Amended in Senate June 26, 2013

Amended in Assembly May 2, 2013

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, under the 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 50% 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 described 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.

P3    1(3) “Housing sponsor,” for purposes of this section, means the
2sole owner in the case of a “C” corporation, the partnership in the
3case of a partnership, and the “S” corporation in the case of an “S”
4corporation.

5(b) (1) The amount of the credit allocated to any housing
6sponsor shall be authorized by the California Tax Credit Allocation
7Committee, or any successor thereof, based on a project’s need
8for the credit for economic feasibility in accordance with the
9requirements of this section.

10(A) Except for projects to provide farmworker housing, as
11defined in subdivision (h) of Section 50199.7 of the Health and
12Safety Code, that are allocated credits solely under the set-aside
13described in subdivision (c) of Section 50199.20 of the Health and
14Safety Code, the low-income housing project shall be located in
15California and shall meet either of the following requirements:

16(i) The project’s housing sponsor shall have been allocated by
17the California Tax Credit Allocation Committee a credit for federal
18income tax purposes under Section 42 of the Internal Revenue
19Code.

20(ii) It shall qualify for a credit under Section 42(h)(4)(B) of the
21Internal Revenue Code.

22(B) The California Tax Credit Allocation Committee shall not
23require fees for the credit under this section in addition to those
24fees required for applications for the tax credit pursuant to Section
2542 of the Internal Revenue Code. The committee may require a
26fee if the application for the credit under this section is submitted
27in a calendar year after the year the application is submitted for
28the federal tax credit.

29(C) (i) For a project that receives a preliminary reservation of
30the state low-income housing tax credit, allowed pursuant to
31subdivision (a), on or after January 1, 2009, and before January 1,
32 2016, the credit shall be allocated to the partners of a partnership
33owning the project in accordance with the partnership agreement,
34regardless of how the federal low-income housing tax credit with
35respect to the project is allocated to the partners, or whether the
36allocation of the credit under the terms of the agreement has
37substantial economic effect, within the meaning of Section 704(b)
38of the Internal Revenue Code.

39(ii) This subparagraph shall not apply to a project that receives
40a preliminary reservation of state low-income housing tax credits
P4    1under the set-aside described in subdivision (c) of Section 50199.20
2of the Health and Safety Code unless the project also receives a
3preliminary reservation of federal low-income housing tax credits.

4(iii) This subparagraph shall cease to be operative with respect
5to any project that receives a preliminary reservation of a credit
6on or after January 1, 2016.

7(2) (A) The California Tax Credit Allocation Committee shall
8certify to the housing sponsor the amount of tax credit under this
9section allocated to the housing sponsor for each credit period.

10(B) In the case of a partnership or an “S” corporation, the
11housing sponsor shall provide a copy of the California Tax Credit
12Allocation Committee certification to the taxpayer.

13(C) The taxpayer shall attach a copy of the certification to any
14return upon which a tax credit is claimed under this section.

15(D) In the case of a failure to attach a copy of the certification
16for the year to the return in which a tax credit is claimed under this
17section, no credit under this section shall be allowed for that year
18until a copy of that certification is provided.

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

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

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

begin delete

38(iii) (I)

end delete

39begin insert(G)end insertbegin insertend insertbegin insert(i)end insert The California Tax Credit Allocation Committee may
40allocate a credit under this section in exchange for a credit allocated
P5    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 allowed under Section 42 of the Internal Revenue Code are
4reduced by an equivalent amount.

begin delete

3 5(II)

end delete

6begin insert(ii)end insert An equivalent amount shall be determined by the California
7Tax Credit Allocation Committee based upon the relative amount
8 required to produce an equivalent state 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 that receives
12an allocation after 1989 and is a new building not federally
13subsidized, the term “applicable percentage” means the following:

14(A) For each of the first three years, the percentage prescribed
15by the Secretary of the Treasury for new buildings that are not
16federally subsidized for the taxable year, determined in accordance
17with the requirements of Section 42(b)(2) of the Internal Revenue
18Code, in lieu of the percentage prescribed in Section 42(b)(1)(A)
19of the Internal Revenue Code.

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

22(2) In the case of any qualified low-income building that receives
23an allocation after 1989 and that is a new building that is federally
24subsidized or that is an existing building that is “at risk of
25conversion,” the term “applicable percentage” means the following:

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

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

31(3) For purposes of this section, the term “at risk of conversion,”
32with respect to an existing property means a property that satisfies
33all of the following criteria:

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

37(i) New construction, substantial rehabilitation, moderate
38rehabilitation, property disposition, and loan management set-aside
39programs, or any other program providing project-based assistance
P6    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 federal 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, is 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.

P7    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 any
9time 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
12partners 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:

P8    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 17058, and Section
1423610.5 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
23Labor.

24(2) The unused housing credit ceiling, if any, for the preceding
25calendar years.

26(3) The amount of housing credit ceiling returned in the calendar
27year. For purposes of this paragraph, the amount of housing credit
28dollar amount returned in the calendar year equals the housing
29credit dollar amount previously allocated to any project that does
30not become a qualified low-income housing project within the
31period required by this section or to any project with respect to
32which an allocation is canceled by mutual consent of the California
33Tax Credit Allocation Committee and the allocation recipient.

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

37(5) The amount of any unallocated or returned credits under
38former Sections 17053.14, 23608.2, and 23608.3, as those sections
39read prior to January 1, 2009, until fully exhausted for projects to
P9    1provide farmworker housing, as defined in subdivision (h) of
2Section 50199.7 of the Health and Safety Code.

3(h) The term “compliance period” as defined in Section 42(i)(1)
4of the Internal Revenue Code is modified to mean, with respect to
5any building, the period of 30 consecutive taxable years beginning
6with the first taxable year of the credit period with respect thereto.

7(i) (1) Section 42(j) of the Internal Revenue Code shall not be
8applicable and the provisions in paragraph (2) shall be substituted
9in its place.

10(2) The requirements of this section shall be set forth in a
11regulatory agreement between the California Tax Credit Allocation
12Committee and the housing sponsor, which agreement shall be
13subordinated, when required, to any lien or encumbrance of any
14banks or other institutional lenders to the project. The regulatory
15agreement entered into pursuant to subdivision (f) of Section
1650199.14 of the Health and Safety Code, shall apply, providing
17the agreement includes all of the following provisions:

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

19(B) A requirement that the agreement be recorded in the official
20records of the county in which the qualified low-income housing
21project is located.

22(C) A provision stating which state and local agencies can
23enforce the regulatory agreement in the event the housing sponsor
24fails to satisfy any of the requirements of this section.

25(D) A provision that the regulatory agreement shall be deemed
26a contract enforceable by tenants as third-party beneficiaries thereto
27and which allows individuals, whether prospective, present, or
28former occupants of the building, who meet the income limitation
29applicable to the building, the right to enforce the regulatory
30agreement in any state court.

31(E) A provision incorporating the requirements of Section 42
32of the Internal Revenue Code as modified by this section.

33(F) A requirement that the housing sponsor notify the California
34Tax Credit Allocation Committee or its designee and the local
35agency that can enforce the regulatory agreement if there is a
36determination by the Internal Revenue Service that the project is
37not in compliance with Section 42(g) of the Internal Revenue Code.

38(G) A requirement that the housing sponsor, as security for the
39performance of the housing sponsor’s obligations under the
40regulatory agreement, assign the housing sponsor’s interest in rents
P10   1that it receives from the project, provided that until there is a
2default under the regulatory agreement, the housing sponsor is
3entitled to collect and retain the rents.

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

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

27(2) The committee shall adopt a qualified allocation plan, as
28provided in Section 42(m)(1) of the Internal Revenue Code. In
29adopting this plan, the committee shall comply with the provisions
30of Sections 42(m)(1)(B) and 42(m)(1)(C) of the Internal Revenue
31Code.

32(3) Notwithstanding Section 42(m) of the Internal Revenue
33Code, the California Tax Credit Allocation Committee shall
34allocate housing credits in accordance with the qualified allocation
35plan and regulations, which shall include the following provisions:

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

P11   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.

P12   1(ii) Projects providing single-room occupancy units serving
2very low income tenants.

3(iii) Existing projects that are “at risk of conversion,” as defined
4by paragraph (3) 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 except to break a tie
15when two or more of the projects have an equal rating.

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) The provisions of Section 11407(a) of Public Law 101-508,
25relating to the effective date of the extension of the low-income
26housing credit, shall apply to calendar years after 1993.

27(n) The provisions of Section 11407(c) of Public Law 101-508,
28relating to election to accelerate credit, shall not apply.

29(o) This section shall remain in effect for as long as Section 42
30of the Internal Revenue Code, relating to low-income housing
31credits, remains in effect.

32

SEC. 2.  

Section 17058 of the Revenue and Taxation Code is
33amended to read:

34

17058.  

(a) (1) There shall be allowed as a credit against the
35“net tax” (as defined in Section 17039) a state low-income housing
36credit in an amount equal to the amount determined in subdivision
37(c), computed in accordance with the provisions of Section 42 of
38the Internal Revenue Code, except as otherwise provided in this
39section.

P13   1(2) “Taxpayer” for purposes of this section means the sole owner
2in the case of an individual, the partners in the case of a partnership,
3and the shareholders in the case of an “S” corporation.

4(3) “Housing sponsor” for purposes of this section means the
5sole owner in the case of an individual, the partnership in the case
6of a partnership, and the “S” corporation in the case of an “S”
7corporation.

8(b) (1) The amount of the credit allocated to any housing
9sponsor shall be authorized by the California Tax Credit Allocation
10Committee, or any successor thereof, based on a project’s need
11for the credit for economic feasibility in accordance with the
12requirements of this section.

13(A) The low-income housing project shall be located in
14California and shall meet either of the following requirements:

15(i) Except for projects to provide farmworker housing, as defined
16in subdivision (h) of Section 50199.7 of the Health and Safety
17Code, that are allocated credits solely under the set-aside described
18in subdivision (c) of Section 50199.20 of the Health and Safety
19Code, the project’s housing sponsor has been allocated by the
20California Tax Credit Allocation Committee a credit for federal
21income tax purposes under Section 42 of the Internal Revenue
22Code.

23(ii) It qualifies for a credit under Section 42(h)(4)(B) of the
24Internal Revenue Code.

25(B) The California Tax Credit Allocation Committee shall not
26require fees for the credit under this section in addition to those
27fees required for applications for the tax credit pursuant to Section
2842 of the Internal Revenue Code. The committee may require a
29fee if the application for the credit under this section is submitted
30in a calendar year after the year the application is submitted for
31the federal tax credit.

32(C) (i) For a project that receives a preliminary reservation of
33the state low-income housing tax credit, allowed pursuant to
34subdivision (a), on or after January 1, 2009, and before January 1,
352016, the credit shall be allocated to the partners of a partnership
36owning the project in accordance with the partnership agreement,
37regardless of how the federal low-income housing tax credit with
38respect to the project is allocated to the partners, or whether the
39allocation of the credit under the terms of the agreement has
P14   1substantial economic effect, within the meaning of Section 704(b)
2of the Internal Revenue Code.

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

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

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

20(2) (A) The California Tax Credit Allocation Committee shall
21certify to the housing sponsor the amount of tax credit under this
22section allocated to the housing sponsor for each credit period.

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

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

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

30(E) (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.

38(ii) Notwithstanding clause (i), the California Tax Credit
39Allocation Committee may allocate the credit for buildings located
40in DDAs or QCTs that are restricted to having 50 percent of its
P15   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
5that the credit allowed under this section shall not exceed 30
6percent of the eligible basis of the building.

begin delete

7(iii) (I)

end delete

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

begin delete

9 14(II)

end delete

15begin insert(ii)end insert An equivalent amount shall be determined by the California
16Tax Credit Allocation Committee based upon the relative amount
17required to produce an equivalent state tax credit to the taxpayer.

18(c) Section 42(b) of the Internal Revenue Code shall be modified
19as follows:

20(1) In the case of any qualified low-income building placed in
21service by the housing sponsor during 1987, the term “applicable
22percentage” means 9 percent for each of the first three years and
233 percent for the fourth year for new buildings (whether or not the
24building is federally subsidized) and for existing buildings.

25(2) In the case of any qualified low-income building that receives
26an allocation after 1989 and is a new building not federally
27subsidized, the term “applicable percentage” means the following:

28(A) For each of the first three years, the percentage prescribed
29by the Secretary of the Treasury for new buildings that are not
30federally subsidized for the taxable year, determined in accordance
31with the requirements of Section 42(b)(2) of the Internal Revenue
32Code, in lieu of the percentage prescribed in Section 42(b)(1)(A)
33of the Internal Revenue Code.

34(B) For the fourth year, the difference between 30 percent and
35the sum of the applicable percentages for the first three years.

36(3) In the case of any qualified low-income building that receives
37an allocation after 1989 and that is a new building that is federally
38subsidized or that is an existing building that is “at risk of
39conversion,” 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
13rehabilitation, 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
26partners 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 that 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
36Labor.

37(2) The unused housing credit ceiling, if any, for the preceding
38calendar years.

39(3) The amount of housing credit ceiling returned in the calendar
40year. For purposes of this paragraph, the amount of housing credit
P19   1dollar amount returned in the calendar year equals the housing
2credit dollar amount previously allocated to any project that does
3not become a qualified low-income housing project within the
4period required by this section or to any project with respect to
5which an allocation is canceled by mutual consent of the California
6Tax Credit Allocation Committee and the allocation recipient.

7(4) Five hundred thousand dollars ($500,000) per calendar year
8for projects to provide farmworker housing, as defined in
9subdivision (h) of Section 50199.7 of the Health and Safety Code.

10(5) The amount of any unallocated or returned credits under
11former Sections 17053.14, 23608.2, and 23608.3, as those sections
12read prior to January 1, 2009, until fully exhausted for projects to
13provide farmworker housing, as defined in subdivision (h) of
14Section 50199.7 of the Health and Safety Code.

15(h) The term “compliance period” as defined in Section 42(i)(1)
16of the Internal Revenue Code is modified to mean, with respect to
17any building, the period of 30 consecutive taxable years beginning
18with the first taxable year of the credit period with respect thereto.

19(i) Section 42(j) of the Internal Revenue Code shall not be
20applicable and the following requirements of this section shall be
21set forth in a regulatory agreement between the California Tax
22Credit Allocation Committee and the housing sponsor, which
23agreement shall be subordinated, when required, to any lien or
24encumbrance of any banks or other institutional lenders to the
25project. The regulatory agreement entered into pursuant to
26subdivision (f) of Section 50199.14 of the Health and Safety Code
27shall apply, provided that the agreement includes all of the
28following provisions:

29(1) A term not less than the compliance period.

30(2) A requirement that the agreement be recorded in the official
31records of the county in which the qualified low-income housing
32project is located.

33(3) A provision stating which state and local agencies can
34enforce the regulatory agreement in the event the housing sponsor
35fails to satisfy any of the requirements of this section.

36(4) A provision that the regulatory agreement shall be deemed
37a contract enforceable by tenants as third-party beneficiaries thereto
38and that allows individuals, whether prospective, present, or former
39occupants of the building, who meet the income limitation
P20   1applicable to the building, the right to enforce the regulatory
2agreement in any state court.

3(5) A provision incorporating the requirements of Section 42
4of the Internal Revenue Code as modified by this section.

5(6) A requirement that the housing sponsor notify the California
6Tax Credit Allocation Committee or its designee if there is a
7determination by the Internal Revenue Service that the project is
8not in compliance with Section 42(g) of the Internal Revenue Code.

9(7) A requirement that the housing sponsor, as security for the
10performance of the housing sponsor’s obligations under the
11regulatory agreement, assign the housing sponsor’s interest in rents
12that it receives from the project, provided that until there is a
13default under the regulatory agreement, the housing sponsor is
14entitled to collect and retain the rents.

15(8) The remedies available in the event of a default under the
16regulatory agreement that is not cured within a reasonable cure
17period, include, but are not limited to, allowing any of the parties
18designated to enforce the regulatory agreement to collect all rents
19with respect to the project; taking possession of the project and
20operating the project in accordance with the regulatory agreement
21until the enforcer determines the housing sponsor is in a position
22to operate the project in accordance with the regulatory agreement;
23applying to any court for specific performance; securing the
24appointment of a receiver to operate the project; or any other relief
25as may be appropriate.

26(j) (1) The committee shall allocate the housing credit on a
27regular basis consisting of two or more periods in each calendar
28year during which applications may be filed and considered. The
29committee shall establish application filing deadlines, the maximum
30percentage of federal and state low-income housing tax credit
31ceiling that may be allocated by the committee in that period, and
32the approximate date on which allocations shall be made. If the
33enactment of federal or state law, the adoption of rules or
34regulations, or other similar events prevent the use of two allocation
35periods, the committee may reduce the number of periods and
36adjust the filing deadlines, maximum percentage of credit allocated,
37and the allocation dates.

38(2) The committee shall adopt a qualified allocation plan, as
39provided in Section 42(m)(1) of the Internal Revenue Code. In
40adopting this plan, the committee shall comply with the provisions
P21   1of Sections 42(m)(1)(B) and 42(m)(1)(C) of the Internal Revenue
2Code.

3(3) Notwithstanding Section 42(m) of the Internal Revenue
4Code, the California Tax Credit Allocation Committee shall
5allocate housing credits in accordance with the qualified allocation
6plan and regulations, which shall include the following provisions:

7(A) All housing sponsors, as defined by paragraph (3) of
8subdivision (a), shall demonstrate at the time the application is
9filed with the committee that the project meets the following
10threshold requirements:

11(i) The housing sponsor shall demonstrate there is a need and
12demand for low-income housing in the community or region for
13which it is proposed.

14(ii) The project’s proposed financing, including tax credit
15proceeds, shall be sufficient to complete the project and that the
16proposed operating income shall be adequate to operate the project
17for the extended use period.

18(iii) The project shall have enforceable financing commitments,
19either construction or permanent financing, for at least 50 percent
20of the total estimated financing of the project.

21(iv) The housing sponsor shall have and maintain control of the
22site for the project.

23(v) The housing sponsor shall demonstrate that the project
24complies with all applicable local land use and zoning ordinances.

25(vi) The housing sponsor shall demonstrate that the project
26development team has the experience and the financial capacity
27to ensure project completion and operation for the extended use
28period.

29(vii) The housing sponsor shall demonstrate the amount of tax
30credit that is necessary for the financial feasibility of the project
31and its viability as a qualified low-income housing project
32throughout the extended use period, taking into account operating
33expenses, a supportable debt service, reserves, funds set aside for
34rental subsidies and required equity, and a development fee that
35does not exceed a specified percentage of the eligible basis of the
36project prior to inclusion of the development fee in the eligible
37basis, as determined by the committee.

38(B) The committee shall give a preference to those projects
39satisfying all of the threshold requirements of subparagraph (A)
40if both of the following apply:

P22   1(i) The project serves the lowest income tenants at rents
2affordable to those tenants.

3(ii) The project is obligated to serve qualified tenants for the
4longest period.

5(C) In addition to the provisions of subparagraphs (A) and (B),
6the committee shall use the following criteria in allocating housing
7credits:

8(i) Projects serving large families in which a substantial number,
9as defined by the committee, of all residential units is comprised
10of low-income units with three and more bedrooms.

11(ii) Projects providing single-room occupancy units serving
12very low income tenants.

13(iii) Existing projects that are “at risk of conversion,” as defined
14by paragraph (4) of subdivision (c).

15(iv) Projects for which a public agency provides direct or indirect
16long-term financial support for at least 15 percent of the total
17project development costs or projects for which the owner’s equity
18constitutes at least 30 percent of the total project development
19costs.

20(v) Projects that provide tenant amenities not generally available
21to residents of low-income housing projects.

22(4) For purposes of allocating credits pursuant to this section,
23the committee shall not give preference to any project by virtue
24of the date of submission of its application.

25(k) Section 42(l) of the Internal Revenue Code shall be modified
26as follows:

27The term “secretary” shall be replaced by the term “California
28Franchise Tax Board.”

29(l) In the case where the credit allowed under this section
30exceeds the net tax, the excess credit may be carried over to reduce
31the net tax in the following year, and succeeding taxable years, if
32necessary, until the credit has been exhausted.

33(m) A project that received an allocation of a 1989 federal
34housing credit dollar amount shall be eligible to receive an
35allocation of a 1990 state housing credit dollar amount, subject to
36all of the following conditions:

37(1) The project was not placed in service prior to 1990.

38(2) To the extent the amendments made to this section by the
39Statutes of 1990 conflict with any provisions existing in this section
40prior 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 made 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) (i) Except as described in clause (ii), for buildings located
20in designated difficult development areas (DDAs) or qualified
21census tracts (QCTs), as defined in Section 42(d)(5)(B) of the
22Internal Revenue Code, credits may be allocated under this section
23in the amounts prescribed in subdivision (c), provided that the
24amount of credit allocated under Section 42 of the Internal Revenue
25Code is computed on 100 percent of the qualified basis of the
26building.

27(ii) Notwithstanding clause (i), the California Tax Credit
28Allocation Committee may allocate the credit for buildings located
29in DDAs or QCTs that are restricted to having 50 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
34that the credit allowed under this section shall not exceed 30
35percent of the eligible basis of the building.

begin delete

36(iii) (I)

end delete

37begin insert(G)end insertbegin insertend insertbegin insert(i)end insert The California Tax Credit Allocation Committee may
38allocate a credit under this section in exchange for a credit allocated
39pursuant to Section 42(d)(5)(B) of the Internal Revenue Code in
40amounts up to 30 percent of the eligible basis of a building if the
P26   1credits allowed under Section 42 of the Internal Revenue Code are
2reduced by an equivalent amount.

begin delete

P26 1 3(II)

end delete

4begin insert(ii)end insert An equivalent amount shall be determined by the California
5Tax Credit Allocation Committee based upon the relative amount
6required to produce an equivalent state tax credit to the taxpayer.

7(c) Section 42(b) of the Internal Revenue Code shall be modified
8as follows:

9(1) In the case of any qualified low-income building placed in
10service by the housing sponsor during 1987, the term “applicable
11percentage” means 9 percent for each of the first three years and
123 percent for the fourth year for new buildings (whether or not the
13building is federally subsidized) and for existing buildings.

14(2) In the case of any qualified low-income building that receives
15an allocation after 1989 and is a new building not federally
16subsidized, the term “applicable percentage” means the following:

17(A) For each of the first three years, the percentage prescribed
18by the Secretary of the Treasury for new buildings that are not
19federally subsidized for the taxable year, determined in accordance
20with the requirements of Section 42(b)(2) of the Internal Revenue
21Code, in lieu of the percentage prescribed in Section 42(b)(1)(A)
22of the Internal Revenue Code.

23(B) For the fourth year, the difference between 30 percent and
24the sum of the applicable percentages for the first three years.

25(3) In the case of any qualified low-income building that receives
26an allocation after 1989 and that is a new building that is federally
27subsidized or that is an existing building that is “at risk of
28conversion,” the term “applicable percentage” means the following:

29(A) For each of the first three years, the percentage prescribed
30by the Secretary of the Treasury for new buildings that are federally
31subsidized for the taxable year.

32(B) For the fourth year, the difference between 13 percent and
33the sum of the applicable percentages for the first three years.

34(4) For purposes of this section, the term “at risk of conversion,”
35with respect to an existing property means a property that satisfies
36all of the following criteria:

37(A) The property is a multifamily rental housing development
38in which at least 50 percent of the units receive governmental
39assistance pursuant to any of the following:

P27   1(i) New construction, substantial rehabilitation, moderate
2rehabilitation, property disposition, and loan management set-aside
3programs, or any other program providing project-based assistance
4pursuant to Section 8 of the United States Housing Act of 1937,
5Section 1437f of Title 42 of the United States Code, as amended.

6(ii) The Below-Market-Interest-Rate Program pursuant to
7Section 221(d)(3) of the National Housing Act, Sections
81715l(d)(3) and (5) of Title 12 of the United States Code.

9(iii) Section 236 of the National Housing Act, Section 1715z-1
10of Title 12 of the United States Code.

11(iv) Programs for rent supplement assistance pursuant to Section
12101 of the Housing and Urban Development Act of 1965, Section
131701s of Title 12 of the United States Code, as amended.

14(v) Programs pursuant to Section 515 of the Housing Act of
151949, Section 1485 of Title 42 of the United States Code, as
16amended.

17(vi) The low-income housing credit program set forth in Section
1842 of the Internal Revenue Code.

19(B) The restrictions on rent and income levels will terminate or
20the federally insured mortgage on the property is eligible for
21prepayment any time within five years before or after the date of
22application to the California Tax Credit Allocation Committee.

23(C) The entity acquiring the property enters into a regulatory
24agreement that requires the property to be operated in accordance
25with the requirements of this section for a period equal to the
26greater of 55 years or the life of the property.

27(D) The property satisfies the requirements of Section 42(e) of
28the Internal Revenue Code regarding rehabilitation expenditures,
29except that the provisions of Section 42(e)(3)(A)(ii)(I) shall not
30apply.

31(d) The term “qualified low-income housing project” as defined
32in Section 42(c)(2) of the Internal Revenue Code is modified by
33adding the following requirements:

34(1) The taxpayer shall be entitled to receive a cash distribution
35from the operations of the project, after funding required reserves,
36that at the election of the taxpayer, is equal to:

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

38(i) The owner equity, that shall include the amount of the capital
39contributions actually paid to the housing sponsor and shall not
40include any amounts until they are paid on an investor note.

P28   1(ii) Twenty percent of the adjusted basis of the building as of
2the close of the first taxable year of the credit period.

3(B) The amount of the cashflow from those units in the building
4that are not low-income units. For purposes of computing cashflow
5under this subparagraph, operating costs shall be allocated to the
6low-income units using the “floor space fraction,” as defined in
7Section 42 of the Internal Revenue Code.

8(C) Any amount allowed to be distributed under subparagraph
9(A) that is not available for distribution during the first five years
10of the compliance period may be accumulated and distributed any
11time during the first 15 years of the compliance period but not
12thereafter.

13(2) The limitation on return shall apply in the aggregate to the
14partners if the housing sponsor is a partnership and in the aggregate
15to the shareholders if the housing sponsor is an “S” corporation.

16(3) The housing sponsor shall apply any cash available for
17distribution in excess of the amount eligible to be distributed under
18paragraph (1) to reduce the rent on rent-restricted units or to
19increase the number of rent-restricted units subject to the tests of
20Section 42(g)(1) of the Internal Revenue Code.

21(e) The provisions of Section 42(f) of the Internal Revenue Code
22shall be modified as follows:

23(1) The term “credit period” as defined in Section 42(f)(1) of
24the Internal Revenue Code is modified by substituting “four taxable
25years” for “10 taxable years.”

26(2) The special rule for the first taxable year of the credit period
27under Section 42(f)(2) of the Internal Revenue Code shall not apply
28to the tax credit under this section.

29(3) Section 42(f)(3) of the Internal Revenue Code is modified
30to read:

31If, as of the close of any taxable year in the compliance period,
32after the first year of the credit period, the qualified basis of any
33building exceeds the qualified basis of that building as of the close
34of the first year of the credit period, the housing sponsor, to the
35extent of its tax credit allocation, shall be eligible for a credit on
36the excess in an amount equal to the applicable percentage
37determined pursuant to subdivision (c) for the four-year period
38beginning with the later of the taxable years in which the increase
39in qualified basis occurs.

P29   1(f) The provisions of Section 42(h) of the Internal Revenue
2Code shall be modified as follows:

3(1) Section 42(h)(2) of the Internal Revenue Code shall not be
4applicable and instead the following provisions shall be applicable:

5The total amount for the four-year credit period of the housing
6credit dollars allocated in a calendar year to any building shall
7reduce the aggregate housing credit dollar amount of the California
8Tax Credit Allocation Committee for the calendar year in which
9the allocation is made.

10(2) Paragraphs (3), (4), (5), (6)(E)(i)(II), (6)(F), (6)(G), (6)(I),
11(7), and (8) of Section 42(h) of the Internal Revenue Code shall
12not be applicable.

13(g) The aggregate housing credit dollar amount that may be
14allocated annually by the California Tax Credit Allocation
15Committee pursuant to this section, Section 12206, and Section
1617058 shall be an amount equal to the sum of all the following:

17(1) Seventy million dollars ($70,000,000) for the 2001 calendar
18year, and, for the 2002 calendar year and each calendar year
19thereafter, seventy million dollars ($70,000,000) increased by the
20percentage, if any, by which the Consumer Price Index for the
21preceding calendar year exceeds the Consumer Price Index for the
222001 calendar year. For the purposes of this paragraph, the term
23“Consumer Price Index” means the last Consumer Price Index for
24All Urban Consumers published by the federal Department of
25Labor.

26(2) The unused housing credit ceiling, if any, for the preceding
27calendar years.

28(3) The amount of housing credit ceiling returned in the calendar
29year. For purposes of this paragraph, the amount of housing credit
30dollar amount returned in the calendar year equals the housing
31credit dollar amount previously allocated to any project that does
32not become a qualified low-income housing project within the
33period required by this section or to any project with respect to
34which an allocation is canceled by mutual consent of the California
35Tax Credit Allocation Committee and the allocation recipient.

36(4) Five hundred thousand dollars ($500,000) per calendar year
37for projects to provide farmworker housing, as defined in
38subdivision (h) of Section 50199.7 of the Health and Safety Code.

39(5) The amount of any unallocated or returned credits under
40former Sections 17053.14, 23608.2, and 23608.3, as those sections
P30   1read prior to January 1, 2009, until fully exhausted for projects to
2provide farmworker housing, as defined in subdivision (h) of
3Section 50199.7 of the Health and Safety Code.

4(h) The term “compliance period” as defined in Section 42(i)(1)
5of the Internal Revenue Code is modified to mean, with respect to
6any building, the period of 30 consecutive taxable years beginning
7with the first taxable year of the credit period with respect thereto.

8(i) Section 42(j) of the Internal Revenue Code shall not be
9applicable and the following shall be substituted in its place:

10The requirements of this section shall be set forth in a regulatory
11agreement between the California Tax Credit Allocation Committee
12and the housing sponsor, and this agreement shall be subordinated,
13when required, to any lien or encumbrance of any banks or other
14institutional lenders to the project. The regulatory agreement
15entered into pursuant to subdivision (f) of Section 50199.14 of the
16Health and Safety Code shall apply, provided that the agreement
17includes all of the following provisions:

18(1) A term not less than the compliance period.

19(2) A requirement that the agreement be recorded in the official
20 records of the county in which the qualified low-income housing
21project is located.

22(3) A provision stating which state and local agencies can
23enforce the regulatory agreement in the event the housing sponsor
24fails to satisfy any of the requirements of this section.

25(4) A provision that the regulatory agreement shall be deemed
26a contract enforceable by tenants as third-party beneficiaries
27thereto, and that allows individuals, whether prospective, present,
28or former occupants of the building, who meet the income
29limitation applicable to the building, the right to enforce the
30regulatory agreement in any state court.

31(5) A provision incorporating the requirements of Section 42
32of the Internal Revenue Code as modified by this section.

33(6) A requirement that the housing sponsor notify the California
34Tax Credit Allocation Committee or its designee if there is a
35determination by the Internal Revenue Service that the project is
36not in compliance with Section 42(g) of the Internal Revenue Code.

37(7) A requirement that the housing sponsor, as security for the
38performance of the housing sponsor’s obligations under the
39regulatory agreement, assign the housing sponsor’s interest in rents
40that it receives from the project, provided that until there is a
P31   1default under the regulatory agreement, the housing sponsor is
2entitled to collect and retain the rents.

3(8) A provision that the remedies available in the event of a
4default under the regulatory agreement that is not cured within a
5reasonable cure period include, but are not limited to, allowing
6any of the parties designated to enforce the regulatory agreement
7to collect all rents with respect to the project; taking possession of
8the project and operating the project in accordance with the
9regulatory agreement until the enforcer determines the housing
10sponsor is in a position to operate the project in accordance with
11the regulatory agreement; applying to any court for specific
12performance; securing the appointment of a receiver to operate
13the project; or any other relief as may be appropriate.

14(j) (1) The committee shall allocate the housing credit on a
15regular basis consisting of two or more periods in each calendar
16year during which applications may be filed and considered. The
17committee shall establish application filing deadlines, the maximum
18percentage of federal and state low-income housing tax credit
19ceiling that may be allocated by the committee in that period, and
20the approximate date on which allocations shall be made. If the
21enactment of federal or state law, the adoption of rules or
22regulations, or other similar events prevent the use of two allocation
23periods, the committee may reduce the number of periods and
24adjust the filing deadlines, maximum percentage of credit allocated,
25and allocation dates.

26(2) The committee shall adopt a qualified allocation plan, as
27provided in Section 42(m)(1) of the Internal Revenue Code. In
28adopting this plan, the committee shall comply with the provisions
29of Sections 42(m)(1)(B) and 42(m)(1)(C) of the Internal Revenue
30Code.

31(3) Notwithstanding Section 42(m) of the Internal Revenue
32Code, the California Tax Credit Allocation Committee shall
33allocate housing credits in accordance with the qualified allocation
34plan and regulations, which shall include the following provisions:

35(A) All housing sponsors, as defined by paragraph (3) of
36subdivision (a), shall demonstrate at the time the application is
37filed with the committee that the project meets the following
38threshold requirements:

P32   1(i) The housing sponsor shall demonstrate that there is a need
2for low-income housing in the community or region for which it
3is proposed.

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

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

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

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

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

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

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

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

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

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

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

P33   1(ii) Projects providing single-room occupancy units serving
2very low 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 except to break a tie
15when two or more of the projects have an equal rating.

16(5) Not less than 20 percent of the low-income housing tax
17credits available annually under this section, Section 12206, and
18Section 17058 shall be set aside for allocation to rural areas as
19defined in Section 50199.21 of the Health and Safety Code. Any
20amount of credit set aside for rural areas remaining on or after
21October 31 of any calendar year shall be available for allocation
22to any eligible project. No amount of credit set aside for rural areas
23shall be considered available for any eligible project so long as
24there are eligible rural applications pending on October 31.

25(k) Section 42(l) of the Internal Revenue Code shall be modified
26as follows:

27The term “secretary” shall be replaced by the term “California
28Franchise Tax Board.”

29(l) In the case where the state credit allowed under this section
30exceeds the “tax,” the excess may be carried over to reduce the
31“tax” in the following year, and succeeding years if necessary,
32until the credit has been exhausted.

33(m) A project that received an allocation of a 1989 federal
34housing credit dollar amount shall be eligible to receive an
35allocation of a 1990 state housing credit dollar amount, subject to
36all of the following conditions:

37(1) The project was not placed in service prior to 1990.

38(2) To the extent the amendments made to this section by the
39Statutes of 1990 conflict with any provisions existing in this section
40prior to those amendments, the prior provisions of law shall prevail.

P34   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) (1) A corporation may elect to assign any portion of any
14credit allowed under this section to one or more affiliated
15corporations for each taxable year in which the credit is allowed.
16For purposes of this subdivision, “affiliated corporation” has the
17meaning provided in subdivision (b) of Section 25110, as that
18section was amended by Chapter 881 of the Statutes of 1993, as
19of the last day of the taxable year in which the credit is allowed,
20except that “100 percent” is substituted for “more than 50 percent”
21wherever it appears in the section, as that section was amended by
22Chapter 881 of the Statutes of 1993, and “voting common stock”
23is substituted for “voting stock” wherever it appears in the section,
24as that section was amended by Chapter 881 of the Statutes of
251993.

26(2) The election provided in paragraph (1):

27(A) May be based on any method selected by the corporation
28that originally receives the credit.

29(B) Shall be irrevocable for the taxable year the credit is allowed,
30once made.

31(C) May be changed for any subsequent taxable year if the
32election to make the assignment is expressly shown on each of the
33returns of the affiliated corporations that assign and receive the
34credits.

35(r) Any unused credit may continue to be carried forward, as
36provided in subdivision (l), until the credit has been exhausted.

37This section shall remain in effect on and after December 1,
381990, for as long as Section 42 of the Internal Revenue Code,
39relating to low-income housing credits, remains in effect.

P35   1(s) The amendments to this section made by the act adding this
2subdivision shall apply only to taxable years beginning on or after
3January 1, 1994, except that paragraph (1) of subdivision (q), as
4amended, shall apply to taxable years beginning on or after January
51, 1993.

6

SEC. 4.  

This act provides for a tax levy within the meaning of
7Article IV of the Constitution and shall go into immediate effect.



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