BILL ANALYSIS Ó
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|SENATE RULES COMMITTEE | AB 35|
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THIRD READING
Bill No: AB 35
Author: Chiu (D) and Atkins (D), et al.
Amended: 5/20/15 in Assembly
Vote: 21
SENATE GOVERNANCE & FIN. COMMITTEE: 6-0, 7/1/15
AYES: Hertzberg, Nguyen, Beall, Hernandez, Lara, Pavley
NO VOTE RECORDED: Moorlach
SENATE TRANS. & HOUSING COMMITTEE: 10-0, 7/14/15
AYES: Beall, Cannella, Allen, Bates, Gaines, Leyva, McGuire,
Mendoza, Roth, Wieckowski
NO VOTE RECORDED: Galgiani
SENATE APPROPRIATIONS COMMITTEE: 6-0, 8/27/15
AYES: Lara, Bates, Beall, Hill, Leyva, Mendoza
NO VOTE RECORDED: Nielsen
ASSEMBLY FLOOR: 78-0, 6/4/15 - See last page for vote
SUBJECT: Income taxes: credits: low-income housing:
allocation increase.
SOURCE: Author
DIGEST: This bill increases the amount of low-income housing
tax credits (LIHTCs) the California Tax Credit Allocation
Commission (CTCAC) can allocate for low-income housing; revises
percentages; and establishes new categories.
ANALYSIS:
Existing law:
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1)Allows tax credits against the Personal Income Tax,
Corporation Tax, and Gross Premiums Tax for investors who
provide project capital to low-income rental housing projects
to complement credits allowed by federal law. Credits are
computed in modified conformity with federal law, but can only
be claimed in fixed percentages equal to 30% of qualified
basis over four years. Under the state credit, projects must
remain affordable for 30 years.
2)Establishes CTCAC, comprised of the State Treasurer, the State
Controller, the Director of Finance, and three non-voting
members, to allocate both federal and state credits.
a) 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.
b) CTCAC can annually allocate federal 9% credits to
projects up to a cap set by federal law, currently $2.30
per capita for each state, but can allocate federal 4%
credits without limit.
c) CTCAC can annually allocate state credits to federal 9%
credit projects up to an amount equal to $70 million each
year, adjusted for inflation since the Legislature
initially set the $70 million figure in statute in 2001,
plus any unallocated credits from previous years.
d) CTCAC can allocate credits for 4% credit projects for
federally subsidized projects, but can only do some out of
the same authorized amount as the 9% credits.
1)Prohibits CTCAC from allocating state credits to projects in
Qualified Census Tracts (QCTs) and Difficult to Develop Areas
(DDAs) unless it swaps out federal credits willing to forgo
the "basis boost," as the maximum basis for these projects is
130%, not 100% for other projects.
a) QCTs are designated by the Secretary of the United
States 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
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has a poverty rate of 25%.
b) The Secretary of HUD also draws DDAs using a ratio of
construction, land, and utility costs to area median gross
income.
This bill:
1)Increases credit percentages for new buildings that are
federally subsidized, and not in QCTs or DDAs, from the
current 4% of qualified basis over the first three years, and
3% in the fourth year, for a total of 15%, to 15% for each of
the first three years, and 5% in the fourth year, for a total
of 50%.
2)Allows CTCAC to allocate state credits for new or existing
buildings in QCTs and DDAs up to 50% of basis, but must
replace federal credits with state ones when doing so.
3)Establishes a new, targeted category for existing buildings at
least 15 years old that are eligible for a credit of 30% in
the first three years, and 5% in the fourth, for a total of
95%, if:
a) The project serves households of very-low and
extremely-low income such that its average maximum
household income is not more than 45% of the area median
gross income.
b) The project is subject to a regulatory agreement
restricting the average maximum household income to the
above standard for 55 years.
c) The project would have insufficient credits under
current categories to complete substantial rehabilitation.
d) The credit allocation results in the completion of the
project.
1)Authorizes CTCAC to allocate up to $300 million in credits in
the 2016-17 fiscal year, plus $300 million each fiscal year
thereafter plus an inflation adjustment, for projects under
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the new category, or for projects currently only eligible for
the 4% credit.
2)Allows CTCAC to allocate credits to developers eligible for
the 9% credit from the current $75 million authorization, but
developers of these projects are ineligible for allocations
from the new $300 million.
3)Imports current definitions in the Health and Safety Code for
CTCAC to sue when determining "low-income" and "extremely
low-income."
4)Applies its changes to the Gross Premiums Tax, Personal Income
Tax, and Corporation Tax.
5)Makes conforming and grammatical changes.
Background
The LIHTC induces investment in low-income housing by providing
a tax shelter for investors for allocating capital to an asset
class with a relatively poor rate of return. In return for
providing the tax shelter, the state gets more low-income
housing than it otherwise would have. Low-income housing
projects face many barriers in California: high costs of land,
labor, and capital; resistance from local residents and state
and local laws and policies protecting the environment, among
others. Because the credit is capped and allocated, CTCAC
awards tax credits to projects on a competitive process based on
an evaluation of the most effective use of the tax credits.
This program is much different than other tax credits, where any
individual or businesses can qualify for a credit by virtue of
incurring specific costs such as research and development or
hiring specific individuals. Currently, housing sponsors apply
to CTCAC for credits, and if granted, then form partnership
agreements with investors, who provide capital to fund the
housing construction in exchange for the allocated tax credits.
The tax credits exceed the value of the investment because
demand for the tax credits does not meet supply. For example, a
partnership agreement may allocate 100% of tax credits to an
investor that provides 75% of the necessary project funding; the
value of the discounted tax credits is sufficient for investors
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to participate. Investors claim the credit until exhausted,
then walk away from the partnership, and deduct the amount paid
to the partnership in exchange for the tax credits as a capital
loss.
The Internal Revenue Service may recapture federal credits;
however, the Franchise Tax Board 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.
Comments
Federal law allows CTCAC to allocate 9% credit for projects that
are not "federally subsidized," but 4% for ones that are.
Developers that obtain federal 9% credits and combine them with
state credits generally have a sufficient subsidy to construct a
low-income housing project; however, CTCAC can only allocated
these credits up to a cap set by federal law. While the 4%
credits aren't subject to a similar cap, they often do not have
the value necessary to generate sufficient project capital for a
project to pencil out in a post-redevelopment world. AB 35
seeks to fill this gap by increasing the value of state credits
to hopefully secure more interest in 4% projects to generate
sufficient subsidy amounts to construct projects. Another vital
component is the federal subsidy, which isn't a direct monetary
subsidy, but instead the issuance of mortgage revenue bonds,
where the subsidy is the federal and state income tax exclusion
for interest payments. Local housing authorities apply to the
California Debt Limit Allocation Committee (CDLAC) for an
allocation of tax-exempt private activity bond ceiling. If
approved, the local housing authority sells the bonds, loans the
proceeds to housing developers, who combine these funds with
capital raised from state and federal LIHTCs to construct the
project, and then repay the bonds out of rents. Last year,
CDLAC allocated $1.25 billion in ceiling for multifamily
projects, an amount that should increase if AB 35 is enacted.
Related Legislation
SB 377 (Beall, 2015) allows developers receiving LIHTC credit
reservations to sell credits to unrelated parties under
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specified conditions. The bill is pending in the Assembly
Appropriations Committee.
FISCAL EFFECT: Appropriation: No Fiscal
Com.:YesLocal: No
According to Senate Appropriations Committee, this bill will
result in General Fund revenue losses of $44 million in 2015-16,
$150 million in 2016-17, and $180 million in FY 2017-18. CTCAC
would incur first-year administrative costs of $246,000,
increasing potentially in the out years.
SUPPORT: (Verified8/28/15)
California State Controller Betty T. Yee
California State Treasurer John Chiang
A Community of Friends
Adobe Community
Affirmed Housing
Affordable Housing Association-Pacific Southwest
Affordable Housing, Inc.
Alameda County Development Disabilities Council
Alameda County Housing Authority
Alpha Construction Co., Inc.
American Association of Retired Persons
American Planning Association, California Chapter
Amy Hiestand Consulting
Angelus Plaza, a Retirement Housing Foundation
Aspira Net
Association of Bay Area Governments
Bay Area Council
Be.grou
Beacon Communities/ABHOW
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
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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 Community Loan Fund
California Council for Affordable Housing
California Council of Community Mental Health Agencies
California Housing Consortium
California Housing Partnership Corporation
California Infill Builders Federation
California Institute for Rural Studies
California Partnership to End Domestic Violence
California Political Consulting Group
California Special Districts Association
California State Association of Counties
Capitol Area Development Authority
Christian Church Homes
Christian Church Pacific Southwestern Region
Cities Association of Santa Clara County
City and County of San Francisco
City of Alameda
City of Banning
City of Berkeley
City of Burbank
City of Camarillo
City of Chowchilla
City of Concord
City of Culver City
City of Danville
City of Dublin
City of El Centro
City of Emeryville
City of Eureka
City of Fairfield
City of Fremont
City of Glendale
City of Lafayette
City of Lakeport
City of Lakewood
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City of Livermore
City of Lodi
City of Los Angeles
City of Merced
City of Morgan Hill
City of Napa
City of Rocklin
City of Sacramento
City of San Carlos
City of San Diego
City of San Jose
City of Santa Barbara
City of Santa Monica
City of Santa Rosa
City of South San Francisco
City of Taft
City of Thousand Oaks
City of Torrance
City of Tulare
City of Turlock
City of Union City
City of Vista
City of West Hollywood
Community Action North Bay
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
County Welfare Directors Association
Disability Rights California
Domus Development
Downtown Women's Center
EAH Housing
East Bay Developmental Disabilities Legislative Coalition
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East Bay Legislative Coalition
Eden Housing
Episcopal Diocese of Los Angeles
First Community Housing
Goldfarb & Lipman LLP
Habitat for Humanity
HCEB
Highridge Costa Housing Partners, LLC
Highridge Costa Investors, LLC
HIP Housing, Inc.
HKIT Architects
Hollywood Adventist Church
Hope Home Ownership for Personal Empowerment, LLC
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
Irvine Community Land Trust
Jamboree Housing Corporation
Kennedy Commission
Korean Resource Center
Larkin Street Youth Services
Laurin Associates
Law Foundation of Silicon Valley
Leadership Counsel for Justice and Accountability
LeadingAge California
League of Cities
LINC Housing
Linda M. Nelson DBA Nelson Rental Consultant
Little Tokyo Service Center CDC
Loaves and Fishes
Los Angeles Area Chamber of Commerce
Los Angeles Community Action Network
Many Mansions
Marin County Board of Supervisors
Mental Health America of California
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Mercy Housing California
MidPen Housing
Monterey County Board of Supervisors
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
North Los Angeles County Regional Center
Northern California Community Loan Fund
Northern California Presbyterian Homes and Services
Onyx Architects
Orange Coast Interfaith Shelter
Pacific West Communities
Palm Communities
PATH
People's Self Help Housing Corporation
PEP Housing
Powell & Partners, Architects
Project Access, Inc.
Promise Energy
Resources for Community Development
Retirement Housing Foundation
Rural Communities Housing Development Corporation
Rural Community Assistance Corporation
Sacramento Homeless Organizing Committee
Sacramento Housing Alliance
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
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Satellite Affordable Housing Associates
Self-Help Enterprises
Seventy Day Adventist Church
Shelter Partnership, Inc.
Shelter, Inc.
Sierra Business Council
Silicon Valley Bank
Silicon Valley Leadership Group
Skid Row Housing Trust
Sonoma County Housing Advocacy Group
Southern California Association of Non-Profit Housing
Southern California Legislative Council
St. Anthony Foundation; St. Vincent's
TELACU Residential Management
Tenemos que Reclamar y Unidos Salvar La Tierra - South Los
Angeles
Thomas Safran & Associates
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
19 individuals
OPPOSITION: (Verified8/28/15)
None received
ARGUMENTS IN SUPPORT: According to the author "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
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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
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."
ASSEMBLY FLOOR: 78-0, 6/4/15
AYES: Achadjian, Alejo, Travis Allen, Baker, Bigelow, Bloom,
Bonilla, Bonta, Brough, Brown, Burke, Calderon, Campos, Chang,
Chau, Chávez, Chiu, Chu, Cooley, Cooper, Dababneh, Daly, Dodd,
Eggman, Frazier, Beth Gaines, Gallagher, Cristina Garcia,
Eduardo Garcia, Gatto, Gipson, Gomez, Gonzalez, Gordon, Gray,
Grove, Hadley, Harper, Roger Hernández, Holden, Irwin,
Jones-Sawyer, Kim, Lackey, Levine, Linder, Lopez, Low,
Maienschein, Mathis, Mayes, McCarty, Medina, Melendez, Mullin,
Nazarian, Obernolte, O'Donnell, Olsen, Patterson, Perea,
Quirk, Rendon, Ridley-Thomas, Rodriguez, Salas, Santiago,
Steinorth, Mark Stone, Thurmond, Ting, Wagner, Waldron, Weber,
Wilk, Williams, Wood, Atkins
NO VOTE RECORDED: Dahle, Jones
AB 35
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Prepared by:Colin Grinnell / GOV. & F. / (916) 651-4119
8/30/15 19:48:54
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