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Instead of an economic shot in the arm, a shot in the foot

California leaders' inability to balance the budget has stalled construction of low-income housing units. Wary Wall Street lenders are contributing to delays.

March 30, 2010|By Shane Goldmacher

Reporting from Sacramento — The din of construction is missing from the eastern edge of the Hollywood Walk of Fame, where workers had hoped to break ground on a 70-unit affordable-housing complex months ago. No nail guns are firing. No hard hat-wearing workers are milling about.

And it's not the only would-be construction site that's silent. Plans to build more than 16,000 housing units in California, many of them for low-income residents, have been frozen in bureaucratic limbo since July.

Voters approved funding four years ago. Last summer, state officials chose the 121 projects they want to build. Shovels were supposed to have hit the ground by now.

Yet none of the $714 million in bond money earmarked for construction has been spent -- one of the many results of California leaders' chronic inability to balance the budget.

"Our . . . ongoing budget problems are the primary cause of this backlog," said Tom Dresslar, a spokesman for state Treasurer Bill Lockyer.

A state office that once provided bridge loans for construction projects is gone, drained of its funds by California's persistent budget shortfalls. Wall Street lenders, cautious after the financial crash and wary of California's bloated deficits, have been hesitant to lend money for the projects until the state sorts out its finances. And the bond sales that would jump-start the projects didn't occur until last week.

"It's a shame they didn't get started on this," said Christopher Thornberg, a founder of Beacon Economics in Los Angeles, where he studies the state economy and housing market. "If you're even going to think about doing affordable housing, this is the time to do it: Labor is cheap, land is cheap."

Voters authorized $2.85 billion in bonds for affordable-housing construction in 2006. An initial round of developments is underway; it is the second wave of projects that has stalled.

A main criterion the state used in choosing projects was readiness to begin construction. Officials estimated that the developments would create 22,000 jobs statewide.

"The state has a lot of their own concerns, and this didn't seem to be at the top of their radar," said Dora Gallo, chief executive of the nonprofit developer A Community of Friends.

Her group had planned to be well along by now with the 70-unit development in Hollywood. The project is intended mostly to house the homeless and those with special needs.

Overall, Los Angeles has $118 million in affordable-housing bond money lodged in the cracks of California's bureaucracy, according to the city's Community Redevelopment Agency.

Hundreds of millions of dollars in private matching funds will help get projects built throughout the state, but Sacramento's inability to get public money flowing has held that up, too.

"You don't get to start your work until you have all of your funds accounted for," said Deborrah Willard, president of the Foundation for Affordable Housing.

Her group is working on a 535-unit development near the Pantages Theatre in Hollywood, a mix of housing, retail use and parking with a budget of roughly $230 million. The state's share, not yet received, is $32 million.

Calling himself a "fanatic about building," Gov. Arnold Schwarzenegger made a recent blitz of appearances up and down the state asserting that new housing construction will be a linchpin of the economic recovery.

"The carpenters go to work, the steelworkers go to work, the cement people go back to work, the plumbers go back to work, the electricians go back to work," Schwarzenegger said at a construction site in Salinas in mid-March. "So everyone gets jobs, and that's what we want to accomplish."

The Schwarzenegger administration blames the stalled projects on Wall Street lenders' reluctance to front construction costs on affordable terms until the bonds could be sold.

"Financial institutions have been skittish about issuing construction loans," said H.D. Palmer, spokesman for the Department of Finance.

Lockyer is responsible for selling the bonds -- a tougher task than when California was in better financial shape. Dresslar said housing developments have to compete for a limited supply of bond money with other state projects, such as roads and highways. Voters approved other infrastructure borrowing in addition to the housing bonds.

Even the state's housing department is frustrated.

"We have never had this type of delay," said Chris Westlake, deputy director of the Department of Housing and Community Development.

In 2008, financial troubles forced the state to close the equivalent of a bank account it had used to smooth out the peaks and valleys in the distribution of construction money.

Now, there is no such system in place. Instead, developments must wait for project-specific bonds to be sold.

A ray of hope came last week when the treasurer sold $3.4 billion in bonds for a multitude of purposes. Palmer said as much as $800 million could go to various kinds of housing projects.

"We hope we can get the lion's share of these projects moving," Palmer said.

shane.goldmacher

@latimes.com

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