BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                            



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                                    THIRD READING


          Bill No:  AB 1999
          Author:   Atkins (D)
          Amended:  8/22/14 in Senate
          Vote:     21


           SENATE GOVERNANCE & FINANCE COMMITTEE  :  7-0, 6/25/14
          AYES:  Wolk, Knight, Beall, DeSaulnier, Hernandez, Liu, Walters

           SENATE APPROPRIATIONS COMMITTEE  :  6-0, 8/14/14
          AYES:  De León, Gaines, Hill, Lara, Padilla, Steinberg
          NO VOTE RECORDED:  Walters

           ASSEMBLY FLOOR  :  75-0, 5/27/14 - See last page for vote


           SUBJECT  :    Personal income and corporation taxes:  credits:   
          rehabilitation

           SOURCE  :     American Institute of Architects California Council
                      California Preservation Foundation


           DIGEST  :    This bill allows, to a taxpayer who receives a tax  
          credit reservation, a tax credit under the personal income tax  
          and corporation tax laws 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 $50 million.  This bill applies to  
          taxable years beginning on or after January 1, 2015, and before  
          January 1, 2023.

           Senate Floor Amendments  of 8/22/14 delete incorrect  
                                                                CONTINUED





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          cross-references and replace them with correct cross-references.  
           Change the office of administration of the credit from  
          Governor's Office of Business and Economic Development (GO-Biz)  
          to the California Tax Credit Allocation Committee (CTCAC).


           ANALYSIS  :    The Federal Historic Preservation Tax Incentives  
          Program enacted in 1976 was to promote community revitalization  
          and encourage private investment through historic building  
          rehabilitation.  Over 39,600 projects in all sizes to  
          rehabilitate historic buildings have been undertaken using the  
          program's incentives.  The National Park Service reported that  
          in fiscal year 2013, almost 8% of the certified projects were  
          under $100,000, 46% were under $500,000, and the majority of all  
          projects - 59% - 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.

          This bill allows, to a taxpayer who receives a tax credit  
          reservation, a tax credit under the personal income tax and  
          corporation tax laws 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 $50 million.  This bill applies to  
          taxable years beginning on or after January 1, 2015, and before  
          January 1, 2023.







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          To be eligible for the credit a taxpayer shall request a tax  
          credit reservation from the CTCAC in the form and manner  
          prescribed by CTCAC.

          The tax credit is equal to 20% of the qualified rehabilitation  
          expenditures with respect to a certified historic structure,  
          defined as a structure located in California that appears on  
          either the National Register of Historic Places or the  
          California Register of Historic Places.  The credit increases  
          the applicable percentage to 25% in the case of a certified  
          historic structure that meets one of the following criteria:

           The structure is located on federal, state, or local surplus  
            property.

           The rehabilitated structure includes affordable housing for  
            lower-income households.

           The structure is located in a census tract determined by the  
            Department of Finance to have an unemployment rate within the  
            top 25% of all census tracts within the state, and has a  
            poverty rate within the top 25% of all census tracts within  
            the state.

           The structure is a part of a military base reuse authority.

           The structure is a transit-oriented development that is a  
            higher-density, mixed-use development within a walking  
            distance of one-half mile of a transit station.

          This bill will allow the credit to be used for qualified  
          rehabilitation expenditures for a qualified residence determined  
          by CTCAC and the Office of Historic Preservation (OHP) to have a  
          public benefit as specified, subject to certain conditions.  A  
          taxpayer shall only be allowed a credit once every 10 taxable  
          years.

          This bill requires CTCAC to establish criteria and procedures  
          for applications and the allocation and certification of  
          credits, and determine and allocate an aggregate amount of the  
          tax credits, as well as carrying over unallocated credits from  
          prior years.  CTCAC must allocate the credit according to the  
          following criteria:







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           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.

           For the qualified rehabilitation expenditures with respect to  
            a qualified principal residence, the rehabilitation has a  
            public benefit, as determined jointly with the OHP.

          GO-BIZ shall set aside of $10 million from the annual tax credit  
          ceiling for small projects with qualified rehabilitation  
          expenditures of less than $1 million.  To the extent that the  
          set aside is not fully utilized in any tax year, the unused  
          portion of the set aside would become available for allocation  
          to larger projects.

          This bill authorizes the taxpayer to carry forward the tax  
          credit up to eight years or until the credit is exhausted and  
          provides that the credit shall be allocated to the partners of a  
          partnership owning the historic rehabilitation project in  
          accordance with the partnership agreement.  If the allocation of  
          the credit lacks substantial economic effect, any loss or  
          deduction allowable that is attributable to the sale or  
          disposition of that partner's interest made prior to the  
          expiration of the federal credit shall be deferred until the  
          first taxable year immediately following the taxable year in  
          which the federal credit period expires.

          This bill requires the Legislative Analyst Office, beginning  
          January 1, 2016, through January 1, 2024, to collaborate with  
          CTCAC to review the effectiveness of the historic building tax  
          credit program, including an analysis of the demand for the tax  
          credit, the types and uses of projects receiving the tax credit,  
          the jobs created by the use of the tax credit, and the economic  
          impact of the tax credit; and requires CTCAC to provide the  
          Franchise Tax Board (FTB) with an annual list of taxpayers that  
          were allocated a credit.







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          This bill allows CTCAC to charge a fee to cover expenses  
          incurred by both itself and OHP.

           Comments

           35 other states offer tax incentives of various kinds for  
          historic preservation and rehabilitation projects, many of them  
          similar to the federal program.  These state programs typically  
          seek to leverage the federal tax credits, and studies have  
          concluded those states with the strongest credits regularly lead  
          the nation in the use of the federal credit.  For example, an  
          annual report of the Ohio historic preservation tax credit  
          program states the $327 million in tax credits approved are  
          projected to leverage more than $2 billion in private investment  
          and federal tax credits, which translates to $6.25 of investment  
          for every dollar of the state tax credit.  According to a 2011  
          economic impact study conducted by Cleveland State University,  
          the $246 million in approved tax credits is expected to result,  
          during the construction period alone, in nearly $10 billion in  
          economic activity in the state between 2007 and 2025.   
          Similarly, studies in Minnesota and North Carolina found that  
          every dollar of the state historic tax credit created $8.32 and  
          $12.51, respectively, in economic activity.

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

          According to the Senate Appropriations Committee:

          This bill creates an aggregate annual cap of $50 million in  
          credits, the effects of which will be gradually phased in.   
          Specifically, the FTB indicates that this bill will result in  
          estimated revenue losses of $25 million in 2014-15, $65 million  
          in 2015-16, and $75 million in 2016-17.  This bill will not  
          significantly impact FTB's costs.

          Estimation is that it will costs between $500,000 and $885,000  
          annually (General Fund) to administer the program.

          OHP within the Department of Parks and Recreation will incur  
          first-year administrative costs of $216,000 and ongoing costs of  
          $197,000 (General Fund).
          This bill will give CTCAC authority to charge a fee to cover  







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          both its expenses and those of OHP.

          SUPPORT  :   (Verified  8/25/14)

          American Institute of Architects California Council (co-source)
          California Preservation Foundation (co-source)
          Applied Architecture Inc.
          Architectural Resources Group, Inc.
          Barstow Area Chamber of Commerce
          Brunzell Historical
          California Building Industry Association
          California Conference of Machinists
          California Conference of the Amalgamated Transit Union
          California Historical Route 66 Association
          California Teamsters Public Affairs Council
          California-Nevada Conference of Operating Engineers
          Capital City Preservation Trust
          Cities of Orange, Richmond, Sacramento, San Diego, San Gabriel,  
          Sonoma,                                                      
          Novato and Woodland
          City and County of San Francisco
          City of Santa Ana, Councilmember Vincent F. Sarmiento
          Downtown Sacramento Partnership
          Engineers & Scientists, IFPTE, Local 20
          Fine Arts Commissioner and Historical Preservation Commissioner,  
          Daniel                                                       
          Malmuth,
          Hollywood Heritage Inc.
          International Longshore and Warehouse Union, Coast Division
          League of California Cities
          Los Angeles Conservancy
          Los Angeles Mayor, Eric Garcetti
          Northern California Community Loan Fund
          Oakland Heritage Alliance
          Palm Springs Modern Committee
          Professional & Technical Engineers, IFPTE Local 21
          Sacramento County Historical Society
          Sacramento Modern
          Sacramento Old City Association
          San Diego Council President, Todd Gloria
          San Diego Regional Chamber of Commerce
          San Francisco Heritage
          Save Our Heritage Organization
          Structural Engineers Association of California







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          The Glendale Historical Society
          Tuolumne County Visitors Bureau
          UNITE HERE
          Utility Workers Union of America, Local 132

           ARGUMENTS IN SUPPORT  :    According to the author, "AB 1999 seeks  
          to create an incentive for economic development through the  
          establishment of a tax credit for the preservation and  
          rehabilitation of historic buildings in California.

          "As California communities continue to adjust and adapt with the  
          dissolution of redevelopment, proven tools are still needed to  
          incent economic development and revitalize economically  
          depressed areas.

          "AB 1999 helps communities adjust to the phase-out of  
          redevelopment dollars and stimulates public and private  
          investment, all while building civic pride as we celebrate our  
          heritage and preserve California's past."

           ASSEMBLY FLOOR  :  75-0, 5/27/14
          AYES:  Achadjian, Alejo, Allen, Ammiano, Bigelow, Bloom,  
            Bocanegra, Bonilla, Bonta, Bradford, Brown, Buchanan, Ian  
            Calderon, Campos, Chau, Chávez, Conway, Cooley, Dababneh,  
            Dahle, Daly, Dickinson, Donnelly, Eggman, Fong, Fox, Frazier,  
            Beth Gaines, Garcia, Gatto, Gomez, Gordon, Gorell, Gray,  
            Grove, Hagman, Hall, Harkey, Roger Hernández, Holden, Jones,  
            Jones-Sawyer, Levine, Linder, Logue, Lowenthal, Maienschein,  
            Mansoor, Medina, Melendez, Mullin, Muratsuchi, Nazarian,  
            Nestande, Olsen, Pan, Perea, John A. Pérez, V. Manuel Pérez,  
            Quirk, Rendon, Ridley-Thomas, Rodriguez, Salas, Skinner,  
            Stone, Ting, Wagner, Waldron, Weber, Wieckowski, Wilk,  
            Williams, Yamada, Atkins
          NO VOTE RECORDED:  Chesbro, Gonzalez, Patterson, Quirk-Silva,  
            Vacancy


          AB:e  8/25/14   Senate Floor Analyses 

                           SUPPORT/OPPOSITION:  SEE ABOVE

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