BILL ANALYSIS Ó
AB 35
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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.
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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:
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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;
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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.
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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.
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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;
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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
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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
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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
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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
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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.
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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
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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
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"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.
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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
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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
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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
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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).
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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.
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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
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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
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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
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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
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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
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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
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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