Legislative Analyst's Office Analysis of the 2002-03 Budget Bill

Housing and Community Development (2240)

The mission of the Department of Housing and Community Development (HCD) is to help promote and expand housing opportunities for all Californians. As part of this mission, the department is responsible for implementing and enforcing building standards. It also administers a variety of housing finance, economic development, and rehabilitation programs. In addition, the department provides policy advice and statewide guidance on housing issues.

The budget proposes expenditures of $208 million for 2002-03. The proposed General Fund expenditures of $38 million--largely for farmworker housing and emergency shelter assistance--is a 61 percent decrease from the current year. Federal funds account for $118 million of the proposed budget-year expenditures, primarily for the Community Development Block Grant and Home Investment Partnership Act programs. A number of state special funds provide the remainder of HCD's funding. The department has a proposed staffing level of 496 personnel-years.

Funding Reductions in Many Housing Programs

As shown in Figure 1, the level of funds appropriated for housing programs since 1999-00 has varied substantially from year to year. (The amounts shown will differ from the Governor's budget display due to the timing of actual expenditures.)

Beginning with the 2001-02 budget, some unencumbered funds appropriated in earlier years were transferred back to the General Fund. Figure 2 shows these transfers, transfers adopted as part of the November Revision, and additional transfers proposed in the budget year. The Governor's budget largely preserves funding for the Farmworker Housing Grant Program ($14 million) and the Emergency Housing Assistance Program (EHAP, $11.3 million), while eliminating funding for many other department programs. The Governor also proposes a $6 million loan to the General Fund from the Mobilehome Park Purchase Fund (to be repaid with interest).

No New Funds, Reduced Existing Funds

Below, we highlight the impact of the budget's proposals by program area.

Jobs-Housing Balance Incentive Grants. The 2000-01 budget provided $100 million in one-time funds to make "incentive payments" to local governments. The funds were intended to increase housing production by making payments based on the level and type of housing permits issued in a jurisdiction during calendar year 2001. The payments were scheduled to be made in the spring of 2002. As part of the 2001-02 budget, $40 million of the program's funds were transferred back to the General Fund. The Legislature also adopted the Governor's November proposal to transfer back to the General Fund the remaining $60 million. As a result, the program will be unable to make any incentive payments in the current or budget years. For those jurisdictions which would have qualified for allocations under this program, the budget bill proposes giving application priority for federal and farmworker housing grant dollars.

Multifamily Housing Program. The Multifamily Housing Program is the department's basic funding mechanism for low-interest construction loans for multifamily housing units. In the current year, the program had a total of $87.9 million in funds available for local assistance (a combination of prior-year and current-year appropriations). In November, the Governor proposed transferring $45.1 million of this amount back to the General Fund. The Legislature approved this proposal--leaving $42.8 million available for housing projects in 2001-02. The department has received applications totaling $135 million and expects to encumber the $42.8 million this spring. The Governor proposes no funding for the program in 2002-03.

Downtown Rebound. The Downtown Rebound program is intended to promote the revitalization of urban areas through (1) multifamily project loans aimed at reusing commercial buildings as housing, the in-fill of vacant sites, and housing near transit centers and (2) planning grants to local governments. An adopted November Revision proposal transferred $4.1 million in available funds (from the prior and current years) back to the General Fund--leaving less than a million dollars in unencumbered funds. The budget proposes no additional funds for the program.

Child Care Facilities. The Child Care Facilities Financing Program provides both direct loans and loan guarantees for child care facility purchases, expansions, or renovations. The 2000-01 budget included a $16 million appropriation of funds for the program. The 2001-02 budget transferred $11 million of this amount back to the General Fund. The Governor proposes transferring $1.4 million in unencumbered funds from the loan guaranty component back to the General Fund. We discuss this proposal in more detail below.

Migrant Services Reconstruction. In 1993-94, the state began a multi-year plan to reconstruct state-owned migrant farmworker housing centers. The final year of the plan was scheduled to be 2002-03, at a cost of about $5.5 million. The Governor's budget proposes deferring this funding. The final center scheduled for reconstruction should be able to continue operation because it is expected to have a useful life until 2004-05. The budget does propose using $565,000 in unencumbered flood relief funds for minor repairs at three centers.

Budget Removes Restrictions on Existing Dollars

The 2000-01 budget included funds for several special set-asides within department programs. Few eligible applicants have been identified for two of these set-asides and the Governor proposes allowing these funds to be used for broader purposes.

Mobilehome Ownership. The 2000-01 budget included a $10 million set-aside within the department's CalHome homeownership program. The set-aside was to fund local programs that allow homeowners to repair or replace manufactured housing. Of the original appropriation, $4.2 million remains available. The Governor proposes making these remaining funds available for expenditure under the broader CalHome program for various homeownership purposes, including mobilehome ownership.

Farmworker Manufactured Housing. Within the department's farmworker housing grant program, the 2000-01 budget reserved $3 million for sites using manufactured housing for 12 or fewer agricultural employees in a cooperative arrangement between the employer and a nonprofit organization. The department has not received any eligible applications, and the Governor proposes allowing these funds to be granted under the base farmworker program.

More Child Care Facility Funds Available for Transfer

The Governor's budget proposes transferring $1.4 million in available funds from the Child Care Facilities Financing Program to the General Fund. We recommend increasing the transfer to $2.6 million to reflect the total amount of available funds (Increase Item 2240-0110-0474 by $1.2 million).

Minimal Use of Program. As described above, the Child Care Facilities Financing Program makes both direct loans and loan guarantees for the financing of child care facilities. While the direct loan component has committed all of its available funds, the guaranty component still has available funds. The 1997-98 budget provided $3.1 million in local assistance funds (General Fund) to guarantee private-market commercial loans. Since the guaranty program is able to guarantee $4 in loans for each $1 appropriated, $12.4 million in guarantees was originally available. Due to administrative difficulties and low demand, the guaranty program has made only six guarantees totaling about $2.1 million since 1997-98including only one in the past year. (These six guarantees required the use of only about $500,000 of the appropriated funds.)

Recommend Transferring All Available Funds. The Governor's budget includes a proposal to transfer $1.4 million from the loan guaranty fund to the General Fund, with the intention of leaving no funds for additional guarantees. The calculation of available funds, however, fails to account for the ability of one appropriated dollar to guaranty four dollars in loans. Since only $500,000 of the $3.1 million in appropriated funds have been committed to guarantees, the available funds for transfer back to the General Fund is actually $2.6 million$1.2 million higher than the proposed amount. Given the lack of activity in the program, we recommend approving the Governor's proposal and increasing the transfer amount to $2.6 million to capture the full available balance.