BILL ANALYSIS                                                                                                                                                                                                    



                                                                      AB 35


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          (Without Reference to File)





          CONCURRENCE IN SENATE AMENDMENTS


          AB  
          35 (Chiu and Atkins)


          As Amended  September 10, 2015


          Majority vote.  Tax levy


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          |ASSEMBLY:  | 78-0 | (June 4,      |SENATE: |      | (September 11,  |
          |           |      |2015)          |        |      |2015)            |
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          |           |      |               |        |      |                 |
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                                               (vote not available)




          Original Committee Reference:  REV. & TAX.




          SUMMARY:  Modifies the existing Low-Income Housing Tax Credit  
          (LIHTC) program and increases the aggregate credit amount that  
          may be annually allocated to low-income housing projects by $100  
          million for calendar years 2016 through 2021, inclusive, as  
          provided.  










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          The Senate amendments:


          1)Reduce the additional amount of LIHTC that may be annually  
            allocated among low-income housing projects from $300 million  
            to $100 million (thereby increasing the amount currently  
            authorized to be annually allocated from $70 million, as  
            adjusted for inflation, to $170 million, as adjusted for  
            inflation). 


          2)Authorize the additional annual $100 million allocation of  
            LIHTCs only for calendar years 2016 through 2021, inclusive.


          3)Incorporate additional changes to Revenue and Taxation Code  
            Sections 12206, 17058, and 23610.5 proposed by SB 377 (Beall)  
            of the current legislative session, that would become  
            operative if this bill and SB 377 are chaptered, and this bill  
            is chaptered last. 




          AS PASSED BY THE ASSEMBLY, this bill:


          1)Beginning in 2016 and each year thereafter, increased the  
            amount of state LIHTC by an additional $300 million, as  
            adjusted for inflation starting in 2017.


          2)Provided that a low-income housing building 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 allocation, as  
            annually adjusted.    


          3)Modified the allocation of state LIHTC that may be awarded to  
            a federally subsidized low-income housing project receiving  
            federal 4% LIHTC as follows:








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             a)   A new qualified low-income housing building is eligible  
               for a cumulative state LIHTC over four years of 50% of the  
               qualified basis of the building, provided that the building  
               is not located in a Difficult to Develop Area (DDA) or a  
               Qualified Census Tract (QCT).


             b)   An existing qualified low-income housing building that  
               is not located in a DDA or a QCT is eligible for a  
               cumulative state LIHTC over four years of 13% of the  
               qualified basis of the building.    


             c)   A new or existing low-income housing building that is  
               located in a DDA or QCT may be awarded a cumulative state  
               LIHTC in an amount not to exceed 50% of the qualified basis  
               of the building, provided that the federal LIHTC is  
               replaced with state LIHTC, as specified. 


             d)   A qualified low-income building is eligible for a  
               cumulative state LIHTC of 95% of the qualified basis over  
               four years if it meets all of the following requirement:


               i)     Is at least 15 years old;


               ii)    Serves households with very-low income or extremely  
                 low-income residents, as specified; 


               iii)   Is restricted, for a period of not less than 55  
                 years, to serving residents with the average targeted  
                 household income of no more than 45% of the area median  
                 income; and,


               iv)    It would receive insufficient state credits, due to  
                 the building's low appraised value, to complete  








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                 substantial rehabilitation and the rehabilitation will be  
                 completed. 


          4)Revised the definition of a "taxpayer" for purposes of the  
            state LIHTC program to include members of a limited liability  
            company.


          5)Revised the definition of a "housing sponsor" for purposes of  
            the LIHTC program to include a limited liability company. 


          6)Added the following definitions:


             a)   "Extremely low-income" has the same meaning as Health  
               and Safety Code (H&SC) Section 50053; and,


             b)   "Very low-income" has the same meaning as in H&SC  
               Section 50053.   


          1)Made technical, non-substantive changes to the provisions of  
            the LITHC program. 


          2)Took effect immediately as a tax levy. 


          FISCAL EFFECT:  Unknown


          COMMENTS:


          1)Author's Statement.  The author has provided the following  
            statement in support of this bill:
               California's shortfall of 1.5 million affordable  
               rentals impedes our state's economic growth by  
               slowing job creation and driving Californians into  








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               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  








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               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.


          2)State LIHTC Program.  In 1987, the Legislature authorized a  
            state LIHTC Program to augment the federal tax credit program.  
             State tax credits can only be awarded to projects that have  
            also received, or are concurrently receiving, an allocation of  
            the federal LIHTCs.  The amount of state LIHTC that may be  
            annually allocated by the California Tax Credit Allocation  
            Committee (TCAC) is limited to $70 million, adjusted for  
            inflation.  In 2014, the total credit amount available for  
            allocation was $103 million (representing all four years of  
            allocation) plus any unused or returned credit allocations  
            from previous years.  
            Current state tax law generally conforms to federal law with  
            respect to the LIHTC, except that it is limited to projects  
            located in California.  While the state LIHTC program is  
            patterned after the federal LIHTC program, there are several  
            differences.  First, investors may claim the state LIHTC over  
            four years rather than the 10-year federal allocation period.   
            Second, the rates used to determine the total amount of the  
            state tax credit (representing all four years of allocation)  
            are 30% of the qualified basis of a project that is not  
            federally subsidized and 13% of the qualified basis of a  
            project that is federally subsidized, in contrast to 70% and  
            30% (representing all 10 years of allocation on a  
            present-value basis), respectively, for purposes of the  
            federal LIHTCs.  Furthermore, state tax credits are not  
            available for acquisition costs, except for previously  
            subsidized projects that qualify as "at-risk" of being  
            converted to market rate. 


            TCAC is authorized to replace federal LIHTC with state LIHTC  
            of up to 30% of a project's eligible basis if the federal  
            LIHTC is reduced in an equivalent amount.  This provision  
            allows TCAC to increase the number of projects funded with the  
            limited federal credits in a given year.  As discussed, the  








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            maximum federal tax credit that can be awarded (the 9% credit)  
            is generally equal to 70% (on a present-value basis) of a  
            taxpayer's qualified basis in the project, spread over a  
            10-year period.  Thus, a project that receives the maximum in  
            both state and federal credits receives an amount equal to  
            100% of the taxpayer's qualified basis over a 10-year period.


          3)SB 377 Proposes Additional Changes to the LIHTC Program.  SB  
            377 would allow taxpayers to sell LIHTCs to existing investors  
            in any low-income housing project in California and would  
            remove the sunset date on provisions relating to the  
            bifurcation of federal and state LIHTCs.  Both SB 377 and this  
            bill, if enacted, would amend the same Revenue and Taxation  
            Code sections.  Generally, in the absence of "any express  
            provision to the contrary in a bill which is chaptered last,  
            the last (higher) chapter law prevails.  Consequently, unless  
            some consideration is made for the earlier chaptered bill, the  
            last chaptered bill will eliminate any changes proposed by the  
            earlier bill."  [George H. Murphy, Legislative Counsel,  
            Legislative Drafting Manual (1975).]  To avoid this so-called  
            "chaptering out" problem, this bill incorporates the changes  
            proposed to the LIHTC program by SB 377.  
          Analysis Prepared by:                                             
                          Oksana Jaffe / REV. & TAX. / (916) 319-2098  FN:  
          0002426