Capitol Alert

Newsom rejects California housing bill that would have raised billions for projects

Gov. Gavin Newsom announced on Sunday that he’d vetoed a bill to authorize up to $2 billion in annual state funding for affordable housing projects in California.

Days before he vetoed Senate Bill 5, Newsom indicated he wasn’t likely to sign off on expensive measures due to the budget’s financial limitations.

“The one thing that concerns me and should concern everybody is our ability to balance the books, balance the budget,” Newsom said to reporters last week. “There are a lot of things I want to do but there are certain fiscal constraints that preclude us from doing it. So I think you will see a number of bills where I wish we were in a position to support those bills, but the economic conditions do not necessarily support those bills. Those are the toughest ones for me.”

Newsom reiterated his fiscal worries in his veto message, saying “Legislation with such a significant fiscal impact needs to be part of budget deliberations so that it can be considered in light of other priorities.”

The legislation would have, for the next 30 years, shifted millions of dollars from local property tax revenues to pay for a variety of affordable housing projects. Local jurisdictions would have applied for the funding, to be used for initiatives like transit-oriented development and infrastructure planning.

A statewide committee would then have reviewed the applications through a rubric that considered the number and type of units the project promised, with a third of the proposed units required to meet “affordable” criteria.

The law would have kicked off with a $200 million investment in 2021, to be increased gradually to reach an eventual annual cost of $2 billion by 2029. The fund would then have to backfill any money that schools would otherwise have received.

During a recession or economic slowdown, when the state would have to dip into the so-called “Rainy Day” account, the Legislature could have suspended the funds.

Republicans routinely voted against the bill, and a handful of teachers organizations opposed the measure and characterized it as a threat to education money across the state.

“Should California face another recession, this measure would harm schools by leaving them fiscally vulnerable to jeopardizing the most stable source of revenue they would receive should Proposition 98 be suspended,” the California Teachers Association wrote, referencing the statewide formula that sets aside state money for schools and community colleges.

State Sen. Jim Beall, a San Jose Democrat and author of SB 5, said the legislation would have added financial urgency to the state’s housing crisis.

“No other piece of legislation signed by the governor provides the expediency of SB 5 to get construction started and people into homes they can afford,” Beall said. “Zoning and streamlining alone will not result in any meaningful affordable housing production because local governments are left without a partner to support housing construction. Vetoing SB 5 kicks the can down the road and leaves local governments with fewer options and more burden to shelter residents.”

Beall and SB 5’s backers further argued that the bill would have unlocked much-needed money, construction jobs and economic opportunities for communities ⁠— and specifically near-homeless, poor families ⁠— that are on the front lines of the housing crisis and desperate for solutions.

California faces an estimated 3.5 million housing unit shortage, with 1.5 million needed for the state’s lowest income residents. Newsom signed a $215 billion budget in June, with $1.75 billion allocated to increase housing supply.

In the budget, $750 million in one-time funding was sectioned off to speed up housing production, and another $250 million was provided for local governments to plan and improve housing goals for their region.

SB 5 was supported by a vast network of mayors, cities, labor leaders and the League of California Cities.

“Though we are disappointed, we are not giving up,” said the league’s executive director, Carolyn Coleman. “We will continue to work with Governor Newsom, the Legislature, and the broad coalition of labor, local government, business, housing and other advocates on a bill next year that will provide sustainable funding to increase the supply of affordable housing.”

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Hannah Wiley joined The Bee as a legislative reporter in 2019. She produces the morning newsletter for Capitol Alert and previously reported on immigration, education and criminal justice. She’s a Chicago-area native and a graduate of Saint Louis University and Northwestern.
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