BILL ANALYSIS                                                                                                                                                                                                    



                                                                  AB 952
                                                                  Page  1

          Date of Hearing:  May 13, 2013

                     ASSEMBLY COMMITTEE ON REVENUE AND TAXATION
                                Raul Bocanegra, Chair

                      AB 952 (Atkins) - As Amended:  May 2, 2013

          Majority vote.  Tax levy.  Fiscal committee.

           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 LIHTCs in QCTs and DDAs  
            where the eligible basis of the project is 130%, unless the  
            federal credits are reduced so that the combined federal and  
            state credit does not exceed the total credit allowed.   
            [Revenue and Taxation Code (R&TC) Section 12206].

          2)Defines QCT as a census tract that is designated by the  
            Secretary 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 has a poverty  








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            rate of at least 25%.  [Internal Revenue Code (IRC) Section  
            42].

          3)Defines a DDA as any area designated by HUD as an area that  
            has high construction, land, and utility costs relative to  
            area median gross income.  (IRC Section 42).

           FISCAL EFFECT  :  Unknown.

           COMMENTS  :   

          1)The author has included the following statement in support of  
            this bill:

               Under current law, the California Tax Credit Allocation  
               Committee is authorized to award $90 million in California  
               Low Income Housing Tax Credits.  California receives  
               financing for affordable housing projects when investors  
               buy these credits, and the investor receives a credit  
               against their tax liability.  Unfortunately, due to  
               restrictions on where these credits can be used, as many as  
               $25 million in state credits have gone unused in recent  
               years.  

               AB 952 will remove the restriction on using California Low  
               Income Housing Tax Credits in the areas that need them  
               most.  Housing projects that wish to access this financing  
               tool will need to set aside 50% of their units to serve  
               special needs populations such as the homeless, pregnant  
               and parenting teens, and the disabled.

               Removing the restriction on using California Low Income  
               Housing Tax Credits in the neediest areas makes sense from  
               both a business and humanitarian viewpoint.  AB 952 will  
               ensure that no state tax credits go unused, while also  
               benefiting Californian's with the greatest need for  
               housing.

          2)Proponents of the measure state:

               The Low Income Housing Tax Credit (LIHTC) is one of the  
               most important and most successful affordable housing  
               production programs around the country. In California,  
               LIHTC generates approximately 15,000 housing units per  
               year. Designated by the U.S. Department of Housing and  








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               Urban Development, DDAs are metropolitan or nonmetropolitan  
               areas in which construction, land, and utility costs are  
               high relative to incomes, and QCTs are census tracts in  
               which at least half of the households have incomes that are  
               less than 60 % of the area median income or have a poverty  
               rate of at least 25 %. Under federal law, affordable rental  
               housing projects in these areas are eligible for up to 30%  
               more tax credits than they otherwise would be because these  
               areas have the greatest concentration of homeless and  
               special needs populations. 

               However, under existing state law, only federal low-income  
               housing tax credits may be used in DDAs and QCTs. This bill  
               would allow state low-income housing tax credits to be used  
               in conjunction with federal credits, so long as 50% of a  
               development's occupants are special needs households.

          3)Committee Staff Comments:

              a)   Background  :  The LIHTC is an indirect federal subsidy  
               developed in 1986 to incentivize the private development of  
               affordable rental housing for low-income households.  Tax  
               credits are awarded to developers for qualified projects.   
               The developer then sells the tax credits to raise capital  
               for the project, which reduces the debt borrowed for a  
               project, leading to lower rents.  Two types of credits are  
               available - the nine% and four% credits.  These terms refer  
               to the approximate percentage of a project's "qualified  
               basis" a taxpayer may deduct from their annual federal tax  
               liability in each of 10 years.  

               In California, responsibility for administering the federal  
               program is assigned to the California TCAC.  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 LIHTC over four years.  

               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  








                                                                  AB 952
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               homeless individuals and families, housing requires a  
               larger 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 that projects  
               in these areas can qualify for more federal tax credits and  
               therefore are already advantaged.

              b)   Deficiency in Current Law  :  In 2012, the total state  
               credit available was $109 million.  The amount of state  
               credit requested was approximately $285 million.  Despite  
               the demand, as much as $25 million of state credit will go  
               unused in 2013 according to the Treasurer's Office.  This  
               is because federal LIHTCs are much more financially  
               desirable than state LIHTCs.  As such, California will, at  
               times, accumulate a large sum of state credits at the end  
               of each year.  By regulation, TCAC may place state LIHTCs  
               into projects in exchange for federal LIHTCs.  In 2011, the  
               TCAC performed a large number of exchanges in an effort to  
               reduce the existing amount of available state credit.   
               Those efforts were continued in 2012, exchanging state  
               credits in six projects originally requesting only federal  
               credits.  Approximately $21.7 million in state credits were  
               delivered to the six projects in exchange for $1.3 million  
               in federal credits.  The federal credits were then used by  
               TCAC for future project obligations.

              c)   Purpose of this bill  :  Federal LIHTCs can be used for  
               projects in DDA or a QCT, but as an incentive to increase  
               funding for these areas, DDA and QCT projects are given an  
               additional 30% on the eligible basis.  Existing state law  
               does not allow state LIHTCs to be awarded in DDAs and QCTs.  
                 

               AB 952 broadens the scope of projects that qualify for  
               state LIHTCs.  Specifically, it would allow state credits  
               to be used in DDA and QCT projects that dedicate 50% of the  
               units for special needs individuals.  Projects designated  
               for special needs individuals located in these DDA and QCT  
               areas require a lot of assistance in order to make the  
               rents sufficiently low and affordable.  Allowing these  
               kinds of projects to receive state LIHTCs of up to an  
               additional 30% of the projects eligible basis, makes them  
               more likely to provide assistance to individuals who need  
               it the most.









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              d)   Eliminating the need to Exchange Credits  :  As noted  
               earlier, TCAC, over the last few years, has had to exchange  
               state LIHTCs for federal LIHTCs to eliminate unutilized  
               state credits.  By expanding the projects that may apply  
               for state LIHTC, the sponsor of this bill hopes to  
               eliminate the need to exchange state LIHTCs for federal  
               LIHTCs in the future.

              e)   Double-referral  :  This bill was heard in the Assembly  
               Committee on Housing and Community Development on April 3,  
               2013, and passed out of that Committee on a vote of 7 to 0.  
                For a more comprehensive understanding of this bill,  
               please refer to that Committee's analysis.



           REGISTERED SUPPORT / OPPOSITION  :   

           Support 
           
          Bridge Housing
          California Housing Consortium
          California State Treasurer Bill Lockyer (sponsor)
          The Non-Profit Housing Association of Northern California
          Western Center on Law & Poverty

           Opposition 
           
          None on file
           
          Analysis Prepared by  :  Carlos Anguiano / REV. & TAX. / (916)  
          319-2098