BILL ANALYSIS Ó
AB 35
Page 1
Date of Hearing: May 27, 2015
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Jimmy Gomez, Chair
AB
35 (Chiu) - As Amended May 20, 2015
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|Policy |Housing and Community |Vote:|7 - 0 |
|Committee: |Development | | |
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|-------------+-------------------------------+-----+-------------|
| |Revenue and Taxation | |9 - 0 |
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Urgency: Yes State Mandated Local Program: NoReimbursable: No
SUMMARY:
This bill amends the existing Low-Income Housing Tax Credit
(LIHTC) program, increasing the aggregate credit amount that may
be allocated to low-income housing projects by $300 million for
the 2016 calendar year, and by $300 million, adjusted for
inflation, each calendar year thereafter. As a result, the
program will authorize the original $70 million, adjusted for
inflation from 2001, plus the additional $300 million, adjusted
for inflation after 2015. In summary, the modifications to the
AB 35
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program:
1)Specify that a low-income housing project 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, as adjusted.
2)Modify the allocation of state LIHTC that may be awarded to a
project that has received an award of 4% federal LIHTC to
provide:
a) A cumulative state LIHTC of 50% of the qualified basis
of the building over 4 years for new low-income housing;
b) A cumulative state LIHTC of 13% of the qualified basis
of the building over 4 years for existing low-income
housing;
c) In the case of a new or existing building that is
located in a "difficult to develop area" or qualified
census tract, as defined, and receiving a federal subsidy,
the cumulative state LIHTC shall be reduced by the amount
of federal subsidy such that the total subsidy is the same
as it would otherwise have been under (a) or (b),
respectively; and
d) A cumulative state LIHTC of 95% of the qualified basis
of the building over 4 years for very low or extremely low
income housing, that is at least 15 years old, and could
not complete the proposed rehabilitation absent the
credits.
AB 35
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FISCAL EFFECT:
1)Potentially significant GF costs to the California Tax Credit
Allocation Committee, administrator of the LIHTC program for
the State Treasurer, to administer changes to program; minor
and absorbable costs to Franchise Tax Board (FTB) to
administer program changes.
2)Estimated GF revenue decreases of $44 million, $150 million,
and $180 million in FY 2015-16, FY 2016-17, and FY 2017-18,
respectively.
COMMENTS:
1)Purpose. According to the author, California faces a growing
crisis created by an increasing divide between income and
rents. The author claims the state has a 1.5 million unit
shortfall in affordable rentals, impeding the state's economic
growth and driving residents into poverty. Under the
supplemental poverty measure developed by the US Census
Bureau, which factors in the cost of housing when determining
poverty levels, California led the nation with a 23.4% poverty
rate in 2013.
The author claims statewide median income decreased 8% since
2000, while rental prices increased 21% over the same period.
The author believes the problem is particularly acute in
California's large coastal metropolises, with families
increasingly crowding together in unsafe conditions, and
essential service workers priced out of many communities. The
author claims AB 35 leverages a proven public-private
partnership model, investing $300 million per year and
attracting $600 million in additional federal funding.
AB 35
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Proponents argue the lack of affordable housing contributes to
a weaker business climate in the state, citing a February 2015
report by Standard and Poor's. They claim that while this
bill will not fully compensate for the dissolution of the
state's redevelopment agencies, it will leverage additional
federal tax credits and tax-exempt bonding authority, filling
some of the gap in funding affordable housing statewide.
2)Low Income Housing Tax Credit. The LIHTC program incentivizes
investment into low-income housing by sanctioning a tax
shelter structure to compensate private investors for
allocating capital to an asset class with a traditionally poor
rate of return. Low income housing projects face several
obstacles in California, including high cost of land, labor,
and capital, as well as restrictive and cumbersome laws and
regulations on development and the environment. Unlike many
other tax incentives, the LIHTC is capped and allocated by the
Tax Credit Allocation Committee on a competitive basis,
comparable to a grant program, focusing on the maximizing the
total amount of affordable housing created. Opponents argue,
however, LIHTC programs are not as efficient as demand-based
subsidies, and require complex financing structures that
result in a high cost of capital.
3)A Very Small Step. The state LIHTC program augments the
federal program, authorizing state credits to be awarded only
to projects that have also received federal credits. The
state LIHTC program currently limits annual allocations to $70
million, adjusted for inflation. In 2014, total credits
available for allocation amounted to $103 million. This bill
would add $300 million to that amount.
According to the California Housing Partnership, California
used more of the federal LIHTC before the elimination of
redevelopment agencies and the exhaustion of state housing
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bond funding. As a result, the number of newly-constructed
LIHTC units that have been funded with the federal credit
targeted by this bill has fallen from 4,000 in 2012 to under
2,000 in 2014. Yet the housing shortage will remain
problematic as demand continues to grow relative to supply.
An additional $900 million in state and federal funds
available to incentivize housing appears unlikely to fund the
construction of even 1% of the author's claimed 1.5 million
unit affordable housing shortfall.
Analysis Prepared by:Joel Tashjian / APPR. / (916)
319-2081