A Massive Administrative Reorganization in California Brings Promise, and Some Trepidation

On January 10, 2025, Governor Gavin Newsom of California unveiled his budget plan for 2025-26. This $322 billion budget included one critical component for the state’s many housing professionals: a proposed reorganization of the numerous housing programs administered by the executive into a new California Housing and Homelessness Agency (CHHA).

Known as the Governor’s Reorganization Plan (GRP), this would mark the first major executive administrative shakeup since the last GRP, enacted under Governor Jerry Brown in 2012. Newsom’s current proposal would split the currently active California Business, Consumer Services, and Housing Agency (BCSH) into two agencies, with the newly created CHHA overseeing California’s Department of Housing and Community Development (HCD), the California Housing Finance Agency (CalHFA), California’s Interagency Council on Homelessness, and the state’s Civil Rights Department.

The plan also proposes creating a new Housing Development and Finance Committee within the CHHA, which would oversee and consolidate the application and award process for affordable housing funding programs.

Local advocates generally agree that this reorganization comes as a welcome change, representing hope for a more efficient, affordable housing production environment. “The California Housing Consortium (CHC) is encouraged by the goals of this effort,” says Marina Espinoza, CHC’s policy director, emphasizing that those goals “ensure affordable housing gets the attention it deserves both at the agency level and in the Governor’s office.”

Researchers also say this is a step in the right direction. “I think the governor and his team, particularly BCSH Secretary Tomiquia Moss, should get a lot of credit for saying: ‘We can do better,’” says Ben Metcalf, managing director of the Terner Center for Housing Innovation at UC Berkeley and former HCD director. “I also really respect this desire by Democratic leadership to try and make the system of government work better and not just throw more money at a problem.”

Generally, the impetus for Newsom’s current GRP stems from the relatively unintentional administration of most housing funds in California. “The last reorganization of all these pieces that wound up in BCSH was back in 2012, and we generally support the direction of adding a Cabinet-level role for housing,” says Jenna Abbott, executive director for the California Council for Affordable Housing. “At that time, placing the housing piece into an agency with business and consumer affairs felt a bit like a stop-gap solution. It was the best place at the time, but it also felt like the piece that didn’t fit.”

Although California certainly needed affordable housing in 2012, that need only grew in the intervening decade. By the 2020s, Abbott says, “housing had become a much bigger issue in California.” Though a much more significant amount of money was being funneled into BCSH toward housing, the field still didn’t have a cabinet-level secretary and continued to feel like “the odd piece out.”

“Having housing under the consumer services umbrella as an add-on just doesn’t make any sense anymore,” Abbott says.

The GRP is Currently Progressing to Plan
Under current regulations, a GRP is a bill the Governor must submit to the legislature. Following that submission, a unique independent oversight agency called the Little Hoover Commission must be allowed at least 30 days to review the proposal, after which the legislature has 60 days to reject the proposal. Without rejection from either the state Senate or Assembly, the GRP would take effect.

Governor Newsom submitted his proposal to the Little Hoover Commission on April 4 and the legislature on May 5. The Little Hoover Commission submitted its non-binding report to both the governor and the legislature on May 29. Now, the legislature has until July 4 to adopt a resolution by simple majority vetoing the plan; otherwise, the GRP will take effect on July 5.

Abbott says that the speed of this GRP is welcome, particularly considering the generally unhurried pace of government programs. However, she emphasizes that this rapid change should progress with careful deliberation and thoughtfulness, lest the reorganization usher in unintended disruption. “The impetus is to develop it very quickly. We certainly don’t want to slow things down, but when government starts to move quickly, our eyes get a little wider.”

Abbott says that cementing the structure of the new CHHA before a budget is even passed has raised some pointed comments from the Legislative Analyst’s Office. “In essence, this means that if the legislature passes the reorganization according to the proposed timeline, “they would be agreeing to the new structure before the money has been appropriated for it,” she says.

One way to ensure that this speed does not sacrifice quality is to include as broad a range of expert voices as possible, says Espinoza, who suggests that the state should convene a Blue Ribbon Commission to conduct a more in-depth study on the issues of affordable housing funding in California. “This could be a forum for developers to have direct conversations with the Administration about the challenges they experience and to work toward solutions collaboratively.”

Abbott agrees and stresses that this coalition of advocates should be as broad as possible so that the needs of every developer, big and small, are represented at the state level. “We’ve taken a very active part in attending and speaking at hearings and are talking with our colleagues in this affordable housing space to say, ‘Are you coming?’ so that we can make sure that it’s not just us voicing our concerns. And we’ve found that it’s not – everyone is concerned.”

Metcalf says that the GRP would benefit from additional resources for the reorganization process. “I would have loved to have seen a bolder ask for resources, such as changing management support, capacity trainings, IT investments, and organizational health consulting, to really unlock more value as a comprehensive reorganization,” he says. Metcalf himself helped oversee a large reorganization in the 2010s while serving as deputy assistant secretary for Multifamily Housing Programs at HUD. “It really improved efficiency outcomes and processing times and the like. But that took a big upfront commitment of dedicated governmental funding.”

However, “what we’re seeing is some pushback” on the allocation of those resources, Metcalf says, “because affordable housing advocates are frustrated that the budget doesn’t contain new money for affordable housing and homelessness.” This creates a paradox where affordable housing advocates view spending on the reorganization as leverage to negotiate for more housing investments, even though such a reorganization, if careful and comprehensive enough, will make any future dollars more impactful and efficient.

Fragmentation Causes Needless Delay
According to local advocates and developers working in California, the current housing landscape has become unnecessarily fragmented, driving up costs and causing delays for otherwise shovel-ready projects. Indeed, in April, the Terner Center published a well-timed report showed that, on average, each additional public funding source added to a California-based Low Income Housing Tax Credit project adds four months to the pre-construction timeline, and is associated with an increase of over $20,000 in per-unit total development costs.

The report analyzed 699 new construction projects that commenced between 2020 and 2023 and found that 92 percent relied on at least one public funding source besides LIHTC; 76 percent relied on at least two.

Though Metcalf recognizes that public money often raises the cost of development by nature—as things, like “higher wage standards, better quality of construction, durability, energy efficiency improvements, transparency in procurement” bring higher costs for a public good—the months-long delay found by the report is, he says, a real cause for concern. He notes that adding unnecessary delay because of fragmented funding sources is “a controllable piece that has no policy benefit and must be a priority for addressing.”

Today, those delays are costing more than ever. “The affordable housing industry, from a cost of construction standpoint, is really a victim of larger macroeconomic factors,” Metcalf reasons. “And what we’ve been seeing the last few years is increasing labor shortages, increasing supply chain and material price problems and issues in the broader workforce.” Now, he says, even a single month of delay will cause costs to rise faster on the construction side than the potential revenues.

Abbott says these delays often affect projects that would otherwise be ready to break ground and accelerate towards desperately needed affordable housing. “We are very aware of projects that are shovel-ready and are just waiting on the final piece of funding from HCD to break ground.” This can go beyond causing simple delays; in worst-case scenarios, Abbott says that all the projects’ other commitments run out, “and the project just gets shelved, all because there wasn’t a timely response.”

Even if macroeconomic challenges level out, delays due to regulatory fragmentation will still add unnecessary cost to projects. “Maybe it will be less than $20,000 per unit in the future, but it will certainly still be a decently sized number,” says Metcalf.

One factor that has exacerbated this administrative fragmentation is the fact that LIHTC and bonding allocation are controlled by the treasurer’s office, rather than the governor’s office or another entity that deals more closely with housing policy generally. Under the California State Treasurer’s Office, the California Tax Credit Allocation Committee (CTCAC) and the California Debt Limit Allocation Committee (CDLAC) administer the state’s LIHTC program and their tax-exempt bonds, respectively.

Though 39 states elect their treasurer to a constitutional office, only California designates LIHTC allocation solely to the treasurer’s office.

This structure is a product of California’s political history, says Metcalf. “The 1986 Tax Act arrived at a moment when there was a Republican governor—George Deukmejian—but a Democrat-majority legislature and a Democrat treasurer.” Into that divided political environment, the state government had to figure out how to administer the then-nascent LIHTC program. The treasurer, says Metcalf, “was really effective and well regarded,” pushing state lawmakers to place LIHTC allocation under the constitutional purview of the treasurer’s office.

However, agencies outside the Treasury developed and administered other funding sources. “In subsequent generations, as the state affordability crisis increased, and as the need for affordable housing subsidy from the state increased, and as the voters continued to demonstrate a willingness to back large bond measures to create money for affordable housing, the logic then flowed for it to go into the state’s Department of Housing Community Development (HCD),” says Metcalf. “So over time, a big funding apparatus subsequently emerged to do affordable housing gap money under the governor.”

At the same time, he says that CalHFA developed into an “autonomous entity that had its own board and could be nimble to finance, engage with the capital markets, and make loans for down payment assistance and multifamily. So, there was always a logic to keeping that somewhat separate from HCD.”

As the years turned and the dollars flowing towards affordable housing production increased, “each funding source evolved and got bigger and more complicated and more fragmented,” says Metcalf. “It’s pretty clear that people didn’t quite realize the downstream consequences of those decisions decades later.”

CTCAC and CDLAC – Should They Stay, Or Should They Go?
Though the now-proposed GRP seeks to amend those unintended consequences, legally, it can’t reorganize CTCAC and CDLAC into the new CHHA since they remain constitutionally bound to the treasurer’s office.

Advocates have yet to resolve whether the governor should pursue the separate goal of folding CTCAC and CDLAC—and thus LIHTC and bonding allocation authority—into CHHA.

Though this would create an actual ‘one-stop shop’ for affordable housing developers, some advocates worry that such a reorganization would disrupt one of the few well-functioning components of today’s funding landscape in California. CTCAC and CDLAC are “an example of what’s working well,” says Abbott. “It’s relatively quick. It’s very transparent. They have a very public process for developing who qualifies for the tax credits.”

Abbott cautions that any attempt to reorganize CTCAC and CDLAC activities into the new CHHA should proceed deliberately and with deference to the already-functional processes at those two agencies. “We need to make sure that the thing that is working exceptionally well for developers creating affordable housing at scale doesn’t go sideways.”

As with Abbott, Espinoza also desires that the reorganization process shouldn’t touch the existing structure of CTCAC and CDLAC. “We hope these programs will continue to operate as they do today, even after this reorganization. Any changes that would affect these two key pillars of the housing finance system could disrupt their existing processes, which developers find work relatively well.”

However, Metcalf cautions that keeping CTCAC and CDLAC siloed from the rest of California’s affordable housing ecosystem may hinder the overall goal of reducing cost and eliminating unnecessary barriers to affordable housing production. He points to a recent analysis from the California Housing Partnership (CHP) that uses a regression model of cost data from 2015 to 2024 to find that the fragmentation of funding sources adds nearly $500 million a year in unnecessary costs to affordable housing development. The report makes explicit that to achieve maximum cost savings, a reorganization “necessarily must include all needed state soft financing sources,” including those from CTCAC and CDLAC in addition to the agencies already targeted by the current GRP.

Metcalf says that the Terner Center “independently reviewed and basically agrees with” the CHP report. With those staggering savings in mind, Metcalf asks, “Why wouldn’t you put in the $5 to $10 million in one-time funds today to try and solve for that down the road? Why wouldn’t you try and come up with some sort of a strategy to address CTCAC and CDLAC being apart from this new organization?”

“The GRP is beneficial on its own, certainly. But if you can fix this, that’s a lot of money saved in perpetuity,” he says.