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California Department of Housing and Community Development
Its Oversight of Housing Bond Funds Remains Inconsistent

Report Number: 2018-037

Figure 1

An infographic that shows California's population was 39.5 million people as of 2017, or 12 percent of the national population. However the State has 24 percent of the nation's homeless and 68 percent of the unsheltered people; 134,000 and 92,000 respectively. The unsheltered population are those homeless people whose primary nighttime location is a public or private place not ordinarily used as a regular sleeping accommodation (for examples, the streets, vehicles, abandoned buildings, parks, or camping grounds). California continues to face a shortage of affordable housing and in 2016 had a deficit of 1.5 million affordable housing units for very low-income and extremely low-income residents—those who earn 50 percent or less than the area median income.

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Figure 2

An infographic that describes the HCD housing bond programs we reviewed: Multifamily Housing programs, Infill Incentive Grant program, the CalHome program, and the Joe Serna, Jr., Farmworker Housing Grant program. The multifamily housing programs receive $1.71 billion in bond funding. These programs generally provide deferred payment loans to both public and private entities for the construction of new transitional or rental housing developments and for the rehabilitation or acquisition of existing transitional or rental housing developments. Multifamily housing programs target lower-income households, homeless, homeless youth, and those at risk of becoming homeless. The Infill Incentive program receives $790 million from housing bonds. The program provides financial assistance grants to nonprofit or for-profit developers for infrastructure improvements necessary to facilitate new infill housing developments in sites that are at least 10 years old and being redeveloped for urban uses and surrounded by parcels developed for urban uses. It helps very low-income, low-income, or moderate-income households. The CalHome program receives $505 million to provide grants and loans to private nonprofit and local government agencies for first-time homebuyer assistance, home rehabilitation, homebuyer counseling, self-help mortgage assistance programs, or technical assistance for self-help homeownership. It targets low-income and very low-income households. Lastly, the Joe Serna, Jr., Farmworker Housing Grant program provides grants and loans to local public entities, nonprofit corporations, limited liability companies, or to farmworkers for construction or rehabilitation of housing and for the acquisition of manufactured housing as part of a program to address and remedy the impacts of current and potential displacement of farmworker families. Its target populations are agricultural workers and their families.

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Figure 3

An infographic illustrating that HCD awarded $3.87 billion, or 88.2 percent, of its total allocation of $4.39 billion from Propositions 46 and 1C. With these funds, it made 2,650 awards that proposed 196,000 housing units to be developed, rehabilitated, or procured with homeownership assistance. The definition of housing unit varies by program and can be a single-family home, a multibed apartment, one habitable room, or an incentive to build a housing unit. HCD set aside $50 million, 1.1 percent, in default reserves—an amount for unexpected costs incurred to protect the State's financial interest. HCD could eventually disburse this amount. It also set aside $60 million, 1.4 percent, for expenses, including costs to issue the bonds, incurred by the State Treasurer's Office, the State Controller's Office, and the Department of Finance—collectively referred to as statewide costs. HCD also set aside $260 million, 5.9 percent, for its administrative costs.

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Figure 4

A graphical timeline spanning 13 years from 2005 through 2018. Multiple points along the timeline demonstrate that HCD's attempts to implement a central housing bond database have been costly and mired in technical challenges, including four separate occasions where we noted problems with CAPES in previous reports. In 2005, HCD contracted with a systems integrator to design and implement CAPES for $1.05 million. According to its approved budget change proposal, in 2007 HCD placed CAPES into service with diminished functionality because it underestimated the workload and resources required to complete the project. HCD management deferred several critical functions, like reporting, for later development. In a 2007 letter, we stated that HCD lacked sufficient internal controls over the system conversion from the previous system to CAPES. In our 2009 report, we reported that HCD did not ensure CAPES' data were both complete and accurate. We further reported in our 2012 report that HCD had not yet reconciled the Propositions 46 and 1C award information in CAPES. From 2013 through 2017, HCD purchased nearly $800,000 in IT services to develop reporting capabilities from CAPES' data. We reported in our 2014 report that CAPES continued to have limited functionality relative to HCD's needs. In 2016 Finance approved HCD's budget change proposal for more expenditure authority, $568,000, to fund additional CAPES enhancements. According to the bond fiscal manager in 2018, since 2004 HCD has spent $8.8 million on contractors and internal staff to fix and maintain CAPES.

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