BILL ANALYSIS                                                                                                                                                                                                    



                                                                      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


           ----------------------------------------------------------------- 
          |Policy       |Housing and Community          |Vote:|7 - 0        |
          |Committee:   |Development                    |     |             |
          |             |                               |     |             |
          |             |                               |     |             |
          |-------------+-------------------------------+-----+-------------|
          |             |Revenue and Taxation           |     |9 - 0        |
          |             |                               |     |             |
          |             |                               |     |             |
           ----------------------------------------------------------------- 


          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


                                                                    Page  2





          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


                                                                    Page  3





          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


                                                                    Page  4






            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  








                                                                      AB 35


                                                                    Page  5





            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