BILL ANALYSIS                                                                                                                                                                                                    

                                                                  SB 73
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          SB 73 (Dunn)
          As Amended June 19, 2001
          Majority vote.  Tax levy 

           SENATE VOTE  :32-2  
           REVENUE AND TAXATION        8-0 APPROPRIATIONS      20-0        
          |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            |

          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  

           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  

          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:

          |2001/2002 |2002/2003 |2003/2004 |2004/2005 |2005/2006 |2006/2007 |
          |    --    | (minor)  |   ($ 4   |  ($ 10   |  ($ 16   |   ($19   |
          |          |          | million) | million) | million) |million)  |
          |          |          |          |          |          |          |

           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.  


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          Analysis Prepared by  :  Kimberly Bott / REV. & TAX. / (916)  
          319-2098                                               FN: