BILL ANALYSIS                                                                                                                                                                                                    Ó

          |SENATE RULES COMMITTEE            |                         AB 35|
          |Office of Senate Floor Analyses   |                              |
          |(916) 651-1520    Fax: (916)      |                              |
          |327-4478                          |                              |

                                   THIRD READING 

          Bill No:  AB 35
          Author:   Chiu (D) and Atkins (D), et al.
          Amended:  9/10/15 in Senate
          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

           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.



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          Existing law:

          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.

          3)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  


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               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  
               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  

          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  


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          1)Authorizes CTCAC to allocate up to $100 million in credits  
            beginning in the 2016 calendar year, plus an inflation  
            adjustment for each subsequent year before expiring in 2021,  
            for projects under 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 $100 million.

          3)Imports current definitions in the Health and Safety Code for  
            CTCAC to sue when determining "low-income" and "extremely  

          4)Applies its changes to the Gross Premiums Tax, Personal Income  
            Tax, and Corporation Tax.  

          5)Makes conforming and grammatical changes.

          9)  Contains double-jointing provisions resolving conflict with  
          SB 377 (Beall).

          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  


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          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  
          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  

          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  

          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  


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          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  
          specified conditions.  The bill is pending in the Assembly  
          Appropriations Committee.  

          FISCAL EFFECT:   Appropriation:    No          Fiscal  
          Com.:YesLocal:   No

          According to Senate Appropriations Committee, the previous  
          version of this bill which authorized $300 million annually,  
          plus inflation, in additional credits results in General Fund  
          revenue losses of $44 million in 2015-16, $150 million in  
          2016-17, and $180 million in fiscal year 2017-18.  CTCAC would  
          incur first-year administrative costs of $246,000, increasing  
          potentially in the out years.  However, the fiscal effect should  
          be reduced because AB 35 now authorizes only $100 million  
          annually in credits, plus inflation.

          SUPPORT:   (Verified9/10/15)

          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


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          Bay Area Council
          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
          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


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          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
          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


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                                                                    Page  9

          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
          East Bay Legislative Coalition
          Eden Housing
          Episcopal Diocese of Los Angeles
          First Community Housing
          Goldfarb & Lipman LLP
          Habitat for Humanity
          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


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          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 
          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
          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


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                                                                    Page  11

          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
          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  
          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.
          Yolo Housing
          19 individuals

          OPPOSITION:   (Verified9/10/15)


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          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  
          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 $100 million per  
          year, and enable the state to attract 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,  


                                                                      AB 35  
                                                                    Page  13

            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

          Prepared by:Colin Grinnell / GOV. & F. / (916) 651-4119
          9/11/15 13:44:26

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