BILL ANALYSIS �
Senate Appropriations Committee Fiscal Summary
Senator Kevin de Le�n, Chair
AB 952 (Atkins) - Low-Income Housing Tax Credits
Amended: June 26, 2013 Policy Vote: T&H 9-0, G&F 7-0
Urgency: No Mandate: No
Hearing Date: August 26, 2013
Consultant: Robert Ingenito
This bill meets the criteria for referral to the Suspense File.
Bill Summary: AB 952 would make specified changes to the State's
Low-Income Housing Tax Credit (LIHTC) Program. The bill would
specifically do the following:
Allow the California Tax Credit Allocation Committee
(TCAC) to award state housing credits to developments in a
Qualified Census Tract (Tract) or a Difficult to Develop
Area (DDA), if the project is also receiving the federal
housing credits, as specified.
Allow TCAC to replace the federal Housing Credit with a
state Housing Credit of up to 30 percent of a project's
eligible basis, if the federal Housing Credit is reduced in
an equivalent amount.
Require TCAC to determine the equivalent amount of state
Housing Credit necessary to replace the federal Housing
Credit a taxpayer would have received.
Fiscal Impact:
TCAC indicates no additional costs would result from the
bill, as any additional state credit awards would occur as
applications are being considered for federal tax credits.
The Franchise Tax Board (FTB) would not incur any
additional costs.
The bill would result in a reduction to state revenues.
Specifically, TCAC has authority to award roughly $90
million in state tax credits annually but has up to $25
million in credits remaining at the close of the year
resulting from lack of demand. To the extent that this bill
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increases the amount of credits awarded by TCAC annually,
it would lower state revenues. The amount is unknown, but
could be in the millions of dollars annually (General
Fund).
Background: In 1986, the federal government authorized the LIHTC
program to enable affordable housing developers to raise private
capital through the sale of tax benefits to investors. 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 may 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 about $85 million in
credits in California that can be taken by investors each year
for 10 years. Federal LIHTCs are oversubscribed by a 3 to 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.
Tax credits are generally equal to 100 percent of a project's
eligible basis, or its cost less non-depreciable items.
However, the eligible basis is reduced by the applicable
percentage, a measure of the amount of affordable units of floor
space in the project as a share of the entire project. For
example, a project with $5 million in total development costs
but $1 million in land acquisition costs has a $4 million basis.
If half of the units will be affordable, the total basis is $2
million, which is multiplied by 9 percent to determine the
annual amount of the credit of $180,000, for a ten-year value of
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$1.8 million. However, as credit supply usually exceeds demand,
developers typically must exchange credits at a discount, so the
$1.8 million in credits will usually draw approximately $1.35
million in project capital from investors at the general 75
percent discount rate.
However, federal law also allows credits equal to 130 percent of
eligible basis if the project is located in a Qualified Census
Tract (QCT) or a Difficult to Develop Area (DDA), a so-called
"basis boost." QCTs are designated by the Secretary of the
United States Department of Housing and Urban Development (HUD)
in which either 50% or more of the households have an income
that is less than 60 percent of the area median gross income or
has a poverty rate of 25%. The Secretary of HUD also draws DDAs
using a ratio of construction, land, and utility costs to area
median gross income. This "basis boost" is significant. In the
above example, the housing developer instead has a $5.2 million
basis ($4 million * 130%) if the project is located in a QCT or
DDA, and would instead be able to raise $1.75 million in project
capital ($5.2 million * 50% * 9% * 75% * 10 = $1.75 million).
State law prohibits CTCAC from allocating state credits in QCTs
or DDAs unless it swaps out federal credits willing to forgo the
"basis boost," so that the combined credit amount doesn't exceed
130% of basis. Additionally, CTCAC regulation allows CTCAC to
swap state credits for federal credits for any authorized
project when the state has unused credits at the end of the
year; CTCAC subsequently awards the swapped out federal credits
to different projects.
Proposed Law: This bill makes changes to the state Low-Income
Housing Tax Credit Program, and allows TCAC to (1) award state
tax credit for developing buildings located in designated
difficult development areas or qualified census tracts where at
least 50 percent of its occupants are special needs households,
and the state credit does not exceed 30 percent of the eligible
basis of the building; (2) replace federal tax credit with state
tax credit for up to 30 percent of a projects requested eligible
basis if the federal tax credit is reduced by that much, and (3)
determine the amount of state tax credit necessary to replace
the federal tax credit the taxpayer would have received.
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