Audit says billions in housing bonds lost

SACRAMENTO — As California slid deeper into the housing crisis from 2015 to 2017, a state agency let $2.7 billion in bond capacity that could have been used to build affordable housing expire, according to a report from the state auditor’s office.

The blistering report, released this week, states that the bonds could have been used by developers to help build thousands more affordable housing units statewide.

State Auditor Elaine Howle said the bond allocations were mismanaged in part because California doesn’t have a clear plan on how to best use available funding for housing projects.

“In fact, the absence of a comprehensive and coordinated plan allowed the mismanagement and ultimate waste of $2.7 billion in bond resources to occur with little scrutiny,” her report states.

Auditors said the bonds expired due to mismanagement at the California Debt Limit Allocation Committee, an agency under the state Treasurer’s Office, which allocates taxexempt federal bond authority to help private developers build affordable housing and other infrastructure projects that have a public benefit.

The problem occurred when the debt agency essentially left $2.7 billion sitting on the table. It had allocated the bonds for pollution control projects, but the bonds weren’t used.

Auditors said the agency should have known the more pressing priority was affordable housing and directed “finite resources where they were most needed and most likely to be used.”

State Treasurer Fiona Ma, a former San Francisco supervisor and state Assembly member, said she discovered the issue after taking office in 2019. She said no senior staffers who work with the agency now were around when the problem started.

“I have a whole new administration,” Ma said. “No one was really tracking how much (bond money) was allocated and how much was used.”

She said the agency now publicly posts its “carry forward” numbers, so everyone knows if bond capacity is unused and could be issued for another project. Her office has also increased oversight of the debt agency.

“I can’t re-create the past,” Ma said. “But since I’ve been here, we have been focused on this and are rectifying it.”

The bond allocations expired over a three-year period, from 2015 through 2017, as San Francisco and cities around the state saw rents increase and the number of homeless people soar. The city’s homeless population increased by 17% from 2017 to 2019.

Randy Shaw, director of the city’s Tenderloin Housing Clinic, said he was infuriated by the auditor’s report. Over two days this week, he said his clinic received more than 1,041 applicants for two affordable apartment units.

“It’s a staggering amount,” Shaw said. “What kind of accountability do we have? The level of bureaucracy is such that $2.7 billion can be lost and without anybody knowing it.”

The mismanaged bonds were one of many issues the report highlighted after auditors examined the state’s system for funding and approving affordable housing.

California has four agencies that handle housing efforts, “but there is no sound, well-coordinated strategy or plan to most effectively” use their money to support affordable projects, the report states.

State law requires the primary agency, the Department of Housing and Community Development, to draft a new housing plan every four years. But auditors found the most recent plan from 2018 lacks basic details, such as a description of how available funding can be used to meet housing needs.

Without that kind of planning, the report states, California cannot effectively measure “how it will build enough affordable housing” or put its financial resources to the best use.

“The state does not have a clear plan describing how or where its billions of dollars for housing will have the most impact,” Howle wrote in a letter to state leaders that accompanied the report.

Auditors found that state agencies also have inconsistent requirements for their affordable housing programs, creating confusion and delays for developers who must comply with a patchwork of rules.

“The resulting approval process for ... financial resources is cumbersome for developers who need state resources to support their projects,” the report states.

Russ Heimerich, a spokesman for the state Business, Consumer Services and Housing Agency, which oversees housing and community development, said agencies are already working to streamline details like their application deadlines and definitions.

“We have been working to align our programs better and collaborate more closely,” he said. “We have been doing that for many months and will continue to do that work.”

Assemblyman David Chiu, a San Francisco Democrat, said he found some of the auditor’s conclusions misleading or outdated because the Legislature has passed several bills in recent years to streamline development review processes.

However, he said the report highlights that California needs a steady stream of funding for affordable housing. For example, the $500 million the state set aside for housing tax credits this year is one-time money, and it’s not guaranteed that lawmakers will refill that pot every year.

“There is not an ongoing source of funding for affordable housing,” Chiu said. “To me, that is the big picture.”

But state agencies aren’t solely responsible for California’s housing failures. Auditors found that many local governments have contributed to the problem with their restrictions on development and new construction.

For example, the report states cities “can still undermine affordable housing development by using lengthy and uncertain approval processes” in many cases.

“Underdevelopment of affordable housing statewide and in certain areas is especially problematic because nearly every area in the state needs more affordable housing,” auditors stated.

The housing crisis isn’t just confined to big cities, either. In nearly every California city, at least a fifth of low-income renter households must spent 50% or more of their income on rent, the report states.

Dustin Gardiner is a San Francisco Chronicle staff writer. Email: dustin.gardiner@sfchronicle.com Twitter: @dustingardiner