AB 2166

AB2166:v97#DOCUMENT

Bill Start

CALIFORNIA LEGISLATURE— 2025–2026 REGULAR SESSION

Assembly Bill

No. 2166

An act to add Chapter 10.5 (commencing with Section 50310) to Part 1 of Division 31 of the Health and Safety Code, Chapter 7 (commencing with Section 63089.100) to Division 1 of Title 6.7 of the Government Code, relating to housing.

LEGISLATIVE COUNSEL'S DIGEST

AB 2166, as amended, Carrillo. Multifamily housing development: offsite housing factories: backstop financing.

Existing law establishes the California Housing Finance Agency (agency) and authorizes the agency to, among other things, make loans to finance affordable housing, including residential structures, housing developments, multifamily rental housing, special needs housing, and other forms of housing, as specified.

The Bergeson-Peace Infrastructure and Economic Development Bank Act creates within the Governor’s Office of Business and Economic Development the California Infrastructure and Economic Development Bank (bank) and requires it to administer the act, which, among other things, provides for the financing of certain economic development projects.

This bill would establish, upon appropriation by the Legislature, the Multifamily Backstop Financing Program (program), for purposes of supporting multifamily projects through the provision of state-backed credit backstops that would enable surety companies to issue payment and performance bonds to qualified offsite housing factories in the state. The bill would authorize the agency bank to provide credit backstops to surety companies and surety insurers that issue construction bonds according to specified parameters. The bill would require the agency bank to adopt rules and regulations necessary to implement the program. The bill would state that it is the Legislature’s intent to include provisions relating to the prioritization and review of applications received pursuant to this chapter. received.

Digest Key

Vote: MAJORITY Appropriation: NO Fiscal Committee: YES Local Program: NO

Bill Text

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

SECTION 1.

Chapter 7 (commencing with Section 63089.100) is added to Division 1 of Title 6.7 of the Government Code, to read:

CHAPTER 7. Multifamily Backstop Financing63089.100. The Legislature finds and declares all of the following:(a) California’s offsite housing manufacturing sector is stuck in a self-reinforcing cycle that blocks scale and prevents the industry from delivering on its promise of faster, lower cost construction.(b) In multifamily, stick-built construction, owners, lenders, and general contractors use surety bonds, such as performance and payment bonds, to reduce the risk that a contractor or subcontractor fails to perform or fails to pay downstream parties.(c) These bonds are generally required by general contractors and owners for “material” or large scopes on a housing development, as bonding increases confidence in schedule and delivery reliability, which supports construction lending and public financing. Without bonding, factories are treated as nonstandard or high risk by general contractors and developers, thus constraining adoption even when product quality is strong.(d) However, sureties are reluctant to issue bonds to scaling factories due to limited operating history, nontraditional assets, and volatile cashflow. Without bonding, developers are required to take on additional, and often untenable, risk of financial loss to work with factories. In turn, factories are unable to win sufficient projects to build a track record and stable pipeline. Resulting factory failures mean the state loses a pathway to lower cost, higher throughput housing production.(e) This cycle is a market failure with broad public consequences. Without an intervention that addresses the risk of factory failure through bonding, California may struggle to stabilize factory capacity, drive cost reductions through repetition and scale, and translate offsite innovation into real housing delivery.(f) Therefore, the Legislature finds and declares that California’s offsite construction industry must be stabilized and scaled for purposes of reducing construction costs over time and addressing the state’s housing shortage. To support this objective, this chapter establishes a state-backed credit backstop to enable surety companies to issue payment and performance bonds to support offsite housing factories in the state that assist multifamily housing builds in the state.63089.101. For purposes of this chapter, the following definitions shall apply:(a) “Program” means the Multifamily Backstop Financing Program established by this chapter.(b) “Qualified applicant” means a surety company or surety insurer that issues construction bonds.(c) “Qualified factory” means an offsite housing factory, whether volumetric, panelized, or otherwise, in the state that delivers obligations for qualified multifamily projects.(d) “Qualified multifamily project” means a project located in the state that consists of multifamily residential uses only or a mix of multifamily residential and nonresidential uses, with at least two-thirds of the square footage of the development designated for residential use.(e) “Tail risk” means a risk that occurs either when the frequency of low probability events is higher than expected under a normal probability distribution or when there are observed events of very significant size or magnitude.63089.102. (a) There is hereby established, upon appropriation by the Legislature, the Multifamily Backstop Financing Program for purposes of supporting multifamily projects through the provision of state-backed credit backstops that would enable surety companies to issue payment and performance bonds to offsite housing factories in the state, as described in this chapter.(b) Under the program, the bank may provide credit backstops to qualified applicants in accordance with the following:(1) A credit backstop shall be issued only to qualified applicants if the backstop will be used by the applicant to issue payment bonds or performance bonds to qualified factories on qualified multifamily projects.(2) The credit backstop shall cover ____ percent of the payment or performance bond value, at the discretion of the bank.(3) The credit backstop shall not replace surety underwriting and shall only be used to reduce tail risk. The qualified applicant shall continue to decide the specific details of the payment or performance bond following industry standards.(c) It is the intent of the Legislature to include provisions relating to the prioritization and review of applications received pursuant to this chapter.63089.103. The bank shall adopt rules and regulations necessary to implement this chapter.

SECTION 1.Chapter 10.5 (commencing with Section 50310) is added to Part 1 of Division 31 of the Health and Safety Code, to read:

10.5.Multifamily Backstop Financing

50310.

The Legislature finds and declares all of the following:

(a)California’s offsite housing manufacturing sector is stuck in a self-reinforcing cycle that blocks scale and prevents the industry from delivering on its promise of faster, lower cost construction.

(b)In multifamily, stick-built construction, owners, lenders, and general contractors use surety bonds, such as performance and payment bonds, to reduce the risk that a contractor or subcontractor fails to perform or fails to pay downstream parties.

(c)These bonds are generally required by general contractors and owners for “material” or large scopes on a housing development, as bonding increases confidence in schedule and delivery reliability, which supports construction lending and public financing. Without bonding, factories are treated as nonstandard or high risk by general contractors and developers, thus constraining adoption even when product quality is strong.

(d)However, sureties are reluctant to issue bonds to scaling factories due to limited operating history, nontraditional assets, and volatile cash flow. Without bonding, developers are required to take on additional, and often untenable, risk of financial loss to work with factories. In turn, factories are unable to win sufficient projects to build a track record and stable pipeline. Resulting factory failures mean the state loses a pathway to lower cost, higher throughput housing production.

(e)This cycle is a market failure with broad public consequences. Without an intervention that addresses the risk of factory failure through bonding, California may struggle to stabilize factory capacity, drive cost reductions through repetition and scale, and translate offsite innovation into real housing delivery.

(f)Therefore, the Legislature finds and declares that California’s offsite construction industry must be stabilized and scaled for purposes of reducing construction costs over time and addressing the state’s housing shortage. To support this objective, this chapter establishes a state-backed credit backstop to enable surety companies to issue payment and performance bonds to support offsite housing factories in the state that assist multifamily housing builds in the state.

50311.

For purposes of this chapter, the following definitions shall apply:

(a)“Agency” means the California Housing Finance Agency.

(b)“Program” means the Multifamily Backstop Program established by this chapter.

(c)“Qualified applicant” means a surety company or surety insurer that issues construction bonds.

(d)“Qualified factory” means an offsite housing factory, whether volumetric, panelized, or otherwise, in the state that delivers obligations for qualified multifamily projects.

(e)“Qualified multifamily project” means a project located in the state that consists of multifamily residential uses only or a mix of multifamily residential and nonresidential uses, with at least two-thirds of the square footage of the development designated for residential use.

(f)“Tail risk” means a risk that occurs either when the frequency of low probability events is higher than expected under a normal probability distribution or when there are observed events of very significant size or magnitude.

50312.

(a)There is hereby established, upon appropriation by the Legislature, the Multifamily Backstop Financing Program for purposes of supporting multifamily projects through the provision of state-backed credit backstops that would enable surety companies to issue payment and performance bonds to offsite housing factories in the state, as described in this chapter.

(b)Under the program, the California Housing Finance Agency may provide credit backstops to qualified applicants in accordance with the following:

(1)A credit backstop shall be issued only to qualified applicants if the backstop will be used by the applicant to issue payment bonds or performance bonds to qualified factories on qualified multifamily projects.

(2)The credit backstop shall cover ____ percent of the payment or performance bond value, at the discretion of the agency.

(3)The credit backstop shall not replace surety underwriting and shall only be used to reduce tail risk. The qualified applicant shall continue to decide the specific details of the payment or performance bond following industry standards.

(c)It is the intent of the Legislature to include provisions relating to the prioritization and review of applications received pursuant to this chapter.

50313.

The agency shall adopt rules and regulations necessary to implement this chapter.