Establishing a Permanent Funding Source for a Statewide Housing Trust FundMay 12, 2006Housing Opportunity Committee Taxation Committee Legislative CommitteeThe following is for study only and has NOTbeen approved by the aforementioned committees, Executive Committee or the Board of Directors.Issue: What continuous revenue source should fund a state level housing trust fund?Action: It may be appropriate to reconsider long standing C.A.R. policies on this matter at the June 2006 directors meeting.Options: 1. To support and/or sponsor a bill that would create a state level housing trust fund that would have a permanent funding source that would generate $500 million/ year or more. 2. To identify a politically acceptable ongoing revenue source of at least $500 million per year. 3. OtherStatus/Summary: Despite recent action of the California Legislature that places a $2.85 billion housing bond before the voters in November, there is significant and mounting pressure to identify an acceptable and feasible funding source for a state housing trust fund. Structural design of the trust fund will be addressed in a separate issues briefing paper should the C.A.R. directors develop NEW or REVISED policy to pay for the trust fund. The discussion has focused on the funding source more than the various housing programs that would benefit from the trust fund.More than a dozen revenue sources will be presented in this paper. For the most part, the Association has long standing policy concerning the benefit and use of those revenue sources. The direction of the paper is not to discuss and analyze in detail each and every funding source, because REALTORS® have a working knowledge of the various potential funding mechanisms.Pressure to identify an acceptable funding source is coming from almost every local and state stakeholder interested in housing. Each one of those organizations has identified a revenue source. C.A.R. is the only known interested party to block forward movement to create a state level funding source. This places C.A.R. in a quandary: while we have placed housing as a top priority we continue to be viewed as THE organization to oppose achievable revenue sources for the housing trust fund.Most every revenue source that is discussed herein will not raise sufficient revenues to adequately fund a state level housing trust fund. This would include: private grants, corporate donations, etc.
Further, many of the options would be very difficult to achieve because they would require a two-thirds vote by the states’ electorate. This would include: split roll tax, income tax increase, sales tax increase or a statewide transfer tax/fee.Discussion Identifying the revenue component of a state level housing trust fund is critical to the success of the trust fund. Sustainable and reliable stream of revenue is critical and challenging.To state that we need to identify the revenue source as “critical” to the successful outcome to create a trust fund, continues to push C.A.R. to reexamine core policy issues. C.A.R.’s failure to achieve a change in policy will be viewed as a “talking a good game” but failing to deliver.In order to move forward, it is critical to determine the revenue source. Without sufficient money, the trust fund will not be able to advance to the next level of discussions which would include how, and under what conditions, the money can be expended in communities throughout the state.There is little question that C.A.R. is being challenged from most every business group, housing advocacy organization, governmental official, and real estate related organization to present an acceptable and achievable revenue source. As one person stated to C.A.R. staff recently: “ its’ time to put up or shut up. . . and C.A.R. talks a good game about affordable housing but fails to deliver on this major issue. . .”Potential revenue sources fora state level housing trust fund that C.A.R. may wish to consider:Document Recording Fees Document recording fees for real estate related transfers or non real estate related transfers. Historic policy of C.A.R. is to OPPOSE any document recording fee/ tax not directly related to paying for the cost of the transaction. C.A.R. has consistently OPPOSED any expansion of the use of the fee if it burdens the transfer of real property. C.A.R. did not OPPOSE legislation recently to assist paying for the cost of legal investigations and prosecutions of fraudulent real estate transactions as long as the fee was not levied against any recording that required a real estate documentary transfer tax.Tax Credits: Corporate and Business Donations Whilevarious models have been developed to solicit donations from major businesses and corporations, no model can guarantee the revenue. If the model included a tax credit for employers, there would be a higher likelihood of success; the question would be if the Legislature would ever approve such a controversial plan.Private Grants While grants are typically used for specific programs or projects, foundations are limited for the purpose intended to assist housing. For that manner, one may argue that manyhave already targeted every significant foundation that could assist housing, such as the Fannie Mae Foundation.Inclusionary Housing and In Lieu Fees The fee is very popular in increasing number of cities and counties that have inclusionary zoning requirements. Endorsement of these fees could be construed to accept inclusionary zoning laws. Others argue that the requirements are existent in any case in more than 130 California cities and counties and as such, the argument against inclusionary zoningwas lost a long time ago.Sales Taxes Even though this would require a two-thirds vote of the electorate, some may question the feasibility of the increase for housing.Transfer Tax This would require an amendment to the states’ constitution and as a consequence would require a Herculean effort and would run contrary to C.A.R. long standing policy.Bonds This should not be included in the discussions on the theory that it cannot be considered as a permanent and continuing source of revenue.Split Roll Tax Enumerable research papers have been written on this matter. Suffice it to say, that while C.A.R. has consistently OPPOSED a split roll tax, the question before REALTORS® is: Should C.A.R. re-examine its’ position on split roll for the benefit of housing needs of California?Interest on Residential Security Deposits and Escrow Deposits Several years ago C.A.R. re-examined its’ position on interest on security deposits. In the final analysis, it was opined thatno change in policy was acceptable to the members of the board of directors. Is it time to explore the use of interest derived on security deposits or escrow deposits? While security deposits are being held by the landlord for the performance of specifieddamages to the property, some assert that landlords use the money during the time in which the tenant resides in lawful residence. Others argue that the interest, if any, should be used for a higher and nobler cause. Similarly, interest on escrow deposits, if any, should not be for the benefit of a specific person but for a “cause” such as a state housing trust fund.Commissions Should REALTORS® be mandated by law to contribute a specific percentage of earned commissions for the trust fund. Is this viable? If so, why? If not, why not?Income Taxes If the notion is for the trust fund to benefit many, a general tax increase is appropriate such as an increase in the marginal income tax rates, particularly for high income wage earners. This would pose to be extremely axiomatic and difficult to achieve.Mortgage Interest Federal and state law set limits on the amount of interest that may be deducted from personal incomes. Some have suggested lowering the amount of deduction for principal residences or “vacation homes”. Others claim a reduction of this nature would be the equivalent to a jihad.Title Insurance Several years ago, C.A.R. sponsored a bill that that would permit title insurers to only update titleinsurance policies and therefore would result in a substantial savings to consumers. Should C.A.R. sponsor another bill in this regard and propose to use some of the savings for the trust fund? This would be fought tooth and nail by the title industry.Mello Roos Legislation is pending this year to authorize the use of a Mello Roos District to pay for affordable housing. Should the concept be explored to place over all newly constructed subdivisions which would pay for affordable housing?Transient Occupancy Tax Should a state “TOT” be created which would require a vote of the electorate? Proceeds would be used for the state housing trust fund.If C.A.R. directors determined that no change in policy would be needed, a motion is not necessary. Re-examination of policy of one or more of the aforementioned options requires a motion.At this point in time, C.A.R. OPPOSES any tax that is or could be construed a tax on real estate. If the tax does not burden real estate in any manner, C.A.R.has not actively OPPOSED that approach. Non real estate related taxes, however, are not considered to be politically viable at this time. Similarly, statewide approval of a new taxing structure is problematic at the very least if not impossible at this time.