BILL ANALYSIS Ó
AB 952
Page 1
Date of Hearing: April 3, 2013
ASSEMBLY COMMITTEE ON HOUSING AND COMMUNITY DEVELOPMENT
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.
REGISTERED SUPPORT / OPPOSITION :
Support
California State Treasurer Bill Lockyer (sponsor)
BRIDGE Housing
California Housing Consortium
Opposition
None on file.
Analysis Prepared by : Lisa Engel / H. & C.D. / (916) 319-2085