BILL ANALYSIS                                                                                                                                                                                                    Ó


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                                    THIRD READING

          Bill No:  AB 952
          Author:   Atkins (D)
          Amended:  6/26/13 in Senate
          Vote:     21

          AYES:  DeSaulnier, Gaines, Galgiani, Hueso, Lara, Liu, Pavley,  
            Roth, Wyland
          NO VOTE RECORDED:  Beall, Cannella
          SENATE GOVERNANCE & FINANCE COMMITTEE  :  7-0, 8/14/13
          AYES:  Wolk, Knight, Beall, DeSaulnier, Emmerson, Hernandez, Liu

           SENATE APPROPRIATIONS COMMITTEE  :  7-0, 8/30/13
          AYES:  De León, Walters, Gaines, Hill, Lara, Padilla, Steinberg
          ASSEMBLY FLOOR  :  78-0, 5/29/13 - See last page for vote

           SUBJECT  :    Low-income housing tax credits

           SOURCE  :     State Treasurer Bill Lockyer

           DIGEST  :    This bill allows the states Tax Credit Allocation  
          Committee (TCAC) to allocate state low-income housing tax  
          credits (LIHTC) 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% of the occupants will be  
          special needs households.

           ANALYSIS  :    Federal law enacted in 1986 created the federal  


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          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 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 TCAC'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.

          In 1987, AB 53 (Klehs, Chapter 1138) created the state LIHTC 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 10-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 the  
          United States Department of Housing and Urban  
          Development-designated Difficult to Develop Area (DDA) or  
          Qualified Census Tract (QCT), the eligible basis for federal tax  
          credit purposes receives a 30% adjustment or "basis boost" so  
          that it receives a credit equal to 130% 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% basis boost.  



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          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% 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% 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% of  
             the occupants will be special needs households, as defined in  
             TCAC's regulations, and in which the state credits do not  
             exceed 30% of the eligible basis.

          2. Provides statutory authority for 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  
             and allows TCAC to do this without developer consent.  TCAC  
             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.

           Purpose  .  The LIHTC 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% 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. 



                                                                     AB 952

          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% 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  
          confirms that authority in statute.  

           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% more federal LIHTC if they locate in a  
          DDA or QCT.  This bill allows projects to receive state tax  
          credits of up to an additional 30% 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%  
          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 allows that  
          project to get an additional 30% in state tax credits against  
          the $10 million in eligible basis, which would create an  
          additional $3 million in state tax credits.

           FISCAL EFFECT  :    Appropriation:  No   Fiscal Com.:  Yes    
          Local:  No

          According to the Senate Appropriations Committee:

             TCAC indicates no additional costs would result from this  
             bill, as any additional state credit awards would occur as  
             applications are being considered for federal tax credits.

             The Franchise Tax Board would not incur any additional  

             This bill would result in a reduction to state revenues.   



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             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 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).

           SUPPORT  :   (Verified  9/3/13)

          State Treasurer Bill Lockyer (source)
          Bridge Housing
          California Housing Consortium
          California Housing Partnership Corporation
          Housing California
          Non Profit Housing Association of Northern California
          Tenderloin Neighborhood Development Corporation
          Westside Center for Independent Living

           ASSEMBLY FLOOR  :  78-0, 5/29/13
          AYES:  Achadjian, Alejo, Allen, Ammiano, Atkins, Bigelow, Bloom,  
            Blumenfield, Bocanegra, Bonilla, Bonta, Bradford, Brown,  
            Buchanan, Ian Calderon, Campos, Chau, Chávez, Chesbro, Conway,  
            Cooley, Dahle, Daly, Dickinson, Donnelly, Eggman, Fong, Fox,  
            Frazier, Beth Gaines, Garcia, Gatto, Gomez, Gonzalez, Gordon,  
            Gorell, Gray, Grove, Hagman, Hall, Harkey, Roger Hernández,  
            Jones, Jones-Sawyer, Levine, Linder, Logue, Lowenthal,  
            Maienschein, Mansoor, Medina, Melendez, Mitchell, Morrell,  
            Mullin, Muratsuchi, Nazarian, Nestande, Olsen, Pan, Patterson,  
            Perea, V. Manuel Pérez, Quirk, Quirk-Silva, Rendon, Salas,  
            Skinner, Stone, Ting, Wagner, Waldron, Weber, Wieckowski,  
            Wilk, Williams, Yamada, John A. Pérez
          NO VOTE RECORDED:  Holden, Vacancy

          JA:k  9/3/13   Senate Floor Analyses 

                           SUPPORT/OPPOSITION:  SEE ABOVE

                                   ****  END  ****



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