California Legislature—2013–14 Regular Session

Assembly BillNo. 952


Introduced by Assembly Member Atkins

February 22, 2013


An act to amend Sections 12206, 17058, and 23610.5 of the Revenue and Taxation Code, relating to taxation, to take effect immediately, tax levy.

LEGISLATIVE COUNSEL’S DIGEST

AB 952, as introduced, Atkins. Low-income housing tax credits.

Existing law establishes a low-income housing tax credit program, administered by the California Tax Credit Allocation Committee, which provides procedures and requirements for the allocation of state tax credit amounts among low-income housing projects based on federal law, as modified. Existing law, among other things, allows the credit based on the applicable percentage, as defined.

Existing insurance taxation law prohibits a credit from being allocated under this law to buildings located in a difficult development area or a qualified census tract, as defined, for which the eligible basis of a new building or the rehabilitation expenditure of an existing building is 130% of a specified amount, unless the committee reduces the amount of federal credit, with the approval of the applicant, so that the combined amount of federal and state credit does not exceed the total credit allowable pursuant to this section and the Internal Revenue Code.

The Personal Income Tax Law and the Corporation Tax Law allow a credit for buildings located in designated difficult development areas or qualified census tracts, as defined, allocated in specified amounts, provided that the amount of credit allocated under the Section 42 of the Internal Revenue Code is computed on 100% of the qualified basis of the building.

This bill would, under the insurance taxation law, allow a credit for buildings located in designated difficult development areas or qualified census tracts allocated in the specified amounts, provided that the amount of credit allocated under Section 42 of the Internal Revenue Code is computed on 100% of the qualified basis of the building.

This bill would, under insurance taxation law, the Personal Income Tax Law, and the Corporation Tax Law, authorize the California Tax Credit Allocation Committee to allocate a credit for buildings located in designated difficult development areas or qualified census tracts that are restricted to having 100% of its occupants be special needs households, as defined, even if the taxpayer receives specified federal credits, if the credit allowed under this section does not exceed 30% of the eligible basis of that building. This bill would, for purposes of all 3 laws, allow the California Tax Credit Allocation Committee to exchange federal low-income housing credits for state low-income housing credits, as specified.

This bill would take effect immediately as a tax levy.

Vote: majority. Appropriation: no. Fiscal committee: yes. State-mandated local program: no.

The people of the State of California do enact as follows:

P2    1

SECTION 1.  

Section 12206 of the Revenue and Taxation Code
2 is amended to read:

3

12206.  

(a) (1) There shall be allowed as a credit against the
4“tax” (as defined by Section 12201) a state low-income housing
5tax credit in an amount equal to the amount determined in
6subdivision (c), computed in accordance with Section 42 of the
7Internal Revenue Code, except as otherwise provided in this
8section.

9(2) “Taxpayer,” for purposes of this section, means the sole
10owner in the case of a “C” corporation, the partners in the case of
11a partnership, and the shareholders in the case of an “S”
12corporation.

13(3) “Housing sponsor,” for purposes of this section, means the
14sole owner in the case of a “C” corporation, the partnership in the
15case of a partnership, and the “S” corporation in the case of an “S”
16corporation.

P3    1(b) (1) The amount of the credit allocated to any housing
2sponsor shall be authorized by the California Tax Credit Allocation
3Committee, or any successor thereof, based on a project’s need
4for the credit for economic feasibility in accordance with the
5requirements of this section.

6(A) Except for projects to provide farmworker housing, as
7defined in subdivision (h) of Section 50199.7 of the Health and
8Safety Code, that are allocated credits solely under the set-aside
9described in subdivision (c) of Section 50199.20 of the Health and
10Safety Code, the low-income housing project shall be located in
11California and shall meet either of the following requirements:

12(i) The project’s housing sponsor shall have been allocated by
13the California Tax Credit Allocation Committee a credit for federal
14income tax purposes under Section 42 of the Internal Revenue
15Code.

16(ii) It shall qualify for a credit under Section 42(h)(4)(B) of the
17Internal Revenue Code.

18(B) The California Tax Credit Allocation Committee shall not
19require fees for the credit under this section in addition to those
20fees required for applications for the tax credit pursuant to Section
2142 of the Internal Revenue Code. The committee may require a
22fee if the application for the credit under this section is submitted
23in a calendar year after the year the application is submitted for
24the federal tax credit.

25(C) (i) For a project that receives a preliminary reservation of
26the state low-income housing tax credit, allowed pursuant to
27subdivision (a), on or after January 1, 2009, and before January 1,
28 2016, the credit shall be allocated to the partners of a partnership
29owning the project in accordance with the partnership agreement,
30regardless of how the federal low-income housing tax credit with
31respect to the project is allocated to the partners, or whether the
32allocation of the credit under the terms of the agreement has
33substantial economic effect, within the meaning of Section 704(b)
34of the Internal Revenue Code.

35(ii) This subparagraph shall not apply to a project that receives
36a preliminary reservation of state low-income housing tax credits
37under the set-aside described in subdivision (c) of Section 50199.20
38of the Health and Safety Code unless the project also receives a
39preliminary reservation of federal low-income housing tax credits.

P4    1(iii) This subparagraph shall cease to be operative with respect
2to any project that receives a preliminary reservation of a credit
3on or after January 1, 2016.

4(2) (A) The California Tax Credit Allocation Committee shall
5certify to the housing sponsor the amount of tax credit under this
6section allocated to the housing sponsor for each credit period.

7(B) In the case of a partnership or an “S” corporation, the
8housing sponsor shall provide a copy of the California Tax Credit
9Allocation Committee certification to the taxpayer.

10(C) The taxpayer shall attach a copy of the certification to any
11return upon which a tax credit is claimed under this section.

12(D) In the case of a failure to attach a copy of the certification
13for the year to the return in which a tax credit is claimed under this
14section, no credit under this section shall be allowed for that year
15until a copy of that certification is provided.

16(E) All elections made by the taxpayer pursuant to Section 42
17of the Internal Revenue Code shall apply to this section.

begin delete

18(F) No credit shall be allocated under this section to buildings
19located in a difficult development area or a qualified census tract
20as defined in Section 42 of the Internal Revenue Code for which
21the eligible basis of a new building or the rehabilitation expenditure
22 of an existing building is 130 percent of that amount pursuant to
23Section 42(d)(5)(C) of the Internal Revenue Code, unless the
24committee reduces the amount of federal credit, with the approval
25of the applicant, so that the combined amount of federal and state
26credit shall not exceed the total credit allowable pursuant to this
27section and Section 42(b) of the Internal Revenue Code, computed
28without regard to Section 42(d)(5)(C) of the Internal Revenue
29Code.

end delete
begin insert

30(F) (i) Except as described in clause (ii), for buildings located
31in designated difficult development areas (DDAs) or qualified
32census tracts (QCTs) as defined in Section 42(d)(5)(B) of the
33Internal Revenue Code, credits may be allocated under this section
34in the amounts prescribed in subdivision (c), provided that the
35amount of credit allocated under Section 42 of the Internal Revenue
36Code is computed on 100 percent of the qualified basis of the
37building.

end insert
begin insert

38(ii) Notwithstanding clause (i), the California Tax Credit
39Allocation Committee may allocated the credit for buildings located
40in DDAs or QCTs that are restricted to having 100 percent of its
P5    1occupants be special needs households, as defined in the California
2Code of Regulations by the California Tax Credit Allocation
3Committee, even if the taxpayer receives federal credits pursuant
4to Section 42(d)(5)(B) of the Internal Revenue Code, provided that
5the credit allowed under this section shall not exceed 30 percent
6of the eligible basis of the building.

end insert
begin insert

7(iii) (I) The California Tax Credit Allocation Committee may
8allocate a credit under this section in exchange for a credit
9allocated pursuant to Section 42(d)(5)(B) of the Internal Revenue
10Code in amounts up to 30 percent of the eligible basis of a building
11if the credits allowed Section 42 of the Internal Revenue Code are
12reduced by an equivalent amount.

end insert
begin insert

13(II) Equivalent amounts shall be determined by the California
14Tax Credit Allocation Committee based upon the relative amounts
15required to produce an equivalent tax credit to the taxpayer.

end insert

16(c) Section 42(b) of the Internal Revenue Code shall be modified
17as follows:

18(1) In the case of any qualified low-income building that receives
19an allocation after 1989 and is a new building not federally
20subsidized, the term “applicable percentage” means the following:

21(A) For each of the first three years, the percentage prescribed
22by the Secretary of the Treasury for new buildings that are not
23federally subsidized for the taxable year, determined in accordance
24with the requirements of Section 42(b)(2) of the Internal Revenue
25Code, in lieu of the percentage prescribed in Section 42(b)(1)(A)
26of the Internal Revenue Code.

27(B) For the fourth year, the difference between 30 percent and
28the sum of the applicable percentages for the first three years.

29(2) In the case of any qualified low-income building that receives
30an allocation after 1989 and that is a new building that is federally
31subsidized or that is an existing building that is “at risk of
32conversion,” the term “applicable percentage” means the following:

33(A) For each of the first three years, the percentage prescribed
34by the Secretary of the Treasury for new buildings that are federally
35subsidized for the taxable year.

36(B) For the fourth year, the difference between 13 percent and
37the sum of the applicable percentages for the first three years.

38(3) For purposes of this section, the term “at risk of conversion,”
39with respect to an existing property means a property that satisfies
40all of the following criteria:

P6    1(A) The property is a multifamily rental housing development
2in which at least 50 percent of the units receive governmental
3assistance pursuant to any of the following:

4(i) New construction, substantial rehabilitation, moderate
5rehabilitation, property disposition, and loan management set-aside
6programs, or any other program providing project-based assistance
7pursuant to Section 8 of the United States Housing Act of 1937,
8Section 1437f of Title 42 of the United States Code, as amended.

9(ii) The Below-Market-Interest-Rate Program pursuant to
10Section 221(d)(3) of the National Housing Act, Sections
111715l(d)(3) and (5) of Title 12 of the United States Code.

12(iii) Section 236 of the National Housing Act, Section 1715z-1
13of Title 12 of the United States Code.

14(iv) Programs for rent supplement assistance pursuant to Section
15101 of the Housing and Urban Development Act of 1965, Section
161701s of Title 12 of the United States Code, as amended.

17(v) Programs pursuant to Section 515 of the Housing Act of
181949, Section 1485 of Title 42 of the United States Code, as
19amended.

20(vi) The low-income housing credit program set forth in Section
2142 of the Internal Revenue Code.

22(B) The restrictions on rent and income levels will terminate or
23the federal insured mortgage on the property is eligible for
24prepayment any time within five years before or after the date of
25application to the California Tax Credit Allocation Committee.

26(C) The entity acquiring the property enters into a regulatory
27agreement that requires the property to be operated in accordance
28with the requirements of this section for a period equal to the
29greater of 55 years or the life of the property.

30(D) The property satisfies the requirements of Section 42(e) of
31the Internal Revenue Code regarding rehabilitation expenditures,
32except that the provisions of Section 42(e)(3)(A)(ii)(I) shall not
33apply.

34(d) The term “qualified low-income housing project” as defined
35in Section 42(c)(2) of the Internal Revenue Code is modified by
36adding the following requirements:

37(1) The taxpayer shall be entitled to receive a cash distribution
38from the operations of the project, after funding required reserves,
39which, at the election of the taxpayer, is equal to:

40(A) An amount not to exceed 8 percent of the lesser of:

P7    1(i) The owner equity which shall include the amount of the
2capital contributions actually paid to the housing sponsor and shall
3not include any amounts until they are paid on an investor note.

4(ii) Twenty percent of the adjusted basis of the building as of
5the close of the first taxable year of the credit period.

6(B) The amount of the cashflow from those units in the building
7that are not low-income units. For purposes of computing cashflow
8under this subparagraph, operating costs shall be allocated to the
9low-income units using the “floor space fraction,” as defined in
10Section 42 of the Internal Revenue Code.

11(C) Any amount allowed to be distributed under subparagraph
12(A) that is not available for distribution during the first five years
13of the compliance period may accumulate and be distributed any
14time during the first 15 years of the compliance period but not
15thereafter.

16(2) The limitation on return shall apply in the aggregate to the
17partners if the housing sponsor is a partnership and in the aggregate
18to the shareholders if the housing sponsor is an “S” corporation.

19(3) The housing sponsor shall apply any cash available for
20distribution in excess of the amount eligible to be distributed under
21paragraph (1) to reduce the rent on rent-restricted units or to
22increase the number of rent-restricted units subject to the tests of
23Section 42(g)(1) of the Internal Revenue Code.

24(e) The provisions of Section 42(f) of the Internal Revenue Code
25shall be modified as follows:

26(1) The term “credit period” as defined in Section 42(f)(1) of
27the Internal Revenue Code is modified by substituting “four taxable
28years” for “10 taxable years.”

29(2) The special rule for the first taxable year of the credit period
30under Section 42(f)(2) of the Internal Revenue Code shall not apply
31to the tax credit under this section.

32(3) Section 42(f)(3) of the Internal Revenue Code is modified
33to read:

34If, as of the close of any taxable year in the compliance period,
35after the first year of the credit period, the qualified basis of any
36building exceeds the qualified basis of that building as of the close
37of the first year of the credit period, the housing sponsor, to the
38extent of its tax credit allocation, shall be eligible for a credit on
39the excess in an amount equal to the applicable percentage
40determined pursuant to subdivision (c) for the four-year period
P8    1beginning with the later of the taxable years in which the increase
2in qualified basis occurs.

3(f) The provisions of Section 42(h) of the Internal Revenue
4Code shall be modified as follows:

5(1) Section 42(h)(2) of the Internal Revenue Code shall not be
6applicable and instead the following provisions shall be applicable:

7The total amount for the four-year credit period of the housing
8credit dollars allocated in a calendar year to any building shall
9reduce the aggregate housing credit dollar amount of the California
10Tax Credit Allocation Committee for the calendar year in which
11the allocation is made.

12(2) Paragraphs (3), (4), (5), (6)(E)(i)(II), (6)(F), (6)(G), (6)(I),
13(7), and (8) of Section 42(h) of the Internal Revenue Code shall
14not be applicable.

15(g) The aggregate housing credit dollar amount that may be
16allocated annually by the California Tax Credit Allocation
17Committee pursuant to this section, Section 17058, and Section
1823610.5 shall be an amount equal to the sum of all the following:

19(1) Seventy million dollars ($70,000,000) for the 2001 calendar
20year, and, for the 2002 calendar year and each calendar year
21thereafter, seventy million dollars ($70,000,000) increased by the
22percentage, if any, by which the Consumer Price Index for the
23preceding calendar year exceeds the Consumer Price Index for the
242001 calendar year. For the purposes of this paragraph, the term
25“Consumer Price Index” means the last Consumer Price Index for
26all urban consumers published by the federal Department of Labor.

27(2) The unused housing credit ceiling, if any, for the preceding
28calendar years.

29(3) The amount of housing credit ceiling returned in the calendar
30year. For purposes of this paragraph, the amount of housing credit
31dollar amount returned in the calendar year equals the housing
32credit dollar amount previously allocated to any project that does
33not become a qualified low-income housing project within the
34 period required by this section or to any project with respect to
35which an allocation is canceled by mutual consent of the California
36Tax Credit Allocation Committee and the allocation recipient.

37(4) Five hundred thousand dollars ($500,000) per calendar year
38for projects to provide farmworker housing, as defined in
39subdivision (h) of Section 50199.7 of the Health and Safety Code.

P9    1(5) The amount of any unallocated or returned credits under
2former Sections 17053.14, 23608.2, and 23608.3, as those sections
3read prior to January 1, 2009, until fully exhausted for projects to
4provide farmworker housing, as defined in subdivision (h) of
5Section 50199.7 of the Health and Safety Code.

6(h) The term “compliance period” as defined in Section 42(i)(1)
7of the Internal Revenue Code is modified to mean, with respect to
8any building, the period of 30 consecutive taxable years beginning
9with the first taxable year of the credit period with respect thereto.

10(i) (1) Section 42(j) of the Internal Revenue Code shall not be
11applicable and the provisions in paragraph (2) shall be substituted
12in its place.

13(2) The requirements of this section shall be set forth in a
14regulatory agreement between the California Tax Credit Allocation
15Committee and the housing sponsor, which agreement shall be
16subordinated, when required, to any lien or encumbrance of any
17banks or other institutional lenders to the project. The regulatory
18agreement entered into pursuant to subdivision (f) of Section
1950199.14 of the Health and Safety Code, shall apply, providing
20the agreement includes all of the following provisions:

21(A) A term not less than the compliance period.

22(B) A requirement that the agreement be filed in the official
23records of the county in which the qualified low-income housing
24project is located.

25(C) A provision stating which state and local agencies can
26enforce the regulatory agreement in the event the housing sponsor
27fails to satisfy any of the requirements of this section.

28(D) A provision that the regulatory agreement shall be deemed
29a contract enforceable by tenants as third-party beneficiaries thereto
30and which allows individuals, whether prospective, present, or
31former occupants of the building, who meet the income limitation
32applicable to the building, the right to enforce the regulatory
33agreement in any state court.

34(E) A provision incorporating the requirements of Section 42
35of the Internal Revenue Code as modified by this section.

36(F) A requirement that the housing sponsor notify the California
37Tax Credit Allocation Committee or its designee and the local
38agency that can enforce the regulatory agreement if there is a
39determination by the Internal Revenue Service that the project is
40not in compliance with Section 42(g) of the Internal Revenue Code.

P10   1(G) A requirement that the housing sponsor, as security for the
2performance of the housing sponsor’s obligations under the
3regulatory agreement, assign the housing sponsor’s interest in rents
4that it receives from the project, provided that until there is a
5default under the regulatory agreement, the housing sponsor is
6entitled to collect and retain the rents.

7(H) The remedies available in the event of a default under the
8regulatory agreement that is not cured within a reasonable cure
9period, include, but are not limited to, allowing any of the parties
10designated to enforce the regulatory agreement to collect all rents
11with respect to the project; taking possession of the project and
12operating the project in accordance with the regulatory agreement
13until the enforcer determines the housing sponsor is in a position
14to operate the project in accordance with the regulatory agreement;
15applying to any court for specific performance; securing the
16appointment of a receiver to operate the project; or any other relief
17as may be appropriate.

18(j) (1) The committee shall allocate the housing credit on a
19regular basis consisting of two or more periods in each calendar
20year during which applications may be filed and considered. The
21committee shall establish application filing deadlines, the maximum
22percentage of federal and state low-income housing tax credit
23 ceiling which may be allocated by the committee in that period,
24and the approximate date on which allocations shall be made. If
25the enactment of federal or state law, the adoption of rules or
26regulations, or other similar events prevent the use of two allocation
27periods, the committee may reduce the number of periods and
28adjust the filing deadlines, maximum percentage of credit allocated,
29and the allocation dates.

30(2) The committee shall adopt a qualified allocation plan, as
31provided in Section 42(m)(1) of the Internal Revenue Code. In
32adopting this plan, the committee shall comply with the provisions
33of Sections 42(m)(1)(B) and 42(m)(1)(C) of the Internal Revenue
34Code.

35(3) Notwithstanding Section 42(m) of the Internal Revenue
36Code, the California Tax Credit Allocation Committee shall
37allocate housing credits in accordance with the qualified allocation
38plan and regulations, which shall include the following provisions:

39(A) All housing sponsors, as defined by paragraph (3) of
40subdivision (a), shall demonstrate at the time the application is
P11   1filed with the committee that the project meets the following
2threshold requirements:

3(i) The housing sponsor shall demonstrate there is a need and
4demand for low-income housing in the community or region for
5which it is proposed.

6(ii) The project’s proposed financing, including tax credit
7proceeds, shall be sufficient to complete the project and that the
8proposed operating income shall be adequate to operate the project
9for the extended use period.

10(iii) The project shall have enforceable financing commitments,
11either construction or permanent financing, for at least 50 percent
12of the total estimated financing of the project.

13(iv) The housing sponsor shall have and maintain control of the
14site for the project.

15(v) The housing sponsor shall demonstrate that the project
16complies with all applicable local land use and zoning ordinances.

17(vi) The housing sponsor shall demonstrate that the project
18development team has the experience and the financial capacity
19to ensure project completion and operation for the extended use
20period.

21(vii) The housing sponsor shall demonstrate the amount of tax
22credit that is necessary for the financial feasibility of the project
23and its viability as a qualified low-income housing project
24throughout the extended use period, taking into account operating
25expenses, a supportable debt service, reserves, funds set aside for
26rental subsidies, and required equity, and a development fee that
27does not exceed a specified percentage of the eligible basis of the
28project prior to inclusion of the development fee in the eligible
29basis, as determined by the committee.

30(B) The committee shall give a preference to those projects
31satisfying all of the threshold requirements of subparagraph (A)
32if both of the following apply:

33(i) The project serves the lowest income tenants at rents
34affordable to those tenants.

35(ii) The project is obligated to serve qualified tenants for the
36longest period.

37(C) In addition to the provisions of subparagraphs (A) and (B),
38the committee shall use the following criteria in allocating housing
39credits:

P12   1(i) Projects serving large families in which a substantial number,
2as defined by the committee, of all residential units is comprised
3of low-income units with three and more bedrooms.

4(ii) Projects providing single room occupancy units serving very
5low income tenants.

6(iii) Existing projects that are “at risk of conversion,” as defined
7by paragraph (3) of subdivision (c).

8(iv) Projects for which a public agency provides direct or indirect
9long-term financial support for at least 15 percent of the total
10project development costs or projects for which the owner’s equity
11constitutes at least 30 percent of the total project development
12costs.

13(v) Projects that provide tenant amenities not generally available
14to residents of low-income housing projects.

15(4) For purposes of allocating credits pursuant to this section,
16the committee shall not give preference to any project by virtue
17of the date of submission of its application except to break a tie
18when two or more of the projects have an equal rating.

19(k) Section 42(l) of the Internal Revenue Code shall be modified
20as follows:

21The term “secretary” shall be replaced by the term “California
22Franchise Tax Board.”

23(l) In the case where the state credit allowed under this section
24exceeds the “tax,” the excess may be carried over to reduce the
25“tax” in the following year, and succeeding years if necessary,
26until the credit has been exhausted.

27(m) The provisions of Section 11407(a) of Public Law 101-508,
28relating to the effective date of the extension of the low-income
29housing credit, shall apply to calendar years after 1993.

30(n) The provisions of Section 11407(c) of Public Law 101-508,
31relating to election to accelerate credit, shall not apply.

32(o) This section shall remain in effect for as long as Section 42
33of the Internal Revenue Code, relating to low-income housing
34credits, remains in effect.

35

SEC. 2.  

Section 17058 of the Revenue and Taxation Code is
36amended to read:

37

17058.  

(a) (1) There shall be allowed as a credit against the
38amount of net tax (as defined in Section 17039) a state low-income
39housing credit in an amount equal to the amount determined in
40subdivision (c), computed in accordance with the provisions of
P13   1Section 42 of the Internal Revenue Code, except as otherwise
2provided in this section.

3(2) “Taxpayer” for purposes of this section means the sole owner
4in the case of an individual, the partners in the case of a partnership,
5and the shareholders in the case of an “S” corporation.

6(3) “Housing sponsor” for purposes of this section means the
7sole owner in the case of an individual, the partnership in the case
8of a partnership, and the “S” corporation in the case of an “S”
9corporation.

10(b) (1) The amount of the credit allocated to any housing
11sponsor shall be authorized by the California Tax Credit Allocation
12Committee, or any successor thereof, based on a project’s need
13for the credit for economic feasibility in accordance with the
14requirements of this section.

15(A) The low-income housing project shall be located in
16California and shall meet either of the following requirements:

17(i) Except for projects to provide farmworker housing, as defined
18in subdivision (h) of Section 50199.7 of the Health and Safety
19Code, that are allocated credits solely under the set-aside described
20in subdivision (c) of Section 50199.20 of the Health and Safety
21Code, the project’s housing sponsor shall have been allocated by
22the California Tax Credit Allocation Committee a credit for federal
23income tax purposes under Section 42 of the Internal Revenue
24Code.

25(ii) It shall qualify for a credit under Section 42(h)(4)(B) of the
26Internal Revenue Code.

27(B) The California Tax Credit Allocation Committee shall not
28require fees for the credit under this section in addition to those
29fees required for applications for the tax credit pursuant to Section
3042 of the Internal Revenue Code. The committee may require a
31fee if the application for the credit under this section is submitted
32in a calendar year after the year the application is submitted for
33the federal tax credit.

34(C) (i) For a project that receives a preliminary reservation of
35the state low-income housing tax credit, allowed pursuant to
36subdivision (a), on or after January 1, 2009, and before January 1,
372016, the credit shall be allocated to the partners of a partnership
38owning the project in accordance with the partnership agreement,
39regardless of how the federal low-income housing tax credit with
40respect to the project is allocated to the partners, or whether the
P14   1allocation of the credit under the terms of the agreement has
2substantial economic effect, within the meaning of Section 704(b)
3of the Internal Revenue Code.

4(ii) To the extent the allocation of the credit to a partner under
5this section lacks substantial economic effect, any loss or deduction
6otherwise allowable under this part that is attributable to the sale
7or other disposition of that partner’s partnership interest made prior
8to the expiration of the federal credit shall not be allowed in the
9taxable year in which the sale or other disposition occurs, but shall
10instead be deferred until and treated as if it occurred in the first
11taxable year immediately following the taxable year in which the
12federal credit period expires for the project described in clause (i).

13(iii) This subparagraph shall not apply to a project that receives
14a preliminary reservation of state low-income housing tax credits
15under the set-aside described in subdivision (c) of Section 50199.20
16of the Health and Safety Code unless the project also receives a
17preliminary reservation of federal low-income housing tax credits.

18(iv) This subparagraph shall cease to be operative with respect
19to any project that receives a preliminary reservation of a credit
20on or after January 1, 2016.

21(2) (A) The California Tax Credit Allocation Committee shall
22certify to the housing sponsor the amount of tax credit under this
23section allocated to the housing sponsor for each credit period.

24(B) In the case of a partnership or an “S” corporation, the
25housing sponsor shall provide a copy of the California Tax Credit
26Allocation Committee certification to the taxpayer.

27(C) The taxpayer shall, upon request, provide a copy of the
28certification to the Franchise Tax Board.

29(D) All elections made by the taxpayer pursuant to Section 42
30of the Internal Revenue Code shall apply to this section.

31(E)begin deleteend deletebegin deleteForend deletebegin insertend insertbegin insert(i)end insertbegin insertend insertbegin insertExcept as described in clause (ii), forend insert buildings
32located in designated difficult development areasbegin insert (DDAs)end insert or
33qualified census tractsbegin insert (QCTs)end insert as defined in Sectionbegin delete 42(d)(5)(C)end delete
34begin insert 42(d)(5)(B)end insert of the Internal Revenue Code, credits may be allocated
35under this section in the amounts prescribed in subdivision (c),
36provided that the amount of credit allocated under Section 42 of
37the Internal Revenue Code is computed on 100 percent of the
38qualified basis of the building.

begin insert

39(ii) Notwithstanding clause (i), the California Tax Credit
40Allocation Committee may allocated the credit for buildings located
P15   1in DDAs or QCTs that are restricted to having 100 percent of its
2occupants be special needs households, as defined in the California
3Code of Regulations by the California Tax Credit Allocation
4Committee, even if the taxpayer receives federal credits pursuant
5to Section 42(d)(5)(B) of the Internal Revenue Code, provided that
6the credit allowed under this section shall not exceed 30 percent
7of the eligible basis of the building.

end insert
begin insert

8(iii) (I) The California Tax Credit Allocation Committee may
9allocate a credit under this section in exchange for a credit
10allocated pursuant to Section 42(d)(5)(B) of the Internal Revenue
11Code in amounts up to 30 percent of the eligible basis of a building
12if the credits allowed Section 42 of the Internal Revenue Code are
13reduced by an equivalent amount.

end insert
begin insert

14(II) Equivalent amounts shall be determined by the California
15Tax Credit Allocation Committee based upon the relative amounts
16required to produce an equivalent tax credit to the taxpayer.

end insert

17(c) Section 42(b) of the Internal Revenue Code shall be modified
18as follows:

19(1) In the case of any qualified low-income building placed in
20service by the housing sponsor during 1987, the term “applicable
21percentage” means 9 percent for each of the first three years and
223 percent for the fourth year for new buildings (whether or not the
23building is federally subsidized) and for existing buildings.

24(2) In the case of any qualified low-income building that receives
25an allocation after 1989 and is a new building not federally
26subsidized, the term “applicable percentage” means the following:

27(A) For each of the first three years, the percentage prescribed
28by the Secretary of the Treasury for new buildings that are not
29federally subsidized for the taxable year, determined in accordance
30with the requirements of Section 42(b)(2) of the Internal Revenue
31Code, in lieu of the percentage prescribed in Section 42(b)(1)(A)
32of the Internal Revenue Code.

33(B) For the fourth year, the difference between 30 percent and
34the sum of the applicable percentages for the first three years.

35(3) In the case of any qualified low-income building that receives
36an allocation after 1989 and that is a new building that is federally
37subsidized or that is an existing building that is “at risk of
38conversion,” the term “applicable percentage” means the following:

P16   1(A) For each of the first three years, the percentage prescribed
2by the Secretary of the Treasury for new buildings that are federally
3subsidized for the taxable year.

4(B) For the fourth year, the difference between 13 percent and
5the sum of the applicable percentages for the first three years.

6(4) For purposes of this section, the term “at risk of conversion,”
7with respect to an existing property means a property that satisfies
8all of the following criteria:

9(A) The property is a multifamily rental housing development
10in which at least 50 percent of the units receive governmental
11assistance pursuant to any of the following:

12(i) New construction, substantial rehabilitation, moderate
13 rehabilitation, property disposition, and loan management set-aside
14programs, or any other program providing project-based assistance
15pursuant to Section 8 of the United States Housing Act of 1937,
16Section 1437f of Title 42 of the United States Code, as amended.

17(ii) The Below-Market-Interest-Rate Program pursuant to
18Section 221(d)(3) of the National Housing Act, Sections
191715l(d)(3) and (5) of Title 12 of the United States Code.

20(iii) Section 236 of the National Housing Act, Section 1715z-1
21of Title 12 of the United States Code.

22(iv) Programs for rent supplement assistance pursuant to Section
23101 of the Housing and Urban Development Act of 1965, Section
241701s of Title 12 of the United States Code, as amended.

25(v) Programs pursuant to Section 515 of the Housing Act of
261949, Section 1485 of Title 42 of the United States Code, as
27amended.

28(vi) The low-income housing credit program set forth in Section
2942 of the Internal Revenue Code.

30(B) The restrictions on rent and income levels will terminate or
31the federal insured mortgage on the property is eligible for
32prepayment any time within five years before or after the date of
33application to the California Tax Credit Allocation Committee.

34(C) The entity acquiring the property enters into a regulatory
35agreement that requires the property to be operated in accordance
36with the requirements of this section for a period equal to the
37greater of 55 years or the life of the property.

38(D) The property satisfies the requirements of Section 42(e) of
39the Internal Revenue Code regarding rehabilitation expenditures,
P17   1except that the provisions of Section 42(e)(3)(A)(ii)(I) shall not
2apply.

3(d) The term “qualified low-income housing project” as defined
4in Section 42(c)(2) of the Internal Revenue Code is modified by
5adding the following requirements:

6(1) The taxpayer shall be entitled to receive a cash distribution
7from the operations of the project, after funding required reserves,
8that, at the election of the taxpayer, is equal to:

9(A) An amount not to exceed 8 percent of the lesser of:

10(i) The owner equity that shall include the amount of the capital
11contributions actually paid to the housing sponsor and shall not
12include any amounts until they are paid on an investor note.

13(ii) Twenty percent of the adjusted basis of the building as of
14the close of the first taxable year of the credit period.

15(B) The amount of the cashflow from those units in the building
16that are not low-income units. For purposes of computing cashflow
17under this subparagraph, operating costs shall be allocated to the
18low-income units using the “floor space fraction,” as defined in
19Section 42 of the Internal Revenue Code.

20(C) Any amount allowed to be distributed under subparagraph
21(A) that is not available for distribution during the first five years
22of the compliance period may be accumulated and distributed any
23time during the first 15 years of the compliance period but not
24thereafter.

25(2) The limitation on return shall apply in the aggregate to the
26 partners if the housing sponsor is a partnership and in the aggregate
27to the shareholders if the housing sponsor is an “S” corporation.

28(3) The housing sponsor shall apply any cash available for
29distribution in excess of the amount eligible to be distributed under
30paragraph (1) to reduce the rent on rent-restricted units or to
31increase the number of rent-restricted units subject to the tests of
32Section 42(g)(1) of the Internal Revenue Code.

33(e) The provisions of Section 42(f) of the Internal Revenue Code
34shall be modified as follows:

35(1) The term “credit period” as defined in Section 42(f)(1) of
36the Internal Revenue Code is modified by substituting “four taxable
37years” for “10 taxable years.”

38(2) The special rule for the first taxable year of the credit period
39under Section 42(f)(2) of the Internal Revenue Code shall not apply
40to the tax credit under this section.

P18   1(3) Section 42(f)(3) of the Internal Revenue Code is modified
2to read:

3If, as of the close of any taxable year in the compliance period,
4after the first year of the credit period, the qualified basis of any
5building exceeds the qualified basis of that building as of the close
6of the first year of the credit period, the housing sponsor, to the
7extent of its tax credit allocation, shall be eligible for a credit on
8the excess in an amount equal to the applicable percentage
9determined pursuant to subdivision (c) for the four-year period
10beginning with the taxable year in which the increase in qualified
11basis occurs.

12(f) The provisions of Section 42(h) of the Internal Revenue
13Code shall be modified as follows:

14(1) Section 42(h)(2) of the Internal Revenue Code shall not be
15applicable and instead the following provisions shall be applicable:

16The total amount for the four-year period of the housing credit
17dollars allocated in a calendar year to any building shall reduce
18the aggregate housing credit dollar amount of the California Tax
19Credit Allocation Committee for the calendar year in which the
20allocation is made.

21(2) Paragraphs (3), (4), (5), (6)(E)(i)(II), (6)(F), (6)(G), (6)(I),
22(7), and (8) of Section 42(h) of the Internal Revenue Code shall
23not be applicable to this section.

24(g) The aggregate housing credit dollar amount which may be
25allocated annually by the California Tax Credit Allocation
26Committee pursuant to this section, Section 12206, and Section
2723610.5 shall be an amount equal to the sum of all the following:

28(1) Seventy million dollars ($70,000,000) for the 2001 calendar
29year, and, for the 2002 calendar year and each calendar year
30thereafter, seventy million dollars ($70,000,000) increased by the
31percentage, if any, by which the Consumer Price Index for the
32preceding calendar year exceeds the Consumer Price Index for the
332001 calendar year. For the purposes of this paragraph, the term
34“Consumer Price Index” means the last Consumer Price Index for
35all urban consumers published by the federal Department of Labor.

36(2) The unused housing credit ceiling, if any, for the preceding
37calendar years.

38(3) The amount of housing credit ceiling returned in the calendar
39year. For purposes of this paragraph, the amount of housing credit
40dollar amount returned in the calendar year equals the housing
P19   1 credit dollar amount previously allocated to any project that does
2not become a qualified low-income housing project within the
3period required by this section or to any project with respect to
4which an allocation is canceled by mutual consent of the California
5Tax Credit Allocation Committee and the allocation recipient.

6(4) Five hundred thousand dollars ($500,000) per calendar year
7for projects to provide farmworker housing, as defined in
8subdivision (h) of Section 50199.7 of the Health and Safety Code.

9(5) The amount of any unallocated or returned credits under
10former Sections 17053.14, 23608.2, and 23608.3, as those sections
11read prior to January 1, 2009, until fully exhausted for projects to
12provide farmworker housing, as defined in subdivision (h) of
13Section 50199.7 of the Health and Safety Code.

14(h) The term “compliance period” as defined in Section 42(i)(1)
15of the Internal Revenue Code is modified to mean, with respect to
16any building, the period of 30 consecutive taxable years beginning
17with the first taxable year of the credit period with respect thereto.

18(i) Section 42(j) of the Internal Revenue Code shall not be
19applicable and the following requirements of this section shall be
20set forth in a regulatory agreement between the California Tax
21Credit Allocation Committee and the housing sponsor, which
22agreement shall be subordinated, when required, to any lien or
23encumbrance of any banks or other institutional lenders to the
24project. The regulatory agreement entered into pursuant to
25subdivision (f) of Section 50199.14 of the Health and Safety Code
26shall apply, providing the agreement includes all of the following
27provisions:

28(1) A term not less than the compliance period.

29(2) A requirement that the agreement be filed in the official
30records of the county in which the qualified low-income housing
31project is located.

32(3) A provision stating which state and local agencies can
33enforce the regulatory agreement in the event the housing sponsor
34fails to satisfy any of the requirements of this section.

35(4) A provision that the regulatory agreement shall be deemed
36a contract enforceable by tenants as third-party beneficiaries thereto
37and which allows individuals, whether prospective, present, or
38former occupants of the building, who meet the income limitation
39applicable to the building, the right to enforce the regulatory
40agreement in any state court.

P20   1(5) A provision incorporating the requirements of Section 42
2of the Internal Revenue Code as modified by this section.

3(6) A requirement that the housing sponsor notify the California
4Tax Credit Allocation Committee or its designee if there is a
5determination by the Internal Revenue Service that the project is
6not in compliance with Section 42(g) of the Internal Revenue Code.

7(7) A requirement that the housing sponsor, as security for the
8performance of the housing sponsor’s obligations under the
9regulatory agreement, assign the housing sponsor’s interest in rents
10that it receives from the project, provided that until there is a
11default under the regulatory agreement, the housing sponsor is
12entitled to collect and retain the rents.

13(8) The remedies available in the event of a default under the
14regulatory agreement that is not cured within a reasonable cure
15period, include, but are not limited to, allowing any of the parties
16designated to enforce the regulatory agreement to collect all rents
17with respect to the project; taking possession of the project and
18operating the project in accordance with the regulatory agreement
19until the enforcer determines the housing sponsor is in a position
20to operate the project in accordance with the regulatory agreement;
21applying to any court for specific performance; securing the
22appointment of a receiver to operate the project; or any other relief
23as may be appropriate.

24(j) (1) The committee shall allocate the housing credit on a
25regular basis consisting of two or more periods in each calendar
26year during which applications may be filed and considered. The
27committee shall establish application filing deadlines, the maximum
28percentage of federal and state low-income housing tax credit
29ceiling that may be allocated by the committee in that period, and
30the approximate date on which allocations shall be made. If the
31enactment of federal or state law, the adoption of rules or
32regulations or other similar events prevent the use of two allocation
33periods, the committee may reduce the number of periods and
34adjust the filing deadlines, maximum percentage of credit allocated,
35and the allocation dates.

36(2) The committee shall adopt a qualified allocation plan, as
37provided in Section 42(m)(1) of the Internal Revenue Code. In
38adopting this plan, the committee shall comply with the provisions
39of Sections 42(m)(1)(B) and 42(m)(1)(C) of the Internal Revenue
40Code.

P21   1(3) Notwithstanding Section 42(m) of the Internal Revenue
2Code, the California Tax Credit Allocation Committee shall
3allocate housing credits in accordance with the qualified allocation
4plan and regulations, which shall include the following provisions:

5(A) All housing sponsors, as defined by paragraph (3) of
6subdivision (a), shall demonstrate at the time the application is
7filed with the committee that the project meets the following
8threshold requirements:

9(i) The housing sponsor shall demonstrate there is a need and
10demand for low-income housing in the community or region for
11which it is proposed.

12(ii) The project’s proposed financing, including tax credit
13proceeds, shall be sufficient to complete the project and that the
14proposed operating income shall be adequate to operate the project
15for the extended use period.

16(iii) The project shall have enforceable financing commitments,
17either construction or permanent financing, for at least 50 percent
18of the total estimated financing of the project.

19(iv) The housing sponsor shall have and maintain control of the
20site for the project.

21(v) The housing sponsor shall demonstrate that the project
22complies with all applicable local land use and zoning ordinances.

23(vi) The housing sponsor shall demonstrate that the project
24development team has the experience and the financial capacity
25to ensure project completion and operation for the extended use
26period.

27(vii) The housing sponsor shall demonstrate the amount of tax
28credit that is necessary for the financial feasibility of the project
29and its viability as a qualified low-income housing project
30throughout the extended use period, taking into account operating
31expenses, a supportable debt service, reserves, funds set aside for
32rental subsidies, and required equity, and a development fee that
33does not exceed a specified percentage of the eligible basis of the
34project prior to inclusion of the development fee in the eligible
35basis, as determined by the committee.

36(B) The committee shall give a preference to those projects
37satisfying all of the threshold requirements of subparagraph (A)
38if both of the following apply:

39(i) The project serves the lowest income tenants at rents
40affordable to those tenants.

P22   1(ii) The project is obligated to serve qualified tenants for the
2longest period.

3(C) In addition to the provisions of subparagraphs (A) and (B),
4the committee shall use the following criteria in allocating housing
5credits:

6(i) Projects serving large families in which a substantial number,
7as defined by the committee of all residential units is comprised
8of low-income units with three and more bedrooms.

9(ii) Projects providing single room occupancy units serving very
10low income tenants.

11(iii) Existing projects that are “at risk of conversion,” as defined
12by paragraph (4) of subdivision (c).

13(iv) Projects for which a public agency provides direct or indirect
14long-term financial support for at least 15 percent of the total
15project development costs or projects for which the owner’s equity
16constitutes at least 30 percent of the total project development
17costs.

18(v) Projects that provide tenant amenities not generally available
19to residents of low-income housing projects.

20(4) For purposes of allocating credits pursuant to this section,
21the committee shall not give preference to any project by virtue
22of the date of submission of its application.

23(k) Section 42(l) of the Internal Revenue Code shall be modified
24as follows:

25The term “secretary” shall be replaced by the term “California
26Franchise Tax Board.”

27(l) In the case where the credit allowed under this section
28exceeds the net tax, the excess credit may be carried over to reduce
29the net tax in the following year, and succeeding taxable years, if
30necessary, until the credit has been exhausted.

31(m) A project that received an allocation of a 1989 federal
32housing credit dollar amount shall be eligible to receive an
33allocation of a 1990 state housing credit dollar amount, subject to
34all of the following conditions:

35(1) The project was not placed in service prior to 1990.

36(2) To the extent the amendments made to this section by the
37Statutes of 1990 conflict with any provisions existing in this section
38prior to those amendments, the prior provisions of law shall prevail.

P23   1(3) Notwithstanding paragraph (2), a project applying for an
2allocation under this subdivision shall be subject to the
3requirements of paragraph (3) of subdivision (j).

4(n) The credit period with respect to an allocation of credit in
51989 by the California Tax Credit Allocation Committee of which
6any amount is attributable to unallocated credit from 1987 or 1988
7shall not begin until after December 31, 1989.

8(o) The provisions of Section 11407(a) of Public Law 101-508,
9relating to the effective date of the extension of the low-income
10housing credit, shall apply to calendar years after 1989.

11(p) The provisions of Section 11407(c) of Public Law 101-508,
12relating to election to accelerate credit, shall not apply.

13(q) Any unused credit may continue to be carried forward, as
14provided in subdivision (l), until the credit has been exhausted.

15This section shall remain in effect on and after December 1,
161990, for as long as Section 42 of the Internal Revenue Code,
17relating to low-income housing credits, remains in effect.

18(r) The amendments to this section by the act adding this
19subdivision shall apply only to taxable years beginning on or after
20January 1, 1994.

21

SEC. 3.  

Section 23610.5 of the Revenue and Taxation Code
22 is amended to read:

23

23610.5.  

(a) (1) There shall be allowed as a credit against the
24“tax” (as defined by Section 23036) a state low-income housing
25tax credit in an amount equal to the amount determined in
26subdivision (c), computed in accordance with Section 42 of the
27Internal Revenue Code of 1986, except as otherwise provided in
28this section.

29(2) “Taxpayer,” for purposes of this section, means the sole
30owner in the case of a “C” corporation, the partners in the case of
31a partnership, and the shareholders in the case of an “S”
32corporation.

33(3) “Housing sponsor,” for purposes of this section, means the
34sole owner in the case of a “C” corporation, the partnership in the
35case of a partnership, and the “S” corporation in the case of an “S”
36corporation.

37(b) (1) The amount of the credit allocated to any housing
38sponsor shall be authorized by the California Tax Credit Allocation
39Committee, or any successor thereof, based on a project’s need
P24   1for the credit for economic feasibility in accordance with the
2requirements of this section.

3(A) The low-income housing project shall be located in
4California and shall meet either of the following requirements:

5(i) Except for projects to provide farmworker housing, as defined
6in subdivision (h) of Section 50199.7 of the Health and Safety
7Code, that are allocated credits solely under the set-aside described
8in subdivision (c) of Section 50199.20 of the Health and Safety
9Code, the project’s housing sponsor has been allocated by the
10California Tax Credit Allocation Committee a credit for federal
11income tax purposes under Section 42 of the Internal Revenue
12Code.

13(ii) It qualifies for a credit under Section 42(h)(4)(B) of the
14Internal Revenue Code.

15(B) The California Tax Credit Allocation Committee shall not
16require fees for the credit under this section in addition to those
17fees required for applications for the tax credit pursuant to Section
1842 of the Internal Revenue Code. The committee may require a
19fee if the application for the credit under this section is submitted
20in a calendar year after the year the application is submitted for
21the federal tax credit.

22(C) (i) For a project that receives a preliminary reservation of
23the state low-income housing tax credit, allowed pursuant to
24subdivision (a), on or after January 1, 2009, and before January 1,
252016, the credit shall be allocated to the partners of a partnership
26owning the project in accordance with the partnership agreement,
27regardless of how the federal low-income housing tax credit with
28respect to the project is allocated to the partners, or whether the
29allocation of the credit under the terms of the agreement has
30substantial economic effect, within the meaning of Section 704(b)
31of the Internal Revenue Code.

32(ii) To the extent the allocation of the credit to a partner under
33this section lacks substantial economic effect, any loss or deduction
34otherwise allowable under this part that is attributable to the sale
35or other disposition of that partner’s partnership interest made prior
36to the expiration of the federal credit shall not be allowed in the
37taxable year in which the sale or other disposition occurs, but shall
38instead be deferred until and treated as if it occurred in the first
39taxable year immediately following the taxable year in which the
40federal credit period expires for the project described in clause (i).

P25   1(iii) This subparagraph shall not apply to a project that receives
2a preliminary reservation of state low-income housing tax credits
3under the set-aside described in subdivision (c) of Section 50199.20
4of the Health and Safety Code unless the project also receives a
5preliminary reservation of federal low-income housing tax credits.

6(iv) This subparagraph shall cease to be operative with respect
7to any project that receives a preliminary reservation of a credit
8on or after January 1, 2016.

9(2) (A) The California Tax Credit Allocation Committee shall
10certify to the housing sponsor the amount of tax credit under this
11section allocated to the housing sponsor for each credit period.

12(B) In the case of a partnership or an “S” corporation, the
13housing sponsor shall provide a copy of the California Tax Credit
14Allocation Committee certification to the taxpayer.

15(C) The taxpayer shall, upon request, provide a copy of the
16certification to the Franchise Tax Board.

17(D) All elections made by the taxpayer pursuant to Section 42
18of the Internal Revenue Code shall apply to this section.

19(E)begin deleteend deletebegin deleteForend deletebegin insertend insertbegin insert(i)end insertbegin insertend insertbegin insertExcept as described in clause (ii), forend insert buildings
20located in designated difficult development areasbegin insert (DDAs)end insert or
21qualified census tractsbegin insert (QCTs)end insert as defined in Sectionbegin delete 42(d)(5)(C)end delete
22begin insert 42(d)(5)(B)end insert of the Internal Revenue Code, credits may be allocated
23under this section in the amounts prescribed in subdivision (c),
24provided that the amount of credit allocated under Section 42 of
25the Internal Revenue Code is computed on 100 percent of the
26qualified basis of the building.

begin insert

27(ii) Notwithstanding clause (i), the California Tax Credit
28Allocation Committee may allocated the credit for buildings located
29in DDAs or QCTs that are restricted to having 100 percent of its
30occupants be special needs households, as defined in the California
31Code of Regulations by the California Tax Credit Allocation
32Committee, even if the taxpayer receives federal credits pursuant
33to Section 42(d)(5)(B) of the Internal Revenue Code, provided that
34the credit allowed under this section shall not exceed 30 percent
35of the eligible basis of the building.

end insert
begin insert

36(iii) (I) The California Tax Credit Allocation Committee may
37allocate a credit under this section in exchange for a credit
38allocated pursuant to Section 42(d)(5)(B) of the Internal Revenue
39Code in amounts up to 30 percent of the eligible basis of a building
P26   1if the credits allowed Section 42 of the Internal Revenue Code are
2reduced by an equivalent amount.

end insert
begin insert

3(II) Equivalent amounts shall be determined by the California
4Tax Credit Allocation Committee based upon the relative amounts
5required to produce an equivalent tax credit to the taxpayer.

end insert

6(c) Section 42(b) of the Internal Revenue Code shall be modified
7as follows:

8(1) In the case of any qualified low-income building placed in
9service by the housing sponsor during 1987, the term “applicable
10percentage” means 9 percent for each of the first three years and
113 percent for the fourth year for new buildings (whether or not the
12building is federally subsidized) and for existing buildings.

13(2) In the case of any qualified low-income building that receives
14an allocation after 1989 and is a new building not federally
15subsidized, the term “applicable percentage” means the following:

16(A) For each of the first three years, the percentage prescribed
17by the Secretary of the Treasury for new buildings that are not
18federally subsidized for the taxable year, determined in accordance
19with the requirements of Section 42(b)(2) of the Internal Revenue
20Code, in lieu of the percentage prescribed in Section 42(b)(1)(A).

21(B) For the fourth year, the difference between 30 percent and
22the sum of the applicable percentages for the first three years.

23(3) In the case of any qualified low-income building that receives
24an allocation after 1989 and that is a new building that is federally
25subsidized or that is an existing building that is “at risk of
26conversion,” the term “applicable percentage” means the following:

27(A) For each of the first three years, the percentage prescribed
28by the Secretary of the Treasury for new buildings that are federally
29subsidized for the taxable year.

30(B) For the fourth year, the difference between 13 percent and
31the sum of the applicable percentages for the first three years.

32(4) For purposes of this section, the term “at risk of conversion,”
33with respect to an existing property means a property that satisfies
34all of the following criteria:

35(A) The property is a multifamily rental housing development
36in which at least 50 percent of the units receive governmental
37assistance pursuant to any of the following:

38(i) New construction, substantial rehabilitation, moderate
39 rehabilitation, property disposition, and loan management set-aside
40programs, or any other program providing project-based assistance
P27   1pursuant to Section 8 of the United States Housing Act of 1937,
2Section 1437f of Title 42 of the United States Code, as amended.

3(ii) The Below-Market-Interest-Rate Program pursuant to
4Section 221(d)(3) of the National Housing Act, Sections
51715l(d)(3) and (5) of Title 12 of the United States Code.

6(iii) Section 236 of the National Housing Act, Section 1715z-1
7of Title 12 of the United States Code.

8(iv) Programs for rent supplement assistance pursuant to Section
9101 of the Housing and Urban Development Act of 1965, Section
101701s of Title 12 of the United States Code, as amended.

11(v) Programs pursuant to Section 515 of the Housing Act of
121949, Section 1485 of Title 42 of the United States Code, as
13amended.

14(vi) The low-income housing credit program set forth in Section
1542 of the Internal Revenue Code.

16(B) The restrictions on rent and income levels will terminate or
17the federally insured mortgage on the property is eligible for
18prepayment any time within five years before or after the date of
19application to the California Tax Credit Allocation Committee.

20(C) The entity acquiring the property enters into a regulatory
21agreement that requires the property to be operated in accordance
22with the requirements of this section for a period equal to the
23greater of 55 years or the life of the property.

24(D) The property satisfies the requirements of Section 42(e) of
25the Internal Revenue Code regarding rehabilitation expenditures,
26except that the provisions of Section 42(e)(3)(A)(ii)(I) shall not
27apply.

28(d) The term “qualified low-income housing project” as defined
29in Section 42(c)(2) of the Internal Revenue Code is modified by
30adding the following requirements:

31(1) The taxpayer shall be entitled to receive a cash distribution
32from the operations of the project, after funding required reserves,
33which, at the election of the taxpayer, shall be equal to:

34(A) An amount not to exceed 8 percent of the lesser of:

35(i) The owner equity, which shall include the amount of the
36capital contributions actually paid to the housing sponsor and shall
37not include any amounts until they are paid on an investor note.

38(ii) Twenty percent of the adjusted basis of the building as of
39the close of the first taxable year of the credit period.

P28   1(B) The amount of the cashflow from those units in the building
2that are not low-income units. For purposes of computing cashflow
3under this subparagraph, operating costs shall be allocated to the
4low-income units using the “floor space fraction,” as defined in
5Section 42 of the Internal Revenue Code.

6(C) Any amount allowed to be distributed under subparagraph
7(A) that is not available for distribution during the first five years
8of the compliance period may accumulate and be distributed at
9any time during the first 15 years of the compliance period but not
10thereafter.

11(2) The limitation on return shall apply in the aggregate to the
12 partners if the housing sponsor is a partnership and in the aggregate
13to the shareholders if the housing sponsor is an “S” corporation.

14(3) The housing sponsor shall apply any cash available for
15distribution in excess of the amount eligible to be distributed under
16paragraph (1) to reduce the rent on rent-restricted units or to
17increase the number of rent-restricted units subject to the tests of
18Section 42(g)(1) of the Internal Revenue Code.

19(e) The provisions of Section 42(f) of the Internal Revenue Code
20shall be modified as follows:

21(1) The term “credit period” as defined in Section 42(f)(1) of
22the Internal Revenue Code is modified by substituting “four taxable
23years” for “10 taxable years.”

24(2) The special rule for the first taxable year of the credit period
25under Section 42(f)(2) of the Internal Revenue Code shall not apply
26to the tax credit under this section.

27(3) Section 42(f)(3) of the Internal Revenue Code is modified
28to read:

29If, as of the close of any taxable year in the compliance period,
30after the first year of the credit period, the qualified basis of any
31building exceeds the qualified basis of that building as of the close
32of the first year of the credit period, the housing sponsor, to the
33extent of its tax credit allocation, shall be eligible for a credit on
34the excess in an amount equal to the applicable percentage
35determined pursuant to subdivision (c) for the four-year period
36beginning with the later of the taxable years in which the increase
37in qualified basis occurs.

38(f) The provisions of Section 42(h) of the Internal Revenue
39Code shall be modified as follows:

P29   1(1) Section 42(h)(2) of the Internal Revenue Code shall not be
2applicable and instead the following provisions shall be applicable:

3The total amount for the four-year credit period of the housing
4credit dollars allocated in a calendar year to any building shall
5reduce the aggregate housing credit dollar amount of the California
6Tax Credit Allocation Committee for the calendar year in which
7the allocation is made.

8(2) Paragraphs (3), (4), (5), (6)(E)(i)(II), (6)(F), (6)(G), (6)(I),
9(7), and (8) of Section 42(h) of the Internal Revenue Code shall
10not be applicable.

11(g) The aggregate housing credit dollar amount that may be
12allocated annually by the California Tax Credit Allocation
13Committee pursuant to this section, Section 12206, and Section
1417058 shall be an amount equal to the sum of all the following:

15(1) Seventy million dollars ($70,000,000) for the 2001 calendar
16year, and, for the 2002 calendar year and each calendar year
17thereafter, seventy million dollars ($70,000,000) increased by the
18percentage, if any, by which the Consumer Price Index for the
19preceding calendar year exceeds the Consumer Price Index for the
202001 calendar year. For the purposes of this paragraph, the term
21“Consumer Price Index” means the last Consumer Price Index for
22all urban consumers published by the federal Department of Labor.

23(2) The unused housing credit ceiling, if any, for the preceding
24calendar years.

25(3) The amount of housing credit ceiling returned in the calendar
26year. For purposes of this paragraph, the amount of housing credit
27dollar amount returned in the calendar year equals the housing
28credit dollar amount previously allocated to any project that does
29not become a qualified low-income housing project within the
30period required by this section or to any project with respect to
31which an allocation is canceled by mutual consent of the California
32Tax Credit Allocation Committee and the allocation recipient.

33(4) Five hundred thousand dollars ($500,000) per calendar year
34for projects to provide farmworker housing, as defined in
35subdivision (h) of Section 50199.7 of the Health and Safety Code.

36(5) The amount of any unallocated or returned credits under
37former Sections 17053.14, 23608.2, and 23608.3, as those sections
38read prior to January 1, 2009, until fully exhausted for projects to
39provide farmworker housing, as defined in subdivision (h) of
40Section 50199.7 of the Health and Safety Code.

P30   1(h) The term “compliance period” as defined in Section 42(i)(1)
2of the Internal Revenue Code is modified to mean, with respect to
3any building, the period of 30 consecutive taxable years beginning
4with the first taxable year of the credit period with respect thereto.

5(i) Section 42(j) of the Internal Revenue Code shall not be
6applicable and the following shall be substituted in its place:

7The requirements of this section shall be set forth in a regulatory
8agreement between the California Tax Credit Allocation Committee
9and the housing sponsor, and this agreement shall be subordinated,
10when required, to any lien or encumbrance of any banks or other
11institutional lenders to the project. The regulatory agreement
12entered into pursuant to subdivision (f) of Section 50199.14 of the
13Health and Safety Code shall apply, provided that the agreement
14includes all of the following provisions:

15(1) A term not less than the compliance period.

16(2) A requirement that the agreement be filed in the official
17records of the county in which the qualified low-income housing
18project is located.

19(3) A provision stating which state and local agencies can
20enforce the regulatory agreement in the event the housing sponsor
21fails to satisfy any of the requirements of this section.

22(4) A provision that the regulatory agreement shall be deemed
23a contract enforceable by tenants as third-party beneficiaries
24thereto, and that allows individuals, whether prospective, present,
25or former occupants of the building, who meet the income
26limitation applicable to the building the right to enforce the
27regulatory agreement in any state court.

28(5) A provision incorporating the requirements of Section 42
29of the Internal Revenue Code as modified by this section.

30(6) A requirement that the housing sponsor notify the California
31Tax Credit Allocation Committee or its designee if there is a
32determination by the Internal Revenue Service that the project is
33not in compliance with Section 42(g) of the Internal Revenue Code.

34(7) A requirement that the housing sponsor, as security for the
35performance of the housing sponsor’s obligations under the
36regulatory agreement, assign the housing sponsor’s interest in rents
37that it receives from the project, provided that until there is a
38default under the regulatory agreement, the housing sponsor is
39entitled to collect and retain the rents.

P31   1(8) A provision that the remedies available in the event of a
2default under the regulatory agreement that is not cured within a
3reasonable cure period include, but are not limited to, allowing
4any of the parties designated to enforce the regulatory agreement
5to collect all rents with respect to the project; taking possession of
6the project and operating the project in accordance with the
7regulatory agreement until the enforcer determines the housing
8sponsor is in a position to operate the project in accordance with
9the regulatory agreement; applying to any court for specific
10performance; securing the appointment of a receiver to operate
11the project; or any other relief as may be appropriate.

12(j) (1) The committee shall allocate the housing credit on a
13regular basis consisting of two or more periods in each calendar
14year during which applications may be filed and considered. The
15committee shall establish application filing deadlines, the maximum
16 percentage of federal and state low-income housing tax credit
17ceiling that may be allocated by the committee in that period, and
18the approximate date on which allocations shall be made. If the
19enactment of federal or state law, the adoption of rules or
20regulations, or other similar events prevent the use of two allocation
21periods, the committee may reduce the number of periods and
22adjust the filing deadlines, maximum percentage of credit allocated,
23and allocation dates.

24(2) The committee shall adopt a qualified allocation plan, as
25provided in Section 42(m)(1) of the Internal Revenue Code. In
26adopting this plan, the committee shall comply with the provisions
27of Sections 42(m)(1)(B) and 42(m)(1)(C) of the Internal Revenue
28Code.

29(3) Notwithstanding Section 42(m) of the Internal Revenue
30Code, the California Tax Credit Allocation Committee shall
31allocate housing credits in accordance with the qualified allocation
32plan and regulations, which shall include the following provisions:

33(A) All housing sponsors, as defined by paragraph (3) of
34subdivision (a), shall demonstrate at the time the application is
35filed with the committee that the project meets the following
36threshold requirements:

37(i) The housing sponsor shall demonstrate that there is a need
38for low-income housing in the community or region for which it
39is proposed.

P32   1(ii) The project’s proposed financing, including tax credit
2proceeds, shall be sufficient to complete the project and shall be
3adequate to operate the project for the extended use period.

4(iii) The project shall have enforceable financing commitments,
5either construction or permanent financing, for at least 50 percent
6of the total estimated financing of the project.

7(iv) The housing sponsor shall have and maintain control of the
8site for the project.

9(v) The housing sponsor shall demonstrate that the project
10complies with all applicable local land use and zoning ordinances.

11(vi) The housing sponsor shall demonstrate that the project
12development team has the experience and the financial capacity
13to ensure project completion and operation for the extended use
14period.

15(vii) The housing sponsor shall demonstrate the amount of tax
16credit that is necessary for the financial feasibility of the project
17and its viability as a qualified low-income housing project
18throughout the extended use period, taking into account operating
19expenses, a supportable debt service, reserves, funds set aside for
20rental subsidies, and required equity, and a development fee that
21does not exceed a specified percentage of the eligible basis of the
22project prior to inclusion of the development fee in the eligible
23basis, as determined by the committee.

24(B) The committee shall give a preference to those projects
25satisfying all of the threshold requirements of subparagraph (A)
26if both of the following apply:

27(i) The project serves the lowest income tenants at rents
28affordable to those tenants.

29(ii) The project is obligated to serve qualified tenants for the
30longest period.

31(C) In addition to the provisions of subparagraphs (A) and (B),
32the committee shall use the following criteria in allocating housing
33credits:

34(i) Projects serving large families in which a substantial number,
35as defined by the committee, of all residential units are low-income
36units with three and more bedrooms.

37(ii) Projects providing single-room occupancy units serving
38very low income tenants.

39(iii) Existing projects that are “at risk of conversion,” as defined
40by paragraph (4) of subdivision (c).

P33   1(iv) Projects for which a public agency provides direct or indirect
2long-term financial support for at least 15 percent of the total
3project development costs or projects for which the owner’s equity
4constitutes at least 30 percent of the total project development
5costs.

6(v) Projects that provide tenant amenities not generally available
7 to residents of low-income housing projects.

8(4) For purposes of allocating credits pursuant to this section,
9the committee shall not give preference to any project by virtue
10of the date of submission of its application except to break a tie
11when two or more of the projects have an equal rating.

12(5) Not less than 20 percent of the low-income housing tax
13credits available annually under this section, Section 12206, and
14Section 17058 shall be set aside for allocation to rural areas as
15defined in Section 50199.21 of the Health and Safety Code. Any
16amount of credit set aside for rural areas remaining on or after
17October 31 of any calendar year shall be available for allocation
18to any eligible project. No amount of credit set aside for rural areas
19shall be considered available for any eligible project so long as
20there are eligible rural applications pending on October 31.

21(k) Section 42(l) of the Internal Revenue Code shall be modified
22as follows:

23The term “secretary” shall be replaced by the term “California
24Franchise Tax Board.”

25(l) In the case where the state credit allowed under this section
26exceeds the “tax,” the excess may be carried over to reduce the
27“tax” in the following year, and succeeding years if necessary,
28until the credit has been exhausted.

29(m) A project that received an allocation of a 1989 federal
30housing credit dollar amount shall be eligible to receive an
31allocation of a 1990 state housing credit dollar amount, subject to
32all of the following conditions:

33(1) The project was not placed in service prior to 1990.

34(2) To the extent the amendments made to this section by the
35Statutes of 1990 conflict with any provisions existing in this section
36prior to those amendments, the prior provisions of law shall prevail.

37(3) Notwithstanding paragraph (2), a project applying for an
38allocation under this subdivision shall be subject to the
39requirements of paragraph (3) of subdivision (j).

P34   1(n) The credit period with respect to an allocation of credit in
21989 by the California Tax Credit Allocation Committee of which
3any amount is attributable to unallocated credit from 1987 or 1988
4shall not begin until after December 31, 1989.

5(o) The provisions of Section 11407(a) of Public Law 101-508,
6relating to the effective date of the extension of the low-income
7housing credit, shall apply to calendar years after 1989.

8(p) The provisions of Section 11407(c) of Public Law 101-508,
9relating to election to accelerate credit, shall not apply.

10(q) (1) A corporation may elect to assign any portion of any
11credit allowed under this section to one or more affiliated
12corporations for each taxable year in which the credit is allowed.
13For purposes of this subdivision, “affiliated corporation” has the
14meaning provided in subdivision (b) of Section 25110, as that
15section was amended by Chapter 881 of the Statutes of 1993, as
16of the last day of the taxable year in which the credit is allowed,
17except that “100 percent” is substituted for “more than 50 percent”
18wherever it appears in the section, as that section was amended by
19Chapter 881 of the Statutes of 1993, and “voting common stock”
20is substituted for “voting stock” wherever it appears in the section,
21as that section was amended by Chapter 881 of the Statutes of
221993.

23(2) The election provided in paragraph (1):

24(A) May be based on any method selected by the corporation
25that originally receives the credit.

26(B) Shall be irrevocable for the taxable year the credit is allowed,
27once made.

28(C) May be changed for any subsequent taxable year if the
29election to make the assignment is expressly shown on each of the
30returns of the affiliated corporations that assign and receive the
31credits.

32(r) Any unused credit may continue to be carried forward, as
33provided in subdivision (l), until the credit has been exhausted.

34This section shall remain in effect on or after December 1, 1990,
35for as long as Section 42 of the Internal Revenue Code, relating
36to low-income housing credits, remains in effect.

37(s) The amendments to this section made by the act adding this
38subdivision shall apply only to taxable years beginning on or after
39January 1, 1994, except that paragraph (1) of subdivision (q), as
P35   1amended, shall apply to taxable years beginning on or after January
21, 1993.

3

SEC. 4.  

This act provides for a tax levy within the meaning of
4Article IV of the Constitution and shall go into immediate effect.



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