BILL ANALYSIS Ó
AB 1229
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Date of Hearing: April 27, 2015
ASSEMBLY COMMITTEE ON REVENUE AND TAXATION
Philip Ting, Chair
AB 1229
(Campos) - As Amended April 9, 2015
Majority vote. Fiscal committee.
SUBJECT: Senior Citizen Rent Increase Exemption Program
SUMMARY: Enacts the Senior Citizen Rent Increase Exemption
Program (Program) to test whether the Program is a viable method
to help California seniors remain in their homes. Specifically,
this bill:
1)Contains the following legislative findings and declarations:
a) According to a Kaiser Family Foundation study,
California's seniors have the nation's highest poverty
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rate;
b) Twenty percent of California adults over 65 years of age
live below the poverty threshold of about $16,000, when the
higher cost of housing and health care are taken into
account;
c) Nationally, homelessness among seniors is projected to
rise by 33% between 2010 and 2020, and by 100% between 2010
and 2050, according to a 2010 report from the Homelessness
Research Institute;
d) The Los Angeles Homeless Services Authority reports that
from 2011 to 2013, inclusive, Los Angeles County had a
29.1% increase in the number of homeless people 62 years of
age and older;
e) According to a March 2013 report of the National Low
Income Housing Coalition, California is the second least
affordable state behind Hawaii;
f) According to the federal Department of Housing and Urban
Development, fair market rent in California for a
two-bedroom apartment is $1,341 a month. In order to
afford this level of rent and utilities, without paying
more than 30% of income on housing, a household needs to
earn $4,470 monthly or $53,640 annually;
g) Three out of the 10 most expensive metropolitan areas
and six out of the 10 most expensive counties nationally
are in California; and,
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h) In order to slow the growing numbers of homeless senior
citizens being priced out of their homes, California must
begin to explore practical means to slow this disaster.
2)Establishes the Program as a demonstration project to be
implemented in the Counties of Alameda, San Francisco,
Ventura, and Santa Clara. Specifically, the Program would
permit an "eligible head of household" in a rent-controlled
property to apply for an exemption from rent increases and to
provide his or her landlord a tax credit in an amount
equivalent to the rent increase that the landlord otherwise
would have received if not for that exemption.
3)Defines an "eligible head of household" as a person with all
of the following characteristics:
a) He or she is 62 years of age or older;
b) He or she rents a property as his or her primary
residence that is rent controlled and he or she is named on
the lease for that property; and,
c) His or her combined annual household income is $50,000
or less, more than one third of which is spent on rent.
4)Requires the Department of Housing and Community Development
(Department) to:
a) Provide advisory guidance to "supervising agencies"
regarding the implementation and administration of the
Program; and,
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b) Publicize the Program to senior citizens in
rent-controlled properties in the jurisdictions to which
the Program applies.
5)Defines a "supervising agency" as the local rent control board
or other local entity that administrates [sic] a rent control
program with jurisdiction over a potentially "qualifying
residence".
6)Defines a "qualifying residence" as a property subject to rent
control, not sublet, in compliance with the local rent control
ordinance, and rent for which is not paid with a federal
housing choice voucher, commonly referred to as a Section 8
voucher.
7)Authorizes the Department to promulgate the necessary rules
and regulations to carry out the Program.
8)Provides that on and after April 1, 2016, an eligible head of
household renting a qualifying residence may apply to a
supervising agency for a "rent increase exemption order" under
the Program.
9)Defines a "rent increase exemption order" as an order issued
by a supervising agency that exempts an eligible head of
household renting a qualifying residence from increases in
rent for a period of 12 months and entitles the landlord to a
tax credit equivalent to the rent not received.
10)Requires the supervising agency to review applications and,
upon confirming that an applicant is an eligible head of
household and that the property is a qualifying residence, to
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issue the applicant a rent increase exemption order.
11)Requires the supervising agency to issue a copy of the order
to the landlord of the qualifying residence and to notify the
landlord of his or her right to make a claim for a tax credit
for rent not received under the order.
12)Specifies that the rent increase exemption order shall be in
effect for a 12-month period commencing the month following
its issuance. A rent increase exemption order shall not renew
automatically and an eligible head of household shall be
required to reapply to the supervising agency and make the
appropriate demonstrations in order to qualify for a
subsequent order.
13)Requires the Department to seek federal funding to support
the Program.
14)Requires the Department, on or before July 1, 2017, to report
to the Legislature regarding the effectiveness of the Program,
as specified.
15)Allows, for taxable years beginning on or after January 1,
2016, and before January 1, 2020, a credit under the Personal
Income Tax (PIT) Law in an amount equal to the amount of rent
not received for that taxable year by a taxpayer, who is a
landlord, as a consequence of a tenant receiving a rent
increase exemption order under the Program.
16)Provides that, in cases where the credit amount exceeds the
taxpayer's tax liability, the excess credit amount may be
carried over to reduce the liability in the following year,
and succeeding seven years if necessary, until the total
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credit is exhausted.
17)Sunsets the tax credit provisions automatically on December
1, 2020.
18)Contains various provisions designed to comply with the
performance indicator requirements of Revenue and Taxation
Code (R&TC) Section 41.
19)Specifies that if the Commission on State Mandates determines
that this bill contains costs mandated by the state,
reimbursement to local agencies and school districts for those
costs shall be made pursuant to existing law.
EXISTING LAW:
1)Authorizes local jurisdictions to establish controls on the
price of residential units that may be offered for rent.
2)Prescribes statewide limits on the application of local rent
control with regard to certain properties, including those
that have a certificate of occupancy issued after February 1,
1995.
3)Allows various tax credits under the PIT Law. These credits
are generally designed to encourage socially beneficial
behavior or to provide relief to taxpayers who incur specified
expenses.
4)Requires any bill authorizing a new PIT credit to contain all
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of the following:
a) Specific goals, purposes, and objectives that the tax
credit will achieve;
b) Detailed performance indicators for the Legislature to
use when measuring whether the tax credit meets the goals,
purposes, and objectives stated in the bill; and,
c) Data collection requirements to enable the Legislature
to determine whether the tax credit is meeting, failing to
meet, or exceeding those specific goals, purposes, and
objectives. The requirements shall include the specific
data and baseline measurements to be collected and remitted
in each year the credit is in effect, for the Legislature
to measure the change in performance indicators, and the
specific taxpayers, state agencies, or other entities
required to collect and remit data. (R&TC Section 41.)
FISCAL EFFECT: The Franchise Tax Board (FTB) estimates that
this bill would reduce General Fund revenues by $6.2 million in
fiscal year (FY) 2015-16, by $24 million in FY 2016-17, and by
$50 million in FY 2017-18.
COMMENTS:
1)This bill is sponsored by the California State Council of the
Service Employees International Union, and the United
Long-Term Care Workers Union, which note:
Housing is the single largest expenditure in most household
budgets, and the biggest insecurity faced by the elder
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population. Soaring rent prices without increasing
retirement benefits for low-income seniors often forces
this population to choose between paying their rent and
paying for their health/dental/vision care, prescription
medicine, food, and transportation. Creating opportunities
for seniors to remain living at home and out of costly
nursing homes, is the best option to keep seniors in our
communities and reduce state spending on safety net
programs.
Under AB 1229, the California Department of Housing and
Community Development would implement a demonstration
project in the counties of Santa Clara, San Francisco,
Alameda, and Ventura to explore the economic and social
impact of a Senior Citizen Rent Increase Exemption (SCRIE)
program locally, with the possibility of extending the
program statewide.
2)Opponents of this bill note the following:
Preventing landlords from immediately collecting marginal
rent increases is overly burdensome and unnecessary.
Landlords are already burdened by heavy regulation in rent
control districts, while tenants enjoy significant
protections. In San Francisco, landlords may only increase
rent by 1.9% in 2015. In Berkeley it's 2%, and in Oakland
it's 2.4%. Moreover, tenants are protected from evictions
unless there is just cause. It makes no sense to require
landlords to jump through additional hoops just to receive
a marginal rent increase. Applying for tax credits for
every single qualifying tenancy will become an
administrative nightmare for landlords who will be required
to account for all tenants who qualify, and keep track of
all increases. As a result, both administrative costs and
tax consultant fees will increase.
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3)Committee Staff Comments
a) What is a "tax expenditure" ? Existing law provides
various credits, deductions, exclusions, and exemptions for
particular taxpayer groups. In the late 1960s, U.S.
Treasury officials began arguing that these features of the
tax law should be referred to as "expenditures" since they
are generally enacted to accomplish some governmental
purpose and there is a determinable cost associated with
each (in the form of foregone revenues).
b) How is a tax expenditure different from a direct
expenditure ? As the Department of Finance notes in its
annual Tax Expenditure Report, there are several key
differences between tax expenditures and direct
expenditures. First, tax expenditures are reviewed less
frequently than direct expenditures once they are put in
place. While this affords taxpayers greater financial
predictability, it can also result in tax expenditures
remaining a part of the tax code without demonstrating any
public benefit. Second, there is generally no control over
the amount of revenue losses associated with any given tax
expenditure. Finally, it should also be noted that, once
enacted, it takes a two-thirds vote to rescind an existing
tax expenditure absent a sunset date, effectively resulting
in a "one-way ratchet" whereby tax expenditures can be
conferred by majority vote, but cannot be rescinded,
irrespective of their cost or efficacy, without a
supermajority vote.
c) Rent control in California : Fifteen cities in
California have rent control ordinances (Berkeley, Beverly
Hills, Campbell, East Palo Alto, Fremont, Hayward, Los
Angeles, Los Gatos, Oakland, Palm Springs, San Francisco,
San Jose, Santa Monica, Thousand Oaks, and West Hollywood).
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These ordinances are most common in cities with large
populations and low vacancy rates, where tenants may have
difficulty finding affordable housing. Local rent control
ordinances specify how much a landlord can increase the
rent of an existing tenant. Generally, under local rent
control ordinances, a landlord can increase a tenant's rent
once every 12 months by the allowable annual rent increase
without filing a petition with the local rent board. In
San Francisco, the current allowable increase is 1.9%; that
amount is based on 60% of the increase in the Consumer
Price Index for all urban consumers in the Bay Area, which
was 3.2% as posted in November 2014 by the Bureau of Labor
Statistics. Thus, for a tenant with a base rent of $1,500,
the monthly increase would be $28.50. Other types of rent
increases are subject to the rent board's approval. For
example, in Los Angeles, these include increases for
capital improvements, rehabilitation work, just and
reasonable rent increases where the automatic increase does
not provide a just and reasonable return on the rental
units, and upgrades to major systems such as heating and
air conditioning or water and sewage piping.
d) What does this bill do ? This bill would establish a
pilot program in four counties under which eligible tenants
in a rent-controlled property could apply for an exemption
from rent increases. Specifically, a tenant would apply to
a supervising agency (e.g., the local rent control board)
for a "rent increase exemption order." If approved, this
order would exempt the eligible tenant from increases in
rent for a 12-month period. In addition, the landlord
would be entitled to a PIT credit equivalent to the "rent
not received."
e) Filling in the details : In its current form, this
bill's tax provisions lack sufficient detail to enable the
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FTB to administer the credit. For example, the credit is
based on the "amount of rent not received" as a consequence
of a tenant receiving a rent increase exemption order. It
is not readily apparent what this means. Would the credit
be a dollar-for-dollar match based on the difference
between actual rents received and what the landlord could
have received pursuant to a rate increase approved by the
local rent control board? What would happen if the
landlord decided, for whatever reason, not to raise the
rents of similarly situated tenants? Would the landlord
still be entitled to the credit? Is there any cap on the
amount of the credit? How would the FTB determine whether
a landlord is entitled to a credit? Would the
determination of a local rent control board be
determinative? Committee staff has identified these and
numerous other technical considerations that would need to
be addressed before this tax credit program could be
effectively implemented.
f) The right approach ? Historically, the state has
invested in the construction, preservation, and
rehabilitation of affordable housing for low and
moderate-income households. The funding sources to support
construction of affordable housing have drastically
diminished over the last five years. With the elimination
of redevelopment agencies and the exhaustion of state
housing bonds, California has reduced its funding for the
development and preservation of affordable homes by 79% --
from approximately $1.7 billion per year to nearly nothing.
According to the California Housing Partnership,
California has a shortfall of 1,465,884 affordable units
for extremely low-income and very low-income households.
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While the goal of this bill is admirable, it will likely do
nothing to increase the supply of affordable housing for
seniors. The tenants who would benefit from the Program
are already in affordable units where rent increases are
restricted. The Committee may wish to consider whether a
better investment of the General Fund monies required to
fund this bill's tax credit would be funding the
construction of new affordable units.
g) Weighing the benefits : While this bill's tax credit is
ostensibly designed to compensate landlords for lost rent
increases, it is not clear to Committee staff that this
compensation would be made equitably available. For
example, if a landlord had no tax liability to offset in a
given year, he or she could carry the credit forward to
future years, but would have no short-term financial
benefit. In addition, this bill's tax credit is only
available to PIT filers and not taxpayers filing under the
Corporation Tax Law.
h) Federal funding ? This bill would require the Department
to seek federal funding for the Program. It is not clear
to Committee staff what such funding, if obtained, would be
used for. Would it be used to fund the Department's
administrative expenses in connection with the Program?
Would it be used to help promote the Program to potentially
eligible tenants? Would it be used to defray the tax
credit's cost to the General Fund in the form of foregone
revenues? The author may wish to take amendments further
clarifying this issue.
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i) Double-referral : This bill has been double referred to
the Assembly Committee on Housing and Community
Development, where it will be heard pending passage by this
Committee.
REGISTERED SUPPORT / OPPOSITION:
Support
California State Council of the Service Employees International
Union (Sponsor)
United Long-Term Care Workers Union (Sponsor)
Opposition
Apartment Association, California Southern Cities
Apartment Association of Orange County
California Apartment Association
California Taxpayers Association
East Bay Rental Housing Association
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Nor Cal Rental Property Association
North Valley Property Owners Association
Analysis Prepared by:M. David Ruff / REV. & TAX. / (916)
319-2098 / Lisa Engel / H & C.D. / (916) 319-2085