OLR Bill Analysis
AN ACT ESTABLISHING THE CRUMBLING FOUNDATION ASSISTANCE PROGRAM AND ASSISTING HOMEOWNERS WITH CRUMBLING FOUNDATIONS.
This bill provides a framework within which municipalities, the Department of Housing (DOH), the Connecticut Health and Educational Facilities Authority (CHEFA), and the Capitol Region Council of Governments (CRCOG) can establish initiatives to assist owners of residential properties with concrete foundations damaged by the presence of pyrrhotite (“crumbling foundations”) (see BACKGROUND). Specifically, the bill:
1. establishes a Crumbing Foundations Assistance Fund (assistance fund) and requires CRCOG to use the fund to provide grants to eligible residential property owners to repair or replace crumbling foundations (§ 2);
2. authorizes CRCOG, using the assistance fund, to establish a low-interest loan program in collaboration with the Connecticut Housing Finance Authority (CHFA) or a lending institution (§ 2);
3. imposes, for seven years starting March 2019, an annual $12 surcharge on certain residential property insurance policies, the proceeds of which must be deposited in the assistance fund (§ 1);
4. establishes a 13-member oversight committee to review the (a) use of the assistance fund and (b) administration of programs assisting property owners with crumbling foundations, including CRCOG's program (§ 3);
5. authorizes CHEFA to issue bonds on behalf of two or more municipalities, the proceeds of which the municipalities may use to abate problems related to concrete foundations (§§ 4-9 & 13);
6. authorizes municipalities to waive building permit fees for eligible owners repairing or replacing crumbling foundations (§ 11);
7. requires the state building inspector to waive the education fee applicable to certain building permits (§ 12);
8. requires DOH to establish an interest rate reduction program for owner-occupants of one- to four-family homes who are repairing or replacing crumbling foundations (§ 14); and
9. makes a technical change to the general municipal powers statute (§ 10).
EFFECTIVE DATE: July 1, 2017, except the insurance policy surcharge is effective July 1, 2018.
§ 1 — INSURANCE POLICY SURCHARGE
The bill requires each insurance company that issues, renews, amends, or endorses certain residential property insurance policies on or after July 1, 2018 to remit $12 annually, from 2019 until 2025, for each policy covering a property located in the state. The surcharge applies to the following policy types: homeowners insurance, renters insurance, condominium associations' master policies, and unit owners' associations' policies. Insurance companies must remit the surcharge to the commissioner by March 15, along with documentation substantiating the amount remitted, on a form the commissioner prescribes. The commissioner must deposit the remittances in the Crumbling Foundation Assistance Fund.
Insurance companies aggrieved by the surcharge may appeal to the New Britain Superior Court.
§ 2 — CRUMBLING FOUNDATIONS ASSISTANCE FUND
Monies in the Assistance Fund
The bill creates a Crumbling Foundation Assistance Fund as a separate, nonlapsing account in the General Fund. The account must contain funds available for CRCOG's program from state, federal, or other sources, including voluntary contributions. The assistance fund cannot contain money from the Federal Emergency Management Agency (FEMA).
CRCOG's Crumbling Foundation Assistance Program
The bill requires CRCOG to use the assistance fund to provide grants, and at its option, loans, to eligible owners with crumbling foundations.
Grants. CRCOG's grant program must provide help to eligible owners to repair or replace their foundations. Affected properties eligible for grants are one- to four-family homes and condominium units constructed after January 1, 1983. Grants cannot exceed $150,000 or 75% of repair costs, whichever is less. The amount of FEMA assistance to an owner must be deducted from the owner's grant.
CRCOG must establish eligibility requirements and procedures for the program. At a minimum, the grantees must be required to (1) obtain qualified test results showing that their foundation has pyrrhotite-related damage, (2) submit a consumer statement regarding the concrete foundation to the Department of Consumer Protection (DCP), and (3) submit proof of insurance and claim denial.
Loans. CRCOG may enter into an agreement with CHFA or a lending institution to develop and implement a long-term, low-interest loan program to help owners obtain financing to repair or replace crumbling foundations. CRCOG may use the assistance fund to implement the loan program.
§ 3 — OVERSIGHT COMMITTEE
The bill establishes a 13-member Crumbling Foundation Oversight Committee to (1) assess the development and implementation of programs assisting owners of properties with crumbling foundations, (2) review the use of the assistance fund, and (3) recommend how programs can be improved to assist property owners in an efficient, cost effective, and timely manner.
The committee must consist of:
1. two chief elected officials from municipalities impacted by crumbling foundations, one each appointed by the House speaker and Senate president pro tempore;
2. one each appointed by the House and Senate majority and minority leaders;
3. the administrative services, banking, consumer protection, and insurance commissioners, or their designees;
4. the Office of Policy and Management (OPM) secretary or his designee;
5. CRCOG and the Northeastern Connecticut Council of Governments' executive directors or their designees; and
6. anyone else the committee prescribes.
The individuals appointed by the legislative leaders may be legislators. The appointing authorities must make their appointments by July 31, 2017 and fill any vacancies. The House speaker and Senate president pro tempore must select the chairpersons from among the committee's members. The chairpersons must hold the first meeting by August 30, 2017. Committee members are not compensated.
The committee must annually report its findings and recommendations, beginning January 1, 2018, to the banking, insurance and real estate, planning and development, and public safety and security committees. The recommendations must include measures to assist property owners with crumbling foundations.
§§ 4-9 & 13 — CHEFA'S AUTHORITY TO BOND ON MUNICIPALITIES' BEHALF
Existing law authorizes CHEFA to issue bonds to finance capital projects and equipment purchases for various entities, including higher education and health care institutions. The bill authorizes CHEFA, upon the request of “participating municipalities,” to use its bonding authority to finance a “project.” Additionally, the bill expands the purposes for which CHEFA may establish a special capital reserve fund (SCRF) to finance certain projects to include financing projects undertaken by participating municipalities, if the OPM secretary approves the SCRF (see BACKGROUND).
Under the bill:
1. a “project” is the development and deployment of financial assistance, including credit enhancements, loan guarantees, or equipment or materials purchases to abate nuisances caused by failing residential concrete foundations and
2. “participating municipalities” are two or more municipalities that act jointly to (a) finance and construct or acquire a project or (b) refund or refinance mortgage, loan, or advance obligations related to project costs.
The bill allows participating municipalities to jointly borrow to pay some or all of the project costs associated with abating an actual or potential nuisance that constitutes a deleterious condition on real property and that, if unabated, would cause concrete foundations' collapse and damage to the municipalities' housing stock, significantly negatively impacting the municipalities' economies.
Subject to the OPM secretary's approval, CHEFA's bonds may constitute debts, liabilities, or pledges of the full faith and credit of the participating municipalities, jointly, severally, or in any ratio they agree. Municipalities may request CHEFA's assistance only with their legislative bodies' approval.
To implement this authorization, the bill makes a number of conforming changes, including:
1. specifying that CHEFA's bonds may be backed by a project's revenue, mortgages, the municipalities' or authority's full faith and credit, or any other security lawfully pledged by the municipalities;
2. authorizing CHEFA to establish rules and regulations related to participating municipalities' projects;
3. allowing CHEFA to charge municipalities for its administrative costs;
4. authorizing CHEFA to undertake a project on municipalities' behalf; and
5. authorizing CHEFA to acquire property necessary for the construction or operation of a project.
§§ 11 & 12 — BUILDING PERMIT FEE WAIVERS
The bill authorizes municipalities to waive fees for building permit applications to repair or replace crumbing foundations.
Additionally, the bill requires the state building inspector to waive the education fee applicable to certain building permits if the municipality in which the permit is applied for waives its fee, as allowed by the bill. This education fee waiver applies only to building permits for certain state construction projects that do not require a municipal permit. (The effect of this provision is unclear because municipalities do not issue permits for these types of projects.)
By law, the education fee is used for code training and education programs for state and local officials and individuals in the construction industry (CGS § 29-251c).
§ 14 — DOH'S COLLAPSING FOUNDATIONS INTEREST RATE REDUCTION PROGRAM
The bill requires DOH to establish a collapsing foundations interest rate reduction program to provide certain property owners borrowing money to repair their crumbling foundations with credit enhancements in the form of interest rate subsidies. Thirty days before the program begins, DOH, in consultation with the lieutenant governor and banking and credit union industry representatives, must develop the terms applicable to the low-interest loans. The DOH commissioner must publish these terms, and any changes to them, in the Department of Banking's news bulletin at least 15 days before the program begins. (Under the bill, the deadline for publishing terms updated after the program begins is unclear.)
Partnership with Lenders
DOH must seek the participation of banks and credit unions in the interest rate reduction program to offer below-market rate loans to eligible borrowers. Qualifying loans are subject to the lenders' underwriting standards and the loan terms the DOH commissioner establishes.
The program is open to owner-occupants of one- to four-family homes constructed after January 1, 1983 who have difficulty obtaining financing for the repair of crumbling foundations due to high repair costs, unmet underwriting criteria, a home's decreased value, or personal financial circumstances. Borrowers under the program must (1) obtain qualified test results showing that their foundation has pyrrhotite-related damage and (2) file a consumer statement with DCP.
Collapsing Foundations Interest Rate Reduction Account
The bill establishes the collapsing foundations interest rate reduction account as a separate, nonlapsing account in the General Fund. DOH must use this money to provide interest rate subsidies for qualifying loans, as described above. The bill expressly states that by doing so, eligible borrowers' monthly payments will be lowered. (The bill does not specify how the account will be capitalized.)
Crumbling Foundation Problem in Northeastern Connecticut
An investigation by DCP and the Attorney General's office found that there is a crumbling foundation problem in northeastern Connecticut that stems from the presence of a naturally occurring iron sulfide mineral, pyrrhotite, in the stone aggregate used to produce concrete poured for certain foundations in parts of the state, beginning in the early 1980s.
CHEFA and SCRF-Backed Bonds
CHEFA is a quasi-public agency that finances capital projects for health care institutions, higher education institutions, nursing homes, and other nonprofit organizations.
SCRF-backed bonds are contingent liabilities of the state; if a SCRF is exhausted, the General Fund automatically replenishes it, regardless of the state spending cap. By law, CHEFA cannot issue bonds secured by a SCRF unless it determines that project revenues are sufficient to (1) pay the bonds' principal and interest; (2) establish, increase, and maintain any reserves it deems advisable to secure principal and interest payments; (3) pay the project's maintenance and insurance costs; and (4) pay other required project costs.
sHB 7175 and SB 905, favorably reported by the Planning and Development Committee, contain provisions related to preventing, and helping property owners with, failing concrete foundations.
Public Safety and Security Committee
Joint Favorable Substitute