CALIFORNIA, USA — CalMatters originally published this story.
Starting in 2021, California took more interest in constructing affordable student housing. Since then, it’s been a roller coaster ride.
Last year, Gov. Gavin Newsom and lawmakers agreed to distribute $4 billion to the state’s three higher education systems with a mix of loans and grants through 2024-25 — which would add at least 20,000 beds at affordable rents. Fast forward to January 2023, California’s facing a then-$22.5 billion deficit, and his administration wanted to delay some of the money by at least a year.
With his revised May budget, Newsom wants to restore some of the money he wanted to be delayed. But other housing funds would still be diverted. The state budget hole has grown to $31.5 billion in that time.
Here’s what you need to know about a pot of $4 billion.
What is this pot of $4 billion?
Technically, it’s two pots or two pots nested within one larger pool.
Pot one is roughly $2.2 billion in grants for the University of California, California State University, and California Community Colleges.
Pot two is $1.8 billion in loans for the same systems.
So what’s new?
Newsom found a new way to fund pot one this month, overruling his January plan to delay $250 million in state grants to build dorms with low rents.
The move would mean the University of California and California State University get all the grant money promised without delay in 2023-24, while community colleges would receive all but $95 million and the rest the following year.
But Newsom still wants to delay $1.8 billion in affordable student housing loans for campuses by a year — that’s pot two.
What were the original plans for the $4 billion?
The money is the total of two programs — pots one and two — birthed in the last two years of state budgets.
The state’s interest in student housing is new, a response to the hundreds of thousands of college students in desperate pursuit of affordable homes. The supersized down payment on more affordable beds underscores the changing attitudes about college affordability and what the government’s role should be in helping students cover not just tuition but the total cost of attending school — including housing.
While the U.C. and CSU have historically self-financed their student housing, this money is designed to help the campuses provide students with less expensive housing.
So far, about $1.4 billion in grants has been doled out to the systems — all part of the 2022 state budget. Last year’s budget promised another $750 million in housing grants to the U.C., CSU, and community colleges in the spending plan due in June.
Annual rent for dorm beds built with these grant dollars will be 15% of a county’s “area median income” — about $800 monthly in Los Angeles.
Also, last year’s budget deal was a plan to distribute zero-interest loans to the U.C., CSU, and community colleges in 2023-24 and 2024-25 totaling $1.8 billion.
The idea is that the campuses take the money, build affordable dorms — though what reasonable means isn’t yet defined — and then repay the debt over time with student rent. Eventually, the pot is refilled, allowing the state to underwrite future campus construction for student, staff, and faculty housing.
What happened between January and May?
With a then-projected state deficit of $22.5 billion, Newsom started the budget negotiating season in January by proposing to delay the timeline of the 2022-23 budget deal with lawmakers. Rather than issuing $750 million in grants for 2023-24, the governor wanted to send $500 million this fiscal year and the remaining $250 million next fiscal year.
He also proposed stalling the zero-interest loan program by sending the campuses no money in 2023-24 and distributing the loan dollars in the subsequent two years.
But in his May revision to the budget, Newsom pursued a different tack that frees the state from $1.1 billion in immediate financial obligation and sends all the housing grant money to the U.C. and CSU that last year’s budget deal promised without delay.
Under the new plan, the U.C. and CSU would issue bonds to cover their entire share of the housing grant — both the amount they got for 2022-23 and the sum they were promised for 2023-24 — for a total of $1.1 billion.
California would cover the debt the U.C. and CSU would absorb, which the governor’s administration estimates to be about $30 million annually for the U.C. and $45 million for the CSU. The U.C. told members of the Assembly on May 16 that if interest rates on borrowing rise, the U.C. would need to come back to lawmakers to get more than $30 million a year.
While the bond route gives the state fiscal breathing room now, an analyst with the Legislative Analyst’s Office told senators last week that the final price tag will be 1.4 times the cost of the projects that had the state supplied the money upfront. The added costs are due to ongoing interest payments adjusted for inflation. More UC and Cal State debt also affects their ability to borrow for other projects. Still, the analyst called the debt-financed approach “reasonable.”
Will the loan program be funded this coming year?
The governor still wants the revolving loan program delayed by a year, something repeatedly rejected by lawmakers, including Assemblymember Kevin McCarty, a Democrat from Sacramento and chairperson of the budget subcommittee on education.
“We know if we’re going to get to the number one issue, we discussed earlier, enrollment growth, we need the student housing to get there,” he said on May 16. “We’ll be working with the administration and hope to come to a conclusion that allows us not to delay the student housing revolving loan fund.”
Nothing about the grant program’s required ultra-low rents would change. Nor would this shift in financing delay construction projects for student housing, U.C. and Newsom administration officials have said.
Seija Virtanen, a U.C. government relations senior official, said at a May 16 Assembly hearing that the U.C. would enroll 8,000 new California undergraduates this fall, nearly double the 4,200 the system projected in March. While that responds to lawmaker pressure to have the U.C. educate more Californians after it kept its in-state student population flat this year, the enrollment growth underscores the system’s need to generate more housing as it pursues an aggressive expansion plan.
Lack of consensus over community college housing grants
The governor’s May plan for the housing grants ensures the community colleges get 50% of the total money disbursed between 2022 and 2024, while Cal State gets 30% and U.C. receives 20%.
That breakdown has privately frustrated U.C. officials, who’ve implied the system, not the community colleges, have the experience to build student housing, a point previously echoed by legislative analysts.
A UC official told lawmakers in May that because the system received $389 million out of the total $437 million promised, the U.C. can only afford to develop one of the six new construction projects it submitted to lawmakers for review. Lawmakers would likely pick the projects the U.C. and Cal State could fund with the remaining dollars in upcoming budget bill language, a Newsom finance official wrote to CalMatters.
Diminishing what community colleges receive in housing dollars has been a theme in this year’s budget talks.
Most recently, a legislative analyst recently told senators that she recommends no new money goes to the community colleges for student housing. “For the community college projects, we recommend not doing any projects at this time, revisiting down the road,” Jennifer Pacella, deputy legislative analyst at the Legislative Analyst’s Office, said at a Senate hearing on May 17. She said the state could distribute housing vouchers or other aid to needy students instead.
The senators present weren’t persuaded.
“It’s a strain when we have students competing with families to try to get access to the tiny percentage of affordable housing we have across the state and particularly in places like L.A.,” said Sen. Lola Smallwood-Cuevas, a Democrat from Los Angeles.
Pacella also cautioned that her team predicts less overall state revenue than the governor’s office, meaning steeper cuts may be on the horizon.
The community college system, for its part, has defended the allocation as necessary for its students, who are generally poorer than U.C. and CSU students and in dire need of housing. The state enrolls more community college students than the U.C. and CSU combined.
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