BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                  AB 523
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          Date of Hearing:   April 10, 2013

                        ASSEMBLY COMMITTEE ON APPROPRIATIONS
                                  Mike Gatto, Chair

                AB 523 (Ammiano) - As Introduced:  February 20, 2013 

          Policy Committee:                              Housing and  
          Community Development                         Vote: 5-1

          Urgency:     No                   State Mandated Local Program:  
          No     Reimbursable:              

           SUMMARY  

          This bill allows the Department of Housing and Community  
          Development (HCD) to reduce the interest rate to as low as 0% on  
          loans for affordable rental housing developments, if specified  
          conditions are met.

           FISCAL EFFECT  

          There is a potential cost from extending the terms of the  
          existing loans, potentially in the millions of dollars.  To the  
          extent the projects are unable to pay the state back under the  
          loan terms, the net cost of the bill is reduced.  Administrative  
          costs are expected to be minor, approximately $25,000.  

           COMMENTS  

           1)Purpose.   AB 523 allows HCD to reduce interest rates to zero  
            on HCD loans for affordable rental housing projects, if the  
            accruing interest prevents a project from using low-income  
            housing tax credits.  The author notes the bill gives HCD  
            discretion in limited circumstances to reduce the interest  
            rate on a project that receives a Multifamily Housing Program  
            (MHP) loan and is also awarded Low-Income Housing Tax Credit  
            (LIHTC).   

             The author states that to qualify, a sponsor would have to  
            prove to the satisfaction of HCD that without the reduction in  
            the interest rate on the MHP loan, the amount of tax credit  
            the project could qualify for would be reduced and that there  
            are no other loans on the development that require ongoing  
            debt payments.  According to the author, MHP loans are  








                                                                  AB 523
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            deferred and do not require debt and interest payments until  
            the end of the term of the 55-year loan.  

             The author argues that the difference between a 3% and 0%  
            interest rate accruing on the MHP loan is the difference  
            between some projects passing or failing their true debt  
            analysis and therefore the difference between projects moving  
            forward or stalling.  The author notes these projects are  
            generally high priority projects for the state.  

          2)Background  .  Under existing law, the Multifamily Housing  
            Program (MHP) provides deferred payment loans for the  
            acquisition, construction or rehabilitation of housing  
            affordable to low and very-low income families and  
            individuals.  MHP loans are to be for a term of not less than  
            55 years and at 3% simple interest with payments due at the  
            end of the term of the loan.  There is approximately $51  
            million currently available in MHP and $7 million available in  
            the supportive housing component of MHP for funding  
             
            Rental housing developments that are affordable to low- and  
            very-low income families and individuals typically require  
            multiple sources of construction financing. Two key sources of  
            funding are the Multifamily Housing Program (MHP) and the  
            Low-Income Housing Tax Credit (LIHTC). The Tax Credit  
            Allocation Committee administers the LIHTC program and awards  
            credits to qualified developers who can then sell those  
            credits to private investors who use the credits to reduce  
            their federal tax liability. 

           3)Impact of federal law  .  Under Internal Revenue Service (IRS)  
            regulations, a sponsor of a development that receives LIHTC  
            must demonstrate that all loans can be repaid.  Otherwise, the  
            IRS will reduce the amount of the tax credits in an amount  
            equal to the loan.  Reducing the MHP interest can allow the  
            maximum use of the LIHTC.  


           
                
                

           Analysis Prepared by  :    Roger Dunstan / APPR. / (916) 319-2081 










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