Parked buses are seen at CoreCivic California City Immigration Processing Center, a privately-operated detention facility for the U.S. Immigration and Customs Enforcement (ICE), in California City, in 2025. State bills aimed at cracking down on companies with links to such facilities could have an impact on financing for affordable housing projects.
Stephen Lam/S.F. Chronicle
California lawmakers seeking to punish companies linked to immigrant detention centers may be colliding with another state priority: affordable housing.
Assembly Bills 1675 and 2465 have yet to pass the Legislature or reach the governor’s desk. But housing industry leaders warn the proposals have already begun to unsettle California’s fragile affordable housing finance market, threatening to disrupt the flow of hundreds of millions of dollars into income-restricted developments planned statewide.
The bills would bar companies connected to private immigration detention operations from receiving certain California tax benefits and public contracts — a move their authors and supporters say is intended to further isolate the detention industry financially. But affordable housing developers and investors warn that the measures, as currently written, could also disrupt state’s Low-Income Housing Tax Credit market, or LIHTC, inadvertently pulling affordable housing finance into a broader political fight.
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Even as the bills’ authors are working through amendments to narrow their scope, industry participants say the proposals have already introduced enough uncertainty to affect the market: Some banks have paused fresh tax credit investments and are reconsidering existing commitments.
Each year, California makes hundreds of millions in state and federal tax credits available to qualifying projects through the LIHTC program, including over $500 million specifically for new multifamily construction. Developers then sell those credits to institutional investors — often large banks such as large banks like U.S. Bank or Wells Fargo — in exchange for upfront equity used to finance construction.
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But LIHTC investors could now face new risk under the proposed legislation because of their broader corporate relationships with private prison or detention operators. Affordable housing industry insiders say the result could be fewer bidders for tax credits, leading to “disastrous” delays for projects already struggling under high interest rates, rising insurance costs and persistent funding uncertainty.
“These are huge corporations and their default is to pull back when there is uncertainty as to whether or not they’ll be able to earn the return they are paying for — they will step back and not make those investments,” said Ari Beliak, CEO of Merritt Community Capital Corporation, a LIHTC syndicator that raises money from investors and channels it into affordable housing projects.
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The result, he said, is that a number of them “have ground to a halt.”
One of those projects is a 15-story, 202-unit workforce housing project long planned to rise at 960 Howard St. in downtown San Francisco and serve renters making between 30% and 70% of the area median income. The project’s developer, oWow, is slated to receive $25 million in tax credit equity from U.S. Bank, and confirmed it is ready to break ground. But construction will now likely be delayed after the transaction did not close this week as expected — a setback that comes as San Francisco faces another sharp run-up in housing costs, with rents climbing at double-digit rates amid a fresh wave of AI industry-driven wealth reshaping the city’s economy.
A representative for U.S. Bank, which has invested over $5 billion in LIHTC equity over the last three decades, confirmed to the Chronicle that it has halted tax credit transactions that were set to close in recent weeks, citing “uncertainty created by AB 2465 and AB 1675 as currently drafted.”
“We are taking a measured approach consistent with how other investors and syndicators are responding,” said U.S. Bank spokesperson Kaitlyn Domer. “Like others in the market, we have temporarily paused the closing of certain transactions involving California state tax credits while legislative language continues to evolve.”
Domer said that the bank’s approach to temporarily pause its LIHTC deals affects “only a few transactions and does not reflect a broader pullback.” She also said that the decision is not unique to U.S. Bank, but “reflects a broader market response.”
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Affordable housing advocates say that other projects have also been stalled and many more could be impacted unless the legislation provides a carve-out for affordable housing tax credits. The California Housing Partnership, or CHP, which works to facilitate local tax credit transactions, is tracking deals totaling close to $100 million in state tax credit value that are now potentially in jeopardy after investors communicated they are pulling back.
“The original language in these bills had the inadvertent effect of discouraging large financial corporations from purchasing state housing tax credits,” said CHP CEO Matt Schwartz, effectively “freezing their ability to close on commitments they had made to invest in dozens of affordable housing transactions. This has led to numerous delays and requests to the State Treasurer’s office for extensions.”
CHP has been advocating for amendments with Assembly Members Alex Lee and Liz Ortega, the respective authors of AB 1675 and AB 2465. Schwartz said the organization is “appreciative” to have received commitments “to amend the bills to resolve these problems.”
Ortega, D-San Leandro, declined to comment on her bill.
“I have committed to amending AB 1675 to make clear that the bill will not withhold state tax credits for affordable housing developments,” Lee, D-San Jose, said in a statement. “Expanding access to housing is one of my top priorities, and the amendments will provide certainty for investors and developers to continue building affordable housing without disruption.”
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But when it comes to building affordable housing, timing is critical. Industry insiders said that the legislation’s language must be amended by the end of June to avoid threatening the viability of multiple housing projects. The bills passed the Assembly last month, and are now in the Senate. If the measures pass the Senate, they must return to the Assembly for a final vote before heading to the governor’s desk, where they must be signed or vetoed by Sept. 30.
Typically, affordable housing projects depend on assembling a fragile stack of multiple public funding sources, each with its own rules and timelines. The tax credit is only one piece of that puzzle. If a major investor pauses or delays commitments, even temporarily, developers can miss financing deadlines, lose other committed subsidies or be forced to rework entire deals — potentially delaying construction for months or killing projects altogether.
“Financing for affordable housing and getting to the actual construction and completion of projects is a lot more complicated versus market rate construction,” said Paul Schafer, public policy manager for the California Council for Affordable Housing. “With market rate, you can charge increased rents to offset and recoup some of your costs and get larger loans. For the affordable side, there is a greater need for state subsidies, tax credits and other investments.”
Schafer said his group has also been advocating to exempt state tax credits from the pending measures, which he described as “far too broadly written to include business entities that have their investments in multiple different things” — including affordable housing.
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“These banks have subsidiaries, they have mutual funds and investments in a lot of different things, and that’s where it just becomes very complicated,” he said. “In development, there’s a level of certainty needed. This level of uncertainty here … it gives a lot of pause to our investors who look at things like this to signal whether or not it’s a good investment to continue in the state of California.”