July 23, 2002

Proposition 46

Housing and Emergency Shelter Trust Fund Act of 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 downpayment.

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.

Proposal

This measure allows the state to sell $2.1 billion of general obligation bonds to fund 21 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.

Figure 1 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. 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 homeownership for low- and moderate-income homebuyers. Most of 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.

·        Farmworker Housing ($200 Million). These funds would be used to provide loans and grants to the developers of housing for farmworkers. 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 are unspent, they would be reallocated to a different housing program.

The measure provides 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 farmworker households. The funds would also provide down payment assistance to about 60,000 homebuyers and help provide space for 30,000 homeless shelter beds.

Fiscal Effect

Bond Costs. The cost of these bonds would depend on 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 have not received the federal tax exemption—resulting in a higher interest rate for the bonds. 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.

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.

Return to Legislative Analyst's Office Home Page