BILL ANALYSIS Ó
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|SENATE RULES COMMITTEE | AB 1999|
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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
**** END ****
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