Amended in Assembly April 16, 2015

Amended in Assembly April 6, 2015

Amended in Assembly March 2, 2015

California Legislature—2015–16 Regular Session

Assembly BillNo. 35


Introduced by Assembly Members Chiu and Atkins

(Principal coauthor: Assembly Member Wilk)

(begin deleteCoauthor: end deletebegin insertCoauthors: end insertAssemblybegin delete Memberend deletebegin insert Members Chau andend insert Steinorth)

December 1, 2014


An act to amend Sections 12206, 17058, and 23610.5 of the Revenue and Taxation Code, relating to taxation, to take effect immediately, tax levy.

LEGISLATIVE COUNSEL’S DIGEST

AB 35, as amended, Chiu. Income taxes: credits: low-income housing: allocation increase.

Existing law establishes a low-income housing tax credit program pursuant to which the California Tax Credit Allocation Committee provides procedures and requirements for the allocation of state insurance, personal income, and corporation income tax credit amounts among low-income housing projects based on federal law. Existing law, in modified conformity to federal income tax law, allows the credit based upon the applicable percentage, as defined, of the qualified basis of each qualified low-income building. Existing law limits the total annual amount of the credit that the committee may allocate to $70 million per year, as specified.

This bill, for calendar years beginning 2015, would increase the aggregate housing credit dollar amount that may be allocated among low-income housing projects by $300,000,000, as specified. The bill, under the insurance taxation law, the Personal Income Tax Law, and the Corporation Tax Law, would modify the definition of applicable percentage relating to qualified low-income buildings that meet specified criteria.

This bill would take effect immediately as a tax levy.

Vote: majority. Appropriation: no. Fiscal committee: yes. State-mandated local program: no.

The people of the State of California do enact as follows:

P2    1

SECTION 1.  

Section 12206 of the Revenue and Taxation Code
2 is amended to read:

3

12206.  

(a) (1) There shall be allowed as a credit against the
4“tax,” as described by Section 12201, a state low-income housing
5tax credit in an amount equal to the amount determined in
6subdivision (c), computed in accordance with Section 42 of the
7Internal Revenue Code except as otherwise provided in this section.

8(2) “Taxpayer,” for purposes of this section, means the sole
9owner in the case of a “C” corporation, the partners in the case of
10a partnership, members in the case of a limited liability company,
11and the shareholders in the case of an “S” corporation.

12(3) “Housing sponsor,” for purposes of this section, means the
13sole owner in the case of a “C” corporation, the partnership in the
14case of a partnership, the limited liability company in the case of
15a limited liability company, and the “S” corporation in the case of
16an “S” corporation.

17(4) “Extremely low-income” has the same meaning as in Section
1850053 of the Health and Safety Code.

19(5) “Rural area” means a rural area as defined in Section
2050199.21 of the Health and Safety Code.

21(6) “Special needs housing” has the meaning as in paragraph
22(4) of subdivision (g) of Section 10325 of Title 4 of the California
23Code of Regulations.

24(7) “SRO” means single room occupancy.

25(8) “Very low-income” has the same meaning as in Section
2650053 of the Health and Safety Code.”

P3    1(b) (1) The amount of the credit allocated to any housing
2sponsor shall be authorized by the California Tax Credit Allocation
3Committee, or any successor thereof, based on a project’s need
4for the credit for economic feasibility in accordance with the
5requirements of this section.

6(A) Except for projects to provide farmworker housing, as
7defined in subdivision (h) of Section 50199.7 of the Health and
8Safety Code, that are allocated credits solely under the set-aside
9described in subdivision (c) of Section 50199.20 of the Health and
10Safety Code, the low-income housing project shall be located in
11California and shall meet either of the following requirements:

12(i) The project’s housing sponsor has been allocated by the
13California Tax Credit Allocation Committee a credit for federal
14income tax purposes under Section 42 of the Internal Revenue
15 Code.

16(ii) It qualifies for a credit under Section 42(h)(4)(B) of the
17Internal Revenue Code.

18(B) The California Tax Credit Allocation Committee shall not
19require fees for the credit under this section in addition to those
20fees required for applications for the tax credit pursuant to Section
2142 of the Internal Revenue Code. The committee may require a
22fee if the application for the credit under this section is submitted
23in a calendar year after the year the application is submitted for
24the federal tax credit.

25(C) (i) For a project that receives a preliminary reservation of
26the state low-income housing tax credit, allowed pursuant to
27subdivision (a), on or after January 1, 2009, and before January 1,
282016, the credit shall be allocated to the partners of a partnership
29owning the project in accordance with the partnership agreement,
30regardless of how the federal low-income housing tax credit with
31respect to the project is allocated to the partners, or whether the
32allocation of the credit under the terms of the agreement has
33substantial economic effect, within the meaning of Section 704(b)
34of the Internal Revenue Code.

35(ii) This subparagraph shall not apply to a project that receives
36a preliminary reservation of state low-income housing tax credits
37under the set-aside described in subdivision (c) of Section 50199.20
38of the Health and Safety Code unless the project also receives a
39preliminary reservation of federal low-income housing tax credits.

P4    1(iii) This subparagraph shall cease to be operative with respect
2to any project that receives a preliminary reservation of a credit
3on or after January 1, 2016.

4(2) (A) The California Tax Credit Allocation Committee shall
5certify to the housing sponsor the amount of tax credit under this
6section allocated to the housing sponsor for each credit period.

7(B) In the case of a partnership or an “S” corporation, the
8housing sponsor shall provide a copy of the California Tax Credit
9Allocation Committee certification to the taxpayer.

10(C) The taxpayer shall attach a copy of the certification to any
11return upon which a tax credit is claimed under this section.

12(D) In the case of a failure to attach a copy of the certification
13for the year to the return in which a tax credit is claimed under this
14section, no credit under this section shall be allowed for that year
15until a copy of that certification is provided.

16(E) All elections made by the taxpayer pursuant to Section 42
17of the Internal Revenue Code shall apply to this section.

18(F) (i) The California Tax Credit Allocation Committee may
19allocate a credit under this section in exchange for a credit allocated
20pursuant to Section 42(d)(5)(B) of the Internal Revenue Code in
21amounts up to 30 percent of the eligible basis of a building if the
22credits allowed under Section 42 of the Internal Revenue Code are
23reduced by an equivalent amount.

24(ii) An equivalent amount shall be determined by the California
25Tax Credit Allocation Committee based upon the relative amount
26required to produce an equivalent state tax credit to the taxpayer.

27(c) Section 42(b) of the Internal Revenue Code shall be modified
28as follows:

29(1) In the case of any qualified low-income building that is a
30new building not federally subsidized, the term “applicable
31percentage” means the following:

32(A) For each of the first three years, the percentage prescribed
33by the Secretary of the Treasury for new buildings that are not
34federally subsidized for the taxable year, determined in accordance
35with the requirements of Section 42(b)(1) of the Internal Revenue
36Code in lieu of the percentage prescribed in Section 42(b)(1)(A)
37of the Internal Revenue Code.

38(B) For the fourth year, the difference between 30 percent and
39the sum of the applicable percentages for the first three years.

P5    1(2) In the case of any qualified low-income building that (i) is
2a new building, (ii) not located in designated difficult development
3areas (DDAs) or qualified census tracts (QCTs), as defined in
4Sectionbegin delete 45(d)(5)(B)end deletebegin insert 42(d)(5)(B)end insert of the Internal Revenue Code,
5and (iii) is federally subsidized, the term “applicable percentage”
6means for the first three years, 15 percent of the qualified basis of
7the building, and for the fourth year, 5 percent of the qualified
8basis of the building.

9(3) In the case of any qualified low-income building that is (i)
10an existing building, (ii) not located in designated difficult
11development areas (DDAs) or qualified census tracts (QCTs), as
12defined in Sectionbegin delete 45(d)(5)(B)end deletebegin insert 42(d)(5)(B)end insert of the Internal Revenue
13Code, and (iii) is federally subsidized, the term applicable
14percentage means the following:

15(A) For each of the first three years, the percentage prescribed
16by the Secretary of the Treasury for new buildings that are federally
17subsidized for the taxable year.

18(B) For the fourth year, the difference between 13 percent and
19the sum of the applicable percentages for the first three years.

20(4) In the case of any qualified low-income building that is (i)
21a new or an existing building, (ii) located in designated difficult
22development areas (DDAs) or qualified census tracts (QCTs) as
23defined in Section 42(d)(5)(B) of the Internal Revenue Code, and
24(iii) federally subsidized, the California Tax Credit Allocation
25Committee shall determine the amount of credit to be allocated
26under subparagraph (F) of paragraph (2) of subdivision (b) required
27to produce an equivalent state tax credit to the taxpayer, as
28produced in paragraph (2), taking into account the basis boost
29provided under Section 42(d)(5)(B) of the Internal Revenue Code.

30(5) In the case of any qualified low-income building that meets
31all of the requirements of subparagraphs (A) through (D), inclusive,
32the term “applicable percentage” means 30 percent for each of the
33first three years and 5 percent for the fourth year.

34(A) The qualified low-income building is at least 15 years old.

35(B) The qualified low-income building is a SRO, special needs
36housing, is in a rural area, or serves households with very
37low-income or extremely low-income residents.

38(C) The qualified low-income building is serving households
39of very low-income or extremely low-income provided that the
40average income at time admission is not more than 45 percent of
P6    1the median gross income, as determined under Section 42 of the
2Internal Revenue Code, adjusted by household size.

3(D) The qualified low-income building would have insufficient
4credits under paragraphs (1) and (2) to complete substantial
5rehabilitation due to a low appraised value.

6(d) The term “qualified low-income housing project” as defined
7in Section 42(c)(2) of the Internal Revenue Code is modified by
8adding the following requirements:

9(1) The taxpayer shall be entitled to receive a cash distribution
10from the operations of the project, after funding required reserves,
11that, at the election of the taxpayer, is equal to:

12(A) An amount not to exceed 8 percent of the lesser of:

13(i) The owner equity that shall include the amount of the capital
14contributions actually paid to the housing sponsor and shall not
15include any amounts until they are paid on an investor note.

16(ii) Twenty percent of the adjusted basis of the building as of
17the close of the first taxable year of the credit period.

18(B) The amount of the cashflow from those units in the building
19that are not low-income units. For purposes of computing cashflow
20under this subparagraph, operating costs shall be allocated to the
21low-income units using the “floor space fraction,” as defined in
22Section 42 of the Internal Revenue Code.

23(C) Any amount allowed to be distributed under subparagraph
24(A) that is not available for distribution during the first five years
25of the compliance period may be accumulated and distributed any
26time during the first 15 years of the compliance period but not
27thereafter.

28(2) The limitation on return shall apply in the aggregate to the
29partners if the housing sponsor is a partnership and in the aggregate
30to the shareholders if the housing sponsor is an “S” corporation.

31(3) The housing sponsor shall apply any cash available for
32distribution in excess of the amount eligible to be distributed under
33paragraph (1) to reduce the rent on rent-restricted units or to
34increase the number of rent-restricted units subject to the tests of
35Section 42(g)(1) of the Internal Revenue Code.

36(e) The provisions of Section 42(f) of the Internal Revenue Code
37shall be modified as follows:

38(1) The term “credit period” as defined in Section 42(f)(1) of
39the Internal Revenue Code is modified by substituting “four taxable
40years” for “10 taxable years.”

P7    1(2) The special rule for the first taxable year of the credit period
2under Section 42(f)(2) of the Internal Revenue Code shall not apply
3to the tax credit under this section.

4(3) Section 42(f)(3) of the Internal Revenue Code is modified
5to read:

6If, as of the close of any taxable year in the compliance period,
7after the first year of the credit period, the qualified basis of any
8building exceeds the qualified basis of that building as of the close
9of the first year of the credit period, the housing sponsor, to the
10extent of its tax credit allocation, shall be eligible for a credit on
11the excess in an amount equal to the applicable percentage
12determined pursuant to subdivision (c) for the four-year period
13beginning with the the taxable year in which the increase in
14qualified basis occurs.

15(f) The provisions of Section 42(h) of the Internal Revenue
16 Code shall be modified as follows:

17(1) Section 42(h)(2) of the Internal Revenue Code shall not be
18applicable and instead the following provisions shall be applicable:

19The total amount for the four-year credit period of the housing
20credit dollars allocated in a calendar year to any building shall
21reduce the aggregate housing credit dollar amount of the California
22Tax Credit Allocation Committee for the calendar year in which
23the allocation is made.

24(2) Paragraphs (3), (4), (5), (6)(E)(i)(II), (6)(F), (6)(G), (6)(I),
25(7), and (8) of Section 42(h) of the Internal Revenue Code shall
26not be applicable.

27(g) The aggregate housing credit dollar amount that may be
28allocated annually by the California Tax Credit Allocation
29Committee pursuant to this section, Section 17058, and Section
3023610.5 shall be an amount equal to the sum of all the following:

31(1) (A) Seventy million dollars ($70,000,000) for the 2001
32calendar year, and, for the 2002 calendar year and each calendar
33year thereafter, seventy million dollars ($70,000,000) increased
34by the percentage, if any, by which the Consumer Price Index for
35the preceding calendar year exceeds the Consumer Price Index for
36the 2001 calendar year. For the purposes of this paragraph, the
37term “Consumer Price Index” means the last Consumer Price Index
38for All Urban Consumers published by the federal Department of
39Labor.

P8    1(B)  An additional three hundred million dollars ($300,000,000)
2for the 2015 calendar year, and, for the 2016 calendar year and
3each calendar year thereafter, three hundred million dollars
4 ($300,000,000) increased by the percentage, if any, by which the
5Consumer Price Index for the preceding calendar year exceeds the
6Consumer Price Index for the 2015 calendar year. For the purposes
7of this paragraph, the term “Consumer Price Index” means the last
8Consumer Price Index for All Urban Consumers published by the
9federal Department of Labor. A housing sponsor receiving an
10allocation under paragraph (1) of subdivision (c) shall not be
11eligible for receipt of the housing credit allocated from the
12increased amount under this subparagraph. A housing sponsor
13receiving an allocation under paragraph (1) of subdivision (c) shall
14remain eligible for receipt of the housing credit allocated from the
15credit ceiling amount under subparagraph (A).

16(2) The unused housing credit ceiling, if any, for the preceding
17calendar years.

18(3) The amount of housing credit ceiling returned in the calendar
19year. For purposes of this paragraph, the amount of housing credit
20dollar amount returned in the calendar year equals the housing
21credit dollar amount previously allocated to any project that does
22not become a qualified low-income housing project within the
23period required by this section or to any project with respect to
24which an allocation is canceled by mutual consent of the California
25Tax Credit Allocation Committee and the allocation recipient.

26(4) Five hundred thousand dollars ($500,000) per calendar year
27for projects to provide farmworker housing, as defined in
28subdivision (h) of Section 50199.7 of the Health and Safety Code.

29(5) The amount of any unallocated or returned credits under
30former Sections 17053.14, 23608.2, and 23608.3, as those sections
31read prior to January 1, 2009, until fully exhausted for projects to
32provide farmworker housing, as defined in subdivision (h) of
33Section 50199.7 of the Health and Safety Code.

34(h) The term “compliance period” as defined in Section 42(i)(1)
35of the Internal Revenue Code is modified to mean, with respect to
36any building, the period of 30 consecutive taxable years beginning
37with the first taxable year of the credit period with respect thereto.

38(i) (1) Section 42(j) of the Internal Revenue Code shall not be
39applicable and the provisions in paragraph (2) shall be substituted
40in its place.

P9    1(2) The requirements of this section shall be set forth in a
2regulatory agreement between the California Tax Credit Allocation
3Committee and the housing sponsor, and the regulatory agreement
4shall be subordinated, when required, to any lien or encumbrance
5of any banks or other institutional lenders to the project. The
6regulatory agreement entered into pursuant to subdivision (f) of
7Section 50199.14 of the Health and Safety Code, shall apply,
8provided that the agreement includes all of the following
9provisions:

10(A) A term not less than the compliance period.

11(B) A requirement that the agreement be recorded in the official
12records of the county in which the qualified low-income housing
13project is located.

14(C) A provision stating which state and local agencies can
15enforce the regulatory agreement in the event the housing sponsor
16fails to satisfy any of the requirements of this section.

17(D) A provision that the regulatory agreement shall be deemed
18a contract enforceable by tenants as third-party beneficiaries thereto
19and that allows individuals, whether prospective, present, or former
20occupants of the building, who meet the income limitation
21applicable to the building, the right to enforce the regulatory
22agreement in any state court.

23(E) A provision incorporating the requirements of Section 42
24of the Internal Revenue Code as modified by this section.

25(F) A requirement that the housing sponsor notify the California
26Tax Credit Allocation Committee or its designee and the local
27agency that can enforce the regulatory agreement if there is a
28determination by the Internal Revenue Service that the project is
29not in compliance with Section 42(g) of the Internal Revenue Code.

30(G) A requirement that the housing sponsor, as security for the
31performance of the housing sponsor’s obligations under the
32regulatory agreement, assign the housing sponsor’s interest in rents
33that it receives from the project, provided that until there is a
34default under the regulatory agreement, the housing sponsor is
35entitled to collect and retain the rents.

36(H) The remedies available in the event of a default under the
37regulatory agreement that is not cured within a reasonable cure
38period, include, but are not limited to, allowing any of the parties
39designated to enforce the regulatory agreement to collect all rents
40with respect to the project; taking possession of the project and
P10   1operating the project in accordance with the regulatory agreement
2until the enforcer determines the housing sponsor is in a position
3to operate the project in accordance with the regulatory agreement;
4applying to any court for specific performance; securing the
5appointment of a receiver to operate the project; or any other relief
6as may be appropriate.

7(j) (1) The committee shall allocate the housing credit on a
8regular basis consisting of two or more periods in each calendar
9year during which applications may be filed and considered. The
10committee shall establish application filing deadlines, the maximum
11percentage of federal and state low-income housing tax credit
12ceiling that may be allocated by the committee in that period, and
13the approximate date on which allocations shall be made. If the
14enactment of federal or state law, the adoption of rules or
15regulations, or other similar events prevent the use of two allocation
16periods, the committee may reduce the number of periods and
17adjust the filing deadlines, maximum percentage of credit allocated,
18and allocation dates.

19(2) The committee shall adopt a qualified allocation plan, as
20provided in Section 42(m)(1) of the Internal Revenue Code. In
21adopting this plan, the committee shall comply with the provisions
22of Sections 42(m)(1)(B) and 42(m)(1)(C) of the Internal Revenue
23Code, respectively.

24(3) Notwithstanding Section 42(m) of the Internal Revenue
25Code the California Tax Credit Allocation Committee shall allocate
26housing credits in accordance with the qualified allocation plan
27and regulations, which shall include the following provisions:

28(A) All housing sponsors, as defined by paragraph (3) of
29subdivision (a), shall demonstrate at the time the application is
30filed with the committee that the project meets the following
31threshold requirements:

32(i) The housing sponsor shall demonstrate there is a need and
33demand for low-income housing in the community or region for
34which it is proposed.

35(ii) The project’s proposed financing, including tax credit
36proceeds, shall be sufficient to complete the project and that the
37proposed operating income shall be adequate to operate the project
38for the extended use period.

P11   1(iii) The project shall have enforceable financing commitments,
2either construction or permanent financing, for at least 50 percent
3of the total estimated financing of the project.

4(iv) The housing sponsor shall have and maintain control of the
5site for the project.

6(v) The housing sponsor shall demonstrate that the project
7complies with all applicable local land use and zoning ordinances.

8(vi) The housing sponsor shall demonstrate that the project
9development team has the experience and the financial capacity
10to ensure project completion and operation for the extended use
11period.

12(vii) The housing sponsor shall demonstrate the amount of tax
13credit that is necessary for the financial feasibility of the project
14and its viability as a qualified low-income housing project
15throughout the extended use period, taking into account operating
16expenses, a supportable debt service, reserves, funds set aside for
17rental subsidies, and required equity, and a development fee that
18does not exceed a specified percentage of the eligible basis of the
19project prior to inclusion of the development fee in the eligible
20basis, as determined by the committee.

21(B) The committee shall give a preference to those projects
22satisfying all of the threshold requirements of subparagraph (A)
23if both of the following apply:

24(i) The project serves the lowest income tenants at rents
25affordable to those tenants.

26(ii) The project is obligated to serve qualified tenants for the
27longest period.

28(C) In addition to the provisions of subparagraphs (A) and (B),
29the committee shall use the following criteria in allocating housing
30credits:

31(i) Projects serving large families in which a substantial number,
32as defined by the committee, of all residential units are low-income
33units with three and more bedrooms.

34(ii) Projects providing single-room occupancy units serving
35very low income tenants.

36(iii) (I) Existing projects that are “at risk of conversion.”

37(II) For purposes of this section, the term “at risk of conversion,”
38with respect to an existing property means a property that satisfies
39all of the following criteria:

P12   1(ia) The property is a multifamily rental housing development
2in which at least 50 percent of the units receive governmental
3assistance pursuant to any of the following:

4(Ia) New construction, substantial rehabilitation, moderate
5rehabilitation, property disposition, and loan management set-aside
6programs, or any other program providing project-based assistance
7pursuant to Section 8 of the United States Housing Act of 1937,
8Section 1437f of Title 42 of the United States Code, as amended.

9(Ib) The Below-Market-Interest-Rate Program pursuant to
10Section 221(d)(3) of the National Housing Act, Sections
111715l(d)(3) and (5) of Title 12 of the United States Code.

12(Ic) Section 236 of the National Housing Act, Section 1715z-1
13of Title 12 of the United States Code.

14(Id) Programs for rent supplement assistance pursuant to Section
1518 101 of the Housing and Urban Development Act of 1965,
16Section 1701s of Title 12 of the United States Code, as amended.

17(Ie) Programs pursuant to Section 515 of the Housing Act of
181949, Section 1485 of Title 42 of the United States Code, as
19 amended.

20(If) The low-income housing credit program set forth in Section
2142 of the Internal Revenue Code.

22(ib) The restrictions on rent and income levels will terminate
23or the federal insured mortgage on the property is eligible for
24prepayment any time within five years before or after the date of
25application to the California Tax Credit Allocation Committee.

26(ic) The entity acquiring the property enters into a regulatory
27agreement that requires the property to be operated in accordance
28with the requirements of this section for a period equal to the
29greater of 55 years or the life of the property.

30(id) The property satisfies the requirements of Section 42(e) of
31the Internal Revenue Code, regarding rehabilitation expenditures
32except that the provisions of Section 42(e)(3)(A)(ii)(I) shall not
33apply.

34(iv) Projects for which a public agency provides direct or indirect
35long-term financial support for at least 15 percent of the total
36project development costs or projects for which the owner’s equity
37constitutes at least 30 percent of the total project development
38costs.

39(v) Projects that provide tenant amenities not generally available
40to residents of low-income housing projects.

P13   1(4) For purposes of allocating credits pursuant to this section,
2the committee shall not give preference to any project by virtue
3of the date of submission of its application except to break a tie
4when two or more of the projects have an equal rating.

5(k) Section 42(l) of the Internal Revenue Code shall be modified
6as follows:

7The term “secretary” shall be replaced by the term “California
8Franchise Tax Board.”

9(l) In the case where the credit allowed under this section
10exceeds the “tax,” the excess may be carried over to reduce the
11“tax” in the following year, and succeeding years if necessary,
12until the credit has been exhausted.

13(m) The provisions of Section 11407(a) of Public Law 101-508,
14relating to the effective date of the extension of the low-income
15housing credit, shall apply to calendar years after 1993.

16(n) The provisions of Section 11407(c) of Public Law 101-508,
17relating to election to accelerate credit, shall not apply.

18(o) This section shall remain in effect for as long as Section 42
19of the Internal Revenue Code, relating to low-income housing
20 credit, remains in effect.

21

SEC. 2.  

Section 17058 of the Revenue and Taxation Code is
22amended to read:

23

17058.  

(a) (1) There shall be allowed as a credit against the
24“net tax,” as defined in Section 17039, a state low-income housing
25tax credit in an amount equal to the amount determined in
26subdivision (c), computed in accordance with Section 42 of the
27Internal Revenue Code except as otherwise provided in this section.

28(2) “Taxpayer” for purposes of this section means the sole owner
29in the case of an individual, the partners in the case of a partnership,
30members in the case of a limited liability company, and the
31shareholders in the case of an “S” corporation.

32(3) “Housing sponsor” for purposes of this section means the
33sole owner in the case of an individual, the partnership in the case
34 of a partnership, the limited liability company in the case of a
35limited liability company, and the “S” corporation in the case of
36an “S” corporation.

37(4) “Extremely low-income” has the same meaning as in Section
3850053 of the Health and Safety Code.

39(5) “Rural area” means a rural area as defined in Section
4050199.21 of the Health and Safety Code.

P14   1(6) “Special needs housing” has the meaning as in paragraph
2(4) of subdivision (g) of Section 10325 of Title 4 of the California
3Code of Regulations.

4(7) “SRO” means single room occupancy.

5(8) “Very low-income” has the same meaning as in Section
650053 of the Health and Safety Code.”

7(b) (1) The amount of the credit allocated to any housing
8sponsor shall be authorized by the California Tax Credit Allocation
9Committee, or any successor thereof, based on a project’s need
10for the credit for economic feasibility in accordance with the
11requirements of this section.

12(A) The low-income housing project shall be located in
13California and shall meet either of the following requirements:

14(i) Except for projects to provide farmworker housing, as defined
15in subdivision (h) of Section 50199.7 of the Health and Safety
16Code, that are allocated credits solely under the set-aside described
17in subdivision (c) of Section 50199.20 of the Health and Safety
18Code, the project’s housing sponsor has been allocated by the
19California Tax Credit Allocation Committee a credit for federal
20income tax purposes under Section 42 of the Internal Revenue
21Code.

22(ii) It qualifies for a credit under Section 42(h)(4)(B) of the
23Internal Revenue Code.

24(B) The California Tax Credit Allocation Committee shall not
25require fees for the credit under this section in addition to those
26fees required for applications for the tax credit pursuant to Section
2742 of the Internal Revenue Code. The committee may require a
28fee if the application for the credit under this section is submitted
29in a calendar year after the year the application is submitted for
30the federal tax credit.

31(C) (i) For a project that receives a preliminary reservation of
32the state low-income housing tax credit, allowed pursuant to
33subdivision (a), on or after January 1, 2009, and before January 1,
342016, the credit shall be allocated to the partners of a partnership
35owning the project in accordance with the partnership agreement,
36regardless of how the federal low-income housing tax credit with
37respect to the project is allocated to the partners, or whether the
38allocation of the credit under the terms of the agreement has
39substantial economic effect, within the meaning of Section 704(b)
40of the Internal Revenue Code.

P15   1(ii) To the extent the allocation of the credit to a partner under
2this section lacks substantial economic effect, any loss or deduction
3otherwise allowable under this part that is attributable to the sale
4or other disposition of that partner’s partnership interest made prior
5to the expiration of the federal credit shall not be allowed in the
6taxable year in which the sale or other disposition occurs, but shall
7instead be deferred until and treated as if it occurred in the first
8taxable year immediately following the taxable year in which the
9federal credit period expires for the project described in clause (i).

10(iii) This subparagraph shall not apply to a project that receives
11a preliminary reservation of state low-income housing tax credits
12under the set-aside described in subdivision (c) of Section 50199.20
13of the Health and Safety Code unless the project also receives a
14preliminary reservation of federal low-income housing tax credits.

15(iv) This subparagraph shall cease to be operative with respect
16to any project that receives a preliminary reservation of a credit
17on or after January 1, 2016.

18(2) (A) The California Tax Credit Allocation Committee shall
19certify to the housing sponsor the amount of tax credit under this
20section allocated to the housing sponsor for each credit period.

21(B) In the case of a partnership, limited liability company, or
22an “S” corporation, the housing sponsor shall provide a copy of
23the California Tax Credit Allocation Committee certification to
24the taxpayer.

25(C) The taxpayer shall, upon request, provide a copy of the
26certification to the Franchise Tax Board.

27(D) All elections made by the taxpayer pursuant to Section 42
28of the Internal Revenue Code shall apply to this section.

29(E) (i) The California Tax Credit Allocation Committee may
30allocate a credit under this section in exchange for a credit allocated
31pursuant to Section 42(d)(5)(B) of the Internal Revenue Code in
32amounts up to 30 percent of the eligible basis of a building if the
33credits allowed under Section 42 of the Internal Revenue Code are
34reduced by an equivalent amount.

35(ii) An equivalent amount shall be determined by the California
36Tax Credit Allocation Committee based upon the relative amount
37required to produce an equivalent state tax credit to the taxpayer.

38(c) Section 42(b) of the Internal Revenue Code shall be modified
39as follows:

P16   1(1) In the case of any qualified low-income building that is a
2new building not federally subsidized, the term “applicable
3percentage” means the following:

4(A) For each of the first three years, the percentage prescribed
5by the Secretary of the Treasury for new buildings that are not
6federally subsidized for the taxable year, determined in accordance
7with the requirements of Section 42(b)(1) of the Internal Revenue
8Code in lieu of the percentage prescribed in Section 42(b)(1)(A)
9of the Internal Revenue Code.

10(B) For the fourth year, the difference between 30 percent and
11the sum of the applicable percentages for the first three years.

12(2) In the case of any qualified low-income building that (i) is
13a new building, (ii) not located in designated difficult development
14areas (DDAs) or qualified census tracts (QCTs), as defined in
15Sectionbegin delete 45(d)(5)(B)end deletebegin insert 42(d)(5)(B)end insert of the Internal Revenue Code,
16and (iii) is federally subsidized, the term “applicable percentage”
17means for the first three years, 15 percent of the qualified basis of
18the building, and for the fourth year, 5 percent of the qualified
19basis of the building.

20(3) In the case of any qualified low-income building that is (i)
21an existing building, (ii) not located in designated difficult
22development areas (DDAs) or qualified census tracts (QCTs), as
23defined in Sectionbegin delete 45(d)(5)(B)end deletebegin insert 42(d)(5)(B)end insert of the Internal Revenue
24Code, and (iii) is federally subsidized, the term applicable
25percentage means the following:

26(A) For each of the first three years, the percentage prescribed
27by the Secretary of the Treasury for new buildings that are federally
28subsidized for the taxable year.

29(B) For the fourth year, the difference between 13 percent and
30the sum of the applicable percentages for the first three years.

31(4) In the case of any qualified low-income building that is (i)
32a new or an existing building, (ii) located in designated difficult
33development areas (DDAs) or qualified census tracts (QCTs) as
34defined in Section 42(d)(5)(B) of the Internal Revenue Code, and
35(iii) federally subsidized, the California Tax Credit Allocation
36Committee shall determine the amount of credit to be allocated
37under subparagraph (E) of paragraph (2) of subdivision (b) required
38to produce an equivalent state tax credit to the taxpayer, as
39produced in paragraph (2), taking into account the basis boost
40provided under Section 42(d)(5)(B) of the Internal Revenue Code.

P17   1(5) In the case of any qualified low-income building that meets
2all of the requirements of subparagraphs (A) through (D), inclusive,
3the term “applicable percentage” means 30 percent for each of the
4first three years and 5 percent for the fourth year.

5(A) The qualified low-income building is at least 15 years old.

6(B) The qualified low-income building is a SRO, special needs
7housing, is in a rural area, or serves households with very
8low-income or extremely low-income residents.

9(C) The qualified low-income building is serving households
10of very low-income or extremely low-income provided that the
11average income at time admission is not more than 45 percent of
12the median gross income, as determined under Section 42 of the
13Internal Revenue Code, adjusted by household size.

14(D) The qualified low-income building would have insufficient
15credits under paragraphs (1) and (2) to complete substantial
16rehabilitation due to a low appraised value.

17(d) The term “qualified low-income housing project” as defined
18in Section 42(c)(2) of the Internal Revenue Code is modified by
19 adding the following requirements:

20(1) The taxpayer shall be entitled to receive a cash distribution
21from the operations of the project, after funding required reserves,
22that, at the election of the taxpayer, is equal to:

23(A) An amount not to exceed 8 percent of the lesser of:

24(i) The owner equity that shall include the amount of the capital
25contributions actually paid to the housing sponsor and shall not
26include any amounts until they are paid on an investor note.

27(ii) Twenty percent of the adjusted basis of the building as of
28the close of the first taxable year of the credit period.

29(B) The amount of the cashflow from those units in the building
30that are not low-income units. For purposes of computing cashflow
31under this subparagraph, operating costs shall be allocated to the
32low-income units using the “floor space fraction,” as defined in
33Section 42 of the Internal Revenue Code.

34(C) Any amount allowed to be distributed under subparagraph
35(A) that is not available for distribution during the first five years
36of the compliance period may be accumulated and distributed any
37time during the first 15 years of the compliance period but not
38 thereafter.

P18   1(2) The limitation on return shall apply in the aggregate to the
2partners if the housing sponsor is a partnership and in the aggregate
3to the shareholders if the housing sponsor is an “S” corporation.

4(3) The housing sponsor shall apply any cash available for
5distribution in excess of the amount eligible to be distributed under
6paragraph (1) to reduce the rent on rent-restricted units or to
7increase the number of rent-restricted units subject to the tests of
8Section 42(g)(1) of the Internal Revenue Code.

9(e) The provisions of Section 42(f) of the Internal Revenue Code
10shall be modified as follows:

11(1) The term “credit period” as defined in Section 42(f)(1) of
12the Internal Revenue Code is modified by substituting “four taxable
13years” for “10 taxable years.”

14(2) The special rule for the first taxable year of the credit period
15under Section 42(f)(2) of the Internal Revenue Code shall not apply
16to the tax credit under this section.

17(3) Section 42(f)(3) of the Internal Revenue Code is modified
18to read:

19If, as of the close of any taxable year in the compliance period,
20 after the first year of the credit period, the qualified basis of any
21building exceeds the qualified basis of that building as of the close
22of the first year of the credit period, the housing sponsor, to the
23extent of its tax credit allocation, shall be eligible for a credit on
24the excess in an amount equal to the applicable percentage
25determined pursuant to subdivision (c) for the four-year period
26beginning with the taxable year in which the increase in qualified
27basis occurs.

28(f) The provisions of Section 42(h) of the Internal Revenue
29Code shall be modified as follows:

30(1) Section 42(h)(2) of the Internal Revenue Code shall not be
31applicable and instead the following provisions shall be applicable:

32The total amount for the four-year credit period of the housing
33credit dollars allocated in a calendar year to any building shall
34reduce the aggregate housing credit dollar amount of the California
35Tax Credit Allocation Committee for the calendar year in which
36the allocation is made.

37(2) Paragraphs (3), (4), (5), (6)(E)(i)(II), (6)(F), (6)(G), (6)(I),
38(7), and (8) of Section 42(h) of the Internal Revenue Code shall
39not be applicable.

P19   1(g) The aggregate housing credit dollar amount that may be
2allocated annually by the California Tax Credit Allocation
3Committee pursuant to this section, Section 12206, and Section
423610.5 shall be an amount equal to the sum of all the following:

5(1) (A) Seventy million dollars ($70,000,000) for the 2001
6calendar year, and, for the 2002 calendar year and each calendar
7year thereafter, seventy million dollars ($70,000,000) increased
8by the percentage, if any, by which the Consumer Price Index for
9the preceding calendar year exceeds the Consumer Price Index for
10the 2001 calendar year. For the purposes of this paragraph, the
11term “Consumer Price Index” means the last Consumer Price Index
12for All Urban Consumers published by the federal Department of
13Labor.

14(B)  An additional three hundred million dollars ($300,000,000)
15for the 2015 calendar year, and, for the 2016 calendar year and
16each calendar year thereafter, three hundred million dollars
17($300,000,000) increased by the percentage, if any, by which the
18Consumer Price Index for the preceding calendar year exceeds the
19Consumer Price Index for the 2015 calendar year. For the purposes
20of this paragraph, the term “Consumer Price Index” means the last
21Consumer Price Index for All Urban Consumers published by the
22federal Department of Labor. A housing sponsor receiving an
23allocation under paragraph (1) of subdivision (c) shall not be
24eligible for receipt of the housing credit allocated from the
25increased amount under this subparagraph. A housing sponsor
26receiving an allocation under paragraph (1) of subdivision (c) shall
27remain eligible for receipt of the housing credit allocated from the
28credit ceiling amount under subparagraph (A).

29(2) The unused housing credit ceiling, if any, for the preceding
30calendar years.

31(3) The amount of housing credit ceiling returned in the calendar
32year. For purposes of this paragraph, the amount of housing credit
33dollar amount returned in the calendar year equals the housing
34credit dollar amount previously allocated to any project that does
35not become a qualified low-income housing project within the
36period required by this section or to any project with respect to
37which an allocation is canceled by mutual consent of the California
38Tax Credit Allocation Committee and the allocation recipient.

P20   1(4) Five hundred thousand dollars ($500,000) per calendar year
2for projects to provide farmworker housing, as defined in
3subdivision (h) of Section 50199.7 of the Health and Safety Code.

4(5) The amount of any unallocated or returned credits under
5former Sections 17053.14, 23608.2, and 23608.3, as those sections
6read prior to January 1, 2009, until fully exhausted for projects to
7provide farmworker housing, as defined in subdivision (h) of
8Section 50199.7 of the Health and Safety Code.

9(h) The term “compliance period” as defined in Section 42(i)(1)
10of the Internal Revenue Code is modified to mean, with respect to
11any building, the period of 30 consecutive taxable years beginning
12with the first taxable year of the credit period with respect thereto.

13(i) Section 42(j) of the Internal Revenue Code shall not be
14applicable and the following requirements of this section shall be
15set forth in a regulatory agreement between the California Tax
16Credit Allocation Committee and the housing sponsor, and the
17regulatory agreement shall be subordinated, when required, to any
18lien or encumbrance of any banks or other institutional lenders to
19the project. The regulatory agreement entered into pursuant to
20subdivision (f) of Section 50199.14 of the Health and Safety Code
21shall apply, provided that the agreement includes all of the
22following provisions:

23(1) A term not less than the compliance period.

24(2) A requirement that the agreement be recorded in the official
25records of the county in which the qualified low-income housing
26project is located.

27(3) A provision stating which state and local agencies can
28enforce the regulatory agreement in the event the housing sponsor
29fails to satisfy any of the requirements of this section.

30(4) A provision that the regulatory agreement shall be deemed
31a contract enforceable by tenants as third-party beneficiaries thereto
32and that allows individuals, whether prospective, present, or former
33occupants of the building, who meet the income limitation
34applicable to the building, the right to enforce the regulatory
35agreement in any state court.

36(5) A provision incorporating the requirements of Section 42
37of the Internal Revenue Code as modified by this section.

38(6) A requirement that the housing sponsor notify the California
39Tax Credit Allocation Committee or its designee if there is a
P21   1determination by the Internal Revenue Service that the project is
2not in compliance with Section 42(g) of the Internal Revenue Code.

3(7) A requirement that the housing sponsor, as security for the
4performance of the housing sponsor’s obligations under the
5regulatory agreement, assign the housing sponsor’s interest in rents
6that it receives from the project, provided that until there is a
7default under the regulatory agreement, the housing sponsor is
8entitled to collect and retain the rents.

9(8) The remedies available in the event of a default under the
10regulatory agreement that is not cured within a reasonable cure
11period, include, but are not limited to, allowing any of the parties
12designated to enforce the regulatory agreement to collect all rents
13with respect to the project; taking possession of the project and
14operating the project in accordance with the regulatory agreement
15until the enforcer determines the housing sponsor is in a position
16to operate the project in accordance with the regulatory agreement;
17 applying to any court for specific performance; securing the
18appointment of a receiver to operate the project; or any other relief
19as may be appropriate.

20(j) (1) The committee shall allocate the housing credit on a
21regular basis consisting of two or more periods in each calendar
22year during which applications may be filed and considered. The
23committee shall establish application filing deadlines, the maximum
24percentage of federal and state low-income housing tax credit
25ceiling that may be allocated by the committee in that period, and
26the approximate date on which allocations shall be made. If the
27enactment of federal or state law, the adoption of rules or
28regulations, or other similar events prevent the use of two allocation
29periods, the committee may reduce the number of periods and
30adjust the filing deadlines, maximum percentage of credit allocated,
31and allocation dates.

32(2) The committee shall adopt a qualified allocation plan, as
33provided in Section 42(m)(1) of the Internal Revenue Code. In
34adopting this plan, the committee shall comply with the provisions
35of Sections 42(m)(1)(B) and 42(m)(1)(C) of the Internal Revenue
36Code, respectively.

37(3) Notwithstanding Section 42(m) of the Internal Revenue
38Code the California Tax Credit Allocation Committee shall allocate
39housing credits in accordance with the qualified allocation plan
40and regulations, which shall include the following provisions:

P22   1(A) All housing sponsors, as defined by paragraph (3) of
2subdivision (a), shall demonstrate at the time the application is
3filed with the committee that the project meets the following
4threshold requirements:

5(i) The housing sponsor shall demonstrate there is a need and
6demand for low-income housing in the community or region for
7which it is proposed.

8(ii) The project’s proposed financing, including tax credit
9proceeds, shall be sufficient to complete the project and that the
10proposed operating income shall be adequate to operate the project
11for the extended use period.

12(iii) The project shall have enforceable financing commitments,
13either construction or permanent financing, for at least 50 percent
14of the total estimated financing of the project.

15(iv) The housing sponsor shall have and maintain control of the
16site for the project.

17(v) The housing sponsor shall demonstrate that the project
18complies with all applicable local land use and zoning ordinances.

19(vi) The housing sponsor shall demonstrate that the project
20development team has the experience and the financial capacity
21to ensure project completion and operation for the extended use
22period.

23(vii) The housing sponsor shall demonstrate the amount of tax
24credit that is necessary for the financial feasibility of the project
25and its viability as a qualified low-income housing project
26throughout the extended use period, taking into account operating
27expenses, a supportable debt service, reserves, funds set aside for
28rental subsidies and required equity, and a development fee that
29does not exceed a specified percentage of the eligible basis of the
30project prior to inclusion of the development fee in the eligible
31basis, as determined by the committee.

32(B) The committee shall give a preference to those projects
33satisfying all of the threshold requirements of subparagraph (A)
34if both of the following apply:

35(i) The project serves the lowest income tenants at rents
36affordable to those tenants.

37(ii) The project is obligated to serve qualified tenants for the
38longest period.

P23   1(C) In addition to the provisions of subparagraphs (A) and (B),
2the committee shall use the following criteria in allocating housing
3credits:

4(i) Projects serving large families in which a substantial number,
5as defined by the committee, of all residential units are low-income
6units with three and more bedrooms.

7(ii) Projects providing single-room occupancy units serving
8very low income tenants.

9(iii) (I) Existing projects that are “at risk of conversion.”

10(II) For purposes of this section, the term “at risk of conversion,”
11with respect to an existing property means a property that satisfies
12all of the following criteria:

13(ia) The property is a multifamily rental housing development
14in which at least 50 percent of the units receive governmental
15assistance pursuant to any of the following:

16(Ia) New construction, substantial rehabilitation, moderate
17rehabilitation, property disposition, and loan management set-aside
18programs, or any other program providing project-based assistance
19pursuant to Section 8 of the United States Housing Act of 1937,
20Section 1437f of Title 42 of the United States Code, as amended.

21(Ib) The Below-Market-Interest-Rate Program pursuant to
22Section 221(d)(3) of the National Housing Act, Sections
231715l(d)(3) and (5) of Title 12 of the United States Code.

24(Ic) Section 236 of the National Housing Act, Section 1715z-1
25of Title 12 of the United States Code.

26(Id) Programs for rent supplement assistance pursuant to Section
2718 101 of the Housing and Urban Development Act of 1965,
28Section 1701s of Title 12 of the United States Code, as amended.

29(Ie) Programs pursuant to Section 515 of the Housing Act of
301949, Section 1485 of Title 42 of the United States Code, as
31amended.

32(If) The low-income housing credit program set forth in Section
3342 of the Internal Revenue Code.

34(ib) The restrictions on rent and income levels will terminate
35or the federal insured mortgage on the property is eligible for
36prepayment any time within five years before or after the date of
37application to the California Tax Credit Allocation Committee.

38(ic) The entity acquiring the property enters into a regulatory
39agreement that requires the property to be operated in accordance
P24   1with the requirements of this section for a period equal to the
2greater of 55 years or the life of the property.

3(id) The property satisfies the requirements of Section 42(e) of
4the Internal Revenue Code, regarding rehabilitation expenditures
5except that the provisions of Section 42(e)(3)(A)(ii)(I) shall not
6apply.

7(iv) Projects for which a public agency provides direct or indirect
8long-term financial support for at least 15 percent of the total
9project development costs or projects for which the owner’s equity
10constitutes at least 30 percent of the total project development
11costs.

12(v) Projects that provide tenant amenities not generally available
13to residents of low-income housing projects.

14(4) For purposes of allocating credits pursuant to this section,
15the committee shall not give preference to any project by virtue
16of the date of submission of its application.

17(k) Section 42(l) of the Internal Revenue Code shall be modified
18as follows:

19The term “secretary” shall be replaced by the term “California
20Franchise Tax Board.”

21(l) In the case where the credit allowed under this section
22exceeds the net tax, the excess may be carried over to reduce the
23net tax in the following year, and succeeding taxable years, if
24necessary, until the credit has been exhausted.

25(m) A project that received an allocation of a 1989 federal
26housing credit dollar amount shall be eligible to receive an
27allocation of a 1990 state housing credit dollar amount, subject to
28all of the following conditions:

29(1) The project was not placed in service prior to 1990.

30(2) To the extent the amendments made to this section by the
31 Statutes of 1990 conflict with any provisions existing in this section
32prior to those amendments, the prior provisions of law shall prevail.

33(3) Notwithstanding paragraph (2), a project applying for an
34allocation under this subdivision shall be subject to the
35requirements of paragraph (3) of subdivision (j).

36(n) The credit period with respect to an allocation of credit in
371989 by the California Tax Credit Allocation Committee of which
38any amount is attributable to unallocated credit from 1987 or 1988
39shall not begin until after December 31, 1989.

P25   1(o) The provisions of Section 11407(a) of Public Law 101-508,
2relating to the effective date of the extension of the low-income
3housing credit, shall apply to calendar years after 1989.

4(p) The provisions of Section 11407(c) of Public Law 101-508,
5relating to election to accelerate credit, shall not apply.

6(q) Any unused credit may continue to be carried forward, as
7provided in subdivision (l), until the credit has been exhausted.

8(r) This section shall remain in effect on and after December 1,
91990, for as long as Section 42 of the Internal Revenue Code,
10relating to low-income housing credit, remains in effect.

11(s) The amendments to this section made by Chapter 1222 of
12the Statutes of 1993 shall apply only to taxable years beginning
13on or after January 1, 1994.

14

SEC. 3.  

Section 23610.5 of the Revenue and Taxation Code
15 is amended to read:

16

23610.5.  

(a) (1) There shall be allowed as a credit against the
17“tax,” as defined by Section 23036, a state low-income housing
18tax credit in an amount equal to the amount determined in
19subdivision (c), computed in accordance with Section 42 of the
20Internal Revenue Code except as otherwise provided in this section.

21(2) “Taxpayer,” for purposes of this section, means the sole
22owner in the case of a “C” corporation, the partners in the case of
23a partnership, members in the case of a limited liability company,
24and the shareholders in the case of an “S” corporation.

25(3) “Housing sponsor,” for purposes of this section, means the
26sole owner in the case of a “C” corporation, the partnership in the
27case of a partnership, the limited liability company in the case of
28a limited liability company, and the “S” corporation in the case of
29an “S” corporation.

30(4) “Extremely low-income” has the same meaning as in Section
3150053 of the Health and Safety Code.

32(5) “Rural area” means a rural area as defined in Section
3350199.21 of the Health and Safety Code.

34(6) “Special needs housing” has the meaning as in paragraph
35(4) of subdivision (g) of Section 10325 of Title 4 of the California
36Code of Regulations.

37(7) “SRO” means single room occupancy.

38(8) “Very low-income” has the same meaning as in Section
3950053 of the Health and Safety Code.”

P26   1(b) (1) The amount of the credit allocated to any housing
2sponsor shall be authorized by the California Tax Credit Allocation
3Committee, or any successor thereof, based on a project’s need
4for the credit for economic feasibility in accordance with the
5requirements of this section.

6(A) The low-income housing project shall be located in
7California and shall meet either of the following requirements:

8(i) Except for projects to provide farmworker housing, as defined
9in subdivision (h) of Section 50199.7 of the Health and Safety
10Code, that are allocated credits solely under the set-aside described
11in subdivision (c) of Section 50199.20 of the Health and Safety
12Code, the project’s housing sponsor has been allocated by the
13California Tax Credit Allocation Committee a credit for federal
14income tax purposes under Section 42 of the Internal Revenue
15Code.

16(ii) It qualifies for a credit under Section 42(h)(4)(B) of the
17Internal Revenue Code.

18(B) The California Tax Credit Allocation Committee shall not
19require fees for the credit under this section in addition to those
20fees required for applications for the tax credit pursuant to Section
2142 of the Internal Revenue Code. The committee may require a
22fee if the application for the credit under this section is submitted
23in a calendar year after the year the application is submitted for
24the federal tax credit.

25(C) (i) For a project that receives a preliminary reservation of
26the state low-income housing tax credit, allowed pursuant to
27subdivision (a), on or after January 1, 2009, and before January 1,
282016, the credit shall be allocated to the partners of a partnership
29owning the project in accordance with the partnership agreement,
30regardless of how the federal low-income housing tax credit with
31respect to the project is allocated to the partners, or whether the
32allocation of the credit under the terms of the agreement has
33substantial economic effect, within the meaning of Section 704(b)
34of the Internal Revenue Code.

35(ii) To the extent the allocation of the credit to a partner under
36this section lacks substantial economic effect, any loss or deduction
37otherwise allowable under this part that is attributable to the sale
38or other disposition of that partner’s partnership interest made prior
39to the expiration of the federal credit shall not be allowed in the
40taxable year in which the sale or other disposition occurs, but shall
P27   1instead be deferred until and treated as if it occurred in the first
2taxable year immediately following the taxable year in which the
3federal credit period expires for the project described in clause (i).

4(iii) This subparagraph shall not apply to a project that receives
5a preliminary reservation of state low-income housing tax credits
6under the set-aside described in subdivision (c) of Section 50199.20
7of the Health and Safety Code unless the project also receives a
8preliminary reservation of federal low-income housing tax credits.

9(iv) This subparagraph shall cease to be operative with respect
10to any project that receives a preliminary reservation of a credit
11on or after January 1, 2016.

12(2) (A) The California Tax Credit Allocation Committee shall
13certify to the housing sponsor the amount of tax credit under this
14section allocated to the housing sponsor for each credit period.

15(B) In the case of a partnership, limited liability company, or
16an “S” corporation, the housing sponsor shall provide a copy of
17the California Tax Credit Allocation Committee certification to
18the taxpayer.

19(C) The taxpayer shall, upon request, provide a copy of the
20certification to the Franchise Tax Board.

21(D) All elections made by the taxpayer pursuant to Section 42
22of the Internal Revenue Code shall apply to this section.

23(E) (i) The California Tax Credit Allocation Committee may
24allocate a credit under this section in exchange for a credit allocated
25pursuant to Section 42(d)(5)(B) of the Internal Revenue Code in
26amounts up to 30 percent of the eligible basis of a building if the
27credits allowed under Section 42 of the Internal Revenue Code are
28reduced by an equivalent amount.

29(ii) An equivalent amount shall be determined by the California
30Tax Credit Allocation Committee based upon the relative amount
31required to produce an equivalent state tax credit to the taxpayer.

32(c) Section 42(b) of the Internal Revenue Code shall be modified
33as follows:

34(1) In the case of any qualified low-income building that is a
35new building not federally subsidized, the term “applicable
36percentage” means the following:

37(A) For each of the first three years, the percentage prescribed
38by the Secretary of the Treasury for new buildings that are not
39federally subsidized for the taxable year, determined in accordance
40with the requirements of Section 42(b)(1) of the Internal Revenue
P28   1 Code in lieu of the percentage prescribed in Section 42(b)(1)(A)
2of the Internal Revenue Code.

3(B) For the fourth year, the difference between 30 percent and
4the sum of the applicable percentages for the first three years.

5(2) In the case of any qualified low-income building that (i) is
6a new building, (ii) not located in designated difficult development
7areas (DDAs) or qualified census tracts (QCTs), as defined in
8 Sectionbegin delete 45(d)(5)(B)end deletebegin insert 42(d)(5)(B)end insert of the Internal Revenue Code,
9and (iii) is federally subsidized, the term “applicable percentage”
10means for the first three years, 15 percent of the qualified basis of
11the building, and for the fourth year, 5 percent of the qualified
12basis of the building.

13(3) In the case of any qualified low-income building that is (i)
14an existing building, (ii) not located in designated difficult
15development areas (DDAs) or qualified census tracts (QCTs), as
16defined in Sectionbegin delete 45(d)(5)(B)end deletebegin insert 42(d)(5)(B)end insert of the Internal Revenue
17Code, and (iii) is federally subsidized, the term applicable
18percentage means the following:

19(A) For each of the first three years, the percentage prescribed
20by the Secretary of the Treasury for new buildings that are federally
21subsidized for the taxable year.

22(B) For the fourth year, the difference between 13 percent and
23the sum of the applicable percentages for the first three years.

24(4) In the case of any qualified low-income building that is (i)
25a new or an existing building, (ii) located in designated difficult
26development areas (DDAs) or qualified census tracts (QCTs) as
27defined in Section 42(d)(5)(B) of the Internal Revenue Code, and
28(iii) federally subsidized, the California Tax Credit Allocation
29Committee shall determine the amount of credit to be allocated
30under subparagraph (E) of paragraph (2) of subdivision (b) required
31to produce an equivalent state tax credit to the taxpayer, as
32produced in paragraph (2), taking into account the basis boost
33provided under Section 42(d)(5)(B) of the Internal Revenue Code.

34(5) In the case of any qualified low-income building that meets
35all of the requirements of subparagraphs (A) through (D), inclusive,
36the term “applicable percentage” means 30 percent for each of the
37first three years and 5 percent for the fourth year.

38(A) The qualified low-income building is at least 15 years old.

P29   1(B) The qualified low-income building is a SRO, special needs
2housing, is in a rural area, or serves households with very
3low-income or extremely low-income residents.

4(C) The qualified low-income building is serving households
5of very low-income or extremely low-income provided that the
6average income at time admission is not more than 45 percent of
7the median gross income, as determined under Section 42 of the
8Internal Revenue Code, adjusted by household size.

9(D) The qualified low-income building would have insufficient
10credits under paragraphs (1) and (2) to complete substantial
11rehabilitation due to a low appraised value.

12(d) The term “qualified low-income housing project” as defined
13in Section 42(c)(2) of the Internal Revenue Code is modified by
14adding the following requirements:

15(1) The taxpayer shall be entitled to receive a cash distribution
16from the operations of the project, after funding required reserves,
17that at the election of the taxpayer, is equal to:

18(A) An amount not to exceed 8 percent of the lesser of:

19(i) The owner equity, that shall include the amount of the capital
20contributions actually paid to the housing sponsor and shall not
21include any amounts until they are paid on an investor note.

22(ii) Twenty percent of the adjusted basis of the building as of
23the close of the first taxable year of the credit period.

24(B) The amount of the cashflow from those units in the building
25that are not low-income units. For purposes of computing cashflow
26under this subparagraph, operating costs shall be allocated to the
27low-income units using the “floor space fraction,” as defined in
28Section 42 of the Internal Revenue Code.

29(C) Any amount allowed to be distributed under subparagraph
30(A) that is not available for distribution during the first five years
31of the compliance period may be accumulated and distributed any
32time during the first 15 years of the compliance period but not
33thereafter.

34(2) The limitation on return shall apply in the aggregate to the
35partners if the housing sponsor is a partnership and in the aggregate
36to the shareholders if the housing sponsor is an “S” corporation.

37(3) The housing sponsor shall apply any cash available for
38distribution in excess of the amount eligible to be distributed under
39paragraph (1) to reduce the rent on rent-restricted units or to
P30   1increase the number of rent-restricted units subject to the tests of
2Section 42(g)(1) of the Internal Revenue Code.

3(e) The provisions of Section 42(f) of the Internal Revenue Code
4shall be modified as follows:

5(1) The term “credit period” as defined in Section 42(f)(1) of
6the Internal Revenue Code is modified by substituting “four taxable
7years” for “10 taxable years.”

8(2) The special rule for the first taxable year of the credit period
9under Section 42(f)(2) of the Internal Revenue Code shall not apply
10to the tax credit under this section.

11(3) Section 42(f)(3) of the Internal Revenue Code is modified
12to read:

13If, as of the close of any taxable year in the compliance period,
14after the first year of the credit period, the qualified basis of any
15building exceeds the qualified basis of that building as of the close
16of the first year of the credit period, the housing sponsor, to the
17extent of its tax credit allocation, shall be eligible for a credit on
18the excess in an amount equal to the applicable percentage
19determined pursuant to subdivision (c) for the four-year period
20beginning with the later of the taxable years in which the increase
21in qualified basis occurs.

22(f) The provisions of Section 42(h) of the Internal Revenue
23Code shall be modified as follows:

24(1) Section 42(h)(2) of the Internal Revenue Code shall not be
25applicable and instead the following provisions shall be applicable:

26The total amount for the four-year credit period of the housing
27credit dollars allocated in a calendar year to any building shall
28reduce the aggregate housing credit dollar amount of the California
29Tax Credit Allocation Committee for the calendar year in which
30the allocation is made.

31(2) Paragraphs (3), (4), (5), (6)(E)(i)(II), (6)(F), (6)(G), (6)(I),
32(7), and (8) of Section 42(h) of the Internal Revenue Code shall
33not be applicable.

34(g) The aggregate housing credit dollar amount that may be
35allocated annually by the California Tax Credit Allocation
36Committee pursuant to this section, Section 12206, and Section
3717058 shall be an amount equal to the sum of all the following:

38(1) (A) Seventy million dollars ($70,000,000) for the 2001
39calendar year, and, for the 2002 calendar year and each calendar
40year thereafter, seventy million dollars ($70,000,000) increased
P31   1by the percentage, if any, by which the Consumer Price Index for
2the preceding calendar year exceeds the Consumer Price Index for
3the 2001 calendar year. For the purposes of this paragraph, the
4term “Consumer Price Index” means the last Consumer Price Index
5for All Urban Consumers published by the federal Department of
6Labor.

7(B)  An additional three hundred million dollars ($300,000,000)
8for the 2015 calendar year, and, for the 2016 calendar year and
9each calendar year thereafter, three hundred million dollars
10 ($300,000,000) increased by the percentage, if any, by which the
11Consumer Price Index for the preceding calendar year exceeds the
12Consumer Price Index for the 2015 calendar year. For the purposes
13of this paragraph, the term “Consumer Price Index” means the last
14Consumer Price Index for All Urban Consumers published by the
15federal Department of Labor. A housing sponsor receiving an
16allocation under paragraph (1) of subdivision (c) shall not be
17eligible for receipt of the housing credit allocated from the
18increased amount under this subparagraph. A housing sponsor
19receiving an allocation under paragraph (1) of subdivision (c) shall
20remain eligible for receipt of the housing credit allocated from the
21credit ceiling amount under subparagraph (A).

22(2) The unused housing credit ceiling, if any, for the preceding
23calendar years.

24(3) The amount of housing credit ceiling returned in the calendar
25year. For purposes of this paragraph, the amount of housing credit
26dollar amount returned in the calendar year equals the housing
27credit dollar amount previously allocated to any project that does
28not become a qualified low-income housing project within the
29period required by this section or to any project with respect to
30which an allocation is canceled by mutual consent of the California
31Tax Credit Allocation Committee and the allocation recipient.

32(4) Five hundred thousand dollars ($500,000) per calendar year
33for projects to provide farmworker housing, as defined in
34subdivision (h) of Section 50199.7 of the Health and Safety Code.

35(5) The amount of any unallocated or returned credits under
36former Sections 17053.14, 23608.2, and 23608.3, as those sections
37read prior to January 1, 2009, until fully exhausted for projects to
38provide farmworker housing, as defined in subdivision (h) of
39Section 50199.7 of the Health and Safety Code.

P32   1(h) The term “compliance period” as defined in Section 42(i)(1)
2of the Internal Revenue Code is modified to mean, with respect to
3any building, the period of 30 consecutive taxable years beginning
4with the first taxable year of the credit period with respect thereto.

5(i) Section 42(j) of the Internal Revenue Code shall not be
6applicable and the following shall be substituted in its place:

7The requirements of this section shall be set forth in a regulatory
8agreement between the California Tax Credit Allocation Committee
9and the housing sponsor, and the regulatory agreement shall be
10subordinated, when required, to any lien or encumbrance of any
11banks or other institutional lenders to the project. The regulatory
12agreement entered into pursuant to subdivision (f) of Section
1350199.14 of the Health and Safety Code shall apply, provided that
14the agreement includes all of the following provisions:

15(1) A term not less than the compliance period.

16(2) A requirement that the agreement be recorded in the official
17records of the county in which the qualified low-income housing
18project is located.

19(3) A provision stating which state and local agencies can
20enforce the regulatory agreement in the event the housing sponsor
21fails to satisfy any of the requirements of this section.

22(4) A provision that the regulatory agreement shall be deemed
23a contract enforceable by tenants as third-party beneficiaries
24thereto, and that allows individuals, whether prospective, present,
25or former occupants of the building, who meet the income
26limitation applicable to the building, the right to enforce the
27regulatory agreement in any state court.

28(5) A provision incorporating the requirements of Section 42
29of the Internal Revenue Code as modified by this section.

30(6) A requirement that the housing sponsor notify the California
31Tax Credit Allocation Committee or its designee if there is a
32determination by the Internal Revenue Service that the project is
33not in compliance with Section 42(g) of the Internal Revenue Code.

34(7) A requirement that the housing sponsor, as security for the
35performance of the housing sponsor’s obligations under the
36regulatory agreement, assign the housing sponsor’s interest in rents
37that it receives from the project, provided that until there is a
38default under the regulatory agreement, the housing sponsor is
39entitled to collect and retain the rents.

P33   1(8) The remedies available in the event of a default under the
2regulatory agreement that is not cured within a reasonable cure
3period include, but are not limited to, allowing any of the parties
4designated to enforce the regulatory agreement to collect all rents
5with respect to the project; taking possession of the project and
6operating the project in accordance with the regulatory agreement
7until the enforcer determines the housing sponsor is in a position
8to operate the project in accordance with the regulatory agreement;
9applying to any court for specific performance; securing the
10appointment of a receiver to operate the project; or any other relief
11as may be appropriate.

12(j) (1) The committee shall allocate the housing credit on a
13regular basis consisting of two or more periods in each calendar
14year during which applications may be filed and considered. The
15committee shall establish application filing deadlines, the maximum
16percentage of federal and state low-income housing tax credit
17ceiling that may be allocated by the committee in that period, and
18the approximate date on which allocations shall be made. If the
19enactment of federal or state law, the adoption of rules or
20regulations, or other similar events prevent the use of two allocation
21periods, the committee may reduce the number of periods and
22adjust the filing deadlines, maximum percentage of credit allocated,
23and allocation dates.

24(2) The committee shall adopt a qualified allocation plan, as
25provided in Section 42(m)(1) of the Internal Revenue Code. In
26adopting this plan, the committee shall comply with the provisions
27of Sections 42(m)(1)(B) and 42(m)(1)(C) of the Internal Revenue
28Code, respectively.

29(3) Notwithstanding Section 42(m) of the Internal Revenue
30Code the California Tax Credit Allocation Committee shall allocate
31housing credits in accordance with the qualified allocation plan
32and regulations, which shall include the following provisions:

33(A) All housing sponsors, as defined by paragraph (3) of
34subdivision (a), shall demonstrate at the time the application is
35filed with the committee that the project meets the following
36threshold requirements:

37(i) The housing sponsor shall demonstrate there is a need for
38low-income housing in the community or region for which it is
39proposed.

P34   1(ii) The project’s proposed financing, including tax credit
2proceeds, shall be sufficient to complete the project and shall be
3adequate to operate the project for the extended use period.

4(iii) The project shall have enforceable financing commitments,
5either construction or permanent financing, for at least 50 percent
6of the total estimated financing of the project.

7(iv) The housing sponsor shall have and maintain control of the
8site for the project.

9(v) The housing sponsor shall demonstrate that the project
10complies with all applicable local land use and zoning ordinances.

11(vi) The housing sponsor shall demonstrate that the project
12development team has the experience and the financial capacity
13to ensure project completion and operation for the extended use
14period.

15(vii) The housing sponsor shall demonstrate the amount of tax
16credit that is necessary for the financial feasibility of the project
17and its viability as a qualified low-income housing project
18throughout the extended use period, taking into account operating
19expenses, a supportable debt service, reserves, funds set aside for
20rental subsidies and required equity, and a development fee that
21does not exceed a specified percentage of the eligible basis of the
22project prior to inclusion of the development fee in the eligible
23basis, as determined by the committee.

24(B) The committee shall give a preference to those projects
25satisfying all of the threshold requirements of subparagraph (A)
26if both of the following apply:

27(i) The project serves the lowest income tenants at rents
28affordable to those tenants.

29(ii) The project is obligated to serve qualified tenants for the
30longest period.

31(C) In addition to the provisions of subparagraphs (A) and (B),
32the committee shall use the following criteria in allocating housing
33credits:

34(i) Projects serving large families in which a substantial number,
35as defined by the committee, of all residential units are low-income
36units with three and more bedrooms.

37(ii) Projects providing single-room occupancy units serving
38very low income tenants.

39(iii) (I) Existing projects that are “at risk of conversion.”

P35   1(II) For purposes of this section, the term “at risk of conversion,”
2with respect to an existing property means a property that satisfies
3all of the following criteria:

4(ia) The property is a multifamily rental housing development
5in which at least 50 percent of the units receive governmental
6assistance pursuant to any of the following:

7(Ia) New construction, substantial rehabilitation, moderate
8rehabilitation, property disposition, and loan management set-aside
9programs, or any other program providing project-based assistance
10pursuant to Section 8 of the United States Housing Act of 1937,
11Section 1437f of Title 42 of the United States Code, as amended.

12(Ib) The Below-Market-Interest-Rate Program pursuant to
13Section 221(d)(3) of the National Housing Act, Sections
141715l(d)(3) and (5) of Title 12 of the United States Code.

15(Ic) Section 236 of the National Housing Act, Section 1715z-1
16of Title 12 of the United States Code.

17(Id) Programs for rent supplement assistance pursuant to Section
1818 101 of the Housing and Urban Development Act of 1965,
19Section 1701s of Title 12 of the United States Code, as amended.

20(Ie) Programs pursuant to Section 515 of the Housing Act of
211949, Section 1485 of Title 42 of the United States Code, as
22amended.

23(If) The low-income housing credit program set forth in Section
2442 of the Internal Revenue Code.

25(ib) The restrictions on rent and income levels will terminate
26or the federal insured mortgage on the property is eligible for
27prepayment any time within five years before or after the date of
28application to the California Tax Credit Allocation Committee.

29(ic) The entity acquiring the property enters into a regulatory
30agreement that requires the property to be operated in accordance
31with the requirements of this section for a period equal to the
32greater of 55 years or the life of the property.

33(id) The property satisfies the requirements of Section 42(e) of
34the Internal Revenue Code, regarding rehabilitation expenditures
35except that the provisions of Section 42(e)(3)(A)(ii)(I) shall not
36apply.

37(iv) Projects for which a public agency provides direct or indirect
38long-term financial support for at least 15 percent of the total
39project development costs or projects for which the owner’s equity
P36   1constitutes at least 30 percent of the total project development
2costs.

3(v) Projects that provide tenant amenities not generally available
4to residents of low-income housing projects.

5(4) For purposes of allocating credits pursuant to this section,
6the committee shall not give preference to any project by virtue
7of the date of submission of its application except to break a tie
8when two or more of the projects have an equal rating.

9(5) Not less than 20 percent of the low-income housing tax
10credits available annually under this section, Section 12206, and
11Section 17058 shall be set aside for allocation to rural areas as
12defined in Section 50199.21 of the Health and Safety Code. Any
13amount of credit set aside for rural areas remaining on or after
14October 31 of any calendar year shall be available for allocation
15 to any eligible project. No amount of credit set aside for rural areas
16shall be considered available for any eligible project so long as
17there are eligible rural applications pending on October 31.

18(k) Section 42(l) of the Internal Revenue Code shall be modified
19as follows:

20The term “secretary” shall be replaced by the term “California
21Franchise Tax Board.”

22(l) In the case where the credit allowed under this section
23exceeds the “tax,” the excess may be carried over to reduce the
24 “tax” in the following year, and succeeding taxable years if
25necessary, until the credit has been exhausted.

26(m) A project that received an allocation of a 1989 federal
27housing credit dollar amount shall be eligible to receive an
28allocation of a 1990 state housing credit dollar amount, subject to
29all of the following conditions:

30(1) The project was not placed in service prior to 1990.

31(2) To the extent the amendments made to this section by the
32Statutes of 1990 conflict with any provisions existing in this section
33prior to those amendments, the prior provisions of law shall prevail.

34(3) Notwithstanding paragraph (2), a project applying for an
35allocation under this subdivision shall be subject to the
36requirements of paragraph (3) of subdivision (j).

37(n) The credit period with respect to an allocation of credit in
381989 by the California Tax Credit Allocation Committee of which
39any amount is attributable to unallocated credit from 1987 or 1988
40shall not begin until after December 31, 1989.

P37   1(o) The provisions of Section 11407(a) of Public Law 101-508,
2relating to the effective date of the extension of the low-income
3housing credit, shall apply to calendar years after 1989.

4(p) The provisions of Section 11407(c) of Public Law 101-508,
5relating to election to accelerate credit, shall not apply.

6(q) (1) A corporation may elect to assign any portion of any
7credit allowed under this section to one or more affiliated
8corporations for each taxable year in which the credit is allowed.
9For purposes of this subdivision, “affiliated corporation” has the
10meaning provided in subdivision (b) of Section 25110, as that
11section was amended by Chapter 881 of the Statutes of 1993, as
12of the last day of the taxable year in which the credit is allowed,
13except that “100 percent” is substituted for “more than 50 percent”
14wherever it appears in the section, as that section was amended by
15Chapter 881 of the Statutes of 1993, and “voting common stock”
16is substituted for “voting stock” wherever it appears in the section,
17as that section was amended by Chapter 881 of the Statutes of
181993.

19(2) The election provided in paragraph (1):

20(A) May be based on any method selected by the corporation
21that originally receives the credit.

22(B) Shall be irrevocable for the taxable year the credit is allowed,
23once made.

24(C) May be changed for any subsequent taxable year if the
25election to make the assignment is expressly shown on each of the
26returns of the affiliated corporations that assign and receive the
27credits.

28(r) Any unused credit may continue to be carried forward, as
29provided in subdivision (l), until the credit has been exhausted.

30(s) This section shall remain in effect on and after December 1,
311990, for as long as Section 42 of the Internal Revenue Code,
32relating to low-income housing credit, remains in effect.

33(t) The amendments to this section made by Chapter 1222 of
34the Statutes of 1993 shall apply only to taxable years beginning
35on or after January 1, 1994, except that paragraph (1) of subdivision
36(q), as amended, shall apply to taxable years beginning on or after
37January 1, 1993.

P38   1

SEC. 4.  

This act provides for a tax levy within the meaning of
2Article IV of the Constitution and shall go into immediate effect.



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