1 BEFORE THE CALIFORNIA STATE BOARD OF EQUALIZATION 2 PLUMPJACK SQUAW VALLEY INN 3 1920 SQUAW VALLEY ROAD 4 OLYMPIC VALLEY, CALIFORNIA 5 6 7 8 TRANSCRIPT OF PROCEEDINGS 9 (Prepared from audio recording) 10 AUGUST 11, 2015 11 12 13 14 15 ANNUAL BOARD MEETING WITH COUNTY ASSESSORS 16 LOW-INCOME RENTAL HOUSING AND THE WELFARE EXEMPTION 17 18 19 20 21 22 23 24 25 26 27 Prepared by: Kathleen Skidgel 28 CSR No. 9039 1 1 2 3 P R E S E N T 4 5 For the Board Jerome E. Horton of Equalization: Chairman 6 7 Sen. George Runner (Ret.) Vice Chair 8 9 Fiona Ma, CPA Member 10 11 Diane L. Harkey Member 12 13 Betty T. Yee State Controller 14 15 Joann Richmond Chief 16 Board Proceedings Division 17 18 ---oOo--- 19 20 21 22 23 24 25 26 27 28 2 1 INDEX OF SPEAKERS 2 SPEAKER PAGE 3 OPENING REMARKS 4 Marc Tonnesen President 5 California Assessors' Association 15 6 Kristen Spears President-Elect 7 California Assessors' Association 16 8 PANELISTS 9 Lisa Thompson Property Tax Manager 10 State Board of Equalization 20 11 Recinda Shafer Assistant Executive Director 12 Riverside Charitable Corporation 25 13 Darren Bobrowsky Senior vice President - Director of Finance 14 USA Properties Fund, Inc. 29 15 Mark Stivers Executive Director 16 California Tax Credit Allocation Committee 35 17 Bradley C. Sutton Chief Counsel, Deputy Director 18 California Department of Housing and Community Development 44 19 20 ---oOo--- 21 22 23 24 25 26 27 28 3 1 1920 SQUAW VALLEY ROAD 2 OLYMPIC VALLEY, CALIFORNIA 3 AUGUST 11, 2015 4 ---oOo--- 5 MR. HORTON: Okay. Well, good afternoon, 6 everyone. 7 Let's try that again. Good afternoon, 8 everyone. 9 (Audience replies in unison.) 10 MR. HORTON: That's much better. That's 11 much better. 12 I think I -- I wasn't going to say a joke 13 or anything like that. Since they were taping, we 14 can always cut this part. My former boss, Claude 15 Parrish, is here and he reminded me that when we're 16 taping, we have to be careful about what we say up 17 here. And I thank him so very much for that. 18 But today I want to tell you about an 19 experience that I had. I was driving around and 20 there was this Pine Valley, and I looked at the 21 population; it was two -- 255 individuals. And see 22 now, that's the place to run for city council. I 23 mean what do you know? 24 So I went and knocked on a door just to see 25 if I can kind of see how it works and so forth. And 26 the kid was outside milking a cow, and so I was 27 talking to him. And I say, "What does it take to 28 get elected around here?" And we had a nice 4 1 conversation. 2 Then he kept milking the cow. 3 And his dad came to the -- dad came outside 4 and said, "Son, get in here." 5 He says, "Okay, okay." 6 "Well, who are you talking to?" 7 "He says he's a politician." 8 He says, "Well, bring the cow with you." 9 Anyway, so pursuant to Government Code 10 15 -- 15607, the Annual Meeting of the Board of 11 Equalization and the Assessors to discuss the 12 administration of the assessment laws and procedures 13 throughout the State is hereby called to order. 14 Before we begin with our introduction 15 remarks, on behalf of the Board, it's my pleasure to 16 thank the current president, Marc, for pulling this 17 together at this beautiful location. Please give 18 Marc a round of applause. 19 I truly appreciate Marc's aggressive 20 independent leadership following behind president 21 emeritus, Larry Ward; I want to thank him as well, 22 and the CAA Planning Committee. This certainly 23 could not have been possible without the Planning 24 Committee to pull it all together, and all the tight 25 ends and so forth. So give them a round of applause 26 as well for all that they do. 27 And then, of course, there's the Board of 28 Equalization and their team for assisting us. I 5 1 don't know how many of the Board of Equalization 2 folks are here. But because the Controller's 3 here -- I would normally have you stand up -- but 4 please don't stand. 5 MS. YEE: Ha-ha. 6 MR. HORTON: Just joking. No. 7 And before we begin, before I begin with 8 opening comments, I'd like to have the Board Members 9 share their thoughts relative to this. 10 And we're going to start with our Vice 11 Chair who's done an awesome job in this position. 12 Chairman -- Vice Chair George Runner. 13 MR. RUNNER: Thank you. Thank you, Mr. 14 Chair. 15 Again, well, welcome to the First District 16 of the BOE here, you know. 17 MR. HORTON: I know. That's why you 18 started it out. 19 MR. RUNNER: Of course you can be in -- be 20 in LA and still be in the First District, too. 21 But it's always good to be here. Always 22 good to be with friends and talk about what our 23 common interests are, how we can assist you. 24 I think there's no doubt that we appreciate 25 and understand that you have some challenging tasks 26 and often times struggle with the resources and the 27 abilities to do that, and our goal is to be a good 28 partner with you. 6 1 So, again, we're glad to be here, glad that 2 we can spend some time not only in this larger 3 group, but also as we kind of move together in terms 4 of our separate groups to talk more specifically 5 about the needs and issues within each of our 6 districts. 7 Thanks. 8 MR. HORTON: Member Harkey. 9 MS. HARKEY: Thank you, Chairman Horton. 10 I just want to say this is my first rodeo 11 here and I'm very, very pleased to meet you. We 12 have a lot of new Board Members and we have a lot of 13 new assessor faces. 14 I happen to know each and every one of 15 mine; I have five, and -- from southern California. 16 And I really do appreciate the relationship that 17 this Board has tried to keep with the CAA, and I 18 hope that we will continue to do so. 19 We're going to have break-out sessions and 20 you'll get to meet with all of us. But please, 21 always feel free to make a phone call if there's 22 anything that's troubling or you've got issues with, 23 we'd love to hear from you. 24 I personally will provide each and every 25 one of you with my cell; don't overuse it. But if 26 you need something, please feel free to give a call. 27 Thank you. 28 MR. HORTON: Member Ma. 7 1 MS. MA: Thank you very much. 2 And this is also my first hearing, and it's 3 great to see so many of you here. 4 I represent 23 counties, from the Oregon 5 border down to Santa Barbara. I think I've met with 6 11 of the assessors in my district, so I still have 7 quite a few more. 8 It's just very interesting to meet with you 9 all and to hear some of your issues of concern; some 10 of them are very similar and some of them are very 11 particular to your area. 12 And, like Ms. Harkey, I'll give you my cell 13 phone as well and look forward to working with you 14 on ways we can improve your agencies, as well as, 15 you know, our working relationship together. 16 MR. HORTON: State Controller Betty Yee. 17 MS. YEE: Thank you, Mr. Chairman. 18 It's really a wonderful honor to be among 19 all of you. 20 I want to, first, congratulate all of the 21 recently elected county assessors and welcome you to 22 CAA and look forward to a robust working 23 relationship with all of you. 24 And, also, just want to extend my 25 appreciation and thanks to the assessors from the 21 26 counties that comprise the former First Equalization 27 District. We had a very, very robust working 28 relationship over the 10 years that I served in that 8 1 particular capacity and look forward to continuing 2 work with all of you. 3 I think, as we're here, we truly -- I 4 certainly truly view all of you as partners in terms 5 of how we administer the property tax administration 6 system. But, also, as we look at challenges that we 7 have in common, as well as how we can really try to 8 reach solutions to overcome those challenges, I 9 think there is just a lot of promise and support 10 that we can provide to each other. 11 I just want to also say that I think a lot 12 of people don't know what assessors do generally, 13 which is a good thing because you're so focused on 14 just being the professionals that you are and not 15 really swayed one way or the other in terms of how 16 you do your job. 17 But I do want to do a shout-out because, 18 you know, there have been some longstanding 19 professionals in this organization. And I've been 20 really noticing since this morning the lively, 21 really joyous kind of sentiment in the room, and I 22 realize that Larry Stone's not in the room. And so 23 it's -- it's like, I get it. I get it. 24 And then, uh -- and then I see Dan Goodwin 25 and it's like, oh, my gosh, what happened to you? 26 It wasn't that stressful going through the whole 27 pilot issue, right, and the Welfare Exemption? But 28 maybe it was. 9 1 Anyway, but the shout-outs I want to give 2 are just to my dear friend John Tuteur in Napa 3 County and what his office was able to do after the 4 devastating earthquake in Napa, I just can't say 5 enough about in terms of the responsiveness and just 6 really being on the ground for the property owners 7 there. 8 And then also to Joe Holland, who's going 9 to be, probably over the next period of I don't know 10 when, dealing with the oil spill in Santa Barbara; 11 that will raise all kinds of different issues that I 12 think as an assessor community we're going to be 13 certainly helping to support Joe in trying to -- to 14 come to grips with. 15 But I'll just say, I'm just very, very 16 pleased to be here, very pleased to join my 17 colleagues here. 18 And lastly, I wanted to introduce you to my 19 Deputy Controller for Taxation; that's Yvette 20 Stowers, who I believe is in the room. 21 MS. HARKEY: There she is. 22 MS. YEE: There she is. And many of you 23 know her from when she was with me as a Member of 24 the Board of Equalization. But Yvette is always 25 available and really, I think, has a longstanding 26 relationship with Ernie Dronenburg from Deloitte 27 days. And so just a lot of really great expertise 28 in Yvette. 10 1 But again, thank you all for your 2 professionalism, what you bring to your positions 3 every day, and really look forward to a robust 4 working relationship going forward. 5 Thank you. 6 MR. HORTON: Thank you, Members. 7 Let us also recognize Ernie; I know Betty 8 mentioned it. We're always pleased to see Ernie in 9 the -- in the room. The Board of Equalization has a 10 special room somewhere around there. 11 Ernie Dronenburg, where are you? 12 MS. YEE: There he is. 13 MR. HORTON: All right. Give him a round 14 of applause for the heck of it. 15 I'll tell you, Ernie and Claude proved to 16 us that there is life after the Board of 17 Equalization. 18 Bob Dutton isn't here, one of my county 19 assessors, but Jeff Prang is from Los Angeles. 20 Thank you, Jeff, for attending. We appreciate all 21 the work that you're doing. 22 Today the meeting and the panel, the 23 discussion today is low-income housing. And folks 24 have asked, "Well, why low-income housing?" 25 This issue is very, very significant, I 26 believe, to California's economy. California is 27 now, what I believe to be, no longer in the recovery 28 mode, but we are in the expansion mode. As a result 11 1 of that, we've seen that the unemployment has 2 dropped to 6.3 percent. Our property values have 3 increased. The median property value is somewhere 4 around $489,000. Interest rates are low currently, 5 in California, and once again is the eighth largest 6 economy in the world. And so I think we're in a 7 good -- good position. 8 However, there are some challenges that we 9 face. Despite all of the good things that are 10 happening here in California, we -- we are faced 11 with a significant issue that I refer to as an 12 epidemic of poverty. Forty percent of the 13 individuals in -- that reside in the State of 14 California live below the poverty line; 78 percent 15 of those individuals are actually working poor. And 16 a significant number of those individuals are 17 employed, but they are considered homeless in the 18 State of California. 19 So we have some real challenges that we 20 face. Somewhere around 1.5 million individuals 21 can't afford to buy a home in the median price 22 range. And if we don't address these challenges, we 23 will see some things happening that will begin to 24 cause our economy to spiral out. Because it's not 25 the challenge that we face with poverty alone, it is 26 the face of poverty that is the real danger. 27 Before, poverty were those individuals who 28 just didn't make enough money, weren't employed or 12 1 underemployed. Today poverty is college graduates: 2 Doctors, lawyers, with loans that are outstanding 3 that they can't afford to pay. And many of them 4 can't afford to purchase a home in the median price 5 range. It is estimated somewhere around 70 percent 6 of the individuals in California cannot afford to 7 purchase a home in the median price range. 8 So for those of us who have done well and 9 we expect our children to be able to do well, 10 well guess what, many of the children will be with 11 you until 30 and 40 and so forth. So get ready and 12 look forward to it because of these challenges. 13 MS. HARKEY: Add that extra room. 14 MR. HORTON: But if we don't -- but we can 15 address those challenges. And I believe affordable 16 housing is one of the ways to begin to take a real 17 good look at it. With the median price being 18 480,000, that's right around where the affordable 19 housing prices will be. And I think we ought to 20 begin to take and see if we can meet those 21 challenges. 22 The Governor recently passed legislation to 23 address, in his own way, by -- by allowing 24 $384 million in what they called Earned Income Tax 25 Credit. I believe much of that money will go 26 uncollected, much like the Federal Earned Income Tax 27 Credit; $1.8 billion goes uncollected every day. 28 Here in California we have a serious issue 13 1 with the underground economy. Somewhere around 2 $9 billion goes uncollected from the underground 3 economy. 4 In the area that Member Ma and Member 5 Runner are working on, and doing an excellent job, 6 with cannabis, we still see the 700 million to 7 $1.3 billion in sales that are not necessarily 8 accounted for in the State of California. 9 So we have some real challenges, and it's 10 the individuals in these rooms -- in this room that 11 will help us meet those challenges. And so I look 12 forward to interacting with you. 13 I will share that later on we will split up 14 and each of the Members will have an opportunity to 15 engage with the assessors in their area. And I 16 encourage that proactive aggressive engagement so 17 that we can learn from you and we can begin to have 18 that open dialogue, that open relationship. 19 I look forward to us working on 20 legislation, working on rules and so forth. And 21 let's start early, soon, and often. Because it's 22 the intelligence, it's the wisdom that exists in 23 this room. 24 I've learned a lot from all of you in one 25 way, form or fashion; more from Mr. Parrish because 26 I served with him for three-and-a-half years and 27 learned quite a bit from him. So I look forward to 28 that opportunity. 14 1 And now I'd like to call up the president, 2 Mr. Tonnesen. And on his way up, let me thank and 3 express my appreciation to the president-elect, Ms. 4 Spears. 5 ---oOo--- 6 MARC TONNESEN 7 ---oOo--- 8 MR. TONNESEN: Thank you, Chair Horton. 9 As president of the California Assessors' 10 Association, I want to welcome all of you: Chair 11 Horton, Vice Chair Runner, Member Ma, Member Harkey 12 and Controller Yee. 13 We picked this place because we really 14 wanted you to come and see us. So it's, uh -- we 15 gave you some great weather. 16 Just a couple of things before I ask my 17 president-elect to come up and address you. You've 18 made a couple comments about the new assessors. We 19 started with 18. We now have 19 new assessors. 20 In January, at our first business meeting 21 of the association, we had a joint orientation with 22 your staff, BOE staff. We provided guidance as the 23 CAA. Your staff provided guidance. 24 We had 18 of 18 new assessors show up, and 25 we're very proud of that. And today, again, we've 26 got 17 out of 19 here. Pretty good ratio. Better 27 than most of the conferences. And today we have 48 28 of the 58 assessors. So it's quite a turnout. I'm 15 1 sure a lot of it has to do with the location. 2 MS. HARKEY: Location, location, 3 location. 4 MR. TONNESEN: Location. 5 So, anyway, I promised my colleague I'd be 6 brief, but just a coup- -- one last thing, the -- we 7 gave out some resolutions. Ken Blakemore retired; I 8 gave him a resolution last week. 9 And we also gave a resolution to a 10 long-time member -- not a Member of the Board, an 11 employee of the Board, Verne Walton. And I -- I 12 won't read it again, but I read it -- I read 13 portions of it this morning. And one thing that I 14 feel is very telling of the contributions that Mr. 15 Walton made to the BOE is he received a standing 16 ovation from this crowd. So that's, uh -- to me, 17 that tells a lot about the contributions he made. 18 Thank you again for giving me the 19 opportunity to speak, and I'll turn it over to 20 president-elect Kristen Spears. 21 Thank you. 22 ---oOo--- 23 KRISTEN SPEARS 24 ---oOo--- 25 MS. SPEARS: Good afternoon, Chairman 26 Horton, honorable Board Members. Welcome to Placer 27 County for the 2015 Annual Board Meeting with County 28 Assessors. 16 1 I feel very fortunate that I am the 2 assessor of beautiful Placer County and encourage 3 you to take a little time to enjoy Lake Tahoe and 4 the surrounding area. 5 I also feel very fortunate to be the 6 president-elect of the California Assessors' 7 Association this year. It is an honor to represent 8 my fellow assessors as we discuss property tax 9 assessment issues of statewide significance. I look 10 forward next year as the CAA continues to liaison 11 with the State Board of Equalization Members and 12 staff as we work together towards improving 13 assessment procedures and laws for the public good. 14 In looking at the presidents of the 15 California Assessors' Association in the past, I 16 know that I have big shoes to fill. Collectively, 17 they are a group of dynamic and talented 18 individuals. I will have smaller shoes, but 19 probably higher heels than most of my predecessors. 20 MR. HORTON: I like it. 21 MS. SPEARS: I have a number of goals for 22 next year, with the common theme of improving 23 communication. One particular area of emphasis will 24 be to update the California Assessors' Association 25 Internet site so that it will serve as a more 26 effective resource. 27 I congratulate the Board of Equalization on 28 their continued update of their website. We know 17 1 that the Internet is an important vehicle for 2 communicating a vast quantity of information to a 3 very diverse audience. We are both serving both the 4 knowledgeable tax professional and the interested 5 public. I believe that the time and effort expended 6 in improving the Internet phase of the CAA will have 7 similar positive results. 8 I look forward next year to working with a 9 group of very talented assessors who will guide the 10 California Assessors' Association through their 11 leadership on the standards, education, and 12 legislative committees, as well as a host of less 13 visible, but still very important, committees that 14 are essential to the running of the association. 15 I am confident that the knowledge and 16 experience represented on the Executive Committee 17 will be invaluable. I cannot predict exactly what 18 issues will arise in 2016. But be it airplanes, 19 embedded software, or another new challenge, I 20 recognize that through our collective efforts, we 21 will work effectively with the Board of Equalization 22 for the public good. 23 Thank you. 24 MR. HORTON: Thank you very much, 25 President-elect Spears. 26 We want to offer our assistance with the 27 improvement of the California Assessors Internet 28 program. So please reach out to us, see if we can 18 1 be of any help. 2 I want to recognize Ben Ting, our newly 3 appointed Director of the Property Tax Division. 4 Please stand, if you will. 5 I, too, want to give out my personal cell 6 phone. Ben, what's -- what's that number? 7 MS. HARKEY: Ha, ha, ha. 8 MR. HORTON: Let me now introduce and 9 welcome our panel, a panel of five experts 10 representing government in a wide range of -- of the 11 industry. 12 I want to start out with Lisa Thompson, the 13 Property Tax Manager with the State Board of 14 Equalization. 15 Second, we have Recinda Shafer, the 16 Assistant Executive Director of the Riverside 17 Charitable Corporation. 18 And then we have -- is Darryl? Darryl. I 19 see Darryl. 20 Darryl, help me with your last name. 21 MR. BOBROWSKY: Darren Bobrowsky. 22 MR. HORTON: Darren -- 23 MS. HARKEY: Bobrowsky. 24 MR. BOBROWSKY: Bobrowsky. 25 MR. HORTON: Okay. Well done. 26 MR. BOBROWSKY: Thank you. 27 MR. HORTON: Bradley Sutton and Mark 28 Stivers. Bradley is the Chief Counsel, Deputy 19 1 Director, with California Department of Housing and 2 Community Development. Mark Stivers, Executive 3 Director with the California Tax Credit Allocation 4 Committee. 5 A very dynamic group. We look forward to 6 hearing from you. 7 We're going to turn it over to Mr. Thompson 8 to facilitate this group. 9 Okay. In that case, Mr. Thompson, where 10 are you? Not here. 11 MS. THOMPSON: No, I think it's 12 Mrs. Thompson, Lisa Thompson. 13 MR. HORTON: Mrs. Thompson, all right. 14 MS. HARKEY: Lisa. 15 MR. HORTON: Lisa. All right. 16 MS. THOMPSON: It's all right. 17 MR. HORTON: Sorry, Lisa. My apologies. 18 ---oOo--- 19 LISA THOMPSON 20 ---oOo--- 21 MS. THOMPSON: Okay. Good afternoon. 22 As the Chairman indicated, there is a 23 strong need for affordable housing in California. 24 And recent legislation and court cases demonstrate 25 that there is a lot of support for affordable 26 housing developers, as well as for people who live 27 in those properties. 28 The Governor has allocated $380 million in 20 1 State-Earned Income Tax Credit to help low wage 2 earners. And the California Supreme Court upheld 3 the authority of the cities and counties to enact 4 laws requiring builders to include certain number of 5 affordable housing units in each new development. 6 And Assembly Bill 35, if passed, will authorize the 7 Tax Credit Allocation Committee to allocate up to 8 $30 million in State Low-Income Housing Tax Credits 9 to developers. 10 There are many types of affordable housing 11 for low-income home builders for sale and to 12 affordable rental housing. The focus of this 13 discussion will be on the low-income housing rental 14 and the Welfare Exemption. As far as format, we 15 would like to hold questions until the end of the 16 panel in case some of the other panelists address 17 your questions. 18 So for my portion of it, I'm going to kind 19 of discuss the Board of Equalization and county 20 assessors' role in the Welfare Exemption and how 21 affordable housing fits in with the exemption, and 22 then the requirements for low-income housing 23 exemptions. 24 As far as the administration, the Board of 25 Equalization and 58 county assessors administer -- 26 they co-administer the Welfare Exemption. The Board 27 is responsible for determining if the organization 28 itself qualifies, with the assessors determining 21 1 whether the property of a qualifying organization 2 qualifies based on its use. 3 And the Board issues an Organizational 4 Clearance Certificate under Revenue and Taxation 5 Code Section 254.6 to those qualifying 6 organizations. We also issue Supplemental Clearance 7 Certificates under our Property Tax Rule to 8 low-income housing -- low-income housing properties 9 of a limited partnership with a qualifying managing 10 general partner. 11 Currently there are approximately 16,500 12 OCC holders and 4,000 Supplemental Clearance 13 Certificates. And the Welfare Exemption, in 14 general, is available to qualifying organizations 15 that are organized and operated for charitable, 16 religious, scientific and hospital purposes. And 17 affordable housing is -- specifically low-income 18 housing rental, falls under the charitable aspect of 19 the Welfare Exemption. 20 As far as what the amount of exemption for 21 low-income housing, it is for property used 22 exclusively for low-income rental housing and 23 related facilities, up to -- for a partial exemption 24 basically based on the number of units that are 25 rented to qualifying households compared to the 26 total. 27 Ownership of the low-income housing rental 28 can take -- excuse me -- can take many forms. And 22 1 the law has changed over the years. Originally it 2 was just nonprofit corporations that qualified, and 3 later limited partnerships became qualified as long 4 as they had a qualifying nonprofit managing general 5 partner. And more recently, in 2005, limited 6 liability companies were added to the eligibility as 7 long as they had nonprofit members. 8 While ownership of affordable housing has 9 changed over the years, R&T Code Section 6 -- 214(g) 10 requires certain -- certain aspects within each 11 property and owner. First and foremost, a nonprofit 12 organization must be involved in the project, either 13 as an owner and operator or as a managing general 14 partner of the limited partnership or as a member of 15 an LLC. So there can be different forms. 16 The property must receive government 17 financing for its acquisition, development or 18 rehabilitation, or receive -- or the owner must 19 receive Low-Income Housing Tax Credits. 20 As to restrictions, there must be a 21 recorded deed restriction or a regulatory agreement 22 in place, restricting the property's use to 23 low-income housing. A regulatory agreement is 24 something that's entered into between the property 25 owner and the government that supplies the financing 26 or tax credits. And this regulatory agreement will 27 essentially designate a minimum number of units that 28 must be rented to qualified households at certain 23 1 rent levels. 2 And there are many types of government 3 financing or tax credits. When the Board staff 4 reviews SCC claims and the assessor staff reviews 5 exemption claims, we see different types of 6 financing, and we see different regulatory 7 agreements in place. Historically, we have seen 8 funding and regulatory agreements from city and 9 county redevelopment agencies, as well as HUD, but 10 we haven't seen that for many years because the 11 funding just isn't available. 12 So the primary sources that we see today 13 are from the California Tax Credit Allocation 14 Committee, the Department of Housing and Community 15 Development, the California Housing Finance Agency, 16 and the California Debt Limit Allocation Committee. 17 We're fortunate here today to have two key 18 people from agencies that provide funding, and 19 they're going to explain the types of funding that 20 they have available to developers, and restrictions 21 that they impose as far as receiving the funding, 22 and how they monitor compliance with the terms of 23 the regulatory agreement. 24 Before the representatives from TCAC and 25 HCD share their information, we're going to have 26 Recinda talk about the nonprofit perspective and how 27 they work -- how nonprofits work with the Board and 28 the assessor to receive exemption. 24 1 And then we also have something, I think, 2 rather special, is to hear from the developer side 3 on how they actually secure funding for these 4 projects and make them feasible. 5 So, with that, I'm going to turn it over to 6 Recinda. 7 ---oOo--- 8 RECINDA SHAFER 9 ---oOo--- 10 MS. SHAFER: Hi. Good afternoon, everyone. 11 First of all, I'd like to thank Chairman 12 Horton and the entire Board for the opportunity to 13 be here today and just to take a moment of your time 14 to discuss the need for affordable housing for so 15 many low-income families and seniors throughout the 16 State of California. 17 But on my way up here I was remembering 18 back that it was over 10 years ago at an assessors 19 conference that was hosted in Shell Beach that we 20 had the opportunity to meet Lisa Thompson for the 21 first time. And little did we know, but that really 22 was the foundation of a wonderful relationship that 23 we formed with not only the Board but the staff 24 whose hard work and dedication is invaluable to the 25 success of affordable housing here. 26 So I wanted to say thank you also to Lisa 27 for putting this panel discussion together today and 28 allowing us this opportunity. 25 1 MS. THOMPSON: Thank you. 2 MS. SHAFER: So thank you. 3 As a nonprofit whose mission it is to 4 provide safe, decent, social-service-enriched 5 affordable housing, the truth is is that we can't do 6 it alone. We need the support and the hard work of 7 every organization that's represented in this room 8 today in order to meet the ever-growing need of 9 affordable housing for these low-income families. 10 It is -- well, we're currently trying to 11 meet that need, of course, at our 113 operational 12 properties in 25 counties throughout the State. It 13 doesn't come close to what many studies show that 14 there's over a million low-income families that need 15 access to affordable housing here. 16 And we can't even begin to try to meet that 17 need without all the support from everyone here as 18 well as the mission to drive forward additional 19 affordable housing and to provide these families 20 with the social services that they need to empower 21 them so that they, too, have the opportunity to 22 hopefully actually move out of our apartments and 23 into market-rate housing. Because at the end, that 24 is our goal; therefore, leaving additional room for 25 other families in need to move in. 26 Integral to the success of our properties 27 are individuals and organizations committed to the 28 mission of providing these families with social 26 1 services to empower them. Of course we can't do 2 that without dedicated partners such as USA 3 Properties Fund, who you'll be hearing from very 4 soon, and of course funding that comes from the 5 California Tax Credit Allocation Committee, HCD, and 6 others throughout the state. 7 As I mentioned, part of our mission is not 8 only to provide housing for these families but also 9 social services. So back in 1996, Riverside 10 Charitable founded Life STEPS, which is Life Skills, 11 Training, Educational Programs. The services that 12 are provided through Life STEPS are at no cost to 13 the tenants. And while their social service 14 programs are vast, if we could highlight just a few, 15 they include: After-school programs for the 16 children; computer courses; there's an emergency 17 financial assistance fund; and there's even a 18 college scholarship fund. 19 As Lisa mentioned, the role of the 20 nonprofit in these limited partnerships is that of 21 managing general partner. And, as such, over the 22 years we've had the opportunity to participate in 23 many of the interested party meetings as well as 24 one-on-one discussions with the Board staff, 25 specifically to make sure that we're always in 26 compliance with Rule 140.1. 27 Since its adoption, Rule 140.1, by the way, 28 outlines the duties and responsibilities of the 27 1 managing general partner in order that we can obtain 2 our Organizational Clearance Certificate. And over 3 the years we've applied for several Supplemental 4 Clearance Certificates. 5 As I mentioned, we have 113 properties 6 throughout the state, and each one of those requires 7 an SCC. So we cannot, of course, begin to even 8 provide the housing until we have that 9 Organizational Clearance Certificate, and that only 10 comes through the hard work and dedication of all 11 the Board staff who process all of those 12 applications on an annual basis. So we want to 13 specifically thank the entire staff that processes a 14 huge amount of paperwork. I know that we are -- 15 we're part of that paperwork process and we really 16 appreciate all the hard work that goes into getting 17 those applications through. 18 But the need for affordable housing here is 19 great, and the continued success of the existing 20 affordable housing property is of the utmost 21 importance to the low-income families and the 22 seniors that we serve. 23 Every person in this room plays an 24 important role in making sure that these families 25 have a place to call home, that the children have 26 after-school programs to attend and perhaps even 27 have the opportunity to attend college with the 28 assistance of our college scholarship fund which is 28 1 the J.B. Brown Scholarship Fund that was founded by 2 both USA Properties Fund and Life STEPS together. 3 Although my fellow panelists are well 4 versed in the world of finance and I'm sure that 5 they'll answer many of your questions regarding the 6 financing of affordable housing, I can tell you that 7 of the utmost importance to the success of these 8 properties is the Welfare Exemption. And that 9 Welfare Exemption can only be achieved through the 10 hard work, again, of the BOE staff in processing the 11 OCC and SCC applications, but, of course, each of 12 the county assessors and all of their staff that 13 process the annual filings for exemption. 14 So, with your help, we can make a 15 difference in the lives of the seniors and the 16 families of lower income in this state. And on 17 behalf of those families, I'd like to take this 18 opportunity to thank you very much for your 19 assistance in the past and your support in the 20 future. 21 So thank you. 22 ---oOo--- 23 DARREN BOBROWSKY 24 ---oOo--- 25 MR. BOBROWSKY: Hi. My name is Darren 26 Bobrowsky. I'm with USA Properties Fund which is a 27 developer for affordable housing. We've been 28 developing affordable housing for over 30 years. 29 1 Almost all of our 80-plus projects are located in 2 California. We have a couple in Nevada, but we're 3 pretty much a California exclusive developer. 4 Our current portfolio is over 11,000 units, 5 which probably makes us one of the largest 6 developers of affordable housing in the state. 7 Personally, I've been working in affordable 8 housing for over -- almost 20 years. I spent the 9 first half of my career actually working in local 10 government at the Sacramento Housing and 11 Redevelopment Agency, issuing taxes and bonds and 12 providing local subsidies and big projects feasible. 13 In then the last 10 years I've spent with 14 developers, developing affordable housing. 15 As Chairman Horton eloquently said, the 16 need for affordable housing in California is huge. 17 The Welfare Exemption plays a critical role and 18 always has, as long as I can remember, played a 19 critical role in making projects feasible. It's 20 ingrained kind of in the -- in the complex financing 21 that we put together. 22 To -- and I could talk for days about, you 23 know, affordable housing finance and how it's put 24 together and what makes projects. I'm going to just 25 highlight on a couple of things, and then at the end 26 we can have questions if you want to get into more 27 details on items. 28 But first is the organizational structure. 30 1 And, as Lisa said, you know, it's available to 2 limited partnerships and LLCs. Due to tax laws of 3 bringing in low-income housing tax credits, all our 4 projects are always structured as limited 5 partnerships. Limited partnerships generally have 6 three members. 7 We have administrative general partner, 8 which is USA Properties Fund in this case. We kind 9 of act as the quarterback for the development. We 10 start with finding the land, working on development 11 plans with architects and engineers and through the 12 entitlement process to get a project approved. We 13 work on the financing side to bring the six to eight 14 to ten different fin -- layers of financing together 15 that make the project feasible. 16 We are -- also oversee the contractor. As 17 the administrative general partner we also have to 18 guarantee the construction loans. They remain 19 recourse until you convert to permanent financing. 20 So we're on the hook for the construction loans to 21 make sure the project is built. 22 We go out and obtain the tax -- the 23 partners of the limited partnership of the tax 24 credit investor to buy the tax credits. 25 So we -- we develop the project. We have 26 certain costs that are eligible to receive 27 low-income housing tax credits through either 28 federal or state program that Mark can talk more 31 1 about. But as a for -- even as a for property 2 developer, we can't use 10, 15, 20 million dollars 3 in tax credits. So we go out and sell those tax 4 credits to corporations. They could be banks, 5 insurance companies, just any corporation that has a 6 tax liability is the -- is the buyer of those tax 7 credits. 8 They then bring in their investment as an 9 equity into the project. So they become an equity 10 investor in the project. In exchange, they receive 11 the tax credits over a 10-year period. So they're 12 really our financial partner in the project. They 13 don't have a lien on the property. They're really 14 an equity stakeholder in the protect. 15 And then, of course, we have our nonprofit 16 partner, Riverside Charitable, as the managing 17 general partner that oversees certain aspects under 18 Rule 114 -- 140.1. 19 So it's a -- I think you'll always see this 20 limited partnership structure for using low-income 21 housing tax credits. And you'll generally see these 22 three players. 23 You may, if -- over time not have a 24 separate administrative general partner for managing 25 general partner if you have a sole nonprofit 26 developing the project. And there are a lot of good 27 capable developers that are nonprofit developers 28 that can do all these roles to begin with. 32 1 USA Properties is also the contractor, so 2 we have to guarantee the construction of the 3 project, as well as we're also the property 4 management company. So we oversee the property for 5 the 15-plus years of the initial compliance period 6 of the tax credits. 7 It takes us probably two to five years to 8 put a project together and probably in the range of 9 1 to $3 million of predevelopment money before we 10 can obtain the tax credits and bring in the tax 11 credit investor to close on the financing. So it's 12 a very time- and capital-intensive endeavor that we 13 undertake in order to bring these projects to 14 fruition. 15 As I said, we have, you know, four, six, 16 eight different financial partners that we -- that 17 we bring into these projects, including banks, tax 18 credit investors, the Tax Credit Allocation 19 Committee, the Debt Limit Allocation Committee of 20 the State, HCD or other state or local funding 21 agencies: Cities, counties. Used to be 22 redevelopment agencies; still have a couple left -- 23 money left over there. 24 But it's -- it's a complex layer of 25 financing in order to obtain all the sources needed 26 in order to make a project feasible. And the 27 Welfare Exemption is a critical piece of that 28 layering of that financing together. 33 1 Why did the -- probably one of the 2 reasons -- one of the questions you may have is, Why 3 do these investors want to buy these tax credits? 4 And they kind of fall into two buckets. One is the 5 Community of Reinvestment Act that's required under 6 the federal law for banks and other financial 7 institutions that they invest money in low-income 8 communities where they have their deposits. 9 Affordable housing is actually an extremely 10 stable, secure investment for these institutions. 11 The default rate for affordable housing under the 12 Low-Income Housing Tax Credit Program is extremely 13 low. It's a very, very successful program, and many 14 have called it the most successful affordable 15 housing program in the country's history. 16 Along with all these layers of financing 17 come a lot of controls. All these people that we 18 bring in are partners. Whether they're government 19 agencies, banks or tax credit investors, they all 20 have asset management functions that they do. 21 I can't tell you how many times a year we 22 have different people coming to our properties doing 23 physical and file inspections, making sure the right 24 people live at the property, that the properties are 25 in good condition, well maintained. You know, that 26 includes both TCAC, bond issuers who issue the 27 tax-exempt bonds, the lenders and the tax credit 28 investors; they all play this critical role in 34 1 making sure and holding us accountable for what we 2 say we're going to do. 3 And we do this for at least the first 15 4 years once the project is completed. It's a fairly 5 long-term investment for these investors to come in 6 and for us to stay in place. Most for profit 7 market-rate developers generally have a five- to 8 seven-year window that they, you know, look at 9 developments. And USA Properties, we do do 10 market-rate developments. So I can tell you that 11 everything you do in market-rate development is 12 exponentially more difficult for affordable housing 13 due to the complex layers of financing that you have 14 to put together. 15 So I'm going to stop there, because I don't 16 want to take all the time, and let Mark and Brad get 17 into some of the financing programs. 18 ---oOo--- 19 MARK STIVERS 20 ---oOo--- 21 MR. STIVERS: Great. 22 Again, I'm Mark Stivers. I head up the Tax 23 Credit Allocation Committee which probably is one of 24 the most obscure state agencies; it does exist. But 25 we -- but we do one thing, and which the name, 26 unfortunately, does not at all tell you about, but 27 we finance affordable rental housing; and we do that 28 with both state and federal resources. 35 1 Most of the tax credits that we allocate 2 are federal. There are some state as well. But we 3 really have two programs that we use. They're 4 commonly called the nine percent tax credits and the 5 four percent tax credits. Those both come from 6 federal law. And the real distinction is that the 7 nine percent credit is a larger subsidy, more than 8 twice with the four percent if you can imagine that. 9 And, um -- but it's a capped amount under federal 10 law, and so it is a competitive resource. 11 And we have a pretty advanced scoring 12 system. We are oversubscribed right now about 13 two-to-one. It's been as high as four-to-one in the 14 past. And so twice a year we hold sort of 15 competitions. We rank the projects that come in and 16 we provide this competitive resource to the 17 projects. 18 The four percent tax credits are -- are 19 unlimited but derived from the use of tax exempt 20 bonds. Federal law allows government entities to 21 issue tax exempt bonds for their own purposes in an 22 unlimited amount. They also allow state and local 23 governments to issue tax exempt bonds for private 24 activities; but because those are not governmental 25 functions, there is a limit on that. 26 And so we have a sister agency within the 27 State Treasurer's Office, the Debt Limit Allocation 28 Committee -- probably the only one that's more 36 1 obscure than we are -- that allocates this taxes and 2 bond authority. A lot of that goes to affordable 3 rental housing. And when a project gets tax exempt 4 bond authority, they automatically qualify for our 5 four percent tax credit. So those two sources go 6 together. 7 Once upon a time when the federal 8 government created these resources in 1986, the idea 9 was sort of that they would be two parallel tracks 10 to get to the same result. They would provide in 11 tandem, more or less, the -- or I mean, the nine 12 percent tax credits would provide about the same 13 amount of subsidy as the four percent tax credits 14 plus the tax exempt bond resources. 15 Over time that has become less and less 16 true. The nine percent subsidy is -- doesn't fund a 17 full project, but it comes, you know, somewhat 18 close. There is still a gap which I'll come back 19 to. 20 On the four percent side the tax credit 21 equity and the bonds really aren't a very deep 22 subsidy. They can help finance the project, but we 23 need lot of other gap financing to go along. 24 So again, the way affordable housing sort 25 of is -- in general, is financed, you know, the 26 project costs the same as doing a market-rate 27 project. You're building an apartment project, you 28 to have buy -- you have to compete against 37 1 market-rate developers for the land. You have to 2 pay the same construction people to build it. A lot 3 of those costs are the same, if not a little bit 4 higher, based on, you know, state laws like 5 prevailing wage and things like that. 6 At the end of the day, because the rents 7 are low in these projects, they can only support so 8 much of a mortgage. Your Welfare Exemption actually 9 helps them get a more -- a higher mortgage amount 10 because it actually reduces their expenses and 11 leaves them with greater income from the rents. 12 But that -- again, that mortgage only 13 covers a very small percentage in some cases or 14 maybe 50 percent at max of a project's sort of 15 financing. And -- and there has to be some sort of 16 subsidy level to fill -- to make the rest of that 17 project work. 18 Tax credits fill a large portion of that 19 gap but not all of it, because the amount that we 20 can put into a project is sort of capped by federal 21 and state law. And so that -- that remaining gap is 22 sort of what is important. And HCD and others 23 provide some of those resources. Redevelopment used 24 to do it and whatnot. But that is -- that is 25 exactly -- essentially that's the role that we 26 play. 27 The tax credits are pretty much found in 28 every new affordable housing development that is 38 1 developed in California. It wasn't always the case, 2 but it is now pretty much the case. 3 We have 3500 projects that we have financed 4 over time. When a developer receives tax credits 5 from us, they -- they agree to maintain the project 6 of those affordable rents for 55 years. So we make 7 a big upfront investment, but we get a long-term 8 payoff from that. 9 We are now in 57 counties. We think we'll 10 get to 58 this year. It's looking good. We'll pick 11 up Alpine. And, as Dan also mentioned, and others, 12 we are responsible for monitoring those projects for 13 that entire 55-year period. And so once we make an 14 award, we are not done. 15 My staff of about 40, 30 of them of 16 monitors. They go out, and every three years they 17 visit. For the first 15 years of a project's life, 18 we go out every three years because that's the 19 federal requirement. For the remaining 40 years, we 20 go out every five years and we look at those 21 projects to make sure they're in good shape, they're 22 renting to the people that they're supposed to be 23 renting to, at the rents that they're supposed to be 24 charging and that, you know, again, the units are 25 actually in a habitable condition. 26 We actually don't find a lot of 27 noncompliance. Most of our projects are actually in 28 very good shape. There are little things that we 39 1 ask to be corrected; they're almost always 2 corrected. 3 You know, the -- the -- the stakes for a 4 developer are pretty high to have uncorrected 5 violations. They can actually, during that first 6 15-year period, they can have some of their tax 7 credits recaptured, which nobody likes to have 8 happen. 9 And so we've actually -- it's actually 10 worked out very well. This financing has been a 11 critical resource, along with your Welfare 12 Exemption, to make these projects financially 13 feasible, allow these projects for a long period of 14 time to maintain affordable rents, which is a 15 critical resource in every community around the 16 state. 17 The other piece I just wanted to touch on 18 was that, you know, again, this big -- the biggest 19 challenge that we face right now is this lack of gap 20 financing. So, again, the mortgage covers part of 21 the cost. Our tax credits cover part of the cost. 22 There's not a lot of sources of this gap financing 23 that are available. Brad will talk about some that 24 are available at a state-wide level, but it is 25 really down from where we were five and 10 years 26 ago. 27 We are trying to do what we can within our 28 program to -- to help make projects more feasible. 40 1 But ultimately, that's a job that the Legislature is 2 going to have to tackle. They are looking at three 3 bills right now that deal with affordable housing 4 finance. Two of them are -- would provide really 5 significant shot in the arm in terms of additional 6 gap financing. The first is AB 1335 by the Speaker, 7 Toni Atkins. And it is essentially a $75 document 8 recording fee on real estate transactions other than 9 sales. 10 And I know some of you who are county 11 recorders, I've talked with you about this bill in 12 the past. I know you're not wild, those of you who 13 are county recorders, about collecting that fee; 14 but, nonetheless, it is a -- it is a fee source that 15 would bring in probably $500 million a year for 16 affordable housing purposes. And, um -- and that 17 would be available through a variety of programs, 18 some of which would help fund gaps in our projects. 19 That bill is currently on the Assembly 20 floor. It is not subject to deadlines. It could be 21 taken up any time. It is a two-thirds vote. And it 22 is -- it is a challenge of a bill to try and move. 23 The other bill that is pending that would 24 provide quite a bit of new resources for affordable 25 housing is AB 35 by Assemblymember David Chiu from 26 San Francisco. It would increase the amount of 27 state low-income housing tax credits that we can 28 award by $300 million per year. 41 1 Again, most of the credits that we have 2 right now are federal. We do have state credits as 3 well. This would -- this would basically quadruple 4 the amount of state credits available each year. 5 And it would also change the formula so that we 6 could put more of those credits into each project. 7 We could, maybe with tax credits, fill that entire 8 gap, whereas, right now we can never -- we never 9 fully fund a project. We fund a lot of it, but not 10 all of it. With these changes, we could potentially 11 fund -- fully fund some of these projects. 12 Just, you know, to put this in perspective, 13 California needs about 60,000 new affordable housing 14 units each year. With the tax credit programs we've 15 done about 7,000 new units, plus some rehab units, 16 but that's about 11 percent of the total. Every 17 year we are falling farther and farther behind. And 18 so these resources from the Legislature or from any 19 other place would help us sort of close that gap a 20 little bit. 21 And then the last bill that is pending is 22 SB 377; it is sponsored by the State Treasurer and 23 authored by Senator Jim Beall from San Jose. That 24 bill, the state tax credits that we provide -- well, 25 federal tax credits sell for more than a dollar 26 in -- more than a dollar in equity comes in for -- 27 per dollar of tax credit. And that has to do with a 28 lot of factors. There are some other tax benefits 42 1 besides the tax credit themselves. Banks are 2 looking for CRA credits, so they're willing to pay a 3 little bit more. 4 On the state side, the tax credits are 5 really worth 65 cents because when -- if I'm a -- if 6 I'm an investor, I -- I, um -- when I reduce my 7 state taxes, because state taxes are deductible from 8 federal taxes, actually my federal taxes go up. And 9 corporations won't pay more than they're going to 10 get from the tax credits. 11 SB 377 would, by changing the structure of 12 the tax credit -- and I won't get into the 13 details -- but would actually allow us to get closer 14 to a dollar-for-dollar on the state credits. So for 15 the state -- for the similar amount of state 16 investment, we would get a bigger bang for the buck 17 and we'd be able to finance more affordable housing. 18 You know, of the three bills, that's 19 probably the smallest in terms of its overall impact 20 just because there aren't that many state credits 21 right now. So, you know, you'd get a $30 million 22 per year, maybe, benefit from that; whereas, the 23 others are looking at 300 and $500 million a year. 24 But anyway, we have -- those are the things 25 that are pending in the Legislature. We are very 26 interested in helping closing those gaps so we can 27 do more affordable housing in California. And it is 28 our resources, the Welfare Exemption that you 43 1 oversee, and then the resources that Brad will talk 2 about that really are the only way that that becomes 3 possible. Otherwise the projects are just simply 4 not feasible. 5 ---oOo--- 6 BRADLEY C. SUTTON 7 ---oOo--- 8 MR. SUTTON: Thank you, Mark. And thank 9 you for the invitation to speak today. 10 Again, my name is Brad Sutton. I'm the 11 Chief Counsel, Deputy Director for the Department of 12 Housing Community Development, known as HCD. I'm 13 going to talk a little bit about the department, 14 some of our loans and grants, our monitoring and 15 management, and then how this ties in with the 16 Welfare Property Tax Exemption. 17 My department is involved -- as a state 18 agency, we're involved with building codes and codes 19 and standards. We license mobile home parks. We 20 license manufactured home manufacturers, as well as 21 the dealers and salespersons. We have a legislative 22 unit that works on legislation. 23 We have a housing policy development which 24 deals with housing elements and policy. And one of 25 our divisions is the Division of Financial 26 Assistance and providing loans and grants for the 27 development of affordable and other targeted 28 population housing. 44 1 We have grants, we have forgivable loans, 2 and we have repayable loans. There's three main 3 kinds. We have transitional housing which typically 4 is shelters, and then we have permanent housing. 5 Permanent Housing can either be affordable or it can 6 be supportive. 7 Supportive housing deals with housing 8 individuals that are either homeless or at risk of 9 homelessness and have someone with a disability in 10 the household. And then usually what comes with 11 that is various supportive services, counseling and 12 other services. And then we have the straight 13 affordable. 14 Most of our programs are under 60 percent 15 of area median income. So in an area that has a 16 household area median income of a hundred thousand, 17 our -- our programs are 60,000 for that household 18 and below. They go all the way down to about 30 -- 19 30 percent of AMI. Many of the times the tenants in 20 a 30 percent AMI unit is on Social Security as their 21 sole source of income and they're at 17 or 18 22 percent AMI and they're living in a 30 percent unit. 23 We also do have programs that target 24 certain populations. We have farm worker 25 populations. We also have a new source of funds for 26 Prop 41, which started from Assembly Bill 639 that 27 passed in October of 2013. 28 And then the voters passed Prop 41 in June 45 1 of 2014, which recharacterized $600 million in loans 2 for veterans. And as a veteran, I -- I'm really 3 proud of the work that went into that bill, working 4 with former Speaker Perez and passing that bill. 5 That bill provides funding for 6 transitional, supportive and affordable veterans 7 housing, with at least 50 percent is for supportive. 8 So we have a lot of veterans that are coming back 9 from Iraq and Afghanistan that have various physical 10 and mental challenges from that, and 50 percent of 11 that -- that bill, that 600 million, will go for 12 supportive housing for -- for veterans. 13 As we -- we talked about the redevelopment 14 agencies a little bit. Years ago, before 2000, a 15 lot of the funds for affordable housing came from 16 budget appropriations on an annual basis. And then 17 in 2002, Prop 46 was passed for a wide variety of -- 18 it was a bond measure, passed by the voters, and 19 provided various programs. And then Prop 1C was 20 passed in 2006. And then with the Prop 41 that just 21 passed in 2014, that's for veterans only. 22 A lot of the -- the general affordable 23 housing programs, the money is pretty much awarded. 24 The final funds are being disbursed now. So there 25 isn't as much money as there used to be, but there 26 still are quite a few programs out there. The 27 Department has 48 different programs in its -- its 28 portfolio, with about $2 billion in performing 46 1 loans. Those are repayable, repayable loans. There 2 are programs that were grants, but we have 3 $2 billion in repayable loans. 4 I'm going to go ahead and read off some of 5 the different programs that we have. These are 15 6 different programs that either have already awarded 7 in 2015 or will be awarding funds later this year: 8 There's the Predevelopment Loan Program; 9 There's a CDBG Program; 10 Local Housing Trust Fund Program; 11 Emergency Housing and Assistance Program; 12 The Governor's Homeless Initiative; 13 Home Investment Partnerships Program; 14 Housing Related Parks; 15 Section 811 Project Rental Assistance from 16 the state as opposed to the federal government; 17 There's the MPROP Program, which is Mobile 18 Home Park Resident Ownership Program; 19 Infrastructure Grant; 20 Emergency Solutions Grant; 21 The Veterans Housing and Homelessness 22 Prevention Program, that's the Prop-41-funded 23 program; 24 Affordable Housing and Sustainable 25 Communities, that's known as -- also known as AHSC, 26 and that's also known as the Cap and Trade Program; 27 There's the Multi-Family Housing Program; 28 The Multi-Family Housing Supportive Housing 47 1 Program. 2 So those are the 15 programs, and I'll be 3 happy to take questions later about what those 4 programs entail. 5 In general, the programs are 6 oversubscribed. There are some that are 7 undersubscribed. What I mean, oversubscribed means 8 that we receive more applications than we're able to 9 fund. Some of the programs like Transit-Oriented 10 Development, we would receive five or six 11 applications for every one we're able to fund. That 12 is a program that doesn't have any funding available 13 this year, but that was funded from Prop 1C from 14 2006. 15 The Transit-Oriented Development Program 16 was to -- to spur development near transit hubs, so 17 whether it's a bus station, light rail, heavy rail, 18 it had to actually be near a major hub as opposed to 19 just on a bus line. 20 So others are looking for smart growth. 21 The AHSC Program is similar to that in the sense 22 that it is targeting development to reduce the 23 vehicle miles traveled and to reduce greenhouse 24 gases. So that's part of the AHSC Program. 25 Last year -- or actually, excuse me, this 26 year, in June, $122 million of awards was awarded to 27 that program with HCD working with the Strategic 28 Growth Council. Coming up in this fiscal year 48 1 that'll end in July of 2016, there's 420 million for 2 that particular program. 3 So we -- we put out the loans and grants in 4 what's called a NOFA, which is Notice of Funding 5 Availability, and reward them on a competitive 6 basis. Ways that developers can get more -- more -- 7 more points and be more competitive is to have 8 deeper targeting. So when I talked about 60 percent 9 AMI units, typically developers get more points if 10 it's a 50 or a 40 or a 30, but they don't know how 11 the other developers will be structuring their 12 projects. So the projects that -- that are 13 eventually awarded, you get more bang from the buck 14 by -- by having the competitive points. Most of our 15 statutory programs all require a competitive ranking 16 process and to -- to use the dollars wisely. 17 The -- the next component is what's called 18 monitoring management by our Asset Management and 19 Compliance Unit. We record a regulatory agreement 20 or a covenant that runs with the land for 55 years. 21 That restricts occupancy to a certain population; it 22 could be farm worker, it could be veteran, it could 23 be a supportive housing unit or it could be tenants 24 at 30 percent AMI or 60 percent AMI. 25 Most developers, when they come in with a 26 project, since not everyone in a community makes the 27 same amount of money, they'll typically come in and 28 they'll have some units at 60, 50, 40 and 30; that 49 1 way when a household family comes in the door, they 2 can put them in a particular -- particular unit. 3 They're getting more -- more competitive points in 4 the ranking, but they're also getting more dollars 5 in the loan or the grant that they get from the 6 department. 7 Kind of the big picture of the way the 8 development housing works is a developer could 9 develop market-rate housing, they could go out to a 10 commercial bank, you know, Wells Fargo, Bank of 11 America, and borrow a loan at current, um -- at 12 current interest rates and then they're not 13 restricted by a regulatory agreement that restricts 14 the tenants and the rents. 15 What they can do essentially by coming in 16 for the -- for the affordable housing is there's a 17 high demand for affordable housing, so there's 18 essentially a lower vacancy rate and a lower 19 turnover. In order to make these projects pencil, 20 they have to come in and get low-income housing tax 21 credits and the department is what's the gap -- is 22 the gap financier. 23 So, instead of paying debt service to a 24 commercial bank, our loans are typically -- it 25 varies from program to program, but typically 26 they're three percent, principal and interest 27 deferred. There's a mandatory .42 percent that's 28 paid annually that pays for administrative costs. 50 1 But the rest of the interest and principal is 2 deferred for 55 years. And since they don't have 3 that mandatory debt service to a commercial bank, 4 they can take less -- or they're required, pursuant 5 to the regulatory agreement, but essentially they 6 have less income from tenant rents. 7 Also, they're able to sometimes obtain 8 subsidies. The department has a few different 9 subsidy programs, but they're not plentiful. The 10 type of subsidy that you're most familiar with is 11 probably Section 8. That's usually administered by 12 the Housing Authority through the Federal 13 Government. And that can provide usually 15-year 14 terms; it can provide a certain number of units. 15 Most of the department's money is capital 16 development. So we're the bricks and the motor at 17 the development stage, and we're not subsidizing the 18 project from year to year. But by coming in at the 19 development and providing the funds to develop the 20 project, they get the loans from HCD and other -- 21 other lenders, other public lenders, and then they 22 don't have the debt service. So they can 23 essentially take in -- they can have lower rents and 24 the projects are still feasible. 25 So we record the regulatory agreement for 26 55 years. It contains an exhibit that talks about 27 the rents for that particular project, whether it's 28 a supportive housing tenant or a 30 percent or a 60 51 1 percent AMI. 2 We also -- we do also monitor with site 3 visits. We do a site visit before and -- and after. 4 And then we try to get to each project every three 5 years. There are projects if they are having 6 trouble, we go out there annually to the projects 7 that have issues. 8 We -- in that regulatory agreement it 9 actually restricts a variety of things. Under 10 Article 34 of the State Constitution, when HCD funds 11 with one of these regulatory agreements, we're 12 actually considered a co-developer of the project. 13 And the reason why the court determined that, 14 there's two famous cases -- Elliott and Patitucci -- 15 but basically what those -- what that article and 16 those two cases have ruled and determined that HCD's 17 regulatory agreement is so restrictive that we're 18 actually a co-developer of the project. And the 19 reason we're a co-developer of the project is 20 because we require certain things like reserves, an 21 operating reserve for unforeseen circumstances, as 22 well as a replacement reserve for replacing capital 23 improvements; like if it needs a new roof in 15 or 24 20 years. But we actually control the deposits that 25 go in and the withdrawals that come out. 26 We also control the distributions and the 27 profit that a developer can make. So under the 28 current regulations in law, from the development -- 52 1 from the development -- the developer fee from the 2 development of the project for larger projects is 3 1.2 million, which isn't that much when you look at 4 the number of years that developers are -- are 5 feeding a project before it is finally built and 6 receive a certificate of occupancy. 7 But then we also monitor the distributions. 8 The distributions is the profit that a developer 9 takes from -- after paying the regular expenses. So 10 if we remember that the -- the tenant rents are 11 lower because of the -- the -- the restrictions that 12 HCD is putting on the various units, and then when 13 the -- there's net cash flow after paying all the 14 expenses, 50 percent goes to the developer, then the 15 other 50 percent goes what's call residual receipts. 16 And that goes to pay back the HCD and other public 17 entity loans based on a pro rata basis. 18 So it's true that our loan has a .42 19 percent mandatory debt service, but there is three 20 percent in that principal that's a balloon payment. 21 But if a project cash-flows and has sufficient cash 22 flow, then we start receiving funds to pay down 23 those loans prior to the expiration of the term. 24 The reason why the Welfare Property Tax 25 Exemption is so important is because many of these 26 projects have very thin cash flow. Most tenants are 27 paying about 30 percent of their income in, um -- in 28 rent and then the subsidies are very few. Like I 53 1 indicated earlier, most of the funds come in during 2 the development stage for capital development, so 3 the projects essentially have to be able to pay for 4 their utilities, the onsite manager, the landscaping 5 and the upkeep, putting money in the reserves that 6 HCD and other lenders are requiring, and the cash 7 flow is very thin. 8 Really the Welfare Property Tax Exemption 9 is -- is -- not having that, a lot of these projects 10 would not cash-flow. 11 So, anyway, I'll be happy to take questions 12 at the end as well as the rest of the panel. 13 Thank you. 14 MR. HORTON: Mr. Tonnesen, why don't we 15 take a couple questions from the Members, and then 16 we'll go to the audience. 17 Member Harkey. 18 MS. HARKEY: Hi. Thank you. 19 We all know that one of the primary drivers 20 of cost in California is the price of the land. 21 What are you able to negotiate, or what 22 sort of parcels are you able to put together to 23 drive that cost down as a percentage of the overall 24 cost of construction? 25 MR. BOBROWSKY: So we -- we are competing 26 with, you know, market-rate developers for land, you 27 know. And on top of that competition, due to, you 28 know, this scoring requirements in order to obtain 54 1 tax credits, tax exempt bonds or, you know, this 2 other cap and trade or other money through state 3 agencies or local agencies, quite often it's -- it's 4 even more constrained of where the land could be. 5 As well as, you know, we do deal with quite a bit of 6 NIMBY issues of, you know, where -- where land can 7 be, you know, what's around it. So we are generally 8 paying as much or more for land as market-rate 9 developers do. 10 Quite often the land are -- due to the 11 constraints of the financing, the parcels are small 12 and unique; you know, which you would think would, 13 you know, result in lower land costs, but that is 14 not the case. The land is a significant part of the 15 value. 16 Quite -- sometimes we do get surplus land 17 from -- from, you know, other local and state 18 agencies that can help finance a development. But 19 quite often we're just out there competing with a 20 market-rate developer. One of the reasons that 21 we're paying more is we have to go through this long 22 process, this two- to five-year process, of 23 obtaining and putting together the financing. 24 It's very rare that a developer has the 25 money to buy the land before they have all their 26 financing sources in place. There isn't much, if 27 any, bridge financing, land acquisition financing 28 sources. 55 1 So if you're a private seller of a land, do 2 you want to wait two to five years to sell that 3 piece of property to affordable housing developer or 4 do you want to sell it in 60 days to a market-rate 5 developer and take your money? 6 So that's why, quite often, we have to pay 7 more for land, is due to the time and complexity of 8 the financing and getting approvals to build and 9 putting the financing together. 10 MS. HARKEY: Right. So I guess my -- my 11 question then -- and I don't expect an immediate 12 answer -- but there's got to be some way that you 13 can -- some way to drive down that cost because it 14 is such a huge part of the construction cost and you 15 are out there competing. 16 I would just wonder if that wouldn't be 17 something to -- for us to think about is either a, 18 uh -- some kind of a credit to those who would wait 19 and sell or maybe some kind of other sort of 20 exemption from all -- from some of the permitting, 21 the other things that are the cost drivers of the 22 land and -- as you said, I know we've had 23 communities where the land has been kind of 24 contributed because it was excess, but that is 25 running out. 26 Another thing -- okay, I just wanted to 27 know, you said that you had 55 years of affordable 28 on rental. How does the rent increase over that 56 1 time? I'm assuming it does, it's tied to a factor? 2 MR. STIVERS: So the rents do increase 3 somewhat over time. It's a function of how much 4 income's in a certain county rise. So the Federal 5 Department of Housing Urban Development, you know, 6 based on census data every year, says, okay, the 7 county median income in this county has gone up two 8 percent; the rents, they can go up two percent. 9 So it's tied to the area median income and 10 as that goes up over time. 11 MS. HARKEY: Okay. So that would make 12 higher -- higher -- 13 MR. STIVERS: As you know, housing -- it's 14 not tied to housing prices. So housing prices in 15 California have gone up much, much faster than 16 income. 17 MS. HARKEY: Right. 18 MR. STIVERS: And so that -- the benefit of 19 affordable housing and/or the gap between affordable 20 rents and market rents has really skyrocketed. 21 MR. BOBROWSKY: If I could add, actually 22 since 2008 we've actually had median incomes in a 23 lot of counties in California that have actually 24 declined, which I can tell you that operating 25 expenses have not declined and so -- 26 MS. HARKEY: We all know that, don't we? 27 MR. BOBROWSKY: We're in a hole that, you 28 know, you -- you -- you know, pro forma that your 57 1 rents are going to rise by two-and-a-half percent a 2 year and usually we pro forma that expenses rise by 3 three-and-a-half percent a year. Now we have five 4 or six years of no rent increases and so that 5 there's a large gap of -- of net operating income 6 that was supposed to be used to pay for operations 7 of the property or debt service that is causing some 8 financial hardships to the properties. So that's -- 9 that's a risk that developers take. 10 MS. HARKEY: Okay. Thank you. 11 MR. HORTON: Member Ma. 12 MS. MA: Yeah, um, just a couple of 13 questions. So must all the housing be low-income? 14 MR. SUTTON: It isn't required that a 15 developer have a hundred percent -- 16 MS. MA: Yes. 17 MR. SUTTON: -- affordable in a project. 18 We have mixed use projects, some that have ground 19 floor commercial and that could be -- a portion of 20 it could be market-rate and a portion of it be 21 affordable. 22 The money that we provide, they have to 23 have a unit restricted. So if you have a 50 percent 24 market-rate project, you're going to get much lower 25 funds. The same thing if you have a 30 percent unit 26 as opposed to a 60 percent unit, you get more 27 dollars per -- per the deeper targeted unit. 28 So we do fund projects that are mixed use. 58 1 We don't fund the commercial portion of it. So if 2 it has ground floor commercial, there's different 3 ways to structure that. It could be condominiumized 4 where it's a separate parcel, separate operating 5 budget. 6 Sometimes the commercial is a part of the 7 affordable housing project and it's commercial 8 income that goes into that budget. We don't 9 actually pay for the commercial construction 10 portion, but we do figure that into the cash flow. 11 So we do have mixed unit projects. We have 12 a minimum of five units. Typically projects are 13 usually 50 percent or more affordable. 14 MS. MA: Okay. And then what happens to 15 some of the social service programs that are 16 incorporated into some of these housing units? Do 17 they get credit if it's a nonprofit providing, for 18 example, after-school services or, you know, food 19 services? Or does it have to be nonprofit or could 20 it be for profit? 21 MR. BOBROWSKY: So -- so generally our -- 22 you know, we partner with Life STEPS on most of our 23 properties to provide social services. The cost of 24 those social services are included in the operating 25 expenses of the property and we commit to those for 26 a long period of time to provide those services. 27 They're provided to everybody that lives onsite free 28 of charge in a property. 59 1 And to follow up a couple of the previous 2 questions, we do do mixed income properties; some 3 market-rate, some maybe at 80 percent median income. 4 Generally the tax credit industry doesn't 5 like less than 75, 80 percent affordable because 6 they don't want -- they're investing in tax credits. 7 They don't want to take market risk. And when you 8 introduce too many market-rate units in a property, 9 you're introducing market risk and that's not what 10 they're investing in. 11 On the land question, inclusionary housing 12 is a way to provide for lower cost of land which the 13 Supreme Court case in -- for San Jose did 14 substantiate and confirm that that is legal 15 policies. CEQA could help. You know, quite often 16 NIMBYs use CEQA to fight projects, and so CEQA 17 reforms help, you know, lower the cost. Time is -- 18 time is money. So yes, CEQA reforms could help 19 lower land costs. 20 MS. MA: So like, um -- like let's say 21 it's, you know, preschool services onsite. Yet, 22 after a while, you know, all the kids grow up and 23 there's no kids anymore. Could you take kids from 24 outside of the project and charge them fair market 25 or would -- is there still a requirement that it has 26 to be offered to low income? 27 MR. STIVERS: Our program offers services 28 for a 15-year period. Often we will see them for 60 1 longer. But if -- if the demographic -- if the 2 service needs of the property change, the 3 service provider -- the developer and the service 4 provider would change the offerings that they have. 5 Instead of now being before-school child -- or, you 6 know, infant care, whatever, now it would be 7 after-school homework club or something like that. 8 So the service requirement, we require it for 15 9 years in a nine percent program, but the services 10 are somewhat flexible within those properties. 11 MR. BOBROWSKY: When we're developing a 12 project, we anticipate what we think tenants are 13 going to need and want for social services. But 14 actually once a property is built and occupied, Life 15 STEPS actually goes and conducts meetings and 16 surveys and asks the residents, presents them what's 17 the possibilities and sees where there's interests, 18 where their needs are; and those needs change over 19 time and the programs change over time. 20 MS. MA: Yes. My last question is, What is 21 the success -- the success rate for these projects? 22 I mean are all of them successful in your portfolio 23 or are there -- 24 MR. STIVERS: Well, let me speak about it 25 from a compliance perspective, and Darren can maybe 26 speak about it from a financial perspective; I think 27 those are two very different things. 28 From a compliance perspective, we see 61 1 almost no foreclosures. So the projects do survive 2 over time. There are a handful, but over time they 3 survive. They provide the 55 years of housing that 4 we expected to see. And we are seeing that the 5 projects are well maintained in most cases -- in 6 pretty much all cases and -- and renting to the 7 right tenant demographic. 8 So from our perspective as a regulator and 9 a funder, it has been extremely successful. There 10 are a -- you know, there's always some exception to 11 the rule, but the overwhelming rule has been that 12 it's worked out exactly as planned. 13 MR. BOBROWSKY: From a federal standpoint I 14 think Reznick, which is a large national accounting 15 firm that specializes in tax credit industry, you 16 know, did some research. I think the default rate 17 is one, two percent. I mean it's extremely -- 18 MR. STIVERS: .24. 19 MR. BOBROWSKY: .24. It's almost nothing. 20 That's -- that said, there are -- you know, when you 21 develop, you know, thousands of units of affordable 22 housing, not every one is a homerun, not every one 23 performs as you think it's going to perform and has 24 issues. 25 You know, I could luckily say out of our 26 80-plus properties we only have a very small one or 27 two that is not performing. As the -- as the 28 administrative general partner, we actually fund the 62 1 deficits on those properties. We are actually 2 writing checks on those properties to make sure that 3 they are well managed and well maintained because we 4 do that. 5 Probably not every affordable housing 6 developer is as well capitalized as us being, you 7 know, as large as we are. And in that case, I 8 think, where your real safety net is is the tax 9 credit investor. They're making large equity 10 investments in the property. If those properties 11 are foreclosed upon or fail, they lose their 12 investment. They stop receiving the tax credits and 13 can even be recaptured of all their equity. 14 So they have, from time to time, come in 15 and replaced a general partner. We've been replaced 16 from general partner at times. Sometimes the 17 original one can't perform on their -- their 18 obligations and that does happen from time to time, 19 but it's very rare. 20 MR. SUTTON: In a follow-up to your 21 question, we have over 2,000 multi-family projects. 22 I think we have three or four in the last 20 years 23 that have gone through foreclosure. And we have had 24 some where we've sent them a default letter, 25 recorded it as a default, but then those issues were 26 cured and it didn't go through the foreclosure. 27 Typically the foreclosures that we see are 28 after the 15-year tax credit compliance period. So 63 1 we still have a regulatory agreement on the project, 2 and sometimes it was with nonprofits that major 3 change in the Board of Directors and they lost some 4 of the -- the people that founded the entity and 5 those projects did go into foreclosure. And then 6 another developer came in and took it over and 7 they're still operating as affordable housing 8 projects with a different nonprofit. 9 So we didn't actually have any go to 10 market, that I'm aware of. It's they restructure, 11 and the entity or the sponsor of the original 12 developer exits. 13 MR. HORTON: Couple of -- 14 Thank you, Member Ma. 15 The, um -- is there -- is there a benefit 16 in the strategy that where we have a planned 17 development that takes a look at the federal and 18 state surplus property -- there is a lot of vacant 19 properties out there -- and works hand-in-hand with 20 the private industry to relocate jobs and 21 developments and so forth and at the same time build 22 housing for many of the employee that actually can 23 qualify for the affordable housing? 24 It seems to me that a lot of these 25 projects, the genesis for a lot of these projects 26 are the local developer, the local city and so 27 forth. Why not a planned strategic approach to 28 doing this, reduces the cost of the land, enhances 64 1 the overall development, job creation, by working 2 with private industry. Has that been considered? 3 MR. SUTTON: Yes, it -- yes, it has. 4 There's the Governor's Interagency Council of 5 Veterans did take upon themselves to go look at 6 federal properties that were surplus as well as 7 state properties. We went to CalTrans, we went to 8 the Department of General Services, and actually 9 compiled a list. And that list is available on the 10 Internet on the Governor's Interagency Council of 11 Veterans, the ICV. 12 That's a matrix of all properties that 13 they're owned by the state and they're surplus. And 14 there's also information on there on what would be 15 feasible for housing; either they're close to 16 services, they're close to transit, or sometimes the 17 projects aren't feasible for various reasons because 18 they're uneconomic remnants or something like that. 19 But there are -- there is a list that's 20 already been posted and it's available publicly on 21 the Internet. 22 MR. HORTON: My other question deals with 23 my concern about a pathway to the middle class. And 24 I believe someone spoke to this earlier. Many -- 25 some of the individuals, sometimes, are living in 26 affordable housing for the rest of their lives. And 27 so if we don't begin to work on a pathway to 28 success, that's another way to sort of address the 65 1 problem. 2 So what are we doing in order to provide 3 college training? I understand that the community 4 college will provide free community colleges, job 5 development and so forth, so that the individuals 6 that are living in affordable housing actually have 7 an opportunity to -- to take that pathway to the 8 middle class. 9 MR. BOBROWSKY: So it's I think, you know, 10 in our partnership with, you know, Riverside 11 Charitable and their sister organization Life STEPS, 12 you know, we see that the -- for us a success is 13 when somebody moves out of our property and buys a 14 home. I mean, that's a really, you know, a great 15 success story for us; even though we lost a tenant 16 and we have to turn a unit and that costs money, 17 that's really our measure of a success is to get 18 people out of affordable housing. 19 Some people will not get there, you know, 20 either through, you know, their employment or 21 disabilities or other things and it's, How do you 22 deal with them to make their lives as fulfilling as 23 possible? And, you know, if they have kids, to help 24 those kids get out. 25 As Recinda said, you know, USA formed this 26 J.B. Brown Scholarship Fund. I think over the last 27 three years we've raised and awarded over $140,000 28 in scholarships to resident -- children that live in 66 1 our properties. And so that's what we're doing to 2 help do that. 3 We also do after-school programs -- not 4 after-school programs, but athletic programs for 5 kids so they can participate in youth sports because 6 we think that's a great character builder to get, 7 you know, kids involved in team building and -- and 8 get them out of properties. 9 So it's -- it is a success and we -- you 10 know, it really falls to, you know, the -- the Life 11 STEPS and, you know, how do you get to the people to 12 better their lives and give them an education to do 13 that? And, you know, part of that is keeping the 14 rent affordable so that they have the money then to 15 go to school or -- or improve their lives themselves 16 and not be overburdened by rent in market-rate 17 housing. 18 MR. HORTON: Thank you very much. 19 Questions from the audience? 20 Mr. Dronenburg? 21 MR. DRONENBURG: There's always two ends 22 with these kinds of things. 23 (Inaudible.) 24 Has anybody ever featured a study on how to 25 deal with affordable housing? When we can go out to 26 assess affordable housing, it's much more expensive 27 comparable housing than market-rate housing. 28 MR. HORTON: Good point. 67 1 MR. DRONENBURG: What about some kind of 2 relief from the city or county in the building 3 process? Has anybody thought about the cost of 4 this? Instead of trying just to finance a Cadillac, 5 here's a real nice Buick. 6 MR. STIVERS: The various state agencies, 7 HCD and the Tax Credit Committee at the end of year 8 commissioned a cost study to kind of look at exactly 9 those issues. They were really trying -- they were 10 hoping to compare the cost of a wide range of 11 affordable housing projects with market-rate. The 12 market-rate developers were not really that 13 interested in providing their proprietary data, so 14 it was kind of hard to look at that exactly. 15 But you know, San Diego, the Housing 16 Commission also did a similar exercise and they just 17 looked at a single project and, you know, looked at 18 what would it cost to do it as a market-rate 19 versus -- versus affordable. 20 And, you know, with most -- maybe two 21 exceptions, there really aren't -- there aren't 22 really different -- that many different cost 23 drivers. There's some additional -- you know, to 24 the extent that public funds require payment of 25 prevailing wage, that does add some cost on the 26 affordable side. That's not something that any of 27 us can deal with. 28 There are some additional costs of 68 1 financing on affordable side, as Darren talked 2 about, because you -- you know, it's just no one 3 governmental entity provides the entire gap; we make 4 you go to three or four, and that's a little bit 5 more costly. And just, as Darren mentioned, the 6 time aspect of it. 7 There are some things in our program where 8 they probably do add some cost. We've asked 9 projects be more energy efficient than codes. And 10 that's actually one of the things that we're looking 11 at right now is what can we do when we have a 12 proposed regulation changes out there that would 13 reduce, you know, the cost of some of those 14 secondary -- so some of those secondary benefits, 15 we'd focus more just on the affordable housing and 16 bring some of that cost down. 17 But I think the reality in California is 18 just that housing of any type, affordable or 19 market-rate, is extremely expensive to build and it 20 just -- it is hard to make that pencil out. And 21 while there may be some cost that affordable housing 22 bears that others do not, in -- in reality, I think 23 a lot of the projects are just similarly expensive, 24 is our -- has been our experience. 25 MR. BOBROWSKY: I would say, you know, at 26 USA Properties we definitely try to hold down the 27 cost as much as possible. We think it's -- it's our 28 duty to do that, to use as few resources as possible 69 1 to build the housing while still providing a high 2 quality product that's going to last. 3 And one of the things is, you know, we say 4 it's a 55-year affordability period, we really have 5 at least a 15-year look before a real new capital 6 infusion can be put into these properties because 7 that's how long the tax credit investor, the initial 8 tax credit investor's involved. So quite often you 9 have to build to a little bit higher standard, more 10 durable materials. 11 Sure, we'd like to get a lower land cost, 12 absolutely. We'd like to get relief from, you know, 13 fees, impact fees, sure. But we don't. We have to 14 pay full impact fees like any market-rate developer 15 does. And on top of that the complexity of the 16 financing also adds costs as well as operating and 17 replacement reserves to ensure that the property 18 can -- can last for 15, 20, 30 years. There are 19 reserve requirements that are -- that are put forth 20 that add to the development cost. 21 So it's -- I think there's a lot of people 22 in the industry that have looked at it and are 23 trying to identify it, whether it's using, you know, 24 different construction techniques, designing cost 25 efficient designs; we always try to do that. But, 26 unfortunately, even we find that, yes, it costs more 27 to build affordable housing development for these 28 reasons than we can build a market-rate development 70 1 for. 2 MR. DRONENBURG: Just to follow up, you get 3 the one that I was saying about the costs and fees. 4 We talk and say how we want affordable housing. If 5 we waived all your fees, even though we don't have 6 low-income housing, that would be our contribution. 7 So it starts from Sacramento, allowing us 8 to do some of that, give some kind of credit 9 somehow. But, uh -- 10 MR. BOBROWSKY: You have everything from, 11 you know, fire districts to school districts to park 12 districts to cities and counties. I mean, the fees 13 that we pay, there's a litany of different fees that 14 you pay from different -- lots of different 15 entities. 16 And yes, that is a potential solution. 17 That is basically, you know, a subsidy. If you 18 don't have to pay a fee, you don't need a source to, 19 you know -- to -- to -- to pay that fee and that 20 could help, you know, build more affordable 21 housing. 22 MR. STIVERS: The tax credit program, 23 actually in our competitive program, we reward 24 projects that receive fee waivers from local 25 governments. You actually do better in our 26 competitive program. So we incentivize local 27 governments to waive those fees. 28 We do see quite a few. But, you know, fees 71 1 can be, you know, tens of thousands of dollars per 2 unit and we're not seeing all that waived. I mean 3 you'll see a portion of that waived but not 4 necessarily all of it. 5 MR. BOBROWSKY: And like for Sacramento 6 example, they do have a waiver program for sewer 7 fees. So there are some programs out there. 8 They're probably few and far between, but there are 9 some out there that could be used as an example. 10 MR. DRONENBURG: How about density? 11 MR. BOBROWSKY: So we do use density bonus 12 law which provides up to, you know, a 30 percent 13 increase in density or three -- three incentives to 14 provide at least 30 percent affordable housing. We 15 use a density bonus to add more units to the site, 16 reduce parking, get other, you know, relief from 17 other things. So it is done. 18 You know, one of the big issues though is 19 CEQA, if you need any type of, you know, entitlement 20 in place and you have NIMBY opposition, you know, if 21 you're going to get caught up in a CEQA battle, 22 quite often is you need to negotiate and provide 23 something, a concession, in order to get the project 24 to move forward. 25 MR. HORTON: Sounds like an excellent 26 proposal for a work group. Board of Equalization 27 CCA will come together and see if we can work on 28 that. 72 1 We had another question, sir? 2 MR. SHERMAN: Yes, Mr. Chairman. My name 3 is Joe Sherman. I'm the president of the Reliant 4 Group. And we've developed about 14,000 units of 5 housing; about three-quarters of that is affordable 6 housing. And, according to Affordable Housing 7 Finance Magazine, I'm the third largest developer of 8 four-percent tax credit transactions in the country. 9 So I got two real quick questions. The 10 first is, we build in about 10 different states but 11 we don't build in any of the states that don't have 12 the Welfare Exemption. As you might guess, it's 13 just impossible to get to the gap financing. 14 Is there really any controversy in 15 California about the Welfare Exemption and applying 16 it to affordable housing? 17 MR. HORTON: Is there any controversy, is 18 your question -- 19 MR. SHERMAN: Yes. 20 MR. HORTON: -- relative to the Welfare 21 Exemption? 22 MR. SHERMAN: Is that exemption at risk? 23 MR. HORTON: The exemption is not at risk. 24 It's the interpretation of the various rules and 25 regulations that require -- have required some 26 clarification. We believe that the Legislature 27 provided that clarification last year and the Board 28 of Equalization ratified it. 73 1 So I would say that the Welfare Exemption 2 is safe here in the State of California. You can 3 continue to build. 4 MR. SHERMAN: Great. 5 And the second question is something that 6 Ms. Ma has touched on, and she asked what the 7 default rate is. Actually the default rate is 22 8 basis points nationally. So that's the equivalent 9 of a double A bond. So you'd look at that and say 10 intuitively affordable housing transactions are 11 very, very safe. 12 However, why are they safe? They're safe 13 because in these transactions the tax credits 14 indication firms and the buyers of those tax credits 15 require guarantees. Those guarantees include -- and 16 mostly they're personal guarantees. They include 17 operating deficits, construction completion, and 18 probably the most challenging is the recapture 19 because recapture can be many times the value of 20 what you would earn as a developer fee in the 21 transaction. 22 Nonetheless, as a developer, you sign on to 23 take all of those risks. 24 Now, Mr. Stivers has said there are new 25 regulations coming out from TCAC. One of the 26 regulations comes out, eliminates the developer's 27 ability to take a profit in a sale, ultimately, of 28 affordable housing transaction. 74 1 And as Darren touched on, not all of the 2 transactions work. And when they don't work, they 3 don't necessarily end in a default or a foreclosure. 4 It's the developer who feeds these for years and 5 years and years, and you have to have the ability to 6 sell some for a profit to cover the ones that are 7 losers or you're not going to be in that business. 8 So I just want to follow up on Mr. Horton's 9 suggestion and ask Mr. Stivers, is it possible to 10 form a work group, as he's suggesting, to explore 11 some of these ideas? And maybe it's a blue panel 12 group or maybe it's a citizens group where we say, 13 "Let's look at different mechanisms." 14 There's mechanisms like this very good 15 suggestion I heard about waiving fees. In Petaluma 16 and in Napa County where we're building now, we're 17 paying in excess of $40,000 a unit in fees. If we 18 could get a reduction of fees, certainly we could do 19 more. 20 There are other ways, including some of the 21 subsidies that we had heard about here in the 22 process where it could be a state tax credit or it 23 could be a fund that gives low interest loans. But 24 there are lots of other mechanisms that would work 25 besides taking away the developer's profit in that. 26 And I'm asking Mr. Stivers if it's possible 27 for us to form a citizens group or a blue ribbon 28 panel or just a group here, a working group, that 75 1 could look at those others before we move forward 2 with the change in those regulations? 3 MR. HORTON: Why don't we direct that 4 question to Member Ma and let us sort of give an 5 overall general -- is it the original question 6 relative to a strategic methodical way of 7 approaching this. 8 We are somewhat approaching it 9 incrementally now, is that a developer will come up 10 with an idea that they want to develop. They'll go 11 to City Council, they'll find a nonprofit and so 12 forth. 13 I agree, we have to be smart about it. 14 There are a number of resources that are out there: 15 Park bond resources, HUD funding and so forth. 16 Combining all of those will not only reduce the cost 17 of the development and reduce the overall cost to 18 the tenant, but at the same time provides them a 19 pathway to the middle class, which I think everyone 20 that's living in affordable housing should have that 21 opportunity to eventually be able to rise up out of 22 that. 23 Member Ma. 24 MS. MA: Thank you. Thank you, Mr. 25 Chairman. As a good Chairman, he delegates. So he 26 said, "It's under your committee." 27 I'm Chair of the Legislative Committee. 28 I'm more than happy to convene a working group or a 76 1 stakeholders meetings. 2 My able assistant here, Tim Morland, Chair 3 of my Leg. Director is very good at convening 4 stakeholder meetings. We just had a very successful 5 one on banking the cannabis industry, so we're more 6 than happy to see what ideas come out and see 7 whether we can, you know, work with the local cities 8 and counties or work on legislation to try to, you 9 know, improve the situation to make sure that we are 10 meeting all the needs that we need. 11 MS. YEE: Mr. Chairman. 12 MR. HORTON: Member Yee. My apologies. 13 MS. YEE: Thank you, Mr. Chairman. 14 I just want to be sure as we move forward 15 and we would actually love your input on the 16 proposed regs that are currently pending before 17 TCAC. And, Mark, you could probably outline kind of 18 our timeframe on that. 19 But I just want to just also identify kind 20 of some jurisdictional issues. I mean there are 21 definitely things that I think are within the 22 purview of TCAC that we'd be willing to look at. 23 I think there have been a number of issues 24 raised. And thank you, Member Ma, for taking on the 25 leadership to explore those further. But I do think 26 that some legislative solutions are probably in 27 order for some of the other issues that have been 28 raised. 77 1 But, Mark, do you want to just kind of 2 outline the schedule that we're on? 3 MR. STIVERS: Oh, anyway, I just -- we can 4 have this conversation offline. I mean we -- I 5 wouldn't characterize our proposals as taking away 6 developer profit. I think there are some places 7 where we are interested in having some limits in 8 specific situations. 9 But nonetheless, we are out in a public 10 comment period, so we are taking public comments. 11 We have formed a working group to sort of work 12 through some of those issues, and I wouldn't be 13 surprised if we have revisions. 14 We were planning to -- the comment period 15 ends August 31st on our proposed regulation changes, 16 but to the extent that we propose revisions, we 17 would probably have a second comment period on that 18 and then probably extend the timeline a little bit. 19 So it's our idea to adopt a full package of 20 regulation changes by the end of the year, earlier 21 if we can do so in a -- in a way that makes sense. 22 MR. HORTON: Mr. Goodwin. He didn't even 23 raise his hand, but I knew he had a question. 24 MR. GOODWIN: Thank you, Mr. Chairman. 25 Actually, I got about a dozen questions. But just 26 to -- just to touch on a short one. 27 So, you know -- well, anyway, so let's talk 28 about the one that Mr. Dronenburg brought up. So 78 1 the cost situation, it's -- and this is mainly for 2 the Board Members' benefit. It's -- it's fine to 3 say about saving some things and fees and 4 everything. All the market-rate apartment buildings 5 have the same things for schools, for sewer lines, 6 for water lines. All those fees are duplicated. So 7 there's no -- there's no excessive cost being 8 burdened on low-income housing because of all the 9 governmental fees. 10 So where -- where is it that -- and so the 11 question comes to mind when we as assessors look at 12 this -- and this audience has some experience with 13 looking at projects and saying, why is it a 14 market-rate apartment project? A hundred units is 15 maybe $20 million in cost, but a non -- a low-income 16 housing project is 300? I mean, excuse me, I 17 said -- did I say 20? Yeah, 20 million. Why is the 18 other 30 million or even 40 million? 19 How is it that we're seeing some of these 20 things cost 400,000 per unit for a low-income 21 housing project and easily 300,000 when the 22 market-rate are 200? 23 So those are -- there's some -- I think 24 there's some explanations that are tied to some of 25 the fees that professionals charge that are involved 26 in securing the tax credits and putting together 27 agreements, partnerships. There's a lot of fees 28 that are allowed to roll over into the cost of the 79 1 project that are not government fees. These are 2 private professional fees that are part of the 3 project. 4 There's other things that I think the -- 5 you know, the administrative general partner 6 probably knows more about and would understand, 7 well, that's part of how they take care of their 8 investors and their -- their general partner, the 9 developer, because up front he has the risk, he has 10 the investment that you talked about. And his 11 recapture of his investment is a lot of it's 12 delayed. So he's got to do a pencilling on that to 13 see when does it -- when does a pro forma come out 14 to where he comes out even? So he's got, you know, 15 all the options of the tax credit sales; that's 16 another area where there's probably a pretty 17 substantial fee. 18 There's the, uh -- the thing in the tax -- 19 the, uh -- as far as the tax credit, one of the 20 things that I was thinking of is an opportunity -- 21 so this isn't a question. This is -- it's a speech. 22 And then I'll ask a question. 23 So -- so one thought I had -- and this 24 is -- this is not going to be something that general 25 partners would support and probably not even the 26 nonprofit general partner, but mostly the general 27 partners. But the thing that Mr. Stivers brought up 28 a good point that the expense ratio has an 80 1 opportunity for a little bit bigger loan because 2 there's a Welfare Exemption on the taxes. So the 3 tax part of an expense -- operating expenses on 4 normal apartment buildings is significant. You 5 remove that from the operating expense and that 6 creates a better net operating income. 7 Now, let's go to the end of the investment. 8 So lets say the developer holds it for 10 years and 9 wants to sell it. When he sells that property, 10 maybe uses a market cap rate of five percent, 11 divides that into the net operating income, if -- if 12 his net income has no tax burden, there's a -- 13 there's a quotient there that's really a real bonus 14 to the developer. 15 Now, I kind of think that the state and its 16 tax credits ought to say, well let's see, since 17 you're getting the tax credit, how about at the end 18 of the investment holding period the value of that 19 tax credit comes back to the state to refund the 20 housing program? It'll help with your gap. It'll 21 raise money. 22 And to put it in perspective, so $200,000 23 savings on a hundred-unit apartment building, 24 200,000 per year, you divide that by five percent 25 cap rate, that's $4 million. So that $4 million on 26 the sale is a -- is a real bonus to somebody. I 27 think the state should have a right to at least 28 claim a portion of it. 81 1 MR. BOBROWSKY: I think you have to 2 remember how this program was created and what type 3 of affordable housing was -- was developed before 4 the '86 Tax Reform Act created the low-income 5 housing tax credit program. 6 Affordable housing used to be through 7 direct governance subsidies, as well as public 8 housing. You know, USDA had a loan program. And 9 generally those are not great places to live. There 10 is not the -- the private sector involvement to 11 develop market -- almost market-rate type housing 12 where people aren't stigmatized in where they live. 13 It's not "the projects," what used to be developed 14 as "the projects." I think everybody driving around 15 can -- can point out where "the projects" are. You 16 generally probably have a very low success rate for 17 people climbing out of poverty, high crime rates, 18 low graduation rates. They're not great places to 19 live and to raise families and to be in. 20 The Tax Reform Act created this public 21 private partnership out of the -- the Tax Reform Act 22 and it has created the most successful affordable 23 housing program the country has ever seen. It 24 has -- as has been said, it's extremely low default 25 rate, provides great quality of living for people, 26 as well as social service amenities, integrates them 27 into the communities in a way that helps them 28 succeed. 82 1 The projects tend to be much smaller in 2 size; anywhere from probably 20, 30 units, up to a 3 couple hundred units, which is more a manageable 4 size than public housing entities. 5 So it's this public private partnership 6 that the federal government, through the state 7 agencies, is basically buying down the rents for 8 basically private developments. And that's where 9 the Welfare Exemption goes to, is to buy those rents 10 down, to make them affordable because you can't get 11 as large of a loan. You're not going to put the 12 eq -- private equity into it because there are not 13 the rate of returns. 14 So it's -- it's maintaining this -- this 15 balance of this public private partnership that has 16 made this program the most successful way to provide 17 affordable housing in this country. 18 You know, to your question on the cost, 19 yes, we pay the same fees as everybody else. As I 20 mentioned, you know, quite often the land cost is 21 higher because of the things that we have to do to 22 get a project approved. And, as Mark said, there is 23 prevailing wages, quite often, that come with 24 requirements. 25 We're quite often developing smaller 26 projects, so those fixed costs, those architectural 27 engineering attorneys costs are spread over fewer 28 units. So when you look on a per unit basis, yes, 83 1 the costs are going to be higher because you have 2 certain fixed costs to develop a property. Whether 3 it's 20 units or 200 units, I still have to pay, you 4 know, certain legal counsel their fee. Putting 5 together these layers of financing, there's a cost 6 to that. 7 So it is more costly. I think, you know, 8 the other thing is that we're developing housing for 9 the long-term. A private market developer, you 10 know, most often they're building, stabilizing and 11 selling it. They're not looking at how long are 12 these fixtures and this flooring and these materials 13 going to last in the properties? So quite often 14 higher quality materials are put into the property, 15 which costs more, but it lowers the operating 16 expenses and makes them a more manageable and better 17 place to live. 18 MR. ROUSSEAU: Bill Rousseau, Sonoma County 19 Clerk-Recorder-Assessor. 20 Question for Mark and for Bradley. One of 21 the things that we have to do, obviously, is make 22 sure that the use of the property is being exempt. 23 You mentioned you do compliance audits. Would you 24 be willing to share those audits with the local 25 assessors? Because part of our job is to make sure 26 that we have market rent to compare that to the 27 restricted rent to make sure that a property is -- 28 can get the exemption. 84 1 So, if you could answer that, I'd 2 appreciate it. 3 MR. SUTTON: Yes. If you tell me which 4 projects you want, we'll provide that. I mean any 5 member of the public, through a Public Records Act, 6 will get it. We'll work with our sister local 7 governments to provide that. 8 We talked about the regulatory agreement 9 for 55 years. Sixty days prior to the end of the 10 fiscal year, sometimes they end on December 31st, 11 sometimes they look at the federal or the state. 12 But 60 days prior to the end of the fiscal 13 year, they have to have a proposed budget for the 14 following year. We read, approve and edit that, 15 that's why we're the co-developer of the project. 16 Ninety days after the end of the fiscal 17 year -- these are requirements in the regulatory 18 agreement -- we get that certified cost audit. So 19 we look at, are the deposits made, are the bills 20 paid, did the developer take their proper 21 distribution and did they pay the residual receipt 22 lender? 23 So that's available. We get that for 24 projects and we would share that with anybody that 25 submits a request. But obviously local government, 26 let us know which projects you want and we'll get 27 that to you. 28 MS. CHU: Hi. My name is Carmen Chu, the 85 1 Assessor-Recorder for San Francisco. 2 I think in San Francisco we have a very 3 acute problem with affordable housing. We're 4 building a lot of housing market-rate rentals and we 5 also have a fair amount of development that's 6 happening for the very low income, 60 percent and 7 lower in terms of AMI requirements. 8 What is missing is, I think, as Chairman 9 Horton had mentioned, is thinking about that ladder, 10 so creating a portfolio and programs that also go to 11 support projects that provide affordability between 12 60 to 120 AMI, etcetera. When we take a look at 13 financing, we find that our dollars go further when 14 we really do the subsidized low, low AMI projects 15 and there really is nothing in the in-between. 16 So we're really struggling as a county to 17 figure out what is a pathway for that in-between. 18 So I wonder if the panelists can speak to what your 19 prospects -- what you think the prospects are for 20 addressing that middle income layer because we're 21 losing a lot of folks who can't -- who work in the 22 city who can't afford to live there anymore. 23 And I think the second question also goes 24 to sort of the eligibility; as you're doing your 25 audits, do you have flexibility as people are 26 beginning to rise out of the requirements? So I'm 27 an individual who was qualified for a 60 percent AMI 28 rental. I'm beginning to make now 60.4 percent of 86 1 AMI. I'm beginning to exceed the cap. Do you have 2 the ability to be able to allow folks to flex up and 3 not be displaced from their properties given that -- 4 given the sort of issue around the ladder and how is 5 it -- how is it that you begin to address that 6 middle income and that growth for folks? 7 MR. STIVERS: So in our tax credit products 8 you are not asked to leave as soon as you exceed 9 the -- we qualify people as they come into the 10 project. You have to be income-qualified when you 11 enter the property. If your income goes up over 12 time, you are not necessarily asked to leave. 13 There is -- you know, the owners can, at 14 some point, you know, especially if the Welfare 15 Exemption is at risk, can actually ask tenants to 16 leave because they might lose some of that Welfare 17 Exemption benefit. 18 MR. BOBROWSKY: We only can evict for good 19 cause. So there needs to be a lease violation in 20 order to evict them. So the only thing that would 21 cause -- there is nothing to cause that 22 displacement, tenants to be displaced. There is a 23 rule called the next available rule. So if it's not 24 hundred percent affordable project, if you have a 25 market-rate unit and that person goes over income, 26 you have to convert that market-rate unit to an 27 affordable unit and that affordable unit becomes 28 market-rate. And obviously their rent can go up, 87 1 but there's no forced displacement of tenants. 2 MS. CHU: Can you speak to what's the 3 prospects for deflecting the gap? 4 MR. BOBROWSKY: Well, I can mention there's 5 been a little bit of rumblings in Washington D.C. of 6 some proposals -- I don't think they've gone 7 anywhere -- of allowing the -- the Tax Credit 8 Program basically you have to be at 60 percent AMI 9 or below. And there's been discussion of, can you 10 do some blending that, you know, you maybe have some 11 units of 30 and 40, but you allow some people go up 12 to 60 or 70 percent or 80 percent of AMI as long as 13 you average -- have an average affordability at 60 14 percent or below. 15 So that's a potential, you know, way to 16 solve it is through federal legislation to allow the 17 Tax Credit Program to be a little bit more flexible 18 in that way. 19 MR. SUTTON: As Darren indicated, there are 20 some proposals. We don't see this as much of a 21 problem because we do have units that are 30 percent 22 all the way up to 60 percent. Most of our funding 23 programs are 60 percent of AMI and below. So we 24 don't have loan products that are for the higher 25 than 60 percent. 26 But we do have projects that are not all 27 affordable. And so then what we would do is, since 28 we don't want to displace someone, they -- someone 88 1 in the household obtains a new job, now they're over 2 60 percent AMI, typically what'll happen is we 3 won't -- we won't require anyone to leave. But then 4 as soon as the market-rate unit becomes available, 5 then that tenant that was formally in the affordable 6 unit goes into the market-rate and then unit's 7 available. 8 So we do allow that even when tenants -- 9 you have to have so many units at 30 percent and 10 someone moves up to 40, we wait until the next 11 available. So we're not into displacement, but we 12 really don't see this as much of an issue because a 13 lot of times when folks do go over 60 percent of 14 AMI, they tend to either move on to become a 15 homeowner, and we do have some low interest loans 16 for home buyers, and then -- or they move into 17 another -- another nicer unit. 18 Maybe they -- maybe they have a carport in 19 affordable housing project and maybe they want to go 20 and get a home with a garage or a rental home with a 21 garage, so we don't see that as a big issue. I 22 think you'd probably see that in San Francisco where 23 the cost of housing is so high, but in many other 24 counties folks tend to move on, out of those 25 projects. 26 MS. SHAFER: I think it's also important to 27 note that although we don't displace tenants that 28 exceed the median income, we do have to pay taxes. 89 1 The Welfare Exemption does not apply to units if 2 their income does exceed 80 percent of median. So 3 the partnership does bear the burden of the taxes on 4 that unit even though the tenant is not displaced. 5 MS. CHU: Sounds like not a whole of 6 (inaudible). 7 MR. STIVERS: I mean to the extent that 8 local resources are available, you can do whatever 9 you want with them. I think it's -- 10 MS. CHU: (Inaudible.) 11 MR. STIVERS: Yeah, it's just we're kind of 12 constrained by federal law to what -- our program is 13 limited to folks under 60 percent of the AMI income 14 and we don't really have the ability to go beyond 15 that as Darren mentioned. 16 So -- and most of the programs at the state 17 level max out at 80 percent. And so it just -- it 18 requires legislation, and there's always just a 19 discussion, too, about you can serve more people if 20 you target less. But, you know, the people at the 21 lowest end of the spectrum have the absolute fewest 22 other options. And so it's just always sort of a 23 philosophical debate of where do you put your 24 limited resources, to -- to a shallow subsidy or to 25 a deeper subsidy? And that's just a really 26 difficult question all the time. 27 MR. BOBROWSKY: I agree. It's -- there 28 isn't a lot of new thinking on that. I mean I think 90 1 that the federal legislation could be a partial 2 solution. 3 You know, when we go into a jurisdiction, 4 we sit down with them first. We don't say, this is 5 what we're going to do. We say, what are your 6 needs? And, you know, if there's needs for 80 7 percent AMI units, we try to figure out a way to 8 make that happen with the financial constraints that 9 are available. 10 I -- I have to admit San Francisco is a 11 challenge. I mean it's -- so -- 12 MR. HORTON: Thank you, Carmen. 13 You know the other -- the other part of the 14 answer to the question, I think, relative to the 15 question that Mr. Goodwin asked, is that many of the 16 private developers are able to turn their property 17 around a lot faster. And so if there is some 18 initiative of some effort to be able to accelerate 19 the affordable housing so you can actually flip 20 them and -- not flip them, but you can actually get 21 them developed a lot faster, it may be helpful. 22 And then I think the committee that we 23 spoke about earlier, the various different comments 24 on those committees is extremely important. We have 25 a lot of programs out there, a lot of programs that 26 are designed to help the working poor matriculate 27 into the middle class, but they're just not taking 28 advantage of it. 91 1 Even the Earned Income Tax Credit Program 2 that I spoke of earlier, $1.8 billion goes 3 uncollected every year. 180 million in tax refunds 4 go uncollected every year, state tax refunds. 5 So there's a lot of funding out there. We 6 need to figure out a way together, collectively, to 7 be able to address the existing funding that's out 8 there, utilize the existing funding. I want to say 9 to some degree, prior to raising additional fees, 10 but I'm not going to go that far. 11 We're going to close out with John on the 12 closing statement. 13 MR. TUTEUR: Well, actually it's just a 14 comment, Mr. Horton. 15 MR. HORTON: Comment. 16 MR. TUTEUR: I'm John Tuteur, the Assessor 17 from Napa County. I have 29 years, almost, of 18 dealing with the State Board staff, and I just want 19 to tell you the highlight -- 20 MR. HORTON: The dean of the assessors. 21 MR. TUTEUR: Well, I'm the Senior Assessor 22 in almost more ways than one. 23 But I do want to say the highlight of my 24 interaction with the State Board's staff occurred at 25 4:00 o'clock on Sunday afternoon, August 24th, 2014. 26 We had an earthquake at 3:20 in the morning. 27 Thank you, Member Yee, for your comments. 28 But the highlight of my career with the 92 1 State Board staff was when my cell phone rang at 2 4:00 o'clock on Sunday afternoon and a member of the 3 State Board staff said, "We're here to help." 4 So I just wanted to tell you I very much 5 appreciated that and so did everyone in Napa 6 County. 7 MR. HORTON: Yes, thank you. 8 Member Yee. 9 MS. YEE: And also as we're convened here 10 obviously our thoughts are with all who are being 11 devastated by the Jerusalem and the Rocky fire. So 12 to those in Lake County, our thoughts are with 13 them. 14 MR. HORTON: Yeah. In -- in closing, the 15 one thing we have demonstrated over the years is 16 that working together works. But the sooner we come 17 together is -- is even more effective. 18 So as we break off into our various 19 different groups and talk to our assessors, let me 20 just encourage the formation of more committees to 21 deal with specific issues well in advance. 22 Legislatively, the legislation that comes in from 23 other sources should come from this particular 24 group. 25 And so with that, let me share that Member 26 Ma's group will be meeting in the PlumpJack Cafe 27 because of the size of that group. 28 Member Runner's group will be meeting in 93 1 the poolside patio; Mr. Runner requests to be able 2 to take a quick swim. 3 Member Harkey and my group will be meeting 4 right here in this room. 5 So we look forward to having those 6 discussions with you. Thank you so very much for 7 coming out today and participating in this even 8 though the Constitution requires it. 9 The meeting of the Board of Equalization 10 and assessors is hereby adjourned. 11 ---oOo--- 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 94 1 REPORTER'S CERTIFICATE 2 3 State of California ) 4 ) ss 5 County of Sacramento ) 6 7 I, Kathleen Skidgel, Hearing Reporter for 8 the California State Board of Equalization state 9 that I transcribed from recorded audio, to the best 10 of my ability, the proceedings in the above-entitled 11 hearing; and that the preceding pages 1 through 94 12 constitute my transcription of the proceedings. 13 14 Dated: September 8, 2015 15 16 17 ____________________________ 18 Kathleen Skidgel 19 Hearing Reporter 20 21 22 23 24 25 26 27 28 95