(Bloomberg) -- Los Angeles plans to issue $150 million of municipal debt next week to raise money for housing construction as it moves to ease a mounting homelessness crisis in the second-most populous US city.  

The sale is part of a $1.2 billion city bond measure — Proposition HHH — that voters approved in 2016. It was designed to develop permanent, rent-stabilized housing for some of the city’s residents most in need. Proceeds of this month’s borrowing will finance the construction of 2,574 units, bond documents show. Ultimately, the financing earmarked through HHH is expected to provide residences for as many as 16,000 people.

The city of 3.8 million has been pouring money into addressing a growing homelessness emergency that’s been magnified by soaring rents and stagnant incomes in the wake of the pandemic. Some 46,260 people in Los Angeles were unhoused in 2023, up almost a third from before the pandemic and 63% from eight years ago when the measure passed, the Los Angeles Homeless Services Authority estimates. Combining the city and county, Los Angeles trails only New York City in terms of the size of its homeless population, federal data show. 

“Those bonds will be very well-received by the market” given the size of the city’s economy and solid demand for tax-exempt debt in California, said Pat Luby, a municipal strategist at CreditSights Inc. “The social benefit of contributing to the amelioration of such a significant problem with enormous human costs will stimulate additional demand from national investors.” 

Funds from the bond sale may also go toward facilities that support mental-health services, drug and alcohol treatment and education and job training. The debt, scheduled to price on June 24, is backed by Los Angeles property taxes and gets a top grade from Fitch Ratings and an assessment two levels lower from Moody’s Ratings. 

More than 90% of Proposition HHH’s funds have now been committed to homelessness projects, and city officials say they’re on track to exceed the measure’s initial promise to build 10,000 housing units in 10 years. 

“It’s exciting to see these bonds being sold consistent with what the voters approved and helping the city beat its goal,” said Tommy Newman, vice president of public affairs at United Way of Greater Los Angeles, a not-for-profit organization advocating for a higher tax to raise money for assistance programs. 

Voters approved a quarter-cent sales county tax for homelessness projects in 2017, which sunsets in three years. A push to replace the tax with a permanent half-cent levy may struggle to succeed — judging by the tight race this year for a statewide proposal to combat homelessness. The $6.4 billion measure backed by Governor Gavin Newsom, a Democrat, barely passed with a simple majority, reflecting voter fatigue and frustration toward the government’s handling of the crisis. 

“We need more emergency shelters, we need more solutions for people with serious mental illness, and we also need this supportive housing which is appropriate for people who have long-term disabilities,” said Newman at United Way. “The alternative in LA has been to leave people on the streets or to tell somebody that they need to live in a shelter bed without the appropriate supportive services, and that’s just not sustainable.”

--With assistance from Philip Tabuas.

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