LAO 2003-04 Budget Analysis: General Government

Legislative Analyst's Office

Analysis of the 2003-04 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 $651 million for 2003-04. Spending related to the passage of the Proposition 46 housing bond in November 2002 accounts for nearly $500 million of this amount. (Please see our analysis of the implementation of the housing bond in the "Crosscutting Issues" section of this chapter.) The proposed General Fund expenditures of $13 million—largely for emergency shelter assistance and the operation of migrant farmworker housing—is a 12 percent decrease from the current year. Federal funds account for $124 million of the proposed budget-year expenditures, primarily for the Community Development Block Grant and Home Investment Partnership Act programs. Special funds provide the remainder of the department's expenditures. The department has a proposed staffing level of 507 personnel-years.

Mandate for Regional Planning Needs Legislative Changes

As part of its general plan, every city and county is required to prepare a "housing element" which assesses the conditions of its housing stock and outlines a five-year plan for housing development. Unlike other components of a local government's general plan, the housing element must be approved by the state—an activity performed by HCD. Despite the legal requirement of having a housing element in compliance with state law, only 56 percent of local governments currently meet this obligation.

Proposal to Defer Costs for Mandate

Mandate for Regional Planning. Chapter 1143, Statutes of 1980 (AB 2853, Roos), significantly expanded the requirements of local housing elements by requiring additional analysis of local housing needs, particularly in relation to housing by income group. Each community is assigned numeric housing development goals by income (that community's "fair share" of housing) through a process administered by regional councils of government (COGs).

Chapter 1143 was passed after the constitutional amendment which requires mandate reimbursements for state-required activities. The state, therefore, is required to reimburse local governments for the cost of the implementation of this regional planning mandate. (The state does not pay for other portions of the housing element process in place prior to Chapter 1143.) Specifically, the state is required to pay COGs, cities, and counties for the following expenses:

Governor Proposes Deferring Reimbursements Again. As with other mandates, the 2002-03 Budget Act appropriated only $1,000 for the regional planning mandate—in effect deferring (with interest) the costs of reimbursements to local governments. For 2003-04, the Governor proposes to again defer these payments. During this deferment, local governments are still required to follow the statutory requirements, and the state continues to accumulate a financial liability for the mandated costs.

Costs Much Greater Than Budgeted. Because the state provides revised housing data to regions on a five-year rotating basis, not all local governments incur mandate costs in any given year. Prior to the 2002-03 budget, recent annual budgets provided less than $1 million for the costs of reimbursing local governments for this mandate. Yet, the annual costs associated with the mandate have been significantly greater than those budgeted amounts. For instance, from 1998-99 through 2001-02, a total of $3.5 million was appropriated through the budget bills for mandate reimbursements. To date, $9.9 million in claims have already been submitted for reimbursement for those years. In other words, the costs for the allocation process have been about three times the amount that the Legislature expected. If the Legislature were to again defer the payment of this mandate, we estimate the state would have a future liability of more than $5 million combined for the two years of deferment.

City and County Mandate Does Not Lead To Housing Element Compliance

Cities and counties have broad discretion to interpret what level of effort is required by the regional planning mandate. As a result, claim costs vary tremendously by jurisdiction. Moreover, the mandate does not ensure compliance with state housing element requirements. Consequently, we recommend eliminating the mandate for cities and counties.

Majority of Mandate Costs for Cities and Counties. It is commonly assumed that the regional planning mandate costs are primarily for reimbursing COGs for their work in allocating housing numbers. Our review of submitted mandate claims, however, found that about 75 percent of the costs are associated with claims from cities and counties.

Tremendous Variation in Claim Costs. Since eligible costs for reimbursement relate to the collection, tabulation, and analysis of data, local governments have broad discretion as to what level of effort is appropriate under Chapter 1143. In our review, we found that the amounts of the claims vary tremendously—even for claims from similarly sized jurisdictions. For instance, the City of Corona in Riverside County submitted claims totaling about $13,000 over a two-year period, but the City of Moreno Valley (a similarly sized city also in Riverside County) submitted claims of about $265,000—20 times the amount of Corona's claims.

High Claims Do Not Lead to City and County Compliance. Spending time and money on mandated activities does not guarantee an increased number of state-approved housing elements. Jurisdictions can still seek reimbursements even if they fail to bring their housing elements into compliance with state law. For example, Corona's housing element is currently in compliance with state law, but Moreno Valley's element is out of compliance—despite Moreno Valley spending much more on mandated activities.

Recommend Eliminating Mandate on Cities and Counties. Since it provides broad discretion for levels of effort and does not guarantee compliance with state law, we conclude that the mandate on cities and counties is not worth the roughly $2 million annual cost—whether paid now or deferred to a later date. We, therefore, recommend that the Legislature enact legislation deleting the regional planning mandate for cities and counties. While some specific requirements of current law would be eliminated, cities and counties would still be required to adopt a state-approved housing element which addresses community housing needs.

Wait for Reform—Suspend Mandate for Regional Governments

The regional housing planning process is not very effective at ensuring the construction of affordable housing or obtaining compliance with state law. As a result, we recommend that the regional planning mandate for councils of government be suspended, pending the enactment of reforms to the process.

Concept for Oversight Has Merit. We believe that housing elements and the regional needs allocation process have merit in concept. They provide the state the opportunity to offer guidance on housing policy, while allowing local governments the flexibility to address their housing needs based on local conditions. The COGs play an important role in providing a regional perspective to this planning process.

Process Needs Improvement. At the same time, the current process is not very effective. Almost half of communities are not in compliance with state law, and some communities do not make an effort to obtain compliance. There are few incentives or sanctions to encourage local government compliance and accountability. Moreover, in its current form, the process is only a planning exercise. Little follow-up effort is made to ensure that the plans are followed and affordable housing is actually built. Last year, the Legislature attempted to address some of these problems in its discussions regarding SB 910 (Dunn), but no reform proposal was enacted.

Recommend Suspending Mandate on Regional Governments. At the conclusion of the 2002-03 housing needs allocation process, all regions will have completed an update in the past five years. Given the significant shortcomings of the process, we do not believe it is worth beginning another cycle of revisions under the current system. Instead, we recommend that the Legislature suspend the regional planning mandate for COGs and pursue legislative reforms of the process. Once the process undergoes significant improvements, the fair share allocation process could be reinstated. During the suspension, the state would avoid annual mandate liabilities of about $700,000.

To suspend this mandate, the Legislature would need to amend the budget bill to show a $0 appropriation (Item 2240-295-0001) and replace mandate budget provisions (1) and (2) with the following:

Pursuant to Section 17581 of the Government Code, mandates identified in the appropriation schedule of this item with an appropriation of $0 and included in the language of this provision are specifically identified by the Legislature for suspension during the 2003-04 fiscal year:(1) Regional Housing Needs Assessment (Ch 1143, Stats. 1980).

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