BILL ANALYSIS Ó
AB 2140
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Date of Hearing: March 30, 2016
ASSEMBLY COMMITTEE ON HOUSING AND COMMUNITY DEVELOPMENT
David Chiu, Chair
AB 2140
(Roger Hernández) - As Amended March 28, 2016
SUBJECT: Income taxes: insurance tax: credits: low-income
housing: farmworker housing assistance
SUMMARY: Makes changes to the farmworker housing tax credit
set-aside within the Low Income Housing Tax Credit (LIHTC)
Program. Specifically, this bill:
1)Redefines "farmworker housing" to mean housing which is
available to and occupied by not less than 50% of farmworkers
and their households.
2)Allows farmworker housing developments that receive 4% federal
LIHTCs that are in qualified census tracts (QCT) or designated
development areas (DDA) to receive state LIHTCs.
3)Makes qualified farmworker housing developments eligible for
state LIHTC of 75% of the qualified basis of the building over
four years.
EXISTING LAW:
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1)Defines "farmworker" housing to mean housing for agricultural
workers that is available to and occupied only by farmworkers
and their households.
2)Allows Tax Credit Allocation Committee (TCAC) to permit an
owner to temporarily house nonfarmworkers in vacant units in
the event of a disaster or other critical occurrence provided
there are no pending qualified farmworker applications for
residency.
3)Defines a QTC as any census tract designated by the 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 that has a poverty rate of at
least 25%.
4)Defines a DDA as an area designated by HUD on an annual basis
that has high construction, land, and utility costs relative
to area median gross income.
5)Allows TCAC to award state LIHTCs to developments in a QCT or
a DDA if the project is also receiving federal LIHTC, under
the following conditions:
a) Developments restrict at least 50% of the units to
special needs households; and
b) The state credits do not exceed 130% of the eligible
basis of the building.
1)Allows TCAC to replace federal LIHTC with state LIHTC of up to
130% of a project's eligible basis if the federal LIHTC is
reduced in an equivalent amount.
FISCAL EFFECT: Unknown. Tax levy. 2/3 vote
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COMMENTS:
Background:
In 1986, the federal government authorized the Low-Income
Housing Tax Credit (LIHTC) program to enable affordable housing
developers to raise private capital through the sale of tax
benefits to investors. The federal program offers 9% and 4%
credits on the approximate percentage of a project's "qualified
basis" a taxpayer who purchases credits from a developer may
deduct from their annual federal tax liability in each of ten
years. TCAC administers the program and awards credits to
qualified developers who can then sell those credits to private
investors who use the credits to reduce their federal tax
liability. The developer in turn invests the capital into the
affordable housing project.
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 also receive federal LIHTCs,
except for farmworker housing projects, which can receive state
credits without federal credits. Investors claim the state
credit over four years. Projects that receive either state or
federal tax credits are required to keep the housing at
affordable levels for 55 years. Both the federal and state tax
credits are capped, which limits the amount of credit that TCAC
can award each year. Each state receives an annual ceiling of
federal credits. In 2015 it was $2.30 per capita, which worked
out to $94 million in credits in California that can be taken by
investors each year for 10 years. Federal 9 % LIHTCs are
oversubscribed by a 3:1 ratio.
Federal law requires TCAC to conduct a feasibility study on
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every project to ensure that the amount of tax credits allocated
do not exceed the amount required to make the project feasible.
To calculate the amount of tax credits a project may receive,
TCAC determines the total project cost. Next, it determines the
"eligible basis" by subtracting the non-depreciable costs, such
as land, permanent financing costs, rent reserves, and marketing
costs. However, the eligible basis is reduced by the applicable
percentage, a measure of the amount of affordable units of floor
space in the project as a share of the entire project. For
example, a project with $5 million in total development costs
but $1 million in land acquisition costs has a $4 million basis.
If half of the units will be affordable, the total basis is $2
million, which is multiplied by 9% to determine the annual
amount of the credit of $180,000, for a ten-year value of $1.8
million.
In 1996, the Legislature created the Farmworker Housing
Assistance Tax Credit Program and set aside $500,000 a year from
the LIHTC allocation for farmworker housing projects. In an
effort to streamline administration and make the farmworker
program more user-friendly, SB 1247 (Lowenthal), Chapter 521,
Statues of 2008, eliminated the Farmworker Housing Assistance
Tax Credit Program as a separate program and consolidated it
into the state LIHTC program as a farmworker set-aside. The
amount of funding dedicated to farmworker housing remained the
same. The amount of the credit accrues over time and there is
$5,047,118 available.
Purpose of the bill : According to the author, "AB 2140 makes
improvements to the farmworker housing assistance tax credit
program to better facilitate its use of this financing tool.
Over the years, the State Treasurer's Office has made changes to
improve the broader housing tax credit program, however, the
farmworker tax credit has not benefited from some of those
policy changes. In fact, given the fiscal and policy constraints
of the existing farmworker housing tax credit, no project since
2008 had been awarded tax credits until last year. The
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underinvestment in farmworker housing has created hardships for
this labor force and their families. This bill seeks to bolster
the legislative intent behind the farmworker housing assistance
tax credit program and improve the efficacy and flexibility of
this financial resource for developers of farmworker housing. "
Changes proposed to the farmworker housing tax credit program:
AB 2140 changes several components of the LIHTC program
set-aside for farmworker housing developments in an effort to
make the projects more feasible and increase the supply of
farmworker housing.
Occupancy requirements : To qualify for LIHTCs, occupancy in
farmworkers developments must be limited to farmworkers and
their families, except that TCAC can allow owners to
temporarily house non-farmworkers in vacant units during a
disaster. AB 2140 would reduce the occupancy requirement from
100% farmworkers and their families to 50%. In some cases, a
tenant in a farmworker housing development may begin their
tenancy employed as a farmworker but change employment while
living in the development. The change in employment can
jeopardize their tenancy in the project. Reducing the
occupancy to 50% will provide great flexibility to developers
in responding to this and other types of challenges.
Increased access to state credits : AB 2140 also seeks to
increase the amount of credits that farmworker tax credit
projects can receive in order to make the credits more
valuable and to allow greater leveraging of other bonding
authority. Federal LIHTC can be used anywhere in the state,
but projects are given an additional 30% boost on their
eligible basis if the project is located in a DDA or a QCT.
Because these areas by definition have a higher-poverty level
and there is a higher concentration of extremely low-income or
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homeless individuals and families, housing needs deeper
subsidy to make it affordable. Existing state law does not
allow state tax credits to be awarded in DDAs and QCTs with
one exception: housing developments where 50% of the units are
for special needs populations. The rationale for this
prohibition is projects in these areas can qualify for more
federal tax credits and therefore are already advantaged.
AB 2140 would allow state tax credits to be awarded to
farmworker housing projects without regard to DDA or QCT
status with the main purpose of making the state credits more
valuable and providing enough state tax credits to match the
value of a 9% federal tax credit. Allowing state credits to
be used for farmworker projects in DDAs and QCTs would
increase the equity projects could generate from tax credits
because the projects can already qualify for more federal tax
credits than projects outside of a DDA or a QCT. As an
example, if a project qualifies for $10 million in eligible
basis in a DDA or QCT, the project could get up to 130% of
that basis in federal tax credits, which means the project
sponsor, would have $13 million in federal credits to sell to
an investor. This bill would allow that project to get an
additional 30% in state tax credits against the $10 million in
eligible basis, which would create an additional $3 million in
state tax credits.
The amount of federal 9% credits available each year are
capped, however 4% federal credits are unlimited. The value
of the 4% tax credits are less than half of the 9% tax credits
and, as a result, 4% federal credits are generally used in
conjunction with another funding source like state housing
bonds or local funding sources. In addition, federal 9%
credits are oversubscribed where as 4% federal credits are
less highly subscribed. AB 2140 would encourage developers
constructing farmworker housing to apply for 4% federal
credits by increasing the value of the state credits that
would accompany those credits. Developers that receive 4%
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federal credits would receive state credits that would be
worth 75% of the projects eligible basis over four years.
Under existing law, state LIHTC are worth 30% of the projects
eligible basis over four years.
Related legislation : AB 2817 (Chiu) proposes to increase the
LIHTC by $300 million on an annual basis and increase the
set-a-side for farmworker housing tax credits within that pool
from $500,000 to $25 million. Any funds not used for farmworker
housing tax credit projects in a calendar year would be
available to other qualified projects that apply for the larger
LIHTC pool. This bill is pending hearing in this committee.
REGISTERED SUPPORT / OPPOSITION:
Support
California Coalition for Rural Housing
California Housing Consortium
California Rural Legal Assistance Foundation
Housing California
Non-Profit Housing Association of Northern California (NHP)
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Opposition
None on File
Analysis Prepared by:Lisa Engel / H. & C.D. / (916) 319-2085