California Building Industry Association’s Avowed ’96 Legislative Agenda

Tim, share with our readers an overview of the CBIA's legislative agenda. What are you trying to accomplish in this rather chaotic Assembly and Senate session? 

This is CBIA's most ambitious legislative agenda, ever. The difficulties that the home-building industry has experienced over the last six years have intensified to the point where we are well under the normal levels of housing production. We continue to face out-of-control costs that make it very difficult to market our homes. 

In identifying the source of our problems within existing law and how the law is carried out at the local level, one issue characterizes our agenda better than any other—cost.

In California, we have the highest housing cost in the nation and consequently the lowest home-ownership rate. In some communities, local regulations and exactions can add $40,000 or more to the price of a single-family home.

After examining national studies about the impacts of additional costs to the homebuyer, it is evident that even a small amount of money added to the price of a moderately-priced home can preclude home ownership. This is especially true for first-time home buyers for whom the upfront cash down payment poses a persistent and difficult obstacle to ownership.

The National Association of Home Builders reported that for every $1,000 of exactions added to the price of a $125,000 home, the added cost shuts out anywhere from 10,000 to 20,000 homebuyers. The most difficult, or persistent barrier to a family attempting to buy their first home is the cash requirement—the upfront down payment requirement. That $1,000 that might be added for some well-intended local activity or objective may not look like much, but it clearly affects the affordability of the housing. We are attempting this year to help reduce some of those costs.

How? Please amplify on the legislative strategy.

I’ll put our legislative agenda into four categories.

First is litigation. Dispute resolution processes must be controlled so as not to affect the production of housing or the supply of affordable housing, particularly in the high-cost markets.

The second area has to do with schools, and the need to meet an overwhelming demand for newly-constructed classrooms. In many districts, the burden of financing the construction of those classrooms has fallen entirely on home builders, and ultimately the first-time home buyer. 

The third area addresses the influence that environmental and endangered species policies have on housing production. We think the process has gotten a little ahead of practicality. Modest legislative proposals have been designed to eliminate some duplication in the permitting process so that environmental permits are expedited with a minimum of time and cost. 

The fourth area is local fiscal issues that are affecting the permission that we seek at the local level to get housing, single family homes and multi-family homes, built. 

With respect to construction dispute litigation, elaborate on the proposed bills. 

Every member of this association—all 5,000 of them—believe that they are going to prosper and succeed if they build quality homes. Although this may not always happen, it remains in the business interest of every home builder in the state—because they are interested in staying in business—to apply care to the construction of each home built. 

However, what we have seen is an explosion of lawsuits, particularly in markets where there is a high preponderance of attached housing, (multi-family-style housing). The current system for resolving construction disputes is titled more in favor of abuse over the equity, fairness and business interests of all; including affordable housing interests. In Southern California, this has resulted in a virtual halt to construction of any attached, typical condominium-style housing, for which builders have become wary of the litigation and have difficulty obtaining insurance. 

Builders and insurers have seen litigation costs explode. There were over 150 construction dispute cases pending last year in San Diego County alone. According to a legal trade journal, settlements and judgments involving construction disputes exceeded $75 million in the first three months of 1996. These litigation numbers are intimidating to both home builders and insurers. As you know, homebuilders are partners with lenders and insurance companies. Insurance companies have virtually left the marketplace of attached housing subsequent to the increase in riders and disclaimers in policies which prohibit coverage for attached housing. 

We are attempting, with seven construction dispute resolution bills, to establish a fair process in which a bona fide dispute can be identified and in which there are clear and consistent "rules of the game" to equitably resolve these disputes. 

Tim, address for our readers the BIA's agenda for school facilities financing proposals. Since the L.A. Unified just raised their school fees, who should bear the burden of financing new schools in light of Prop. 13? 

That is the $41 billion question. 

Notwithstanding Proposition 13, there are sources of funding available for new school construction today that are not being used, so that, by negligent default, school districts in need of capital improvements and new facilities are passing the entire cost onto the home builders. 

Today, we encounter too few instances where the old idea of the so-called three legged stool applies; where there is a shared burden distributed among state government, local school bonds, and private sector contributions—through developer fees. 

Instead, school fees—as high as $20,000 per home—is driving prices out of the reach of an increasing number of potential homeowners. The response has been growing among those who you would not expect to be concerned about this issue, because they see jobs and the supply of affordable housing being threatened. They also know that if this imbalance in financing of new public schools continues, the schools don’t get built. For example, a housing project cannot go forward because the price necessary to cover all these new expenses, including new schools, cannot be borne by the market or by the buyers that are out looking for an affordable home. A fair system will promote more schools being built around the state where a $17 billion backlog for new schools exists. 

We believe in the old standard of the three legged stool—the shared burden of financing new construction—is not being met in too many districts. Therefore, we are pursuing legislation this year that will limit the amount of funding that a private builder, and ultimately a private home buyer, will be required to provide to finance new school construction, as well as providing incentives for engaging local participants. 

We are pursuing three bills in this area: AB 3174, AB 375 and AB 3176. All of these bills passed the Assembly with strong bipartisan support and are presently in the State Senate. 

Let's draw on your organizations expertise. If the amount the home builder—the private sector—contributes to school construction financing is limited, and with no change in the taxing structure/capacity of the state, and with local government strapped for funds, how will the needed schools be built to support the growth that you would like to see in home construction? 

I would almost want to encourage you to ask that question of local school districts and the state government. The question becomes pejorative, implying that unless the home builders bear this burden, this critical public infrastructure cannot be built.

All I can do is fall back on the legislative history in 1986, during which there was this debate: How are we going to meet the public school needs of our citizens? The 1986 Law stated that they will be met through a combination of state, local, and private funding; and the private funding will be capped. 

But, ask the Santa Ana City Council how it is going to meet its exploding school population needs. How will their new campuses be built, in a city that has minimal room for more detached single family homes? You cannot build single family, for the most part, in Santa Ana. Yet, the school population is exploding. Is that a home builder's responsibility? No, that's a public responsibility. Schools are public infrastructure. 

I am not sure I can answer your question in the way that I think you might want me to, which makes it a bit of a rhetorical question. Where will the school children go, if the home builders don't provide the capital for these new homes? My response is: where do the children go in Santa Ana, where there is no home building? Or, where do the children go, when homes can't be built anymore in markets where the demand for the housing is at prices at much lower than what has to be changed, to cover the cost of school fees. 

Arguably, protecting the builders' interests, which are very legitimate, won't get the job done unless they take on the fundamental problem of financing school construction adequately. How does anyone take on, in light of the angst voters have about how government spends money, the fundamental problem of rethinking the financing structure of education in California? 

Eventually this leads back to a question of politics and its relations to the fiscal problems in our communities and our school districts. Right now, according to the latest reports, the numbers are absolutely staggering: There is $40 to 50 billion available today in local bonding capacity to build public schools. 

Let's move to the initiatives BIA is putting forward about local government finance reform and returning revenues back to cities. What's the status of those efforts in the legislature, in light of short falls in the state budget? And what's the promise of Constitution Revision Committee getting through this.

Two weeks ago, something memorable happened regarding this school facilities debate on the floor of the Assembly. We had Democrats and Republicans standing up and saying, "It's broke. Something here is very, very wrong. We've got to at least get together—Republicans and Democrats, school district supervisors and others—and fix this problem." 

The work that Bill Hauck has done on the Constitution Revision Committee will possibly lead to the same kind of revelation among the legislators. Ultimately, a great deal of political courage—that is sometimes hard to come by—will be summoned to address the issues implicit in your question. 

Obviously, there are people who are going to make reasonable or good arguments that government, state, local and federal, bloated and needs to become more efficient. We would support efforts aimed in that direction. At the same time, we cannot cut off the supply of funding, that which provides for social services and financing infrastructure needs of our local communities, without it having immediate, and in most cases, negative, consequences. 

In a TPR interview a few months ago, Doug Gardner of Maguire Thomas, identified CEQA as one of the most cumbersome stumbling blocks to development. What reforms are you and your organization attempting to make in CEQA? 

We have a bill pending that may be characterized as a modest reform, but accomplishes what Maguire Thomas is interested in. 

The bill would say that if a developer has been approved for a multiple-species plan permit, then the developer should not have to go through a similar CEQA review. 

I mentioned earlier that our CESA and CEQA reforms are aimed at ending unnecessary duplication. Several of these reforms are pending in the Senate Natural Resources and Wildlife Committee. They may seem like relatively minor reforms, but they do a couple of important things. 

First, they save money and time for builders like Maguire Thomas. 

Second, they begin to send a message that the development community is willing to cooperate to mitigate the impacts on the environment or endangered species as long as the agreements and arrangements are reasonable and the processes used are efficient. 

Give us your perspective, from the California Building Industry, of your thoughts on Century Freeway Housing Corp., as either a model or not for privatization of these efforts. 

California stands out among all of the states as having success in non-profit development. The real question here is whether the Century Freeway Housing Corp. is, or should be, a governmental entity, or should it have always been non-profit? I have mixed feelings about this. 

If it is true that California has the best non-profits in the nation, then why have a Century Freeway project to begin with? Why not just fund the existing non-profits? Why put government in competition with private non-profits? 

On the other hand, we were able to accomplish a lot with the Century Freeway Program. It was successful, it was positive. 

What about the Beyond Sprawl Report, sponsored by the Bank of America. I want to link it to a TPR article by David Booher and Judith Innes called "Inefficient Methods of Land Use Patterns Linked to Governmental Structure." The Bank of America study asserted, "One of the most fundamental question we have faced is whether California can afford to support the pattern of urban and suburban development often referred to as sprawl that has characterized this growth since World War II." Can you give CBIA's view on this issue? 

We fundamentally disagree with the Beyond Sprawl Report for two reasons:

1. First, it makes assertions without any foundation or fact. 
2. Second, it totally misunderstands basic market economics. It ignores the fact that when people make decisions about where they want to live it is the most important thing that they do; which is powerful behavior to try to tinker with. 

The Beyond Sprawl report says that there is a better way to build, that government ought to do it. We should get government to design something that the consumers may not be inclined to buy, but government will talk them into it. For the report's authors to argue that ideal, while simultaneously criticizing home builders for responding to consumer choice and repudiating past patterns of economic growth in this state, was very unfortunate.

The facts about suburban development need to be brought to bear on this debate. We have commissioned a report on suburban development that will be published by the end of July. It presents findings and facts about what benefits to the environment and to the economy that suburban development have provided.

Incidentally, in a recent national poll, by Teeter and Hart, families in the U.S. are, more than ever, willing to make significant personal and financial sacrifices to own a single 

family home. They are willing to give up cars, vacations, early retirement and make longer commutes, for the opportunity to buy a home. 

Arguably, it is not that people do not want homes, but rather, the issue is the unintended impact of present land use patterns. Let me quote from Booher, "If one locality permits a large regional shopping center in their community, this increases the demands on transportation infrastructure which are born by the state and other localities… Yet that decision makes sense for locality… based on sales tax and financing scheme for that community." The problem is the allocation of sales tax revenue as the principal mechanism of allocating resources. 

If you are suggesting that there is a correlation between unsatisfactory development patterns and fiscal issues, I agree with you. This goes back to the Constitutional Revision Commission and some of these bigger issues. What we see now are patterns of development based on sales tax generation. But, remember, however inefficient "sales tax" planning is, those shopping centers are following people who are choosing to live in suburban locations. 

Unless somebody comes up with a scheme that convinces the public to buy high-density, compact housing downtown and to use light rail, it isn't going to happen, and we, as homebuilders, shouldn't be asked by our critics to apologize for responding to the consumer choices and needs. 

Nevertheless, I do agree with you about those land use correlations.