Amended in Assembly March 18, 2013

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 amended, 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, underbegin insert theend insert 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 havingbegin delete 100%end deletebegin insert 50%end insert 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” (asbegin delete definedend deletebegin insert describedend insert by Section 12201) a state low-income
5housing tax credit in an amount equal to the amount determined
6in subdivision (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.

18(F) (i) Except as described in clause (ii), for buildings located
19in designated difficult development areas (DDAs) or qualified
20census tracts (QCTs)begin insert,end insert as defined in Section 42(d)(5)(B) of the
21Internal Revenue Code, credits may be allocated under this section
22in the amounts prescribed in subdivision (c), provided that the
23amount of credit allocated under Section 42 of the Internal Revenue
24Code is computed on 100 percent of the qualified basis of the
25building.

26(ii) Notwithstanding clause (i), the California Tax Credit
27Allocation Committee maybegin delete allocatedend deletebegin insert allocateend insert the credit for
28buildings located in DDAs or QCTs that are restricted to having
29begin delete 100end deletebegin insert 50end insert percent of its occupants be special needs households, as
30defined in the California Code of Regulations by the California
31Tax Credit Allocation Committee, even if the taxpayer receives
32federal credits pursuant to Section 42(d)(5)(B) of the Internal
33Revenue Code, provided that the credit allowed under this section
34shall not exceed 30 percent of the eligible basis of the building.

35(iii) (I) The California Tax Credit Allocation Committee may
36allocate a credit under this section in exchange for a credit allocated
37pursuant to Section 42(d)(5)(B) of the Internal Revenue Code in
38amounts up to 30 percent of the eligible basis of a building if the
39credits allowedbegin insert underend insert Section 42 of the Internal Revenue Code
40are reduced by an equivalent amount.

P5    1(II) begin deleteEquivalent amounts end deletebegin insertAn equivalent amount end insertshall be
2determined by the California Tax Credit Allocation Committee
3based upon the relative begin deleteamounts end deletebegin insertamount end insertrequired to produce an
4equivalentbegin insert stateend insert tax credit to the taxpayer.

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

7(1) In the case of any qualified low-income building that receives
8an allocation after 1989 and is a new building not federally
9subsidized, the term “applicable percentage” means the following:

10(A) For each of the first three years, the percentage prescribed
11by the Secretary of the Treasury for new buildings that are not
12federally subsidized for the taxable year, determined in accordance
13with the requirements of Section 42(b)(2) of the Internal Revenue
14Code, in lieu of the percentage prescribed in Section 42(b)(1)(A)
15of the Internal Revenue Code.

16(B) For the fourth year, the difference between 30 percent and
17the sum of the applicable percentages for the first three years.

18(2) In the case of any qualified low-income building that receives
19an allocation after 1989 and that is a new building that is federally
20subsidized or that is an existing building that is “at risk of
21conversion,” the term “applicable percentage” means the following:

22(A) For each of the first three years, the percentage prescribed
23by the Secretary of the Treasury for new buildings that are federally
24subsidized for the taxable year.

25(B) For the fourth year, the difference between 13 percent and
26the sum of the applicable percentages for the first three years.

27(3) For purposes of this section, the term “at risk of conversion,”
28with respect to an existing property means a property that satisfies
29all of the following criteria:

30(A) The property is a multifamily rental housing development
31in which at least 50 percent of the units receive governmental
32assistance pursuant to any of the following:

33(i) New construction, substantial rehabilitation, moderate
34rehabilitation, property disposition, and loan management set-aside
35programs, or any other program providing project-based assistance
36pursuant to Section 8 of the United States Housing Act of 1937,
37Section 1437f of Title 42 of the United States Code, as amended.

38(ii) The Below-Market-Interest-Rate Program pursuant to
39Section 221(d)(3) of the National Housing Act, Sections
401715l(d)(3) and (5) of Title 12 of the United States Code.

P6    1(iii) Section 236 of the National Housing Act, Section 1715z-1
2of Title 12 of the United States Code.

3(iv) Programs for rent supplement assistance pursuant to Section
4101 of the Housing and Urban Development Act of 1965, Section
51701s of Title 12 of the United States Code, as amended.

6(v) Programs pursuant to Section 515 of the Housing Act of
71949, Section 1485 of Title 42 of the United States Code, as
8amended.

9(vi) The low-income housing credit program set forth in Section
1042 of the Internal Revenue Code.

11(B) The restrictions on rent and income levels will terminate or
12the federal insured mortgage on the property is eligible for
13prepayment any time within five years before or after the date of
14application to the California Tax Credit Allocation Committee.

15(C) The entity acquiring the property enters into a regulatory
16agreement that requires the property to be operated in accordance
17with the requirements of this section for a period equal to the
18greater of 55 years or the life of the property.

19(D) The property satisfies the requirements of Section 42(e) of
20the Internal Revenue Code regarding rehabilitation expenditures,
21except that the provisions of Section 42(e)(3)(A)(ii)(I) shall not
22apply.

23(d) The term “qualified low-income housing project” as defined
24in Section 42(c)(2) of the Internal Revenue Code is modified by
25adding the following requirements:

26(1) The taxpayer shall be entitled to receive a cash distribution
27from the operations of the project, after funding required reserves,
28which, at the election of the taxpayer, is equal to:

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

30(i) The owner equity which shall include the amount of the
31capital contributions actually paid to the housing sponsor and shall
32not include any amounts until they are paid on an investor note.

33(ii) Twenty percent of the adjusted basis of the building as of
34the close of the first taxable year of the credit period.

35(B) The amount of the cashflow from those units in the building
36that are not low-income units. For purposes of computing cashflow
37under this subparagraph, operating costs shall be allocated to the
38low-income units using the “floor space fraction,” as defined in
39Section 42 of the Internal Revenue Code.

P7    1(C) Any amount allowed to be distributed under subparagraph
2(A) that is not available for distribution during the first five years
3of the compliance period may accumulate and be distributed any
4time during the first 15 years of the compliance period but not
5thereafter.

6(2) The limitation on return shall apply in the aggregate to the
7partners if the housing sponsor is a partnership and in the aggregate
8to the shareholders if the housing sponsor is an “S” corporation.

9(3) The housing sponsor shall apply any cash available for
10distribution in excess of the amount eligible to be distributed under
11paragraph (1) to reduce the rent on rent-restricted units or to
12increase the number of rent-restricted units subject to the tests of
13Section 42(g)(1) of the Internal Revenue Code.

14(e) The provisions of Section 42(f) of the Internal Revenue Code
15shall be modified as follows:

16(1) The term “credit period” as defined in Section 42(f)(1) of
17the Internal Revenue Code is modified by substituting “four taxable
18years” for “10 taxable years.”

19(2) The special rule for the first taxable year of the credit period
20under Section 42(f)(2) of the Internal Revenue Code shall not apply
21to the tax credit under this section.

22(3) Section 42(f)(3) of the Internal Revenue Code is modified
23to read:

24If, as of the close of any taxable year in the compliance period,
25after the first year of the credit period, the qualified basis of any
26building exceeds the qualified basis of that building as of the close
27of the first year of the credit period, the housing sponsor, to the
28extent of its tax credit allocation, shall be eligible for a credit on
29the excess in an amount equal to the applicable percentage
30determined pursuant to subdivision (c) for the four-year period
31beginning with the later of the taxable years in which the increase
32in qualified basis occurs.

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

35(1) Section 42(h)(2) of the Internal Revenue Code shall not be
36applicable and instead the following provisions shall be applicable:

37The total amount for the four-year credit period of the housing
38credit dollars allocated in a calendar year to any building shall
39reduce the aggregate housing credit dollar amount of the California
P8    1Tax Credit Allocation Committee for the calendar year in which
2the allocation is made.

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

6(g) The aggregate housing credit dollar amount that may be
7allocated annually by the California Tax Credit Allocation
8Committee pursuant to this section, Section 17058, and Section
923610.5 shall be an amount equal to the sum of all the following:

10(1) Seventy million dollars ($70,000,000) for the 2001 calendar
11year, and, for the 2002 calendar year and each calendar year
12thereafter, seventy million dollars ($70,000,000) increased by the
13percentage, if any, by which the Consumer Price Index for the
14preceding calendar year exceeds the Consumer Price Index for the
152001 calendar year. For the purposes of this paragraph, the term
16“Consumer Price Index” means the last Consumer Price Index for
17all urban consumers published by the federal Department of Labor.

18(2) The unused housing credit ceiling, if any, for the preceding
19calendar years.

20(3) The amount of housing credit ceiling returned in the calendar
21year. For purposes of this paragraph, the amount of housing credit
22dollar amount returned in the calendar year equals the housing
23credit dollar amount previously allocated to any project that does
24not become a qualified low-income housing project within the
25 period required by this section or to any project with respect to
26which an allocation is canceled by mutual consent of the California
27Tax Credit Allocation Committee and the allocation recipient.

28(4) Five hundred thousand dollars ($500,000) per calendar year
29for projects to provide farmworker housing, as defined in
30subdivision (h) of Section 50199.7 of the Health and Safety Code.

31(5) The amount of any unallocated or returned credits under
32former Sections 17053.14, 23608.2, and 23608.3, as those sections
33read prior to January 1, 2009, until fully exhausted for projects to
34provide farmworker housing, as defined in subdivision (h) of
35Section 50199.7 of the Health and Safety Code.

36(h) The term “compliance period” as defined in Section 42(i)(1)
37of the Internal Revenue Code is modified to mean, with respect to
38any building, the period of 30 consecutive taxable years beginning
39with the first taxable year of the credit period with respect thereto.

P9    1(i) (1) Section 42(j) of the Internal Revenue Code shall not be
2applicable and the provisions in paragraph (2) shall be substituted
3in its place.

4(2) The requirements of this section shall be set forth in a
5regulatory agreement between the California Tax Credit Allocation
6Committee and the housing sponsor, which agreement shall be
7subordinated, when required, to any lien or encumbrance of any
8banks or other institutional lenders to the project. The regulatory
9agreement entered into pursuant to subdivision (f) of Section
1050199.14 of the Health and Safety Code, shall apply, providing
11the agreement includes all of the following provisions:

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

13(B) A requirement that the agreement be filed in the official
14records of the county in which the qualified low-income housing
15project is located.

16(C) A provision stating which state and local agencies can
17enforce the regulatory agreement in the event the housing sponsor
18fails to satisfy any of the requirements of this section.

19(D) A provision that the regulatory agreement shall be deemed
20a contract enforceable by tenants as third-party beneficiaries thereto
21and which allows individuals, whether prospective, present, or
22former occupants of the building, who meet the income limitation
23applicable to the building, the right to enforce the regulatory
24agreement in any state court.

25(E) A provision incorporating the requirements of Section 42
26of the Internal Revenue Code as modified by this section.

27(F) A requirement that the housing sponsor notify the California
28Tax Credit Allocation Committee or its designee and the local
29agency that can enforce the regulatory agreement if there is a
30determination by the Internal Revenue Service that the project is
31not in compliance with Section 42(g) of the Internal Revenue Code.

32(G) A requirement that the housing sponsor, as security for the
33performance of the housing sponsor’s obligations under the
34regulatory agreement, assign the housing sponsor’s interest in rents
35that it receives from the project, provided that until there is a
36default under the regulatory agreement, the housing sponsor is
37entitled to collect and retain the rents.

38(H) The remedies available in the event of a default under the
39regulatory agreement that is not cured within a reasonable cure
40period, include, but are not limited to, allowing any of the parties
P10   1designated to enforce the regulatory agreement to collect all rents
2with respect to the project; taking possession of the project and
3operating the project in accordance with the regulatory agreement
4until the enforcer determines the housing sponsor is in a position
5to operate the project in accordance with the regulatory agreement;
6applying to any court for specific performance; securing the
7appointment of a receiver to operate the project; or any other relief
8as may be appropriate.

9(j) (1) The committee shall allocate the housing credit on a
10regular basis consisting of two or more periods in each calendar
11year during which applications may be filed and considered. The
12committee shall establish application filing deadlines, the maximum
13percentage of federal and state low-income housing tax credit
14 ceilingbegin delete whichend deletebegin insert thatend insert may be allocated by the committee in that period,
15and the approximate date on which allocations shall be made. If
16the enactment of federal or state law, the adoption of rules or
17regulations, or other similar events prevent the use of two allocation
18periods, the committee may reduce the number of periods and
19adjust the filing deadlines, maximum percentage of credit allocated,
20and the allocation dates.

21(2) The committee shall adopt a qualified allocation plan, as
22provided in Section 42(m)(1) of the Internal Revenue Code. In
23adopting this plan, the committee shall comply with the provisions
24of Sections 42(m)(1)(B) and 42(m)(1)(C) of the Internal Revenue
25Code.

26(3) Notwithstanding Section 42(m) of the Internal Revenue
27Code, the California Tax Credit Allocation Committee shall
28allocate housing credits in accordance with the qualified allocation
29plan and regulations, which shall include the following provisions:

30(A) All housing sponsors, as defined by paragraph (3) of
31subdivision (a), shall demonstrate at the time the application is
32filed with the committee that the project meets the following
33threshold requirements:

34(i) The housing sponsor shall demonstrate there is a need and
35demand for low-income housing in the community or region for
36which it is proposed.

37(ii) The project’s proposed financing, including tax credit
38proceeds, shall be sufficient to complete the project and that the
39proposed operating income shall be adequate to operate the project
40for the extended use period.

P11   1(iii) The project shall have enforceable financing commitments,
2either construction or permanent financing, for at least 50 percent
3of the total estimated financing of the project.

4(iv) The housing sponsor shall have and maintain control of the
5site for the project.

6(v) The housing sponsor shall demonstrate that the project
7complies with all applicable local land use and zoning ordinances.

8(vi) The housing sponsor shall demonstrate that the project
9development team has the experience and the financial capacity
10to ensure project completion and operation for the extended use
11period.

12(vii) The housing sponsor shall demonstrate the amount of tax
13credit that is necessary for the financial feasibility of the project
14and its viability as a qualified low-income housing project
15throughout the extended use period, taking into account operating
16expenses, a supportable debt service, reserves, funds set aside for
17rental subsidies, and required equity, and a development fee that
18does not exceed a specified percentage of the eligible basis of the
19project prior to inclusion of the development fee in the eligible
20basis, as determined by the committee.

21(B) The committee shall give a preference to those projects
22satisfying all of the threshold requirements of subparagraph (A)
23if both of the following apply:

24(i) The project serves the lowest income tenants at rents
25affordable to those tenants.

26(ii) The project is obligated to serve qualified tenants for the
27longest period.

28(C) In addition to the provisions of subparagraphs (A) and (B),
29the committee shall use the following criteria in allocating housing
30credits:

31(i) Projects serving large families in which a substantial number,
32as defined by the committee, of all residential units is comprised
33of low-income units with three and more bedrooms.

34(ii) Projects providing single room occupancy units serving very
35low income tenants.

36(iii) Existing projects that are “at risk of conversion,” as defined
37by paragraph (3) of subdivision (c).

38(iv) Projects for which a public agency provides direct or indirect
39long-term financial support for at least 15 percent of the total
40project development costs or projects for which the owner’s equity
P12   1constitutes at least 30 percent of the total project development
2costs.

3(v) Projects that provide tenant amenities not generally available
4to residents of low-income housing projects.

5(4) For purposes of allocating credits pursuant to this section,
6the committee shall not give preference to any project by virtue
7of the date of submission of its application except to break a tie
8when two or more of the projects have an equal rating.

9(k) Section 42(l) of the Internal Revenue Code shall be modified
10as follows:

11The term “secretary” shall be replaced by the term “California
12Franchise Tax Board.”

13(l) In the case where the state credit allowed under this section
14exceeds the “tax,” the excess may be carried over to reduce the
15“tax” in the following year, and succeeding years if necessary,
16until the credit has been exhausted.

17(m) The provisions of Section 11407(a) of Public Law 101-508,
18relating to the effective date of the extension of the low-income
19housing credit, shall apply to calendar years after 1993.

20(n) The provisions of Section 11407(c) of Public Law 101-508,
21relating to election to accelerate credit, shall not apply.

22(o) This section shall remain in effect for as long as Section 42
23of the Internal Revenue Code, relating to low-income housing
24credits, remains in effect.

25

SEC. 2.  

Section 17058 of the Revenue and Taxation Code is
26amended to read:

27

17058.  

(a) (1) There shall be allowed as a credit against the
28begin deleteamount of net taxend deletebegin insert “net taxend insertbegin insertend insert (as defined in Section 17039) a state
29low-income housing credit in an amount equal to the amount
30determined in subdivision (c), computed in accordance with the
31provisions of Section 42 of the Internal Revenue Code, except as
32otherwise provided in this section.

33(2) “Taxpayer” for purposes of this section means the sole owner
34in the case of an individual, the partners in the case of a partnership,
35and the shareholders in the case of an “S” corporation.

36(3) “Housing sponsor” for purposes of this section means the
37sole owner in the case of an individual, the partnership in the case
38of a partnership, and the “S” corporation in the case of an “S”
39corporation.

P13   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) The low-income housing project shall be located in
7California and shall meet either of the following requirements:

8(i) Except for projects to provide farmworker housing, as defined
9in subdivision (h) of Section 50199.7 of the Health and Safety
10Code, that are allocated credits solely under the set-aside described
11in subdivision (c) of Section 50199.20 of the Health and Safety
12Code, the project’s housing sponsorbegin delete shall haveend deletebegin insert hasend insert been allocated
13by the California Tax Credit Allocation Committee a credit for
14federal income tax purposes under Section 42 of the Internal
15Revenue Code.

16(ii) Itbegin delete shall qualifyend deletebegin insert qualifiesend insert for a credit under Section
1742(h)(4)(B) of the Internal 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,
282016, 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) To the extent the allocation of the credit to a partner under
36this section lacks substantial economic effect, any loss or deduction
37otherwise allowable under this part that is attributable to the sale
38or other disposition of that partner’s partnership interest made prior
39to the expiration of the federal credit shall not be allowed in the
40taxable year in which the sale or other disposition occurs, but shall
P14   1instead be deferred until and treated as if it occurred in the first
2taxable year immediately following the taxable year in which the
3federal credit period expires for the project described in clause (i).

4(iii) This subparagraph shall not apply to a project that receives
5a preliminary reservation of state low-income housing tax credits
6under the set-aside described in subdivision (c) of Section 50199.20
7of the Health and Safety Code unless the project also receives a
8preliminary reservation of federal low-income housing tax credits.

9(iv) This subparagraph shall cease to be operative with respect
10to any project that receives a preliminary reservation of a credit
11on or after January 1, 2016.

12(2) (A) The California Tax Credit Allocation Committee shall
13certify to the housing sponsor the amount of tax credit under this
14section allocated to the housing sponsor for each credit period.

15(B) In the case of a partnership or an “S” corporation, the
16housing sponsor shall provide a copy of the California Tax Credit
17Allocation Committee certification to the taxpayer.

18(C) The taxpayer shall, upon request, provide a copy of the
19certification to the Franchise Tax Board.

20(D) All elections made by the taxpayer pursuant to Section 42
21of the Internal Revenue Code shall apply to this section.

22(E) (i) Except as described in clause (ii), for buildings located
23in designated difficult development areas (DDAs) or qualified
24 census tracts (QCTs)begin insert,end insert as defined in Section 42(d)(5)(B) of the
25Internal Revenue Code, credits may be allocated under this section
26in the amounts prescribed in subdivision (c), provided that the
27amount of credit allocated under Section 42 of the Internal Revenue
28Code is computed on 100 percent of the qualified basis of the
29building.

30(ii) Notwithstanding clause (i), the California Tax Credit
31Allocation Committee maybegin delete allocatedend deletebegin insert allocaend insertbegin insertteend insert the credit for
32buildings located in DDAs or QCTs that are restricted to having
33begin delete 100end deletebegin insert 50end insert percent of its occupants be special needs households, as
34defined in the California Code of Regulations by the California
35Tax Credit Allocation Committee, even if the taxpayer receives
36federal credits pursuant to Section 42(d)(5)(B) of the Internal
37Revenue Code, provided that the credit allowed under this section
38shall not exceed 30 percent of the eligible basis of the building.

39(iii) (I) The California Tax Credit Allocation Committee may
40allocate a credit under this section in exchange for a credit allocated
P15   1pursuant to Section 42(d)(5)(B) of the Internal Revenue Code in
2amounts up to 30 percent of the eligible basis of a building if the
3credits allowedbegin insert underend insert Section 42 of the Internal Revenue Code
4are reduced by an equivalent amount.

5(II) begin deleteEquivalent amounts end deletebegin insertAn equivalent amount end insertshall be
6determined by the California Tax Credit Allocation Committee
7based upon the relative begin deleteamounts end deletebegin insertamount end insert required to produce an
8equivalentbegin insert stateend insert tax credit to the taxpayer.

9(c) Section 42(b) of the Internal Revenue Code shall be modified
10as follows:

11(1) In the case of any qualified low-income building placed in
12service by the housing sponsor during 1987, the term “applicable
13percentage” means 9 percent for each of the first three years and
143 percent for the fourth year for new buildings (whether or not the
15building is federally subsidized) and for existing buildings.

16(2) In the case of any qualified low-income building that receives
17an allocation after 1989 and is a new building not federally
18subsidized, the term “applicable percentage” means the following:

19(A) For each of the first three years, the percentage prescribed
20by the Secretary of the Treasury for new buildings that are not
21federally subsidized for the taxable year, determined in accordance
22with the requirements of Section 42(b)(2) of the Internal Revenue
23Code, in lieu of the percentage prescribed in Section 42(b)(1)(A)
24of the Internal Revenue Code.

25(B) For the fourth year, the difference between 30 percent and
26the sum of the applicable percentages for the first three years.

27(3) In the case of any qualified low-income building that receives
28an allocation after 1989 and that is a new building that is federally
29subsidized or that is an existing building that is “at risk of
30conversion,” the term “applicable percentage” means the following:

31(A) For each of the first three years, the percentage prescribed
32by the Secretary of the Treasury for new buildings that are federally
33subsidized for the taxable year.

34(B) For the fourth year, the difference between 13 percent and
35the sum of the applicable percentages for the first three years.

36(4) For purposes of this section, the term “at risk of conversion,”
37with respect to an existing property means a property that satisfies
38all of the following criteria:

P16   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
5 rehabilitation, 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,
39that, at the election of the taxpayer, is equal to:

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

P17   1(i) The owner equity that shall include the amount of the capital
2contributions actually paid to the housing sponsor and shall not
3include 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 be accumulated and 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
17 partners 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
P18   1beginning with the taxable year in which the increase in qualified
2basis 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 period of the housing credit
8dollars allocated in a calendar year to any building shall reduce
9the aggregate housing credit dollar amount of the California Tax
10Credit Allocation Committee for the calendar year in which the
11allocation 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 to this section.

15(g) The aggregate housing credit dollar amountbegin delete whichend deletebegin insert thatend insert may
16be allocated annually by the California Tax Credit Allocation
17Committee pursuant to this section, Section 12206, 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
32 credit dollar amount previously allocated to any project that does
33not become a qualified low-income housing project within the
34period 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.

P19   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) Section 42(j) of the Internal Revenue Code shall not be
11applicable and the following requirements of this section shall be
12set forth in a regulatory agreement between the California Tax
13Credit Allocation Committee and the housing sponsor, which
14agreement shall be subordinated, when required, to any lien or
15encumbrance of any banks or other institutional lenders to the
16project. The regulatory agreement entered into pursuant to
17subdivision (f) of Section 50199.14 of the Health and Safety Code
18shall apply,begin delete providingend deletebegin insert provided thatend insert the agreement includes all of
19the following provisions:

20(1) A term not less than the compliance period.

21(2) A requirement that the agreement be filed in the official
22records of the county in which the qualified low-income housing
23project is located.

24(3) A provision stating which state and local agencies can
25enforce the regulatory agreement in the event the housing sponsor
26fails to satisfy any of the requirements of this section.

27(4) A provision that the regulatory agreement shall be deemed
28a contract enforceable by tenants as third-party beneficiaries thereto
29andbegin delete whichend deletebegin insert thatend insert allows individuals, whether prospective, present,
30or former occupants of the building, who meet the income
31limitation applicable to the building, the right to enforce the
32regulatory agreement in any state court.

33(5) A provision incorporating the requirements of Section 42
34of the Internal Revenue Code as modified by this section.

35(6) A requirement that the housing sponsor notify the California
36Tax Credit Allocation Committee or its designee if there is a
37determination by the Internal Revenue Service that the project is
38not in compliance with Section 42(g) of the Internal Revenue Code.

39(7) A requirement that the housing sponsor, as security for the
40performance of the housing sponsor’s obligations under the
P20   1regulatory agreement, assign the housing sponsor’s interest in rents
2that it receives from the project, provided that until there is a
3default under the regulatory agreement, the housing sponsor is
4entitled to collect and retain the rents.

5(8) The remedies available in the event of a default under the
6regulatory agreement that is not cured within a reasonable cure
7period, include, but are not limited to, allowing any of the parties
8designated to enforce the regulatory agreement to collect all rents
9with respect to the project; taking possession of the project and
10operating the project in accordance with the regulatory agreement
11until the enforcer determines the housing sponsor is in a position
12to operate the project in accordance with the regulatory agreement;
13applying to any court for specific performance; securing the
14appointment of a receiver to operate the project; or any other relief
15as may be appropriate.

16(j) (1) The committee shall allocate the housing credit on a
17regular basis consisting of two or more periods in each calendar
18year during which applications may be filed and considered. The
19committee shall establish application filing deadlines, the maximum
20percentage of federal and state low-income housing tax credit
21ceiling that may be allocated by the committee in that period, and
22the approximate date on which allocations shall be made. If the
23enactment of federal or state law, the adoption of rules or
24regulations or other similar events prevent the use of two allocation
25periods, the committee may reduce the number of periods and
26adjust the filing deadlines, maximum percentage of credit allocated,
27and the allocation dates.

28(2) The committee shall adopt a qualified allocation plan, as
29provided in Section 42(m)(1) of the Internal Revenue Code. In
30adopting this plan, the committee shall comply with the provisions
31of Sections 42(m)(1)(B) and 42(m)(1)(C) of the Internal Revenue
32Code.

33(3) Notwithstanding Section 42(m) of the Internal Revenue
34Code, the California Tax Credit Allocation Committee shall
35allocate housing credits in accordance with the qualified allocation
36plan and regulations, which shall include the following provisions:

37(A) All housing sponsors, as defined by paragraph (3) of
38subdivision (a), shall demonstrate at the time the application is
39filed with the committee that the project meets the following
40threshold requirements:

P21   1(i) The housing sponsor shall demonstrate there is a need and
2demand for low-income housing in the community or region for
3which it is proposed.

4(ii) The project’s proposed financing, including tax credit
5proceeds, shall be sufficient to complete the project and that the
6proposed operating income shall be adequate to operate the project
7for the extended use period.

8(iii) The project shall have enforceable financing commitments,
9either construction or permanent financing, for at least 50 percent
10of the total estimated financing of the project.

11(iv) The housing sponsor shall have and maintain control of the
12site for the project.

13(v) The housing sponsor shall demonstrate that the project
14complies with all applicable local land use and zoning ordinances.

15(vi) The housing sponsor shall demonstrate that the project
16development team has the experience and the financial capacity
17to ensure project completion and operation for the extended use
18period.

19(vii) The housing sponsor shall demonstrate the amount of tax
20credit that is necessary for the financial feasibility of the project
21and its viability as a qualified low-income housing project
22throughout the extended use period, taking into account operating
23expenses, a supportable debt service, reserves, funds set aside for
24rental subsidies, and required equity, and a development fee that
25does not exceed a specified percentage of the eligible basis of the
26project prior to inclusion of the development fee in the eligible
27basis, as determined by the committee.

28(B) The committee shall give a preference to those projects
29satisfying all of the threshold requirements of subparagraph (A)
30if both of the following apply:

31(i) The project serves the lowest income tenants at rents
32affordable to those tenants.

33(ii) The project is obligated to serve qualified tenants for the
34longest period.

35(C) In addition to the provisions of subparagraphs (A) and (B),
36the committee shall use the following criteria in allocating housing
37credits:

38(i) Projects serving large families in which a substantial number,
39as defined by the committee of all residential units is comprised
40of low-income units with three and more bedrooms.

P22   1(ii) Projects providing single room occupancy units serving very
2low income tenants.

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

5(iv) Projects for which a public agency provides direct or indirect
6long-term financial support for at least 15 percent of the total
7project development costs or projects for which the owner’s equity
8constitutes at least 30 percent of the total project development
9costs.

10(v) Projects that provide tenant amenities not generally available
11to residents of low-income housing projects.

12(4) For purposes of allocating credits pursuant to this section,
13the committee shall not give preference to any project by virtue
14of the date of submission of its application.

15(k) Section 42(l) of the Internal Revenue Code shall be modified
16as follows:

17The term “secretary” shall be replaced by the term “California
18Franchise Tax Board.”

19(l) In the case where the credit allowed under this section
20exceeds the net tax, the excess credit may be carried over to reduce
21the net tax in the following year, and succeeding taxable years, if
22necessary, until the credit has been exhausted.

23(m) A project that received an allocation of a 1989 federal
24housing credit dollar amount shall be eligible to receive an
25allocation of a 1990 state housing credit dollar amount, subject to
26all of the following conditions:

27(1) The project was not placed in service prior to 1990.

28(2) To the extent the amendments made to this section by the
29Statutes of 1990 conflict with any provisions existing in this section
30prior to those amendments, the prior provisions of law shall prevail.

31(3) Notwithstanding paragraph (2), a project applying for an
32allocation under this subdivision shall be subject to the
33requirements of paragraph (3) of subdivision (j).

34(n) The credit period with respect to an allocation of credit in
351989 by the California Tax Credit Allocation Committee of which
36any amount is attributable to unallocated credit from 1987 or 1988
37shall not begin until after December 31, 1989.

38(o) The provisions of Section 11407(a) of Public Law 101-508,
39relating to the effective date of the extension of the low-income
40housing credit, shall apply to calendar years after 1989.

P23   1(p) The provisions of Section 11407(c) of Public Law 101-508,
2relating to election to accelerate credit, shall not apply.

3(q) Any unused credit may continue to be carried forward, as
4provided in subdivision (l), until the credit has been exhausted.

5This section shall remain in effect on and after December 1,
61990, for as long as Section 42 of the Internal Revenue Code,
7relating to low-income housing credits, remains in effect.

8(r) The amendments to this sectionbegin insert madeend insert by the act adding this
9subdivision shall apply only to taxable years beginning on or after
10January 1, 1994.

11

SEC. 3.  

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

13

23610.5.  

(a) (1) There shall be allowed as a credit against the
14“tax” (as defined by Section 23036) a state low-income housing
15tax credit in an amount equal to the amount determined in
16subdivision (c), computed in accordance with Section 42 of the
17Internal Revenue Code of 1986, except as otherwise provided in
18this section.

19(2) “Taxpayer,” for purposes of this section, means the sole
20owner in the case of a “C” corporation, the partners in the case of
21a partnership, and the shareholders in the case of an “S”
22corporation.

23(3) “Housing sponsor,” for purposes of this section, means the
24sole owner in the case of a “C” corporation, the partnership in the
25case of a partnership, and the “S” corporation in the case of an “S”
26corporation.

27(b) (1) The amount of the credit allocated to any housing
28sponsor shall be authorized by the California Tax Credit Allocation
29Committee, or any successor thereof, based on a project’s need
30for the credit for economic feasibility in accordance with the
31requirements of this section.

32(A) The low-income housing project shall be located in
33California and shall meet either of the following requirements:

34(i) Except for projects to provide farmworker housing, as defined
35in subdivision (h) of Section 50199.7 of the Health and Safety
36Code, that are allocated credits solely under the set-aside described
37in subdivision (c) of Section 50199.20 of the Health and Safety
38Code, the project’s housing sponsor has been allocated by the
39California Tax Credit Allocation Committee a credit for federal
P24   1income tax purposes under Section 42 of the Internal Revenue
2Code.

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

5(B) The California Tax Credit Allocation Committee shall not
6require fees for the credit under this section in addition to those
7fees required for applications for the tax credit pursuant to Section
842 of the Internal Revenue Code. The committee may require a
9fee if the application for the credit under this section is submitted
10in a calendar year after the year the application is submitted for
11the federal tax credit.

12(C) (i) For a project that receives a preliminary reservation of
13the state low-income housing tax credit, allowed pursuant to
14subdivision (a), on or after January 1, 2009, and before January 1,
152016, the credit shall be allocated to the partners of a partnership
16owning the project in accordance with the partnership agreement,
17regardless of how the federal low-income housing tax credit with
18respect to the project is allocated to the partners, or whether the
19allocation of the credit under the terms of the agreement has
20substantial economic effect, within the meaning of Section 704(b)
21of the Internal Revenue Code.

22(ii) To the extent the allocation of the credit to a partner under
23this section lacks substantial economic effect, any loss or deduction
24otherwise allowable under this part that is attributable to the sale
25or other disposition of that partner’s partnership interest made prior
26to the expiration of the federal credit shall not be allowed in the
27taxable year in which the sale or other disposition occurs, but shall
28instead be deferred until and treated as if it occurred in the first
29taxable year immediately following the taxable year in which the
30federal credit period expires for the project described in clause (i).

31(iii) This subparagraph shall not apply to a project that receives
32a preliminary reservation of state low-income housing tax credits
33under the set-aside described in subdivision (c) of Section 50199.20
34of the Health and Safety Code unless the project also receives a
35preliminary reservation of federal low-income housing tax credits.

36(iv) This subparagraph shall cease to be operative with respect
37to any project that receives a preliminary reservation of a credit
38on or after January 1, 2016.

P25   1(2) (A) The California Tax Credit Allocation Committee shall
2certify to the housing sponsor the amount of tax credit under this
3section allocated to the housing sponsor for each credit period.

4(B) In the case of a partnership or an “S” corporation, the
5housing sponsor shall provide a copy of the California Tax Credit
6Allocation Committee certification to the taxpayer.

7(C) The taxpayer shall, upon request, provide a copy of the
8certification to the Franchise Tax Board.

9(D) All elections made by the taxpayer pursuant to Section 42
10of the Internal Revenue Code shall apply to this section.

11(E) (i) Except as described in clause (ii), for buildings located
12in designated difficult development areas (DDAs) or qualified
13census tracts (QCTs)begin insert,end insert as defined in Section 42(d)(5)(B) of the
14Internal Revenue Code, credits may be allocated under this section
15in the amounts prescribed in subdivision (c), provided that the
16amount of credit allocated under Section 42 of the Internal Revenue
17Code is computed on 100 percent of the qualified basis of the
18building.

19(ii) Notwithstanding clause (i), the California Tax Credit
20Allocation Committee maybegin delete allocatedend deletebegin insert allocateend insert the credit for
21buildings located in DDAs or QCTs that are restricted to having
22begin delete 100end deletebegin insert 50end insert percent of its occupants be special needs households, as
23defined in the California Code of Regulations by the California
24Tax Credit Allocation Committee, even if the taxpayer receives
25federal credits pursuant to Section 42(d)(5)(B) of the Internal
26Revenue Code, provided that the credit allowed under this section
27shall not exceed 30 percent of the eligible basis of the building.

28(iii) (I) The California Tax Credit Allocation Committee may
29allocate a credit under this section in exchange for a credit allocated
30pursuant to Section 42(d)(5)(B) of the Internal Revenue Code in
31amounts up to 30 percent of the eligible basis of a building if the
32credits allowedbegin insert underend insert Section 42 of the Internal Revenue Code
33are reduced by an equivalent amount.

34(II) begin deleteEquivalent amounts end deletebegin insertAn equivalent amount end insertshall be
35determined by the California Tax Credit Allocation Committee
36based upon the relative begin deleteamounts end deletebegin insertamount end insert required to produce an
37equivalentbegin insert stateend insert tax credit to the taxpayer.

38(c) Section 42(b) of the Internal Revenue Code shall be modified
39as follows:

P26   1(1) In the case of any qualified low-income building placed in
2service by the housing sponsor during 1987, the term “applicable
3percentage” means 9 percent for each of the first three years and
43 percent for the fourth year for new buildings (whether or not the
5building is federally subsidized) and for existing buildings.

6(2) In the case of any qualified low-income building that receives
7an allocation after 1989 and is a new building not federally
8subsidized, the term “applicable percentage” means the following:

9(A) For each of the first three years, the percentage prescribed
10by the Secretary of the Treasury for new buildings that are not
11federally subsidized for the taxable year, determined in accordance
12with the requirements of Section 42(b)(2) of the Internal Revenue
13Code, in lieu of the percentage prescribed in Section 42(b)(1)(A)
14begin insert of the Internal Revenue Codeend insert.

15(B) For the fourth year, the difference between 30 percent and
16the sum of the applicable percentages for the first three years.

17(3) In the case of any qualified low-income building that receives
18an allocation after 1989 and that is a new building that is federally
19subsidized or that is an existing building that is “at risk of
20conversion,” 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 federally
23subsidized for the taxable year.

24(B) For the fourth year, the difference between 13 percent and
25the sum of the applicable percentages for the first three years.

26(4) For purposes of this section, the term “at risk of conversion,”
27with respect to an existing property means a property that satisfies
28all of the following criteria:

29(A) The property is a multifamily rental housing development
30in which at least 50 percent of the units receive governmental
31assistance pursuant to any of the following:

32(i) New construction, substantial rehabilitation, moderate
33 rehabilitation, property disposition, and loan management set-aside
34programs, or any other program providing project-based assistance
35pursuant to Section 8 of the United States Housing Act of 1937,
36Section 1437f of Title 42 of the United States Code, as amended.

37(ii) The Below-Market-Interest-Rate Program pursuant to
38Section 221(d)(3) of the National Housing Act, Sections
391715l(d)(3) and (5) of Title 12 of the United States Code.

P27   1(iii) Section 236 of the National Housing Act, Section 1715z-1
2of Title 12 of the United States Code.

3(iv) Programs for rent supplement assistance pursuant to Section
4101 of the Housing and Urban Development Act of 1965, Section
51701s of Title 12 of the United States Code, as amended.

6(v) Programs pursuant to Section 515 of the Housing Act of
71949, Section 1485 of Title 42 of the United States Code, as
8amended.

9(vi) The low-income housing credit program set forth in Section
1042 of the Internal Revenue Code.

11(B) The restrictions on rent and income levels will terminate or
12the federally insured mortgage on the property is eligible for
13prepayment any time within five years before or after the date of
14application to the California Tax Credit Allocation Committee.

15(C) The entity acquiring the property enters into a regulatory
16agreement that requires the property to be operated in accordance
17with the requirements of this section for a period equal to the
18greater of 55 years or the life of the property.

19(D) The property satisfies the requirements of Section 42(e) of
20the Internal Revenue Code regarding rehabilitation expenditures,
21except that the provisions of Section 42(e)(3)(A)(ii)(I) shall not
22apply.

23(d) The term “qualified low-income housing project” as defined
24in Section 42(c)(2) of the Internal Revenue Code is modified by
25adding the following requirements:

26(1) The taxpayer shall be entitled to receive a cash distribution
27from the operations of the project, after funding required reserves,
28begin deletewhich, end deletebegin insertthat end insertat the election of the taxpayer,begin delete shall beend deletebegin insert isend insert equal to:

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

30(i) The owner equity,begin delete whichend deletebegin insert thatend insert shall include the amount of
31the capital contributions actually paid to the housing sponsor and
32shall not include any amounts until they are paid on an investor
33note.

34(ii) Twenty percent of the adjusted basis of the building as of
35the close of the first taxable year of the credit period.

36(B) The amount of the cashflow from those units in the building
37that are not low-income units. For purposes of computing cashflow
38under this subparagraph, operating costs shall be allocated to the
39low-income units using the “floor space fraction,” as defined in
40Section 42 of the Internal Revenue Code.

P28   1(C) Any amount allowed to be distributed under subparagraph
2(A) that is not available for distribution during the first five years
3of the compliance period maybegin delete accumulateend deletebegin insert be accumulatedend insert andbegin delete beend delete
4 distributed begin deleteat end deleteany time during the first 15 years of the compliance
5period but not thereafter.

6(2) The limitation on return shall apply in the aggregate to the
7 partners if the housing sponsor is a partnership and in the aggregate
8to the shareholders if the housing sponsor is an “S” corporation.

9(3) The housing sponsor shall apply any cash available for
10distribution in excess of the amount eligible to be distributed under
11paragraph (1) to reduce the rent on rent-restricted units or to
12increase the number of rent-restricted units subject to the tests of
13Section 42(g)(1) of the Internal Revenue Code.

14(e) The provisions of Section 42(f) of the Internal Revenue Code
15shall be modified as follows:

16(1) The term “credit period” as defined in Section 42(f)(1) of
17the Internal Revenue Code is modified by substituting “four taxable
18years” for “10 taxable years.”

19(2) The special rule for the first taxable year of the credit period
20under Section 42(f)(2) of the Internal Revenue Code shall not apply
21to the tax credit under this section.

22(3) Section 42(f)(3) of the Internal Revenue Code is modified
23to read:

24If, as of the close of any taxable year in the compliance period,
25after the first year of the credit period, the qualified basis of any
26building exceeds the qualified basis of that building as of the close
27of the first year of the credit period, the housing sponsor, to the
28extent of its tax credit allocation, shall be eligible for a credit on
29the excess in an amount equal to the applicable percentage
30determined pursuant to subdivision (c) for the four-year period
31beginning with the later of the taxable years in which the increase
32in qualified basis occurs.

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

35(1) Section 42(h)(2) of the Internal Revenue Code shall not be
36applicable and instead the following provisions shall be applicable:

37The total amount for the four-year credit period of the housing
38credit dollars allocated in a calendar year to any building shall
39reduce the aggregate housing credit dollar amount of the California
P29   1Tax Credit Allocation Committee for the calendar year in which
2the allocation is made.

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

6(g) The aggregate housing credit dollar amount that may be
7allocated annually by the California Tax Credit Allocation
8Committee pursuant to this section, Section 12206, and Section
917058 shall be an amount equal to the sum of all the following:

10(1) Seventy million dollars ($70,000,000) for the 2001 calendar
11year, and, for the 2002 calendar year and each calendar year
12thereafter, seventy million dollars ($70,000,000) increased by the
13percentage, if any, by which the Consumer Price Index for the
14preceding calendar year exceeds the Consumer Price Index for the
152001 calendar year. For the purposes of this paragraph, the term
16“Consumer Price Index” means the last Consumer Price Index for
17all urban consumers published by the federal Department of Labor.

18(2) The unused housing credit ceiling, if any, for the preceding
19calendar years.

20(3) The amount of housing credit ceiling returned in the calendar
21year. For purposes of this paragraph, the amount of housing credit
22dollar amount returned in the calendar year equals the housing
23credit dollar amount previously allocated to any project that does
24not become a qualified low-income housing project within the
25period required by this section or to any project with respect to
26which an allocation is canceled by mutual consent of the California
27Tax Credit Allocation Committee and the allocation recipient.

28(4) Five hundred thousand dollars ($500,000) per calendar year
29for projects to provide farmworker housing, as defined in
30subdivision (h) of Section 50199.7 of the Health and Safety Code.

31(5) The amount of any unallocated or returned credits under
32former Sections 17053.14, 23608.2, and 23608.3, as those sections
33read prior to January 1, 2009, until fully exhausted for projects to
34provide farmworker housing, as defined in subdivision (h) of
35Section 50199.7 of the Health and Safety Code.

36(h) The term “compliance period” as defined in Section 42(i)(1)
37of the Internal Revenue Code is modified to mean, with respect to
38any building, the period of 30 consecutive taxable years beginning
39with the first taxable year of the credit period with respect thereto.

P30   1(i) Section 42(j) of the Internal Revenue Code shall not be
2applicable and the following shall be substituted in its place:

3The requirements of this section shall be set forth in a regulatory
4agreement between the California Tax Credit Allocation Committee
5and the housing sponsor, and this agreement shall be subordinated,
6when required, to any lien or encumbrance of any banks or other
7institutional lenders to the project. The regulatory agreement
8entered into pursuant to subdivision (f) of Section 50199.14 of the
9Health and Safety Code shall apply, provided that the agreement
10includes all of the following provisions:

11(1) A term not less than the compliance period.

12(2) A requirement that the agreement be filed in the official
13records of the county in which the qualified low-income housing
14project is located.

15(3) A provision stating which state and local agencies can
16enforce the regulatory agreement in the event the housing sponsor
17fails to satisfy any of the requirements of this section.

18(4) A provision that the regulatory agreement shall be deemed
19a contract enforceable by tenants as third-party beneficiaries
20thereto, and that allows individuals, whether prospective, present,
21or former occupants of the building, who meet the income
22limitation applicable to the building the right to enforce the
23regulatory agreement in any state court.

24(5) A provision incorporating the requirements of Section 42
25of the Internal Revenue Code as modified by this section.

26(6) A requirement that the housing sponsor notify the California
27Tax Credit Allocation Committee or its designee if there is a
28determination by the Internal Revenue Service that the project is
29not in compliance with Section 42(g) of the Internal Revenue Code.

30(7) A requirement that the housing sponsor, as security for the
31performance of the housing sponsor’s obligations under the
32regulatory agreement, assign the housing sponsor’s interest in rents
33that it receives from the project, provided that until there is a
34default under the regulatory agreement, the housing sponsor is
35entitled to collect and retain the rents.

36(8) A provision that the remedies available in the event of a
37default under the regulatory agreement that is not cured within a
38reasonable cure period include, but are not limited to, allowing
39any of the parties designated to enforce the regulatory agreement
40to collect all rents with respect to the project; taking possession of
P31   1the project and operating the project in accordance with the
2regulatory agreement until the enforcer determines the housing
3sponsor is in a position to operate the project in accordance with
4the regulatory agreement; applying to any court for specific
5performance; securing the appointment of a receiver to operate
6the project; or any other relief as may be appropriate.

7(j) (1) The committee shall allocate the housing credit on a
8regular basis consisting of two or more periods in each calendar
9year during which applications may be filed and considered. The
10committee shall establish application filing deadlines, the maximum
11 percentage of federal and state low-income housing tax credit
12ceiling that may be allocated by the committee in that period, and
13the approximate date on which allocations shall be made. If the
14enactment of federal or state law, the adoption of rules or
15regulations, or other similar events prevent the use of two allocation
16periods, the committee may reduce the number of periods and
17adjust the filing deadlines, maximum percentage of credit allocated,
18and allocation dates.

19(2) The committee shall adopt a qualified allocation plan, as
20provided in Section 42(m)(1) of the Internal Revenue Code. In
21adopting this plan, the committee shall comply with the provisions
22of Sections 42(m)(1)(B) and 42(m)(1)(C) of the Internal Revenue
23Code.

24(3) Notwithstanding Section 42(m) of the Internal Revenue
25Code, the California Tax Credit Allocation Committee shall
26allocate housing credits in accordance with the qualified allocation
27plan and regulations, which shall include the following provisions:

28(A) All housing sponsors, as defined by paragraph (3) of
29subdivision (a), shall demonstrate at the time the application is
30filed with the committee that the project meets the following
31threshold requirements:

32(i) The housing sponsor shall demonstrate that there is a need
33for low-income housing in the community or region for which it
34is proposed.

35(ii) The project’s proposed financing, including tax credit
36proceeds, shall be sufficient to complete the project and shall be
37adequate to operate the project for the extended use period.

38(iii) The project shall have enforceable financing commitments,
39either construction or permanent financing, for at least 50 percent
40of the total estimated financing of the project.

P32   1(iv) The housing sponsor shall have and maintain control of the
2site for the project.

3(v) The housing sponsor shall demonstrate that the project
4complies with all applicable local land use and zoning ordinances.

5(vi) The housing sponsor shall demonstrate that the project
6development team has the experience and the financial capacity
7to ensure project completion and operation for the extended use
8period.

9(vii) The housing sponsor shall demonstrate the amount of tax
10credit that is necessary for the financial feasibility of the project
11and its viability as a qualified low-income housing project
12throughout the extended use period, taking into account operating
13expenses, a supportable debt service, reserves, funds set aside for
14rental subsidies, and required equity, and a development fee that
15does not exceed a specified percentage of the eligible basis of the
16project prior to inclusion of the development fee in the eligible
17basis, as determined by the committee.

18(B) The committee shall give a preference to those projects
19satisfying all of the threshold requirements of subparagraph (A)
20if both of the following apply:

21(i) The project serves the lowest income tenants at rents
22affordable to those tenants.

23(ii) The project is obligated to serve qualified tenants for the
24longest period.

25(C) In addition to the provisions of subparagraphs (A) and (B),
26the committee shall use the following criteria in allocating housing
27credits:

28(i) Projects serving large families in which a substantial number,
29as defined by the committee, of all residential units are low-income
30units with three and more bedrooms.

31(ii) Projects providing single-room occupancy units serving
32very low income tenants.

33(iii) Existing projects that are “at risk of conversion,” as defined
34by paragraph (4) of subdivision (c).

35(iv) Projects for which a public agency provides direct or indirect
36long-term financial support for at least 15 percent of the total
37project development costs or projects for which the owner’s equity
38constitutes at least 30 percent of the total project development
39costs.

P33   1(v) Projects that provide tenant amenities not generally available
2to residents of low-income housing projects.

3(4) For purposes of allocating credits pursuant to this section,
4the committee shall not give preference to any project by virtue
5of the date of submission of its application except to break a tie
6when two or more of the projects have an equal rating.

7(5) Not less than 20 percent of the low-income housing tax
8credits available annually under this section, Section 12206, and
9Section 17058 shall be set aside for allocation to rural areas as
10defined in Section 50199.21 of the Health and Safety Code. Any
11amount of credit set aside for rural areas remaining on or after
12October 31 of any calendar year shall be available for allocation
13to any eligible project. No amount of credit set aside for rural areas
14shall be considered available for any eligible project so long as
15there are eligible rural applications pending on October 31.

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

18The term “secretary” shall be replaced by the term “California
19Franchise Tax Board.”

20(l) In the case where the state credit allowed under this section
21exceeds the “tax,” the excess may be carried over to reduce the
22“tax” in the following year, and succeeding years if necessary,
23until the credit has been exhausted.

24(m) A project that received an allocation of a 1989 federal
25housing credit dollar amount shall be eligible to receive an
26allocation of a 1990 state housing credit dollar amount, subject to
27all of the following conditions:

28(1) The project was not placed in service prior to 1990.

29(2) To the extent the amendments made to this section by the
30Statutes of 1990 conflict with any provisions existing in this section
31prior to those amendments, the prior provisions of law shall prevail.

32(3) Notwithstanding paragraph (2), a project applying for an
33allocation under this subdivision shall be subject to the
34requirements of paragraph (3) of subdivision (j).

35(n) The credit period with respect to an allocation of credit in
361989 by the California Tax Credit Allocation Committee of which
37any amount is attributable to unallocated credit from 1987 or 1988
38shall not begin until after December 31, 1989.

P34   1(o) The provisions of Section 11407(a) of Public Law 101-508,
2relating to the effective date of the extension of the low-income
3housing credit, shall apply to calendar years after 1989.

4(p) The provisions of Section 11407(c) of Public Law 101-508,
5relating to election to accelerate credit, shall not apply.

6(q) (1) A corporation may elect to assign any portion of any
7credit allowed under this section to one or more affiliated
8corporations for each taxable year in which the credit is allowed.
9For purposes of this subdivision, “affiliated corporation” has the
10meaning provided in subdivision (b) of Section 25110, as that
11section was amended by Chapter 881 of the Statutes of 1993, as
12of the last day of the taxable year in which the credit is allowed,
13except that “100 percent” is substituted for “more than 50 percent”
14wherever it appears in the section, as that section was amended by
15Chapter 881 of the Statutes of 1993, and “voting common stock”
16is substituted for “voting stock” wherever it appears in the section,
17as that section was amended by Chapter 881 of the Statutes of
181993.

19(2) The election provided in paragraph (1):

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

22(B) Shall be irrevocable for the taxable year the credit is allowed,
23once made.

24(C) May be changed for any subsequent taxable year if the
25election to make the assignment is expressly shown on each of the
26returns of the affiliated corporations that assign and receive the
27credits.

28(r) Any unused credit may continue to be carried forward, as
29provided in subdivision (l), until the credit has been exhausted.

30This section shall remain in effect onbegin delete orend deletebegin insert andend insert after December 1,
311990, for as long as Section 42 of the Internal Revenue Code,
32relating to low-income housing credits, remains in effect.

33(s) The amendments to this section made by the act adding this
34subdivision shall apply only to taxable years beginning on or after
35January 1, 1994, except that paragraph (1) of subdivision (q), as
36amended, shall apply to taxable years beginning on or after January
371, 1993.

P35   1

SEC. 4.  

This act provides for a tax levy within the meaning of
2Article IV of the Constitution and shall go into immediate effect.



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