Amended  IN  Senate  May 16, 2024
Amended  IN  Senate  March 21, 2024

CALIFORNIA LEGISLATURE— 2023–2024 REGULAR SESSION

Senate Bill
No. 1032

Introduced by Senator Padilla
(Coauthor: Senator Alvarado-Gil)

February 06, 2024

An act to amend Section 50560 of, and to add Section 50566 to, the Health and Safety Code, relating to housing.


LEGISLATIVE COUNSEL'S DIGEST


SB 1032, as amended, Padilla. Housing finance: portfolio restructuring: loan forgiveness.
Existing law establishes various rental housing finance programs administered by the Department of Housing and Community Development. Existing law authorizes the department to monitor and fund various multifamily housing loans. With respect to these programs and loans, existing law authorizes the department to approve an extension of a department loan, the reinstatement of a qualifying unpaid matured loan, the subordination of a department loan to new debt, or an investment of tax credit equity pursuant to specified rental housing finance programs and multifamily housing loans administered, monitored, or funded by the department, subject to specified requirements.
This bill would additionally authorize the department to forgive the full amount of the principal, interest, fees, and other outstanding balances of the above-described loans, including the full amounts of the principal, interests, fees, and any other outstanding balances of specified department loans, loans if the borrower shows that the loan is impeding their ability to maintain and operate the project, as specified. makes specified showings. The bill would require that projects receiving loan forgiveness meet specified requirements, including that the projects maintain the same number of affordable units at the same affordable housing cost as provided in the project’s regulatory agreement. agreement, except as specified. The bill would authorize borrowers to appeal a loan forgiveness decision to the Secretary of Business, Consumer Services, and Housing for reconsideration.
This bill would make findings and declarations related to a gift of public funds.
Vote: MAJORITY   Appropriation: NO   Fiscal Committee: YES   Local Program: NO  

The people of the State of California do enact as follows:


SECTION 1.

 Section 50560 of the Health and Safety Code is amended to read:

50560.
 (a) Subject to the requirements of this chapter, the department may approve an extension of a department loan, the reinstatement of a qualifying unpaid matured loan, the subordination of a department loan to new debt, the forgiveness of a department loan, or an investment of tax credit equity under one or more of the following rental housing finance programs: the original Rental Housing Construction Program established by Chapter 9 (commencing with Section 50735), the Special User Housing Rehabilitation Program established by Section 50670, the Deferred Payment Deferred-Payment Rehabilitation Loan Program established by Chapter 6.5 (commencing with Section 50660), the rental component of the California Natural Disaster Assistance Program established by Chapter 6.5 (commencing with Section 50671), the State Earthquake Rehabilitation Assistance Program established by Chapter 6.5 (commencing with Section 50671), the rental component of the California Housing Rehabilitation Program established by Section 50668.5, the component of the Rental Housing Construction Program funded with bond proceeds governed by Section 50771.1, the Family Housing Demonstration Program established by Chapter 15 (commencing with Section 50880), the Families Moving to Work Program established by Chapter 15 (commencing with Section 50880), the Multifamily Housing Program established by Chapter 6.7 (commencing with Section 50675), and any and all other multifamily housing loans funded or monitored by the department.
(b) Once the department has approved a loan extension, reinstatement of a qualifying unpaid matured loan, subordination, forgiveness, or tax credit investment pursuant to this chapter, the statutes enumerated in subdivision (a), and the regulations promulgated pursuant to these statutes, shall no longer apply to developments restructured pursuant to this chapter. These developments shall instead be governed by this chapter and guidelines adopted pursuant to subdivision (h).
(c) All projects restructured pursuant to this chapter shall comply with the affirmative marketing and language accessibility requirements set forth in Section 50736 of this code and Section 65863 of the Government Code.
(d) The department may approve an extension of a loan, the reinstatement of a qualifying unpaid matured loan, the subordination of a department loan to new debt, or an investment of tax credit equity if it determines that the project has, or will have after rehabilitation or repairs, a potential remaining useful life equal to or greater than the term of the restructured loan.
(e) The department may subordinate its loan to refinance existing senior debt only as necessary for project feasibility and to reimburse borrower advances for predevelopment costs, recent capital improvements, and recent operating deficits.
(f) If the extension of a department loan, the reinstatement of a qualifying unpaid matured loan, the subordination of a department loan to new debt, or an investment of tax credit equity will result in a rent increase for tenants of a development, the department may only subordinate a loan to senior debt if necessary to increase the feasibility of a project and to fund reasonable rehabilitation or improvements including soft costs. The application to refinance shall include a third-party analysis that supports the need for refinancing.
(g) The department may approve additional senior debt only as necessary to finance rehabilitation or repairs, including soft costs, that are modest in size, scope, and cost, as determined by the department.
(h) It is the intent of the Legislature in enacting this chapter to provide to the department the flexibility necessary to maintain the quality of the affordable rental housing units for which the state has already made a significant public investment. The department may implement this chapter through guidelines that shall not be subject to Chapter 2.5 (commencing with Section 11340) of Part 1 of Title 2 of the Government Code. These guidelines shall be developed through the following process:
(1) The department shall provide a notice of proposed action as described in Section 11346.5 of the Government Code to the public at least 21 days before the close of the public comment period.
(2) The department shall schedule at least one public hearing as described in Section 11346.8 of the Government Code before the close of the public comment period.
(3) The department shall maintain a rulemaking file as described in Section 11347.3 of the Government Code.
(4) The final version of the guidelines shall be accompanied by a final statement of reason as described in subdivision (a) of Section 11346.9 of the Government Code.
(5) The rules and guidelines shall be effective immediately upon adoption by the department.

SEC. 2.

 Section 50566 is added to the Health and Safety Code, to read:

50566.
 (a) Upon a showing by the borrower that Subject to subdivision (b), the department may forgive the full amount of the principal, interest, fees, and other outstanding balances of a loan made pursuant to the programs a program listed in subdivision (a) of Section 50560 is impeding the borrower’s ability to maintain and operate the project for affordable housing or senior housing, the department shall forgive the full amounts of the principal, interests, fees, and any other outstanding balances of the loan. upon a showing by the borrower of all of the following:
(1) The loan has matured or will mature within 24 months.
(2) Repayment of the outstanding principal, interest, fees, and other outstanding balances of the loan would impede the borrower’s ability to maintain and operate the project as affordable housing or senior housing.
(3) Forgiveness of the loan will assist in maintaining the affordability of the project.
(4) The borrower is a nonprofit entity.
(b) Projects that receive loan forgiveness pursuant to this section shall meet all of the following requirements:
(1) The project shall maintain the same number of affordable units at the same affordable housing cost as provided in the project’s regulatory agreement. agreement, except that, to the minimum extent necessary, the number of rent- or income-limited units may be adjusted to ensure the ongoing financial feasibility of the project.
(2) The units shall be subject to a recorded deed restriction for a period of 55 years for rental units and 45 years for owner-occupied units. the remaining useful life of the project.
(c) Borrowers may appeal a decision of the department made pursuant to this section to the Secretary of Business, Consumer Services, and Housing for reconsideration.

SEC. 3.

 The Legislature hereby finds and declares that the loan forgiveness authorized by Section 50566 of the Health and Safety Code, as added by this act, serves the public purpose of promoting affordable housing development where a loan impedes a borrower’s ability to maintain and operate a project for affordable housing or senior housing, and does not constitute a gift of public funds within the meaning of Section 6 of Article XVI of the California Constitution.