BILL ANALYSIS Ó
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