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California government’s technology drastically pales in comparison to that from Silicon Valley, but Gov. Gavin Newsom is betting $40.8 million and a new office will change that.

Even though California is home to innovative tech giants like Google and Apple, its government historically has used technology that can’t handle simple tasks—like accepting a credit card at the DMV, or in some cases, offering fully functioning websites. To combat this stark digital divide, Gov. Gavin Newsom proposed the Office of Digital Innovation. Funding is tucked into the budget starting July 1.

Can a new office and $40.8 million fix a decades-long problem? That depends on who you ask. Newsom won enough legislative support to get the funding approved. But observers remain skeptical as to what the office can actually accomplish given entrenched bureaucracy. Assembly Majority Leader Ian Calderon, a Whittier Democrat, counts himself as one of Newsom’s supporters and said he wished the office was created a long time ago.

“We live in the tech capital of the world, yet we don’t have anybody driving the modernization of how we as government operate and provide services to the people we represent,” Calderon said.

Calderon is co-chair of the Legislature’s tech caucus. He said he remembers taking calls as a field representative for the Legislature in 2010 and helping a single mother who was having trouble navigating the Employment Development Department. She was unemployed and needed her unemployment benefits to pay bills and buy food for her children, he said. She finally called him to ask for help. The woman had spent hours on the phone trying to access her benefits.

“I just want us to be more effective and more efficient,” Calderon said. “When people are calling a state agency because they’re having an issue, they don’t have time to spend three hours on the phone.”

Newsom was outspoken about technology problems in California’s bureaucracy even before he was elected. He called for pushing democracy into the digital age with a book he co-authored in 2013: Citizenville: How to Take the Town Square Digital and Reinvent Government. In an interview with Google, Newsom said, “California is on the leading and cutting edge of 1973.”

As an example, Newsom early this year pointed to the Department of Motor Vehicles’ inability to accept credit card payments in field offices.

Despite Newsom’s attention, the DMV will not be the first agency helped by the upcoming office, said Government Operations Agency Secretary Marybel Batjer. The Office of Digital Innovation will be housed under her agency since its mission will be to help Californians navigate a bureaucratic tangle of poorly performing websites.

“Our first and most important thing to do is begin to hire,” she said. The budget calls for 50 positions, and once filled, “we’ll begin investigating and learning from department agencies where the greatest need is, and we’ll set a path forward.”

Batjer said the DMV is “ripe” for innovation, and she mentioned California’s Health and Human Services Agency as another entity that could use a technological boost. The Department of Health Care Services, which is housed under the agency, has faced its own technological snafus, like making questionable Medi-Cal payments and denying Medi-Cal coverage to eligible Californians.

Batjer said the new office will be modeled after other government digital agencies, including the federal office 18F, which was created in 2013 after the disastrous rollout of the Affordable Care Act. (That agency reportedly faces its own problems under the Trump Administration.) California’s office also will look at the United Kingdom’s Government Digital Service. Both offices focus on user needs and take a start-up approach to tech.

Batjer said California’s office will complement the Department of Technology, which also is under Government Operations.

Amy Tong, the California Department of Technology director and state chief information officer, said the new office will be expected to bring innovative approaches to technology, honed in Silicon Valley, to state offices that are stuck in “legacy” mode and unable to figure out how to update.

For instance, the office might help state workers become more efficient by streamlining processes that take many steps into ones that only require a few.

Yet to truly succeed, some say state employees need to do more than become more efficient. They need to adopt a new attitude about technology.

“Nobody wants to take risks. Nobody wants to stick their neck out,” said former state Sen. Dean Florez about state technology decisions.

He said the job description for the new director is admirable, but he questions whether a large, bureaucratic system will actually be as willing to “break things”  as start-ups and tech gurus of Silicon Valley.

Florez said Newsom’s biggest challenge will be getting bureaucrats on board with a major tech overhaul.

“I think Newsom wants to get California to the cloud,” he said, a costly move. “It would be a big change for the state of California to forgo those legacy systems and move to things like the cloud.”

Still, the Newsom administration remains confident that this is the best next step.

“Gov. Newsom is committed to transforming the way citizens interact with their government for the better,” said spokesman Brian Ferguson in a written statement. “The goal of this new office is to tap into and grow the creativity, innovation and transparency that already exists elsewhere in our state to improve the way the executive branch approaches the delivery of technology and services to the public.”

CALmatters.org is a nonprofit, nonpartisan media venture explaining California policies and politics.

Published in Local Issues

Astronomical prices are forcing a rising share of California families to postpone buying a house. As a result, the state’s record-low homeownership rate has been a boon to one growing segment of California’s housing market: single-family home rentals.

Between 2005 and 2015, the number of owner-occupied homes in California shrunk by nearly 64,000 units, according to the Public Policy Institute of California. Meanwhile, the number of renter-occupied homes increased dramatically: California now has 450,000 more homes used as rentals than it did a decade ago. Compare that to the 1990s, when the number of rented homes grew by less than 120,000, while the state added 700,000 homes owned by the people who live in them.

The rising tide of single-family rentals has renewed attention on where the rent payments that nearly 2 million Californians make each month are going. Lawmakers and first-time homeowner advocates have been scrutinizing a relatively new form of landlord: private investment firms that snapped up thousands of homes during the foreclosure crisis and now rent them out. With nearly one in four California homes now purchased in all-cash, these well-financed institutional investors have also been blamed as unfair competition against families bidding on starter homes.

So how much are institutional investors impacting California’s housing prices? The data says not so much now.

Institutional investors accounted for less than 2 percent of California single-family home sales last year.

Typically, the term “institutional investor” refers to private investment firms that buy dozens of residential properties with the explicit aim of generating a steady income stream through rentals. They often invest the money of wealthy individuals and public pension funds, like those established for California state workers and teachers.

The best example is Blackstone, a publicly traded Wall Street firm that barreled into the country’s single-family home market in the depths of the Great Recession in the late 2000s. Through its residential investment-focused subsidiary, Invitation Homes, Blackstone is now the largest owner of single-family homes nationwide. In California, the company owns about 13,000 homes.

But firms such as Blackstone have stopped buying wide swaths of California homes. According to the real estate data firm ATTOM Data Solutions, which defines institutional investors as entities that buy 10 or more homes in a given year, institutional investors accounted for less than 2 percent of the state’s single-family home and condo sales in 2017.

That’s a pretty steep drop from as recently as 2012, when institutional investors accounted for about 7 percent of sales.

Why the decline? California no longer has a glut of cheap houses that can be easily gobbled up in foreclosure auctions. A sustained economic recovery and a lack of new-housing construction has sent housing prices skyrocketing. It’s now too expensive for institutional investors to buy lots of California homes. Blackstone’s Invitation Homes bought only 82 California houses last year.

“The low inventory and homeownership rates are good (for investors) if they own the property—it means more renters,” says Daren Blomquist, senior vice president at the real estate data firm ATTOM. “But it’s bad if they’re trying to acquire more properties.”

Those all-cash offers beating out would-be homebuyers aren’t coming from large investment firms anymore. Wealthy “mom-and-pop” landlords—families that can afford to buy another house and rent it out as an investment—now dominate the single-family rental market. Among all single-family rentals nationally, about 80 percent are owned by individuals that rent out just one or two homes, according to ATTOM.

But aren’t institutional investors keeping houses off the market—and doesn’t that drive up prices?

Institutional investors aren’t keeping enough homes off the market statewide to blame them entirely for California’s astronomical housing prices. But in certain markets—especially in areas hit hard by the foreclosure crisis, such as the Central Valley and in the Inland Empire—it’s impossible to pretend they have no influence.

Among cities with at least 100,000 residents, Sacramento has seen the most properties sold to institutional investors since 2007, according to ATTOM’s data—about 6 percent of all homes sold in the city during that time span. Just down Interstate 10, San Bernardino and neighboring Rialto have seen the largest share of their housing stock bought by institutional investors, at roughly 10 percent.

Firms have largely stayed away from Bay Area cities, where the foreclosure crisis was less acute, and where housing prices are among the most expensive in the country.

“We do not believe our activity impacts prices at any level,” a spokeswoman for Blackstone subsidiary Invitation Homes wrote in response to questions.

Institutional investors have targeted the typical starter home in these cities—three-bedroom, two-bath houses at a price point that a few years ago could have been afforded by younger families. So in some cases, would-be first-time homebuyers are now renting in places they may have bought just a few years ago.

Still, the stock owned by investment firms in these areas is much lower than in places such as Atlanta or Phoenix, where private firms have been responsible for nearly one in four home purchases. And young families are more likely to be renting single-family homes from smaller landlords.

Proposed laws to help first-time homebuyers have stalled

Reports of institutional investors making all-cash offers on California homes caught the attention of state Sen. Ian Calderon, a Democrat from Whittier, when he was attempting to move out of his apartment and purchase his first house last year. While the 32-year-old lawmaker acknowledges that institutional investors don’t own a large chunk of California’s housing stock, he says he’s concerned their influence is yet another hurdle for young homebuyers to overcome.

“I just want to be able to have more information about these firms, and ultimately I want to advantage first-time homebuyers,” said Calderon. “I want to make sure that people aren’t getting screwed.”

Multiple attempts by Calderon to impose more transparency on institutional-investor activity while blunting their ability to make all-cash offers have not gone far in the Legislature. Two years ago, a bill that would have forced homeowners to wait 90 days before selling to large institutional investors failed to clear both chambers with that provision intact.

Last year, a bill that would have required investors who own more than 100 properties in California to register with the state and provide detailed information on their activities again failed to reach the governor’s desk. Caldeorn says there’s a good chance that bill will be resuscitated this year.

The California Apartment Association, which represents landlords across the state for both multifamily and single-family units, has opposed much of Calderon’s legislation, arguing that much of the information it seeks is available in public stock exchange filings. That’s mostly true, but that only applies to publicly traded firms, and the data is not in the most accessible format.

Landlords also say Calderon’s bill doesn’t address the root cause of the problem.

“The bottom line here is about supply,” said Debra Carlton, lobbyist for the California Apartment Association. “There’s just not enough housing to go around, so you end up in these unfortunate situations where people can’t buy and can’t afford a place to rent.”

A previous story investigated another player with a greater effect on California’s housing market—foreign buyers. CALmatters.org is a nonprofit, nonpartisan media venture explaining California policies and politics.

Published in Local Issues