HBA-JEK S.B. 322 77(R) BILL ANALYSIS Office of House Bill AnalysisS.B. 322 By: Lucio Urban Affairs 5/14/2001 Engrossed BACKGROUND AND PURPOSE The Texas Department of Housing and Community Affairs (TDHCA) works to ensure affordable housing for low-income families, promote community development and assistance, and regulate the state's manufactured housing industry. The 72nd Legislature created TDHCA in 1991 by merging the Texas Department of Community Affairs, the Texas Housing Agency, and the Department of Commerce's Community Development Block Grant Program. TDHCA allocates and awards funds to for-profit and nonprofit organizations, local governments, lenders, and developers to assist low income individuals and families in obtaining affordable housing. TDHCA also provides funding for services designed to fund neighborhood infrastructures, address poverty, repair and weatherize homes, and assist very low income individuals in paying their utility bills. TDHCA is subject to the Texas Sunset Act and will be abolished on September 1, 2001 unless continued by the legislature. In its review of TDHCA, the Sunset Advisory Commission found that while TDHCA is funding affordable housing and assisting many communities, problems exist in TDHCA's ability to allocate resources to meet the state's most pressing housing needs. Senate Bill 322 continues TDHCA for a two-year probationary period and contains the Sunset Advisory Commission's recommendations to better position TDHCA to address the state's housing and community support services needs. RULEMAKING AUTHORITY It is the opinion of the Office of House Bill Analysis that rulemaking authority is expressly delegated to the governing board of the Texas Department of Housing and Community Affairs in SECTION 1.05 (Section 2306.032, Government Code), SECTION 1.06 (Section 2306.0321, Government Code), SECTION 1.08 (Section 2306.052, Government Code), SECTION 1.17 (Section 2306.1113, Government Code), SECTION 2.02 (Section 2306.142, Government Code), and SECTION 8.01 (Section 2306.6721, Government Code); to the Texas Department of Housing and Community Affairs in SECTION 1.16 (Sections 2306.111, Government Code), SECTION 1.19 (Section 2306.1711, Government Code), SECTION 1.20 (Section 2306.252, Government Code), SECTION 1.21 (Section 2306.257, Government Code), SECTION 1.27 (Section 2306.6741, Government Code), SECTION 2.02 (Section 2306.142, Government Code), SECTION 4.02 (Section 2306.0724, Government Code), SECTION 6.07 (Section 2306.755, Government Code), SECTION 6.10 (Sections 2306.785 and 2306.786, Government Code), and SECTION 8.01 (Section 2306.6704, Government Code); to the Manufactured Housing Board in SECTION 1.26 (Sections 2306.6010, 2306.6020, and 2306.6023, Government Code) and SECTION 1.33 (Section 7, Article 5221f, V.T.C.S.); and to the executive committee of the Office of Rural Community Affairs in SECTION 1.29 (Section 487.052, Government Code) of this bill. ANALYSIS Senate Bill 322 amends the Government Code to continue the Texas Department of Housing and Community Affairs (TDHCA) until September 1, 2003 (SECTION 1.03, Sec. 2306.022, Government Code), and to set forth standard Sunset Advisory Commission recommendations regarding appointments to the governing board of TDHCA (board), public representation on the board, conflicts of interest, board member training, board member removal, designation of a presiding officer of the board by the governor, standards of conduct, the state employee incentive program, the maintaining of written complaints, and policy implementation by the board (SECTION 1.03, Secs. 2306.027, 2306.028, and 2306.0332306.035; SECTION 1.04, Sec. 2306.030; SECTION 1.07, Sec. 2306.051; SECTION 1.09, Secs. 2306.061 and 2306.0631; and SECTION 1.10, Sec. 2306.066, Government Code). Governing Board S.B. 322 restructures the board to include seven rather than nine members with a demonstrated interest in housing and community support services issues who broadly reflect the economic, cultural, and social diversity of the state (SECTION 1.03, Secs. 2306.024 and 2306.027). The bill streamlines the process by which the executive director of TDHCA (director) is authorized to create divisions with the approval of the board to increase the organizational flexibility of TDHCA (SECTION 1.07, Sec. 2306.0521). Public Hearing and Input S.B. 322 provides that all materials in the possession of TDHCA that are relevant to any matter proposed for discussion at a board meeting must be made available to the public at least seven days before the meeting, and sets forth provisions regarding the agenda for board meetings. The bill requires TDHCA to develop and implement rules to give the public a reasonable amount of time for testimony at board meetings (SECTION 1.05, Sec. 2306.032). The bill also requires the board to adopt rules outlining a formal process to appeal board decisions and specifies what requirements the rules must include (SECTION 1.06, Sec. 2306.0321). The bill requires TDHCA to consolidate its public hearings into a single public hearing process to provide for a hearing on specified TDHCA programs and the state low income housing plan in each uniform service region of the state on at least an annual basis (SECTION 1.11, Sec. 2306.0661 and SECTION 1.15, Sec. 2306.0723). S.B. 322 requires TDHCA to adopt rules that outline formal rulemaking procedures for the low income housing tax credit program and the multifamily housing mortgage revenue bond program, and specifies that the rules adopted must include procedures for interested parties to petition TDHCA regarding rules, notice requirements and deadlines for taking certain actions, and a provision for a public hearing. TDHCA is required to provide for public input before adopting rules for programs with requests for proposals and notices of funding availability (SECTION 1.19, Sec. 2306.1711). The bill prohibits the board from approving a mortgage lender that requires mandatory arbitration for home loans (SECTION 1.18, Sec. 2306.149). The bill requires the board to adopt rules and the director to develop and implement a program to train employees about public information requirements (SECTION 1.08, Sec. 2306.052). Strategic Planning S.B. 322 modifies the process by which TDHCA must develop a strategic plan to provide that the plan must assess and meet affordable housing and community support services needs for populations in each uniform state service region (service region), and requires TDHCA to employ or contract with a regional development coordinator (coordinator) to address affordable housing and community development. The bill sets forth the primary responsibilities of a coordinator (SECTION 1.13, Sec. 2306.0721; SECTION 1.14, Sec. 2306.0722; and SECTION 5.01, Sec. 2306.079). The bill requires TDHCA to use the strategic plan to allocate funds to meet regional housing needs and community service priorities, and establishes funding priorities for each service region according to specified guidelines. The bill also requires TDHCA by rule to adopt a policy providing for the reallocation of financial assistance administered by TDHCA if TDHCA's obligation with respect to that assistance is prematurely terminated (SECTION 1.16, Sec. 2306.111). The bill requires TDHCA to create a uniform application and funding cycle for multifamily housing programs to support projects that meet established needs, and requires TDHCA to establish an executive award and review advisory committee to make funding allocation decisions. The bill prohibits certain persons including an applicant or a related party as defined by board rule from communicating with a member of the board outside of a public hearing during the period between the date a project application is filed and the date of the final board decision with respect to any approval of that application (SECTION 1.17, Secs. 2306.1111-2306.1113). S.B. 322 adds outreach, educational, assistance, clearinghouse, and governmental affairs duties to the services TDHCA is required to provide through the housing resource center. The bill requires TDHCA through the center to adopt rules that are necessary and proper to carry out programs and responsibilities assigned by the legislature or the governor (SECTION 1.20, Sec. 2306.252). The bill requires the director to appoint a database information specialist to provide for the effective and efficient dissemination to the public of information regarding affordable housing and community development (SECTION 5.01, Sec. 2306.080). Multifamily Housing Finance S.B. 322 authorizes a qualified nonprofit organization to compete in any low income housing tax credit allocation pool. The bill requires TDHCA to establish policies and procedures no later than November 1, 2001 to support the preservation of multifamily low income housing (SECTION 1.27, Sec. 2306.6761; SECTION 3.02, Sec. 2306.185; and SECTION 3.07). The bill deletes the requirement that 50 percent of the funds from federal 501(c)(3) bonds be allocated for new construction (SECTION 1.22, Sec. 2306.358). S.B. 322 requires TDHCA to establish two classes of priorities of developments to preserve multifamily housing. The bill requires TDHCA to establish and administer a housing preservation incentives program to provide incentives through loan guarantees, loans, and grants for the acquisition and rehabilitation of priority multifamily housing developments (SECTION 3.05, Secs. 2306.802 and 2306.805). The bill authorizes property owners disposing of certain multifamily housing developments to do so only after providing notice by mail of the owner's intent to the residents of the development and TDHCA. The bill also prohibits certain property owners from selling, leasing, or otherwise disposing of a multifamily housing development or taking any other action that causes the disruption or discontinuance of the development's federal insurance or assistance or the provision of low-income housing assistance to the development's residents (SECTION 3.06, Secs. 2306.852 and 2306.853). Fair Housing and Housing Preservation S.B. 322 requires TDHCA to develop and implement the affordable housing preservation program to preserve affordable housing in this state (SECTION 1.21, Sec. 2306.256). The bill requires TDHCA to support the preservation of affordable housing for individuals with special needs and individuals or families of low income (SECTION 3.01, Sec. 2306.008). The bill authorizes TDHCA to use any available revenue to provide loans and grants under the affordable housing preservation program (SECTION 3.03, Sec. 2306.2561). S.B. 322 authorizes TDHCA to provide assistance through a housing program only to an applicant who certifies the applicant's compliance with federal anti-discrimination laws. The bill requires TDHCA to adopt rules governing the certification process (SECTION 1.21, Sec. 2306.257). The bill requires TDHCA to by rule adopt a policy to identify reasonable Section 8 admittance policies for low income housing tax credit properties and to establish monitoring and enforcement policies relating to the refusal of such properties to admit tenants with Section 8 vouchers (SECTION 1.27, Sec. 2306.6741; and SECTION 3.04, Sec. 2306.269). S.B. 322 requires TDHCA to require the owner of each housing development that receives financial assistance from TDHCA and that contains 20 or more living units to submit an annual fair housing sponsor report, and requires TDHCA to adopt rules regarding the procedure for filing a report (SECTION 4.02, Sec. 2306.0724). The bill also requires TDHCA to establish a system that requires owners of state or federally assisted housing developments with 20 or more housing units to report information regarding housing units designed for persons with disabilities and to make such information available to the public (SECTION 4.04, Sec. 2306.078). Colonias S.B. 322 requires the board rather than TDHCA to appoint a colonia resident advisory committee (committee) to advise the board regarding colonia matters. The bill requires the board to establish a colonia initiatives advisory committee (initiatives committee) to solicit and review public comments regarding the needs of colonia residents and to make recommendations to the board regarding colonia programs. The bill also requires the board to appoint and oversee the initiatives committee, and sets forth the composition of the initiatives committee. The bill requires TDHCA to prepare a biennial action plan addressing policy goals for colonia programs, strategies to meet the policy goals, and the projected outcomes with respect to those policy goals. The bill requires the Office of Rural Community Affairs to enter into an interagency agreement with TDHCA to reimburse TDHCA for providing on behalf of the office oversight, management, and any other services on the portion of the federal community development block grant funds allocated for colonia self-help centers (SECTION 1.24, Secs. 2306.584, 2306.585, 2306.590, and 2306.591; and SECTION 1.30, Sec. 487.1021). The bill authorizes a colonia resident to apply for any TDHCA direct loan or grant program through a self-help center, and authorizes TDHCA to contribute money to the colonia set-aside fund from any available source of revenue that TDHCA considers appropriate other than federal block grant money not specifically appropriated by the legislature for that purpose to implement the purposes of the self-help centers (SECTION 6.02, Sec. 2306.586; and SECTION 6.04, Sec. 2306.589). S.B. 322 requires TDHCA to establish the colonia model subdivision program to promote the development of new, high-quality residential subdivisions that provide alternatives to substandard colonias and affordable housing options for persons who would otherwise move into colonias. The bill requires TDHCA to establish a colonia model subdivision revolving loan fund. The bill authorizes TDHCA until August 31, 2010 to transfer money into the fund from any available source of revenue and prohibits TDHCA until August 31, 2010 from using more than $2 million each state fiscal year from the set-aside for colonias to provide loans under the colonia model subdivision program. The bill sets forth authorized uses and terms of a loan made under the colonia model subdivision program. The bill requires TDHCA to adopt rules for administering the colonia model subdivision program (SECTION 6.10, Secs. 2306.782, 2306.783, 2306.785, and 2306.786). The bill amends the Tax Code to specify which organizations are entitled to an exemption from taxation of unimproved real property, buildings, or tangible real property under the colonia model subdivision program (SECTION 6.11, Sec. 11.184). Office of Rural Community Affairs S.B. 322 amends the Government Code to create the Office of Rural Community Affairs (office) to administer the state's allocation of federal funds from the community development block grant program and to promote economic development and the general welfare of rural communities. The bill sets forth provisions regarding the composition and terms of the executive committee that is the governing body of the office (SECTION 1.29, Secs. 487.021-487.030, and 487.051-487.054; and SECTION 1.30, Secs. 487.101-487.103). The bill sets forth standard Sunset Advisory Commission recommendations for the office regarding equal employment, conflicts of interest, executive committee member training, executive committee member removal, policy implementation by the executive committee, public testimony, the development of an equal employment policy, standards of conduct, and the maintaining of written complaints (SECTION 1.29, Secs. 487.022-487.025 and 487.027-487.030). The bill authorizes the executive committee of the office to adopt rules as necessary to implement the duties of the office (SECTION 1.29, Sec. 487.052). Manufactured Housing Board S.B. 322 amends the Government Code and the Texas Manufactured Housing Standards Act to establish the Manufactured Housing Board (housing board) as an independent entity within TDHCA that is administratively attached to TDHCA. The bill sets forth provisions for the composition, terms of membership, and reimbursement of members of the housing board as well as the sharing of housing board and TDHCA personnel, equipment, and facilities. The bill also sets forth standard Sunset Advisory Commission recommendations regarding policy implementation by the housing board, public representation on the housing board, the designation of a presiding officer of the housing board by the governor, conflicts of interest, the maintaining of written complaints, housing board member training, housing board member removal, standards of conduct, public testimony, the state employee incentive program, equal employment, and the development of an equal employment policy. S.B. 322 requires reasonable notice of all housing board meetings to be given as prescribed by housing board rule. The bill requires the legislature to separately appropriate money to the housing board within the appropriations to TDHCA, and authorizes the housing board to accept gifts and grants of money or property. The bill requires the housing board to employ a division director. The bill requires the housing board rather than the director to adopt rules to administer and enforce the manufactured housing program, and rules relating to the administrative sanctions that may be enforced against a person regulated by the manufactured housing division of TDHCA, rules to adopt a system under which manufactured housing licenses expire on various dates during the year, and other rules necessary to enforce housing board provisions. The bill also prohibits the housing board from adopting rules that restrict competitive bidding or advertising, restrict the use of a trade name in advertising, and restrict or relate to specified advertising practices. The bill sets forth provisions relating to the expiration and renewal of a manufactured housing license, and provisions authorizing the housing board to contract with nonprofit and educational entities to conduct continuing education programs for license holders. The bill authorizes the housing board to issue a provisional license to a manufacturer, retailer, broker, salesperson, rebuilder, or installer of manufactured housing who has been licensed and in good standing in another jurisdiction for at least two years (SECTION 1.26, Secs. 2306.6001-2306.6023, Government Code; and SECTIONS 1.35 and 1.36, Art. 5221f, V.T.C.S.). Bonds S.B. 322 amends the Government Code to require TDHCA if authorized by the board to issue singlefamily mortgage revenue bonds to make home mortgage credit available to economic and geographic submarkets of borrowers who are substantially underserved. The bill requires the board by rule to adopt a methodology for determining through a market study reviewed by the Bond Review Board of the home mortgage credit needs in underserved economic and geographic submarkets in the state. Subject to the identification of a satisfactory market volume demand through the market study, the bill requires TDHCA to allocate not less than 40 percent of the total single-family mortgage revenue bond loan volume to meet the credit needs of borrowers in underserved economic and geographic submarkets in each state fiscal year beginning on September 1, 2002 (SECTION 2.02, Sec. 2306.142). The bill sets forth provisions for an alternative to the United States Department of Housing and Urban Development subprime lender list (SECTION 2.03, Sec. 2306.143). The bill modifies provisions regarding who has priority for reservations of the state ceiling among issuers of qualified residential rental project issues (SECTION 7.06, Sec. 1372.0321). Loans S.B. 322 deletes the provision that an owner-builder must reside with at least two other persons related to the owner-builder to be eligible for an owner-builder loan (SECTION 6.05, Sec. 2306.753). The bill increases the maximum amount of an owner-builder loan from $25,000 to $30,000 (SECTION 6.06, Sec. 2306.754). The bill requires TDHCA by rule to adopt procedures for the certification of nonprofit ownerbuilder housing programs, and prohibits TDHCA from using more than 10 percent of the revenue available for owner-builder loans to enhance the ability of tax-exempt organizations to implement the purposes of the owner-builder loan program (SECTION 6.07, Sec. 2306.755; and SECTION 6.08, Sec. 2306.758). The bill requires TDHCA to establish an owner-builder revolving loan fund in TDHCA for the sole purpose of funding owner-builder loans, and requires TDHCA to transfer to the fund each state fiscal year until August 31, 2010 at least $3 million from money received under the Cranston-Gonzalez National Affordable Housing Act (HOME) from the housing trust fund, or from appropriations to TDHCA (SECTION 6.09, Sec. 2306.7581). Low Income Housing Tax Credit Program S.B. 322 sets forth provisions regarding the low-income housing tax credit program, including eligibility requirements, the application process, application fees, the application log, the evaluation of applications, the allocation of housing tax credits, the appeal of a TDHCA decision, public information and hearings, and housing tax credit and ownership transfers (SECTION 8.01, Secs. 2306.6701-2306.6713, and 2306.6715-2306.6717). The bill modifies provisions regarding the scoring of applications and changes deadlines for the allocation of low income housing tax credits (SECTION 8.01, Secs. 2306.6725 and 2306.6726). The bill requires a person who receives an allocation of housing tax credits to attempt to ensure that at least 30 percent of the construction and management businesses with which the person contracts in connection with the development are minority-owned businesses and sets forth related reporting requirements (SECTION 8.01, Sec. 2306.6791). S.B. 322 requires TDHCA to set aside for at-risk developments not less than 15 percent of the housing tax credits available for allocation in the calendar year (SECTION 8.01, Sec. 2306.6714). The bill requires the board by rule to adopt a policy providing for the debarment of a person from participation in the low income housing tax credit program. The bill prohibits TDHCA from excluding individuals or families from admission to a development supported with a housing tax credit allocation because the individual or family receives Section 8 assistance, and requires any development supported with a housing tax credit allocation to comply with the accessibility standards required under the federal Rehabilitation Act of 1973. The bill requires TDHCA to jointly administer set-asides for rural areas with the rural development agency, and specifies that this provision applies only to a development for which an application for an allocation for low income housing tax credits is received by TDHCA on or after August 10, 1993 (SECTION 8.01, Secs. 2306.6721-2306.6724; and SECTION 8.02). The bill sets forth provisions regarding conflicts of interest that prohibit certain actions regarding the lowincome housing tax credit program by former board members, directors, deputy directors, directors of housing programs, and low income housing tax credit program managers employed by TDHCA before the second anniversary of the date the person's service in office or employment ceases (SECTION 8.01, Sec. 2306.6782). State Ceiling S.B. 322 sets forth provisions for allocation of the state ceiling before August 15 of each year if the state ceiling is computed on the basis of $75 per capita or a greater amount, increasing to 23 percent the portion of the state ceiling that is available for reservations by issuers of qualified residential rental project bonds (SECTION 7.01, Sec. 1372.022). The bill sets forth provisions regarding the portion of the state ceiling available for issuers of qualified residential rental project bonds until August 15, and requires the board to grant reservations so that not more than 50 percent of the set-aside amount for TDHCA is used for proposed projects located in qualified census tracts. The bill requires the board before June 1 to apportion the amount of state ceiling set aside for housing finance corporations among the uniform state service regions according to the percentage of the state's population that resides in each of those regions (SECTION 7.02, Sec. 1372.0231). S.B. 322 modifies provisions regarding the maximum amount of the state ceiling that may be reserved before August 15 by a housing finance corporation for the issuance of qualified mortgage bonds and sets forth provisions relating to the failure of a housing finance corporation to utilize an allocated amount of the state ceiling (SECTION 7.03, Sec. 1372.026; and SECTION 7.04, Sec. 1372.0261). S.B. 322 requires an issuer of a private activity bond with a 120-day or 180-day period that expires on or after December 24 of the year in which the state ceiling reservation was granted to close on the bonds before December 24 except that the issuer may notify the Bond Review Board in writing before December 24 of the issuer's election to carry forward the reservation if the applicable period expires after December 31 of that year (SECTION 7.08, Sec. 1372.042). Repealers S.B. 322 repeals provisions regarding places on the board, the separation of the duties of the housing finance division from community affairs division and other divisions, the duties of TDHCA through the community affairs division, and the authority of the director to assign functions and duties to the various offices and divisions, to provide for additional offices, and to reorganize TDHCA when necessary to improve efficiency or effectiveness (SECTION 1.43). The bill also repeals the September 1, 2001 expiration date of the owner-builder loan program (SECTION 6.13). EFFECTIVE DATE September 1, 2001.