Sacramento’s latest effort to crack down on companies tied to immigrant detention centers is ricocheting into a place lawmakers probably did not intend: the already fragile pipeline for affordable and workforce housing in California.
Investors that typically buy state and federal low-income housing tax credits are tapping the brakes while they figure out how two new bills might affect them. That pause is leaving projects that depend on tax credit equity at risk of delay or even collapse, right as demand for income-restricted apartments in the Bay Area keeps climbing.
The ripple effect hit home in San Francisco this week when a planned $25 million tax credit equity closing for a 202-unit workforce project at 960 Howard St. in downtown failed to close, according to the San Francisco Chronicle. The paper reports that U.S. Bank and other large investors have “temporarily paused the closing of certain transactions involving California state tax credits” while they wait for clearer legislative language. Developers and syndicators told the Chronicle that some deals have “ground to a halt” as buyers revisit commitments.
How the Bills Would Clamp Down on State Perks
Assembly Bill 1675 would disallow certain corporate tax expenditures for companies that contract with the U.S. Department of Homeland Security, according to the bill text and analyses. AB 2465 would make entities that invest in or profit from private detention facilities ineligible for state grants, loans, and tax credits, according to the bill documents.
The AB 1675 text is posted on LegInfo, and the Franchise Tax Board's bill analysis lays out how the measures would redirect state revenue. Supporters frame the bills as a way to strip profits from the detention industry. Critics counter that the current definitions could sweep much more broadly, touching complex corporate investments that have little to do with detention but are deeply embedded in housing finance.
Affordable Housing Players Warn of Market Whiplash
Housing groups, lenders and tax credit syndicators say the broad wording in the bills has already injected a dose of uncertainty into a financing system that depends on predictable rules and tight closing schedules.
The California Council for Affordable Housing has urged lawmakers to carve out protections so low-income housing tax credit financing for affordable projects does not become collateral damage, according to the council's policy notes. Analysts also point out that California's LIHTC program channels hundreds of millions of dollars into new multifamily construction each year, meaning a disruption to that pipeline could ripple through project timelines and layered financing structures. Observers have noted that the program received major state allocations in recent budget cycles, which only raises the stakes.
SF Workforce Project Hits a Wall
The oWow-led development at 960 Howard St., a planned 15-story, 202-unit workforce building, was set to receive $25 million in tax credit equity from U.S. Bank. That transaction did not close as scheduled, a setback that will likely delay construction, according to the San Francisco Chronicle.
U.S. Bank told the paper it has invested heavily in LIHTC equity for decades but is taking a measured approach while the Legislature hammers out the details. In a market where the timing of subsidy arrivals can make or break a project, even a short pause by major investors can force developers to miss key financing windows or scramble to rework their capital stacks, pushing opening dates back by months.
What Happens Next in Sacramento
Bill authors say they are willing to tweak the measures to shield affordable housing from unintended fallout while still targeting detention-related profits.
Assemblymember Alex Lee told colleagues on the Assembly floor that he would accept amendments to ensure nonprofit housing developers remain eligible for LIHTC credits, according to CalMatters. If the bills clear the Senate, they would head back to the Assembly for any final changes before landing on the governor's desk. The legislative calendar shows the governor generally has until Sept. 30 to sign or veto bills for the 2026 session.
