The Brief

Seventeen years ago, Californians bet on a grand vision of the future. They narrowly approved a $10 billion bond issue to build a high-speed rail line that would zip between San Francisco and Los Angeles in under three hours. This technological marvel would slash emissions, revitalize the state’s Central Valley, and, with some financial help from the feds and private sector, provide the fast, efficient, and convenient travel Asia and Europe have long enjoyed.

State officials promised to deliver this transit utopia by 2020. Instead, costs have more than doubled, little track has been laid, and service isn’t expected to begin before 2030 — and only between Bakersfield and Merced, two cities far from the line’s ultimate destinations.

It’s little wonder the project finds itself in a precarious financial position, fighting political headwinds, and deemed a boondoggle by everyone from federal Transportation Secretary Sean Duffy to Abundance authors Ezra Klein and Derek Thompson.

“In the time California has spent failing to complete its 500-mile high-speed rail system,” they wrote, “China has built more than 23,000 miles of high-speed rail.”

The reasons for this vary with who’s being asked, but people with expertise often cite three fundamental missteps: creating a new agency to lead the effort, failing to secure adequate funding from the start, and choosing a route through California’s agricultural heartland. The state’s strict environmental review process hasn’t helped, either.

Protestors voice their opposition to Transportation Secretary Sean Duffy, who in February went to Union Station in L.A. to call California’s high-speed rail efforts a “boondoggle” and “failed experiment.”

(

Allen J. Schaben

/

Los Angeles Times via Getty Images

)

Rail's challenges

Such struggles are not unique to the Golden State, where support for the project remains strong. Although the private sector venture Brightline has seen some success, publicly funded high-speed rail efforts in Texas, Ohio, Washington, D.C., and beyond have stalled. Regulatory complexity, a political environment that favors cars and highways, and constant funding challenges stymie America’s aspirations even as other countries have spent big on tens of thousands of miles of track. Gov. Gavin Newsom promises to see the nation’s most ambitious rail project through despite recently losing all federal support, but its troubled path underscores the systemic challenges of building big in America.

California has always been a car-crazy place, and by the early 1990s, transportation studies made clear that its highways would not keep pace with the growth to come.

Policymakers saw an answer in bullet trains.

The Legislature established the California High-Speed Rail Authority in 1996 and gave it the tough job of planning, designing, building, and running the system.

Some consider that a mistake because the agency lacked experience managing so big a project and navigating complex bureaucracy. Even some rail supporters concede it would have been better to let the authority provide oversight and leave the heavy lifting to the state Department of Transportation, or CalTrans.

“It’s building a lot of overpasses and right-of-way, which Caltrans does all the time,” said Ethan Elkind, director of the UC Berkeley climate program in its Center for Law, Energy and the Environment.

Without that experience, the authority’s 10 employees relied heavily on consultants like engineering firm WSP, running up expenses.

“We paid WSP and their predecessor more than $800 million in consulting fees,” said Lou Thompson. He chaired the High Speed Rail Peer Review Group, established in 2008 to provide project oversight, from 2012 until 2024. The authority has in recent years eased its reliance on consultants, who reportedly have gone from 70% of its workforce to 45% over the past seven years.

Funding and politics

Once the High-Speed Rail Authority set up shop, work proceeded in fits and starts. Even as it considered routes and started the myriad bureaucratic tasks the project required, political interest waxed and waned with the state’s fiscal health. Skeptics lamented the cost and questioned whether bullet trains would attract enough riders to be worthwhile. But rail advocates, environmentalists, unions, and others kept pushing forward and in 2008 convinced voters to approve Proposition 1A, securing $10 billion to finance construction.

It was never going to be enough — at the time, the cost was pegged at $45 billion, a figure that did not account for inflation — and funding has been a challenge from the start.

Still, the Obama administration saw an opportunity to show that the economy was bouncing back from the Great Recession. The federal American Reinvestment Recovery Act provided $3.5 billion to help get things started. The authority, which had already mapped a route through the Central Valley, soon began grading land, moving utilities, and taking other steps toward construction of the first leg, a 119-mile stretch from Bakersfield to Madera.

Things chugged along until 2013, when a state judge blocked the use of Prop 1A funds, ruling that some of the work did not meet the rules for bond expenditures.

With federal support contingent upon the state’s cash, the federal grants had to be renegotiated — before they expired in 2017.

“We were literally sitting there saying, ‘Well, if we don’t start going, we could lose $700 [million] or $800 million of the federal money,” said Dan Richard, who was the High-Speed Rail Authority’s board chair from 2011 until 2019.

That prompted the agency to do something no one wanted to do: Move forward without having acquired all of the necessary land. So it did.

Then President Donald Trump took office. He seemed interested in what California was attempting to build, having lamented that China and Japan “have fast trains all over the place” while the U.S. relies upon “obsolete technology.” His opinion soured when Gavin Newsom became governor in 2019 and the two sparred over the president’s policies. Trump later canceled nearly $1 billion in federal funds for the rail project.

The Biden administration restored it and provided another $3.1 billion from the Infrastructure Investment and Jobs Act. The infusion was to help build a station in Fresno and acquire trains for testing. Even with the windfall, California remained at least $7 billion short of what it needed for the first short run through the Central Valley. The situation grew worse in July when Trump rescinded the entire amount after the Federal Railroad Administration said it saw no way of covering that shortfall and no path to completion by 2033.

Newsom said the move “reeks of politics," and the state is suing. But the impact goes beyond California by establishing a precedent to cancel projects at will.

“How do you go to your voters and say, ‘Put up the money. We expect 50% federal share,’ without knowing that the next administration could turn around and say, ‘I don’t like that project,’” Richard said.

The High-Speed Rail Authority initially planned to rely upon state, federal, and private sector funding in equal measure, but California has provided 75% of the $14.6 billion spent so far. The authority wrote in a letter to the Railroad Administration that Newsom’s plan to allocate $1 billion, pulled from the state’s cap-and-trade program, toward the project each year for 20 years will be enough to finish the Central Valley segment. The governor also recently signed a bill requiring the authority to update its estimate on the funding gap for that leg of the journey.

With California seemingly on its own, Thompson said the project needs an income stream approaching $5 billion a year to build everything. That is one reason the authority in June asked the private sector and financial institutions to weigh in on the chance of public-private partnerships. Its chief executive, Ian Choudri, said private investors have shown “extreme interest.”

Thompson isn’t buying it.

“My opinion is that that is hot air,” he said. The way he sees it, no one’s going to invest until they can see that there is demand for the rail line.

Politics and permitting

One of the reasons Brightline is held up as an example of how to bring high-speed rail to the United States is its strategy includes building on public land. Part of its 235-mile line between Miami and Orlando stands on land owned by Florida East Coast Railway. The company’s planned run between Las Vegas and L.A. will largely follow Interstate 15.

California could have done the same and built along the 5 Freeway, which bisects the Central Valley, but chose to go through major population centers 20 to 50 miles to the east. That pivotal decision increased the project’s cost and complexity. Following the freeway would have been straighter and flatter, without the elevated track, tunnels, and other infrastructure needed to traverse cities. The route also turned a state effort into a regional development project beset by local politics.

The High-Speed Rail Authority had good intentions, however. It hopes that bringing rail to places like Merced and Bakersfield might entice Silicon Valley and Los Angeles firms to open offices in the Central Valley, which would be a 90-minute ride from their headquarters. It also would boost local economies left behind by the state’s boom — and it has, to some extent. The project has added 11,000 construction jobs to the region. But that exacted its own toll.

“Those economic benefits have been really substantial, so that sort of worked, but it came at potentially the cost of not being able to build the system at all, because by starting it in the Central Valley they’ve basically blown all the money there,” said Elkind of the UC Berkeley Climate Program.

Should the state once again ask voters for money, it would have had a stronger case if initial construction had occurred in major population centers, he said.

The route also created additional hurdles as the project navigated California’s environmental oversight rules. Going through several cities and all that farmland increased the number of stakeholders who had to be consulted, ballooning the environmental review process.

To be fair, the California Environmental Quality Act, or CEQA, has long protected the state’s rich biodiversity. But some rail proponents argue it has been used to stymie progress. High-Speed Rail Authority data shows it has spent more than $765 million on environmental review. Lawsuits stemming from CEQA can be particularly expensive.

“If you have a $100 billion project, and let’s say that interest rates are 3% a year, every year’s delay costs you $3 billion,” Thompson said. “A $50,000 lawsuit can delay you for a year, and so there’s an enormous pressure on you to try to bargain your way out of these kinds of situations.”

California recently loosened CEQA requirements for the rail system’s maintenance facilities and stations, a move Newsom cheered.

“These are very targeted exemptions that will help cut red tape and deliver on California’s vision of high-speed rail without compromising environmental protections,” gubernatorial spokesperson Daniel Villaseñor wrote in an email.

Whether that reform has an impact remains to be seen, because most of the environmental review is already completed.

And regulation was never the project’s biggest problem.

“It just seems like the easy, obvious answer,” said Hana Creger, associate director of climate equity at the Greenlining Institute. “But I think these things are a lot more complex.”

Progress on high-speed rail

Given all of this, it can be easy to lose sight of what progress has been made. The authority is quick to note that 463 miles of the 494-mile system has cleared the environmental review process and is “construction ready.” It also boasts of having laid 70 miles of guideway — meaning track, elevated structures, or other riding surface — and erected 57 structures. All told, the project has created more than 15,500 jobs since its inception.

Despite the challenges, Newsom remains steadfast in his determination to see Californians one day riding the trains they were promised so many years ago. “I want to get it done,” he said in May. “That’s our commitment.”

That will surely resonate with his constituents; recent polling shows 62% of voters believe the state should continue financing the project, though opinions split sharply along partisan lines. Still, experts caution that support isn’t enough. Tangible progress and credible funding streams are essential to maintain momentum.

The High-Speed Rail Authority seems to understand this and is pressing ahead to connect Bakersfield to either Merced or Gilroy.

There’s a lot to do before crews start laying track, but the goal is to finish that run by 2032 and the authority recently opened the bidding process to begin installing track next year.

Looking further ahead, its latest plan, released late last month, calls for extending the line south to Palmdale by 2038, putting it within 80 miles of San Francisco and 40 miles of L.A. at a cost of $87 billion.

“While challenges remain, so too does the potential to deliver a modern transportation system worthy of the state’s ambitions — one that reflects the scale, complexity and promise of California itself,” Choudri wrote in the plan. “Let’s go build it.”

Assuming the project retains its $4 billion federal grants, the project has $29 billion available, with an additional $15 billion from Newsom’s proposal, according to the CHSRA. Thompson said the governor’s proposal, which would set aside $1 billion every year for the project, should keep it alive for the next four years.

Beyond that, it will need an infusion of cash, likely from voters but possibly from a future presidential administration.

“I think the path forward is that they could show some first segment success and then go back to the voters,” Elkind said. “You just got to get through this first era here, and get something built that they can show to the voters.”

Ultimately, California’s high-speed rail is more than a train line; it is a test of the nation’s ability to deliver transformative infrastructure. Its path forward remains uncertain, but every mile of track laid could lead to a turning point — not just for the state, but for the broader goal of building the kind of transportation network other countries take for granted.

As COVID-19 tore through California, Jennifer Hark Dietz had a decision to make. The state was making perhaps its biggest push ever to get people off the street, offering up billions of dollars for cities and organizations like hers to turn old motels into new homes.

It was risky. The Homekey program came with up-front cash and a promise to move fast and cut red tape. But it also meant taking on old buildings with little vetting, which had the potential to put a developer in a deep financial hole.

At first the gamble paid off. In just a few months, Hark Dietz’s nonprofit, People Assisting The Homeless, was housing people in the old 40-room Hollywood Orchid Suites in Los Angeles. She called it a “shining light” for what seemed possible with the radical new program.

But then came a pale pink Travelodge in the suburb of Gardena. The city of LA had already bought the motel for $9 million, and Hark Dietz said her team didn’t have a chance to vet or tour the site. They’d only seen online photos and basic inspection reports before they took it over in December 2020. A city consultant estimated that it would take about $50,000 to start moving people into the roadside motel.

“Of course,” she said, “we know now that’s not the case.”

More than five years and nearly $3 million later, the motel — which turned out to need all new windows, plumbing and electrical, among other issues — was still vacant earlier this year. There was plywood over some of the windows, and someone graffitied a ghost on one side.

The boom-or-bust results in Los Angeles underscore how little is known publicly about a generational project with a high price tag and even higher stakes. Some projects were huge successes. Others were total failures. Dozens remain stuck in limbo. CalMatters found there’s been little public accountability for any of it.

Launched by Gov. Gavin Newsom in the summer of 2020, Homekey awarded more than $3.8 billion to local governments to convert motels and other buildings into homeless housing, thrusting many local governments into a new role running multimillion-dollar real estate projects. Cities and counties could hire outside contractors to help or do the work themselves, skipping some of the usual building process for the sake of speed.

It was unlike anything the state had ever done, largely because it sprang from desperation. Homekey launched during peak COVID, five months before vaccines were available, and after cities had already moved thousands of unhoused people into motels through Project Roomkey, another Newsom program. But those rooms were temporary, and officials were scrambling to prevent a mass exodus back to the streets.

With Homekey, local officials across the state bought and gutted Motel 6s, Best Westerns and roadside inns. They got more creative as the program evolved: Tiny homes sprouted in Silicon Valley, and Santa Cruz retrofitted an old dentist’s office. In Southern California, housing took shape in a former Tri-Delt sorority house, an earthquake-stricken church and a hostel that once served as a refuge for Japanese Americans returning from World War II internment.

Live Oak Apartments in Ukiah on Feb. 26. Live Oak offers its residents access to common spaces, such as a community garden and meeting rooms for visitors.

(

Manuel Orbegozo

/

CalMatters

)

“What we’re doing here today is multiples of what any state in American history has committed to address this crisis of homelessness,” Newsom said at a 2021 press conference announcing a major Homekey expansion.

The program came with little built-in oversight. Earlier this year, state lawmakers killed a bill to audit Homekey. No state agency has publicly analyzed the program in detail to find out what’s working and what’s not.

The challenge now: A new and more complex phase is already underway with up to $2 billion from the voter-approved Prop. 1 mental health bond. But no one has publicly accounted for how many of the program’s original projects stalled out and how many succeeded.

To find out what happened, CalMatters filed more than 100 public records requests with cities and counties that were awarded Homekey funds. We asked for key details on 250 projects announced through the end of 2024, covering all but a handful of projects for which less public data was available. Those state and local records — along with dozens of visits to Homekey sites, plus interviews with people who built and lived in them — create a first-of-its-kind window into how it all played out.

Among our findings:

• Homekey made producing housing simpler. But it came at a cost. Homekey provided billions of dollars in housing funding up front, allowing some developers to sidestep the usual webs of investors and lenders and finish much faster than normal. But fewer funders also means less oversight. With rushed vetting, some projects got bogged down in delays, blown budgets or worse. At least one Homekey developer was forced out of business by an unwieldy project. Another is facing fraud charges.

• When Homekey worked, those involved stress that it really worked. Nearly 13,500 people now live at Homekey sites, according to the state Housing Department. For small and rural communities, such as Glenn County, the program provided crucial cash for their first-ever homeless housing. Officials from Mendocino County to Ventura say they were able to stabilize people longer term by adding stronger ties to public services and extra investment in resources such as counseling.

• Those successes magnify the opportunities squandered. Projects involving about 3,000 homes — roughly 1 in 5 promised by the program — weren’t finished as of the end of last year. Another 2,000 units have people living in them on a temporary basis but haven’t been converted into permanent housing, the program’s main goal. In 10 instances involving 500 more units, the state publicized grants that later were canceled or that never materialized because local officials or developers backed out.

• A lack of transparency raises familiar questions about the program’s future. State officials stress that they have extended deadlines and improved vetting for the program’s latest bond-funded iteration, Homekey+. But they refused to publicly provide details about that vetting process. And as homeless services providers have long warned, there remains no guaranteed state funding to keep existing or planned Homekey projects going. 

Yes, many Homekey projects opened late or over budget. But, officials emphasize, they still opened.

Newsom said he considers the program a “phenomenal success.”

“We’re talking about hundreds and hundreds of projects all across the state of California that they’re trying to manage and organize and operate,” he said when CalMatters asked about it at a recent press conference. “And I imagine each one of them brings its own opportunities and own challenges as we move forward and implement at a scale we’ve never implemented in the state’s history.”

Taryn Sandulyak knows that better than most. The Bay Area developer thought Homekey might be her big break, but it ultimately put her out of business. She sees a fundamental mismatch at the heart of the program. It wanted high quality, high speed and low budgets.

“You can only have two of those,” Sandulyak said. “You really can’t ever have three. That’s the issue with Homekey, is they give you not quite enough money to do it, and they want you to do it really, really fast and really, really well.”

The chasm between Homekey successes and failures isn’t a simple, one-size-fits-all story. But it does provide an outline of what it will take to make good on California’s big effort to finally make a dent in its homelessness crisis.

‘Failing was not an option’

On the west side of Ventura, just as the surf town creeps up into the hills toward Ojai, sits what used to be one of the city’s worst nuisance properties: a nearly 100-year-old apartment building once known, in a nod to local drug slang, as the “Booyah Mansion.”

The city’s housing authority, Ventura Housing, cobbled together enough money in 2019 to buy the building. But it didn’t have enough cash to fix all 300-something code violations at the crime-ridden property — until Homekey came along.

“We had some scary stuff go on here,” said Karen Flock, Ventura Housing’s real estate development director. “This property failing was not an option.”

Now known as El Portal, the 29-unit apartment complex today serves as a lifeline for a mother with 9-year-old-twins, one severely autistic. It’s a refuge for a woman who lived for six years in a city-funded Tuff Shed. Another neighbor still keeps his shopping cart from the street in his apartment as a reminder of what he’s been through, and why he can never go back.

Cynthia Gomez, 60, at her home in El Portal apartments in Ventura on Feb. 26. Gomez, who was formerly homeless, now lives in a studio apartment.

(

Julie Leopo-Bermudez

/

for CalMatters

)

Ventura and other cities and counties that were able to pull off Homekey projects relatively on time and on budget credit a variety of factors for their success. Some grantees provided services themselves rather than contracting them out, better integrating public resources. Others raised extra money for on-site social services or worked closely with first responders to head off concerns about crime and stabilize residents.

Jeffrey Lambert, CEO of Ventura Housing, said the crucial thing was realizing early that Homekey money alone isn’t nearly enough. Instead, the city combined it with other public and private funding, staffing and resources. Projects that failed or got stuck in limbo often fell apart after they ran out of money.

“Homekey works,” Lambert said, “because of all the stuff added on top of it.”

For housing researchers such as Ryan Finnigan, deputy director of research at UC Berkeley’s Terner Center for Housing Innovation, the real strength of Homekey was not the building minutiae. It was the attempt to challenge the state’s status quo of painstakingly slow housing development while people keep pouring onto the streets.

“If we’re not willing to try a new approach,” he said, “then we’re not going to learn as much about how we can be more creative, how we can work with more urgency than the current systems.”

As fraught and full of delays as the construction process can be, getting a project completed is often just the first hurdle for Homekey. Once a project opens its doors, it typically needs significant resources in addition to the state funding. Mendocino County credits much of its project’s success to extra services for residents, which aren’t paid for by the state grant, said Megan Van Sant, a senior program manager for the county who oversees the Homekey site.

At the former Best Western hotel now known as Live Oak Apartments, there’s a therapist on retainer for tenants, plus a dog trainer paid to work with problem pets. Both try to help residents resolve any issues that come up before they escalate into grounds for an eviction.

To provide those extras, the county runs the project itself, rather than contracting with an outside service provider as many Homekey projects do. Two county staffers work full-time inside the building, using their connections to do everything from enrolling residents in Medi-Cal to pairing them with mental health services.

All that is expensive.

“I think the state should continue to support these projects,” Van Sant said. “The state asked communities to do these projects, and they cost more to do well than what you can earn in rent.”

Resident Sherry Collins inside her room at Live Oak Apartments in Ukiah on Feb. 26. Photo by Manuel Orbegozo for CalMatters

(

Manuel Orbegozo

/

for CalMatters

)

Sherry Collins, 66, moved into the project three years ago, at a time when she was terrified of what would come next. Her husband had died, her health was failing, she couldn’t work, and she couldn’t afford to keep living in her cabin in the tiny coastal city of Fort Bragg.

Now she feels like she’s home. Collins decorated the window of her room with little red and pink hearts and adopted a kitten with extra toes, whom she named Mr. Handsome. She continues to deal with health challenges after losing a leg to diabetes about a year ago. The building has only four units accessible for people with disabilities, making it a challenge to accommodate everyone, but one recently opened up for Collins, where she can more comfortably shower.

“They have been awesome to me,” Collins said. “They’re more like family.”

Never-ending projects

For Sandulyak, Homekey was too good to refuse.

Five years earlier she had co-founded Firm Foundation Community Housing, which helped Bay Area churches turn their parking lots and backyards into tiny homes for homeless residents.

Homekey was a once-in-a-lifetime opportunity to dramatically scale up that vision by using millions in state funds to house dozens of people in Vallejo. It would be the small nonprofit’s most ambitious project by far.

Sandulyak never suspected that by applying for Homekey, she had doomed her organization.

Firm Foundation was awarded $12 million in 2022 to build a 47-unit modular apartment building called the Broadway Project. Over the next four years, nearly everything that could go wrong did.

Some problems had nothing to do with Homekey. The general contractor went bankrupt, and the nonprofit tapped to operate the facility squabbled with the city, leaving the project in limbo for a year. The state wouldn’t let Firm Foundation pick a new partner to run the housing, which Sandulyak says further delayed the opening.

Other problems were directly related to Homekey. By design, the program forced cities to take a much more hands-on role with housing development than they were used to. Vallejo wasn’t prepared for that responsibility. It fumbled its attempt to get a key federal grant and failed to set up important safeguards that protect affordable housing projects from financial risks.

Soon, Sandulyak had $2 million in bills and no way to pay them. With construction three-quarters done, the project ran out of money. Firm Foundation was forced to stop work.

It became such a nightmare that the Vallejo City Council asked for an independent audit to find out what went wrong and why. The audit blamed both the city and Firm Foundation for allowing the project to run out of money before it was finished. Firm Foundation vastly underestimated the project’s cost, and the city bungled efforts to secure additional funds.

In some ways, the audit found, the very nature of Homekey helped set the project up for failure.

One big problem was the timeline. Homekey required projects to finish construction within one year of their award, and to move people in 90 days after that. To meet those deadlines, Firm Foundation created budgets before the architectural drawings were even done, contributing to serious cost underestimates, the audit found.

The audit also found a lack of oversight at the Broadway Project, which it said is typical of Homekey projects. Normally, a single affordable housing project uses funding from multiple sources, including the city, the county, the state, federal funds, tax credits, private banks and more. The more funders and investors, the more eyes watching and holding the developer accountable. With Homekey, the city applying for the grant typically takes on all those risks by itself, the audit found.

The official ribbon cutting at the grand opening of Broadway Village in Vallejo on March 5.

(

Nathan Weyland

/

for CalMatters

)

On a recent Thursday morning, Sandulyak gathered with city officials and her construction partners in front of a crowd to celebrate what they, at times, had thought would be impossible: the Broadway Project was finally open. Behind them rose the terracotta-colored wall of the sleek, new, modular apartment building. A red ribbon waited in front of them.

On the count of three, Sandulyak helped Vallejo’s assistant city manager snip the ribbon. The crowd cheered.

The project ended up coming in two and a half years late and 70% over budget. Despite those setbacks, the audit found it still cost less per unit and was built more quickly than the region’s average affordable housing project.

At right, Firm Foundation Community Housing Executive Director Taryn Sandulyak at the grand opening of Broadway Village in Vallejo on March 5. Photo by Nathan Weyland for CalMatters But it cost Sandulyak everything. She laid off three of her four employees, and she plans to lay off the last one and dissolve her organization. The nonprofit is still on the hook for more than $1 million in unpaid bills related to the project.

Despite her pride in the finished building, Sandulyak wonders how much more housing her nonprofit could have built — if only she’d never applied for Homekey.

Still, 52 people now have somewhere to call home.

“I’m unshaken in my belief that that is worth it,” Sandulyak said.

One of those people is 62-year-old Terrence White, a former refinery worker who was forced into early retirement by an injury and can’t afford market-rate rent. Now, he pays $294 a month and finally has his own place.

“It feels wonderful,” he said.

The Homekey gold rush

During the frantic first two years of Homekey, when many experienced affordable housing developers were sitting out the untested new program, an LA company called Shangri-La Industries stepped in to help fill the void. It scored nearly $115 million in contracts to build 500 homes for homeless Californians in cities from Salinas to San Bernardino.

But a federal indictment and a separate civil lawsuit allege that millions in state funds instead went to fund a lavish lifestyle for the company’s chief financial officer.

Among the charges attributed in court records to Shangri-La’s former CFO, Cody Holmes: $46,000 in monthly rent for a Beverly Hills house with a pool. Designer gifts for a girlfriend, including a $127,000 diamond necklace and a $111,000 crocodile Birkin bag. A $5,000-a-month lease on a Ferrari Portofino. Another $53,000 for Coachella passes, and $44,000 for flights on private jets.

All this while many of the desperately needed motel rooms sat empty.

Homekey set a low bar for contractors to qualify: They had to have worked on at least two affordable housing projects that included at least one homeless tenant.

Shangri-La easily cleared that hurdle. But had any state or local officials done more digging, they might have seen warning signs.

Shangri-La’s construction business was sued twice for breach of contract in 2018 and 2019, court records show, after two firms alleged that it failed to pay them. The company was also a contractor on a troubled LA veteran housing project, where records first reported by KCRW show Shangri-La partners sold the property to themselves, increasing the project’s budget by $8 million.

With Homekey, federal prosecutors allege that Holmes “knowingly submitted fake bank records” to the state Housing Department to boost Shangri-La’s credentials — financial claims that state officials apparently failed to verify with the banks. Holmes has pleaded not guilty, and an attorney representing him declined to comment.

As the company took on the Homekey projects, property records show that entities connected to Shangri-La or its partners paid around $13 million for actress Milla Jovovich’s Beverly Hills mansion, adding to a portfolio that included a $7 million oceanfront home in Long Beach purchased two years earlier.

In a separate civil fraud case, state prosecutors allege in court records that Shangri-La went behind the state’s back and took out undisclosed loans on the Homekey buildings, giving up control of the sites and violating their contract with the state. That became a major problem when the company defaulted on the loans.

For several of the properties, no one had filed crucial paperwork to ensure that they remained affordable housing. After the buildings ended up in foreclosure, some were scooped up by companies with no commitment to homeless housing.

Homekey contracts tasked local officials with vetting projects and reviewing contractors’ organizational documents, budgets and other key details. But records show state officials also reviewed Shangri-La’s financials, and once they paid out the Homekey money, they failed to verify that paperwork was completed to restrict the buildings to affordable housing.

The state Housing Department and several local governments that hired Shangri-La for Homekey projects declined to comment, citing ongoing litigation.

Andy Meyers, the former CEO of Shangri-La, acknowledged in an interview that he had “a lack of control” over his company. He has sued Holmes for fraud. He also blamed the local and state officials.

“My CFO had a lot of wrongdoing,” he said. “But it was a confluence of events that caused each project to go bad.”

Meyers said officials’ failure to file the proper affordable housing restrictions, which were also required by his lender, triggered a financial disaster that led his company to default on some of the properties. On two projects that Shangri-La did open in San Bernardino and Salinas, he estimated that the company incurred around $11 million in unexpected costs.

“We have spent so much money following their guidelines and following their timetables,” he said, “and they never followed their guidelines or timetables.”

Monterey County Supervisor Chris Lopez rallied support for a Homekey project in his hometown of King City. He thought Shangri-La made sense for four projects in the county, since it had already opened one Homekey site in Salinas.

But it didn’t take long for constituents to start asking why rooms were sitting empty behind chain-link fences.

“The longer it went on without seeing any movement, the flag started to get raised,” Lopez said. “I was starting to hear less and less communication and more sort of finger pointing.”

Local officials like Lopez had to start from scratch, raising millions more dollars to revive the projects as encampments swelled. It took 10 different deals totaling $16 million to open the King City project in March, three years behind schedule.

The full trail of Shangri-La’s deceit stretches from the state’s agricultural heartland to the edge of the Southern California desert. A $27 million Thousand Oaks hotel project sits abandoned today, robbing a region of 77 homes while it had a decade-long housing waitlist. Another $16 million project scrapped in Salinas would have provided 58 homes. Officials still plan to salvage 200 homes in other parts of Monterey County. The only two Shangri-La projects that stayed open during the legal battle, two motels in Southern California, were full of people who were plunged into messy foreclosure disputes.

The Quality Inn & Suites building, a former Shangri-La project, stands vacant in Thousand Oaks on Feb. 26.

(

Julie Leopo-Bermudez

/

for CalMatters

)

Carrie Harmon, San Bernardino County’s director of community development and housing, said in an email that “the county entered into this effort in good faith, relying on representations that later proved to be inaccurate.”

Even some of those whose Homekey projects went well say they’re not surprised that things went sideways. In Mendocino County, Van Sant said the state’s oversight was limited to quarterly progress reports. Once the money was spent, the state stopped asking for any information at all.

“They gave us a bunch of money, made us do some paperwork, and then they’re out of here,” Van Sant said.

For Colleen Robinson, public officials’ failure to see the red flags with Shangri-La was life-changing.

Robinson, now 62, survived years on the street after losing her job and fleeing a bad relationship. The All Star Lodge in downtown San Bernardino was her chance to start over. Shangri-La did manage to renovate and open that project in late 2022.

Two years later, the bank foreclosed. Because no one had put the affordable housing restriction on the property, the new owner told Robinson and other tenants that it was going to quadruple the rent. She said the new owner neglected the building; weeds and stray cats reclaimed the parking lot, police sirens blared, and neighbors died with little explanation.

“This would give hell a run for its money,” Robinson said.

Harmon said the county was still trying to buy the building and figure something out, but Robinson didn’t wait around to see how the saga ended. On a Thursday in February, she packed up and boarded a Greyhound bus for Iowa, where one of her children lives.

Homeless veterans still waiting

An unfinished motel conversion in the Encino neighborhood of Los Angeles on Jan. 27. The project is expected to finish more than a year after the original deadline, city records show.

(

Lauren Hepler

/

for CalMatters

)

Some Homekey projects still haven’t opened.

Santa Cruz County has three badly delayed Homekey projects, one of which will be more than four years late when it is slated to finally be finished at the end of next year. For that project, the county obtained more than $6 million to convert rustic vacation cabins under a grove of redwood trees into housing for homeless veterans. The state initially set a completion deadline of 2023, but the project ran out of money before it crossed the finish line, forcing construction to stop.

There were many reasons why, but one stands out: underestimating the cost, said Robert Ratner, director of Santa Cruz County’s Housing for Health division.

The developers had never undertaken a project this large, and that inexperience contributed to the budgeting error, Ratner said. But so did the design of Homekey, which capped what the state was willing to pay per unit at about half what it takes to build affordable housing in some parts of California.

The idea was that projects would be cheaper because they were converting existing buildings, while also cutting out extra layers of bureaucracy that add time and expense. That led developers to low-ball budgets, which came back to bite them when the savings weren’t as great as anticipated, Ratner said.

Once the budgeting error was made, neither the state nor the county caught it, Ratner said. The county assumed that the state would scrutinize all Homekey applications and throw out any that didn’t seem viable, Ratner said. But it appears that in reality, the state was relying on the counties to do that vetting.

Santa Cruz County had little experience analyzing whether a construction project was adequately budgeted. Typically, the county relies on other funders, such as construction lenders and tax credit investors, to do that job. But those investors weren’t present here.

When asked whether he and his colleagues had done their due diligence to make sure the projects were realistic, Ratner was straightforward.

“I would say no,” Ratner said. “I can’t say yes with a straight face at this juncture.”

Other projects just never happened.

A $14 million Homekey award was supposed to help breathe new life into the Hotel Travelers, a rundown, century-old building in Oakland’s Chinatown, as housing for people returning from incarceration. But once the developer got a look at the building, that plan fell apart. An inspection revealed such severe issues with the building’s construction that the developer determined it would be “morally untenable” to proceed. Oakland returned the grant.

In total, CalMatters found at least 10 cases where a Homekey award was announced, only for the grantee to later withdraw their application, return or redirect the money, or have the state claw it back. Some instances had more public explanation than others.

City officials in Fresno voted down their own project. Long Beach was unable to come up with a suitable location for $2 million worth of brand-new tiny homes left sitting in storage. Projects in Marin and Mariposa counties evaporated when real estate deals fell through, and the state rescinded its grant for a project in Salinas after a nonprofit partner pulled out.

Newsom's legacy and a financial cliff

Despite the vastly different outcomes at Homekey projects around the state, there’s no plan for a comprehensive audit to see what worked and what didn’t — a decision that raises the question of whether the state has done enough to grapple with Homekey as it forges ahead with the new version of the program, Homekey+.

Earlier this year, lawmakers nixed a public accounting proposed by Assemblymember Leticia Castillo, a Republican from Corona.

“While the program has expanded housing options, critical questions remain about its long-term impact and cost-effectiveness,” a summary of Assembly Bill 505 said. “It is unclear how many Homekey-funded units remain occupied after one year, how many individuals successfully transition to stable, long-term housing, and whether Homekey’s cost per unit is competitive.”

The bill was never publicly debated. It died in January.

The state did do one audit of multiple homeless services programs in 2024. It didn’t get into Homekey delays or what actually happened to people living in the buildings, but it analyzed the costs of eight projects. Based on that small sample, the auditor concluded that Homekey was “likely” cost-effective, with an average cost of $144,000 per unit, compared to the hundreds of thousands of dollars more it can cost for new construction in California.

The challenge is that when Homekey plans fell short of ambitions at job sites around the state, the consequences were often murky. In extreme cases, where cities acknowledged that projects failed to materialize, the state has clawed back grants. But usually, the main penalty for blown deadlines or other missteps is that the state may hold it against a local government or developer the next time it applies for funding — a dynamic that provides no public transparency.

Gary Wish stands outside El Portal apartments in Ventura on Feb. 26, 2026. Photo by Julie Leopo-Bermudez for CalMatters What happens next will be left up to a new state housing agency set to be launched this summer, the California Housing and Homelessness Agency. That effort is expected to include a new development committee to “provide centralized, coordinated guidance to state housing policy and funding decisions.”

For now, the state’s Housing Department maintains that it “monitors each project closely” if issues arise or deadline extensions are granted. Even with widespread delays, the agency maintains that “Homekey has helped build more and faster.”

The state said it is learning as it gives out the new Homekey+ funding. After seeing so many projects miss the one-year deadline, the state doubled the timeline for new construction to two years. Homekey+ projects that serve veterans now can propose bigger budgets for new builds, potentially addressing the issue of under-budgeted projects running out of money.

Officials also said they’re scrutinizing applications more closely now, including looking carefully at whether applicants are budgeting enough funds for their proposed projects, said California Health and Human Services Secretary Kim Johnson.

“We are improving our own vetting process, if you will,” she said during a recent news conference, “to ensure these projects are successful in delivering.”

The state’s housing department maintains that Homekey accomplished a major feat: building thousands of units despite a global pandemic, labor shortages, supply chain issues and other challenges.

“It is tremendously rewarding to see so many vulnerable Californians housed so quickly, and to have voters expand the successful Homekey model to house and support veterans and others facing behavioral health challenges,” Assistant Deputy Director Cari Scott said in a statement.

As the state’s housing policies shift, there’s one big question left for people like Van Sant in Mendocino: Will there be enough money to keep Homekey projects running?

Most of the projects have a pay-as-you-go model, versus standard 10- or 15-year affordable housing financing — a calculation that leaves a financial cliff looming for thousands of Homekey homes.

“If [Homekey] is going to be a long-term, permanent, successful program,” Van Sant said, “I think the state’s going to have to find a way to find some ongoing funding for it.”

Data reporters Erica Yee and Kate Li contributed to this story.

This article was originally published on CalMatters and was republished under the Creative Commons Attribution-NonCommercial-NoDerivatives license.

In Rancho Palos Verdes, sweeping views of the Pacific Ocean and Catalina Island are plentiful. So too are cellular dead zones, which means no cell phone calls without working Wi-Fi.

The stakes can be high: the landslide that has destroyed homes and trails continues, medical emergencies can pop up anywhere, anytime, and lack of cell service can delay response times.

It’s a problem the city’s been trying to address for years. But residents on Tuesday overwhelmingly protested plans to improve telecommunications services, arguing new cell towers would disrupt the peninsula’s aesthetics. The City Council agreed and voted 3-2 to kill the proposal.

How we got here

In Rancho Palos Verdes, cellular service relies on telecommunication facilities that are larger in size and housed on private property and public facilities. Some smaller facilities are mounted on utility poles and streetlights. But city officials say complaints from residents about poor service and dropped calls have increased, raising worries about what to do in an emergency.

Wireless providers have requested city officials relax regulations and allow them to install larger facilities and skip public input.

But residents like Charles Nixt, a realtor, spoke out against the proposed code changes at the City Council meeting.

“ As a realtor, I know that RPV's property values are tied to our unique aesthetics and quality of life,” he said. “By removing community input, you are removing the only check and balance we have to ensure these installations are compatible with our residential zones.”

Another person who grew up in the city called the Rancho Palos Verdes open spaces and trails, “the visual identity of our city.”

“ We should not be forced to trade our tranquility of our backyards and the beauty of our trails for a solution to a problem that many of us simply don't have,” he said.

But Mayor Paul Seo, who supported updating regulations to increase connectivity, shared a story in which he said a resident died because a neighbor couldn't call emergency services in time.

“ A senior citizen was walking on the sidewalk and he ended up having a heart attack. (A neighbor) couldn't call out for 10 minutes, couldn't call an ambulance. The neighbor had to run all the way home to get on Wi-Fi,” Seo said. “He ended up passing. If we had reception, then he would have survived.”

A local nonprofit that runs homeless shelters and safety-net programs filed a lawsuit against Long Beach last week, alleging it nearly had to shut down its operations across Los Angeles County after the city refused to pay for $1.1 million of work it performed.

It’s the latest escalation in a dispute between the April Parker Foundation and Long Beach’s homeless services bureau that’s been simmering behind the scenes for nearly a year.

Long Beach contracted the foundation for years to run violence intervention and youth coaching programs, a rapid rehousing service, and even selected it in 2023 to run its new youth shelter. But the city began withholding payments for at least some of that work as early as late 2024, the lawsuit alleges.

The foundations’ billing “was not consistent with their contractual requirements, and the supporting documentation wasn’t provided to substantiate all the amounts on the invoices,” Deputy City Attorney Nick Masero previously told the Long Beach Post. (The city attorney’s office declined to talk about the lawsuit Wednesday, saying it does not comment on active litigation.)

By October, the city had decided not to renew any contracts with the foundation, shortly after it conducted a “routine program monitoring” of a contract in early August, according to the lawsuit.

Masero said the city was still willing to pay invoices for any completed work as long as the foundation submitted the correct paperwork. The city, for instance, paid the principal balance for one of four outstanding contracts, $135,744 for the youth programming, after months of delays.

And as recently as Tuesday, a city worker was asking the nonprofit to fix “date and invoice number inconsistencies” on other languishing invoices, according to emails reviewed by the Long Beach Post.

He wrote that he wasn’t sure why they weren’t paid originally, but “if these invoice issues were simple typos and could be fixed, I want to resubmit these as soon as you can revise and send them to me.”

April Parker, who runs the April Parker Foundation, said she has sent over hundreds of documents and receipts detailing every transaction tied to the program and alleges the city is manufacturing excuses not to pay her. Typos and clerical errors could have been easily fixed with clarifying questions instead of nonpayment, she wrote in an email to the city.

The financial dispute, she says, has crippled her nonprofit, forcing it to cut its youth shelter staff, reduce its administrative team and close its 36-bed transitional shelter. Parker said she had to take out a line of credit and stop paying herself a salary to save her organization.

This marks the second time in recent months that the city has distanced itself from a homelessness services contractor over billing concerns. The city in April abruptly cut ties with First to Serve, which ran several of its homeless shelters, after a long-running audit of the homeless services bureau found issues with the nonprofit’s billing practices.

Parker said she was informed her organization was included in the audit, but — despite her repeated texts and calls to city health officials — says she was never told if it found any problems.

Topline:

Context: Civil rights activists have long said that pretextual stops disproportionately affect communities of color, an argument that data backs up. In 2022, the Police Commission updated LAPD policy to require officers making a pretextual stop to turn on their body cameras and explain why they plan to pull a car over or stop a pedestrian.

Yes, but: The City Council’s proposal does not immediately change LAPD policy. The Los Angeles Board of Police Commissioners, which sets department policies, will ultimately decide if the practice should be banned. LAPD leaders have said in the past that eliminating pretextual stops could diminish the department’s ability to detect illegal activity.

What's next: The Police Commission will have to take up the proposal before it advances further.