Cover Letter

October 8, 2019
Honorable Eric Garcetti, Mayor
Honorable Michael Feuer, City Attorney
Honorable Members of the Los Angeles City Council

Re: The High Cost of Homeless Housing: Review of Proposition HHH

Los Angeles voters approved Proposition HHH in November 2016 by an overwhelming margin, authorizing City officials to issue up to $1.2 billion in general obligation bonds to partially subsidize the development of up to 10,000 supportive housing units for individuals and families experiencing homelessness. HHH funds can also be used to support new affordable housing units, temporary shelters and service facilities. The ballot language of HHH provides that the City Controller shall conduct a financial audit of the program each year bonds are outstanding or proceeds remain unspent. The attached audit and review examine how the City is delivering on HHH to alleviate the most pressing issue facing Los Angeles.

As of last month, the City has conditionally awarded nearly all of the funds authorized by HHH to build 114 projects across Los Angeles, which are slated to provide a total of 5,873 supportive units for homeless residents and another 1,767 affordable units. However, more than two years after the first bond issuance and nearly three years since voters approved HHH, not one bond-funded unit has opened. While 19 projects are under construction and two are scheduled to open in the coming months, it is clear that the City’s HHH program is not keeping pace with the growing demand for supportive housing and shelter. According to the Greater Los Angeles Homeless Count, homelessness in the City has increased by 40 percent to more than 36,000 people over the past four years.

Increased costs, timelines

There is currently a lack of clarity surrounding the City’s actual goal for the number of supportive housing units to be built using HHH funds. This review found that, regardless of the target, high costs and slower than expected pre-development and construction timelines have significantly hindered the City’s ability to achieve the ballot measure’s intentions.

Building cost estimates skyrocketed from $350,000 for a small studio or one-bedroom unit and $414,000 for a larger unit, as projected in 2016, to a median cost of $531,000 per unit today. More than 1,000 HHH units are projected to exceed $600,000, with one project topping $700,000 per unit. The cost of building many of these units exceeds the median sale price of a market-rate condominium in the City of Los Angeles and a single-family home in Los Angeles County. Reasons for this include the number and complexity of funding sources required to complete an HHH project, the relatively limited pool of eligible developers, regulatory barriers and permitting challenges, and considerable construction and labor costs. An unusually high 35 to 40 percent of costs are so-called “soft costs” (development fees, consultants, financing, etc.), compared to just 11 percent for actual land costs.

The high price of development is linked with elongated approval and construction timelines. HHH projects are estimated to take between three to six years to complete — a schedule plainly out of step with the City’s urgent need to bring tens of thousands of people off the streets and into housing. In an attempt to speed up this pace, the City created a position to serve as a dedicated concierge for HHH projects, a welcome step that should have been taken sooner. City leaders have also set aside one-tenth of the bond proceeds to explore alternative housing models, such as modular homes and shared units with simplified financing mechanisms. This strategy aims to provide 975 additional supportive units and could lower per-unit costs, which would be positive. It remains to be seen whether the projects will live up to expectations, and evaluating outcomes will help determine what should be replicated and what to avoid.

Two additional financial issues of note are the premature sale of HHH bonds and the decentralized nature of HHH accounting authority. Because the City decided to sell so many bonds long before the proceeds would be used to build homeless housing, Los Angeles taxpayers incurred at least $5.2 million in excess interest payments through June 2019. At this time, there is also an unnecessary division of labor in program accounting for the housing and facilities components of HHH, which should centralized in one department.

Recommendations

In order to reduce Proposition HHH project costs and development timelines, prevent any potential future delays, and strengthen the bond program’s financials, the City should:

  • Put a greater focus on innovative practices to save time and money, including ways to reduce costs on approved or conditionally-approved projects, and consider using any savings achieved for temporary shelters, bridge housing, hygiene centers and other service facilities to address more immediate needs.
  • Streamline the permitting process and add needed personnel to ensure quicker development approvals and processing.
  • Centralize accounting responsibility in one City department.

The recommendations in this review are intended to help the City’s Measure HHH program achieve its voter-mandated goals, while also ensuring that valuable taxpayer dollars are managed transparently and carefully.

Respectfully submitted,

RON GALPERIN
Los Angeles Controller

Read More

Click Here to View Map of Proposition HHH Projects.

Executive Summary

Tens of thousands of people spend each night in Los Angeles living on the streets, in temporary shelters, or in parked vehicles. Recently published data shows the crisis is becoming increasingly tragic throughout the region – more than 1,000 people experiencing homelessness in Los Angeles County will likely die this year. The City, County, and service providers have sought to address the homelessness crisis through a combination of strategies, including street outreach and placement in temporary shelters or supportive housing – but it has been a particularly difficult challenge.

Supportive housing is generally considered an effective strategy that combines subsidized housing with resources such as mental and physical health services, education and job training, and drug and alcohol treatment. Temporary shelters and other support facilities are also important tools because they can be used as a stopgap until housing becomes available. Getting people off the streets requires increasing the supply of available housing units and shelter beds as quickly as possible.

Nearly 80 percent of voters approved Proposition HHH in November 2016. Proposition HHH authorized the City to issue $1.2 billion in general obligation bonds to partially subsidize the development of up to 10,000 supportive housing units for individuals and families who are experiencing homelessness or are at risk of becoming homeless.[1] Proposition HHH funds can also be used to develop affordable (i.e., income-restricted) housing units and facilities such as shelters, clinics, storage, and showers.[2]

Proposition HHH funds typically subsidize approximately 30 percent of a project’s total development costs. On a per unit basis, the maximum allowable Proposition HHH subsidy for supportive housing was $140,000 per unit during the most recent funding cycle and $220,000 per unit for previous funding cycles. The remaining funding comes from a combination of private sources and other public entities such as the federal government, State of California, or Los Angeles County. Regardless of the funding source, it is critical that the City and developers work together to minimize development costs in order to build as many housing units as possible.

The City has prioritized using Proposition HHH funds to develop long-term solutions such as supportive and affordable housing. A much smaller share of Proposition HHH funding has been set aside to build facilities – such as shelters – that can help mitigate the homelessness crisis until supportive housing units are completed.[3]

As of September 30, 2019, the City has conditionally awarded nearly the entire amount authorized by the Proposition HHH ballot measure. There are additional projects seeking conditional funding which, if approved, will commit all remaining Proposition HHH funds.[4]

The City’s stated goal for the number of units to be built using Proposition HHH funds lacks clarity. Although the number of units did not appear in the language of the ballot measure, the development of 10,000 supportive housing units through Proposition HHH is generally understood as the target and appears on the Mayor’s website and City Council documents.[5]

In contrast, the City’s Housing and Community Investment Department (HCIDLA), which is tasked with administering the program, has noted that Proposition HHH was intended to augment ongoing efforts to build supportive housing. HCIDLA’s plan is to deliver a total of 10,000 supportive housing units within ten years through separate development pipelines – 7,000 through Proposition HHH and 3,000 through non-Proposition HHH sources.

Assuming all of the pending projects are approved, Proposition HHH will provide 7,640 total housing units, of which 5,873 will be supportive housing.[6] The following graphic provides and overview of these projects.

The large majority of projects are currently – or will soon be – in various stages of “pre-development,” which includes activities such as assembling funding, securing land use approval, and obtaining building permits. Three years into Proposition HHH, only two projects (117 total units, 74 supportive units) currently under construction are scheduled to be completed by the end of 2019. Meanwhile, tens of thousands of Angelenos experiencing homelessness continue to suffer in dangerous conditions.

The performance of the program to date indicates that progress has been slow, and costs are high.

  • The estimated timeline for completing a project from start to finish (i.e., conceptualization to occupancy) ranges from three to six years.
  • The City’s Comprehensive Homelessness Strategy (January 2016) estimated that the cost of building each studio/one-bedroom unit would be $350,000, and the cost of a two-bedroom unit or larger would be $414,000. While construction costs have increased across-the-board since these estimates were developed, the current costs far exceed the original projections.
    • The current median cost per unit for projects in the Proposition HHH pipeline is $531,373, and more than 1,000 units are projected to exceed $600,000.[7] One project includes units estimated at more than $700,000.[8]
    • The median cost of building many of these units approaches – and in many cases, exceeds – the median sale price of a condominium in the City of Los Angeles ($546,000) and of a single-family home in Los Angeles County ($627,690).
    • The cost of land in Los Angeles is often cited as a significant cost driver for Proposition HHH housing developments, but data provided by the City’s Housing and Community Investment Department (HCIDLA) shows that this point is likely overstated relative to the other categories for projects currently under construction.[9]

Developers are spending approximately 40 percent of overall project costs on soft cost components such as fees, consultants, and financing. These costs are nearly as much as the cost of labor and materials to build Proposition HHH-funded housing developments.  

  • In July 2017, the City issued the first Proposition HHH bond ($86.4 million). Because the program was in its early stages and projects were in pre-development, only $3.7 million in bond proceeds were spent during that fiscal year. Rather than spending down the available funds from the first bond issuance, the City issued the second Proposition HHH bond (valued at $276.2 million) in July 2018.

Because the second bond was issued too early, City taxpayers incurred approximately $5.2 million in unnecessary interest payments through June 2019 – without the expected project benefits. This concept, known as “negative arbitrage,” occurs when the interest rate a borrower pays on its debt is higher than the interest rate the borrower earns on the monies deposited or invested.

  • No single City department is responsible for program-wide Proposition HHH accounting decisions. The lack of centralized authority may present challenges in the future, as additional funds are spent.

There are a number of factors that contribute to high costs and lengthy development timelines, such as funding complexity, regulatory barriers, a limited pool of eligible developers, labor costs, and cumbersome and lengthy permitting processes. Even as the City solicited and developed ideas to tackle these issues in more innovative ways, it continued to award Proposition HHH funds before some of the ideas could fully blossom.

  • The Proposition HHH Challenge, initiated in January 2019, identified alternative construction and financing approaches that were not previously feasible under existing program regulations. The City recently identified six projects that aim to provide 975 supportive housing units within approximately two years. The proposed projects estimate unit costs between $200,000 and $479,000, and an average of $351,965 per unit.

The projects are pending City approval and feature modular construction, shared housing, and simplified financing. If successful, these approaches have the potential to significantly lower costs and shorten development timelines. Given that some of these projects are a departure from the traditional supportive housing model, it is unclear whether future funding allocations from the State and the federal government will embrace these innovative approaches.

  • The City passed the Permanent Supportive Housing Ordinance in April 2018 to reduce project costs and speed up land use approvals for Proposition HHH-funded projects. Existing land use entitlements such as the State’s Density Bonus program or the City’s Transit-Oriented Communities (TOC) program can be used to accomplish similar goals.[10] However, these pathways do not account for the unique characteristics of supportive housing projects (e.g., smaller units, space for supportive services).

Almost immediately after the ordinance was passed, lawsuits were filed against the City. As a result, projects in the Proposition HHH development pipeline have been unable to take advantage of the tailored benefits offered by the ordinance, such as higher thresholds for site plan reviews and increased allowable density.

The City recently partnered with the State and crafted a bill (AB 1197) to make it easier to build supportive housing and emergency shelters without fulfilling certain requirements of the California Environmental Quality Act (CEQA).[11] According to the City, the legislation will increase the likelihood that the lawsuit against the Permanent Supportive Housing Ordinance will be dismissed or otherwise favorably resolved.

  • The Mayor’s Executive Directive #13 (issued in October 2015) sought to facilitate streamlined and prioritized case processing for all affordable housing developments. Despite the existence of the directive and other efforts to expedite projects, external stakeholders and respondents to a Proposition HHH survey (January 2019) provided critical feedback that much more work needed to be done. One survey respondent described the City’s permitting processes as a “nightmare.”

The City recently hired a dedicated staffer (“HHH Concierge”) to streamline permitting processes and ensure that Proposition HHH-funded projects are prioritized within each department’s existing workflow. In addition, the HHH Concierge is tasked with developing a tracking system to improve information sharing and notification protocols across City departments.

This is an encouraging development, but the City’s longstanding challenges with these issues are well-established and suggests that this should have occurred far sooner.

The performance of the program to date indicates that a course correction is required before it is too late. Although the City has conditionally awarded nearly the entire pool of funds authorized by the ballot measure, there still may be opportunities to maximize Proposition HHH funds. Most Proposition HHH housing developments are in the early to middle stages of pre-development, and therefore, formal loan agreements (i.e., contracts) have not been executed. The absence of a contract raises an important question – can the City reallocate funding to a different project or require developers to modify previously-approved projects?

Recent events – such as the Proposition HHH Challenge and the potential of the City’s Permanent Supportive Housing Ordinance – suggest that previously-approved projects may warrant a fresh look. Making significant changes to projects that are at the latter stages of the pre-development process may not be feasible. However, the City should encourage developers to emulate what has been successful in other projects and incorporate emerging approaches to reducing Proposition HHH project costs and development timelines.

City Policymakers should consider the following recommendations in order to confront the growing magnitude and urgency of the homelessness crisis in Los Angeles.

Recommendation #1      

Evaluate the feasibility of reallocating some Proposition HHH funds that have been conditionally funded, especially funds committed to housing projects with outlier development costs. This may free up funding for projects with lower per-unit costs or for temporary shelters and other facilities.

  1. If shared housing, prefabricated construction, or simplified financing are demonstrated to be meaningful and scalable strategies through the Proposition HHH Challenge, allow developers that have been previously awarded Proposition HHH funding to modify their project proposals.
  2. If AB 1197 facilitates timely resolution of ongoing litigation challenging the City’s Permanent Supportive Housing Ordinance, allow and encourage developers to reconfigure previously-approved HHH projects so that the unique characteristics of supportive housing units are incorporated into land use approvals.
  3. If previously-committed Proposition HHH funding becomes available, prioritize the development of facilities such as shelters, clinics, storage, and showers to help better manage the immediate needs of Angelenos experiencing homelessness.

Recommendation #2

Support the Proposition HHH Concierge’s efforts to streamline permitting and other processes to ensure that projects that are currently – or soon will be – in the development pipeline are completed as quickly as possible.

  1. Require City departments not covered by Executive Directive #13 (e.g., Water and Power, Fire, Engineering) to publicly and regularly report their progress on moving Proposition HHH housing developments to completion.
  2. If necessary, consider adding dedicated staff (either in City departments or on the Housing Crisis Response Team) to focus on these issues.

Recommendation #3

City Policymakers should formally establish centralized accounting authority for the Proposition HHH program.

Read More

Proposition HHH Results to Date

The homelessness crisis in Los Angeles continues despite the City’s efforts to combat the issue. In January 2019, the Los Angeles Homeless Service Authority’s (LAHSA) estimated that there are 36,300 people experiencing homelessness in the City, which represents a 41 percent increase from LAHSA’s 2015 estimate.

A broad coalition of Angelenos voted to approve Proposition HHH in November 2016. Proposition HHH authorized the City to issue up to $1.2 billion in general obligation bonds to partially subsidize the development of up to 10,000 supportive housing units for individuals and families who are experiencing homelessness or are at risk of becoming homeless.Supportive housing combines affordable housing with services to assist residents, such as mental and physical health services, education and job training, and drug and alcohol treatment.

Proposition HHH funds can also be used to develop affordable (i.e., income-restricted) housing units and facilities such as shelters, clinics, storage, and showers. At least 80 percent of the funds must be used for supportive housing units and facilities, and up to 20 percent of Proposition HHH funds can be used to develop income-restricted units.

The City’s financing model was to leverage bond proceeds from Proposition HHH to issue loans and help developers assemble funding from other sources. Proposition HHH funds make up only a portion of each project’s development costs – the other sources are private funds or tax credits and grants from the federal government, the State of California, or Los Angeles County.[12]

Proposition HHH requires the Controller’s Office to perform financial audits for every year in which bonds are outstanding, or any bond proceeds remain unspent.[13] We also assessed the City’s progress in delivering housing units in line with voter expectations.[14]

Specifically, we sought to answer three questions as part of this review.

  • Why do Proposition HHH housing developments cost so much?
  • Why are Proposition HHH housing developments taking so long to complete?
  • What should the City do?

The recommendations in this report are intended to help the City confront the magnitude and urgency of the homelessness crisis in Los Angeles.

Read More

Proposition HHH Status (October 2019)

As of September 30, 2019, the City has allocated nearly the entire amount authorized by the Proposition HHH ballot measure. There are additional projects seeking conditional funding which, if approved, will commit all remaining Proposition HHH funds.[15]

The City’s stated goal for the number of units to be built using Proposition HHH funds lacks clarity. Although a specific number of units did not appear in the language of the ballot measure, the development of 10,000 supportive housing units through Proposition HHH is generally understood as the target and appears on the Mayor’s website and City Council documents.[16]

In contrast, the City’s Housing and Community Investment Department (HCIDLA) – which is tasked with administering the program – has noted that Proposition HHH was intended to augment ongoing efforts to build supportive housing. HCIDLA’s plan is to deliver a total of 10,000 supportive housing units within 10 years through separate development pipelines – 7,000 through Proposition HHH and 3,000 through non-Proposition HHH sources.

Assuming all of the pending projects are approved, Proposition HHH will provide 7,640 total housing units, of which 5,873 will be supportive housing.[17] Our growing homeless population requires building more units as quickly as possible.

The City has allocated nearly all of the authorized Proposition HHH funds to developing long-term solutions such as supportive and affordable housing. Significantly less Proposition HHH funding has been set aside to build or acquire facilities (e.g., shelters, storage, transitional housing, navigation centers) that can help mitigate the homelessness crisis until housing units are completed.

Status of Proposition HHH housing developments

As of September 30, 2019, the City’s Housing and Community Investment Department (HCIDLA) reports that almost $800 million has been committed to housing developments and the projects pending approval will push the City beyond $1 billion in total Proposition HHH funding commitments. However, most projects that received – or will receive – funding commitments have not been formally awarded loans using Proposition HHH funds and have not yet begun construction.  

The City’s process for committing Proposition HHH funds is divided into multiple phases and requires several layers of review and approval. HCIDLA issues a call for proposals three times a year to solicit proposals from developers seeking to build supportive housing with Proposition HHH funds. HCIDLA staff reviews applications to determine whether they met established criteria, including:

  • verification that the developer secured a property on which a Proposition HHH project could be built;
  • a determination that the project is financially feasible and demonstrates long-term viability as an affordable housing project; and
  • confirmation that the developer and service provider successfully managed similar supportive housing projects in the past.

All supportive and affordable units funded by Proposition HHH are subject to a 55-year affordability covenant to ensure that they are restricted to the target population. Proposition HHH regulations require all units have their own kitchen and full bathroom. In addition, housing developments must include community spaces and offices to allow for the provision of supportive services. Beyond these requirements, Proposition HHH program priorities encourage developers to build in a diverse range of locations that reflect the City’s fair housing goals and within one-half mile of major transit stops and supportive facilities.

At the conclusion of this process, HCIDLA staff develop funding recommendations that are submitted to multiple oversight committees, the City Council, and Mayor.[18]

Each project selected through this initial phase receives a letter of commitment from the City. Letters of commitment provide developers with a two-year conditional funding award that is contingent on factors such as ongoing compliance with Proposition HHH regulations and obtaining the necessary funding from other sources to fully fund the completion of a project. The City designed the Proposition HHH program to provide letters of commitment early in the development process in order to improve developers’ ability to compete for funding from non-City sources.

Once developers assemble funding, obtain land use approvals, and are ready to move toward construction, their projects are subject to another round of review and approval – using the same general sequence outlined above – in order to be added to the City’s annual Proposition HHH Project Expenditure Plan (PEP). Projects must be added to the PEP before the City and developer can execute a formal loan agreement (i.e., contract) that authorizes the expenditure of Proposition HHH funds.

Understanding the distinction between the legal authority provided through each of these documents (i.e., letters of commitment and loan agreements) is critical to evaluating the City’s potential options for projects that have been conditionally funded.

Most Proposition HHH housing projects are in the early or middle development stages, and therefore, formal loan agreements have not been executed. The absence of a contract raises an important question – can the City reallocate funding to a different project or require developers to modify previously-approved projects? Although this may result in legal action by the affected developer, there may be opportunities to better utilize Proposition HHH funding.

Status of Proposition HHH facilities projects

The City Administrative Officer (CAO) – who oversees the facilities portion of the Proposition HHH program – recently requested an additional $10.5 million in funding, which would increase the total budget for facilities projects to $60 million. The CAO stated the funding shortfall was caused by higher than anticipated construction costs for four facilities projects that are being managed by the City’s General Services Department (GSD).[19]

If the request is approved (along with the pending housing developments), the additional funding will push the total amount of Proposition HHH funding commitments beyond the $1.2 billion originally authorized by voters. The CAO’s proposed plan is to make up for the shortfall by using current and future interest proceeds that accrue after Proposition HHH bonds are issued.    

Although the City allocated some of the Proposition HHH facilities funding for emergency housing solutions such as shelters and transitional housing, the City’s primary strategy for adding beds is through the Mayor’s A Bridge Home (ABH) program. The program was launched in April 2018 and sought to build crisis and bridge housing – primarily on land owned or leased by the City – until permanent supportive housing projects are completed.

The City has approved approximately $90 million for the construction and multiyear operation of a total of 1,450 beds, of which 247 have been completed. [20] In addition, the City is in the process of allocating $34 million for bridge housing projects that will provide an additional 610 beds.

Read More

Cost of Proposition HHH Housing Developments

Proposition HHH funds represent approximately 30 percent of the aggregate total development cost across projects that have been approved by the City. On a per unit basis, the maximum allowable Proposition HHH subsidy for supportive housing was $140,000 per unit during the most recent funding cycle and $220,000 per unit for previous funding cycles. Although the City is not fully subsidizing each project, significant amounts of funding come from private sources or other government entities.

These resources are finite; it is critical that the City and developers minimize development costs in order to build as many housing units as possible.

The City’s Comprehensive Homelessness Strategy (January 2016) estimated that the cost of building each studio/one-bedroom supportive housing unit would be $350,000 and a two-bedroom unit or larger would cost $414,000.[21] While construction costs have increased across-the-board since these estimates were developed, the current costs far exceed the original projections.

Whether building market rate or supportive housing, development costs are typically driven by three major components: cost of acquiring land; labor and materials for construction; and soft costs (e.g., non-construction activities such as architectural, engineering, financing, legal services).

The Proposition HHH program regulations include multiple tools intended to contain costs throughout the development process.

  • HCIDLA is tasked with approving all contracts related to Proposition HHH projects and has the authority to disallow any costs which it believes to be excessive, avoidable, or unwarranted.
  • Developers and general contractors are required to award construction contracts through a competitive process that considers the cost.[22]
  • Within 60 days of issuance of a Certificate of Occupancy by the City, developers must submit a completed audit of construction costs performed by an independent Certified Public Accountant.

Despite these tools, projected per-unit costs remain high. The median cost of building these units ($531,373) approaches – and in many cases, exceeds – the median sale price of a condominium in the City of Los Angeles ($546,000) and a single-family home in Los Angeles County ($627,690). [23].

Cost of housing developments under construction

Almost three years after voters approved Proposition HHH, only 19 projects are under construction. When completed, these developments will provide 1,260 total units, 892 of which are supportive housing units.

According to data provided by HCIDLA, more than 90 percent of the units under construction are compact studios and one-bedroom apartments ranging from 275 to 750 square feet. The data below provides additional details about these projects.

  • Total development cost
Lowest Average Highest
$11,440,379 $34,607,610 $55,050,829
  • Per-unit development cost[24]
Lowest Average Highest
$346,678 $521,861 $690,692
  • Cost breakdown – The cost of land in Los Angeles has been cited as a significant factor in the high cost of Proposition HHH projects, but the data shows that this is overstated relative to the other categories.[25] As a result, finding ways to lower construction costs and soft costs is critical to maximizing the impact of Proposition HHH funding.

The high level of soft costs indicates that developers are spending large amounts on non-construction activities such as fees, consultants, and financing costs. The overall magnitude of construction costs underscores the importance of identifying alternate models such as pre-fabricated or shared housing.

  • The total development cost of projects under construction has increased by 12 percent since receiving the City’s conditional commitment, and five projects increased by more than 25 percent.[26] These cost increases underscore the importance of getting units built as quickly as possible.

Cost of projects in pre-development

There are an additional 60 projects that have been conditionally funded by the City, and are in various stages of pre-development and have not yet begun construction. Pre-development includes activities such as applying for funding, securing land use approvals, engaging the community, and obtaining permits – many of which occur concurrently.

When completed, these projects will provide 4,150 total units, of which 3,240 will be supportive housing. Similar to the projects under construction, the large majority (82 percent) of the total units are compact studio or one-bedroom apartments.

  • Total development cost
Lowest Average Highest
$9,440,000 $35,058,859 $72,022,642

Given that many of these projects are in the early stages of a lengthy process, it is likely that total development costs will be even higher by the time construction begins.

  • Per-unit development cost[27]
Lowest Average Highest
$228,908 $511,386 $701,072

There are 15 housing developments in this group that exceed $600,000 per unit. The most expensive project, located in Koreatown/Pico-Union, exceeds $700,000 per unit and consists of 41 units with a mix of studios, one-, two-, and three-bedroom apartments.

  • The projected cost breakdown for these housing developments is approximately 11% land, 54% construction, and 35% soft costs.

Cost of housing developments pending City approval

The City is considering issuing conditional funding commitments to an additional 35 housing developments.[28] If approved, these projects would provide 2,230 total housing units, of which 1,741 would be supportive units. More than 80 percent of these units are studios and one-bedroom apartments.

  • Total development cost
Lowest Average Highest
$11,657,496 $31,841,156 $61,952,493

Given that many of these projects are in the early stages of a lengthy process, it is likely that total development costs will be even higher by the time construction begins.

  • Per-unit development cost[29]
Lowest Average Highest
$333,071 $499,749 $686,443

There are four housing developments in this group that exceed $600,000 per unit.

QUESTION 1:      Why do Proposition HHH housing developments cost so much?

Although implementing a program of this magnitude and complexity carries inherent uncertainty, the original per unit cost projections ($350,000 to $414,000) have been inaccurate. City officials and other stakeholders have cited the following as factors contributing to the high cost of projects funded through Proposition HHH.

  • Funding complexity – In addition to Proposition HHH funds, developers typically assemble several loans and grants to fully fund a project. On average, each development approved by the City had seven funding sources (including Proposition HHH). The complexity of this model adds costs and delays housing production because each funding source has its own set of policy priorities and approval timelines.
  • Regulatory framework – Projects built using public subsidies typically include requirements that can increase soft costs due to the need for additional consulting services to address legal or accounting issues. In addition, projects built using Proposition HHH funds can incur higher construction costs due to accessibility requirements – each project must include at least 4 percent of units set aside for persons with sensory impairments and 10 percent of units for persons with mobility impairments.

Developers, general contractors, and subcontractors may instead choose to pursue market-rate projects that yield greater profits, thereby shrinking the overall pool of available firms and driving up costs.

  • Limited pool of eligible developers – Proposition HHH regulations require lead developers to demonstrate a history of building and managing supportive housing projects. This reduces the overall level of risk and increases the likelihood that projects funded by the City are successful.

However, this requirement can also impede competition and prevent developers from outside the traditional supportive housing community – who may bring new and innovative ideas – from participating.

  • Labor costs – Projects built using Proposition HHH funds are subject to State Prevailing Wage Requirements. In addition, housing developments of 65 or more units must include a project labor agreement that promotes the hiring and continued employment of local residents, including those that may be classified as transitional or disadvantaged workers.

Read More

Timelines for Proposition HHH Housing Developments

Like most business endeavors, time is money when it comes to property development.  HCIDLA estimates that the timeline for completing a Proposition HHH project from start to finish (i.e., conceptualization to occupancy) ranges from three to six years. The length of time needed to complete these projects does not meet the level of urgency needed to match the magnitude of our homelessness crisis.

The timeline below identifies significant milestones since Proposition HHH was approved by City voters in November 2016. Assuming it is completed on time, the first project will have taken nearly three years and may represent a best-case scenario because it was already in the HCIDLA development pipeline at the time of the ballot measure.

Timelines for housing developments under construction

In order to estimate timelines, we measured the length of time from when projects were conditionally approved by the City to the estimated construction completion date. These estimates do not include time spent on activities before applications were submitted to HCIDLA, or time spent on required tasks after the completion of construction (e.g., closing out the project and obtaining a certificate of occupancy).

  • Timeline from conditional approval to the projected end of construction (years)
Fastest Average Slowest
1.9 2.8 3.5
  • Although these projects will add 1,260 much-needed housing units in the coming years, the pace at which they are being completed falls significantly short of the urgency of the City’s homelessness crisis.
  • More than 90 percent of these units are located in seven Council Districts (1, 4, 8, 9, 10, 13, 14).

Timelines for projects in pre-development

The upcoming completion of the initial wave of Proposition HHH housing developments presents an opportunity for the City to apply lessons learned and ensure that future supportive housing projects can be built more quickly. However, the estimated timelines (measured from conditional approval to estimated completion of construction) for the 60 projects currently in pre-development indicate that these projects will likely take even longer to complete.

  • Timeline from conditional approval to the projected end of construction (years)
Fastest Average Slowest
2.1 3.0 3.7
  • Most of the 4,150 units in pre-development are not projected for completion until 2021.
  • Almost 70 percentof these units are located in Council Districts 1, 8, 9, 11, 13, and 14.

Timelines for projects pending City approval

Because these projects have not yet been approved by the City, it is not possible to develop timeline estimates using the same methodology as the previous sections. When completed, 70 percent of the 2,230 total units will be distributed across Council Districts 1, 2, 6, 8, 9, 11, and 13.

Potential future delays for projects in pre-development

The City encouraged developers to build Proposition HHH housing developments near high-quality transit areas through the Transit Oriented Communities (TOC) program. The TOC concept was also approved by voters in November 2016, within the larger framework of Measure JJJ. TOC allows developers to add density, reduce parking requirements, and utilize ministerial (i.e., administrative) approvals in exchange for including supportive or income-restricted housing units. Accordingly, many projects in the Proposition HHH development pipeline were approved through TOC.

A recent lawsuit accused the City of violating the legislative procedures for amending the General Plan and zoning ordinance when it implemented the TOC guidelines. According to the City, there is currently no court order that prevents a previously-approved TOC project from moving forward, nor is there currently anything preventing developers from submitting TOC applications for new projects.

However, the uncertainty caused by the litigation may cause developers already in the Proposition HHH pipeline to pursue a different pathway to obtaining land use approval. For example, a developer that has already received approval through TOC may decide to modify their project and utilize the State’s density bonus program, or a different entitlement pathway. This would likely require the developer to obtain a new approval from the Department of City Planning. If the changes are significant, developers may need to re-apply for approvals from multiple funding sources, which would likely add costs and delay the project.

QUESTION #2:    Why are Proposition HHH housing developments taking so long to complete?

Many of the cost drivers outlined in the previous section also contribute to extended timelines, just as extended timelines contribute to higher development costs. The City has initiated a number of strategies – such as the Permanent Supportive Housing Ordinance and Executive Directive #13 (“Support for Affordable Housing Development”) – to speed up the process by which Proposition HHH housing developments can be built.[30] Beyond those efforts, departmental liaisons are tasked with troubleshooting issues as they arise. However, the lengthy development timelines suggest that much more work is needed.

A major factor is the design of the program itself – Proposition HHH funds are awarded at the very early stages of the development process, and the developer must seek out and obtain the necessary funding to begin the project. Because developers are often seeking funding from other public entities with varying deadlines, the City provides up to two years to complete this phase. Projects cannot proceed without the necessary funding in place to successfully build and operate supportive housing.

Beyond obtaining funding, there are the permitting and approval processes that apply to any development project in the City. Developers must navigate departments such as City Planning, Building and Safety, Water and Power, Fire, and Public Works (Engineering and Contract Administration) to ensure that safe, high-quality projects are built in accordance with all applicable regulations. Ensuring this framework operates efficiently and effectively is critical to the City’s efforts to reduce Proposition HHH development timelines.  

At the request of the Proposition HHH Citizens Oversight Committee, the City initiated a survey in late 2018 to obtain feedback from stakeholders about how to improve the Proposition HHH Supportive Housing Program. The City received 34 responses, and more than half were from developers who build affordable and market-rate housing.

The most frequent recommendation was for the City to streamline permitting processes across the various departments that are involved with reviewing and approving Proposition HHH housing projects. One respondent described the City’s permitting processes as a “nightmare.”

The Proposition HHH Citizens Oversight Committee and external stakeholders have called on the City to make improvements in these areas. As described below, the City recently took steps to build upon its ongoing efforts.

Read More

Strategies to Reduce Costs and Expedite Timelines for Proposition HHH Housing Developments

Effectively implementing a program of this magnitude requires extensive planning and the ability to pause and, if necessary, pivot to a different approach before the available funding is depleted. All viable alternatives need to be weighed against the growing urgency of our homelessness crisis.

As early as the middle of 2017, it was apparent that the cost of building Proposition HHH housing developments was higher than expected, and other issues were contributing to lengthy timelines. The City took action and identified ways to streamline processes, reduce development costs, and foster innovation. But instead of waiting until those promising strategies could be fully implemented or other obstacles were removed, the City conditionally awarded nearly all of the remaining Proposition HHH funding.

The strategies outlined below do not represent the entirety of the City’s efforts to reduce costs and timelines. However, they have significant potential and may prove to be beneficial in the future using state and federal funding streams such as the No Place Like Home Program and the HOME Investment Partnerships Program. But those funding streams have their own regulations, and it is unclear whether the City will be able to unilaterally determine how those funds can be spent.

Given these constraints, the City’s decision to push forward and conditionally award nearly all remaining funds represents a missed opportunity to maximize the impact of Proposition HHH.

Proposition HHH Challenge

In response to growing concerns from the Citizens Oversight Committee, the City set aside $120 million in January 2019 and initiated the Proposition HHH Housing Challenge. The primary goal was to identify innovative construction and financing models to produce 1,000 new supportive housing units in less than two years.

The City issued a request for proposals in May 2019 and allowed respondents to submit project applications before obtaining site control. In order to be considered for funding, applicants needed to demonstrate that their proposed approach is not eligible or feasible under current Proposition HHH program regulations. Development strategies submitted by applicants were evaluated by a multidisciplinary team of subject matter experts for creativity, achievability, and scalability.

The City recently selected six projects that aim to provide 975 supportive housing units at an estimated cost between $200,000 and $479,000 per unit, and an average of $351,965 per unit. The projects approved by the City include modular construction, shared housing, and simplified financing. Although the long-term feasibility of these innovative approaches remains to be seen, they have the potential to significantly lower costs and shorten development timelines.

The strategies outlined by the selected developers are promising; however, there is some uncertainty about whether they will all successfully reach the finish line. Each developer still needs to enter into a Memorandum of Understanding with HCIDLA and secure a location to build their projects before they can proceed. Given that some of these projects are a departure from the traditional supportive housing model, it is unclear whether future funding allocations from the State and the federal government will embrace these innovative approaches.

The City’s plan to conduct an outside evaluation of the process and outcomes associated with the Proposition HHH Challenge will improve the ability to replicate successes and apply lessons from unsuccessful projects.

Permanent Supportive Housing Ordinance

The City initiated an effort to make changes to its zoning code to reduce project costs and speed up land use approvals for Proposition HHH-funded projects. Existing land use entitlements such as the State’s Density Bonus program or the City’s Transit-Oriented Communities (TOC) program can be used to accomplish similar goals. However, these pathways do not account for the unique characteristics of supportive housing projects (e.g., smaller units, space for supportive services).

In April 2018, the City passed the Permanent Supportive Housing Ordinance. Key components of the ordinance are outlined below.

  • Facilitate ministerial approvals and increase the threshold that triggers site plan reviews from 50 units to 120 units (200 units in the Greater Downtown Housing Incentive Area). Site plan review can increase the time needed to begin construction, create uncertainty, and increase total project costs due to time delays.

In addition, the Department of City Planning noted that the 50 unit threshold has historically pushed some developers to reduce their projects to 49 units or less in order to avoid site plan reviews, even though the zoning capacity allows for additional units.

  • Increase the number of permanent supportive housing units that can be built by easing zoning restrictions that cause projects consisting entirely of studio apartments to reach their density limit before they fully maximize the amount of buildable space.
  • Ensure that space used for supportive services and community gathering areas within each housing development do not count toward total allowable floor area (FAR) restrictions.
  • Reduce development costs by eliminating the requirement to build parking spaces for supportive housing units. Vehicle ownership is significantly lower among the target population, and removing the requirement can save tens of thousands of dollars per parking space, especially those located in underground garages.[31]

Shortly after the ordinance was approved, two lawsuits were filed by community groups claiming that the City violated the California Environmental Quality Act (CEQA). Given the uncertainty caused by the lawsuits, Proposition HHH permanent supportive housing projects have been unable to take advantage of the tailored benefits offered by the ordinance

The City recently partnered with the State and crafted a bill (AB 1197) to make it easier to build supportive housing and emergency shelters without fulfilling certain CEQA requirements. According to the City, the legislation will increase the likelihood that the lawsuit against the Permanent Supportive Housing Ordinance will be dismissed or otherwise favorably resolved. The bill was signed by the Governor on September 26, 2019.

Executive Directive #13 and Proposition HHH Concierge

The Mayor issued Executive Directive #13 (ED13) in October 2015 to facilitate streamlined and prioritized case processing for all affordable housing developments. Although it was issued before Proposition HHH, the strategies outlined within ED13 apply to supportive housing developments. Three departments were included in ED13 – City Planning, Building and Safety, and HCIDLA.

Despite the existence of ED13 and other efforts to expedite projects, external stakeholders and respondents to the Proposition HHH survey completed in January 2019 provided critical feedback that indicated more needed to be done.

  • Expand the scope of authority of Executive Directive 13 by establishing priority case processing in other City departments such as Engineering, Department of Water and Power, and Fire Department.
  • Increase the number of dedicated staff across multiple departments to shepherd supportive housing projects through the approvals process.
  • Create a “one-stop-shop” for all permanent supportive housing projects. This interdepartmental task force would help expedite and prioritize permitting.

The City recently received a $1.5 million grant from United Way of Greater Los Angeles to create and fund the Housing Crisis Response Team within the Mayor’s Office of Citywide Homeless Initiatives. The funding covers a three-year period, and the team’s primary function is to oversee and implement the Proposition HHH Challenge.

The grant also provided funding for the establishment of an Affordable Housing Production Manager position (also referred to as the “HHH Concierge”). The HHH Concierge is responsible for designing policies and coordinating with HCIDLA staff, developers, and City departments to move projects to completion. In addition, the HHH Concierge is tasked with the development of a tracking system to improve information sharing and notification protocols across City departments.

The establishment of this position is encouraging and increases the likelihood that the 60 projects currently in pre-development will begin and complete construction as quickly as possible. However, given the City’s longstanding challenges in these areas, it is unclear why this did not occur sooner.

QUESTION #3:    What should the City do?

The performance of the program to date (i.e., high costs and lengthy development timelines) suggests that a course correction is required. Proposition HHH will eventually increase the overall supply of permanent supportive housing, but the City’s decision to conditionally award nearly all of the remaining funds without taking advantage of some of the strategies outlined above may represent a missed opportunity.

Recent developments indicate that some Proposition HHH funds that have been conditionally awarded may warrant a fresh look, either today or in the future. For example, the Proposition HHH Challenge has the potential to significantly reduce per-unit development costs and complete construction within two years. In comparison, the City’s traditional approach provides developers with two years to assemble funding. Similarly, developers who previously obtained land use entitlements may benefit from the Permanent Supportive Housing Ordinance, if it becomes available.

Most Proposition HHH housing projects are in the early or middle pre-development stages, and therefore, formal loan agreements have not been executed. This may provide an opportunity to reevaluate planned construction and financing activities. Making significant changes to projects that are at the latter stages of the pre-development process may not be feasible. However, the City should encourage developers to emulate what has been successful in other projects and incorporate emerging approaches to reducing Proposition HHH project costs and development timelines.

City Policymakers should consider the following recommendations in order to maximize the impact of Proposition HHH funds.

Recommendation #1 

Evaluate the feasibility of reallocating some Proposition HHH funds that have been conditionally funded, especially funds committed to housing projects with outlier development costs. This may free up funding for projects with lower per-unit costs or for temporary shelters and other facilities.

  1. If shared housing, prefabricated construction, or simplified financing are demonstrated to be meaningful and scalable strategies through the Proposition HHH Challenge, allow developers that have been previously awarded Proposition HHH funding to modify their project proposals.
  2. If AB 1197 facilitates timely resolution of ongoing litigation challenging the City’s Permanent Supportive Housing Ordinance, allow and encourage developers to reconfigure previously-approved HHH projects so that the unique characteristics of supportive housing units are incorporated into land use approvals.
  3. If previously-committed Proposition HHH funding becomes available, prioritize the development of facilities such as shelters, clinics, storage, and showers to help better manage the immediate needs of Angelenos experiencing homelessness.

Recommendation #2

Support the Proposition HHH Concierge’s efforts to streamline permitting and other processes to ensure that projects that are currently – or will soon be – in the development pipeline are completed as quickly as possible.

  1. Require City departments not covered by Executive Directive #13 (e.g., Water and Power, Fire, Engineering) to publicly and regularly report their progress on moving Proposition HHH housing developments to completion.
  2. If necessary, consider adding dedicated staff (either in City departments or on the Housing Crisis Response Team) to focus on these issues.

Proposition HHH tasks the Controller’s Office with performing financial audits for every year in which bonds are outstanding, or any bond proceeds remain unspent. The financial audit for FY2018 did not identify any significant irregularities or improprieties; however, there are two specific issues that needed to be resolved.

We will continue to monitor these issues moving forward and conduct subsequent financial audits, as required.

Read More

Proposition HHH Financial Audit

Proposition HHH tasks the Controller’s Office with performing financial audits for every year in which bonds are outstanding, or any bond proceeds remain unspent. The financial audit for FY2018 did not identify any significant irregularities or improprieties; however, there are two specific issues that needed to be resolved.

We will continue to monitor these issues moving forward and conduct subsequent financial audits, as required.

Timing of Proposition HHH Bond Issuances

As part of our review, we found that the City issued a Proposition HHH bond too early and incurred debt before projects were ready to begin using the funds.

The City issued its first Proposition HHH bond ($86,370,000) in July 2017. Due to the length of time it takes for projects to begin construction, only $3,676,308 was actually spent during that fiscal year. Rather than spending down the remaining available funds from the initial bond issuance, the City subsequently issued another bond ($276,200,000) in July 2018. As of June 30, 2019, the City spent only $26.8 million of the first bond and $35.7 million of the second bond.[32]

While the City Administrative Officer’s (CAO) Debt Management Group sought to issue the 2018 Proposition HHH bond in order to have funds available for a speedy rollout of planned projects, it is challenging to predict when bond proceeds will be needed for actual disbursement. Conditional commitments of Proposition HHH funds are made early in the process, and developers must secure additional funding and successfully navigate the City’s permitting framework before the loan is executed and construction begins. As a result, only a small portion of the available Proposition HHH bond proceeds have actually been spent.

Although the City is currently earning an estimated average annualized rate of 1.80% for the unused HHH bond proceeds, it is paying approximately 3.45% for Proposition HHH-issued bonds, resulting in an estimated loss of 1.64%.[33] As of June 30, 2019, the July 2018 bond issuance triggered an estimated $5.2 million in early net interest expense (estimated interest expense to be paid to bondholders less estimated interest earned on the issued bond proceeds) being incurred by City property taxpayers.

Going forward, the City should spend down proceeds from these previously-issued bonds and evaluate whether there are enough projects that are likely to begin construction before another Proposition HHH bond is issued. The City acknowledged these issues and decided to forego issuing an additional Proposition HHH bond in 2019.

Decentralized accounting authority

Another issue we identified during the FY2017-18 financial audit was a structural weakness where no single City department is responsible for program-wide accounting decisions.

HCIDLA is responsible for managing the housing component of the Proposition HHH program, as well as fulfilling the corresponding accounting activities. However, administration of the facilities component of the Proposition HHH program is split between the Office of the City Administrative Officer, which oversees program operations, and the Board of Public Works Office of Accounting, which is responsible for accounting-related activities.

This arrangement caused confusion during the audit, demonstrated a lack of consistent understanding of the departments’ roles and responsibilities, and created unnecessary financial risk. We recommended clarifying this process, and the City made some improvements. However, the lack of centralized accounting authority remains and may present problems in the future, as additional funds are spent.    

Recommendation #3

City Policymakers should formally establish centralized accounting authority for the Proposition HHH program.

Read More

Appendix A

Fiscal Year 2018 financial audit.

 

 

 

 

 

 

 

 

Read More

Appendix B

List of Proposition HHH housing developments.

Read More

Endnotes

[1] Proposition HHH tasked the Controller’s Office with performing financial audits for every year in which bonds are outstanding, or any bond proceeds remain unspent. Appendix A includes a copy of the financial audit that was conducted by Macias, Gini & O’Connell. The audit covers FY2018, which was the first year a Proposition HHH bond was issued. Financial audits will be conducted for subsequent fiscal years, as required.

[2] At least 80 percent of the funds must be used for supportive housing units and facilities and up to 20 percent of Proposition HHH funds can be used to develop income-restricted units.

[3] The City’s primary strategy for emergency housing solutions is through the Mayor’s A Bridge Home program. As of August 2019, the City has approved funds for 19 projects with a total of 1,450 beds, 247 of which have been completed. The City is assembling funding for an additional 610 beds.

[4] The City is encouraging developers of previously-approved projects to replace a portion of their Proposition HHH commitment with funding from the County’s No Place Like Home program. To date, these efforts have reduced overall Proposition HHH funding commitments by approximately $20 million. The City intends to use any additional Proposition HHH funds obtained through this process to initiate another call for projects, which would add more housing units.

[5] The Mayor’s Proposition HHH overview website reads “…a $1.2 billion bond to build approximately 10,000 units of supportive housing in the City of Los Angeles.” A January 2019 City Council motion (Council File 17-0090-S11) reads “…it was anticipated that the $1.2 billion would fund approximately 10,000 supportive housing units.”

[6] This does not include approximately 975 supportive housing units anticipated through the Proposition HHH Challenge due to uncertainty about whether each of those projects will be successful. Developers of those projects still need to enter into a Memorandum of Understanding with HCIDLA and secure locations to build their projects. If all of these projects are completed as currently designed, there will be 6,848 supportive housing units developed through Proposition HHH.

[7] These calculations do not include the 35 projects that are pending City approval.

[8] The most expensive project, located in Koreatown/Pico-Union, exceeds $700,000 per unit and consists of 41 units with a mix of studios, one-, two-, and three-bedroom apartments.

[9] HCIDLA noted that some financing sources do not cover the cost of land. As a result, a higher Proposition HHH subsidy is often required to close the funding gap.

[10] Many projects in the Proposition HHH development pipeline were approved through TOC. A recent lawsuit accused the City of violating the legislative procedures for amending the General Plan and zoning ordinance when it implemented the TOC guidelines. According to the City, there is currently no court order that prevents a previously-approved TOC project from moving forward, nor is there currently anything preventing developers from submitting TOC applications for new projects. However, the uncertainty caused by the litigation may cause developers already in the Proposition HHH pipeline to pursue a different pathway to obtaining land use approval. If the changes are significant, developers may need to re-apply for approvals from multiple funding sources, which would likely add costs and delay the project.

[11] The Governor signed the bill on September 26, 2019.

[12] In June 2019, the City’s Housing and Community Investment Department (HCIDLA) reported that every dollar of Proposition HHH funds generated $2.40 in other funding sources (which includes tax credits awarded by HCIDLA).

[13] See Appendix A for a copy of the financial audit that was conducted by Macias, Gini & O’Connell on behalf of the Controller’s Office. The audit covers FY2018, which was the first year a Proposition HHH bond was issued. Financial audits will be conducted for subsequent fiscal years, as required.

[14] See Appendix B for an overview of Proposition HHH housing developments. Proposition HHH housing data was obtained directly from the City’s Housing and Community Investment Department and the City’s Proposition HHH dashboard (https://hcidla.lacity.org/hhh-progress). This data was supplemented by information included in HCIDLA staff reports, City Council Files, and recurring reports submitted to the Proposition HHH Citizens and Administrative Oversight Committees.

[15] The City is encouraging developers of previously-approved projects to replace a portion of their Proposition HHH commitment with funding from the County’s No Place Like Home program. To date, these efforts have reduced overall Proposition HHH funding commitments by approximately $20 million. The City intends to use any additional Proposition HHH funds obtained through this process to initiate another call for projects, which would add more housing units.

[16] For example, the Mayor’s Proposition HHH overview website reads “…a $1.2 billion bond to build approximately 10,000 units of supportive housing in the City of Los Angeles.” A January 2019 City Council motion (Council File 17-0090-S11) reads “…it was anticipated that the $1.2 billion would fund approximately 10,000 supportive housing units.”

[17] This does not include approximately 975 supportive housing units funded through the Proposition HHH Challenge due to uncertainty about whether each of those projects will be successful. Developers of those projects still need to enter into a Memorandum of Understanding with HCIDLA and secure locations to build their projects. If all of these projects are completed as currently designed, Proposition HHH will provide approximately 6,848 supportive units. The Proposition HHH Challenge will be discussed in greater detail later in this report.

[18] The Proposition HHH Citizens Oversight Committee is comprised of four members appointed by the Mayor and three members appointed by the City Council. The committee is tasked with: (1) reviewing and proposing expenditures of bond proceeds under HHH; and (2) advising and making recommendations to the AOC on items relating to HHH, including policies and projects. The Proposition HHH Administrative Oversight Committee is comprised of the Mayor, the City Administrative Officer, and the Chief Legislative Analyst, or their respective designees. This committee is tasked with making recommendations to the Council about the expenditure of bond proceeds as well as HHH policies and projects.

[19] GSD staff, labor from hiring halls, and preapproved subcontractors are working on these projects.

[20] Operating costs for four of these projects are being supported by the County or other non-City sources.

[21] The estimates are attributed to LAHSA in an October 2015 report to the Mayor and City Council (Council File 15-1091). The $350,000 per unit estimate was also cited in news reports at the time of the November 2016 ballot initiative. Gale Holland, “L.A. Officials Launch Campaign for Homeless Housing Bond Measure,” Los Angeles Times, September 12, 2016, https://www.latimes.com/local/lanow/la-me-ln-homeless-bond-kickoff-20160912-snap-story.html; Doug Smith, “Q&A: Proposition HHH Would Raise Funds to Build Homeless Housing in L.A.,” Los Angeles Times, October 19, 2016, https://www.latimes.com/local/california/la-me-ln-prop-hhh-qa-20161017-snap-story.html; A Martinez, “10 Things You Need to Know About Measure HHH,” 89.3 KPCC, November 11, 2016, https://www.scpr.org/programs/take-two/2016/11/04/52952/10-things-you-need-to-know-about-measure-hhh/.

[22] Developers who have not identified a general contractor at the time of application must conduct a competitive bidding process using a Request for Qualifications (RFQ) and award a contract based on price and other criteria. General contractors who are identified a part of the project team at the time of application must provide at least three subcontractor bids for each major trade such as carpentry, electrical, and plumbing.

[23] Zillow, Los Angeles Home Prices and Values, https://www.zillow.com/los-angeles-ca/home-values/; California Association of Realtors, California Housing Market Update: Monthly Sales and Price Statistics August 2019, https://www.car.org/marketdata/data/countysalesactivity.

[24] The average cost per unit was calculated by using the total development cost of projects under construction ($657,544,591) and dividing it by the total number of units (1,260) in those projects.

[25] HCIDLA noted that some financing sources do not cover the cost of land. As a result, a higher Proposition HHH subsidy is often required to close the funding gap.

[26] These estimates were calculated by comparing the original total development cost listed in each project’s HCIDLA staff report to updated costs provided by HCIDLA in August 2019. The number of units for each project in this analysis remained the same during this period.

[27] The average per unit development cost was calculated by using the total development cost of projects in pre-development ($2,122,251,550) and dividing it by the total number of units (4,150) in those projects.

[28] One of these projects was initiated outside the traditional call for projects model in order to identify an innovative approach to building housing on a City-owned property located at 11010 Santa Monica Blvd. For purposes of this analysis, this project was included. In addition, Council Districts 8 and 12 recently requested 30-day delays for three projects located within their districts, in order to conduct additional community outreach. For purposes of this analysis, these projects were included.

[29] The average per unit development cost was calculated by using the total development cost of projects pending Council approval ($1,114,440,463) and dividing it by the total number of units (2,230) in those projects.

[30] The Permanent Supportive Housing Ordinance and Executive Directive #13 will be discussed in greater detail later in this report.

[31] The target population is defined as “persons with qualifying lower incomes who: (i) have one or more disabilities, including mental illness, HIV or AIDS, substance abuse, or other chronic health condition, and are homeless as defined by any Los Angeles City, Los Angeles County, State of California, or Federal guidelines; or (ii) are chronically homeless, as defined by any Los Angeles City, Los Angeles County, State of California, or Federal guidelines.”

[32] This data was extracted from the City’s Financial Management System (FMS).

[33] This concept is known as “negative arbitrage” and occurs when the interest rate a borrower pays on its debt is higher than the interest rate the borrower earns on the monies deposited or invested.

Read More