SB 5 Vetoed for All the Wrong Reasons

Timothy L. Coyle
Consultant specializing in housing issues

Over the weekend, Governor Newsom finished signing and vetoing the final batch of bills that made it to his desk this year.  Among the bills he acted upon was SB 5 (Beall), legislation to reestablish redevelopment authority in California. He vetoed it.  That’s the good news. The bad news is why he did. 

The bill was hailed as a repair to the Legislature’s and former Governor Brown’s decision several years ago to end the successful, decades-old redevelopment law. 

Supporters of redevelopment – anguished by its defeat – have been working on a plan to restore the program.  The effort has been led by advocates for affordable housing, including state homebuilders, non-profits and local governments. 

SB 5 was supposed to be it.  But, as California is desperate for an ongoing, reliable source of funding for affordable housing (aka redevelopment), SB 5 would have created a prescriptive, heavy-handed, top-down state program.  To illustrate, the bill required that before locals could use the program financing, they first must submit a plan to the state that, among other things, included:

  •     A description of the proposed project or projects to be completed – including a complete fiscal analysis – and the funding amount necessary for each year;
  •     A strategy for outreach to and retention of women, minority, disadvantaged youth, formerly incarcerated and other underrepresented subgroups;
  •     A prohibition against the development of single-family, for-sale housing;
  •     A requirement that no eviction has been made on any proposed housing project site within the last 10 years;
  •     An assessment of the estimated cost of providing services or facilities for each project included in the plan and the estimated revenue available to provide those services or facilities; and
  •     A prohibition against the demolition of certain housing, including housing that is subject to any form of rent or price control or an historic structure.

By contrast, the old redevelopment program was much more hands-off, with few strings attached – state or local.  Housing providers easily found a variety of funds and cooperative attitudes at redevelopment agencies, with few requirements for use of the dollars other than keeping the housing affordable and adequately relocating displaced residents.   

In addition to creating onerous new hurdles for users to jump through, SB 5 would also have preserved local permit caps, building moratoria, down-zoning, affordability mandates and limits lower-income populations.  Further, the bill would have required payment of union-scale prevailing wages, prohibited using any funding to support market-rate housing, upheld development restrictions pursuant to climate-change policies and, many would argue, would have repealed the now-infamous Palmer case, which protects rental property developers from local inclusionary zoning.  None of these requirements would have increased – or, where they exist today, increase – the supply of affordable housing.  Instead, they would just extend and expand actions that constrain it. 

Unfortunately, the Governor doesn’t see it that way.  Rightly, he vetoed SB 5. But, rather than doing so for its inconsistency with a productive state housing policy, he decided the fate of the bill based on an ill-founded cost allegation.  Listening to the bean-counters over at the Department of Finance (DOF), he disapproved SB 5 because, as he said, it’s too much money for housing. That’s a common refrain from the green-eye-shade types over at DOF.  In truth, local redevelopment turns poor-performing local assets into productive, tax-generating ones – and, costs the state nothing. Newsom knows this. Or, at least he should.

The Governor knows that absent a constitutional defect, established by the passage of Proposition 98 decades ago, there would be no cost to the state for having a robust redevelopment program.  But, as has been the case with the past few gubernatorial administrations, DOF calls most of the shots – and not just the fiscal ones. Surely, it was DOF that advised the Governor that SB 5 makes redevelopment a budget item – at a cost of roughly $2 billion dollars.  They even got him to say that despite his earlier rhetoric to the contrary the state’s housing crisis is not such a big problem. In his veto statement, the Governor said:

 Legislation with such a significant fiscal impact needs to be part of budget deliberations it can be considered in light of other priorities. 

That means in a budget of well over $200 billion, affordable housing is not that important.  Hell, it doesn’t rise to a level of $2 billion – not even 1 percent of the California state budget.   

SB 5 – and the Governor’s lame justification for vetoing it – spells trouble for housing in the state for certainly the immediate future, if not long term.  Given the condition of California’s inadequate housing supply, reviving redevelopment should be a no-brainer, for the Legislature and the Governor. For all sorts of reasons – especially those enumerated above – SB 5 was not it.

It doesn’t have to be but housing in California remains a mess. 

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