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
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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