BILL ANALYSIS                                                                                                                                                                                                    






           SENATE TRANSPORTATION & HOUSING COMMITTEE       BILL NO: ab 952
          SENATOR MARK DESAULNIER, CHAIRMAN              AUTHOR:  atkins
                                                         VERSION: 5/2/13
          Analysis by:  Carrie Cornwell                  FISCAL:  yes
          Hearing date:  June 25, 2013



          SUBJECT:

          Low-income housing tax credits

          DESCRIPTION:

          This bill allows the state's Tax Credit Allocation Committee to  
          allocate state low-income housing tax credits to housing  
          projects in federally designated areas in which it is difficult  
          to develop housing as long as the housing built is restricted so  
          that 50 percent of the occupants will be special needs  
          households.

          ANALYSIS:

          Federal law enacted in 1986 created the federal low-income  
          housing tax credit (LIHTC) and required that each state  
          designate a state agency to administer the LIHTC program.  SB  
          113 (Leroy Greene), Chapter 658, Statutes of 1987, assigned  
          responsibility for administering the federal LIHTC to the  
          California Tax Credit Allocation Committee (TCAC), which  
          consists of three voting members:  the State Treasurer, the  
          State Controller, and the Governor, or in the Governor's  
          absence, the Director of Finance.  The Treasurer chairs TCAC,  
          and the committee's staff is housed within the State Treasurer's  
          Office.

          The federal government assigns each state a ceiling on the  
          amount of LIHTC it can allocate each year.  In 2013, the amount  
          is $2.25 per capita or $86 million total for California.   
          (Taxpayers claim federal credits each year for 10 years so this  
          results in a total federal tax credit amount of $860 million for  
          this year's awards.)  TCAC allocates these federal credits  
          through a competitive process to those who are developing  
          qualified affordable rental housing.  These developers then take  
          on investors as limited liability partners, who in exchange for  
          the tax credits provide funds in the form of equity for building  
          the affordable housing.




          AB 952 (ATKINS)                                        Page 2

                                                                       



          In 1987, AB 53 (Klehs), Chapter 1138, created the state  
          low-income housing tax credit in recognition of the high cost of  
          housing in California.  TCAC allocates state LIHTC to be used in  
          concert with federal credits.  The annual state credit ceiling  
          for 2012 is approximately $92 million.  Investors claim the  
          state LIHTC over a four-year period, and the credit amount is  
          divided over these four years, unlike the federal credit amount  
          which is multiplied over its ten-year allocation period. 

          In determining the amount of LIHTC for which a project may be  
          eligible, first, total project cost is calculated.  Secondly,  
          "eligible basis" is determined by subtracting non-depreciable  
          costs, such as land, permanent financing costs, rent reserves,  
          and marketing costs.  If the development is located in a  
          HUD-designated Difficult to Develop Area (DDA) or Qualified  
          Census Tract (QCT), the eligible basis for federal tax credit  
          purposes receives a 30 percent adjustment or "basis boost" so  
          that it receives a credit equal to 130 percent of its eligible  
          basis. 

          As a general rule state credits go to projects outside DDAs and  
          QCTs so that they too can receive the 30 percent basis boost.     


          Pursuant to regulations that TCAC has adopted, however, when not  
          enough projects need a basis boost to use all of the state  
          credits, then TCAC, with the developer's consent, can switch  
          state LIHTC for federal LIHTC for the 30 percent of added basis.  
           This effectively stretches out the number of projects that TCAC  
          can help to fund with the limited federal credits in a given  
          year. State law, however, caps the amount of state tax credit  
          for a project at 30 percent of the eligible basis.

           This bill  :

          1.Allows TCAC to allocate state LIHTCs to projects in DDAs and  
            QCTs that are subject to restrictions ensuring that 50 percent  
            of the occupants will be special needs households, as defined  
            in TCAC's regulations, and in which the state credits do not  
            exceed 30 percent of the eligible basis.

          2.Provides statutory authority for TCAC to replace federal LIHTC  
            with state LIHTC of up to 30 percent of a project's eligible  
            basis if the federal LIHTC is reduced in an equivalent amount  
            and allows TCAC to do this without developer consent.  TCAC  




          AB 952 (ATKINS)                                        Page 3

                                                                       


            determines what constitutes an equivalent amount of state  
            LIHTC necessary to replace the federal LIHTC a taxpayer would  
            have received. 

          3.   Is a tax levy that takes effect immediately.

          COMMENTS:

           1.Purpose  . The Low-Income Housing Tax Credit Program supports  
            the development, rehabilitation, and preservation of rental  
            housing that is affordable to very-low and extremely-low  
            income households.  Federal tax credits can be used anywhere  
            in the state, but projects are given an additional 30 percent  
            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 a higher concentration of extremely  
            low-income or homeless individuals and families, housing in  
            them typically needs larger subsidies to make it affordable.   
            Existing state law does not allow TCAC to award state tax  
            credits in DDAs and QCTs.  The rationale for this prohibition  
            is that projects in these areas can qualify for more federal  
            tax credits through a basis boost and therefore are already  
            advantaged. 

            This bill allows, in limited cases, for TCAC to award state  
            credits for use in DDAs or QCTs, which would be in addition to  
            the federal credits.  To qualify, a development must restrict  
            at least 50 percent of the units to special needs households.   
            Projects that serve special needs populations need greater  
            subsidy in order to offer deeply affordable rents.  

            This bill also clarifies TCAC's authority to swap out state  
            LIHTC for federal LIHTC if the sponsor agrees when making the  
            application.  TCAC awards project sponsors additional points  
            in their applications if they agree to accept a swap.  This  
            practice is authorized in TCAC's regulations.  This bill would  
            confirm that authority in statute.  

           2.An example  .  By allowing state credits to be used in DDAs and  
            QCTs, this bill will increase the equity these projects can  
            generate from tax credits because the projects qualify already  
            for a basis boost that results in more federal tax credits  
            than projects outside of a DDA or a QCT.  Under existing  
            federal law, projects can receive 30 percent 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  




          AB 952 (ATKINS)                                        Page 4

                                                                       


            30 percent of the project's 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 percent of that basis  
            in federal tax credits, which means the project sponsor would  
            have $13 million in federal credits to offer to investors who  
            buy into the project.  This bill would allow that project to  
            get an additional 30 percent in state tax credits against the  
            $10 million in eligible basis, which would create an  
            additional $3 million in state tax credits. 

           3.No change in amount, just use  .  This bill does not change the  
            amount of state low-income housing tax credits that TCAC can  
            award each year.  It does, however, allow TCAC to use the  
            existing credits to more deeply subsidize housing targeted to  
            Californians with special needs, such as mental or physical  
            disabilities.  
                
            4.Double-referral  .  The Rules Committee has referred this bill  
            to both this committee and the Governance and Finance  
            Committee.  Therefore, if this bill passes this committee, it  
            will be referred to the Committee on Governance and Finance.

           5.Technical amendments  .  

                 On page 4, line 37, strike "(iii)(I)" and insert  
               "(G)(i)"
                 On page 5, line 3, strike "(II)" and insert "(ii)"
                 On page 15, line 3, strike "(iii)(I)" and insert  
               "(G)(i)"
                 On page 15, line 9, strike "(II)" and insert "(ii)"
                 On page 25, line 33, strike "(iii)(I)" and insert  
               "(G)(i)"
                 On page 26, line 1, strike "(II)" and insert "(ii)"
          
          Assembly Votes:
               Floor:    78-0 
               Appr: 17-0
               R&T:    9-0 
               H&CD:   7-0 

          POSITIONS:  (Communicated to the committee before noon on  
          Wednesday,                                             June 19,  
          2013.)

               SUPPORT:  State Treasurer Bill Lockyer (sponsor)
                         California Housing Partnership Corporation




          AB 952 (ATKINS)                                        Page 5

                                                                       



               OPPOSED:  None received.