August 1, 2003 - From the August, 2003 issue

California's Housing Director Opines on State Housing Policy

The relationship between state and local housing authorities has often been a tenuous one, with state officials establishing housing elements that local officials find difficult with which to comply. However, with an unprecedented housing shortage in California and billions of dollars of Prop. 46 money available, it has never been more important for these two levels of government to work together. In order to shed some light on the intricacies of this relationship, TPR recently interviewed State Director of Housing and Community Development Matthew Franklin.

Matt, why don't you begin by defining the program responsibilities that fall under the state's Department of Housing and Community Development?

The Department of Housing and Community Development has three main program areas. First, we are the lead housing policy and research agency for the state of California. Our housing policy and research group also is responsible for reviewing and approving housing elements.

Another area is a group that we call Community Affairs, which is responsible for administering about 90% of the $2.1 billion that was made available for affordable housing through Proposition 46. This includes a broad array of about a dozen different housing programs -- from a variety of affordable rental programs to home ownership programs. Within the rental and affordable piece, we focus on different constituents. One of our mainline programs is a multi-family housing program, which accounts for about half of the Prop 46 dollars.

The final area is what we call Codes and Standards. We have a very large group that's responsible for participating in the development of the California building codes as well as some specific responsibilities for code enforcement.

Haven't most of these responsibilities historically been handled at the local level? What ought to be the appropriate role for the state when, as a matter of policy, it seeks to encourage greater housing production?

Our role is to incentivize and create partnerships to encourage affordable housing development. Proposition 46 is a good example of the state role. The state, of course, has the ability to go out and raise funds to meet specific needs like affordable housing. In the midst of Prop 46, we have a very high bar in this state as far as the level of voter approval that's required in order to exercise authority. The people of the state have spoken and clearly articulated that affordable housing as one of their priorities. The $2.1 billion bond is the largest in the history of California and of the nation.

The other reason for the state's influence is that affordable housing need exists throughout the state. It exists in many areas in which, quite frankly, the municipal, local governments, or regional governments don't have the ability to raise the level of funds that are needed to build the housing.

Moreover, almost 90-percent of our funds are distributed through a competitive process. This way, we're able to ensure that the funds are used in a quality manner. We're able to look at things like the experience of a developer, the capacity of the developer, the extent to which they are going to provide deep affordability. Many of our programs are specifically designed to serve the neediest folks out there. So we're really filling gaps that many local and regional governments would be unable fill on their own.

TPR recently published excerpts from interviews held around the metropolitan LA basin, including Ventura County, about housing and densification. One of the quotes we carried was from Supervisor Kathy Long in Ventura County, who began by saying, "the relationship with the state with regard to the housing element has been adversarial. In fact, two cities in Ventura County have filed litigation with the state agency challenging the state's housing element numbers. We will have to be able to look at the goals of "smart growth" and the desire of communities to address the issues of traffic and density, yet balance that with the desires to have some open space and quality of life." Have you a reaction to Supervisor Long's comment? Any thoughts on the tensions that now exist between the state housing production ambitions and local jurisdictions' reactions to them?

We view the relationship between the state and local governments as a constructive one. Our first step in determining housing element is to work with councils of area governments to project what the housing need is going to be over time for that region. That does include specific projections of housing need for local communities. Once you get a group of people together to agree on what is really a simple calculation of demographics, housing need is what it is. Perhaps some may confuse the message with the messenger, which in this case is the state. But it's a simple calculation, and it is what it is.

Phil Lanzafame, Assistant Director of Development for the city of Glendale offers a similar perspective on the difficulty locals have with complying with the state's housing element numbers. "Glendale is an older community -- meaning it's more mature, it's built out. Our ability just go build more units is very limited. We need to be creative about how we generate those units, and those units need to be affordable to the community, units that everybody has access to. People needing access to affordable housing are nurses, firefighters, teachers." With cities receiving no financial benefit under the current tax structure for making provisions for more housing, why should they override homeowner concerns and approve more housing?

Firstly, I couldn't agree more with the quote. There are a number of communities in California, particularly those that are more mature, that are heavily built out, that still have some very pressing affordable housing needs. That absolutely calls for creativity and innovation in how they're going to meet those needs, and to create a balance with other civic needs, like open space. But, they don't necessarily need to be in competition. There are communities up and down the state doing a good job of meeting their housing needs and doing it in a way that is consistent with smart-growth principles and with other priorities like reducing traffic and preserving the environment.

As far as the incentives for local communities, there are an enormous number of benefits to adequately housing the residents of your community. When folks are poorly housed, you have all sorts of negative impacts on your local economy. Number one, there are health costs that are associated with poor housing. Number two, you have a workforce problem. There are many communities unable to adequately supply housing for the workforce for local businesses. Others are unable to attract additional businesses because of their housing problems.

Matthew, are you saying that if you were a councilperson in a jurisdiction in Orange County, Ventura or Los Angeles, and you were faced with the choice of locating in your city an auto-mall or a big-box retailer, like Wal-Mart, which generates sales tax for your city, or permitting a large housing development, that you would cast your vote for the housing project?

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It's wrong to say that just because there is not an immediate tax incentive for housing that there aren't a number of good reasons for local governments to consider housing developments. Also, it's much more the exception than the rule when those two things are truly at odds. I've found that when you really get on the ground to do an inventory and think creatively about how to use different sites that virtually every community has a number of available sites for development or reuse.

So I understand that trade-off and I understand that under the current local tax structure, when those two are truly at odds and there's only one spot to put either housing or commercial, that commercial could win out. I don't buy into the idea that on a regular basis it's truly an either or situation.

Well, let's test your premise. The Los Angeles school district, like many others, is attempting to eliminate a 200,000 seat facilities shortage and to build upwards of 200 projects in its dense inner-city and inner-suburban neighborhoods. Quite often they are faced with making a trade-off between housing and schools; they in fact have had to relocate thousands of families over the last four years. Yet, there's no provision in the state housing bond for funding the shared planning of housing and schools. Why is that?

There were a number of folks within a broad spectrum of the stakeholders in the affordable housing community and the community development community at the table in creating Proposition 46. If you look at the proposition, it covers a vast array of needs, but there's no question it doesn't cover all needs. As to why that specific need is not in Prop 46, I don't think I can speak to that, I wasn't actually at the table.

In terms of the allocation of the $2.1 billion housing bond, how much of that is going for workforce housing -- for the firefighters, teachers, etc?

About $400 million of the$2.1 billion is for home ownership programs. That is the one piece that is split between HCD and CalHFA. Certainly for our program, and I believe for most of theirs as well, those are programs that will go up to 100 or 120-percent of median income. So in most communities, they should cover what you refer to as workforce housing. Some of our rental programs -- our multifamily housing program for instance, which is about one half of the bond fund -- are very deeply targeted programs in terms of affordability. It's going to be more like the 30-to-40 percent of median income, which will cover workforce in some communities, but probably not in most. So the $450 million going to homeownership programs would be the minimum of Prop 46 dollars that would target that constituency.

Matt, you know that Congress is currently considering the Housing Assistance for Needy Families Act of 2003, which would transfer the housing choice voucher program, better known as Section 8, to state governments. You recently testified on that issue. Could you elaborate on your concerns re this change in federal housing policy?

My concern is the funding. Research indicates that HANF would effectively untie Congress' hands as far as their commitment to annual renewals of the program. In the past, Congress has been committed to using a very simple formula in which they take the number of users of housing vouchers for the current year, and then count in actual rent increases for use as the multiplier when calculating the budget for the coming year. The legislation is silent on how they would account for program costs and increases in future years.

The assumption is that there would either be no increases as the cost of the program increases, or, what congress has done with block-grant programs in the past, is they would used the Consumer Price Index (CPI). But, particularly in California, rent can increase 3-to-4 times faster than CPI on an annual basis. So, it's pretty clear that this legislation would result in California having to provide vouchers to voucher holders within the state, but we wouldn't have the dollars to be able to maintain the level of service that the program has provided in the past. So, we would be forced either to require that participants contribute more than 30% of their income towards rent or, alternatively, target the program to a higher income set of participants. Neither of those are actions that the Davis Administration is prepared to take.

In next month's TPR, a New York City housing developer critiques California's affordable housing program arguing it's incredibly bureaucratic and wasteful of resources. It is asserted that in New York, the city simply has a private sector 80-20 requirement under which the private sector is incentivized to build 20 percent of their units affordable through deferred property tax payments. The result: New York has no housing bureaucracy, has no need for tax credits that pay pennies on the dollar, and no need for lawyers with high fees to process tax credit applications. It's just a straight private sector driven program developing thousands of units of affordable housing at 100 cents on the dollar. What's your response to this New York critique of California's complex affordable housing programs?

I think the critique is absolutely off the mark. Number one, I would put the cost structure of our system up against any operation in the country. We're administering Prop 46 in a very efficient and responsible manner, and we're doing it with just a little bit over 3% of the project cost of the total dollars we're putting out on the street going towards administrative fees.

Number two, I think you're comparing apples and oranges. 80-20 developments are not going to go nearly as deep on affordability, and they're going to be a very different quality of development. On our program, we regularly have a majority of the units at 30-to-40 percent affordability, and we've got some of the best no-profit and for-profit developers in the country doing incredibly high-quality work. If you're going to make that comparison, you need to get on the ground and look at some of these 80-20s. I think what you're going to find is that you're looking at apples and oranges as far as the quality of the structures but the living environment.

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