MOORLACH UPDATE — Housing Bond Audit — October 5, 2018

This past Tuesday, I was back up at the Capitol to participate in the Joint Informational Hearing of the Senate Transportation & Housing and Governance & Finance Committees, as I sit on the latter. The title was “Housing for Working Families: How Do We Pay for It?” It was the first of two hearings. As this hearing dealt the housing shortage and financing, the market forces actually causing this crisis will be the topic of the next hearing to be held in November in the city of Long Beach. (If it were up to me, the regulatory dynamics unique to the California real estate market should have been addressed first.)

The first panel, addressing the topic “California’s affordable housing crisis by the numbers, recent actions to close the housing gap, and new ideas for future investments,” included Lisa Bates, Deputy Director of Financial Assistance, California Department of Housing and Community Development.

It gave me the opportunity to ask Ms. Bates about the recent State Auditor’s audit report on her department and its shortcomings (see the fact sheet at https://www.auditor.ca.gov/pdfs/factsheets/2018-037.pdf and full report at https://www.auditor.ca.gov/reports/2018-037/index.html). The Chair of the Transportation & Housing Committee, Senator Jim Beall, thanked me for the inquiry, as he too was concerned about the report.

A few thoughts. There is a $4 billion housing bond measure on the November ballot, Proposition 1, that this department would oversee (also see MOORLACH CAMPAIGN UPDATE — 2018 Ballot Measures — September 21, 2018). It would be more reassuring if the audit report praised Housing and Community Development. Consequently, voters are likely to approve another massive bond with minimal oversight.

Our State Auditor does great work. Regretfully, no one seems to care. Have you heard any reaction to the audit report from the Governor? From Alexis Podesta, the Governor’s Secretary at the California Business, Consumer Services and Housing Agency? I didn’t hear a peep from her.

Now you can see why I authored SB 1297 this year to establish the office of a Chief Operating Officer (see https://moorlach.cssrc.us/content/senate-bill-1297-state-chief-operating-officer). No one seems to be running the show in Sacramento (also see MOORLACH UPDATE — SB 1297 – COO — April 19, 2018).

Fortunately, The Bond Buyer permitted me to vent a little on these two concerns in the piece below. Note: The reference at the conclusion of the piece should be to Proposition 63 (2004).

California is better at authorizing housing bonds than administering them

By Keeley Webster

https://www.bondbuyer.com/news/audit-problems-with-california-housing-bond-administration?brief=00000159-f607-d46a-ab79-fe27f2be0000

LOS ANGELES — California’s housing agency exercises inconsistent oversight of programs funded by state housing bonds.

That’s the state auditor’s conclusion in a report that was released a few weeks ahead of the November election, in which state voters will be asked to authorize $4 billion of new general obligation bonds for housing.

The Department of Housing and Community Development’s oversight of bond funds remains inconsistent, said California State Auditor Elaine Howle.

The audit of the Department of Housing and Community Development is State Auditor Elaine Howle’s fifth in a series tracking results from the Housing and Emergency Shelter Trust Fund Acts of 2002 and 2006.

The agency’s “oversight of housing bond funds remains inconsistent and HCD has failed to follow through on half of our recommendations from previous reports,” Howle wrote in a letter to state lawmakers attached to the 41-page report released in late September.

“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,” Howle wrote.

“HCD generally provided adequate monitoring of its loan‑based programs by performing on‑site visits and reviewing required reports. However, it did not adequately monitor its grant‑based programs,” the audit report said. “As a result, it cannot be certain that award recipients for these programs used the funds to assist target populations with homeownership or home rehabilitation.”

State Sen. John Moorlach, a Costa Mesa Republican, called Howle “the real deal,” who has been willing to take on the same issues he has hammered as a senator – primarily what he sees as poorly run state agencies.

Though Howle has issued five reports questioning oversight of housing bond funds, nothing has changed, she wrote.

The accountability in Sacramento is negligible – and bonds continue to be approved by voters, Moorlach said.

“Howle writes these reports and no one gets fired, nothing gets modified and no one gets retrained,” he said.

Moorlach authored a failed bill asking that the state create a chief operating officer position to make sure criticisms raised in audits are addressed.

The state’s November bond measure comes on top of more than $10 billion in housing bond measures that have been approved by voters statewide and in individual cities and counties over the last two years.

San Jose, Santa Rosa and Santa Cruz in northern California are following the lead of other coastal cities that got voter approval for housing bond measures, and are placing measures on November’s ballot.

Issues raised in audits — particularly around the use of bond funds — don’t seem to affect the rate of voter approval on bond measures.

“I think 90% of the bond measures on the state ballot have been approved,” Moorlach said. “People don’t realize there is a cost. They don’t realize it is going to raise taxes. They don’t understand debt.”

Reports by Michael Coleman of the California League of Cities bear out Moorlach’s comments on approval rates for state bond measures. School district bond measures and city tax measures have an even higher approval rate.

The state’s $4 billion Proposition 1 would fund a variety of existing programs, including $1.5 billion to support apartments for low-income residents and $1 billion for loans to help veterans purchase farms and homes.

Many of the recent spate of city and county housing bond measures have been aimed at tackling homelessness.

It’s a case of trying to fix a symptom while not dealing with the underlying problem, said Christopher Thornberg, founding partner of Beacon Economics, LLC, an independent research and consulting firm.

While very visible, Thornberg said, the homeless population in California is a minuscule percentage of the overall population. In Los Angeles County, it’s 45,000 people in a county of 10 million.

“The idea that the housing shortage is best discussed in the context of homelessness is like saying an elephant is best discussed on the basis of its tail,” Thornberg said. “Politicians are making a big deal out of homelessness and it’s distracting from the real problem, which is the failure to clean up the zoning issues or allow a proper degree of development by failing to push back against the NIMBYs.”

“We view California’s housing shortage as an important, though difficult to quantify, long term headwind to the state’s economic growth prospects,” said Gabriel Petek, an S&P Global Ratings analyst.

There’s an economic cost: the price of housing, both rental and for-sale, has soared in the Bay Area, for example, as housing inventory failed to keep pace. Between 2011 and 2015, the Bay Area added over 500,000 jobs, but only 65,000 housing units, according to the Bay Area Council, a business group.

S&P Global Ratings has been including the state’s housing shortage in ratings reports for several years.

“We view California’s housing shortage as an important, though difficult to quantify, long-term headwind to the state’s economic growth prospects,” said Gabriel Petek, an S&P Global analyst.

“For example, notwithstanding that California boasts strong income and wealth indicators—per capital income is 116% of the nation for 2017—it’s also plagued by an above average poverty rate,” S&P wrote in an Aug. 23 report, when it affirmed California’s AA-minus GO bond rating. “After accounting for the cost of living, the state’s poverty measures look even worse. Nowhere is this more evident than in the state’s real estate market, where a chronic shortage of affordable housing, especially in its large metropolitan areas, undercuts the state’s business climate.”

The California League of Cities supports Proposition 1.

It also supports Proposition 2, the No Place Like Home measure, which would ratify a plan to allow the state to use an income tax surcharge to support mental health programs to back bonds to fund housing for homeless people with mental health problems.

In 2016, Brown signed legislation allowing up to $2 billion of bond proceeds to be backed with revenue from the so-called millionaire’s income tax imposed in 2004’s Proposition 62.

That plan has been tied up by a lawsuit contending Proposition 62 does not authorize the use of bonds. Proposition 2 would remove that ground for the suit.

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MOORLACH UPDATE — Joint Author Details — July 7, 2018

Now that the California Legislature has started its summer break, it seems the media attention of late has been focused in the Opinion pages. This is true of my last UPDATE (see MOORLACH UPDATE — Watching Our Votes — July 4, 2018).

In the first editorial below, The Sacramento Bee has a piece about SB 1004 on its website by former Assemblywoman Cheryl Brown. I enjoyed working with Ms. Brown and built a good relationship with her while she was in Sacramento, during my first half-term. Because of my affection for Ms. Brown, allow me to provide more detail than normal and to share two themes that have been evolving recently in my life.

The first is building relationships with members across the aisle (see MOORLACH UPDATE — AB 521 — November 12, 2015). On occasion, I will coauthor a bill introduced by a Democratic Legislator. This year I upped the game and Joint Authored two bills with Democratic Senators.

Senate Bill 1206, the No Place Like Home Act of 2018 was introduced by Senator, and former President Pro Tem, Kevin De Leon and myself (see http://leginfo.legislature.ca.gov/faces/billTextClient.xhtml?bill_id=201720180SB1206). It was recently replaced by Assembly Bill 1827, a budget trailer bill, due to the urgency of needing to get this measure on the November ballot (see http://leginfo.legislature.ca.gov/faces/billTextClient.xhtml?bill_id=201720180AB1827&search_keywords=no+place+like+home). For more background on this proposal, see MOORLACH UPDATE — SB 1273 and MCO Tax — February 27, 2016.

You will see this effort as Proposition 2 on the November General Election ballot. You know that I usually oppose general obligation bonds, but this proposed bond has an existing revenue stream to pay the principal and interest. I would call this technique hypothecating or securitizing an income stream to get the principal up front in order to begin constructing or investing in a project immediately.

The revenue source is the Mental Health Services Act (MHSA), created by voter approval through Proposition 63 of 2004. It is also known as the millionaires tax, so the revenues should be reliable as long as wealthy residents are willing to pay for the great weather. I say this, as there are signs that high net worth individuals have been leaving the state since the passage of Gov. Brown’s income tax increase resulting from the successful passage of Proposition 30 in 2012. This was a proposition that I opposed (see MOORLACH UPDATE — Costa Mesa Voter’s Guide — October 6, 2012 ).

The MHSA revenues helped me to find funding to implement Laura’s Law in Orange County through the passage of SB 585 (Steinberg). It also helped me to change state law to provide more crisis stabilization unit beds to assist our public safety officials when they encounter an individual facing a mental health crisis (see MOORLACH UPDATE — Mentally Ill Inmates — June 11, 2016).

Appreciating this strategy, I was an early supporter of the No Place Like Home effort by Sen. De Leon, which uses a small percentage of MHSA revenues to repay the bondholders. The proceeds will be used to construct or refurbish immediate housing for the mentally ill homeless population.

This year I also joint authored Senate Bill 1004 with Sen. Scott Wiener of San Francisco (see http://leginfo.legislature.ca.gov/faces/billTextClient.xhtml?bill_id=201720180SB1004). This bill focuses on prevention and early intervention, as mental illness is showing up in impacted children as early as age 14. The sooner it is diagnosed, the better the opportunity to implement appropriate strategies. A great example would be CHOC’s pediatric psychology efforts, a new treasure in my District, which I mentioned in my May 1st UPDATE (see https://www.choc.org/programs-services/mental-health/).

Why do I provide so much detail? Because the MHSA is rather vague and has confused counties to such a degree that they have accumulated nearly $2.5 billion in unspent funds.

Consequently, providing some clarity in this area would be helpful. Which brings me to the second theme. I have found myself focusing on the topic of mental illness. It started while I was a County Supervisor in trying to understand and implement Laura’s Law (see MOORLACH UPDATE — Laura’s Law Journey — August 11, 2014).

This evolution has found me joining the Mental Health Caucus and being appointed this year to the Senate Select Committee on Mental Health. I remind everyone that I was a business major, not a pre-med major. So, this has been an education for me over the past dozen years or so, starting with the killing of Kelly Thomas in Fullerton (see MOORLACH UPDATE — Kelly Thomas Reverberations — January 15, 2014).

With that, I joined Sen. Wiener to provide clarity. SB 1004 seeks to clarify where some of the funding should be prioritized. Former Assemblywoman Brown fears this will impact the share of the pie for the elderly. I believe this fear is unfounded. Instead of opposing the bill, she should work with me and others in the Mental Health Caucus to draft a bill that focuses funding attention for the elderly and even pursues an effort to classify dementia and Alzheimer’s as mental illnesses eligible for MHSA funds.

The second column is in the Press-Enterprise and Daily Breeze and it follows the theme recently presented in MOORLACH UPDATE — Janus Decision — June 28, 2018.

It refers to an effort I pursued last year (see MOORLACH UPDATE — There Ought Not Be A Law — April 23, 2017 and MOORLACH UPDATE — Earning a Living — November 30, 2017). Ironically, the argument that Sen. Morrell received for stopping his efforts was the same one used to kill my bill.

What a tragedy that Assemblyman Low would bow to the pressures of an industry group’s representatives in attendance with their weak opposition argument, but could totally ignore the long line of opponents to his bill, AB 2943, when it recently came before the Senate Judiciary Committee, of which I am Vice Chair. All the more when the number of individuals wishing to testify against his bill was so large that they had to fill the balcony of the Senate’s largest hearing room and the hallways, requiring one and one-half hours to let them all come to the microphone. The ironies continue.

SOAPBOX

Legislature must not slight seniors in mental health money

BY CHERYL BROWN

Special to The Sacramento Bee

https://www.sacbee.com/opinion/op-ed/soapbox/article214391359.html

An important measure to expand access to mental health care services in California is going through the Legislature, but it would make it more difficult for counties to serve older adults.

Senate Bill 1004, which was approved by the Assembly Health Committee on June 19, would amend Proposition 63, passed by voters in 2004 to provide funding for county mental health services with a 1 percent tax on annual incomes of more than $1 million.

Sens. Scott Wiener, D-San Francisco, and John Moorlach, R-Costa Mesa, who introduced SB 1004, appear to be at odds with the needs of older adults because the bill shifts the focus of the Mental Health Services Act primarily to young people.

The bill says that 75 percent of mental illnesses begin by 14 years of age, citing a study showing the relationship between early trauma and life-long problems.

Most of them grew up when mental health problems were less understood, diagnosed or appropriately treated. As a result, many tend to shy away from mental health services. Yet adults between 45 and 64 old are at the highest risk for suicide nationally, and in recent years California’s suicide rate among adults 65 and older has been higher than the national average.

The senior community believes that SB 1004 should also address the mental health needs of seniors as much MHSA money remains unspent. The California Commission on Aging offered amendments stressing that older adults are also at risk of anxiety depression, anxiety, psychological traumas and suicide.

Sadly, the Assembly Health Committee did not consider the amendments. As a result, the Commission on Aging opposes SB 1004 because it would make it more difficult for seniors to secure the mental health services they need.

Cheryl Brown is a member of the California Commission on Aging and former chairwoman of the Assembly Committee on Aging and Long-Term Care. She can be contacted at cheryl1242.

OPINION

Will ‘sunset review’ shut the

lights on onerous licensing

rules?

By STEVEN GREENHUT | Press-Enterprise

https://www.pe.com/2018/07/06/will-sunset-review-shut-the-lights-on-onerous-licensing-rules/

https://www.dailybreeze.com/2018/07/06/will-sunset-review-shut-the-lights-on-onerous-licensing-rules/

SACRAMENTO — One of my favorite Ronald Reagan quotations illustrates the problem of an ever-growing government: “Government programs, once launched, never disappear. Actually, a government bureau is the nearest thing to eternal life we’ll ever see on this Earth!” In my decades covering public agencies, I can think of only a handful of rollbacks — and they usually ended up perversely expanding government power.

In one recent case, the state Legislature gutted a state tax board, known as the Board of Equalization. But its powers merely were shifted from elected officials to bureaucrats in different agencies — and now California taxpayers are more frequently getting the shaft. That’s how government works.

Last week, a simple bill (sponsored by my employer, the R Street Institute) would have rolled back licensing requirements for only one of the hundreds of trades and professions that require a state license to work. Burdensome education requirements, fees and testing become obstacles for lower-income people to get gainful employment that doesn’t involve flipping burgers. The requirements often have no relevance to public safety, but usually are the result of powerful interest groups that use government to lock up some part of the market.

Last year, Sen. John Moorlach, R-Costa Mesa, introduced a bill that would have eliminated such requirements in a variety of fields, but it was a non-starter given its broad scope. It was referred to multiple committees and dead on arrival. So this year Sen. Mike Morrell, R-Rancho Cucamonga, introduced legislation that targeted one particular — and particularly ridiculous — set of licensing rules involving people who want to shampoo, arrange, dress and curl (but not cut) hair for a living.

If you shampoo hair for pay at, say, elderly people’s homes or at a salon — and haven’t spent as much as $19,000 at a barbering and cosmetology school — then you are an outlaw. It’s illegal to do so in California. The Board of Barbering and Cosmetology posts this Frequently Asked Question on its website: “I would like to hire a person for the sole purpose of shampooing or preparing consumers services; can I do this?” The answer: “No, only a licensed barber, cosmetologist or apprentice can wash a consumer’s hair or prepare a consumer for services.”

Did I mention that a shampooer needs 1,500 hours of training, whereas a first responder/emergency medical technician only needs 120 to 150 hours of training? The Morrell bill passed the full Senate with only two “no” votes, but was killed last week in the Assembly Business and Professions Committee on a 14-3 vote in spite of the fact that most of us have shampooed our own hair for years without calamity.

The hearing room was packed with students from local cosmetology schools. It should surprise no one that the main beneficiaries of the current rules are the schools that charge hefty tuitions for such training, nor should it be a surprise that the state bureaucracy (the Department of Consumer Affairs) estimated excessive fee-revenue losses if the bill became law. Those estimates are hard to fathom given how unimaginable it is that people currently go through the whole licensing rigmarole and then only use the degree mainly to shampoo and arrange hair.

But government agencies see any kind of minor regulatory rollbacks as a threat to their authority. There’s always that fear of the slippery slope. There’s also an economic term known as “regulatory capture.” It’s typical in all aspects of government for industries that are being regulated to dominate the agencies that do the regulating.

The main argument that the Assembly Business and Professions Committee Chairman Evan Low, D-San Jose, used to oppose the bill is that the issue can be handled in the forthcoming Sunset Review hearings. The Assembly and Senate business and professions committees hold these annual hearings in the fall to “discuss the performance of the boards and make recommendations for improvements,” according to the legislative website. The term “sunset” comes from the legislation, which would sunset the many boards out of existence unless they justify their existence.

This is one of those cool ideas that sounds much better in theory than in reality. Government agencies should indeed have to explain what they do to stay in business. But California’s Sunset Review process rarely leads to the sunset of anything. Senate Bill 999’s opponents note that the review led to legislation last year that eliminated the Board of Guide Dogs for the Blind. That was a welcome development, but the elimination of that pointless board was backed by regulators and the industry itself.

By contrast, SB999 is opposed by the beauty industry and the bureaucracy. Nevertheless, I’ll take legislators at their word and closely watch as they advocate for the end of onerous regulations that benefit business owners at the expense of aspiring low-income workers. Wouldn’t it be great if California’s Legislature turned out to be the exception that proved Reagan’s rule?

Steven Greenhut is Western region director for the R Street Institute. He was a Register editorial writer from 1998-2009. Write to him at sgreenhut.

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