Report 2020-108 All Recommendation Responses

Report 2020-108: California's Housing Agencies: The State Must Overhaul Its Approach to Affordable Housing Development to Help Relieve Millions of Californians' Burdensome Housing Costs (Release Date: November 2020)

Recommendation for Legislative Action

To ensure that the State can identify the extent to which its financial resources are supporting its mission to provide a home for all Californians, the Legislature should require HCD to prepare an annual addendum to the State's housing plan and report to the Legislature, beginning January 2022. The addendum should include up-to-date information and identify the following:
- All financial resources for each housing agency for the development of affordable housing.
- The number of affordable units those resources are expected to build annually compared to the annual units needed, including units for individuals experiencing homelessness, those with special needs, seniors, and farmworkers.
- The amount of financial resources the State will need to obtain from other sources, such as federal, local, and private sources, to meet the remaining gap in needed units.
- Where the State's financial resources will have the most impact based on geographic distribution, population, and indicators of need.
- Outcomes to measure how well the State is maximizing the impact of its financial resources to meet the annual units needed, including measuring whether it has reduced cost burden and overcrowding, and increased housing availability.

Description of Legislative Action

AB 68 (Chapter 341, Statutes of 2021), starting with any update or revision to the housing plan on or after January 1, 2022, requires the housing plan to include, among other things, the number of affordable units needed to meet the state's affordable housing needs and recommendations for modernizing statutory and regulatory terminology. HCD is required to develop and publish on its website an annual report by December 31 of each year that includes specified information regarding grant programs that are administered by the HCD, including the time between the issuance of award letters and the delivery of the standard agreement to the awardee and a comparison of how the time between the issuance of the award letters, delivery of the standard agreement, and execution of the standard agreement varies across HCD-administered programs. Finally, HCD is required to develop and publish on its website an annual report by December 31 of each year that includes specified information regarding land use oversight actions related to housing, including the number of land use oversight actions related to housing taken against cities and counties, outcomes of those oversight actions, and the median time between the initiation of each oversight action and its resolution.

California State Auditor's Assessment of 1-Year Status: Legislation Enacted

Description of Legislative Action

AB 68 (Salas) in part, would, starting with any update or revision to the California Statewide Housing Plan (housing plan) on or after January 1, 2022, require the housing plan to include, among other things, an inventory number of affordable units needed to meet the state's affordable housing needs and an identification of strategies to help individuals experiencing homelessness. The bill would require HCD to publish and make the plan available to the public on its website.

AB 244 (Rubio) would, in part, require HCD to prepare and provide to the Legislature an annual addendum to the housing plan by January 1, 2023, and each January 1, thereafter. The addendum would be required to include identifying all of the financial resources the state possesses for the development of affordable housing, the number of affordable units that State financial resources are expected to help build, the amount of revenue that the State will need to obtain from other sources to fulfill its housing objectives, a determination of where the State's resources will have the most impact, and a summary of the outcomes used to measure the success of the State's investments in housing.

California State Auditor's Assessment of 6-Month Status: Legislation Introduced

Description of Legislative Action

AB 244 (Rubio) was introduced on January 13, 2021, and would require HCD to prepare and provide to the Legislature an annual addendum to the housing plan by January 1, 2023, and each January 1, thereafter. The addendum would be required to include identifying all of the financial resources the state possesses for the development of affordable housing, the number of affordable units that State financial resources are expected to help build, the amount of revenue that the State will need to obtain from other sources to fulfill its housing objectives, a determination of where the State's resources will have the most impact, and a summary of the outcomes used to measure the success of the State's investments in housing.

AB 68 (Salas) was introduced on December 7, 2020, and is a spot bill intended to address recommendations in the audit.

California State Auditor's Assessment of 60-Day Status: Legislation Introduced

Recommendation for Legislative Action

To ensure that the State has sufficient data to determine how much affordable housing it has supported and to maximize the impact of its funds, the Legislature should require HCD to develop the housing data strategy component of its housing plan with input from the Tax Committee and CalHFA. At a minimum, the housing data strategy should include the following:
- A strategy for assigning a unique identifier to state-funded affordable housing projects so that multiple funding sources can be tracked for each project, such as all agencies using a single application process for multifamily housing programs.
- An evaluation of data priorities to measure the distribution and impact of state-awarded funds for affordable housing, such as number of applications, type and amount of funding awarded, number of units created, and project location.

Description of Legislative Action

AB 244 (Rubio, 2021), in part, would require the Tax Committee, HCD, CalHFA, and the Debt Limit Committee to conduct an affordable housing cost study that measures the factors that influence the cost of building affordable housing, breaks down total development costs for affordable housing, and enables the state to maximize resources allocated for affordable housing. The bill would require the study to consider data from projects that have received funding from the various programs and funding sources described above. The bill would require the development of the cost study only as existing resources permit without restructuring funding priorities, or as private resources are made available. The bill would require the Tax Committee to publish the study by January 1, 2028. This bill is pending in the Assembly.

California State Auditor's Assessment of 1-Year Status: Legislation Introduced

Description of Legislative Action

AB 68 (Salas) would, in part, require HCD to develop and publish on its website an annual report by December 31 of each year that includes specified information regarding grant programs that are administered by the HCD, including the time between the issuance of award letters and the delivery of the standard agreement to the awardee and a comparison of how the time between the issuance of the award letters, delivery of the standard agreement, and completion of the standard agreement varies across HCD-administered programs.

AB 244 (Rubio) would, in part, require the Tax Committee, HCD, the California Housing Finance Agency, and the Debt Limit Committee to conduct an affordable housing cost study that measures the factors that influence the cost of building affordable housing, breaks down total development costs for affordable housing, and enables the state to maximize resources allocated for affordable housing. The bill would require the study to consider data from projects that have received funding from the various programs and funding sources described above. The bill would require the development of the cost study only as existing resources permit without restructuring funding priorities, or as private resources are made available. The bill would require the Tax Committee to publish the study by January 1, 2028.

California State Auditor's Assessment of 6-Month Status: Legislation Introduced

Description of Legislative Action

AB 244 (Rubio) would require the Tax Committee, HCD, the CalHFA, and the Debt Limit Committee to conduct an affordable housing cost study that measures the factors that influence the cost of building affordable housing, breaks down total development costs for affordable housing, and enables the state to maximize resources allocated for affordable housing. The bill would require the study to consider data from projects that have received funding from the various programs and funding sources described above. The bill would require the development of the cost study only as existing resources permit without restructuring funding priorities, or as private resources are made available. The bill would require the Tax Committee to publish the study by January 1, 2028.

AB 68 (Salas) states legislative intent to implement the recommendations in the audit report.

California State Auditor's Assessment of 60-Day Status: Legislation Introduced

Recommendation for Legislative Action

To ensure that the State awards financial resources for housing in a more timely and efficient manner, the Legislature should create a workgroup including the Tax Committee, HCD, CalHFA, and other industry representatives such as private lenders and developers, and require it to do the following:
- Develop consistent program requirements for determining eligibility for awarding financial resources to multifamily housing projects, to the extent feasible.
- Align application deadlines for multifamily housing programs.
- Design the requirements and deadlines to best accomplish the goals outlined in the state housing plan and addendum, with the intent to maximize affordable housing built and to remove administrative barriers.
- Update their respective regulations to reference the new program requirements and deadlines.

Description of Legislative Action

As of November 17, 2021, the Legislature has not taken action to address this specific recommendation.

California State Auditor's Assessment of 1-Year Status: No Action Taken

Description of Legislative Action

As of May 17, 2021, the Legislature has not taken action to address this specific recommendation.

California State Auditor's Assessment of 6-Month Status: No Action Taken

Description of Legislative Action

AB 68 (Salas) states legislative intent to implement the recommendations in the audit.

California State Auditor's Assessment of 60-Day Status: Legislation Introduced

Recommendation for Legislative Action

To reduce administrative redundancy and streamline a portion of the funding process, the Legislature should eliminate the Debt Limit Committee and transfer its responsibilities to the Tax Committee, including reviewing applications and allocating bond resources. To ensure a thorough application review process, the Legislature should also require the Tax Committee to develop a sufficient quality control process for reviewing applications for bond resources, including multiple levels of review.

Description of Legislative Action

AB 49 (Petrie-Norris, 2021) would abolish the Debt Limit Committee and transfer its powers, duties, and functions to the Tax Committee. The bill would provide for the transfer of civil service employees, funds, property, and liabilities of the Debt Limit Committee to the Tax Committee, and would require that Debt Limit Committee regulations remain in effect until the Tax Committee amends or repeals those regulations, or adopts successor regulations. This bill is pending in the Assembly.

California State Auditor's Assessment of 1-Year Status: Legislation Introduced

Description of Legislative Action

AB 49 (Petrie-Norris) would abolish the Debt Limit Committee and transfer its powers, duties, and functions to the Tax Committee. The bill would provide for the transfer of civil service employees, funds, property, and liabilities of the Debt Limit Committee to the Tax Committee, and would require that Debt Limit Committee regulations remain in effect until the Tax Committee amends or repeals those regulations, or adopts successor regulations.

California State Auditor's Assessment of 6-Month Status: Legislation Introduced

Description of Legislative Action

AB 49 (Petrie-Norris) was introduced on December 7, 2020, and states legislative intent to eliminate the Debt Limit Committee and transfer the duties and authority to the Tax Credit Committee.

AB 68 (Salas) states legislative intent to implement the recommendations in the audit.

California State Auditor's Assessment of 60-Day Status: Legislation Introduced

Recommendation #5 To: Tax Credit Allocation Committee, California

To ensure that the allocation of bonds aligns with the State's housing priorities and that its awards process is sufficiently transparent, the Tax Committee should, by May 2021, establish regulations to do the following:
- Consistently allocate bonds based on factors including demand for bond resources, use of previously allocated bonds, documented legislative priorities, and risk of allocated bonds being lost.
- Document and disclose annually in its public meetings and on its website the extent of any bonds lost, the purpose for which the bonds were allocated, and the rationale for the allocation.

Annual Follow-Up Agency Response From September 2023

The recommendation that CTCAC adopt regulations on bond allocation cannot be accomplished. CDLAC has sole jurisdiction over bond allocation. The Administrative Procedure Act (Gov. Code, section 11340 et seq.) identifies five standards for the Office of Administrative Law when reviewing regulations. Among those five standards is necessity, defined in Government Code section 11349(a) as "the record of the rulemaking proceeding demonstrates by substantial evidence the need for a regulation to effectuate the purpose of the statute...that the regulation implements, interprets, or makes specific, taking into account the totality of record." The Third District Court of Appeal in CA Forestry Assn. v. CA Fish & Game Commission ((2007) 156 Cal.App.4th 1535) opined on the necessity standard: "Specifically, a regulation can be understood as being necessary to effectuate the purpose of a statute (or other provision of law) if the statute itself is not entirely self-implementing. In other words, if the purpose of a statute cannot be fully effectuated without the promulgations of implementing regulations, then there is a "need for a regulation to effectuate the purpose of the statute," and the necessity standard is met by an implementing regulation..." (Id. At 1553-1554)Government Code section 8869.84 authorizes CDLAC, not CTCAC, to "at any time, before or after granting any allocations in any calendar year to any state agencies or local agencies, announce priorities or reservations of any part of the state ceiling not theretofore allocated either for certain categories of bonds or categories of issuers." If CDLAC were to adopt a regulation based on the State Auditor's recommendation, CDLAC's action would be in contravention to the necessity standard because the plain language of Government Code section 8869.84 is clear and unambiguous and is not in need of clarification by the executive branch to effectuate the purpose of a statute enacted by the legislative branch.

California State Auditor's Assessment of Annual Follow-Up Status: Partially Implemented

In our report, we made the recommendation that the Legislature should eliminate the Debit Limit Committee. Therefore, we made recommendations related to the Debt Limit Committee to the Tax Committee. Because the Legislature did not pass legislation to implement this recommendation, we expect the Debt Limit Committee, which was overseen by the same Executive Director as the Tax Committee during the audit, to implement this recommendation. In its previous annual response, the Debt Limit Committee indicated that it updated its regulations to include information about how it will allocate the remaining allocation at the end of the year. However, the regulation does not include how it will consistently allocate those bonds based on factors including demand for bond resources, use of previously allocated bonds, documented legislative priorities, and risk of allocated bonds being lost. Further, although the Debt Limit Committee has discussed in its public meetings and posted on its website information about remaining allocations, it should still revise its regulations to ensure that this practice continues.

Annual Follow-Up Agency Response From November 2022

The recommendation that CTCAC adopt regulations on bond allocation cannot be accomplished. CDLAC has sole jurisdiction over bond allocation. The Administrative Procedure Act (Gov. Code, section 11340 et seq.) identifies five standards for the Office of Administrative Law when reviewing regulations. Among those five standards is necessity, defined in Government Code section 11349(a) as "the record of the rulemaking proceeding demonstrates by substantial evidence the need for a regulation to effectuate the purpose of the statute...that the regulation implements, interprets, or makes specific, taking into account the totality of record." The Third District Court of Appeal in CA Forestry Assn. v. CA Fish & Game Commission ((2007) 156 Cal.App.4th 1535) opined on the necessity standard: "Specifically, a regulation can be understood as being necessary to effectuate the purpose of a statute (or other provision of law) if the statute itself is not entirely self-implementing. In other words, if the purpose of a statute cannot be fully effectuated without the promulgations of implementing regulations, then there is a "need for a regulation to effectuate the purpose of the statute," and the necessity standard is met by an implementing regulation..." (Id. At 1553-1554)Government Code section 8869.84 authorizes CDLAC, not CTCAC, to "at any time, before or after granting any allocations in any calendar year to any state agencies or local agencies, announce priorities or reservations of any part of the state ceiling not theretofore allocated either for certain categories of bonds or categories of issuers." If CDLAC were to adopt a regulation based on the State Auditor's recommendation, CDLAC's action would be in contravention to the necessity standard because the plain language of Government Code section 8869.84 is clear and unambiguous and is not in need of clarification by the executive branch to effectuate the purpose of a statute enacted by the legislative branch.

California State Auditor's Assessment of Annual Follow-Up Status: Partially Implemented

In our report, we made the recommendation that the Legislature should eliminate the Debit Limit Committee. Therefore, we made recommendations related to the Debt Limit Committee to the Tax Committee. Because the Legislature did not pass legislation to implement this recommendation, we expect the Debt Limit Committee, which is overseen by the same Executive Director as the Tax Committee, to implement this recommendation. In its previous annual response, the Debt Limit Committee indicated that it updated its regulations to include information about how it will allocate the remaining allocation at the end of the year. However, the regulation does not include how it will consistently allocate those bonds based on factors including demand for bond resources, use of previously allocated bonds, documented legislative priorities, and risk of allocated bonds being lost. Further, although the Debt Limit Committee has discussed in its public meetings and posted on its website information about remaining allocations, it should still revise its regulations to ensure that this practice continues.

1-Year Agency Response

AB 83 requires CDLAC to submit to the Legislature an annual report of the prior year's activities that includes demand for bond resources, use of previously allocated bonds, documented legislative priorities, and risk of allocated bonds being lost. This is new legislation and the first report was published on April 1, 2021. CDLAC will adhere to the requirement and post this report on an annual basis. Remaining resources for debt limit allocation are posted on the CDLAC website and the documents are also part of public meetings held three times per year. In 2021 the public meetings were April 28, 2021, August 11, 2021, and December 8, 2021. To ensure that the allocation of bonds aligns with the State's housing priorities and that its awards process is sufficiently transparent, Secretary of California Business, Consumer Services, and Housing Agency on Affordable Housing, Lourdes Castro-Ramirez, gave a presentation at our public meeting to reiterate the State's housing priorities. These priorities align with CDLAC's regulations for allocating tax exempt bond authority. A demand survey is conducted every year and that information, as well as use of previously allocated bonds, documented legislative priorities, and risk of allocated bonds being lost is used when the Committee makes decisions during the last Committee meeting of the year to allocate remaining resources. That meeting will be held on December 8, 2021.

California State Auditor's Assessment of 1-Year Status: Partially Implemented

Although the Debt Limit Committee indicates that it updated its regulations to include information about how it will allocate the remaining allocation at the end of the year, the regulation does not include how it will consistently allocate those bonds based on factors including demand for bond resources, use of previously allocated bonds, documented legislative priorities, and risk of allocated bonds being lost. Further, although the Debt Limit Committee has discussed in its public meetings and posted on its website information about remaining allocations, it should still revise its regulations to ensure that this practice continues.

6-Month Agency Response

CDLAC adopted regulations on Dec 14, 2020 that introduced a self-scoring mechanism for a competitive system. Additional regulations were approved Feb 1, 2021 including State priorities of New Construction, homeless household designations, and aligned the CDLAC regulations with the CTCAC regulations. This will reach the best projects that meet the State's housing goals. Section 5230 underwent reform to align with new Pools created for the competitive rounds. This also tied into the ranking criteria and tiebreaker process. It addresses how remaining allocation is awarded in the final rounds. Additional changes were adopted at the Apr 28, 2021 Meeting for the ELI/VLI Set-aside requirements, to ensure the applications in a set-aside for extremely low and very low income households are utilized by those populations. Another change was an adjustment to the New Construction Geographic Apportionment. At the Dec 21, 2020 meeting an update of carryforward was presented that no bond allocation was lost in 2020. More updates were given Jan 15 and Apr 28, 2021. Staff collects carryforward updates from issuers to reconcile to CDLAC tracking records. At the Dec 21, 2020 meeting, policy around future allocation of carryforward was suggested and regulation changes were presented on Apr 28, 2021. The new regulations clarify processes to be certain carryforward is used on a first in first out basis consistent with Title 26 IRS Code section 146, therefore ensuring no lost allocation. These additional regulation changes were recommended and adopted at the Apr 28, 2021 Meeting. Staff created procedures to ensure carryforward is documented and disclosed annually in its public meetings and is displayed on its website to the extent of any bonds lost, the purpose for which the bonds were allocated, and the rationale for the allocation.

California State Auditor's Assessment of 6-Month Status: Pending

This recommendation will remain open because of the pending recommendation to the Legislature to eliminate the Debt Limit Committee and transfer its responsibilities to the Tax Committee.

60-Day Agency Response

We have rewritten our regulations with several months of open discussions with our Board and the stakeholders. We have also implemented a system to issue bonds based on a demand survey which ensures allocating bonds on a demand for resources, use of previously allocated bonds, documented legislative priorities, and risk of bonds being lost. We document and disclose on our website the extent and purpose for which bonds were allocated, and no bonds have been lost.

California State Auditor's Assessment of 60-Day Status: Pending

This recommendation will remain open because of the pending recommendation to the Legislature to eliminate the Debt Limit Committee and transfer its responsibilities to the Tax Committee.

Recommendation #6 To: Tax Credit Allocation Committee, California

To ensure that tax credit awards are targeted to areas that require the most support from the State to finance affordable housing, the Tax Committee should immediately identify areas from which it has not received applications or areas with fewer awards per population and use that information to inform regulatory changes to attract more affordable housing developers to those areas.

Annual Follow-Up Agency Response From October 2022

On July 20, 2022 the CTCAC Committee approved and adopted regulations that included a provision "For Rural set aside projects applying in counties where no tax credit applications have been received within 5 years of the application filing date, the tiebreaker shall be increased by 5 percentage points." This change to the regulations addresses and meets the concern "... that tax credit awards are targeted to areas that require the most support from the State to finance affordable housing...". Additional points give these rural projects incentive to apply by offering a competitive advantage in a highly competitive process. CTCAC also complied by identifying areas from which CTCAC had not received applications from rural areas. CALIFORNIA CODE OF REGULATIONS TITLE 4, DIVISION 17, CHAPTER 1 Section 10325 Scoring (c)(9)(D). This recommendation has been fully implemented.

California State Auditor's Assessment of Annual Follow-Up Status: Fully Implemented

The Tax Committee provided the updated regulations with a provision to incentivize projects in rural areas that have not had applications in the last five years. The Tax Committee should continue to identify areas with no applications or fewer awards per population and make informed regulatory changes to continue implementing our recommendation.

1-Year Agency Response

In order to further incentivize and attract more affordable housing developers to develop affordable housing in areas with fewer awards per population CTCAC intends to propose the following language be added to the final regulation change packet to go before the CTCAC Committee before the end of the calendar year. During competitive tax credit rounds, developers seek out points that will improve their tiebreaker score, and therefore their opportunity to obtain tax credits. CTCAC only changes regulation once per year, usually at the end of the calendar year. It proposes to request Committee approval for the following Section 10325 (C):

For Rural set aside projects applying in counties where no tax credit applications have been received within 5 years of the application filing date, the tiebreaker shall increase by 5 percentage points.

California State Auditor's Assessment of 1-Year Status: Pending

6-Month Agency Response

CTCAC reviewed datasets including HUD population and rent burden as well as datasets previously used and considered to determine the current geographic apportionments, including county level data of renters with high housing cost burden using RS Means construction cost factor and county level percentages of households with very low income AMI. CTCAC is revisiting the geographic apportionments to ensure the distribution is equitable and addressing the areas with the highest need. CTCAC will develop policies to prioritize areas less frequently developed. This will be complete by November 2021. While no applications were received from some counties in the last 5 years, projects developed prior to that timeframe maintain affordable units for 55 years and remain available to the county's population. CTCAC reviewed current data on existing projects. Due to the low population in some counties, there may not be funding sources or investor interest for affordable housing projects. The 4% tax credit program, required to be paired with bonds allocated from CDLAC, is competitive. The program is now oversubscribed almost 3 to 1. CTCAC regulations will also be incorporated into the CDLAC regulations to ensure the highest need for affordable housing in the State is being addressed. CTCAC participates as panelists at housing conferences to promote the availability of the tax credits. Since Nov 2020, staff participated in 6 events like the NCSHA, the Novogradac Conference, and the NH&RA. CTCAC conducts statewide annual workshops. In 2021 staff conducted 11 virtual workshops and will do 8 more by end of year. The 11 workshops conducted thus far provided more than 61 hours of education to 1061 attendees. The Treasurer promoted tax credits at housing events like the "Missing Middle" webinar by Urban Land Institute OC & Inland Empire. She also met with a local developer in Butte County to visit sites for projects that may apply for tax credits in the future.

California State Auditor's Assessment of 6-Month Status: Pending

60-Day Agency Response

To ensure that tax credit awards are targeted to areas that require the most support from the State to finance affordable housing, we have begun communication with the State Treasurer's Office External Affairs department to develop outreach to those areas to encourage them to apply. Specifically, we have awarded disaster credits to projects in Butte County that are expected to begin construction in 2021 and 2022.

California State Auditor's Assessment of 60-Day Status: Pending

Recommendation for Legislative Action

To help ensure that all local jurisdictions mitigate key barriers to affordable housing in the near term, the Legislature should amend state law to do the following:
- Increase the existing default densities for affordable housing, currently set at up to 30 units per acre, to a level that ensures that local jurisdictions make every reasonable effort to accommodate needed affordable housing units on sites they identify in their housing plans. Because other standards, such as maximum building height, can also limit density, the Legislature should also require that local jurisdictions' development standards allow developers to build the densities that jurisdictions specify for each potential affordable housing site in their housing plans.
- Require that local jurisdictions allow a streamlined review process with limited discretionary action for affordable housing projects on a site that a local jurisdiction has identified in its housing plan to accommodate affordable housing units.

Description of Legislative Action

As of November 17, 2021, the Legislature has not taken action to address this specific recommendation.

California State Auditor's Assessment of 1-Year Status: No Action Taken

Description of Legislative Action

SB 6 (Caballero) would, in part, increase the sites available to be developed for residential uses to include those currently zoned or otherwise designated in a city or county's general plan only for commercial uses. The bill would require the density for a housing development under these provisions to meet or exceed the density deemed appropriate to accommodate housing for lower income households according to the type of local jurisdiction, including a density of a certain number of units per acre for a suburban jurisdiction.

California State Auditor's Assessment of 6-Month Status: Legislation Introduced

Description of Legislative Action

AB 68 (Salas) states legislative intent to implement the recommendations in the audit.

California State Auditor's Assessment of 60-Day Status: Legislation Introduced

Recommendation for Legislative Action

To ensure that local jurisdictions make sufficient efforts to facilitate the development of needed affordable housing in the long term, the Legislature should require HCD to develop and submit to the Legislature specific and objective standards—for example, a maximum number of parking spaces required per housing unit—for how local jurisdictions can mitigate barriers to lower-income housing development across all the potential barriers they control, such as zoning and parking. HCD should tailor these standards to ensure that local jurisdictions implementing them have made it feasible for developers to build the housing necessary to meet lower-income housing goals. The Legislature should also require that HCD consult with local jurisdictions; regional governments; and affordable housing developers, advocates, and researchers in determining these standards. The Legislature should consider this information when developing legislation to mitigate additional affordable housing barriers: for instance, it could require local jurisdictions to adopt the standards for all potential affordable housing sites in their housing plans unless they provide reasonable justifications for using different standards.

Description of Legislative Action

As of November 17, 2021, the Legislature has not taken action to address this specific recommendation.

California State Auditor's Assessment of 1-Year Status: No Action Taken

Description of Legislative Action

As of May 17, 2021, the Legislature has not taken action to address this specific recommendation.

California State Auditor's Assessment of 6-Month Status: No Action Taken

Description of Legislative Action

AB 68 (Salas) states legislative intent to implement the recommendations in the audit.

California State Auditor's Assessment of 60-Day Status: Legislation Introduced

Recommendation for Legislative Action

To facilitate timely and needed affordable housing development in local jurisdictions that are not approving it, the Legislature should amend state law and consider the constitutionality of establishing an effective appeals process for developers of affordable housing projects. For example, it could consider doing the following:
- Create an appeals board within HCD to resolve disputes over affordable housing projects in a timely and fair manner. The Legislature should specify that the appeals board include at least one representative from local jurisdictions.
- Allow a developer of an affordable housing project to appeal to the appeals board if the local jurisdiction in which the developer has proposed the project is not on track to provide its needed lower-income units, if the project would contribute significantly to the local jurisdiction meeting that need, and if the local jurisdiction has unreasonably denied or delayed the project.
- Require the appeals board to render decisions on appeals in a timely manner and to approve an appeal for a project if it meets the criteria above and is consistent with state and local standards.
- Specify parameters for any subsequent litigation that challenges or enforces the state appeals board's decisions so that these decisions are enforceable and developers of affordable projects meeting reasonable standards can build as soon as is feasible.

Description of Legislative Action

AB 989 (Gabriel, 2021) would, until January 31, 2029, establish an Office of Housing Appeals (office) within HCD to review housing development projects that are alleged to have been denied or subject to conditions in violation of the Housing Accountability Act (Housing Act). The bill would establish housing appeals panels, consisting of administrative law judges with specified qualifications, within the office. The bill would authorize an applicant who proposes a housing development project that consists of five or more units pursuant to the Housing Act, to appeal a local agency's decision on the project application to a housing appeals panel. The bill would prohibit an applicant from bringing an action in court alleging a violation of the Housing Act for any housing development project prior to the final decision of the office, except as specified. The bill would provide that the statute of limitations for a claim alleging a violation of the Housing Act or any other claim relating to an action of the local agency on the housing development project at issue does not commence until the date of the final decision of the office. Finally, the bill would prescribe the appeal process and responsibilities of the applicant, the office and local agencies regarding the appeal process. This bill is pending in the Senate.

California State Auditor's Assessment of 1-Year Status: Legislation Introduced

Description of Legislative Action

AB 989 (Gabriel) would establish a Housing Accountability Committee to review appeals of affordable housing projects denied by a local government and to approve those projects if the denial violates the Housing Accountability Act. The bill would prescribe the qualifications of proposed housing developments that would be eligible for appeals and timelines within which applicants, the committee, and local agencies would be required to act. The bill would require, among other things, the local agency to transmit a copy of its decision and reasoning to the committee, and require the committee to vacate a local decision if it finds that the local agency disapproved the housing development or conditioned the approval of the housing development in violation of the Housing Accountability Act.

California State Auditor's Assessment of 6-Month Status: Legislation Introduced

Description of Legislative Action

AB 68 (Salas) states legislative intent to implement the recommendations in the audit.

California State Auditor's Assessment of 60-Day Status: Legislation Introduced

Recommendation for Legislative Action

To better leverage local and private resources and develop more affordable housing, the Legislature should consider amending state law to award a significant amount of nonhousing or flexible funds, such as existing transportation funds, to local jurisdictions based on the number of lower-income housing units they have approved relative to their needs allocation.

Description of Legislative Action

As of November 17, 2021, the Legislature has not taken action to address this specific recommendation.

California State Auditor's Assessment of 1-Year Status: No Action Taken

Description of Legislative Action

As of May 17, 2021, the Legislature has not taken action to address this specific recommendation.

California State Auditor's Assessment of 6-Month Status: No Action Taken

Description of Legislative Action

AB 68 (Salas) states legislative intent to implement the recommendations in the audit.

California State Auditor's Assessment of 60-Day Status: Legislation Introduced

Recommendation #11 To: Housing and Community Development, Department of

To ensure that all local jurisdictions make sufficient efforts to provide affordable housing, HCD should, by June 2021, develop and implement procedures for actively monitoring local jurisdictions that are not on track to provide the needed lower-income housing units included in their housing plans. Specifically, HCD should identify local jurisdictions with severe underdevelopment of affordable housing and indications of high need for that housing, and it should initiate reviews of those local jurisdictions that include steps to identify why they are not developing needed affordable housing. HCD should then provide technical assistance or take enforcement actions as necessary to help resolve any issues it identifies.

Annual Follow-Up Agency Response From November 2022

Beyond HCD's complaint-based housing law accountability work, HCD is implementing this audit recommendation around proactive accountability in the following ways: HCD is currently using Annual Progress Report data to track jurisdiction progress in meeting its Regional Housing Need Allocation, which in part displays whether they are on track to meet their lower-income need and also tracks timelines for entitlements and permitting using a sampling methodology.

HCD is working closely with all jurisdictions region by region as they update their housing plans (housing elements), which include historical and forward-looking analyses of local considerations, including indications of high housing need, governmental and non-governmental constraints, and their plan to address these local factors. At this point, housing element reviews for the North State, San Diego, Sacramento, Southern California, and the Bay Area are underway, with the Central Coast and San Joaquin Valley coming due in 2023 and 2024. A jurisdiction's housing element commitments are tracked and monitored to ensure implementation. HCD has current internal tracking and monitoring procedures and is enhancing this tool with assistance from IT; that expansion is expected to be complete in February 2023.

For jurisdictions that are not completing their housing elements in a timely manner, HCD has developed procedures to proactively engage and prepare to escalate accountability as necessary. As an example, HCD sent 17 letters of inquiry in April 2022 and three notices of violation in September 2022 to jurisdictions that have not submitted a housing element. HCD also sent five letters of inquiry in August 2022 to jurisdictions that remain out of compliance with State Housing Element Law. In August 2022, HCD determined further intervention was warranted in the case of San Francisco. HCD initiated the Policy and Practice Review into San Francisco's process for approval of housing.

California State Auditor's Assessment of Annual Follow-Up Status: Fully Implemented

HCD provided its current procedures for tracking and monitoring local jurisdictions. It also provided us with examples of a notice of violation and letter of inquiry it sent to local jurisdictions. To the extent that HCD continues to monitor and review local jurisdictions, it will implement our recommendation.

1-Year Agency Response

Since the last report HCD received additional funding in the state's 2021-22 budget allowing the department to officially launch the Housing Accountability Unit with 25 positions. Only three vacancies remain left to fill; four of these positions are attorneys to support Housing Accountability work.

Efforts also continue on the Information Technlogy (IT) solution to track and monitor accountability.

a. Since our last report, mid-level requirement sessions were completed according to schedule on September 29, 2021, and a Request for Information was released. IT is currently in the planning and procurement phase and is in the process of speaking with potential vendors and preparing to review software demos. After completion of the planning and procurement phase in January 2022, functional requirement sessions will be held through March 2022 with build-out of the system to be completed by December 2022.

b. With this IT solution we will be able to implement many of the proactive suggestions identified in the audit:

a) Monitor and identify jurisdictions that are delinquent on housing commitments,

b) Flag jurisdictions that meet certain criteria for follow up investigation, and

c) Track complaints received and their resolution or outcomes.

California State Auditor's Assessment of 1-Year Status: Pending

6-Month Agency Response

HCD is on track with the items reported in the 60 day response.

1) HCD is in the process of developing a hiring plan for the 12 new policy staff and 4 new Legal division staff positions to support the accountability and enforcement in anticipation of the 2021-2022 budget.

2) Scoping for the IT case management solutions is still under development, but HCD will soon release a Dashboard of Housing Element Annual Progress Report Data that will provide insights into jurisdictions' performance and progress in meeting its housing commitments.

3) HCD is developing a system in conjunction with the finalization of the Accountability and Enforcement Business Process to monitor and track outcomes from the 6th Cycle Housing Element Reviews. This system will proactively monitor a) housing element conditional compliances; b) jurisdiction commitments to rezone; c) jurisdiction commitments to remove barriers that constrain housing development; d) commitments to affirmatively further fair housing, among others.

California State Auditor's Assessment of 6-Month Status: Pending

60-Day Agency Response

There are efforts underway to expand the Housing Accountability Unit capacity within HCD to pursue greater accountability and enforcement, including integrating additional proactive efforts, such as those in this recommendation. That will primarily look like:

1) Staff capacity building: Hiring additional staff to monitor, educate, and enforce as necessary, and

2) HCD developing an IT solution to integrate accountability into our current housing element tracking system.

With these improvements we will be able to:

a) Monitor and identify jurisdictions that are delinquent on housing commitments,

b) flag jurisdictions that meet certain criteria for follow up investigation, and

c) track complaints received and their resolution or outcomes.

California State Auditor's Assessment of 60-Day Status: Pending

Recommendation #12 To: Tax Credit Allocation Committee, California

To ensure stronger enforcement that encourages project owners to keep housing affordable and habitable, the Tax Committee should amend its regulations to take more meaningful disciplinary action against housing project owners that show patterns of noncompliance across multiple inspections. These changes may include but are not limited to the following actions:
- Develop clearer guidance for penalizing project owners who have a history of noncompliance when applying for tax credits for future projects; the guidance should establish the specific conditions that would warrant imposing penalties on a housing project.
- Include in its regulations procedures for imposing fines and change guidance to permit the committee to impose fines if a housing project shows a pattern of certain types of noncompliance, regardless of whether the noncompliance is corrected during the correction period.

Annual Follow-Up Agency Response From October 2022

On July 20, 2022 the CTCAC staff amended and the CTCAC Committee approved and adopted regulations Section 10337(f)(6) to impose more meaningful disciplinary action against housing project owners that show patterns of noncompliance across multiple inspections. It also developed clear guidance for penalizing project owners regardless of whether the non-compliance is corrected and had published Compliance Fines for 2022 on its website. This recommendation has been fully implemented.

California State Auditor's Assessment of Annual Follow-Up Status: Fully Implemented

The Tax Committee provided documentation to show that it updated its regulations to impose more meaningful disciplinary action on housing project owners who show patterns of noncompliance across multiple inspections. It also provided its compliance fines for 2022.

1-Year Agency Response

CTCAC updated the Fine Schedule and published it in Regulation on June 16, 2021. The change to the Fine Schedule updated some fines to be more punitive for certain violations and added violations for all types of physical noncompliance on properties, rather than the previous partial list of physical noncompliance. In addition CTCAC is proposing the following language be added to the final regulation change packet to go before the Committee by the end of the calendar year. Section 10337(f):

(6) Reoccurring or repeated noncompliance - CTCAC shall issue fines of up to $500 per instance of repeated or reoccurring noncompliance violations noted in separate monitoring cycles. CTCAC defines repeated or reoccurring violations as 25% or more instances of the current monitoring inspection having the same noncompliance issues as found in the previous monitoring cycle.

Areas of repeated or reoccurring noncompliance include (but are not limited to):

a. Repeat Uniform Physical Condition Standards (UPCS) Health and Safety Violations and Common Area Violations

b. Re-occurring patterns of units not turn-key ready and advertised within 60 days of unit vacancy date

c. Re-occurring patterns of missing or the incorrect use of CTCAC required forms

d. Re-occurring misuse of Utility Allowance methods

e. Re-occurring patterns of over-income households

f. Re-occurring patterns of over-charged rents

g. Re-occurring patterns of incomplete or missing re-certifications

h. Service Amenities not provided within Federal Compliance period

California State Auditor's Assessment of 1-Year Status: Pending

6-Month Agency Response

At the recommendation of this audit, CTCAC reviewed its regulations to determine where changes could be made in order to adhere to the recommendations. CTCAC staff currently tracks the type of noncompliance offenses resulting in an issuance of IRS Form 8823. CTCAC staff has expanded the data collection to track the type of noncompliance offense, when it was identified, and at which project. Using the data collected and considering the wide variety of instances of noncompliance, CTCAC evaluated the range of severity of the noncompliance offenses in order to determine which ones should result in negative points or fines due to patterns of repeated offenses. CTCAC engaged consulting services and one of their tasks is to find the best methodology for determining patterns of noncompliance and assessing penalties. CTCAC is outlining what constitutes patterns of repeated offenses, and which type of noncompliance offenses will result in the assessment of negative points or fines. Following adoption by the Committee, these changes will be in place by November 2021. CTCAC is updating its fine schedule and will publish it to the CTCAC website for public comment, then adoption by the Committee at the June 16, 2021 Committee meeting.

California State Auditor's Assessment of 6-Month Status: Pending

60-Day Agency Response

Compliance Section management is currently updating the Fine Schedule. The schedule will provide more detail relating to when a project can be fined and the dollar amount each fine warrants. In addition, Compliance Section management is working towards developing guidance to be added to the Fine Schedule, addressing additional sanctions to project owners who have a history of repeated noncompliance. Following approval by CTCAC Executive Director, management will propose changes to the CTCAC regulations.

California State Auditor's Assessment of 60-Day Status: Pending

Recommendation #13 To: Tax Credit Allocation Committee, California

To ensure that it complies with federal law, the Tax Committee should report all instances of noncompliance to the IRS unless federal law or guidance provides an exception.

Annual Follow-Up Agency Response From October 2022

In January 2021, CTCAC updated its procedures to include ALL occurrences of non-compliance on the IRS 8823 form. Since CTCAC resumed physical inspections of properties in June 2022, it has submitted 313 Form 8823's to the IRS that all contained all occurrences of non-compliance, whether corrected or not. This is an ongoing policy and practice. This recommendation has been fully implemented.

California State Auditor's Assessment of Annual Follow-Up Status: Fully Implemented

The Tax Committee provided its updated procedures for reporting all physical issues to the IRS.

1-Year Agency Response

IRS Notices 2020-53 and 2021-12 provided for a moratorium on all inspections for the period of April 1, 2020 through December 31, 2020 (2020-53) and were then extended through September 30, 2021 (2021-12). During the moratorium period, CTCAC determined that staff would continue to complete desk audits of the projects in their normal monitoring cycle so as not to disrupt the cycle of inspections and to ensure that properties were continuing to uphold the regulations, policies, and requirements of the Program during the COVID-19 Pandemic, even though CTCAC was not mandated to do so.

As of October 1, 2021, CTCAC Staff has resumed conducting physical inspections for all properties. Staff are required to report all instances of physical noncompliance observed on a property. Due to the nature of the post inspection cycle - Inspection date, 45-day window to send noncompliance letter to owner, 60-day owner correction response period, 8823 preparation, processing, and review - CTCAC anticipates that the 1st 8823 Forms reporting all levels of observed physical noncompliance will go out in late December 2021.

California State Auditor's Assessment of 1-Year Status: Pending

6-Month Agency Response

To ensure compliance with federal law, CTCAC staff requires all physical non-compliance to the IRS (includes all level 1, 2, 3 and Health & Safety UPCS violations) to be reported to the IRS. On Jan 15, 2021, the IRS released guidance extending relief from compliance monitoring from Apr 1, 2020 through Sep 30, 2021. CTCAC staff continues to complete desk audits in lieu of physical audits as permitted in the IRS notice. CTCAC released a memorandum on Feb 5, 2021 to all project owners and management companies of low income housing tax credit properties informing them that CTCAC staff will resume physicals inspections beginning Oct 1, 2021 as permitted by the IRS notice. Upon resuming these physical inspections, CTCAC staff will report all physical non-compliance to the IRS (includes all level 1, 2, 3 and Health & Safety UPCS violations). CTCAC staff convened workshops between Mar and May 2021 to inform owners and management companies of the updated reporting requirements to the IRS. In the spring of 2021, CTCAC made annual updates to the Compliance Manual which include an update to Section 7.6 to clarify to program users of CTCAC's responsibility to report noncompliance to the IRS. Section 7.6 (Page 95) now references that IRS Form 8823 will be issued for any UPCS violations as opposed to specifically referencing Level 2 and 3 UPCS violations. The policy of reporting all physical non-compliance to the IRS is in place, and reporting will officially take place when physical inspections recommence on Oct 1, 2021. CTCAC released a memorandum on May 12, 2021 providing monitoring guidance updates for 2021 to all project owners and management companies. The updates include the requirement to report to the IRS all levels of Uniform Physical Condition Standards (UPCS) violations (Levels 1-3 and Health and Safety Violations) for all properties in the initial 15-year Federal Compliance Period.

California State Auditor's Assessment of 6-Month Status: Partially Implemented

The Tax Committee updated its policy and issued a memo related to reporting all instances of noncompliance to the IRS. However, because the IRS has not required the Tax Committee to conduct monitoring inspections that would identify instances of noncompliance from April 1, 2020 to September 30, 2021, we will keep this recommendation open until monitoring inspections resume and the Tax Committee provides examples of reporting instances of noncompliance to the IRS.

60-Day Agency Response

In July of 2020, the IRS published guidance granting allocating agencies relief from compliance monitoring from April 1, 2020 through December 31, 2020. Although relief to these requirements were provided, CTCAC Compliance Section monitoring staff continued to complete desk audits throughout the end of 2020, but discontinued physical audits. In January, 2021 all Compliance Section monitoring staff were notified that moving forward staff will be required to report all physical non-compliance to the IRS (includes all level 1, 2, 3 and Health & Safety UPCS violations). Due to the continuing pandemic, Compliance Section staff will only complete file reviews of projects and hold all physical inspections until after July 2021 (unless further IRS monitoring relief is provided). When Compliance Section staff resume physicals inspections, additional Compliance Section staff will be pulled from monitoring to assist the current staff member that reviews all monthly 8823's. Compliance Section management believes re-assigning staff from monitoring will be possible due to the additional SSA/AGPA positions authorized in 2020.

California State Auditor's Assessment of 60-Day Status: Pending

All Recommendations in 2020-108

Agency responses received are posted verbatim.