California Governor Gavin Newsom announced his plans to sign Senate Bill 1037, a bill designed in response to the “statewide housing shortage crisis” that will give Attorney General Rob Bonta new civil penalty authority to hold municipalities accountable from the moment they purportedly first violate the state’s housing laws. This marks a significant change in the law.
Currently, if a municipality fails to adhere to the state’s housing laws, the attorney general must file a lawsuit against the municipality, and only after a judge rules a municipality is out of compliance with the housing laws can the attorney general seek civil penalties against the municipality. The amount in penalties does not begin to accrue until sixty days after the judge’s ruling. By design, this was to allow local governments time to comply prior to any issuance of monetary penalties. Senate Bill 1037 will allow the attorney general to seek penalties starting on the date the housing law violation began, resulting in a stronger disincentive for local municipalities to flout state housing requirements.
What is Senate Bill 1037?
Senate Bill 1037 was authored by Senator Scott Wiener and was sponsored by Attorney General Bonta in February 2024. Senate Bill 1037 passed both the Senate and Assembly, and now awaits the Governor’s signature. The bill explicitly seeks to help address the statewide housing shortage by addressing local governments’ “delay and, at times even refus[al], to undertake required actions to encourage, promote, and facilitate the development of housing[.]”
The Office of the Attorney General (OAG) has complained that local governments have minimal incentive to comply with existing laws because the state is forced to file a lawsuit against municipalities to enforce housing laws. Doing so provides the municipalities with the opportunity to remedy any violations after adjudication occurs to avoid penalties. The OAG further argues that allowing the attorney general to seek penalties from the date the housing violation began will provide the attorney general with a sufficient enforcement mechanism to ensure that affordable housing projects are not improperly denied.
Senate Bill 1037’s civil penalties would apply only in jurisdictions where the attorney general can prove the municipality has acted arbitrarily, capriciously, or entirely without evidentiary support. Senate Bill 1037 subjects municipalities in violation to a minimum civil penalty of $10,000 per month and maximum of $50,000 per month, calculated from the date the violation began. The bill also subjects municipalities in violation to all costs of investigating and prosecuting the action. The penalties collected would be used to fund the development of affordable housing within the violating jurisdiction.
Background on the City of Elk Grove Lawsuit and California Municipal Housing Regulations:
In May 2023, Attorney General Bonta filed a lawsuit against the city of Elk Grove for alleged violations of: Government Code § 69513.4 (commonly referred to as Senate Bill 35); the Housing Accountability Act (Government Code § 65589.5); the Nondiscrimination in Land Use Law (Government Code § 65008); and the Affirmatively Furthering Fair Housing statute (Government Code § 8899.50). The city of Elk Grove had denied the Oak Rose Apartments housing project on the basis that the project failed to meet the city’s zoning standards, but had approved a similar market-rate housing development within the same neighborhood. The OAG alleged that the city denied the project for improper and subjective reasons, including due to NIMBY (not-in-my-backyard) sentiments.
In California, local governments are required to adopt a plan to regulate land use. Article 10.6 of the Government Code, known as the Housing Element Law, governs the housing portion of the land use plan. The plan must accommodate the jurisdiction’s regional housing need allocation at four incomes levels (very low, low, moderate, and above moderate). If a local government has made inadequate progress toward its regional housing need allocation targets, the jurisdiction must adhere to Government Code § 69513.4 when considering housing projects that include lower-income households. Government Code § 69513.4 requires municipalities to approve building projects through a ministerial process using objective planning standards. Attorney General Bonta alleged that Elk Grove was subject to Government Code § 69513.4, known as a Senate Bill 35 violation, for failure to meet the regional housing need allocation targets and that the city failed to use an objective process when denying the Oak Rose Apartments housing project.
Although Elk Grove reached a separate settlement with the Oak Rose Apartments housing project—moving the project to another area of the city—Attorney General Bonta pursued his lawsuit because Elk Grove’s basis for initially denying the project remained unlawful, allegedly creating harmful delays and costing taxpayers unnecessary legal fees. Attorney General Bonta reached a settlement with Elk Grove on September 3, 2024. The settlement subjects Elk Grove to reporting requirements, payment of $150,000 in attorneys’ fees and costs, and requires the city to identify an additional location for low-income housing development.
What’s Coming Next and Where?
Many state attorneys general from around the country have begun to use their powers to address the public’s housing supply concerns. Although initiating attorney general enforcement actions and sponsoring corollary legislation has taken time, we expect to see increased housing supply activity by attorneys general in the form of investigations and lawsuits.
For example, in California Attorney General Bonta has sued other municipalities, including the City of Huntington Beach, for failures to meet regional housing need-allocation targets similar to the Elk Grove matter. And California has other pending legislation that would affect housing supply projects. With the passing of Senate Bill 1037, further legal actions in California regarding housing supply are imminent.
Other state attorneys general have brought similar lawsuits to those pursued by Attorney General Bonta, through which they seek to address high costs of housing and rent. Beyond litigation, a coalition of eighteen attorneys general filed a comment letter in support of the U.S. Department of Housing and Urban Development’s proposed rule to promote residential integration and increase protections against unlawful housing discrimination. In relevant part, the rule requires affirmative acts to address disparities in access to housing, such as requiring entities that receive funding to prepare equity plans for public review.
For further information, please contact:
Joanna Rosen Forster, Partner, Crowell & Moring
jforster@crowell.com
