BILL ANALYSIS Ó AB 35 Page A Date of Hearing: May 18, 2015 ASSEMBLY COMMITTEE ON REVENUE AND TAXATION Philip Ting, Chair AB 35 (Chiu) - As Amended April 16, 2015 SUSPENSE Majority vote. Fiscal committee. Tax levy. SUBJECT: Income taxes: credits: low-income housing: allocation increase. SUMMARY: Modifies the existing Low-Income Housing Tax Credit (LIHTC) program and increases the aggregate credit amount that may be annually allocated to low-income housing projects by $300 million for the 2015 calendar year and each calendar year thereafter. Specifically, this bill: 1)Beginning in 2015 and each year thereafter, increases the amount of state LIHTC by an additional $300 million, as adjusted for inflation beginning in 2016. AB 35 Page B 2)Provides that a low-income housing building that has received an award of 9% federal LIHTC is not eligible for an allocation from the additional $300 million of state LIHTC, but shall remain eligible for the existing $70 million allocation, as annually adjusted. 3)Modifies the allocation of state LIHTC that may be awarded to a federally subsidized low-income housing project receiving federal 4% LIHTC as follows: a) A new qualified low-income housing building is eligible for a cumulative state LIHTC over four years of 50% of the qualified basis of the building, provided that the building is not located in a Difficult to Develop Area (DDA) or a Qualified Census Tract (QCT). b) An existing qualified low-income housing building that is not located in a DDA or a QCT is eligible for a cumulative state LIHTC over four years of 13% of the qualified basis of the building. c) A new or existing low-income housing building that is located in a DDA or QCT may be awarded a cumulative state LIHTC in an amount not to exceed 50% of the qualified basis of the building, provided that the federal LIHTC is replaced with state LIHTC, as specified. d) A qualified low-income building is eligible for a cumulative state LIHTC of 95% of the qualified basis over four years if it meets all of the following requirement: AB 35 Page C i) It is at least 15 years old; ii) 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; iii) It is serving households of very low-income or extremely low-income residents, 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, iv) It would, otherwise, receive insufficient state credits, due to the building's low appraised value, to complete substantial rehabilitation. 4)Revises the definition of a "taxpayer" for purposes of the state LIHTC program to include members of a limited liability company. 5)Revises the definition of a "housing sponsor" for purposes of the LIHTC program to include a limited liability company. 6)Adds the following definitions: a) "Extremely low-income" has the same meaning as Health and Safety Code (H&SC) Section 50053; b) "Rural area" means a rural area as defined in H&SC Section 50199.21; AB 35 Page D 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; and, d) "SRO" means single room occupancy. e) "Very low-income" has the same meaning as in H&SC Section 50053. 1)Makes technical, non-substantive changes to the provisions of the LITHC program. 2)Takes effect immediately as a tax levy. EXISTING LAW: 1)Allows a state tax credit for costs related to construction, rehabilitation, or acquisition of low-income housing. This credit, which mirrors a federal LIHTC, may be used by taxpayers to offset the tax under the Personal Income Tax (PIT), the Corporation Tax (CT), and the Insurance Tax (IT) laws. 2)Requires the California Tax Credit Allocation Committee (TCAC) to allocate each year the California LIHTC based upon qualification of the applicant and proposed project. The California LIHTC is available only to projects that received an allocation of the federal LIHTC. AB 35 Page E 3)Limits the annual aggregate amount of the state LIHTC to $70 million, as adjusted for an increase in the California consumer price index from 2002, plus any unused LIHTC for the preceding calendar year and any LIHTC returned in the calendar year. The California LIHTC awarded may be claimed as a credit against tax over a four-year period. 4)Requires TCAC to certify the amount of tax credit amount allocated. In the case of a partnership or an S Corporation, a copy of the certificate is provided to each taxpayer. The taxpayer is required, upon request, to provide a copy of the certificate to the Franchise Tax Board (FTB). 5)Allows any unused credit to be carried forward until the credit is exhausted. 6)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) The amount of state credit is computed on 100% of the qualified basis of the building; or, b) If the usage of at least 50% of the units in a low-income housing building is restricted to special needs households, the amount of an allowable state LIHTC may not exceed 30% of the eligible basis of the building. 1)Allows TCAC to replace federal LIHTC with state LIHTC of up to 30% of a project's eligible basis of a building, if the federal LIHTC is reduced in an equivalent amount. AB 35 Page F 2)Defines a "QTC" as any census tract designated by the federal 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 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; 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; AB 35 Page G f) Programs pursuant to Section 515 of the Housing Act of 1949; and, g) Federal LIHTC. FISCAL EFFECT: The Franchise Tax Board (FTB) staff estimates that this bill would result in an annual revenue loss of $190 million in the fiscal year (FY) 2015-16, $180 million in FY 2016-17, and $180 million in FY 2017-18. COMMENTS: 1)Author's Statement . The author has provided the following statement in support of this bill: "California's shortfall of 1.5 million affordable rentals impedes our state's economic growth by slowing job creation and driving Californians into poverty. When housing costs are accounted for, the proportion of people unable to meet their basic needs - food, shelter, transportation - rises from 16 percent to 23 percent, the highest rate of poverty in the nation. "A recent report from the California Housing Partnership depicts a growing statewide crisis driven by a growing divide between incomes and rents. Statewide, median incomes have fallen 8 percent since 2000; meanwhile, rental prices have soared by 21 percent in the same timeframe. There isn't a single county in California with enough affordable rentals for families struggling to make ends meet. "Rising rents are locking broad swaths of Californians - people who are key contributors to our communities - out of San AB 35 Page H Francisco, San Diego and many other California cities and crowding their families into unsafe housing. Twenty-one of the nation's least affordable cities are in California; our home-health aides, child-care workers, and teachers' assistants have virtually nowhere to live in the communities where they work, even if they work full-time. "Small businesses and creators of entry-level jobs face particular difficulties recruiting employees. Closing our communities to struggling workers reverberates through our entire economy and impacts all taxpayers.' "California leaders must act to replace the $1.5 billion annual state investment wiped out when voter-approved housing bonds were expended and redevelopment funding was eliminated. AB 35 would take a step in the right direction by increasing the California Low-Income Housing Tax Credit, a proven public-private-partnership model, by $300 million per year, and enable the state to attract $600 million in additional federal funding that would otherwise not come to California." 2)Arguments in Support . The proponents state that the lack of affordable housing is "the main reason why California has the second lowest homeownership rate in the nation." The proponents note that, while the state "has invested a considerable amount of money through the sale of voter-approved bonds and other measures to incentivize the construction of affordable housing, the cost of housing is either out of reach for many people or consumes a significant portion of their family budget." The proponents, citing a February 2015 report by Standard and Poor's, assert that the lack of affordable housing "contributes to a relatively weaker business climate in California." They argue that, although this bill "will not make up for the dissolution of the state's redevelopment agencies that previously served as a critical source of capital for affordable housing projects, it does have the potential to allow California to pull down hundreds of millions of dollars in federal tax credits and federal tax-exempt bonding authority each year to create and preserve AB 35 Page I affordable homes for low income Californians." This bill would not only increase "California investment in low-income housing, but it will help leverage an additional $600 million in federal housing resources." Finally, the proponents assert that "increasing the aggregate housing state credit dollar amount that may be allocated among low-income housing developments and allowing the state to more effectively leverage federal tax-exempt bond financing will help fill the gap in funding affordable housing units across our communities and the state." 3)Federal LIHTC Program: Background . The LIHTC is an indirect federal subsidy developed in 1986 to incentivize the private development of affordable rental housing for low-income households. As explained by the CTCAC, the federal LIHTC program replaced traditional housing tax incentives, such as accelerated depreciation, with a tax credit that enables low-income housing sponsors and developers to raise project equity through the allocation of tax benefits to investors. Two types of federal tax credits are available: the 9% and 4% credits. These terms refer to the approximate percentage of a project's "qualified basis" a taxpayer may deduct from his/her annual federal tax liability in each of 10 years. For projects that are not financed with a federal subsidy, the applicable rate is 9%. For projects that are federally subsidized (including projects financed more than 50% with tax-exempt bonds), the applicable rate is 4%. Although the credits are known as the "9% and 4% credits", the actual tax rates fluctuate every month, based on the determination made by the Internal Revenue Service on a monthly basis. Nonetheless, Congress has established the minimum applicable percentage of 9% for allocations made for non-federally subsidized new buildings before January 1, 2015. Each year, the Federal Government allocates funding to the states for LIHTCs on the basis of a per-resident formula. State or local housing authorities review proposals submitted by developers and select projects based on a variety of prescribed criteria. Only rental housing buildings, which are AB 35 Page J either undergoing rehabilitation or newly constructed, are eligible for the LIHTC programs. In addition, the qualified low-income housing projects must comply with both rent and income restrictions. Rents on tax credit units cannot exceed 30% of an imputed income based on 1.5 persons per bedroom. Furthermore, the initial incomes of households in those units may not exceed either 60% or 50% of the area median income, adjusted for household size. A project developer or sponsor who applies for the tax credit allocation must also elect to set aside a minimum of either 40% of the units to be occupied by households with incomes of 60% or less of the area median gross income or 20% of the units to household with incomes of 50% or less of the area median gross income. Finally, credit projects must remain affordable for at least 30 years. However, in California, project developers or housing sponsors must agree to a minimum of 55 years rent and income restrictions. The federal law specifies that each state must designate a "housing credit agency" to administer the federal LIHTC program. In California, responsibility for administering the federal program is assigned to the California TCAC. a) The 9% credit: projects not financed with a federal subsidy . In 2014, the amount of the 9% LIHTC credit allocated by the Federal Government to each state was based on $2.30 per capita. In addition, states annually qualify for a pro rata share of credits in a national pool of unused credits. From the total amount of federal LIHTC available to California calendar year, the TCAC allocates this credit to housing sponsors of qualified projects, based on the estimated amount of eligible costs, as defined in Internal Revenue Code (IRC) Section 42, minus non-depreciable costs (such as land, permanent financing costs, rent reserves and marketing expenses). The amount of the credit is calculated by multiplying this "eligible AB 35 Page K basis" of the project by the "applicable fraction"<1> and then by the LIHTC 9% rate (in reality, that rate fluctuates monthly and currently is set at 7.70%). If the development is located in the HUD-designated DDA or QCT, the development's "eligible basis" receives a 30% increase or "basis boost." This "boost" allows qualified low-income housing projects to receive a credit equal to 130% of its "eligible basis." The 9% credit is awarded on a competitive basis so that only those projects that meet the highest housing priorities and public policy objectives, as determined by the TCAC, have access to this credit. b) The 4% credit: federally subsidized projects . Unlike the 9% credit, the amount of 4% credit allocated to states is not limited on a per capita basis. In order to access the 4% credit, a developer must first obtain an allocation of tax-exempt private activity mortgage revenue bonds, which are allocated to states on a per capita basis. The amount of the 4% credit is calculated in the same manner as the 9% credit, other than an "eligible basis" is multiplied by the federal tax credit summarized as 4%. The actual rate also fluctuates and currently TCAC uses 3.36% to determine a project's initial tax credit reservation. Tax-exempts bonds are debt obligations issued by state or local government agencies for multi-family rental housing, infrastructure improvements and other qualified municipal endeavors having a public purpose. Federal tax law provides that interest on any obligation issued by, or on behalf of, any state or political subdivision is excluded from gross income [IRC Section 103(a)]. Federal tax law limits this exemption in the case of private activity bonds [IRC Section 103(b)], but allows certain facilities to be financed with tax-exempt bonds. Qualified private activity bonds are issued by government agencies on behalf of -------------------------- <1> The "applicable fraction" is defined as the smaller of: (1) the percentage of low-income units to total units, or (2) the percentage of square footage of the low-income units to the square footage of the total units. AB 35 Page L private businesses and may be issued for various purposes including low-income, multi-family housing. Unlike typical municipal bonds, the payment of principal and interest on private activity bonds is not the responsibility of the issuing government agency. Instead, the payment is the responsibility of the private business receiving the proceeds. The interest rate on tax-exempt bonds is lower than conventional bank financing, and these savings can promote housing affordability. These bonds assist developers of multifamily rental housing units to acquire land and construct new units or purchase and rehabilitate existing units. The developers, in turn, produce market rate and affordable rental housing for low- and very low-income households by reducing rental rates to these individuals and families. Projects that receive an award of bond authority have the right to apply for non-competitive 4% LIHTC allocations. Federal law imposes a limit on how much private activity bonds can be issued in a state each year. Agencies and organizations authorized to issue tax-exempt private activity bonds or mortgage credit certificates must receive an allocation from the California Debt Limit Allocation Committee (CDLAC). The limit is determined by a state's population, multiplied by a specified dollar amount. Out of the 2015 state debt ceiling of over $3.8 billion, multifamily housing reservations account for $1.25 billion. In 2014, California developers, according to the California Housing Partnership, used $80.5 million in annual federal 4% credits, which is a significantly lower amount in comparison to prior years, when the redevelopment and Proposition 1C funding was still available. 4)State LIHTC Program . 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 have also received, or are concurrently receiving, an allocation of AB 35 Page M the federal LIHTCs. The amount of state LIHTC that may be annually allocated by the TCAC is limited to $70 million, adjusted for inflation. In 2014, the total credit amount available for allocation was $103 million (representing all four years of allocation) plus any unused or returned credit allocations from previous years. Current state tax law generally conforms to federal law with respect to the LIHTC, except that it is limited to projects located in California. While the state LIHTC program is patterned after the federal LIHTC program, there are several differences. First, investors may claim the state LIHTC over four years rather than the 10-year federal allocation period. Second, the rates used to determine the total amount of the state tax credit (representing all four years of allocation) are 30% of the qualified basis of a project that is not federally subsidized and 13% of the qualified basis of a project that is federally subsidized, in contrast to 70% and 30% (representing all 10 years of allocation on a present-value basis), respectively, for purposes of the federal LIHTCs. Furthermore, state tax credits are not available for acquisition costs, except for previously subsidized projects that qualify as "at-risk" of being converted to market rate. TCAC is authorized to replace federal LIHTC with state LIHTC of up to 30% of a project's eligible basis if the federal LIHTC is reduced in an equivalent amount. This provision allows TCAC to increase the number of projects funded with the limited federal credits in a given year. As discussed, the maximum federal tax credit that can be awarded (the 9% credit) is generally equal to 70% (on a present-value basis) of a taxpayer's qualified basis in the project, spread over a ten-year period. Thus, a project that receives the maximum in both state and federal credits receives an amount equal to 100% of the taxpayer's qualified basis over a 10-year period. 5)DDAs and QCTs. Federal LIHTCs can be used anywhere, but a project is given an additional 30% on its eligible basis (a AB 35 Page N "basis boost") if the project is located in a DDA or a QCT. These areas, by definition, have a higher poverty level and a higher concentration of extremely low-income or homeless individuals and families, who typically need larger housing subsidies. Prior to 2014, TCAC was not allowed to award state tax credits for projects located in DDAs and QCTs. The rationale for this prohibition was that projects in these areas could qualify for more federal tax credits through a basis "boost" and therefore are already advantaged. State law, however, was recently amended to authorize TCAC, in limited cases, to award state LIHTCs for use in DDAs or QCTs, in addition to the federal credits. To qualify, a development must restrict at least 50% of the units to special needs households. Projects that serve special needs populations need greater subsidy in order to offer deeply affordable rents. 6)The Financing Structure . In order to raise funds for construction or rehabilitation of low-income housing buildings, the project developers or housing sponsors usually enter into various financing transactions with private entities. Investment partnerships are a primary source of equity financing for LIHTC projects. A typical arrangement is to match a corporate tax credit investor with a project developer or sponsor, creating a partnership (such as a general partnership or a LLC) where the investor is allocated the LIHTCs in exchange for cash and the developer acts as a general partner (or managing member). The money that investors pay for the partnership interest is paid into the LIHTC project as equity financing. Although investors are buying an interest in a rental housing partnership, this process is commonly referred to as "buying" tax credits because they receive tax credits in return for their investment. According to the TCAC report, partnership equity contributed to the project in exchange for the credit usually finances 30% to 60% of the capital costs of project construction. AB 35 Page O The financing of a low-income housing building construction or rehabilitation using the LIHTC, thus, requires the participation of a private investor (mostly a taxable corporation) that could take advantage of the credits to reduce its income tax liability. Once the LIHTC project is placed in service, or ready for occupancy, investors can receive their share of the federal and/or state credits each year of the 10-year or 4-year credit period, whichever is applicable, and can use the credit to offset federal or state income taxes otherwise owed on their tax returns as long as the project meets the LIHTC requirements. An investor must retain ownership of the property (i.e. remain in the partnership) for at least 15 years after the project is placed in service in order to receive the full benefit of the tax credits, or the tax credits will be subject to recapture. 7)Deficiency in Current Law : According to the California Housing Partnership, California used more of the federal 4% LIHTC than any other state during the early part of last decade. However, with the elimination of California's redevelopment agencies and the exhaustion of state housing bond funding, developers of low-income housing have been left with very few resources to leverage the 4% credit. As a result, the number of newly constructed LIHTC units that have been funded with the 4% credit has plummeted in the last two years, from 4,000 in 2012 to fewer than 2,000 in 2014. Existing state law prescribes two different tax credit rates - 30% and 13% - to calculate the amount of the state LIHTC. The first one is allowed for projects that are not federally subsidized and, thus, qualify for the higher 9% federal LIHTC. In contrast, federally subsidized projects that qualify only for the 4% federal LIHTC receive the state LIHTC in the amount equal to 13% of the project's qualified basis. Furthermore, no state credit may be allocated to a low-income housing project located in a DDA or QCT if the project has received a AB 35 Page P federal LIHTC calculated on the 130% of eligible basis, unless the state LIHTC is computed on 100% of the qualified basis or at least 50% of the building's units are restricted to special need occupants. Thus, existing state law limits the availability of the state LIHTC to projects located outside a DDA or QCT, since they do not receive a federal "basis boost" of 30% that is available to projects located in those areas. However, the bill's proponents argue that developing housing in these areas is inherently more expensive because of a higher concentration of extremely low-income or homeless individuals and families. 8)What Does This Bill Do ? This bill would increase the state LIHTC allocation by $300 million per year, in addition to the existing $70 million cap, as adjusted for inflation. While increasing the total amount of state LIHTC, this bill proposes to limit the new funding only to projects that qualify for the 4% federal LIHTC. The projects that receive the 9% federal LIHTC would still qualify for the state LIHTC, albeit the annual amount of those state credits would remain at $70 million, as adjusted for inflation. According to the California Housing Partnership Corporation, the increase in the amount of state LIHTC would allow the state to leverage an additional $200 million in federal 4% LIHTC and at least $400 million in federal tax-exempt bond authority annually. This additional funding is intended to be used exclusively for the construction, rehabilitation and preservation of affordable rental homes for a broad range of lower income households throughout the state. The expectation is that an increase in the amount of state LIHTC would help fill the gap in funding that was created by the loss of redevelopment and the exhaustion of state voter-approved bonds. Furthermore, this bill would increase the amount of state tax credits awarded to each qualified low-income housing project from 13% to 50% of the qualified basis, provided the project is also receiving a 4% federal tax credit. This increase would apply to new construction and rehabilitation costs of AB 35 Page Q the project and would more than triple the amount of equity that an investor in the project would receive, which would bring the return on 4% credits in line with 9% credits and would likely result in greater affordability for the project. The costs of acquiring an existing low-income building would also be eligible for the state LIHTC allocated from the new additional funding of $300 million, but the applicable percentage used to calculate the amount of that credit would be limited to 13% of the project's qualified basis. In addition, this bill would allow state tax credits to be awarded to qualified 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. However, to ensure a level playing field between DDA/QCT areas and non-DDA/QCT areas, this bill would explicitly allow TCAC to adjust the new higher state credit percentage downward for projects in DDAs or QCRs to equalize the value of the state credit available in the different areas. Finally, this bill would significantly increase an amount of state LIHTC - 95% of the qualified basis - that may be awarded to a qualified low-income housing building that houses very low-income or extremely low-income tenants and meets all specified requirements, including the building's location, age, and value. 9)Tax Incentives: Do They Work ? Generally, advocates for tax incentives, such as Arthur Laffer and N. Gregory Mankiw, argue that reduced taxes allow taxpayers to invest money that would otherwise be paid in taxes to better use, thereby creating additional economic activity. "Supply-siders" posit that higher taxes do not result in more government revenue; instead, they suppress additional innovation and investment that would have led to more economic activity and, therefore, healthier public treasuries under lower marginal tax rates. Industry-specific credits complement this theory by lowering tax costs for industries that provide positive multiplier effects, such as stimulating economic activity among suppliers AB 35 Page R and increasing economy-wide purchasing power resulting from hiring additional employees. Critics, however, assert that tax incentives rarely result in additional economic activity. Companies locate in California because of its competitive advantages, namely its environment, weather, transportation infrastructure, access to ports, highways, and railroads, as well as its highly skilled workforce and world class higher education system. These advantages trump perceived disadvantages resulting from California's tax structure and other policies. Additionally, critics argue that industry-specific tax incentives do not actually affect business decisions; instead, enhanced credits and deductions reward firms for investments they would have made anyway.<2> As noted by the Legislative Analyst Office (LAO) in the presentation at this Committee's hearing "Assessing Tax Expenditure Programs in Light of California's Fiscal Challenges" on February 22, 2012, "Policymakers should regard many TEPs [tax expenditure programs] evaluations with skepticism." The LAO further explained that, "Analysis of alternative uses of public funds is difficult and often omitted entirely from . . . studies [of TEPs]. These studies also usually rely on extensive and sometimes subjective assumptions which, if changed, can produce very different results . . . . It is rare that the value of TEPs can be demonstrated conclusively compared to these alternate uses of -------------------------- <2> See, e.g., D. Neumark, J. Zhang, and J. Kolko, Are Businesses Fleeing the State? Interstate Business Location and Employment Change in California, (a PPIC report showing that, while California loses jobs due to firms leaving the state, these losses have a minimal effect on the economy); D. Neumark and J. Kolko, Are California Companies Shifting Their Employment to Other States? (finding that while California companies have shifted jobs to other states, out-of-state firms have offset these losses by hiring more in California). AB 35 Page S tax dollars. If the Legislature wishes to use TEPs, despite these challenges, it is important that TEPs be used cautiously, structured carefully, and reviewed regularly to consider if they operate in an effective and cost-efficient manner." 10)A Different Kind of Credit ? The LIHTC program induces investment into low-income housing by sanctioning a tax shelter structure that helps compensate private investors for allocating capital to an asset class with a relatively poor rate of return. Low-income housing projects face many barriers in California: the high cost of land, labor, and capitol, as well as state laws and policies protecting the environment, among others. In return for providing the LIHTC, the state arguably gets more affordable housing. This program is much different from other tax credits. In contrast to many tax incentives in California, the LIHTC is targeted; capped at $70 million, as adjusted for inflation, per calendar year; and is allocated to taxpayers by the TCAC mostly on a competitive basis. The TCAC evaluates the applications and allocates the available funds to those investors/developers who promise to produce the most housing for the state's dollar. Although the program is in the form of a tax credit, all the participants behave virtually as though they were dealing with an allocation of grant funds. Thus, traditionally, the state LIHTC program, similarly to the federal program, has been administered just as though it were an allocated grant program. However, some opponents of the federal LIHTC program believe that government subsidies to the supply of housing are not as efficient as demand-based subsidies, and that the LIHTC program is not efficient as compared with other subsidy mechanisms.<3> They also argue that the equity capital raised from investment generally comes from syndicates of individual --------------------------- <3> See, e.g., Low-Income Housing Credit, L. E. Burman, Tax Policy Center. AB 35 Page T investors or from corporations, at a steep price. Furthermore, because the credit is very complex and risky to investors, investors require high after-tax rates of return. Finally, the costs of the LIHTC include the costs of administration by federal and state housing and tax agencies. 11)Suggested Amendments . This bill proposes to increase the amount of state LIHTC from 30% to 95% of qualified basis for certain projects serving very low-income or extremely low-income households. This increased credit amount is intended to incentivize developers to develop or rehabilitate existing buildings that are at least 15 years old. Apparently, certain types of low-income housing buildings that serve special needs or extremely low-income households are difficult to develop or rehabilitate because of their low appraised value. The author may wish to clarify that the "low appraised value" requirement must be satisfied regardless of whether the project has received an insufficient state credit. The author may also wish to consider technical amendments to clarify the language relating to the calculation of an applicable percentage in the case of a new or existing building located in a DDA or a QCT. REGISTERED SUPPORT / OPPOSITION: Support A Community of Friends Affirmed Housing Affordable Housing, Inc. Affordable Housing Association-Pacific Southwest Alameda County Development Disabilities Council AB 35 Page U Alameda County Housing Authority Alpha Construction Co., Inc. American Planning Association, California Chapter Amy Hiestand Consulting Angelus Plaza, a Retirement Housing Foundation Association of Bay Area Governments Bay Area Council Be.group Beacon Communities/ABHOW Betty T. Yee, California State Controller Bridge Housing Burbank Housing Corporation Burbank Housing Development Corporation Cabrillo Economic Development Corporation California Alliance for Retired Americans California Apartment Association California Association of Housing Authorities California Association of Local Housing Finance Agencies California Bankers Association California Building Industry Association California Center for Cooperative Development California Chamber of Commerce California Coalition for Rural Housing California Coalition for Youth California Council for Affordable Housing California Council of Community Mental Health Agencies California Housing Consortium AB 35 Page V California Housing Partnership Corporation California Infill Builders Federation California Institute for Rural Studies California Partnership to End Domestic Violence California Special Districts Association Capitol Area Development Authority Christian Church Homes Cities Association of Santa Clara County City and County of San Francisco City of Banning City of Berkeley City of Concord City of Lakewood City of Napa City of Sacramento City of San Diego City of Santa Barbara City of South San Francisco City of Thousand Oaks City of Union City Community Action North Bay AB 35 Page W Community Corporation of Santa Monica Community Economics, Inc. Community Housing Opportunities Corporation Community Housing Partnership Community Housing Works Community Land Trust Association Community Leadership Association Community Overcoming Relationship Abuse Contra Costa Interfaith Housing Core Affordable Housing Corporation for Supportive Housing County of Santa Clara Devine & Gong, Inc. Domus Development Downtown Women's Center EAH Housing East Bay Legislative Coalition Eden Housing First Community Housing Goldfarb & Lipman LLP Habitat for Humanity HCEB Highridge Costa Housing Partners, LLC Highridge Costa Investors, LLC HIP Housing, Inc. HKIT Architects Housing Authority, City of San Buenaventura Housing Authority, City of Santa Barbara Housing Authority, City of Santa Clara Housing California Housing Choices Coalition Housing Element of the City of Emeryville Housing Leadership Council of San Mateo County Housing Trust Silicon Valley Hudson Housing Capital Hunger Advocacy Network Jamboree Housing Corporation AB 35 Page X Kennedy Commission Korean Resource Center Larkin Street Youth Services Laurin Associates Law Foundation of Silicon Valley Leadership Counsel for Justice and AccountabilitySupport LeadingAge California LINC Housing Linda M. Nelson DBA Nelson Rental Consultant Little Tokyo Service Center CDC Los Angeles Area Chamber of Commerce Los Angeles community Action Network Many Mansions Mental Health America of California Mercy Housing California Nancy Lewis Associates, Inc. Napa Valley Community Housing National Association of Social Workers, California Chapter National Housing Law Project NeighborWorks Orange County Newman Garrison and Partners, Inc. Non-Profit Housing Association of Northern California North Bay Leadership Council Northern California Community Loan Fund Northern California Presbyterian Homes and Services Onyx Architects Orange Coast Interfaith Shelter Pacific West Communities PATH Palm Communities People's Self Help Housing Corporation PEP Housing Powell & Partners, Architects Project Access, Inc. Promise Energy AB 35 Page Y Resources for Community Development Retirement Housing Foundation Rural Communities Housing Development CorporationSupport Rural Community Assistance Corporation Sacramento Housing Alliance Sacramento Homeless Organizing Committee Sacramento Loaves and Fishes San Diego County Apartment Association San Diego Housing Commission San Diego Housing Federation San Diego Organizing Project San Diego Regional Chamber of Commerce San Diego Tenant Association San Francisco Housing Action Coalition San Francisco Unified School District San Joaquin Valley Housing Collaborative San Luis Obispo County Housing Trust Fund Santa Clara County Board of Supervisors Satellite Affordable Housing Associates Self-Help Enterprises Sierra Business Council Shelter Partnership, Inc. Silicon Valley Bank Silicon Valley Leadership Group Skid Row Housing Trust Sonoma County Housing Advocacy Group Southern California Association of Non-Profit HousingSupport St. Anthony Foundation St. Vincent's TELACU Residential Management Tenemos que Reclamar y Unidos Salvar La Tierra (T.R.U.S.T. South LA) Thomas Safran & Associates AB 35 Page Z Trinity Center Walnut Creek United Ways of California Urban Habitat Venice Community Housing Corporation Walkland Housing and Development Corporation Ward Economic Development Corporation Western Seniors Housing, Inc. WORKS Yolo Housing Nine private individuals Opposition None on file Analysis Prepared by:Oksana Jaffe / REV. & TAX. / (916) 319-2098