California’s New Governor Would Punish Cities Over Affordable Housing

As part of his first proposed budget, new California Governor Gavin Newsom has floated an idea that would aggressively reform the state’s housing supply laws: Withhold transportation funds from local governments that fail to meet new housing production targets.

“This is a new day and we have to have new expectations, new requirements,” Newsom said at a Thursday news conference following the release of his 2019-2020 budget.

The spending plan also includes more than $1.7 billion for homelessness and housing issues, the largest such funding boost the state has seen in years. The previous governor, Jerry Brown, was criticized in advocacy circles for subordinating affordable housing to other priorities, such as climate change. Newsom is striking a different tone.

“I have never seen this kind of attention paid in the budget to homelessness and affordable housing issues,” Anya Lawler, a housing policy advocate for the Western Center on Law and Poverty, told the CalMatters, a publication covering state politics and policy.

Newsom’s bid to withhold state tax dollars from cities and counties that fall short of housing requirements would also be a significant departure from the status quo. In 2017, Liam Dillon of the Los Angeles Times investigated how, for decades, California has failed to hold local governments accountable to the housing plans that state law requires them to report. As lawmakers in Sacramento have packed on additional demands to the planning process, they have not addressed a basic statutory flaw, Dillon found: the lack of a mechanism ensuring that those heavily-deliberated plans actually result in real housing units. The result has been years of stunted production in most California cities, the root of a historic affordable housing crisis and the highest poverty rate in the nation.

“The law has been completely ineffective at addressing the issue of housing affordability,” Paavo Monkkonen, an urban planning professor at UCLA, told the Times in 2017. “If anything, it’s a waste of people’s time.”

Newsom wants to reform the process, using both carrots and sticks to nudge local governments into compliance. The governor proposes overhauling the state’s process for establishing regional housing quotas, so that the targeted numbers are bigger than they’ve been in the past. Part of the budget’s proposed housing funding includes $250 million in grants to assist local governments in revising zoning codes and environmental permitting processes to speed up production. Another $500 million would be distributed as awards for cities and counties that hit short-term housing milestones.

As for municipalities that fall short of long-term objectives, Newsom’s budget suggests punishment in the form of less state funding. It frames this idea as a matter of fairness: “Going forward, the state will strongly encourage jurisdictions to contribute to their fair share of the state’s housing supply by linking housing production to certain transportation funds and other applicable sources, if any.” At the news conference, Newsom suggested that the withheld dollars could be revenue from the state’s 2017 gas tax increase, which survived a repeal effort in November.

The penalty could theoretically help square transportation investments with housing policy goals. Aligning mass transit, in particular, with new housing is a strategy that’s long been advocated by land use experts and called for by the Department of Housing and Community Development’s last statewide housing assessment report. It was the basic idea behind SB 827, California State Senator Scott Wiener’s widely publicized (and ultimately doomed) bill to legalize multi-unit apartment construction near high-frequency transit stops statewide.  

Newsom’s proposal is the opening bid in a long budget process that will require the buy-in of many of the same state legislators who didn’t pass SB 827.

And many cities—and Californians—are sure to resent the punitive aspect of the governor’s budget proposal, given that many elements of housing production rest in the hands of developers and market forces. In parts of the state, gaps in housing production have less to do with restrictive zoning codes and slow-moving environmental permitting schemes than they do with a sheer lack of economic impetus, and/or resources for subsidized housing.

That’s the case across the poor, rural Central Valley, where virtually no cities or unincorporated county areas are meeting housing goals. Additionally, although rural communities may offer cheaper housing, the burdensome cost of transportation for those living in far-flung parts of California can result in “a cost-of-living comparable to their urban and suburban counterparts,” the HCD report found. The chart shown below illustrates that dynamic.

Rural counties like Fresno and Kern have burdensome housing and transportation costs. (California Department of Housing and Community Development)

Some housing justice advocates fear that withholding gas tax revenues would further harm communities that are already under-resourced.

“I think it’s the case that with any land use policy, unless equity or geographic diversity are the specific lenses being used, it’s going to end up disadvantaging certain areas,” said Ashley Werner, an attorney with the Leadership Counsel for Justice and Accountability, a legal advocacy group representing underserved California communities.

Earlier this month, Werner’s organization filed a lawsuit against Fresno County, which includes the largest city in the Central Valley, for failing to take mandated actions to meet its housing and land-use goals and thereby discriminating against Latino residents who are largely affected. Fresno County is heavily reliant on state gas tax revenues to pay for its deteriorating road network; some of its poorest neighborhoods and unincorporated hamlets even lack paved surfaces. It may prove difficult for Newsom to balance those types of needs with the broad strokes of his proposed housing penalty.  

In her neck of California, withholding transportation dollars to spur more housing development “could certainly be a big motivating factor,” Werner said. “We’d just want to ensure that equity is at the center of the conversation.”  

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