Local Funding Barriers

Jurisdictions that lost redevelopment tax increment funds for housing had considerably fewer financial resources and capacity to further fair housing, affordable housing development, housing rehabilitation, and infrastructure needs.  Successor housing agencies may have retained residual receipts and loan repayments, but unless a jurisdiction had a robust subsidized housing inventory, it is probably not a significant source of funds.

Finding local funding for affordable housing is problematic because there are usually a multitude of competing needs for any unrestricted (e.g., general funds) or even moderately restricted (e.g., CDBG) funds. Local funds restricted to affordable housing are typically scarce, especially within the San Joaquin Valley. It appears that only a handful of smaller Valley jurisdictions have inclusionary housing programs, and most of those emphasize producing affordable units over collection of in-lieu fees.

Potential Local Funding Sources

Residual Receipts. Many successor housing agencies have funds returned to them from prior housing loans and agreements (e.g., loan repayments and residual receipts). A residual receipt is what remains in an affordable housing project’s annual operating budget after net operating income (project income less project expenses) and allowable payments from surplus. Such funds, minus a small percentage for administration, are restricted to reuse in subsequent affordable housing projects.

Inclusionary in-lieu fee programs could provide additional local funds; however, they tend to be more successful in communities with relatively high housing costs and in areas anticipating significant development.  Of course, if a community focuses its ordinance on unit production within projects rather than collect in-lieu fees, there may be little in the way of funds.

Commercial Linkage (Jobs-Housing Linkage) fee programs could provide some funds but probably wouldn’t be a significant source of revenue unless a community experiences significant job growth. 

Local/Regional voter-approved measures.  Some cities and counties have asked voters for bonds or taxes (e.g., transfer taxes, sales taxes, parcel taxes, bonds) to support affordable housing.  One potential advantage with a bond is that money can be accessed early on and paid back subsequently.  This may enable housing development at lower land and construction costs but should be weighed against the bond’s interest rate.  Determining if the community would support such a measure is the first step.  Some communities have “bundled” tax requests with other worthwhile causes.  Others have pledged portions of increased transit occupancy taxes, which don’t directly impact most residents.

Trust funds.  Forming a local trust fund enables access to the state’s Local Housing Trust Fund (LHTF) Program. The LHTF program provides funds to local and regional housing trust funds dedicated to building, rehabilitating, or preserving affordable housing, transitional housing, and emergency shelters on a dollar-for-dollar basis with local housing trust funds.  Public agencies may use funds for affordable housing acquisition, predevelopment expenses, construction, transitional housing projects, emergency shelters, and homeownership projects, including down payment assistance to qualified first-time homebuyers, and to rehabilitate homes owned by income-eligible homeowners. No more than 20 percent of each allocation may assist moderate-income households, and at least 30 percent is required to assist extremely low-income households.

Local philanthropy and/or foundation funds.  Existing community foundations may be able to assist San Joaquin Valley communities (see link to list below). Philanthropy itself could be accommodated by a local trust or foundation.

General Funds.  Some jurisdictions have pledged portions of former redevelopment tax increment funds (now general funds) to affordable housing. Given communities face many competing demands for limited general funds, such contributions may not always be feasible.

Other examples of local financial assistance:

  • Building infrastructure improvements 
  • Reducing development impact fees
  • Reducing other jurisdictional fees for services 
  • Dedicating surplus public lands

Relevance to Housing in the San Joaquin Valley

The lack of local funding sources puts many San Joaquin Valley jurisdictions at a competitive disadvantage when matching funds are required to access State and Federal funding sources.  Local jurisdictions have not had redevelopment funds to assist with affordable housing production for the entirety of the last housing element cycle. No significant local funding sources appear to have materialized during this time frame and production within the region has been slow.

Only a handful of inclusionary zoning ordinances exist and most target unit production over collecting in-lieu fees.  Both production-focused and in-lieu fee options have merit, and each community will need to decide which approach works best and what affordability levels will be targeted. For example, a production-based ordinance usually targets low- to moderate-income level units to retain a project’s market feasibility.  To reach extremely low- or low-income levels, in-lieu fees are typically collected and used to leverage State and Federal funding sources.  Smaller jurisdictions and jurisdictions that don’t experience significant development activity may find that an inclusionary ordinance focused on collecting in-lieu fees may not be effective fundraising strategy.  Conversely, larger jurisdictions or jurisdictions anticipating growth may find that a combined approach (some production and some collection of in-lieu fees) presents an opportunity for broader affordability.

Local bond measures or taxes may be worth exploring, but such measures require a good deal of lead time and community/voter support.  City, countywide, and/or regional approaches should be considered.

Jurisdictions can contribute other resources, such as staff capacity, infrastructure/capital improvements, and impact fee reductions as incentives to assist affordable housing projects.  For instance, timely construction of a capital improvement could eliminate an obstacle for the affordable housing builder, allowing a project to proceed.  Alternatively, jurisdictions could determine whether a project may be able to receive impact fee credits for any needed improvements.   

Ironically, impact fees fund the very infrastructure needed to support development activity.  They also act as mitigation to provide environmental clearance for projects that might otherwise have to construct improvements themselves. While impact fee reductions may be offered to preferred housing projects, jurisdictions must understand they are effectively subsidizing the fee reductions through other sources.  For example, a jurisdiction could use a transportation improvement grant to offset a traffic impact fee or a land donation to offset a parkland acquisition fee.  

Relevant State Law

Impact Fees (Mitigation Fee Act):  Government Code Sections 66000 -66008.

Survey Results

Survey respondents universally stated that there were no local housing trust funds. Most respondents indicated they did not have an inclusionary zoning ordinance, which could provide a source of in-lieu fees for affordable housing.  Research indicates that only a handful of cities in SJV have inclusionary ordinances, and those that do seem to favor housing production over collecting in-lieu fees. 

Stakeholder Interviews

Stakeholder interviews noted that the lack of local funding capacity makes it difficult to assemble financing packages and be successful in providing local matching funds, which are sometimes required for grant applications. Stakeholders noted that local government needs support in pursuing housing funds.  Staff capacity (another form of local match) is limited (especially in smaller jurisdictions), which makes it challenging to apply for grants funds.  Some stakeholders noted that local jurisdictions often do not understand the complexity of low-income tax credit programs and that funding cycles don’t align appropriately. Some jurisdictions offer impact fee reductions for affordable housing projects, while others offer them for higher density projects or projects that are located within core/infill areas, which has adequate infrastructure in place.


Other & Belonging Institute, Affordable Housing Bonds

Shelterforce, Where Voters Supported Affordable Housing (November 25, 2020). 

Terner Center for Housing Innovation, UC Berkeley, Housing on the Ballot: How Californians Voted on Key Measures in 2020 (December 5, 2020)

Shelterforce, Inclusionary Housing: Secrets to Success (March 2021)

League of California Community Foundations, Find Your Local Community Foundation. 

California Department of Housing and Community Development, Local Housing Trust Fund (LHTF Program).