BILL ANALYSIS                                                                                                                                                                                                    



                                                                      AB 35


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          Date of Hearing:  April 15, 2015


               ASSEMBLY COMMITTEE ON HOUSING AND COMMUNITY DEVELOPMENT


                                   Ed Chau, Chair


          AB 35  
          (Chiu) - As Amended April 6, 2015


          SUBJECT:  Income taxes:  credits:  low-income housing:   
          allocation increase


          SUMMARY:  Makes changes to the state Low-Income Housing Tax  
          Credit (LIHTC) Program.       Specifically, this bill:  


          1)Beginning in 2015 and each year thereafter, increases the  
            allocation of state LIHTC by an additional $300 million and  
            adjusts that amount for inflation beginning in 2016.


          2)Provides that a sponsor that receives an award of 9% federal  
            LIHTC cannot receive an allocation from the additional $300  
            million of state LIHTC but shall remain eligible for the $70  
            million allocation available prior to 2015.  


          3)Provides a newly constructed or the rehabilitation portion of  
            an existing low-income housing project that is not located in  
            a Difficult to Develop Area (DDA) or a Qualified Census Tract  
            (QCT) and receives federal 4%  LIHTC is eligible for  
            cumulative state LIHTC over four years of 50% of the qualified  
            basis of the building. 









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          4)Provides the acquisition portion of an existing low-income  
            housing project that is not located in a DDA or a QCT and  
            receives federal 4% LIHTC is eligible for state LIHTC over  
            four years of 13% of the qualified basis of the building.    


          5)Allows the Tax Credit Allocation Committee (TCAC) to replace  
            federal LIHTC with state LIHTC for a new or existing  
            low-income housing project that is a located in a DDA or QCT  
            and receives federal 4% LIHTC of up to 50% of the qualified  
            basis of the building, provided that the total amount of  
            credits does not exceed 130%.  


          6)Provides that a low-income housing project is eligible for a  
            cumulative state LIHTC of 95% of the qualified basis of the  
            building over four years of the eligible basis if it meets all  
            of the following requirements:


             a)   It is at least 15 years old;


             b)   It is a SRO, special needs housing building, is in a  
               rural area, or serves households with very-low income or  
               extremely low-income residents;


             c)   It is serving households of very low-income or extremely  
               low-income provided that the average income at the time of  
               admission is no more than 45% of the median gross income  
               adjusted for household size; and 


             d)   It would have insufficient state credits to qualify to  
               complete substantial rehabilitation due to a low appraised  
               value.  









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          1)Adds the following definitions:


             a)   "Extremely low-income" has the same meaning as Health  
               and Safety Code Section 50053.



             b)   "Rural area" means a rural area as defined in Health and  
               Safety Code Section 50199.21.



             c)   "Special needs housing" has the same meaning as  
               paragraph (4) of Subdivision (g) of Section 10325 of Title  
               4 of the California Code of Regulations. 



             d)   "SRO" means single room occupancy.



             e)   "Very low-income" has the same meaning as in Health and  
               Safety Code Section 50053.   



           EXISTING LAW:  


          1)Allows TCAC to award state LIHTCs to developments in a QCT or  
            a DDA if the project is also receiving federal LIHTC, under  
            the following conditions: 

             a)   Developments restrict at least 50% of the units to  
               special needs households; and









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             b)   The state credits do not exceed 130% of the eligible  
               basis of the building. 

          1)Allows TCAC to replace federal LIHTC with state LIHTC of up to  
            130% of a project's eligible basis if the federal LIHTC is  
            reduced in an equivalent amount. 

          2)Defines a QTC as any census tract designated by the Department  
            of Housing and Urban Development (HUD) in which either 50% or  
            more of the households have an income that is less than 60% of  
            the area median gross income or that has a poverty rate of at  
            least 25%.

          3)Defines a DDA as an area designated by HUD on an annual basis  
            that has high construction, land, and utility costs relative  
            to area median gross income.

          4)Provides that a low-income housing development that is a new  
            building and is receiving 9% federal LIHTC credits is eligible  
            to receive state LIHTC over four years of 30% of the qualified  
            basis of the building. 

          5)Provides that a low-income housing development that is a new  
            building that is receiving federal LIHTC that is "at risk of  
            conversion" is eligible to receive state LIHTC over four years  
            of 13% of the qualified basis of the building. 

          6)Defines "at risk of conversion" to mean a property that  
            satisfies all of the following criteria:

             a)   A multifamily rental housing development in which at  
               least 50% of the units receive government assistance  
               pursuant to any of the following:


             b)   Project based Section 8 vouchers;


             c)   Below-Market-Interest-Rate Program;








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             d)   Federal Rental Housing Assistance Program; 


             e)   Programs for rent supplement assistance pursuant to  
               Section 101 of the Housing and Urban Development Act of  
               1965;


             f)   Programs pursuant to Section 515 of the Housing Act of  
               1949; and 


             g)   Federal LIHTC.    


        1)Includes an urgency clause. 


          FISCAL EFFECT:  Unknown. 


          COMMENTS:  


           Background  :  


          In 1986, the federal government authorized the LIHTC program to  
          enable affordable housing developers to raise private capital  
          through the sale of tax credits to investors. Two types of  
          federal tax credits are available and are generally referred to  
          as nine percent (9%) and four percent (4%) credits. TCAC  
          administers the program and awards credits to qualified  
          developers who can then sell those credits to private investors  
          who use the credits to reduce their federal tax liability. The  
          developer in turn invests the capital into the affordable  
          housing project. 








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          Each state receives an annual ceiling of 9% federal tax credits.  
          In 2015 it was $2.30 per capita, which worked out to $88.5  
          million in credits in California that can be taken by investors  
          each year for 10 years. Federal LIHTCs are oversubscribed by a  
          3:1 ratio. Unlike 9% LIHTC, federal 4% tax credits are not  
          capped, however they must be used in conjunction with tax-exempt  
          private activity mortgage revenue bonds which are capped and are  
          administered by the California Debt Limit Allocation Committee.  
          In 2015, the state ceiling for private activity bonds is set at  
          $5.61 billion. The value of the 4% tax credits are less than  
          half of the 9% tax credits and, as a result, 4% federal credits  
          are generally used in conjunction with another funding source  
          like state housing bonds or local funding sources. In 2014,  
          developers only used $80.5 million in annual federal 4% tax  
          credits, significantly less than prior years.   The loss of  
          redevelopment funding and state housing bond funds, which were  
          used in combination with 4% federal credits to achieve higher  
          affordability, has made the 4% federal credits less effective. 


          In 1987, the legislature authorized a state LIHTC program to  
          augment the federal tax credit program. State tax credits can  
          only be awarded to projects that also receive federal LIHTCs,  
          except for farmworker housing projects, which can receive state  
          credits without federal credits.   Investors can claim the state  
          credit over four years. TCAC has authority for approximately  
          $103 million in state tax credits each year but has as many as  
          $25 million in credits remaining at the end of the year due to  
          lack of demand.  Projects that receive either state or federal  
          tax credits are required to maintain the housing at affordable  
          levels for 55 years.


           Purpose of this bill  :  











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          According to the author, "California is undergoing a serious  
          housing affordability crisis with a shortfall of over one  
          million affordable homes. According to a 2014 report by the  
          California Housing Partnership Corporation, median rents in  
          California have increased by over 20 percent while the median  
          income has dropped by 8 percent. The private housing market is  
          simply not meeting the demand for low to moderate income homes.  
          The shortage is particularly challenging in the rental market,  
          typically the last resort for lower-income households, many of  
          whom were forced out of single-family homes during the great  
          recession.


          State and Federal divestment in affordable housing has  
          exacerbated this problem. With the elimination of California's  
          redevelopment agencies and the exhaustion of state housing  
          bonds, California has reduced its funding for the development  
          and preservation of affordable homes by 79 percent -- from  
          approximately $1.7 billion a year to nearly nothing. There is  
          currently no permanent source of funding to compensate for this  
          loss.


          The housing crisis has contributed to a growing homeless  
          population, increased pressure on local public safety nets, an  
          unstable development and construction marketplace, and the  
          outward migration of thousands of long-time California  
          residents. 


          The LIHTC program is the only major source of funding available  
          for affordable development in the state, making it competitive  
          and overprescribed. In 2014, only 49 percent of applicants were  
          awarded credits - leaving many qualified projects without a  
          secure source of funding or any incentive to build additional  
          affordable housing units."









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           The proposal  :  


          AB 35 would increase the state LIHTC allocation by an additional  
          $300 million which would allow the state to leverage and  
          additional $200 million in federal 4% LIHTC and at least $400  
          million in federal tax-exempt bond authority annually for the  
          creation and preservation of affordable rental homes for a broad  
          range of lower income households through the state.  An increase  
          in the amount of state LIHTC would help to fill the gap in  
          funding that was created by the loss of redevelopment and the  
          exhaustion of state voter-approved bonds.  In addition to  
          increasing the total amount of state LIHTC, AB 35 proposes to  
          increase the amount of state tax credits awarded to a project  
          that is also receiving 4% federal tax credits from 13% to 50% of  
          the qualified basis. This would more than triple the amount of  
          equity that an investor purchasing a state tax credit would  
          receive which would bring the return on 4% credits in line with  
          9% credits and result in greater affordability for the project. 


          Federal LIHTC can be used anywhere in the state, but projects  
          are given an additional 30% boost on their eligible basis if the  
          project is located in a DDA or a QCT. Because these areas by  
          definition have a higher-poverty level and there is a higher  
          concentration of extremely low-income or homeless individuals  
          and families, housing needs deep subsidy to make it affordable.  
          Existing state law does not allow state tax credits to be  
          awarded in DDAs and QCTs with one exception: housing  
          developments where 50% of the units are for special needs  
          populations. The rationale for this prohibition is projects in  
          these areas can qualify for more federal tax credits and  
          therefore are already advantaged. AB 35 would also allow state  
          tax credits to be awarded to projects without regard to DDA or  
          QCT status with the main purpose of providing enough state tax  
          credits to match the value of a 9% federal tax credit. 










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           Older housing stock:   


          Many low-income housing developments in the state are older and  
          in need of rehabilitation.  These projects need higher levels of  
          equity investments because of their age , level of repairs  
          needed, and the low rents. It is hard for these projects to  
          compete for state tax credits because the assessed value is low  
          and therefore the eligible basis upon which the amount of tax  
          credits the project can qualify for is also low. To assist these  
          projects, AB 35 would allow these older projects to receive  
          state tax credits of 95% over four years.  To qualify projects  
          would need to be at least 15 years old, serve low- and extremely  
          low-income households, be an SRO, in a rural area, and have  
          insufficient state credits to complete substantial  
          rehabilitation due to a low appraised value. 


           Technical amendment:


           


          On page 6, line 36, delete "45" and replace it with "42" 


          On page 7, line 4, delete "45" and replace it with "42"


          On page 20, line 33, delete "45" and replace it with "42"


          On page 21, line 1, delete "45" and replace it with "42"


          On page 35, line 11, delete "45" and replace it with "42"










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          On page 35, line 19 delete "45" and replace it with "42"


          


          REGISTERED SUPPORT / OPPOSITION:




          Support


          A Community of Friends (ACOF)


          Affirmed Housing Group


          Affordable Housing Access (AHA)


          Affordable Housing Management Association-Pacific Southwest  
          (AHMA)


          Alameda County Housing Authority


          Alpha Construction


          American Planning Association California Chapter (APA  
          California)


          Amy Hiestand Consulting









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          Angelus Plaza


          Apartment Association


          Apartment Association of Orange County


          Association of Bay Area Governments (ABAG)


          Be.group


          Bridge Housing


          Burbank Housing Corporation


          Burbank Housing Development Corporation


          Cabrillo Economic Development Corporation (CEDC)


          California Alliance for Retired Americans


          California Association of Local Housing Finance Agencies  
          (CAL-ALHFA)


          California Building Industry Association (CBIA)


          California Center for Cooperative Development








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          California Coalition for Rural Housing


          California Coalition for Youth (CCY)


          California Council for Affordable Housing (CCAH)


          California Housing Consortium (CHC)


          California Infill Builders Federation


          California Partnership to End Domestic Violence 


          California Southern Cities


          California Rural Legal Assistance Foundation 


          Capitol Area Development Authority (CADA)


          City of Concord


          City of Emeryville


          City of Eureka


          City of Fremont








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          City of Lafayette


          City of Lakeport


          City of Livermore


          City of Napa


          City of National City


          City of Oakland


          City of Sacramento


          City of San Diego


          City of Santa Barbara


          City of Taft


          City of Tulare


          City of Union City


          Community Action North Bay (CAN-B)








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          Community Economics


          Community Housing Opportunities Corporation (CHOC)


          Community Housing Partnership


          Community Land Trust Association (CLAM)


          Community Overcoming Relationship Abuse (CORA)


          Contra Costa Interfaith Housing


          Core Affordable Housing


          Corporation For Supportive Housing (CSH)


          Devine & Gong, Ink


          Domus Development


          Downtown Women's Center 


          Dr. Jaime Becker


          EAH Housing








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          East Bay Developmental Disabilities Legislative Coalition


          East Bay Rental Housing Association


          Eden Housing


          Goldfarb & Lipman LLP


          Habitat for Humanity


          Highridge Costa Investors, LLC


          HIP Housing, Inc.


          HKIT Architects


          Housing Authority of the County of Santa Clara (HACSC)


          Housing Authority of the City of San Buenaventura


          Housing Authority of the City of Santa Barbara


          Housing California


          Housing Choices Coalition








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          Housing Consortium of the East Bay (HCEB)


          Housing Leadership Council of San Mateo County


          Housing Trust Silicon Valley


          Hudson Housing Capital


          Iturriaga, Nicole, MA


          Iturriaga, Rodolfo H., Ph.D.


          Jamboree


          Korean Resource center (KRC)


          Larkin Street Youth Services


          Laurin Associates


          Law Foundation of Silicon Valley


          Leading Age California


          League of California Cities








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          League of Women Voters of California (Support if Amended)


          Leich, Douglas A.


          LINC Housing


          Little Tokyo Service Center CDC (LTSC CDC)


          Loaves & Fishes


          Loni Gray


          Los Angeles Community Action Network (LA CAN)


          Lutheran Office of Public Policy - California


          Lynette Jung Lee


          Many Mansions


          Mercy Housing


          Nancy Lewis Associates, Inc.


          Napa Valley Community Housing (NVCH)








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          NASW


          Neighbor Works Orange County


          Nelson Rental Consultant


          Non-Profit Housing Association of Northern California (NPH)


          Nor Cal Rental Property Association


          North Bay Leadership Council


          North Valley Property Owners Association


          Northern California Community Loan Fund


          Orange Coast Interfaith Shelter


          Pacific West Communities


          Palm Communities


          Peoples' Self-Help Housing


          PEP Housing








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          Phil Ritter, CPA


          Powell & Partners Architects


          Project Access Recourse Center


          Promise Energy Inc.


          Retirement Housing Foundation (RHF)


          Rural Communities Assistance Corporation (RCAC)


          Rural Communities Housing Development Corporation (RCHDC)


          Rural Smart Growth Task Force


          Rystad, Robert D.


          Sacramento Homeless Organizing Committee (SHOC)


          San Diego County Apartment Association (SDCAA)


          San Diego Housing Federation


          San Diego Organizing Project (SDOP)








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          San Francisco Housing Action Coalition


          San Francisco Unified School District


          San Luis Obispo County Housing Trust Fund (HTF)


          Satellite Affordable Housing Associates (SAHA)


          Schreiber, Debora


          Shelter Partnership


          Silicon Valley Bank 


          Skid Row Housing Trust


          Sonoma County Housing Advocacy Group


          Southern California Association of Non Profit Housing (SCANPH)


          St. Anthony Foundation


          St. Vincent's


          T.R.U.S.T. South LA








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          TELACU


          The Kennedy Commission


          Thomas Safran & Associates


          TransForm


          Trinity Center Walnut Greek


          Urban Habitat


          Venice Community Housing Corporation


          Ward Economic Development Corporation (WEDC)


          Western Center on Law and Poverty 


          Western Seniors Housing


          Wolfe, Marian, Ph.D.


          Works


          Yolo Housing








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          Opposition


          None on file.




          Analysis Prepared by:Lisa Engel / H. & C.D. / (916) 319-2085