MOORLACH UPDATE — Joint Informational Hearings — November 1, 2018

After the conclusion of the Regular 2017-18 Legislative Session at the end of August, State Legislators enjoy a supposed “break.” But, for up to 75 percent of them, they are actually enjoying re-election campaigns.

However, committee chairs still hold hearings to address key subjects that they either didn’t have time for or there was some special request. I’ve recently flown up to Sacramento for three such hearings.

Obviously, this is not a quiet break. And, Republicans should attend to ask the tougher questions. So I do. One major concern was a very recent and unflattering State Auditor report of the California Department of Housing and Community Development (see https://www.bsa.ca.gov/pdfs/reports/2018-037.pdf).

Audit reports are issued, but rarely acted upon in Sacramento. With ballot propositions impacted, wouldn’t it be wise to clean up the management of a department that is responsible for administering housing bonds first before requesting more bond proceeds? I’m just sayin’.

It also gives me an opportunity to provide recommendations, such as better coordination between state departments and agencies and the benefits of creating the office of a Chief Operating Officer.

On October 15th I traveled to Sacramento for a Joint Governance and Finance Hearing on the recent U.S. Supreme Court Wayfair online sales tax decision. This monumental decision will keep the newly created California Department of Tax and Fee Administration (CDTFA) busy. The CDTFA was broken out of the State Board of Equalization’s core responsibilities by the majority party last year. So far, CDTFA is struggling to figure out what their job is and has experienced some awkward growing pains (for an example, see https://www.sacbee.com/news/politics-government/the-state-worker/article217166950.html). I’m hopeful that the dust will settle soon. But, it was very helpful to meet the department head and listen to his challenges and managerial efforts to meet them. Again, a COO would also be helpful here.

This week I flew up for a Joint Insurance Committee hearing to address homeowners’ insurance concerns for families who lost their homes to the devastating fires in recent months. Ironically, it was on a zero-humidity, windy, potential fire warning day. I reminded the committee members present that after the 1993 Laguna Beach fire, only half of the homes were rebuilt three years later. From Sacramento, I had to drive to Napa Valley College for the venue. KCRA-TV 3 was at the hearing and their report can be seen at https://www.kcra.com/article/wine-country-wildfire-victims-learn-many-are-underinsured/24454523.

A joint committee hearing usually includes members of both the Senate and Assembly committees. However, on October 2nd, I attended a hearing titled “Housing for Working Families: How Do We Pay For It?” for two Senate committees, Senate Governance and Finance, on which I serve, and Senate Transportation and Housing. Since I love euphemisms, knowing that the title should state more clearly that the “we” is “you.” Consequently, I thought it would be helpful if I provided some details of this hearing to keep Californians informed.

The submittal is in Fox & Hounds and mentions AB 448 (see MOORLACH UPDATE — AB 448 and SB 1363 — September 12, 2018) and SB 1297 (see MOORLACH UPDATE — SB 1297 – COO — April 19, 2018 and https://moorlach.cssrc.us/content/senate-bill-1297-state-chief-operating-officer).
Regretfully, the real reasons for California’s housing crisis were not on the agenda of this meeting, but will be discussed at a second Senate Governance and Finance and Senate Transportation and Housing Joint informational hearing on November 16th in downtown Los Angeles. For those who wish to attend, you may want to join me that morning for a train ride to Union Station. It’s not often that a Legislative hearing is this close to the OC.

Grappling with California’s Housing Crisis

John Moorlach

By John MoorlachState Senator representing the 37th Senate District

http://www.foxandhoundsdaily.com/2018/10/grappling-californias-housing-crisis/

We see California’s housing crisis every day as the homeless permeate our streets, businesses and neighborhoods. To address that, I participated in the joint informational hearing of the Senate Transportation & Housing and Governance & Finance Committees on October 2. The title: “Housing for Working Families: How Do We Pay for It?”

The video and agenda are here. And the Digital Democracy transcript is here.

The discussion brought up Assembly Bill 448, by Assembly Members Tom Daly, D-Anaheim, and Sharon Quirk-Silva, D-Fullerton. I strongly supported the bill, which sets up the Orange County Housing Finance Trust to enable local municipalities to plan and construct housing for the homeless and those with low incomes. It received unanimous, bipartisan support in both chambers of the Legislature.

“It’s very important to have those trust funds and have as many sources as possible going into them,” said Matt Schwartz, president and CEO of the California Housing Partnership Corporation. In Orange County, we hope to harness existing public and private funds and contributions from governments and foundations.

Enter Proposition 2 on the November ballot, called No Place Like Home. I sponsored putting it on the ballot with state Sen. Kevin DeLeon, D-Los Angeles, when he was the Senate’s president pro Tem, before the Assembly Budget Committee assumed ownership of the bill at the end of the budget process.

Prop. 2 was praised by Lisa Bates, deputy director of financial assistance at the California Department of Housing and Community Development. It would not increase taxes, but better use the proceeds of Proposition 63 from 2004, the 1 percent tax on millionaires for mental health programs.

To clarify problems from a lawsuit, Prop. 2 would permit the state to borrow up to $2 billion, with Prop. 63 to back bonds to fund housing for homeless people with mental health problems. So many of the homeless are on the streets because of substance dependency and mental issues.

Prop. 2 is unique because it taps an existing funding stream via the Mental Health Services Act.

Taxes, Bonds and Debt

Some counterproductive ideas came up at the hearing. Schwartz commended last year’s Senate Bill 2, by state Sen. Toni Atkins, D-San Diego, now the president pro-tem. To fund homeless programs and low-income housing, it imposed a tax of up to $225 at the time of the recording of every real estate instrument, paper or notice. It would raise between $200 and $300 million a year.

But the tax will increase the price of housing. So there’s always a cost. And it was imposed at a time the state was overflowing with $12 billion in surplus revenues.

Then there’s Proposition 1 on the ballot, $4 billion for affordable housing for low-income buyers and veterans. It may cost up to double that, $8 billion, to pay down over 35 years. And the Legislative Analyst estimates the yearly cost to pay down the bonds would be $170 million annually.

At the hearing it was brought up by Larry Flood, director of financing and interim director for multifamily programs at the California Housing Finance Agency. He pointed out if it passed, “We can provide down-payment and/or closing-cost assistance to an additional 20,000 California first-time home buyers over the next three to six years, depending on market conditions.”

I recently asked the State Treasurer’s Office for the cost of the five previous housing bonds voters passed in 1990, 2000, 2002, 2006 and 2014. The total debt service – principal plus interest – for them is $369 million for fiscal year 2018-19 and $422 million for fiscal year 2019-20. So if Prop. 1 passes, the cost would rise to $592 million in 2019-20. (Fortunately, the payments do decline starting in 2022.)

Because these bonds are paid from the general fund, and cannot be postponed, during an economic downturn they could end up causing tax increases. And tax increases hurt everyone, especially the poor and homeless. Even if the “rich” are taxed, that means they have less money to invest in new housing – making the housing crisis worse.

As a CPA, I stress the importance of audits to make sure public money is being spent properly, especially on existing and potential future bonds. So I asked Bates about the September 20 audit of her department by State Auditor Elaine M. Howle. It found, “oversight of housing bond funds remains inconsistent and that HCD has failed to follow through on half of our recommendations from previous reports. We found problems related to how HCD is monitoring some bond programs, whether its housing bond database can perform key functions, and how it is ensuring that it does not exceed administrative spending limits.”

Bates replied, “And so we feel that many of the recommendations that they have provided us, we have already implemented or are well on our way to implementing. The first report will be in November if we have a 60-day report to the Auditor due. And so within that report, we expect to show a tremendous amount of progress and headway in having addressed many of the concerns that were raised.”

That’s something to be watched. And shouldn’t we make sure existing bond funds are being spent properly before voting for new ones?

Who’s In Charge Here?

I also asked her about the organizational chart of the state government, including housing. “What do we have, the Governor? And then we have someone, and then we have all these boxes underneath. Who is the point person to coordinate with all of these departments and agencies?”

She replied, “So one of the things that the Legislature did last year is to move the Homelessness Coordinating and Financing Council from a department level where we had initiated it up to the agency level. So really this is a product of that council that is seeking to coordinate across our various state departments in terms of what we need to do to further address homelessness across the state.”

She pointed out Business, Consumer Services and Housing Agency Secretary Alexa Podesta is the chair of the council. Caltrans was added, but the council “has representation across the various state departments that are implementing these programs and more. And so it is the council’s goal and objective to help ensure [housing is the main concern] of our programs across the state.”

That shows why the state needs not just a governor, largely a political position, but a Chief Operating Officer, who would get down in the trenches and make sure state agencies are functioning efficiently. My Senate Bill 1297 would have created this COO position. Although it passed two committees this year, it was not brought before the full Senate. I’m considering bringing it back next year.

In his October 15 column, Dan Walters wrote on a similar theme, “Brown’s Legacy Will Include a DMV Debacle.” It criticized the governor’s “obvious disdain for nuts-and-bolts management of a very large organizational structure,” leading to complete mismanagement at the DMV of not only motor-voter registration, but its basic job of giving Californians driver’s licenses and license plates.

There was much more in this informative, three-hour hearing. It was a good start to a long process and a second is planned for November 16. Hearing Co-Chair Sen. Jim Beall, D-San Jose, summed it up. He said more than $10 billion has been spent on the homeless the last few years, yet, “The crisis is not over, so our work is not done.”

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