Dispute holds up state housing funding

$2 billion for homeless is going unspent while diversion of money for the mentally ill is challenged in court.

SACRAMENTO — Nearly two years after California lawmakers approved a $2-billion bond to help finance new housing for the state’s homeless, not a penny has been spent, and it’s unclear when any of the money will be available.

The dollars are tied up in court as a Sacramento attorney challenges the state’s plan to pay off that debt with money California voters approved in 2004 for mental health services. The funding, the attorney contends, should not be diverted from treatment programs, even if the mentally ill benefit from the housing. State housing officials say they don’t know how long the litigation will take to resolve.

The delay is causing deep frustrations. Over the last year, homelessness increased nearly 14% in California and now affects more than 130,000 people in the state — a quarter of the nation’s homeless population. The lack of funds is slowing the amount of housing that can be built, said Ruth Schwartz, co-founder and executive director of the L.A. nonprofit Shelter Partnership.

“We’re all disappointed, because the need is immediate,” Schwartz said.

The idea for the homeless housing program originated in January 2016. State Senate President Pro Tem Kevin de León (D-Los Angeles) proposed a $2-billion bond to finance new and rehabilitated housing for mentally ill people living on the streets.

Money to repay the loan would come from revenue generated by Proposition 63, a 1% income tax surcharge on millionaires passed in 2004 that funds mental health services. De León and other supporters argued that building housing for chronically homeless people with mental illness met the intent of the 2004 initiative. Gov. Jerry Brown signed a pair of bills authorizing the bond in summer 2016.

But litigation stalled the effort. Mary Ann Bernard, an attorney from Sacramento, says the proposal is illegal. The California Constitution typically requires voter approval for all bond measures, and Proposition 63 didn’t specify housing construction as one of the ways money could be spent.

Bernard is relying on a 2006 letter from the state attorney general’s office that cast doubt on a prior proposal to spend the mental health dollars on housing bonds, a plan that was later abandoned.

“We conclude that strong arguments would support a finding by a court that the securitization of funding from Proposition 63 to issue housing bonds for mentally ill homeless individuals is inconsistent with the intent of Proposition 63 and that any state contract to secure these bonds would create an unconstitutional debt,” said the letter, first reported by Sacramento’s Capital Public Radio.

Most of the revenue generated by the income tax surcharge now goes to local mental health agencies to spend on crisis intervention, prevention, employee training and similar programs.

Bernard, who previously represented state mental hospitals outside California, said she filed suit to ensure the money provided the most help to the state’s severely mentally ill residents.

Hundreds of millions of dollars in treatment money could be diverted toward interest and administrative payments to support the bond, Bernard said. She also believes that cities and counties are often reluctant to approve homeless housing, leading to fewer new homes funded by bond money than proponents suggest.

“I recognize that this housing is needed, but stealing treatment money from the severely mentally ill is despicable and counterproductive,” Bernard said.

Some mental health advocates share Bernard’s concern about the money being spent on a housing bond when needs for services remain high.

“It was a treatment-first law, not a housing-first law,” said Rose King, who cowrote the 2004 initiative.

The next hearing in the case isn’t until July, in Sacramento Superior Court. With the bond money tied up, De León says he’s looking at potential legislation to address the problem.

“The court process can be slow and given the tremendous scope of this statewide crisis, we don’t have the luxury for a longwinding court review,” he said in a statement. “We’ve been working on options to get these critical investments to local communities as soon as possible.”

The delay is affecting more than homeless housing. Homeless service provider PATH Ventures plans to build 60 units of permanent supportive housing near Sunset Boulevard and the 101 Freeway in Hollywood. Amy Anderson, executive director, says the group hopes to tap into the more than $600 million set aside in the state bond for developments in Los Angeles County.

But with that funding unavailable, Anderson is applying to use money from the state’s cap-and-trade program, which requires companies to buy permits to release greenhouse gas emissions — dollars reserved for development near transit stops. She said she would have preferred to leave those funds for other low-income housing. “We’re eating up that resource instead of using a resource that was more specifically targeted to the kind of building that we’re doing,” she said.

In the Los Angeles area, the homeless population continues to grow, according to a county report released this month. The increase is occurring despite the thousands of beds recently added for the homeless and approval of a local bond measure for housing and a sales tax increase to cover services. The annual budget shortfall in the county’s homelessness program may now top $270 million, according to a Times analysis.

Mayors of California’s 11 largest cities, including L.A. Mayor Eric Garcetti, have endorsed new legislation to provide $1.5 billion in state funding to help finance new homeless housing and provide rental assistance. L.A. County has by far the state’s highest homeless population — nearly 59,000 people — and would receive the largest amount of revenue from the bill.

The money would come from the $6.1-billion tax revenue windfall anticipated from the coming year’s budget. Brown, however, has proposed using most of that cash for reserves or unexpected costs in the event of an economic downturn or a repeat of this fall’s wildfires.

The governor’s office declined to comment on the litigation over the $2-billion homeless bond. Evan Gerberding, a spokeswoman for the California Department of Housing and Community Development, said in a statement that the administration hopes the money will be available soon.

“The administration remains committed to providing support for homeless Californians and people living with mental illness, and we are eager to get assistance into the hands of those who would benefit from the program as soon as possible,” Gerberding said.