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 ----------------------------------------------------------------- | | | | | | ----------------------------------------------------------------- |--------------------------------+--------------------------------| | | | |Version: June 8, 2016 |Policy Vote: T. & H. 11 - 0 | | | | |--------------------------------+--------------------------------| | | | |Urgency: No |Mandate: No | | | | |--------------------------------+--------------------------------| | | | |Hearing Date: August 1, 2016 |Consultant: Mark McKenzie | | | | ----------------------------------------------------------------- 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) AB 1920 (Chau) Page 1 of ? 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 AB 1920 (Chau) Page 2 of ? 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 AB 1920 (Chau) Page 3 of ? 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. -- END --