Legislature Establishes “Permanent Source” of Funds for Affordable Housing Through New Fee on Recorded Documents

One of the marquee bills in the 15-bill housing package that Governor Brown signed into law on September 29 is the “Building Homes and Jobs Act” (Senate Bill 2), which imposes a new fee on recorded documents in order to provide a “permanent source” of funds for affordable housing.  Most of these funds will eventually be allocated to cities and counties, providing them ongoing and locally controlled funding for a variety of housing programs and projects of their choice.

The Act imposes a fee of $75 per recorded document, excluding documents for real property sales, up to a maximum of $225 per transaction.  Legislative analyses project that the fee will generate $200 – $300 million per year, depending on the volume of recorded documents.  While this represents just a fraction of the billion dollars that were annually generated for low and moderate income housing by the state’s redevelopment agencies before their elimination, the Act represents a substantial ongoing resource for a variety of affordable housing projects and programs.

2018 Funds.  Funds generated in 2018 will be allocated differently than in future years.  For this one year only, half of the funds will be distributed to cities and counties to be used for the costs of updating planning documents and zoning ordinances in order to streamline housing production, and the other half will be distributed to the state for homeless assistance programs and projects.

Cities and counties must request the funds from the Department of Housing and Community Development (application details have not yet been released).  Local agency uses of these funds may include the preparation of general plans, community plans, specific plans, sustainable communities strategies and local coastal programs; CEQA analyses to eliminate the need for project-specific review; and local process updates to improve and expedite local planning.  Other potential uses of the funds might include the creation of special housing districts, the creation or modification of inclusionary housing ordinances, and the preparation of in lieu fee studies and economic feasibility studies for inclusionary ordinances.

Practice Tips for 2018 Funds.  Cities and counties should begin discussions of potential uses of 2018 funds now, and should begin lining up consultants to perform the planning activities for which funds are requested.  2018 is the only year that SB 2 funds will specifically be available for planning activities, so local governments should consider and determine what methods they would prefer to use to stimulate housing production within their jurisdiction.  Developers who want to take advantage of upfront CEQA approvals and streamlined planning efforts for affordable housing projects should contact local jurisdictions to recommend how those funds could be spent.

Funds for 2019 and Beyond.  Beginning in 2019, 70% of funds generated will be distributed to cities and counties, with the other 30% distributed to the state for farmworker housing, mixed income multifamily housing and other programs.  90% of the local government funds will be allocated based on the federal CDBG funding formula, with the other 10% of the funds distributed through a competitive grant program.  Cities and counties will be entitled to their share of the funds so long as they submit a plan outlining their use of funds, giving priority to assisting households earning 60% of area median income and below.  They must also have a compliant housing element, and submit annual housing element reports and annual fund tracking reports to HCD.

Under SB 2, a very broad use of funds is permitted, with uses controlled by local discretion rather than by state agencies.  Funds may be used jointly by 2 or more local agencies.  Up to 5% of the funds may be used for administrative costs.  Funds may be spent on housing for households with income levels up to 120% of median income, and up to 150% of median income in high cost areas.

Funds may be used for such purposes as:

• Development, acquisition/rehabilitation, and preservation of affordable rental housing.  SB 2 funds will be a good source of gap funding for apartment projects with Low Income Housing Tax Credits and other sources of affordable housing assistance.
• Affordable ownership housing.  Funds will be available for popular down payment and mortgage assistance programs, as well as acquiring and conveying land for affordable home projects.
• Homeless programs and projects.  Funds may be used for regional and multi-agency approaches to homelessness which serve more than a single jurisdiction.
• Matching funds for local and regional housing trust funds, and projects receiving housing funds generated by former redevelopment agencies.
• Capitalized reserves for services to be provided to supportive housing projects.
• Accessibility modifications.
• Acquisition and rehabilitation of foreclosed or vacant homes.
• Fiscal incentives to local agencies for approval of low and moderate income housing.

Practice Tips for 2019 and Beyond Funds.  As 2019 funds will begin to be included in budgets as early as next year, local agencies and developers should begin thinking about potential uses of the SB 2 funds and the methods for distribution.  Some cities and counties may want to proceed through a NOFA (notice of funding availability), RFP (request for proposal) or RFQ (request for qualifications) competitive process.  Others may have specific projects or programs in mind.  Affordable housing developers should begin discussing with local agencies proposed uses of the funds for their projects.