Loophole Lets Corporations Tap Public Housing Fund

And their appetite for state handouts appears to be growing, as oil companies, nuclear power utilities and other private firms plan to apply for $6 billion in bond money this year, nearly four times the amount the state has available.

These corporations have been invited to dine in the public trough by the little-known, three-member California Debt Limit Allocation Committee (CDLAC) that includes Gov. Pete Wilson.

In 1994 alone, the committee gave more than $190 million financed by state-issued bonds to Chevron, (28 million), Shell ($125 million), and ARCO ($40 million) to finance environmental improvements required by federal law.

Over the past decade the committee has distributed more than $1.2 billion to PG&E, mostly for "solid waste disposal" at the power company's troubled Diablo Canyon Nuclear Power Plant.

CDLAC's largess has come under increased fire from low-income housing advocates and local housing agencies, who are calling for an end to corporate handouts.

"All these PG&E and oil-company subsidies obviously have nothing to do with housing for low-income Californians," said Kristin Hofso of San Francisco-based nonprofit Gage Institute, which monitors CDLAC.

Under the federal Tax Reform Act of 1986, each state is authorized to issue a limited amount of "private activity" bonds up to $50 per resident annually. This year California's total will amount to about $1.6 billion.

The tax-free bonds can be used for private purposes as long as applicants can demonstrate a substantial benefit to the public. Although primarily intended to finance affordable housing, the money can also be used for student loans, small industrial development, and certain, narrowly defined environmental projects.

For big businesses it can be a huge windfall: the tax-free status lets them borrow money far below commercial rates.

When the state Legislature set up CDLAC it declared that "a substantial public benefit is served by promoting housing for lower-income families and individuals."

Nothing in the law calls for taxpayer financing of breweries or oil refineries. But corporate lawyers found a loophole that allows major corporations to qualify for bond money if they use it to finance "pollution-control" facilities.

Since the committee was set up in 1986, state records show, it has provided more than $3.2 billion for such projects, mostly to the state's three major investor-owned utilities.

Meanwhile, extremely successful programs such as the Mortgage Credit Certificate Program, which uses state bond money to give low-income, first-time home buyers access to loans, have virtually shut down in many counties. Santa Clara County, which issued almost 2,000 mortgage credit certificates in 1994, gave out only 360 this year before the state gutted the program.

Kelly Calhoun, who works for Contra Costa County's housing agency, once used the credit program to help as many as 60 to 90 prospective home buyers a month. Now her office turns away about 10 qualified applicants every day.

"These people are basically out of luck," Calhoun said. "Without this program, many are unable to buy a home at all."

"There is a huge demand for affordable housing in California, and we have a limited supply of financing available," said Daniel Fred, consultant to local housing agencies and co-chair of California Association of Mortgage Issuers. "The question is, should CDLAC be subsidizing corporate California?"

The answer is "yes," according to Chief Deputy Treasurer Ron Rogers, who sometimes sits in for Fong as CDLAC chair. He pointed out that majority of the bond money goes to housing, but the committee has decided that the other eligible uses -- student loans, industrial development, and corporate pollution projects -- deserve about a quarter of the total allocation.

When it comes to which pollution-control facilities get built, the committee does not determine whether or not the corporation is required to build the project by law anyway, or if it really needs the money, Rogers admitted.

"Any applicant that comes before the CDLAC board is reviewed and considered by the committee if it is a bona fide project," he said.

According to CDLAC annual reports, between 1994 and 1995, the year Fong took over the committee, the amount of bond money spent on housing decreased from 90 percent to 75 percent of total funding, while the amount spent on pollution-control facilities increased from 4 percent to 12 percent.

Critics say the current proposals from Chevron, Shell, and Mobil stretch the definition of "solid waste disposal."

The companies say they qualify because their projects involve a process that recycles residue left at the bottom of barrels of oil. But they admit that they would have to improve their facilities anyway, to comply with the federal Clean Air Act.

Many of the proposed pollution-control projects are opposed by activists, whose objections are based on financial, as well as environmental grounds. They point out that the petroleum companies' applications come in the wake of soaring gasoline prices and record company profits.

"In the context of these giant multinational corporations making huge, unprecedented profits, it is outrageous that the state is handing out this money," said Denny Larsen, campaign director for the Committee for a Better Environment. "It's blatant corporate welfare in its ugliest form."