BILL ANALYSIS                                                                                                                                                                                                    

                                                                  AB 952
                                                                  Page  1

          Date of Hearing:   April 3, 2013

                                 Norma Torres, Chair
                    AB 952 (Atkins) - As Amended:  March 18, 2013
          SUBJECT  :   Low-income housing tax credits 

           SUMMARY  :  Makes changes to the state Low-Income Housing Tax  
          Credit (LIHTC) Program.     Specifically,  this bill  :  

          1)Allows the Tax Credit Allocation Committee (TCAC) to award  
            state LIHTCs to developments in a Qualified Census Tract (QCT)  
            or a Difficult to Develop Area (DDA) if the project is also  
            receiving federal LIHTC under the following conditions: 

             a)   Developments restrict at least 50% of the units to  
               special needs households; and

             b)   The state credits do not exceed 30% of the eligible  
               basis of the building. 

          1)Allows TCAC to replace federal LIHTC with state LIHTC of up to  
            30% of a project's eligible basis if the federal LIHTC is  
            reduced in an equivalent amount. 

          2)Requires TCAC to determine what is an equivalent amount of  
            state LIHTC necessary to replace the federal LIHTC a taxpayer  
            would have received. 

           EXISTING LAW  

          1)Prohibits TCAC from awarding state LIHTC in QCTs and DDAs  
            where the eligible basis of a project is 130% unless the  
            federal credits are reduced so that the combined federal and  
            state credit does not exceed the total credit allowed.

          2)Defines a QTC as any census tract designated by the Department  
            of Housing and Urban Development (HUD) in which either 50% or  
            more of the households have an income that is less than 60% of  
            the area median gross income or that that has a poverty rate  
            of at least 25%.

          3)Defines a DDA as an area designated by HUD on an annual basis  
            that has high construction, land, and utility costs relative  


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            to area median gross income.
          FISCAL EFFECT  : Unknown 

           COMMENTS  :   

          In 1986, the federal government authorized the Low-Income  
          Housing Tax Credit (LIHTC) program to enable affordable housing  
          developers to raise private capital through the sale of tax  
          benefits to investors. The federal program offers  9% and 4%  
          credits on the approximate percentage of a project's "qualified  
          basis" a taxpayer who purchases credits from a developer  may  
          deduct from their annual federal tax liability in each of ten  
          years. The Tax Credit Allocation Committee (TCAC) administers  
          the program and awards credits to qualified developers who can  
          then sell those credits to private investors who use the credits  
          to reduce their federal tax liability. The developer in turn  
          invests the capital into the affordable housing project. 

          In 1987, the legislature authorized a state LIHTC program to  
          augment the federal tax credit program. State tax credits can  
          only be awarded to projects that also receive federal LIHTCs,  
          except for farmworker housing projects, which can receive state  
          credits without federal credits.   Investors claim the state  
          credit over four years. 

          Projects that receive either state or federal tax credits are  
          required to keep the housing at affordable levels for 55 years.  
          Both the federal and state tax credits are capped, which limits  
          the amount of credit that TCAC can award each year. Each state  
          receives an annual ceiling of federal credits. In 2012 it was  
          $2.25 per capita, which worked out to $84.7 million in credits  
          in California that can be taken by investors each year for 10  
          years. Federal LIHTCs are oversubscribed by a 3:1 ratio. TCAC  
          has authority for approximately $90 million in state tax credits  
          each year but has as many as $25 million in credits remaining at  
          the end of the year due to lack of demand.

          Federal law requires TCAC to conduct a feasibility study on  
          every project to ensure that the amount of tax credits allocated  
          do not exceed the amount required for the project to make the  
          project feasible. To calculate the amount of tax credits a  
          project may receive, TCAC determines the total project cost.  
          Next, it determines the "eligible basis" by subtracting the  
          non-depreciable costs, such as land permanent financing costs,  


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          rent reserves, and marketing costs.

          Federal LIHTC can be used anywhere in the state, but projects  
          are given an additional 30% on their eligible basis if the  
          project is located in a DDA or a QCT. Because these areas by  
          definition have a higher-poverty level and there is a higher  
          concentration of extremely low-income or homeless individuals  
          and families, housing needs deep subsidy to make it affordable.  
          Existing state law does not allow state tax credits to be  
          awarded in DDAs and QCTs. The rationale for this prohibition is  
          projects in these areas can qualify for more federal tax credits  
          and therefore are already advantaged. 

           Purpose of this bill  : This bill would allow, in limited cases,  
          for the state credits to be used in a DDA or QCT. In order to  
          qualify projects would need to dedicate at least 50% of the  
          units toward special needs populations. Projects that serve  
          special needs populations need greater subsidy in order to offer  
          rents at low or extremely low levels. Allowing state credits to  
          be used in DDAs and QCTs would increase the equity projects  
          could generate from tax credits because the projects can already  
          qualify for more federal tax credits than projects outside of a  
          DDA or a QCT. Under existing federal law, projects can receive  
          30% more federal LIHTC if they locate in a DDA or QCT. This bill  
          would allow projects to receive state tax credits of up to an  
          additional 30% of the projects eligible basis. As an example, if  
          a project qualifies for $10 million in eligible basis in a DDA  
          or QCT, the project could get up to 130% of that basis in  
          federal tax credits, which means the project sponsor, would have  
          $13 million in federal credits to sell to an investor. This bill  
          would allow that project to get an additional 30% in state tax  
          credits against the $10 million in eligible basis, which would  
          create an additional $3 million in state tax credits. 

          This bill also clarifies TCAC's authority to swap out state  
          LIHTC for federal LIHTC if the sponsor agrees when making the  
          application. Sponsors receive additional points in their  
          application if they agree that if TCAC determines it is  
          necessary it can exchange state credits for federal credits.  
          This practice is authorized in TCAC's regulations and this bill  
          would confirm that authority in statute. The practice of  
          swapping credits is used to maximize both the state and federal  
          credits available to the state.

           Double referred:  This bill was also referred to the Revenue and  


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          Taxation Committee, where it will be heard should it pass out of  
          this committee.  

          California State Treasurer Bill Lockyer (sponsor)
          BRIDGE Housing 
          California Housing Consortium  

          None on file. 
          Analysis Prepared by  :    Lisa Engel / H. & C.D. / (916) 319-2085