California’s New Budget Will Fine Cities Up To $600,000 Per Month For Not Building Enough Housing

Updated 9:58 p.m.

Gov. Gavin Newsom has reached an agreement with Democratic legislative leaders on how to incentivize local governments to build more housing — including monthly penalties for failure to comply.

The deal also includes a plan for how to split up hundreds of millions of emergency funding dollars to address the state’s homelessness crisis.

The agreement between the governor, Assembly Speaker Anthony Rendon (D-Lakewood) and Senate President pro Tem Toni Atkins (D-San Diego), which is expected to be put into print Thursday afternoon, emerges two weeks after lawmakers passed the state budget bill — and just hours before Newsom’s midnight deadline to sign it.

“Importantly, we have come to agreement on a package of housing measures, one that creates strong incentives — both sticks and carrots — to help spur housing production across this state, all while providing significant levels of funding to fight homelessness,” the three leaders said in a joint statement.

The governor also signed the main budget bill and 15 related measures known as “trailer bills” Thursday evening, although nearly a dozen other trailers either remain unsigned or still await legislative passage. As CapRadio has reported, the spending plan includes new investments in early childhood education and health care. Newsom issued a mere handful of line-item vetoes.

“We are pleased to announce that the Governor, Senate and Assembly have come to a final agreement on the 2019-2020 California budget and accompanying legislation,” Newsom, Atkins and Rendon said in their Thursday afternoon statement.

On homelessness, California’s 13 biggest cities will receive $275 million, counties will receive $175 million, and a remaining $190 million will be distributed to “continuums of care,” or regional organizations that coordinate efforts to reduce homelessness.

But it’s the plan for how to encourage — or, really, force — local governments to increase housing production that proved to be the thorniest sticking point in negotiations.

It involves a carrot and a very big stick.

The carrot: Newsom’s state Department of Housing and Community Development will designate cities and counties as “pro-housing” if they voluntarily adopt ordinances that make it easier to plan, approve or construct new projects. That will allow local governments to earn “bonus points” for existing housing-related competitive grant programs.

The stick: the state can sue a city or county for failing to comply with certain California housing requirements, and if a court rules in the state’s favor, the city or county would have a year to comply.

After a year, the court can impose fines on the city or county between $10,000 and $100,000 each month. If, after three months of fines, there’s still no compliance, the fines multiply to between $30,000 and $300,000 per month. After three additional months of noncompliance, the fines rise to $60,000 to $600,000 per month.

If the city or county refuses to pay the fines, the state controller's office can “intercept” funds that would otherwise be delivered to that jurisdiction — but only from monies that are not constitutionally protected. 

An “agent of the court” could also be installed to force cities to bring their housing plans into compliance.

The agreement drew praise from backers of efforts to build more housing.

“We’re at a point in this crisis where we need more than just carrots,” said San Jose Mayor Sam Liccardo. “We need sticks, because the only way housing is going to get built in this state is if cities and towns allow it to get built.”

Sen. Scott Wiener (D-San Francisco) says he backs the agreement because it “puts teeth into existing law,” but warns it’s not nearly enough to solve California’s housing crisis.

“This is not a substitute for legislation to reform zoning and to streamline approvals and to get those 3.5 million homes that we need built,” he said.

But the legislation is expected to draw strong opposition from some cities, counties and state lawmakers.

“We find the new penalties on local governments already struggling to add housing and address homelessness concerning,” the California State Association of Counties said in a statement Thursday afternoon. “Nonetheless, California’s 58 counties stand ready and committed to meet this challenge.”

Liccardo also praised the homelessness funding in the agreement “that cities can nimbly put to work to immediately address this homelessness crisis.”

He said his city is planning several uses for its money, including new communities of “tiny homes” and buying a motel to convert into affordable apartments.

“This is a much more cost-effective way for us to build affordable housing for the homeless,” Liccardo said. “We can do it at about a third of the cost of a new apartment building, as we’ve tried this on two other occasions quite successfully.”

The housing and homelessness agreements are part of the state budget package, contained in what’s known as a “trailer bill.” That measure is expected to come up for votes in the Senate and Assembly next week.