BILL ANALYSIS                                                                                                                                                                                                    



                                                                  SB 73
                                                                  Page  1

          Date of Hearing:   September 6, 2001

                        ASSEMBLY COMMITTEE ON APPROPRIATIONS
                              Carole Migden, Chairwoman

                      SB 73 (Dunn) - As Amended:  June 19, 2001 

          Policy Committee:                              Revenue and  
          Taxation     Vote:                            8-0

          Urgency:     No                   State Mandated Local Program:  
          No     Reimbursable:              

           SUMMARY  

          This bill increases the low-income housing tax credit from $50  
          million to $70 million per calendar year, starting in 2001, and  
          adjusts that amount annually for inflation.  Specifically, this  
          bill:   

          1)Permanently increases the maximum aggregate dollar amount of   
            the low-income housing credits offered under the personal  
            income tax law, the bank and corporation tax law and the  
            insurance tax law, to $70,000,000 for calendar year 2001 and  
            each calendar year thereafter.

          2)Increases the maximum aggregate dollar amount of the  
            low-income housing credits for the 2002 calendar year and each  
            calendar year thereafter by the percentage increase in the  
            Consumer Price Index (CPI).

          3)Directs the California Tax Credit Allocation Committee (CTCAC)  
            to review and evaluate the geographic apportionment  
            methodology of the low-income housing credit program and to  
            report back to the Legislature by June 30, 2002.  

           FISCAL EFFECT  

          The Franchise Tax Board (FTB) estimates General Fund revenue  
          losses of less than $500,000 in 2002-03, $4 million in 2003-04,  
          $10 million in 2004-05, $16 million in 2005-06 and $19 million  
          in 2006-07.

          The full fiscal impact of the credit increase will take several  
          years to materialize, due to the time required for CTAC to  








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          review and approve tax credit applications from developers, the  
          fact that the credits are phased-in over four years, and the  
          fact that the credit cannot be claimed until construction is  
          completed and the housing units are occupied.

           COMMENTS  

           1)Background  .  The federal Tax Reform Act of 1986 authorized a  
            nonrefundable tax credit for investment in low-income housing  
            units to stimulate investment in and production or  
            rehabilitation of affordable rental housing.  The federal  
            credit is allowed over a 10-year period and is allocated to  
            each state based upon a fixed per capita amount.  Recent  
            legislation increased the per capita amount allowed to each  
            state to $1.50 for 2001 and $1.75 for 2002.  The 2002 cap  
            increases in subsequent years by the percentage increase in  
            the CPI.

            In recognition of the high housing costs in California, the  
            Legislature created a state low-income housing credit in 1987  
            to supplement the federal tax credit. AB 168 (Torlakson),  
            Chapter 9 of 1998 increased the maximum state credit from $35  
            million to $50 million for calendar years 1998 and thereafter.  


            The state low-income housing tax credit must be taken over  
            four years in the following percentages: 30%, 30%, 30% and  
            10%.  Typically, a credit is reserved by CTCAC for specific  
            projects by September in each calendar year and is allocated  
            among the projects no later than December 31 of that year.   
            The allocated credit may not be claimed as a reduction to tax  
            until the project is completed and the housing units are  
            occupied.

           2)Purpose  .  The author and the sponsor, State Treasurer Phil  
            Angelides, believe the state tax credit has succeeded in  
            increasing the supply of affordable housing in California, and  
            represents one of the state's best public policy options for  
            addressing the severe housing shortage in California.  The  
            state credit has produced over 100,000 affordable housing  
            units since its inception in 1987. 

          Despite the recent increase in the maximum aggregate credit to  
            $50 million per year, the author contends the credit program  
            is oversubscribed by a ratio of 4:1.  Information provided by  








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            the sponsor states that only 32% of the applicants (86 out of  
            270) received an allocation of credits in 2000.

           Analysis Prepared by  :    Stephen Shea / APPR. / (916) 319-2081