A First Look at the Governor’s Housing Budget

house-constructionDuring his campaign for Chief Executive of California, then-candidate and now Governor Newsom promised three and a half million new housing units would be built in the state by 2025. He promised a majority of those units would be affordable to lower-income households, as well. He also promised he would make it profoundly easier to get those housing units approved for construction. Governor Newsom knows it’s now time to deliver on those promises.

With the release in January of his Fiscal Year 2019-2020 Budget, the Governor is signaling he’s going to at least try. He’s still sticking to the three-and-one-half- million-unit goal (though many are disputing that possibility), he still wants to help lower-income families, although he proposes increasing assistance to moderate-income households, as well. And, his budget appears to reflect interest in helping local governments approve housing faster.

But, the Governor’s housing proposals for the next fiscal year fall short of meeting the state’s needs. An analysis of the proposed budget – summarized here with a little help from the Legislative Analyst’s Office (LAO) – shows how despite aiming at the real problem with housing production in California it punts the ball and intentionally or not misleads with the data and definitions it presents.

For example, Governor Newsom during the campaign and afterward accurately pinpointed the main source of why California so woefully under-produces housing: he rightly concluded that all power to okay a housing development – vast and prodigious – rests with local government. Yet, in an apparent attempt to be persuasive, the Governor goes after localities with kid gloves – litigation and a modest funding award. He knows better. Lawsuits take precious time and cost a lot of money. And, they simply enrich lawyers. Moreover, $3 million in planning grants to the state’s major cities and $7 million more if they build new housing is both wasteful and mere pittance when it comes to rewarding them.

In addition to its timidity, the Governor’s budget is misleading in its portrayal of increasing state benefits to higher-income persons. Example #1 is the suggestion that a revised state low-income housing tax credit will now “target households with relatively higher incomes” – allowing beneficiary incomes to rise to laughably higher levels – to 80 percent of median – then pretends that a mere $200 million boost in the state program will lead to the ability to “target households with relatively higher incomes”. In truth, the state credit program rarely operates without the much richer federal credit which, for competitive reasons, rarely assists households with incomes above 60 percent of median.

Example #2 comes from the Governor’s proposal to add $500 million in authority to the existing CalHFA program which lends money to developers for building housing affordable to lower and moderate-income families (50 percent of area median to 120 percent) – a very good thing. But, the program will not assist middle-income families (up to 150 percent of median), as the Governor claims.

A bold budget, which reflects the high priority that the Governor has made housing – and which will give him a good head start in building those three and a half million units in six years – starts with rich, meaningful incentives to local governments. “Plan and zone for your housing need for the year and get a sizeable cash reward” should be the message from the state to local governments everywhere. Instead of the locals getting $10 million – much of which goes to re-inventing the wheel – a true housing budget would allocate ten times that amount or more to them for, say, a variety of infrastructure – not just road repair. Indeed, $100 million to $200 million apiece to fund their priorities ought to get the attention of most localities.

The Governor shouldn’t be shy about defending the limits of how far state funding should go, either. He doesn’t have to worry about the households earning more than the so-called moderate-income tranche (120 percent of median income). He just needs to uphold his pledge to truly streamline the local project-approval process. If the Governor sticks to his guns and does that, he can be assured that the market-rate developers will take care of the rest.

This first look at his budget for Fiscal Year 2019-2020 examines only what the Governor has proposed. Subsequent analyses will be made and published in this space before it is due in its final form, June 30, 2019. But, his current spending plan makes a genuine effort to treat California’s housing crisis after it appropriately highlights the substantial need – particularly among lower-income households and, to a lesser extent, the dislocation of a million or so middle-income families that pay more than 30 percent of their income for housing (the average is 26 percent).

In so many words, it’s clear the Governor genuinely wants more housing for California and he remains steadfast in maintaining getting it as a high public-policy priority. But, there are ample reasons to be doubtful. First, his budget could be a more dramatic set of proposals. That it’s not should signal his Department of Finance (DOF) won’t let him – DOF never liked housing much.

Second, at this point it looks like lawmakers don’t like the impact the proposals may have on local governments – they want him to back down somewhat. And, early indications are that it’s the Governor who will blink first.

onsultant specializing in housing issues.

This article was originally published by Fox and Hounds Daily