LOS ANGELES — New California legislation aims to replace a revenue stream for affordable housing lost when redevelopment agencies were eliminated in 2012.

Assembly Bill 1598, which takes effect in January, “authorizes cities and counties to create new affordable housing authorities for the purpose of financing low- and moderate-income housing within their city or county boundaries,” according to a public finance alert published Nov. 21 by Orrick, Herrington & Sutcliffe.

The legislation is similar the state's Enhanced Infrastructure Financing District statute, passed in 2014 and revised in 2015, in that it seeks to replace redevelopment tools lost when redevelopment agencies were dissolved.

San Francisco-based Justin Cooper is Co-Chair of Orrick's Public Finance Department and chair of its housing finance group
Orrick partner Justin Cooper co-authored an alert about a new California affordable housing statute.

The legislation comes on top of multiple efforts by California’s largest cities and the state to create additional funding sources to tackle the state’s housing crisis, partly by getting voters to approve bonding authority.

“I would say last 18 to 24 months on a state and local level have been most exciting and productive legislative period in terms of affordable housing,” said co-author Justin Cooper, an Orrick partner who chairs its affordable housing practice.

The movement in affordable housing, both in terms of awareness and action, is substantially changed from several years ago, Cooper said.

“We have gone from five or six years ago when the feeling was that nothing exciting was happening legislatively to where there is a lot of movement in the affordable housing space. Senate Bill 1598 is in the mix,” Cooper said.

Much like the EIFD district bills, the affordable housing legislation allows the creation of districts so that local agencies can capture tax increment to pay off financing for projects, Cooper said.

Cities and counties have long had the ability under California’s Health and Safety Code to create housing authorities tasked with the broader responsibility of investing in lower-income areas and revitalizing lower-income communities, according to the Orrick report.

The new housing authorities are limited to the narrower purpose of financing low- and moderate-income housing within the boundaries of the cities and counties that create them.

“The Authorities may, in turn, be able to finance projects by issuing bonds payable from these pledged property tax increment revenues,” according to the report. “Sponsor cities and counties may also pledge some or all of certain other tax revenues, such as revenues derived from the Bradley-Burns sales and use taxes, provided that the purposes of these taxes are consistent with providing low- and moderate-income housing.”

This legislation also creates a mechanism where the sponsoring city or county that creates the districts would ask other beneficiaries of local property taxes to “share” their tax increment to benefit the district. The increment is additional property tax revenue that results from new development. Under the former RDAS, the redevelopment districts captured all of the tax increment – and were not required to ask other beneficiaries to contribute their share.

The Orrick attorneys analyzed the potential legal ramifications to determine what tax increment the districts are legally entitled to capture, but it is up to others to determine whether it could actually create a revenue stream significant enough and capable of being leveraged, Cooper said.

The piece also warns that anti-tax advocates such as the Howard Jarvis Taxpayers Association could challenge the districts in court, because their formation requires a simple majority vote, not the two-thirds majority required under Proposition 13 to raise taxes.

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