August 1, 2024

We are reaching out on SB 1032 (Padilla), a CSAC-sponsored bill that would give the Housing and Community Development Department (HCD) the authority to forgive specific legacy loans, per HCD’s discretion, if a borrower demonstrates that the loan is impeding the ability to maintain and operate the project for affordable housing or senior housing. The bill has passed the Assembly Housing and Community Development Committee and is now headed to the Assembly Appropriations Committee that is chaired by Assemblymember Buffy Wicks.

The May 16^th amendments limit loan forgiveness to loans held by non-profit organizations that have legacy HCD regulatory agreements that are either expired or are within two years of expiration. In addition, for the property receiving loan forgiveness, the housing agency must maintain the same number of affordable housing units as required by the term of the loan being forgiven for the remaining useful life of the project.  We are also working on a couple additional amendments that are forthcoming and will be shared as soon as they are confirmed.

ACTION NEEDED

1. CSAC requests for counties to submit letters in support of the bill by August 8^th. Download CSAC’s sample support letter.
2. CSAC requests that counties that have already sent in prior support letters, to update them to be addressed to the Assembly Appropriations Committee.
3. Once finalized, please send a copy to Kristina Gallagher (kgallagher@counties.org), your full state legislative delegation and the Assembly Appropriations Committee through the legislative portal - California Legislature Position Letter Portal

BACKGROUND

HCD administers a number of loan programs authorized by the Legislature in the 1980’s and 1990’s that were created to preserve existing affordable housing across the state. These programs offered loans to public housing providers (housing agencies) with terms that attempted to strike a balance between providing impactful funding and ensuring the rents charged by the housing agencies on these properties would remain affordable. All of these programs are closed and no longer offer loans.

While it was easy to obtain the loan, terms that allowed housing agencies to forgo making principal and interest payments on the loan effectively trapped these housing agencies in an endless debt cycle with no exit path. The loans were set up with the premise that the housing provider would only need to pay the HCD monitoring fee. It was assumed that housing entities could use excess future cash flows to pay down the principal and interest. Over the decades it has become clear that affordable housing units seldom experience excess cash flows, due to the loan programs rent affordability restrictions and maintenance costs. These combined financial challenges led many housing providers only paying the HCD monitoring fee with interest balances growing significantly. Given that the exception has become the rule, it is time to give HCD the authority to forgive these loans as a means to provide relief to the impacted housing agencies.  

In a high number of cases, housing agencies that would benefit from loan forgiveness serve as the main affordable housing providers in their regions. Without loan forgiveness, these housing agencies will default on these loans, effectively increasing the possibility that a housing agency will need to close affordable housing sites which serve the most vulnerable residents of their communities, which will ultimately lead to more homelessness across the state.

SB 1032 will give HCD the authority to forgive these specific legacy loans, per their discretion.