Governor Releases 2018-19 Budget

It appears that the original 2018-2019 Budget Summary posted yesterday included both 2018-19 budget information, but 2017-2018 information as well. As a result, the budget summary information sent to you yesterday was incorrect.

Here is the link to the final summary information:

http://www.ebudget.ca.gov/

Below are the actual highlights from the 2018-2019 Budget Summary of interest to APA members:

HOUSING:

For decades, California has faced a shortage of housing due to historical underproduction of adequate supply when compared to demand. While the state has identified 180,000 units of housing needed annually to address the growing population, only 100,000 units on average have been produced annually over the last eight years.

California local governments have primary control over land use and housing-related decisions. Housing entitlements and permits are determined locality by locality, each with its own community needs and challenges. Throughout the development process, each local government may face pressures that discourage housing development, including community opposition, incentive to approve sales tax-generating development over residential development, and market conditions, such as high land and construction costs. These factors often result in policies that increase development costs, including permitting and impact fees, delays in permit approvals, and parking requirements.

In recognition of California’s pronounced housing shortage, in 2016, the Administration proposed a “by-right” proposal in conjunction with state funding to streamline local housing approval and drive down per unit housing costs. This proposal was not adopted by the Legislature.

In January 2017, the Administration put forward comprehensive policy principles to reduce local barriers, limit construction delays, lower per-unit costs, provide production incentives, strengthen compliance with existing laws, and establish a permanent source of ongoing funding for affordable housing and related investments.

Within this framework, the Administration and Legislature developed a package that included statutory changes to reduce per unit costs and increase production, a housing bond and a real estate transaction fee. The 15 bills signed into law collectively shorten the housing development approval process, provide incentives to streamline development, and promote local accountability to adequately plan for needed housing. A real estate transaction fee was established that will generate $258 million annually to invest in affordable housing production.

Of these funds, 10 percent is dedicated to affordable homeownership and rental housing for agricultural workers and their families. The housing packing also places a $4 billion bond on the November 2018 ballot for voter approval which includes $3 billion in general obligation bonds for various housing programs and $1 billion for veterans housing.

The state has continued to make a significant investment in affordable housing construction through various grant and loan programs, including the Affordable Housing and Sustainable Communities Program, No Place Like Home Program, and Veterans Housing and Homelessness Prevention Program. Beyond these legislative changes and new funding programs, the state has worked collaboratively across its housing agencies to improve outcomes for its existing programs. The Tax Credit Allocation Committee, which administers the Low-Income Housing Tax Credit program, has made a number of regulatory changes in collaboration with the Administration to increase the utilization of this program. These efforts resulted in a historic high of 20,847 units financed with federal tax credits in 2016.

The California Housing Financing Agency has increased its multifamily lending activity each year since the Great Recession, providing $369 million in financing in 2016-17 to support 2,100 affordable housing units. The agency also issued $682 million in private activity bonds for affordable housing since 2015 and provided $4 billion to moderate-income families that do not qualify for the low-income programs through the state’s First-Time Homebuyers Downpayment Assistance Program.

The Budget continues the Administration’s commitment to improving existing programs and maximizing its investment in housing. To implement the significant changes included in the 2017 statewide housing legislative package, the Budget allocates $3 million General Fund to the Department of Housing and Community Development, in addition to resources from an estimated $258 million in real estate transaction fee revenue for housing programs and proceeds from the housing bond that will be available upon voter approval in the November 2018 election.

The Veterans and Affordable Housing Bond Act of 2018 proposes a $4 billion bond on the November 2018 ballot. The first $3 billion of the bond will support various existing housing programs, including affordable multifamily housing, farmworker, transit-oriented development, infill infrastructure, and homeownership programs, as well as matching grants for Local Housing Trust Funds. These funds are anticipated to be awarded over five years. The remaining $1 billion will be available to support home ownership for veterans, with downpayment assistance, reduced fees and closing costs, and competitive interest rates.

The Budget includes $277 million local assistance for the Multifamily Housing Program, assuming passage of the Veterans and Affordable Housing Bond Act of 2018. The Multifamily Housing Program assists with new construction, rehabilitation and preservation of permanent and transitional rental housing for lower income households.

RESPONSE TO FIRE AND FLOOD EMERGENCIES:

Executive orders were issued to waive the one-week waiting period for unemployment insurance benefits for impacted individuals; suspend the fees associated with the replacement of specified documents and records; suspend specified procurement rules to allow state agencies to enter into contracts for goods, materials, and services necessary to quickly assist with response and recovery efforts; and strengthen coordination between state agencies on environmental restoration in fire-impacted areas.

For Northern California, the executive orders also suspended planning and zoning requirements and state fees for manufactured homes and mobile home parks to help displaced residents with housing needs, and streamlined regulations to allow wildfire-impacted facilities regulated by the California Department of Social Services and the California Department of Public Health to remain open.

Property Tax Backfill:
The Budget includes $23.7 million General Fund to backfill the property tax revenue losses that cities, counties, and special districts will incur in 2017-18 and 2018-19 due to the October 2017 wildfires in Northern California. This funding estimate will be adjusted as part of the May Revision as more information becomes available from county assessors. This adjustment will also include backfills for the property tax revenue losses incurred by cities, counties, and special districts in 2017-18 and 2018-19 due to the Southern California wildfires that started in December 2017. Reliable estimates of the property tax impact of those fires were not available when the Budget was finalized.

REDEVELOPMENT AGENCIES:

From 2011-12 through 2016-17, approximately $2.1 billion was returned to cities, $2.6 billion to counties, and $781 million to special districts (following the elimination of development agencies). The Budget anticipates that cities will receive an additional $926 million in general purpose revenues in 2017-18 and 2018-19 combined, with counties receiving $990 million and special districts $282 million. The Budget anticipates that average annual property tax revenues of more than $1.2 billion will be distributed to cities, counties, and special districts through 2021-22. This is a significant amount of unrestricted funding that can be used by local governments to fund police, fire, housing, and other public services.

The Administration sponsored Chapter 785, Statutes of 2014 (SB 628), which restored the ability of cities and counties to use tax increment financing for local development initiatives. The bill allows cities and counties to create Enhanced Infrastructure Financing Districts. Unlike the redevelopment agencies, Districts can only leverage property tax revenues from cities, counties, and special districts that agree to participate and cannot leverage property tax revenues from K-14 schools.

2020 CENSUS:
The Budget includes $40.3 million for statewide outreach and other activities related to the 2020 Census count. Statewide coordination of the multi-year, multi-lingual effort is critical to obtain a complete and accurate count of California residents. The data collected by the decennial census determines the number of seats California has in the U.S. House of Representatives and is also used to determine federal funding levels for local communities.

TRANSPORTATION FUNDING:

For 2018-19, the Budget includes $4.6 billion in new transportation funding, which includes:

•   Focus on “fix-it-first” investments to repair neighborhood roads, state highways, and bridges ($2.8 billion).
•   Make key investments in trade and commute corridors to support continued economic growth and implement a sustainable freight strategy ($556 million).
•   Match locally generated funds for high-priority transportation projects ($200 million).
•   Invest in passenger rail and public transit modernization and improvement ($721 million).

The Budget also reflects the first $1.3 billion in natural resources and housing infrastructure spending from the bonds passed by the Legislature last year, assuming passage by the voters in 2018.

SB 1 Progress:
By Spring 2018, the Commission and the California State Transportation Agency will announce grants for competitive programs to improve the state’s most heavily used trade corridors and the most congested regional commute corridors, as well as funding new, transformative, public transit projects. A list of these projects and their progress toward completion is available for public review on the Rebuilding California-SB 1 website. Similarly, cities and counties have submitted over 4,000 proposed projects for which the $451 million in SB 1 funds available in 2017-18, as well as SB 1 funds available in future years, can be used. Pursuant to this list, the Commission approved an initial allocation of these funds to cities and counties at its December 2017 meeting.

•   Transit and Intercity Rail Capital Program—The upcoming five-year program from new SB 1 revenues and existing Cap and Trade auction proceeds will provide $2.4 billion in new transit project funding. The program was created to fund transformative projects such as the BART Silicon Valley extension and expanded Los Angeles Union Station capacity, growing ridership and reducing greenhouse gas emissions. The Agency adopted guidelines for the program in October 2017, with project applications due January 12, 2018, and awards expected by April 30, 2018. The Budget provides $330 million in SB 1 funds for these projects.
•   State Transit Assistance—For 2017-18, in addition to the transit capital project funding, SB 1 also provided an additional $280 million for operations for local transit agencies in addition to the $500 million in other base annual funding. Funds are expected to flow to local transit agencies beginning in early February 2018, and will permit local agencies to improve service for transit riders. The Budget provides an additional $355 million for local transit operations, bringing the 2018-19 total to $855 million.
•   Active Transportation Program—SB 1 provides $100 million per year for bicycle and pedestrian facility projects such as the Santa Ana City First Street Pedestrian Improvement in Orange County, the Palm Drive Bicycle and Pedestrian Improvement in Riverside County, and the Boron to Desert Lake Pedestrian Path in Kern County. These projects provide viable transportation alternatives to the traveling public, improve links to transit, and support other policy objectives such as reducing greenhouse gas emissions. As a result of additional SB 1 funding, the Commission was able to advance 22 existing projects and fund 71 additional projects in both the current and budget years. Selection of state-sponsored projects has already been completed, and final selection of locally-sponsored projects is expected to be complete by the end of January 2018.
•   Bridge and Culvert Repairs—SB 1 provides $400 million per year to fund repairs and maintenance on the state’s bridge and culvert infrastructure, including such projects as the seismic retrofit of two bridges at the Santa Ana River in San Bernardino County, the Seismic Retrofit of the Salinas River Bridge in Monterey County, the Tower Bridge pier protection replacement in Yolo County, and the replacement of the Cache Creek Bridge in Kern County. It also allowed Caltrans to move forward quickly with projects like the culvert repair around Soda Springs and the sinkhole repair on Interstate 15 in San Diego. More bridge projects will be added and accelerated as part of the proposed 2018 State Highway Operation Protection Program due to be adopted in March 2018.
•   Trade Corridor Enhancements—The 2017 Budget provided $203 million for projects that address bottlenecks and improve throughput on the state’s most economically important trade corridors. Of this amount, $50 million was appropriated to the Air Resources Board for its competitive Zero/Near-Zero Emission Warehouse Program, which will fund projects that reduce emissions from freight-related sources. For the remainder of these funds, the Commission completed guidelines for this revised program on October 18, 2017, and proposed projects are due by January 30, 2018, with project selection expected by May 16, 2018. This Budget provides $306 million to fund new projects to meet the state’s current and future freight needs. Typical projects include port improvements, highway railroad grade separations, highway widening, and double tracking for freight rail. This program will be similar to the Trade Corridors program, which received $2 billion from Proposition 1B in 2006 and funded projects such as the Interstate-880 Reconstruction at 23rd & 29th Avenues in Alameda County, the Tehachapi Trade Corridor Rail Improvement Project in Kern County, the San Gabriel Valley Grade Separation Program in Los Angeles County, the Schuyler Heim Bridge Replacement in Los Angeles County, the Gerald Desmond Bridge Replacement in Los Angeles County, the Magnolia Avenue Grade Separation in Riverside County, the Interstate-15 Widening and Devore Interchange Reconstruction in San Bernardino County, and the Port of San Diego Freeway Access Improvements in San Diego County.
•   New SB 1 Resources for Intercity and Commuter Rail Program—$36 million Public Transportation Account from increased diesel sales tax revenues to be allocated by the Agency for operations and capital improvements of intercity and commuter rail services. Allocation requests were received on December 15, 2017, for the three-year period ending 2019-20. Rail operators indicate this funding will expand rail service, be used to purchase or rehabilitate train sets, and improve track and signal infrastructure.

CLIMATE CHANGE AND RESOURCE FUNDING:

Combating Climate Change: California has acted decisively and aggressively to reduce greenhouse gas emissions and address climate change, with a state goal to reduce emissions 40 percent below 1990 levels by 2030. The state’s most cost-effective approach to meeting that target is the Cap and Trade Program, which allows the private sector to determine the most appropriate path for reducing emissions through the quarterly auction of pollution credits. In addition to the direct emission reductions required under the program, the state has appropriated $6 billion in auction proceeds to further reduce emissions by funding transit and high-speed rail, affordable housing near jobs and services, forest and watershed improvements, healthy soil, recycling opportunities, and home energy upgrades. The state has prioritized the expenditure of these funds to disadvantaged communities. The Legislature recommitted to the future of Cap and Trade last year with an extension of the program through 2030. Since then, auction proceeds have stabilized and revenues have increased, resulting in $1.25 billion in Cap and Trade dollars being available for appropriation in 2018-19.

Cap and Trade Funding Plan: The Budget provides significant additional funding to support implementation of these plans and scientific findings through a wide range of climate adaptation and resilience projects to enable local communities, state infrastructure and natural ecosystems to better withstand the impacts of climate change. The Administration will propose the 2018-19 Cap and Trade expenditure plan in the Governor’s State of the State address.

Wildfire Stakeholder Meetings: California has historically been susceptible to wildfires and hydrologic variability. However, as greenhouse gas emissions continue to accumulate and climate disruption grows, such destructive events will become more frequent. The extreme natural events of 2017 and the cascading impacts to people, our utility infrastructure and our natural environment underscore the necessity to prepare for and mitigate the effects of climate change. These issues are challenging and require state and local governments and private industry to come together to address land use and infrastructure. The Administration will convene targeted discussions with stakeholders in early 2018.

Climate Resiliency Documents: In 2018, several groundbreaking climate resiliency documents will be released to help better plan for and understand climate change. Together, they reflect the Administration’s comprehensive cross-agency response to make California’s communities, natural systems, and built environment resilient to climate change:

•   California’s Climate Adaptation Strategy—The 2018 Update to Safeguarding California will catalog thousands of actions 38 state agencies are taking to prepare for climate change and strategies that will increase resiliency for people, infrastructure and natural resources.
•   Sea Level Rise—The Ocean Protection Council’s State of California Sea-Level Rise Guidance: 2018 Update will provide a bold methodology for state and local governments to analyze, assess, and plan for risks associated with sea level rise, underpinned by the latest sea-level rise projections.
•   Protecting the State’s Forests—The California Forest Carbon Plan will serve as a scientific foundation and policy vision for increasing the health and resiliency of California’s forests against the worsening threats of fire and disease driven by climate change.
•   Basing Actions in Science—The State’s 4th Climate Change Assessment will consolidate the best available scientific understanding of how climate change is
impacting the state. This body of science will serve as the foundation for how state agencies, local governments, and the public respond to forecasted climate change impacts.

California Drought, Water, Parks, Climate, Coastal Protection, and Outdoor Access for All—SB 5: If approved by voters in June 2018, SB 5 would authorize $4 billion in general obligation bonds for California’s parks, water and flood control infrastructure, ocean and coastal protection, safe drinking water, groundwater management and climate preparedness and resiliency. The Budget proposes $1.02 billion for the first year of implementation should the voters approve the bond measure. (See Figure RES-01.) Of this amount, $123 million will be dedicated to climate resiliency and adaptation programs, including coastal protection. Projects funded by the bond measure in 2018-19 will be prioritized to support existing programs, “shovel-ready” projects, and a phased-in approach for newly established programs.

California Water Action Plan: Released in January 2014, the Water Action Plan provides a blueprint for California to build more reliable and resilient water systems and restore important ecosystems. The Budget builds upon investments from previous years and continues prioritizing the ten actions of the Water Action Plan, including improving groundwater management, enhancing flood protection, restoring important ecosystems, and providing safe drinking water.

Groundwater Sustainability: Climate change will affect the state’s water supply reliability through more frequent droughts and reduced Sierra snowpack. Consequently, effective management of groundwater resources is an essential component of the state’s future water management strategy. In 2014, the Governor signed a package of groundwater management bills that directed cities, counties, and water districts to work together to prevent long-term over-pumping of groundwater basins. The underlying principle of the Sustainable Groundwater Management Act of 2014 (SGMA) is that groundwater is best managed locally. SGMA places significant responsibilities upon local agencies to organize, plan, and ultimately manage their groundwater resources to a sustainable level within a 20-year time horizon, along with fee authority to help cover costs. However, the state will intervene temporarily to protect groundwater basins when local agencies are unwilling or unable to adequately do so. Local agencies have formed groundwater sustainability agencies covering over 99 percent of the state’s high and medium priority groundwater basins. However, the major challenge for local agencies and the Department of Water Resources (DWR) remains the development and implementation of groundwater sustainability plans that serve as the foundation to achieving statewide goals and requirements under SGMA. Significant Adjustments:

•   SGMA Implementation—$61.8 million from SB 5 for DWR to support groundwater sustainability agencies through three key efforts: (1) providing technical assistance to aid in the development and evaluation of their plans, (2) supplementing existing planning grants to support a groundwater sustainability agency’s responsibility to define a path to achieve sustainable groundwater management, and (3) providing grants directly supporting implementation of groundwater projects.
•   Groundwater Treatment—$84 million from SB 5 for the State Water Board to support regional groundwater treatment and remediation activities that prevent or reduce contamination of groundwater that serves as a source of drinking water, including $10 million for technical assistance for drought and groundwater investments.
•   Multi-Benefit Flood Control Projects—$98.5 million from SB 5 for flood control projects that achieve public safety and fish and wildlife improvements, as well as funding for a new Floodplain Management, Protection and Risk Awareness Program to protect California’s alluvial fan, coastal, and riverine floodplains. This funding, along with previously appropriated Proposition 1 and 1E funds, supports an integrated systemwide approach to flood management and implementation of the Central Valley Flood Protection Plan.
•   Safe and Affordable Drinking Water Fund—Establishes a new special fund for the State Water Board to assist communities, particularly disadvantaged communities, in paying for the short-term and long-term costs of obtaining access to safe and affordable drinking water. The Administration is proposing statutory language, consistent with the policy framework of SB 623, introduced in the 2017-18 legislative session, to establish a program that provides grants, loans, and administrator contracts or services to assist eligible communities and households in securing access to safe and affordable drinking water.


The Budget proposes $4.7 million in 2018-19 for the State Water Board and the Department of Food and Agriculture to take initial steps toward implementation of this new program, including (1) developing and implementing fee collection systems, (2) conducting an assessment to estimate the level of funding needed to assist water systems in the state to ensure the delivery of safe and affordable drinking water, and (3) developing and making available a map of high-risk aquifers used as drinking water sources.

•   Safe Drinking Water Projects—$63 million from SB 5 for the State Water Board to provide grants to public water systems in disadvantaged communities for infrastructure improvements to meet safe and affordable drinking water standards, including both drinking water and wastewater treatment projects. Of this amount, $27 million is available to improve regional water supply within the San Joaquin River watershed.

Improving and Increasing Access to Local Neighborhood Parks: SB 5 includes over $1 billion for multiple programs that improve and rehabilitate local park facilities, as well as expand access to neighborhood parks. The Budget proposes $464 million to begin implementation of these local park programs, provided that voters approve the bond measure in June 2018, including:

• Safe Neighborhood Parks—$277 million to provide grants for the creation of new parks and recreation facilities, as well as the rehabilitation of existing local parks, in critically underserved communities throughout California, consistent with the Statewide Park Development and Community Revitalization Program.
• Per Capita Grants—$186 million to provide for the acquisition and development of neighborhood, community, and regional parks and recreation lands and facilities in urban and rural areas.

Natural Resources: If approved by voters in June 2018, the California Drought, Water, Parks, Climate, Coastal Protection, and Outdoor Access for All Act of 2018 (SB 5) would authorize $4 billion in general obligation bonds for California’s parks, water and flood control infrastructure, ocean and coastal protection, safe drinking water, groundwater management and climate preparedness and resiliency. The Budget proposes $1.02 billion to begin the first year of implementation should the voters approve the bond measure. Funding in 2018-19 will be prioritized to support existing programs, shovel-ready projects, and a phased-in approach for newly established programs.