(a) Under any service contract entered into pursuant to Section 5849.35, the department may allocate an amount not to exceed one billion eight hundred million dollars ($1,800,000,000) from the fund for the purposes of the competitive program described in this subdivision and the alternative process described in subdivision (b). The department shall develop a competitive application process for the purpose of awarding moneys pursuant to this section. In considering applications, the department shall do all of the following:

1. (1) Restrict eligibility to applicants that meet the following minimum criteria:

   1. (A) The county commits to provide mental health supportive services and to coordinate the provision of or referral to other services, including, but not limited to, substance use treatment services, to the tenants of the supportive housing development for at least 20 years. Services shall be provided onsite at the supportive housing development or in a location otherwise easily accessible to tenants. The county may use, but is not restricted to using, any of the following available funding sources as allowed by state and federal law:

      1. (i) The Local Mental Health Services Fund established pursuant to subdivision (f) of Section 5892.
      2. (ii) The Mental Health Account within the Local Health Welfare Trust Fund established pursuant to Section 17600.10.
      3. (iii) The Behavioral Health Subaccount within the County Local Revenue Fund 2011 established pursuant to paragraph (4) of subdivision (f) of Section 30025 of the Government Code.
      4. (iv) Funds received from other private or public entities.
      5. (v) Other county funds.
   2. (B) The county has developed a county plan to combat homelessness, which includes a description of homelessness countywide, any special challenges or barriers to serving the target population, county resources applied to address the issue, available community-based resources, an outline of partners and collaborations, and proposed solutions.
   3. (C) Meet other threshold requirements, including, but not limited to, developer capacity to develop, own, and operate a permanent supportive housing development for the target population, application proposes a financially feasible development with reasonable development costs.

2. (2) The department shall evaluate applications using, at minimum, the following criteria:

   1. (A) The extent to which units assisted by the program are restricted to persons who are chronically homeless or at risk of chronic homelessness within the target population.
   2. (B) The extent to which funds are leveraged for capital costs.
   3. (C) The extent to which projects achieve deeper affordability through the use of nonstate project-based rental assistance, operating subsidies, or other funding.
   4. (D) Project readiness.
   5. (E) The extent to which applicants offer a range of onsite and off-site supportive services to tenants, including mental health services, behavioral health services, primary health, employment, and other tenancy support services.
   6. (F) Past history of implementing programs that use evidence-based best practices that have led to the reduction of the number of chronic homeless or at risk of chronic homelessness individuals within the target population.

(b) The department may establish an alternative process for allocating funds directly to counties, as calculated in Section 5849.6, with at least 5 percent of the state’s homeless population and that demonstrate the capacity to directly administer loan and grant funds for permanent supportive housing serving the target population and the ability to prioritize individuals with mental health supportive needs who are homeless or at risk of chronic homelessness, consistent with this part and as determined by the department. The department shall adopt guidelines establishing the parameters of an alternative process, if any, and requirements for local administration of funds, including, but not limited to, project selection process, eligible use of funds, loan and grant terms, rent and occupancy restrictions, provision of services, and reporting and monitoring requirements. Counties participating in the alternative process shall not be eligible for the competitive process and shall be limited to funds in proportion to their share of the percentage of the statewide homeless population, as calculated by the department in Section 5849.6. Funds not committed to supportive housing developments within two years following award of funds to counties shall be returned to the state for the purposes of the competitive program. The department shall consider the following when selecting participating counties:

1. (1) Demonstrated ability to finance permanent supportive housing with local and federal funds, and monitor requirements for the life of the loan.
2. (2) Past history of delivering supportive services to the target population in housing.
3. (3) Past history of committing project-based vouchers to supportive housing.
4. (4) Ability to prioritize the most vulnerable within the target population through coordinated entry system.

(d) The department shall award funds for the competitive program in at least four rounds as follows:

1. (1) The department shall issue its first request for proposal for the competitive program no later than 180 days after the effective date of a final judgment, with no further opportunity for appeals, in any court proceeding affirming the validity of the contracts authorized by the authority and the department pursuant to Section 5849.35 and any bonds authorized to be issued by the authority pursuant to Section 15463 of the Government Code and any contracts related to those bonds.
2. (2) The second round shall be completed no later than one year after the completion of the first round.
3. (3) The third round shall be completed no later than one year after the completion of the second round.
4. (4) The fourth round shall be completed no later than one year after the completion of the third round.
5. (5) Subsequent rounds shall occur annually thereafter in order to fully exhaust remaining funds and the department may discontinue the use of the competitive groupings in Section 5849.6, the alternative process in subdivision (b) for any funds not awarded by the county, and the rural set-aside funds as set forth in subdivision (c).

(e)

1. (1) Any loans for capital costs made by the department pursuant to this section shall be in the form of secured deferred payment loans to pay for the eligible costs of development. All unpaid principal and accumulated interest is due and payable no later than completion of the term of the loan, which shall be established through program guidelines adopted pursuant to Section 5849.5. The loan shall bear simple interest at a rate of 3 percent per annum on the unpaid principal balance. The department shall require annual loan payments in the minimum amount necessary to cover the costs of project monitoring. For the first 15 years of the loan term, the amount of the required loan payments shall not exceed forty-two hundredths of 1 percent per annum. Funds shall be offered as grants for the capitalized operating reserves.
2. (2) The department may establish maximum loan-to-value requirements for some or all of the types of projects that are eligible for funding under this part, which shall be established through program guidelines adopted pursuant to Section 5849.5.
3. (3) The department shall establish per-unit and per-project loan limits for all project types.

(f)

1. (1) The department may designate an amount not to exceed 4 percent of funds allocated for the competitive program, not including funding allocated pursuant to subdivision (b), in order to cure or avert a default on the terms of any loan or other obligation by the recipient of financial assistance, or bidding at any foreclosure sale where the default or foreclosure sale would jeopardize the department’s security in the rental housing development assisted pursuant to this part. The funds so designated shall be known as the “default reserve.”
2. (2) The department may use default reserve funds made available pursuant to this section to repair or maintain any rental housing development assistance pursuant to this part to protect the department’s security interest.
3. (3) The payment or advance of funds by the department pursuant to this subdivision shall be exclusively within the department’s discretion, and no person shall be deemed to have any entitlement to the payment or advance of those funds. The amount of any funds expended by the department for the purposes of curing or averting a default shall be added to the loan amount secured by the rental housing development and shall be payable to the department upon demand.

(g)

1. (1) Before disbursement of any funds for loans or grants made pursuant to this section, the department shall enter into a regulatory agreement with the development sponsor that provides for all of the following:

   1. (A) Sets standards for tenant selection to ensure occupancy of assisted units by eligible households of very low and low income for the term of the agreement.
   2. (B) Governs the terms of occupancy agreements.
   3. (C) Contains provisions to maintain affordable rent levels to serve eligible households.
   4. (D) Provides for periodic inspections and review of yearend fiscal audits and related reports by the department.
   5. (E) Permits a developer to distribute earnings in an amount established by the department and based on the number of units in the rental housing development.
   6. (F) Has a term for not less than the original term of the loan.
   7. (G) Contains any other provisions necessary to carry out the purposes of this part.
2. (2) The agreement shall be binding upon the developer and successors in interest upon sale or transfer of the rental housing development regardless of any prepayment of the loan.
3. (3) The agreement shall be recorded in the office of the county recorder in the county in which the real property subject to the agreement is located.

(h)

1. (1) The department shall monitor county compliance with applicable program regulations, loan agreements and regulatory agreements, and any agreements related to the program that designate the department as a third-party beneficiary, and enforce those regulations and agreements to the extent necessary and desirable in order to provide, to the greatest degree possible, the successful provision of permanent supportive housing.
2. (2) The department shall annually report to the authority the status of its efforts pursuant to this section and Section 5849.9, as set forth in Section 5849.11.