Department of Housing and Community Development

Suspension of Employee Housing Program

Employee Housing Act. The Employee Housing Act applies to two types of employee housing: (1) living quarters provided for five or more employees by their employer and (2) housing accommodations in rural areas for five or more agricultural workers that are not provided in connection with any work place. The act requires the owner to maintain these types of housing in compliance with certain minimum health and safety standards, developed by the Department of Housing and Community Development (HCD), and to obtain a permit from HCD prior to allowing the housing to be occupied. The HCD has primary enforcement authority unless a city or county assumes the enforcement responsibilities pursuant to the act. Currently, ten counties enforce the program (Kern, Merced, Monterey, Napa, Sacramento, San Joaquin, San Mateo, Santa Cruz, Stanislaus, and Tulare). Fresno recently discontinued its program, returning enforcement in its county back to the state.

HCD’s Role in Enforcing the Act. The HCD’s responsibilities under the act are to annually inspect proposed employee housing facilities, issue permits to conforming facilities, and reinspect non–conforming facilities; locate employee–housing facilities operating without permits and prosecute serious offenders; and monitor local government enforcement of the act. The department estimates that 765 facilities with approximately 19,600 beds for workers are subject to the act’s requirements. It further estimates that 90 percent of the facilities are for the agricultural workforce, while 10 percent are for other industries (such as railroads and ski resorts). Currently, the fee structure for state permitted facilities is $35 for issuance of the Permit to Operate, plus $12 per bed or lot. The average fee is about $400 per facility.

Recent Funding History. In 2007–08, the program had a budgeted level of $1.1 million, which was funded with a combination of the fees charged to owners of the housing units ($231,000) and General Fund monies ($846,000). Last year, when the Governor proposed reducing the General Fund share of program support by $85,000, the Legislature adopted budget language allowing the department to increase fees to offset the reduction. However, the Governor subsequently vetoed the language as well as the remaining General Fund support ($761,000), leaving only $231,000 in fee reimbursements to fund program activities.

Governor’s Proposal Has Some Potential Problems. The 2009–10 budget proposes to suspend the program for an unspecified period and grant local jurisdictions the discretionary authority to take over the state’s Employee Housing Act duties. Accordingly, the budget proposes elimination of the fee authority for 2009–10.

We have several concerns with the proposal. While the proposal grants local jurisdictions the authority to enforce the act, it does not require them to do so. Thus, there is no assurance that there would be any level of enforcement while the state program is suspended. Since local governments currently have the option to provide these services and most choose not to do so, we have no reason to believe that a significant number of jurisdictions will rush to take on the enforcement responsibilities under the Governor’s proposal. Moreover, under the Governor’s proposal, there would be no state oversight of local jurisdictions to ensure that cities or counties that opt into enforcement actually meet their responsibilities.

Alternatives to Continue a Program. The Legislature has the following options to maintain an employee housing inspection program:

• Shift Inspection Responsibilities to Local Government. This option would, in effect, consolidate the employee housing program enforcement with local building, health, and safety inspections. This would likely be more efficient and effective since local enforcement authorities are geographically closer to the employee housing, have a greater ability to respond more rapidly to complaints, and have better knowledge of the area and the employee housing operations. Local governments already have the authority to raise fees to offset the costs for these kinds of housing enforcement activities, so a shift of these responsibilities would not constitute a reimbursable state mandate.
• Operate a Scaled–Down Inspection Program. The 2007–08 funding level was sufficient for the department to conduct about 75 percent of the annual inspection workload. If the current fee levels were maintained (and the base funding was not restored), HCD would conduct significantly fewer inspections than it now does. In light of this, it would be necessary to scale down the program so that the inspection workload more closely aligns with the funding available for the program. For example, the department could inspect facilities on a selective basis—focusing on those facilities with the worst conditions or the most complaints. In addition, HCD could issue some permits by mail, upon payment of fees, with self–certification for owners with a good record of compliance. Statutory changes would be needed to align the program requirements and funding in this manner.
• Increase Permit Fees. Providing additional funds through fee increases would enable HCD to maintain its current level of inspections. The department estimates that to operate at the 2007–08 funding level, it would be required to increase the average fees by about $1,900 annually or about 500 percent. However, as suggested above, the Legislature could decide to scale down the program and thus impose a lower level fee increase. The downside to raising fees is that it would increase the cost of providing employee housing and thus may reduce the amount of housing provided. The actual impact in this regard would depend in part on the level to which fees are raised.

Analyst’s Recommendation. We recommend the enactment of legislation to shift the program’s enforcement to local governments while maintaining their authority to collect fees to offset the cost of these activities. We believe local governments have the ability and expertise to perform the function. The state probably should maintain some minimal level of oversight of local enforcement to ensure that employee housing critical health and safety laws are being enforced.