BILL ANALYSIS                                                                                                                                                                                                    



                                                                AB 952
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        CONCURRENCE IN SENATE AMENDMENTS
        AB 952 (Atkins)
        As Amended  June 26, 2013
        Majority vote
         
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        |ASSEMBLY:  |78-0 |(May 29, 2013)  |SENATE: |38-0 |(September 12, |
        |           |     |                |        |     |2013)          |
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        Original Committee Reference:    H. & C.D.  

         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. 
         
        The Senate amendments  make technical changes to the bill.  

        FISCAL EFFECT  :  According to the Senate Appropriations Committee:

        1)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.

        2)The Franchise Tax Board (FTB) would not incur any additional  
          costs.









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        3)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 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). 

         COMMENTS  :  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.  The federal  
        program offers 9% and 4% credits on the approximate percentage of a  
        project's "qualified basis" a taxpayer who purchases credits from a  
        developer may deduct from their annual federal tax liability in each  
        of 10 years.  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 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 $84.7 million in credits in California  
        that can be taken by investors each year for 10 years.  Federal  
        LIHTCs are oversubscribed by a three to one 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.

        Federal law requires TCAC to conduct a feasibility study on every  
        project to ensure that the amount of tax credits allocated do not  
        exceed the amount required for the project to make the project  
        feasible.  To calculate the amount of tax credits a project may  
        receive, TCAC determines the total project cost.  Next, it  
        determines the "eligible basis" by subtracting the non-depreciable  








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        costs, such as land permanent financing costs, rent reserves, and  
        marketing costs.

        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 homeless individuals and families, housing  
        needs deep 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 projects in these areas can  
        qualify for more federal tax credits and therefore are already  
        advantaged. 

        Purpose of this bill:  This bill would allow, in limited cases, for  
        the state credits to be used in a DDA or QCT.  In order to qualify  
        projects would need to dedicate at least 50% of the units toward  
        special needs populations.  Projects that serve special needs  
        populations need greater subsidy in order to offer rents at low or  
        extremely low levels.  Allowing state credits to be used in DDAs and  
        QCTs would increase the equity projects could generate from tax  
        credits because the projects can already qualify for 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 would allow projects to receive  
        state tax credits of up to an additional 30% of the projects  
        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 sell  
        to an investor.  This bill would allow 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. 

        This bill also clarifies TCAC's authority to swap out state LIHTC  
        for federal LIHTC if the sponsor agrees when making the application.  
         Sponsors receive additional points in their application if they  
        agree that if TCAC determines it is necessary it can exchange state  
        credits for federal credits.  This practice is authorized in TCAC's  
        regulations and this bill would confirm that authority in statute.   
        The practice of swapping credits is used to maximize both the state  
        and federal credits available to the state.










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         Analysis Prepared by  :    Lisa Engel / H. & C.D. / (916) 319-2085 
                                                                 FN: 0002196