BILL ANALYSIS �
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
AB 523
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