With one act next week, an obscure state panel could make nearly $2 billion available to finance and fund affordable housing projects around the state.
Or it could choose to leave that money on the table and instead enable a Canadian corporation to issue tax-free bonds to finance a controversial, economically unjust, and environmentally damaging desalination plant in Orange County.
Before that panel acts, Californians must scrutinize what is being considered
The companies that are awarded allocations receive a substantial benefit – the ability to finance their projects at low interest rates.
This year, federal tax law allows California to allocate $4.4 billion in financing instruments known as private activity bonds. These bonds are attractive to investors because even though they are issued by private entities, the interest earned on those bonds is tax-free, just like those issued by government agencies to build highways and schools.
The allocations are awarded by the California Debt Limit Allocation Committee, which consists of State Treasurer Fiona Ma, State Controller Betty Yee, and Governor Newsom’s Department of Finance director.
The companies that are awarded allocations receive a substantial benefit – the ability to finance their projects at low interest rates. Investors accept lower returns because they don’t have to pay taxes on that income.
These bonds are an essential tool in financing affordable housing. Only by receiving below-market financing can developers build projects that offer below-market rents. Without such incentives, affordable housing cannot be built.
Affordable housing developers could find themselves in competition with a well-connected, foreign private equity giant with $650 billion in global assets
Given California’s crushing housing crisis and out-of-control housing costs, the allocation process ought to be a no-brainer. Requests for allocations far exceed the amount available, so the highest priority must be for affordable housing.
And yet affordable housing developers could find themselves in competition with a well-connected, foreign private equity giant with $650 billion in global assets that is seeking taxpayer-subsidized financing for the unjust and unnecessary Brookfield-Poseidon desalination project in Huntington Beach.
Brookfield-Poseidon wants the committee to allocate a quarter of the amount available – $1.1 billion – to fund its destructive and costly plant instead of affordable housing. A separate state agency has already given Brookfield-Poseidon preliminary approval, should the state committee act in their favor.
However, if the $1.1 billion were to be allocated for affordable housing, it would trigger about $880 million in federal tax credits that would become available to affordable housing developers with granted authority to issue private activity bonds.
By choosing to apportion that $1.1 billion for housing, the committee could double-up on California’s new investments in affordable housing
Thus, if these allocations were to be diverted away from housing, California would surrender $1.98 billion in low-cost financing and funding for affordable housing. This figure is nearly the exact amount that Gov. Newsom has proposed that California spend in new grants and tax credits next year to spur affordable housing construction.
In other words, by choosing to apportion that $1.1 billion for housing, the committee could double-up on California’s new investments in affordable housing in the coming year.
We know that water is an issue of the utmost importance, but no good case can be made for diverting taxpayer money to the private for-profit desalination project. The plant has been deemed the least cost-effective and most financially risky of all water supply alternatives in Orange County. The likely water rate increases would hurt low-income families and small businesses without water reliability or quality benefits.
It’s not just about the questionable merits of the plant: not a single local water agency has said it would buy the expensive water the plant would produce, and there are serious environmental concerns about the ocean and marine life impacts from substandard technology and toxic, polluting emissions like fossil fuels, boron, and chlorides.
It also is a question of just how much the public ought to subsidize a $650 billion private equity company to benefit its own investors. It has already been approved to receive a $585 million low-interest loan from the Trump administration and seeks a $400 million subsidy from the Metropolitan Water District of Southern California.
In this case, Brookfield-Poseidon should be told to step away from the trough. California urgently needs affordable housing, not dangerous desalination plants, and that’s where this taxpayer-subsidized funding must be directed.
Editor’s Note: Oscar Rodriguez is the cofounder of Oak View ComUNIDAD, a community based organization focusing on educating, advocating and empowering residents in the Oak View neighborhood in Huntington Beach. Garry Brown founded the Orange County Coastkeeper 23 years ago. Coastkeeper conducts extensive education programs, advocacy, marine restoration projects, and enforces clean water laws.