BILL ANALYSIS                                                                                                                                                                                                    Ó



          SENATE COMMITTEE ON APPROPRIATIONS
                             Senator Ricardo Lara, Chair
                            2015 - 2016  Regular  Session

          AB 1920 (Chau) - California Tax Credit Allocation Committee:   
          low-income housing credit:  fines
          
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          |Version: June 8, 2016           |Policy Vote: T. & H. 11 - 0     |
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          |Urgency: No                     |Mandate: No                     |
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          |Hearing Date: August 1, 2016    |Consultant: Mark McKenzie       |
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          This bill does not meet the criteria for referral to the  
          Suspense File.



          Bill  
          Summary:  AB 1920 would authorize the California Tax Credit  
          Allocation Committee (TCAC) to establish a schedule of fines  
          that may be imposed on a recipient of low-income housing tax  
          credits for a violation of terms and conditions, program  
          regulations, regulatory agreements, or other agreements, as  
          specified.


          Fiscal  
          Impact:  
           Minor and absorbable TCAC administrative costs to amend  
            existing program regulations, develop a schedule of fines that  
            would be adopted at a public meeting, impose fees on property  
            owners, and to manage ministerial appeals.  (Tax Credit  
            Allocation Fee Account)








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           Unknown, likely minor fine revenue gains.  (Housing  
            Rehabilitation Loan Fund)  


          Background:  Existing federal law provides for a federal low-income housing  
          tax credit (LIHTC) to incentivize private development of  
          affordable rental housing.  The tax credit enables low-income  
          housing sponsors and developers to raise project equity through  
          the allocation of tax benefits to investors.  Eligible projects  
          must meet specified rent and income restrictions, and housing  
          units must generally remain affordable for at least 30 years, as  
          specified in regulatory agreements.  During the first 15 years,  
          project owners must annually report to both the Internal Revenue  
          Service (IRS) and the state monitoring agency (TCAC).  The IRS  
          has the authority to recapture some or all of the credits  
          allocated for a particular project if the taxpayer fails to meet  
          all of the federal program requirements during the 15-year  
          compliance period.  
          Existing law also provides for a state LIHTC to augment the  
          federal tax credit program.  The state program is generally  
          patterned after the federal program, but project developers or  
          housing sponsors that receive a state credit allocation must  
          agree to a minimum of 55 years of rent and tenant income  
          restrictions, specified terms and conditions applicable to  
          federal credit allocations, and additional commitments as part  
          of the competitive application scoring process.


          Existing law designates TCAC as the entity responsible for  
          administering both the federal and state LIHTC programs,  
          including the allocation of tax credits through a competitive  
          application process.  While the IRS has the authority to  
          "claw-back" some or all federal tax credits for non-compliance  
          with terms and conditions and other regulatory agreements during  
          the first 15 years, there are few remedies available to TCAC to  
          enforce compliance with state program requirements, other than  
          bringing a lawsuit or imposing negative points on future LIHTC  
          applications. 




          Proposed Law:  
            AB 1920 would authorize TCAC to establish a schedule of fines  








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          for violations of terms and conditions, the regulatory  
          agreement, other agreements, and program regulations by  
          recipients of LIHTC allocations.  Specifically, this bill would:
           Specify that fines would be up to $500 per violation, or  
            double the amount of the financial gain resulting from the  
            violation, whichever is greater.
           Require that first-time violators be provided a 30-day period  
            to correct a violation before a fine is imposed, unless it is  
            a serious violation, as specified by TCAC.
           Specify that a violation may be subject to a recurring fine,  
            once discovered, if the violation is not corrected within a  
            reasonable period of time, as determined by TCAC.
           Require TCAC to adopt and revise the schedule of fines for  
            specific violations, and the fine amount for each violation,  
            by resolution at a public meeting.
           Authorize a property owner to appeal a fine to TCAC.
           Require all fines received by TCAC to be deposited into the  
            Housing Rehabilitation Loan Fund, which is a continuously  
            appropriated fund.
           Authorizes TCAC to record a lien against a property if a fine  
            assessed against a property owner is not paid within six  
            months from the date the fine was initially assessed, and  
            after reasonable notice has been provided to the property  
            owner.
           Specify that the lien would not be superior to other liens on  
            the property that were previously recorded.




          Staff  
          Comments:  While the IRS provides an oversight function for  
          low-income housing projects that receive LIHTC allocations for  
          the first 15 years, it does not enforce compliance with  
          additional requirements imposed as a part of the state program,  
          or with any federal or state requirements after the 15-year  
          compliance period ends.  According to TCAC, approximately 1,000  
          LIHTC projects are inspected annually, and about 120 violations  
          are reported to the IRS for non-compliance issues each year, but  
          most violations are corrected before they are reported to the  
          IRS.  As noted above, TCAC only has limited enforcement options  
          available, such as imposing negative points on future LIHTC  
          applications, or filing a lawsuit, which is expensive and time  
          consuming.  This bill provides additional enforcement options to  








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          ensure property owners comply with all conditions and agreements  
          related to the program.
          Staff notes that the bill requires fines to be deposited into  
          the Housing Rehabilitation Loan Fund.  All money in this fund is  
          continuously appropriated to the Department of Housing and  
          Community Development for making deferred payment loans,  
          primarily as part of the Multifamily Housing Program.  By  
          depositing revenues into a continuously appropriated fund, the  
          bill technically makes an appropriation.




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