Total |
|
$2,850 |
aNew program. |
|
|
FISCAL EFFECT
Bond Costs. The cost to pay off these bonds
would depend primarily on the following two
factors:
- 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.
- 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 exemption—resulting in a
higher interest rate. This is because the housing
programs provide funds for private purposes.
(We estimate this would be the case for about
60 percent of the bonds.)
If the federally taxable bonds were sold at an
average rate of 6.5 percent and the remaining
bonds at an average rate of 5 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 payment would be about
$204 million each year.
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.
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