BILL ANALYSIS Ó
SENATE COMMITTEE ON APPROPRIATIONS
Senator Ricardo Lara, Chair
2015 - 2016 Regular Session
AB 35 (Chiu) - Income taxes: credits: low-income housing:
allocation increase
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|Version: May 20, 2015 |Policy Vote: GOV. & F. 6 - 0, |
| | T. & H. 10 - 0 |
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|Urgency: No |Mandate: No |
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|Hearing Date: August 17, 2015 |Consultant: Robert Ingenito |
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This bill meets the criteria for referral to the Suspense File.
Bill
Summary: AB 35 would (1) increase the amount of tax credits the
California Tax Credit Allocation Committee (CTCAC) can allocate,
(2) modify credit percentages, as specified, and (3) create a
new category of credit eligibility.
Fiscal
Impact:
The Franchise Tax Board (FTB) estimates that this bill
would result in General Fund revenue losses of $44 million
in 2015-16, $150 million in 2016-17, and $180 million in FY
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2017-18. FTB's administrative costs would not be impacted
by the bill.
CTCAC would incur first-year administrative costs of
$246,000, increasing potentially in the out years (special
funds).
Background: Current federal law allows tax credits for investors who
provide project capital to low-income rental housing projects.
Taxpayers claim Low-Income Housing Tax Credits (LIHTCs) equal to
either (1) 9 percent annually of the basis in a new building
(not federally subsidized), or (2) 4 percent annually of the
basis of an existing building (federally subsidized) over 10
years. Taxpayers can begin applying the credit in the taxable
year in which the project is placed in service, and projects
must remain affordable to residents for 15 years.
California also allows its own LIHTCs for investments made in
low-income housing constructed in California to complement the
federal credit. Credits are computed in modified conformity
with federal law, but can only be claimed in fixed percentages
equal 30% of qualified basis over four years. Under the state
credit, projects must remain affordable for 30 years.
CTCAC allocates both federal and state credits. CTCAC awards
federal 9 percent credits for projects up to a cap set by
federal law, currently $2.30 per capita for each state; CTCAC
can allocate 4 percent credits without limit. CTCAC also
allocates state credits of 30 percent of basis over four years
to 9 percent credit projects up to an amount equal to inflation
adjusted of the $70 million initially set in statute in 2001,
plus any unallocated credits from previous years, which equaled
$103 million in 2014. CTCAC can allocate credits of 13 percent
of basis over four years for 4 percent credit projects, but can
only do some out of the same authorized amount as the 9 percent
credits. Housing developers design projects, and apply to CTCAC
for both credits. Should CTCAC approve the application and
grant the developer credits, he or she forms partnership
agreements with taxpayers that provide project capital in
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exchange for the credits at a discount.
CTCAC can award federal credits to a project, or state and
federal credits together, but cannot solely award state credits
to a project except for farmworker housing, because a threshold
amount of federal credits ensures that the Internal Revenue
Service's (IRS's) interest in enforcing the project's
affordability over the compliance period. IRS may recapture
credits; however, FTB cannot. Instead, CTCAC maintains an
enforcement staff to monitor affordability, and a party can
bring suit in Superior Court to enforce the project's
affordability.
Combining federal 9 percent credits with state credits generally
equals 100% of a project's eligible basis, or its cost less
non-depreciable items. However, the eligible basis is reduced
by the applicable percentage, a measure of the amount of
affordable units of floor space in the project as a share of the
entire project. However, federal law also allows credits equal
to 130 percent of eligible basis if the project is located in a
Qualified Census Tract (QCT) or a Difficult to Develop Area
(DDA), a so-called "basis boost." QCTs are designated by the
Secretary of the United States Department of Housing and Urban
Development (HUD) in which either 50 percent or more of the
households have an income that is less than 60 percent of the
area median gross income or has a poverty rate of 25 percent.
The Secretary of HUD also draws DDAs using a ratio of
construction, land, and utility costs to area median gross
income.
State law restricts CTCAC from allocating state credits in QCTs
or DDAs unless it swaps out federal credits willing to forgo the
"basis boost," so that the combined credit amount doesn't exceed
130 percent of basis. Additionally, CTCAC regulation allows
CTCAC to swap state credits for federal credits for any
authorized project when the state has unused credits at the end
of the year; CTCAC subsequently awards the swapped out federal
credits to different projects. Recently, the Legislature
modified this restriction to allow CTCAC to allocate state
credits when the project contains at least 50% of its occupants
are special needs households, currently defined in CTCAC
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regulations as developmentally disabled, are survivors of
physical abuse, are homeless, have chronic illness such as HIV
and mental illness, are displaced teenage parents (or expectant
parents) or another group as designated by CTCAC's executive
director (AB 952, Atkins, 2013). The change allows these
projects to receive state credits of 30% of basis in addition to
federal ones generated on 130 percent of basis. That measure
also codified CTCTAC regulation to swap an equivalent amount of
state credits for federal ones in any project, and makes
technical changes.
Proposed Law:
This bill would amend the 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
addition, the bill would do the following:
Specify that a low-income housing project that has
received an award of 9 percent 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.
Modify the allocation of state LIHTC that may be awarded
to a project that has received an award of 4 percent
federal LIHTC to provide:
o A cumulative state LIHTC of 50 percent of the
qualified basis of the building over 4 years for new
low-income housing.
o A cumulative state LIHTC of 13 percent of the
qualified basis of the building over 4 years for
existing low-income housing;
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o 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
o A cumulative state LIHTC of 95 percent 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.
Related
Legislation: AB 377 (Beall) would, among other things, amend the
LIHTC to allow the credit to be sold to an unrelated party. AB
377 is currently in the Assembly Revenue and Taxation Committee.
Staff
Comments: Using LIHTC allocation data from CTCAC, FTB assumes
that the maximum credit allocation would be reached each year.
As the bill would authorize an additional $300 million in LIHTC
allocations, FTB assumes that five percent, or $15 million, of
the allocation would ultimately be returned to CTCAC resulting
from unforeseen project issues. Based on current credit awards
and usage, FTB estimates that 70 percent of the remaining annual
credits would be used to offset income and franchise taxes.
Further, FTB assumes that 75 percent of the credit would be used
in the year generated and the remaining 25 percent would be
carried forward to future years. Current usage indicates that 98
percent would be claimed by corporations and the remaining 2
percent would be claimed by personal income taxpayers. FTB
estimates that once fully phased in, the average annual revenue
loss would be approximately $190 million.
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