BILL ANALYSIS Ó AB 523 Page 1 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 Page 2 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 AB 523 Page 3