BILL ANALYSIS
SB 73
Page 1
SENATE THIRD READING
SB 73 (Dunn)
As Amended June 19, 2001
Majority vote. Tax levy
SENATE VOTE :32-2
REVENUE AND TAXATION 8-0 APPROPRIATIONS 20-0
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|Ayes:|Corbett, Harman, Alquist, |Ayes:|Migden, Bates, Alquist, |
| |Aroner, Cedillo, Koretz, | |Aroner, Ashburn, |
| |Matthews, Wyland | |Washington, Corbett, |
| | | |Correa, Daucher, |
| | | |Goldberg, |
| | | |Robert Pacheco, Papan, |
| | | |Pavley, Runner, Simitian, |
| | | |Thomson, Wesson, Wiggins, |
| | | |Wright, Zettel |
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SUMMARY : Increases the aggregate annual credit amount from $50
million to $70 million 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 existing
insurance tax law (ITL), personal income tax law (PITL), and
bank and corporation tax law (BCTL) to $70 million for
calendar year 2001 and each calendar year thereafter.
2)Increases the maximum aggregate dollar amount of the
low-income housing credits offered under the ITL, PITL, and
BCTL for the 2002 calendar year and each calendar year
thereafter by the percentage increase, if any, in the Consumer
Price Index (CPI).
3)Determines the increase in the CPI for any calendar year as
the amount by which the CPI for the preceding calendar year
exceeds the CPI for the 2001 calendar year.
4)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. The report
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shall consider, among other things, equitable distribution of
the tax credits in accordance with local and regional housing
needs.
EXISTING FEDERAL AND CALIFORNIA TAX LAWS offer low-income
housing credits to encourage investment in and production of
low-income housing.
Federal law allows a nonrefundable credit for investment in
low-income housing units within a low-income housing project.
Created as part of the Tax Reform Act of 1986, the credit is
intended 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 capital 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 for the percentage increase in the federal 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. The state low-income housing
credit offsets a taxpayer's liability determined under the ITL,
PITL or BCTL. The maximum aggregate credit allowed by
California increased from $35 million to $50 million for
calendar years 1998 and thereafter [AB 168 (Torlakson), Chapter
9, Statutes of 1998; AB 1626 (Torlakson), Chapter 3, Statutes of
2000].
Each state is required to create an agency for allocating the
credits, which agency allocates the credits in light of the
following criteria: project location; housing needs
characteristics; project characteristics; sponsor
characteristics; participation of local tax-exempts; tenant
populations with special needs; and public housing waiting
lists. CTCAC, in the State Treasurer's office, administers both
federal and state low-income housing tax credits. CTCAC
allocates tax credits to a housing sponsor for a project located
in California based upon numerous criteria including the
project's need for the credit for economic feasibility. The
housing sponsor then offers the credits to investors to raise
funds for the project.
The low-income housing tax credit authorized for California tax
purposes is taken over four years in the following percentages:
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30%, 30%, 30% and 10%. Typically, a credit is reserved by CTCAC
for specific projects by September in each calendar year and
must be 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, then, only
as the housing units are occupied.
FISCAL EFFECT : The Board of Equalization and the Franchise Tax
Board (FTB) estimate that the full amount of the credit ($70
million) will be allocated among the competing taxpayers. Since
the credit is spread over 4 years and because the right to use
an allocated credit requires completion of the project, the
increase of $20 million proposed by this bill does not directly
impact revenue in the current year. This measure will result in
an increasing revenue loss over time, beginning with a minor
increase in fiscal year 2002-2003. Also, the amount of revenue
loss increases in direct relation to increases in the CPI.
FTB estimates the revenue impact as follows:
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|2001/2002 |2002/2003 |2003/2004 |2004/2005 |2005/2006 |2006/2007 |
|----------+----------+----------+----------+----------+----------|
| -- | (minor) | ($ 4 | ($ 10 | ($ 16 | ($19 |
| | | million) | million) | million) |million) |
| | | | | | |
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COMMENTS :
1)The increase in funding provided by this bill is intended to
help augment the effectiveness of the state's low income
housing tax credit. The low income housing tax credit has a
proven track record and is highly oversubscribed. Information
provided by the sponsor states that only 32% of the applicants
(86 out of 270) received an allocation of credits in 2000.
2)The author and sponsors contend that the increase proposed by
the bill is consistent with recent federal legislation
increasing the per capita allocation of credit to the various
states. The federal limit increased from $1.25 per state
resident to $1.50 for 2001, $1.75 for 2002, and is thereafter
increased for inflation. The percentage increase in the
amount of the credit from 2000 to 2002 is the same percentage
increase that would be enacted by this bill.
SB 73
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Analysis Prepared by : Kimberly Bott / REV. & TAX. / (916)
319-2098 FN:
0002952