BILL ANALYSIS                                                                                                                                                                                                    Ó




                   Senate Appropriations Committee Fiscal Summary
                            Senator Kevin de León, 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 30, 2013                           
          Consultant: Robert Ingenito     
          
          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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