BILL ANALYSIS Ó
Senate Appropriations Committee Fiscal Summary
Senator Kevin de León, Chair
AB 1999 (Atkins) - Personal and Corporation Income Taxes:
Credits: Rehabilitation
Amended: August 5, 2014 Policy Vote: G&F 7-0
Urgency: No Mandate: No
Hearing Date: August 11, 2014
Consultant: Robert Ingenito
This bill meets the criteria for referral to the Suspense File.
Bill Summary: AB 1999 would permit a 20 percent or 25 percent
tax credit of qualified expenditures for rehabilitation of a
certified historic structure.
Fiscal Impact:
The bill would create an aggregate annual cap of $80
million in credits, the effects of which would be gradually
phased in. Specifically, the Franchise Tax Board indicates
that the bill would result in estimated revenue losses of
$25 million in 2014-15, $65 million in 2015-16, and $75
million in 2016-17. The bill would not significantly impact
FTB's costs.
The Governor's Office of Business and Economic
Development (GO-Biz) estimates that it would incur costs of
between $500,000 and $885,000 annually (General Fund) to
administer the program.
The Office of Historic Preservation (OHP) within the
Department of Parks and Recreation would incur first-year
administrative costs of $216,000 and ongoing costs of
$197,000 (General Fund).
The bill would give GO-Biz authority to charge a fee to
cover both its expenses and those of OHP.
Background: Congress enacted the Federal Historic Preservation
Tax Incentives Program in 1976 to promote community
revitalization and encourage private investment through historic
building rehabilitation. Over 39,600 projects in all sizes to
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rehabilitate historic buildings have been undertaken using the
program's incentives. The National Park Service reported that
in fiscal year 2013, almost 8 percent of the certified projects
were under $100,000, 46 percent were under $500,000, and the
majority of all projects - 59 percent - involved less than $1
million in costs. Housing has been the single most important
use for rehabilitated historic buildings under the federal
program. Over the past five years, between 36% and 69% of the
projects have included housing, and more than 130,000 of low-
and moderate-income housing units have been created under the
program.
To qualify for the federal historic preservation credit, the
structure must be individually listed on the national Register
of Historic Places or be certified as contributing to a
registered historic district, or for a lesser credit, be built
before 1936 and used for income-producing, non-residential
purposes. The developer must submit an application with details
of the rehabilitation plan to the Department of the Interior for
approval, and once completed must submit a certificate of
completion. A historic preservation credit is then issued and
usually must be claimed in the tax year in which the building
was placed in service. The federal rules contain a "recapture
provision" that requires a portion of the credit to be repaid if
the rehabilitated building is sold or otherwise ceases to
qualify within five years of being placed into service.
Proposed Law: This bill would allow a tax credit for qualified
costs paid or incurred by a taxpayer in rehabilitation of a
certified historic structure, in modified conformity with the
federal income tax laws, subject to an aggregate annual cap of
$80 million. The bill would apply to taxable years 2015 through
2022.
The tax credit is equal to 20 percent of qualified
rehabilitation expenditures with respect to a certified historic
structure, defined as a structure located in California that
appears on either (1) the National Register of Historic Places
or (2) the California Register of Historic Places. The credit
increases the applicable percentage to 25 percent in the case of
a certified historic structure that meets specified criteria.
The bill would require GO-Biz to establish criteria and
procedures for applications and the allocation and certification
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of credits, and determine and allocate an aggregate amount of
the tax credits, as well as carrying over unallocated credits
from prior years. GO-Biz must, with specified consultation with
OHP, allocate the credit according to the following criteria:
The number of jobs created by the rehabilitation
project, both during and after the rehabilitation of the
structure.
The expected increase in state and local tax revenues
derived from the rehabilitation project, including those
from increased wages and property taxes.
Any additional incentives or contributions included in
the rehabilitation project from federal, state, or local
governments.
The bill would allow the credit to be used for qualified
rehabilitation expenditures for an owner-occupied residence
determined by GO-Biz and OHP to have a public benefit as
specified, subject to certain conditions.
The bill would authorize the taxpayer to carry forward the tax
credit up to eight years or until the credit is exhausted. The
bill would require the Legislative Analyst Office (LAO), for
eight years beginning January 1, 2016, to collaborate with
GO-Biz to review the effectiveness of the historic building tax
credit program, including (1) an analysis of the demand for the
tax credit, (2) the types and uses of projects receiving the tax
credit, (3) the jobs created by the use of the tax credit, and
(4) the economic impact of the tax credit. GO-Biz would be
required to provide FTB with an annual list of taxpayers that
were allocated a credit.
The bill allows GO-Biz to charge a fee to cover expenses
incurred by both itself and OPH.
Staff Comments: This bill would require GO-Biz to allocate tax
credits for qualified rehabilitation expenditures with respect
to a certified historic structure, as specified. GO-Biz's cost
driver would be the number of approved tax credits applications.
OHP estimates that it would need two additional positions as a
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result of the bill. OHP would also incur travel costs in its
role to assist GO-Biz with application selection.
Currently, GO-Biz does not charge fees for any of the programs
it administers or the services it provides. Staff is not aware
of any instance where a department has been granted fee
authority to cover its expenses and those of one or more other
departments.