During his campaign, Gov. Gavin Newsom committed to a goal of building 3.5 million housing units in California by 2025 and promised a “Marshall Plan’ for housing. The housing strategy he laid out in his budget proposal contains many big ideas – including both carrots and sticks for local government. Here they are:

The Sticks

Short-Term Housing Production

The budget summary says that the Department of Housing & Community Development “will establish higher short-term statewide goals for new housing production across all income levels and will allocate these goals to local jurisdictions.” The budget summary does not address the question of whether anad how this effort will interact with the Regional Housing Needs Assessment process.

Long-Term Housing Production

The budget summary says that HCD will revamp the current RHNA process and develop a new methodology to determine RHNA targets. This process would almost certainly increase the RHNA numbers for most regions and most local jurisdictions, which could mean that more projects at the local level will be eligible for SB 35 (since local jurisdictions are less likely to meet their targets). Again, the budget summary is silent on the question of how this process might intersect with the existing RHNA process and the role that Councils of Governments might play.

The budget summary also calls for a much more aggressive role to be played by HCD, taking advantage of last year’s AB 72, which gives HCD the power to review local housing elements continuously, rather than only at certain points in the RHNA cycle.

Newsom has also said he hopes to link transportation money – specifically, the gas tax money included in the transportation package last year – to housing production. At his budget press conference he said: “If you’re not hitting your goals, I don’t know why you get the money.” But it is not clear whether he has the legal authority to withhold any transportation funds due to lack of housing production.

Carrots

Newsome has consistently stated that he has put $1.75 billion in new money on the table for housing. Here’s how that breaks down

Grants and Technical Assistance To Achieve High Production Goals: $250 million

The budget contains $250 million for grants to local governments to make process changes that will increase housing production. This could include general plan updates, zoning ordinances, and the like. These funds would come on top of the expected $100-150 million available for similar purposes to local governments under the first year of SB 1, the real estate transfer tax. Thus, local governments could have access to upwards of $400 million to do housing-related planning.

Cash For Local Governments: $500 million

In addition, the budget calls for $500 million in unrestricted funds to be doled out to local governments that hit housing production goals. The budget contains no hint of the mechanism that would be devised to hand out the funds.

Moderate-Income Housing: $500 Million

A one-time infusion of $500 million would be given to existing CalHFA moderate-income hosuing programs.

Low-Income Housing Tax Credit: $500 million

The state low-income hosuing tax credit, which is often coupled with federal tax credits in creating affordable housing projects, will be funded at $500 million – a more than $400 million increase.

OTHER PROPOSALS

Enhanced Infrastructure Financial Districts

Newsom has proposed removing the vote requirement for EIFDs and encouraging a strategy that pairs EIFDs with Opportunity Zone investments.

State Surplus Land

Newsom has proposed an ambitious effort to prioritize state-owned surplus land for affordable housing projects, which may or may not require local approval.

A couple of days after the budget, Newsom issued an executive order calling on the Department of General Services to do an immediate inventory of state-owned parcels and HCD to create a screening tool for suitability for affordable housing.

The executive order also holds out the possibility of local governments and the state swapping property, if the locals own property suitable for affordable housing.

WHAT’S NOT IN THE PACKAGE

Newsom’s package does not contain two strategies often discussed as necessary for a major housing effort:

No major CEQA reform. With labor strongly supporting CEQA, Newsom chose not to propose major CEQA reform, though he may be counting on SB 35 and potential subsequent legislation to create ministerial processes that end-run CEQA. He did propose CEQA streamlining for homeless projects.

No redevelopment or TIF programs. Local governments have often said they cannot hit affordable housing goals without a revival of redevelopment or some similar tax-increment financing system that includes school property tax funds, which would be a hit on the state general fund budget. Newsom did not propose any redevelopment or TIF programs that would hit the state general fund on a permanent basis.