California gives non-housing projects a shot at cheap financing

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HUNTINGTON BEACH, CA - February 17: A view of the older AES Huntington Beach Power Station at left, and new one at right, and is the proposed site of the Poseidon Desalination Plant, which would draw ocean water through an existing intake pipe at Wednesday, Feb. 17, 2021 in Huntington Beach, CA. (Allen J. Schaben / Los Angeles Times)
A view of the older AES Huntington Beach Generating Station at left and new one at right. It is the site of Poseidon Water's proposed desalination plant, which would draw ocean water through an existing intake pipe. (Allen J. Schaben / Los Angeles Times)

A California agency voted Wednesday to reserve some of the state’s limited private-activity bonds for non-housing uses, providing an opportunity for projects such as a private-equity backed train to Las Vegas and a controversial desalination plant to apply for the coveted financing.

At its meeting, the California Debt Limit Allocation Committee in a split vote approved divvying up $4.3 billion of its bond capacity, an amount determined under population-based federal guidelines, mostly to projects that boost affordable housing.

Of that, $510.4 million will go toward qualifying non-housing projects such as the electric railway proposed by a company backed by Fortress Investment Group and Poseidon Water’s seawater facility in Huntington Beach that has drawn the ire of environmental groups.

Tony Sertich, representing state Controller Betty Yee on the three-member board, supported giving all of the state’s allocation to housing because such projects draw additional federal subsidies. Many people, particularly foes of the desalination plant, also pressed the committee for the same, citing the state’s deepening homelessness and housing affordability crises.

Housing developers are expected to need about $9 billion of bonds this year, far more than what’s available.

Still, Gayle Miller, representing Gov. Gavin Newsom, said California has other needs and that no other governor has invested more in housing. She also noted that rail projects that are awarded bonds draw significant federal leverage as well.

“Without infrastructure, we can’t build more housing,” said state Treasurer Fiona Ma, chair of the board. She had initially proposed giving $600 million of the state’s allotment to non-housing projects but agreed to the Newsom administration’s wish to carve out $89.6 million from that amount to go to a housing program for veterans.

Sertich cast the only vote against the measure reserving bonds for non-housing uses.

The committee had previously awarded 15% of its annual bond allotment to the Las Vegas train project from developer Brightline Holdings. But the company failed to entice investors for its September 2020 debt offering. It then pulled an application last year with the intention of reapplying in 2022 while it worked to establish a station closer to Los Angeles, which would make the project more palatable to potential investors.

Meanwhile, Poseidon Water, which already operates a desalination plant in Carlsbad, is working on another facility to produce 50 million gallons of water daily. It had previously said it would apply for $1.1 billion of the state’s private-activity bonds.

“We are encouraged that California continues to allocate a portion of this limited resource to its Exempt Facilities Program that benefits projects like the Huntington Beach Desalination Facility to help deliver a safe, reliable, climate-resilient water supply to all Californians,” Poseidon Water spokesperson Jessica Jones said in an emailed statement.

Ben Porritt, a spokesperson for Brightline, didn’t respond to requests for comment.

Since late 2019, demand for the bonds has outstripped what the state can give out. This year, the committee expects requests totaling $13.2 billion, the bulk from housing developers.

This story originally appeared in Los Angeles Times.