AMENDED IN SENATE AUGUST 21, 2026

AMENDED IN SENATE AUGUST 13, 2026

CALIFORNIA LEGISLATURE— 2025–2026 REGULAR SESSION

97

Introduced by Assembly Member Gabriel

February 17, 2026

An act to add Section 50406.4.5 to the Health and Safety Code, relating to housing.

Vote: majority   Appropriation: no   Fiscal committee: yes   Local program: no

LEGISLATIVE COUNSEL’S DIGEST

Existing law establishes the Department of Housing and Community Development and requires it to administer various programs intended to promote the development of housing, as specified, pursuant to which the department provides financial assistance in the form of deferred payment loans to pay for the eligible costs of development of specified types of housing projects. Existing law sets forth various general powers of the department in implementing these programs, including authorizing the department to enter into long-term contracts or agreements of up to 30 years for the purpose of servicing loans or grants or enforcing regulatory agreements or other security documents.

This bill would permit the department to, subject to prescribed requirements, authorize the transfer of the department residual receipts share or excess reserves, as defined, from one rental housing development to another rental housing development with the same owner, as specified.

The people of the State of California do enact as follows:

SECTION 1.

Section 50406.4.5 is added to the Health and Safety Code, to read:

50406.4.5.

(a) Notwithstanding any other law, to improve the fiscal integrity of a development financed with departmental resources, and subject to subdivision (b), the department, in its sole discretion, may authorize the transfer of the department residual receipts share or excess reserves from one rental housing development, subject to a department regulatory agreement, as equity, to another rental housing development, subject to a department regulatory agreement, that is owned by the same sponsor or affiliate thereof.

(b) No transfer authorized under this section shall reduce, offset, subordinate, or otherwise impair any residual receipts, surplus cash, available cashflow, net cashflow, distributable cash, reserve rights, or other payment rights owed to any other lender, public agency, or governmental entity, including any city, county, city and county, housing authority, successor agency, joint powers authority, or holder of federal, state, or local housing program loans.

(c) For purposes of this section:

(1) “Department residual receipts share” means the portion of residual receipts, surplus cash, available cashflow, net cashflow, distributable cash, or similar project cashflow distributions otherwise payable to the department for the applicable fiscal year under the project’s applicable financing documents and regulatory requirements, calculated after full satisfaction, or due provision for payment, of all required senior mandatory debt service and all amounts payable to any other lender, public agency, or governmental entity under the applicable note, regulatory agreement, deed of trust, residual receipts agreement, subordination agreement, intercreditor agreement, or other recorded or operative project financing documents, as if no transfer authority under this section existed.

(2) “Excess reserves” means replacement reserves, in excess of the amount needed to fund immediate and short-term capital repair needs as identified in a Physical Needs Assessment conducted within the preceding three years by a qualified independent third party, operating reserves, or project-specific transition reserves no longer required by, or in excess of the minimum amount required by, the department regulatory agreement, excluding any reserve requirements, reserve floors, or other restrictions contained in any applicable note, regulatory agreement, deed of trust, subordination agreement, intercreditor agreement, or other recorded or operative project financing document. by the department regulatory agreement. Replacement reserves may not be transferred if doing so would reduce the balance below one thousand dollars ($1,000) per unit or if the project has not met or is not projected to meet the minimum annual replacement reserve deposit requirements.