Redevelopment agencies may soon have authority to assist homeowners with subprime loans who are facing foreclosure, and to acquire foreclosed housing.
Under a measure likely to pass the Legislature, redevelopment agencies could aid homeowners, lenders and developers whether or not the subject property is within a redevelopment project area. However, a late amendment to the bill would prevent agencies from using their 20% housing set-aside fund for the activities.
Assembly Bill 2594 by Assemblyman Gene Mullin (D-South San Francisco) would permit redevelopment agencies to enter the foreclosure and subprime mortgage mess. The measure passed the Assembly in May and survived the state Senate Transportation and Housing Committee in late June before heading to the Senate floor. But the only way that Mullin and the California Redevelopment Association (CRA), the bill's sponsor, could get the bill out of that committee was to a delete a provision allowing redevelopment agencies to spend their 20% housing set-aside funds for foreclosure-related activities. Instead, the bill permits redevelopment agencies to use only the "other" 80% of funds that are normally dedicated to infrastructure, economic development and activities that generate tax increment.
"It's not a minor amendment," said John Shirey, executive director of the CRA. He predicted that preventing redevelopment agencies from using housing funds for foreclosure-related activities would "greatly reduce the likelihood" that local government will get involved directly.
Still, the bill does authorize redevelopment agencies to make new loans, buy out subprime mortgages and acquire foreclosed units anywhere within the local jurisdiction. Approval in the state Senate appears likely, with a vote coming in August. The governor's position on AB 2594 is unknown.
With the subprime mortgage mess reaching new heights, state lawmakers introduced a number of bills in January and February to address the issue through direct government intervention or regulation of the mortgage industry. With hundreds of thousands of California homeowners facing foreclosure, many people assumed at least some pieces of legislation would pass easily. But that has not happened. For example, a five-bill package that sought to tighten lending practices died in the Senate Banking, Finance and Insurance Committee, where members said federal regulators and the private market could take care of the situation.
The Mullin bill was another one that appeared on the surface as if it would sail through the Legislature. Foreclosures have hit both Democratic and Republican districts. Plus the bill is permissive — it does not mandate that local government officials do anything. The measure passed the Assembly in May on a 49-23 vote, with all but one of the opposing votes cast by Republicans.
The bill then went to the Senate, where it faced more Republican resistance — the caucus has recommended a "no" vote, saying that government intervention is not necessary — as well as opposition from affordable housing advocates, who argued against spending low/mod housing funds on foreclosures.
The CRA's Shirey was among the people surprised at the level of opposition. "I have to admit to some frustration over this issue because we initiated this bill at the request of the Democratic leadership," Shirey said. "This crisis is not over by a long shot. I just don't sense any urgency to do something about the problem."
For cities and counties, the problem is this: Foreclosed houses are accumulating and becoming blighting influences. Oftentimes, the houses sit vacant. They quickly deteriorate and attract "broken window" problems that can drag down a neighborhood — the sort of problems that redevelopment agencies are often charged with solving after the fact. A number of cities have increased their code enforcement efforts to force the property owner, usually a bank or investor, to maintain a house and its landscaping. But a better solution may be to have people living in the house. That's where the Mullin bill comes in.
The measure includes a number of provisions:
• The bill authorizes redevelopment agencies to use non-housing funds to provide pre-foreclosure assistance to homeowners by acquiring, assuming or refinancing mortgages or making new loans to homeowners. • Assistance would be limited to homeowners with subprime and non-traditional mortgages, terms which the bill defines. • Because only non-housing funds may be used, homeowners with incomes of up to 150% (rather than the low/mod limit of 120%) of median income are eligible for assistance. • No affordability covenants are required to be placed on assisted properties. • Agencies may help lenders or developers purchase for-sale vacant homes that have been foreclosed so that the units may be rented or sold. • Agencies may acquire and manage foreclosed units themselves. • Agencies may provide counseling to homeowners in financial difficulty. • The bill contains a January 1, 2013, sunset date.
Mullin and the CRA argued that agencies should be able to use a portion of the 20% of revenues required by law to be spent on housing for low- and moderate-income families.
"We are clearly in a mortgage crisis," Mullin told the Senate Transportation and Housing Committee. "This is a pro-active measure to attempt to head off blight."
But Committee Chairman Alan Lowenthal (D-Long Beach) said he would oppose the bill unless provisions for use of low/mod housing funds were deleted. State law requires redevelopment agencies to devote 20% of revenues to increase and improve affordable housing because redevelopment activities often shrink the affordable housing stock, he said. The bill would not increase the housing stock, rather it tackles blight, Lowenthal said, adding, "Activities to address blight are appropriately addressed by the other 80%."
Lowenthal echoed the concerns of affordable housing advocates, who lobbied hard against AB 2594 as originally written.
"We are fully aware of the growing foreclosure problem and its effect on our communities, particularly where our clients live, but the Low and Moderate Income Housing Fund (LMIHF) is not the appropriate source to mitigate the problem," Christine Minnehan, a lobbyist for the Western Center on Law & Poverty, and Brian Augusta, an attorney with the California Rural Legal Assistance Foundation, wrote in a letter to lawmakers. "The LMIHF must be used to ‘increase and preserve' the community's supply of affordable housing."
Minnehan said she could accept a bill that permitted agencies to use their non-housing funds on the foreclosure problem inside and outside of project areas.
Steve Lantsberger, who manages the Hesperia Redevelopment Agency, said removing housing funds from the equation will reduce agencies' interest in helping resolve foreclosure issues.
"You're talking housing. It only makes sense to use housing funds," Lantsberger said. "Most of our non-housing funds are committed to capital projects and making debt payments."
Located in the San Bernardino County high desert, Hesperia experienced a housing construction boom from 2003 through 2006, when as many as 1,800 units a year were built. Now, there are "several hundred" units in some stage of foreclosure, and developers are walking away from half-built subdivisions and incomplete infrastructure projects, Lantsberger said. In addition, vacant foreclosed houses are being used for parties, drug activity and by squatters, he said. "It just invites problems that we are having to deal with as municipalities," he said.
The extraordinary circumstances of the day justify the spending of redevelopment funds outside of designated project areas, Shirey said.
"It's a good investment for redevelopment agencies to deal with those properties now, before those neighborhoods become candidates for redevelopment," Shirey said.
Contacts: John Shirey, California Redevelopment Association, (916) 448-8760. Office of Assemblyman Gene Mullin, (916) 319-2019. Christine Minnehan, Western Center on Law & Poverty, (916) 442-0753. Steve Lantsberger, Hesperia Redevelopment Agency, (760) 947-1906.
Over the past year, even the most irate objectors to Gov. Jerry Brown's dismantling of redevelopment held out hope that in agreeing to kill redevelopment, the legislature would invent a new, better system for stoking local economic growth. Last week, the governor dashed those hopes.
Gov. Jerry Brown's proposed state budget will do more than merely plug a $24 billion deficit. According to some, it will also lead to shuttered factories, recidivism among ex-convicts, and the flight of companies and jobs to rival states such as Arizona, Nevada, and Texas. Faltering clothing manufacturer American Apparel could be pushed closer to the brink of bankruptcy.
At least if Brown's proposal to do away with Enterprise Zones is adopted along with the proposed elimination of the redevelopment program.
State lawmakers wrapped up the first year of their two-year session without taking action on numerous bills regarding land use planning, development and natural resources. But some of the legislation could receive consideration before the end of the month because lawmakers are likely to return for special sessions called by Gov. Schwarzenegger.
The Legislature passed bills that would require fire safety to be a larger factor in land use planning, allow farmworker housing to be built on agricultural land and give local government the authority to limit the conversion of mobile home parks to resident-owned condominiums. Schwarzenegger has until October 11 to sign or veto the bills.
Two bills that would require greater consideration of fire safety in land use planning appear likely to reach the governor's desk before the Legislature recesses its regular session on September 11. Moreover, a late move to link the fire planning bills to disaster relief legislation could increase the chances that Gov. Schwarzenegger will actually sign the bills.
State lawmakers have introduced an extraordinarily diverse collection of bills regarding land use planning, natural resources and infrastructure this year. While lawmakers' interest in affordable housing and redevelopment reform appears to have waned, the number of bills related to climate change or renewable energy has increased dramatically in 2009.
Legislators have proposed at least five measures that would place water bonds before voters. Other measures are aimed at enhancing the health and changing the governance of the Sacramento-San Joaquin River Delta. Bills concerned with development in fire-prone areas have returned after failing last year, as has a measure to ease use of tax increment financing for infrastructure around transit stations. There is also a bill that would raise vehicle license fees to fund at least some of the regional planning required by last year's SB 375.
Construction activity may have declined dramatically, but the number of ballot measures seeking to slow or guide growth remains high. Voters across California will face close to 50 growth-related local ballot measures in November.
It's not unusual for the number of slow-growth measures to increase at the end of a real estate boom. Construction often continues and the real estate market dies, and slow-growth measures are often a reaction to construction rather than the market. In other words, slow-growth ballot measures are a lagging economic indicator of the real estate market. This November's total is down from the 78 measures on the November 2006 ballot, partly because California had two primaries this year.
The state budget signed by Gov. Schwarzenegger in late September shifts $350 million from redevelopment agencies to schools, and it provides no funding at all for transit projects contained in the State Transportation Improvement Program. Still, the sentiment among many local government officials was that the budget could have been far worse.
Senate Bill 375 is alternately being described as the most important land use legislation since the California Coastal Act of 1976, and a step in the right direction. Only time will tell whether the bill is a landmark or an incremental step, but there is no denying that SB 375 author Sen. Darrell Steinberg (D-Sacramento) aimed high. "At the heart of this effort," Steinberg said, "is the need to integrate our housing and transportation plans to create sustainable communities."
Steinberg's bill was by far the most significant land use legislation approved during the two-year legislative session that concluded on August 31.
State OPR says agencies must quantify and mitigate greenhouse gas emissions from projects. But determining significance and cumulative impact is likely to be tricky.
Three bills that would have established "green" building standards for housing, commercial structures and state government buildings were vetoed by Gov. Arnold Schwarzenegger. The governor also vetoed a controversial planning bill that would have limited cities' ability to satisfy regional fair-share mandates with non-residentially zoned properties.
Little appears to have happened since local government organizations and their supporters rolled out an eminent domain reform package that they said would protect homeowners and small businesses from government abuse. The May 21 announcement from the California Redevelopment Association and the League of California Cities got extensive press coverage, and the proposed legislation won plaudits from several newspapers, including the Los Angeles Times. A number of business and environmental groups said they would support the measures.
With the passage of $42 billion in bonds last November, infrastructure spending has risen to the top of the state Legislature's agenda. More than 60 bills attempt to allocate portions of the money or establish criteria for spending the funds, according to the California Budget Project. Still, there is plenty of legislative activity surrounding other planning and development staples, including housing, the California Environmental Quality Act, flood control and economic development.