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League-Sponsored Bill to Provide Sustainable, Ongoing Funding to Build Affordable Housing Passes Out of Senate

May 29, 2019
The State Senate today passed SB 5 (Beall, McGuire, Portantino), which would establish an ongoing funding mechanism that would ultimately direct up to $2 billion annually in support of local infill, transit oriented development, affordable housing and neighborhood revitalization projects.
SB 5 establishes a new state-local partnership that provides cities and counties the resources they need to subsidize affordable housing, invest in infrastructure needed to support housing, invest in housing near job centers to reduce long driving commutes and bring the state closer to its goals of reducing greenhouse gas emissions and addressing climate change.
“Cities are proud to support SB 5, because it will create a much-needed partnership between the state and locals to help us meet our affordable housing challenge,” said Carolyn Coleman, executive director of the League of California Cities. “Every day, city officials see first-hand the devastating toll that a lack of affordable housing has on our residents. Too many Californians are homeless, or one paycheck away from losing shelter. SB 5 is an important commitment toward housing those most in need.”
While the Governor and Legislature have proposed one-time funding, there is a significant need for ongoing and sustainable funding dedicated to affordable housing, community revitalization and related infrastructure. SB 5 is supported by a broad coalition of California cities, businesses, labor organizations, housing advocates and community leaders.
Next Steps

SB 5 represents a major effort by the authors — chairs of the key Senate Transportation, Governance, and Finance Committees — to restore a more viable funding option for urban revitalization and development projects going forward. As this measure continues through the legislative process and onto the Assembly, cities are encouraged to send support letters to their legislator and a copy to cityletters@cacities.org. The full text of the measure along with the League’s support letter can be found at www.cacities.org/billsearch by plugging SB 5 into the search function.

Since the elimination of redevelopment, cities have been looking for a replacement funding mechanism. While the state has created several tax increment tools — including Enhanced Infrastructure Financing Districts (EIFD), Community Revitalization Investment Authorities (CRIA), Affordable Housing Authorities (AHA) and others — all have their limitations, and are much less fiscally robust than the former tool. SB 5 fills the financing void by creating the Local-State Sustainable Investment Incentive Program. 
Under SB 5, a city, county, or Joint Powers Authority that has a financial commitment to a project would apply for funding to a Sustainable Investment Incentive Committee, created by the bill. Eligible projects include:
  • Housing development plans that propose construction of workforce and affordable housing, and support the construction of housing for all-income ranges consistent with adopted housing elements. Fifty percent of the funds must be used to construct workforce and affordable housing; 
  • Transit-oriented development in priority locations that maximize density and transit use, and contribute to the reduction of vehicle miles traveled and greenhouse gas emissions; 
  • Infill development by rehabilitating, maintaining and improving existing infrastructure that supports infill development and appropriate reuse and redevelopment of previously developed, underutilized land that is presently served by transit, street, water, sewer, and other essential services, particularly in underserved areas, and to preserving cultural and historic resources; and 
  • Promoting strong neighborhoods through supporting local community planning and engagement efforts to revitalize and restore neighborhoods, including repairing infrastructure and parks, rehabilitating and building housing, promoting public-private partnerships, supporting small businesses and job growth for affected residents. 
Twelve percent of the overall funding for the program shall be set aside for counties with populations of less than 200,000.
How SB 5 Financing Works
Under prior redevelopment law, when a city formed a redevelopment project area, a powerful financing mechanism was created because the property tax growth above the base year from affected counties, special districts and schools — in addition to a city’s — would flow to the redevelopment agency.  Property tax growth from the school share of property tax, which can average half of local property taxes, was a major funding engine for redevelopment. When redevelopment agencies were eliminated in 2011, approximately $2 billion in property tax was being diverted from school to redevelopment agencies. There was no financial impact on schools, however, because the state General Fund replaced these funds annually due to is funding obligations under Proposition 98.
One of the major challenges with the new financing mechanisms attached to recent tax increment tools (EIFD, CRIA, AHA, etc.) is that none of the growth of the county or special district’s share of property tax goes to the new district without agreement by the affected entities, and access to growth off the school share is currently prohibited. This is a major limitation. While cities can approach counties and special districts with various proposals, those entities have their own priorities, which often do not include funding urban revitalization, transit oriented development, affordable housing and other major projects within cities. Cities cannot approach school districts — and would likely never be able to absent a state approval process — given the state’s funding obligation to schools under Prop. 98. SB 5 resolves this problem, and opens up major funding options, by creating a state approval mechanism to access growth off of the school share for local projects that match state priorities.  
Other Features

The Local-State Sustainable Investment Incentive Program is designed as an opt-in program and no affected taxing entities are required to participate. Schools will be made whole by the state backfill mechanism in Prop. 98. Prevailing wages and skilled and trained workforce requirements apply.
State Oversight
SB 5 would create the Sustainable Investment Incentive Committee, which will review and approve or disapprove proposed projects. The Committee is comprised of the following:
  • The chair of the Strategic Growth Council;
  • The chair of the California Housing Finance Agency;
  • The chair of California Workforce Investment Board;
  • Director of the California Housing and Community Development Department;
  • Two people appointed by the Speaker of the Assembly;
  • Two people appointed by the Senate Rules Committee; and
  • One public member appointed by the Joint Legislative Budget Committee who has experience in education finance.
Each applicant receives financing pursuant to the program for any fiscal year is required to provide a report to the committee. The committee must also provide an annual report to the Joint Legislative Budget Committee.

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