For years I have maintained that it is too easy to get a proposition on the ballot in California. This leads to a seemingly endless ballot that is stuffed with measures that many voters do not understand. This November, we have 14 statewide measures on the ballot, but at least for the first time in many years there is no ballot measure concerning dialysis centers.
In this column, I want to focus on two measures that strike me as helping special interests at the taxpayers’ expense.
The first is Proposition 37, Second Mortgage Homebuyer Program and Revenue Bond Initiative. The second is Proposition 38, Immunology and Immunotherapy Research Funding Initiative.
Both appear to accomplish worthy objectives at little or no cost to the state, but when you actually read them, your “Spider-man sense” should tingle alerting you to be concerned.
Proposition 37 authorizes the state to issue $25 billion of bonds to provide financing for certain qualified home buyers. Generally, qualified middle-class homebuyers would obtain financing for their principal residence provided that the home price doesn’t exceed certain thresholds. The home price threshold can increase if the builder “opts into higher labor standards” which generally means the builder agrees to use union labor. The homes must be new housing as defined in the measure.
The buyer must obtain a qualifying first mortgage of 80% of the home’s purchase price and must make a 3% downpayment. The remaining 17% of the purchase price will be funded by the state-issued bonds used to fund second mortgages on the borrowers’ homes.
The $25 billion of bond proceeds will be made available to certain “qualified mortgage lenders” who would use the proceeds to make loans under the program to qualified buyers who meet certain underwriting criteria. The mortgage lender charges the borrower fees for its services, acts as loan servicer and remits loan payments to the state to repay the bonds.
The California legislative analyst estimates that this will not cost the state anything because the costs of repayment will be born entirely by homeowners who borrowed money to acquire their homes.
Unfortunately, the official estimate does not appear to consider the impact if a larger than expected number of borrowers default.
What could possibly go wrong when borrowers have only 3% equity in their house and mortgage rates increase? If this situation sounds familiar, this is precisely what happened 20 years ago when mortgages could not be repaid and the investors holding the mortgages lost their money.
In this instance, the bonds will be issued by the California Housing Finance Agency in the form of revenue bonds, which the taxpayers are not obligated to repay. So, his time it is CalHFA that will be holding the bag and suffer a significant adverse credit rating if it defaults on the bonds because of homeowner mortgage defaults.
You will see a lot of advertisements supporting this proposition as a low-risk way of providing home financing because it is financially supported by the California Association of Realtors and several carpenters’ unions.
Proposition 38 authorizes issuing $8.4 billion of general obligation bonds to fund immunology and immunotherapy research. The legislative analyst estimates that, over the next 20 years, it will cost between $10 and $12 billion to repay the bonds with interest.
Normally, I would support this type of measure because they ultimately encourage the biotech industry to create high-paying jobs in California. But this measure is somewhat different.
It creates the Advisory and Accountability Research Council, which will direct what research will be funded based on criteria set forth in the measure. However, unlike previous similar propositions where grants for medical research were awarded through a competitive process that gives all competitors an equal chance, this measure channels half of the state funds to one institution based on arbitrary criteria chosen by the proposition’s authors.
Not surprisingly, that institution is heavily funded by those who back the proposition.
The institution’s principal funders have raised about $13 million through Aug. 31 to fund a Yes on 38 advertising campaign. No money has been raised to oppose the measure.
There are several other problems with this proposition. Only projects involving immunotherapy qualify for funding. Other important biomedical research projects will not qualify. Furthermore, funds used to repay bonds would likely be diverted from other educational funding.
As you can see, there is more to these propositions than meets the eye and I hope you will join me in voting against them.
Jim de Bree is a Valencia resident.
