BILL ANALYSIS Ó
AB 2817
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Date of Hearing: March 30, 2016
ASSEMBLY COMMITTEE ON HOUSING AND COMMUNITY DEVELOPMENT
David Chiu, Chair
AB 2817
(Chiu) - As Amended March 17, 2016
SUBJECT: Taxes: credits: low-income housing: allocation
increase
SUMMARY: Makes changes to the state Low-Income Housing Tax
Credit (LIHTC) Program. Specifically, this bill:
1)Beginning in 2017, and each year thereafter, increases the
allocation of state LIHTC by an additional $300 million and
adjusts that amount for inflation beginning in 2018.
2)Beginning in 2017, increase the amount of low-income housing
tax credits set-aside for farmworker housing from $500,000 to
$25 million.
3)Provides that any low-income housing tax credits set-aside for
farmworker housing developments that go unused of the $25
million will be available for qualified nonfarmworker housing
projects.
4)Provides that a sponsor that receives an award of 9% federal
LIHTC cannot receive an allocation from the additional $300
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million of state LIHTC but shall remain eligible for the $70
million allocation available prior to 2016.
5)Provides a newly constructed or the rehabilitation portion of
an existing low-income housing project that is not located in
a Difficult to Develop Area (DDA) or a Qualified Census Tract
(QCT) and receives federal 4% LIHTC is eligible for
cumulative state LIHTC over four years of 50% of the qualified
basis of the building.
6)Provides the acquisition portion of an existing low-income
housing project that is not located in a DDA or a QCT and
receives federal 4% LIHTC is eligible for state LIHTC over
four years of 13% of the qualified basis of the building.
7)Allows the Tax Credit Allocation Committee (TCAC) to replace
federal LIHTC with state LIHTC for a new or existing
low-income housing project that is a located in a DDA or QCT
and receives federal 4% LIHTC of up to 50% of the qualified
basis of the building, provided that the total amount of
credits does not exceed 130%.
8)Provides that a low-income housing project is eligible for a
cumulative state LIHTC of 95% of the qualified basis of the
building over four years of the eligible basis if it meets all
of the following requirements:
a) It is at least 15 years old;
b) It is a single room occupancy (SRO), special needs
housing building, is in a rural area, or serves households
with very-low income or extremely low-income residents;
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c) It is serving households of very low-income or extremely
low-income provided that the average income at the time of
admission is no more than 45% of the median gross income
adjusted for household size; and
d) It would have insufficient state credits to qualify to
complete substantial rehabilitation due to a low appraised
value.
1)Adds the following definitions:
a) "Extremely low-income" has the same meaning as Health
and Safety Code Section 50053.
b) "Rural area" means a rural area as defined in Health and
Safety Code Section 50199.21.
c) "Special needs housing" has the same meaning as
paragraph (4) of Subdivision (g) of Section 10325 of Title
4 of the California Code of Regulations.
d) "SRO" means single room occupancy.
e) "Very low-income" has the same meaning as in Health and
Safety Code Section 50053.
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EXISTING LAW:
1)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.
2)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%.
3)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.
4)Provides that a low-income housing development that is a new
building and is receiving 9% federal LIHTC credits is eligible
to receive state LIHTC over four years of 30% of the qualified
basis of the building.
5)Provides that a low-income housing development that is a new
building that is receiving federal LIHTC that is "at risk of
conversion" is eligible to receive state LIHTC over four years
of 13% of the qualified basis of the building.
6)Defines "at risk of conversion" to mean a property that
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satisfies all of the following criteria:
a) A multifamily rental housing development in which at
least 50% of the units receive government assistance
pursuant to any of the following:
b) Project based Section 8 vouchers;
c) Below-Market-Interest-Rate Program;
d) Federal Rental Housing Assistance Program;
e) Programs for rent supplement assistance pursuant to
Section 101 of the Housing and Urban Development Act of
1965;
f) Programs pursuant to Section 515 of the Housing Act of
1949; and
g) Federal LIHTC.
1)Includes an urgency clause.
FISCAL EFFECT: Unknown.
COMMENTS:
Background :
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In 1986, the federal government authorized the LIHTC program to
enable affordable housing developers to raise private capital
through the sale of tax credits to investors. Two types of
federal tax credits are available and are generally referred to
as nine percent (9%) and four percent (4%) credits. 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.
Each state receives an annual ceiling of 9% federal tax 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 LIHTCs are oversubscribed by a 3:1
ratio. Unlike 9% LIHTC, federal 4% tax credits are not capped,
however they must be used in conjunction with tax-exempt private
activity mortgage revenue bonds which are capped and are
administered by the California Debt Limit Allocation Committee.
In 2015, the state ceiling for private activity bonds is set at
$5.61 billion. 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 2014,
developers only used $80.5 million in annual federal 4% tax
credits, significantly less than prior years. The loss of
redevelopment funding and state housing bond funds, which were
used in combination with 4% federal credits to achieve higher
affordability, has made the 4% federal credits less effective.
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 can claim the state
credit over four years. TCAC has authority for approximately
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$103 million in state tax credits each year but has as many as
$25 million in credits remaining at the end of the year due to
lack of demand. Projects that receive either state or federal
tax credits are required to maintain the housing at affordable
levels for 55 years.
Purpose of this bill :
According to the author, "California is undergoing a serious
housing affordability crisis with a shortfall of over one
million affordable homes. According to a 2014 report by the
California Housing Partnership Corporation, median rents in
California have increased by over 20 percent while the median
income has dropped by 8 percent. The private housing market is
simply not meeting the demand for low to moderate income homes.
The shortage is particularly challenging in the rental market,
typically the last resort for lower-income households, many of
whom were forced out of single-family homes during the great
recession.
State and Federal divestment in affordable housing has
exacerbated this problem. With the elimination of California's
redevelopment agencies and the exhaustion of state housing
bonds, California has reduced its funding for the development
and preservation of affordable homes by 79 percent -- from
approximately $1.7 billion a year to nearly nothing. There is
currently no permanent source of funding to compensate for this
loss.
The housing crisis has contributed to a growing homeless
population, increased pressure on local public safety nets, an
unstable development and construction marketplace, and the
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outward migration of thousands of long-time California
residents.
The LIHTC program is the only major source of funding available
for affordable development in the state, making it competitive
and overprescribed. In 2014, only 49 percent of applicants were
awarded credits - leaving many qualified projects without a
secure source of funding or any incentive to build additional
affordable housing units."
The proposal :
AB 2517 would increase the state LIHTC allocation by an
additional $300 million which would allow the state to leverage
and additional $200 million in federal 4% LIHTC and at least
$400 million in federal tax-exempt bond authority annually for
the creation and preservation of affordable rental homes for a
broad range of lower income households through the state. An
increase in the amount of state LIHTC would help to fill the gap
in funding that was created by the loss of redevelopment and the
exhaustion of state voter-approved bonds. In addition to
increasing the total amount of state LIHTC, AB 2517 proposes to
increase the amount of state tax credits awarded to a project
that is also receiving 4% federal tax credits from 13% to 50% of
the qualified basis. This would more than triple the amount of
equity that an investor purchasing a state tax credit would
receive which would bring the return on 4% credits in line with
9% credits and result in greater affordability for the project.
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 homeless individuals
and families, housing needs deep subsidy to make it affordable.
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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 2517 would also allow state
tax credits to be awarded to projects without regard to DDA or
QCT status with the main purpose of providing enough state tax
credits to match the value of a 9% federal tax credit.
Farmworker Housing : Last year the author carried AB 35 which
was largely similar to this bill. AB 2817 is different in that
it includes a set-aside from the $300 million increase to the
LIHTC program of $25 million for farmworker housing. There is
currently a $500,000 set-aside of low-income housing tax credits
for farmworker housing developments serving farmworkers and
their families. AB 2817 would require any unused credits from
the $25 million set-aside to go to qualified nonfarmworker
housing projects that don't receive funding under the main
program.
Older housing stock:
Many low-income housing developments in the state are older and
in need of rehabilitation. These projects need higher levels of
equity investments because of their age, level of repairs
needed, and the low rents. It is hard for these projects to
compete for state tax credits because the assessed value is low
and therefore the eligible basis upon which the amount of tax
credits the project can qualify for is also low. To assist these
projects, AB 2517 would allow these older projects to receive
state tax credits of 95% over four years. To qualify projects
would need to be at least 15 years old, serve low- and extremely
low-income households, be an SRO, in a rural area, and have
insufficient state credits to complete substantial
rehabilitation due to a low appraised value.
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Related legislation : Last year, AB 35 (Chiu) would have made
similar changes to this bill. That bill was vetoed; the
Governor's veto message stated the following:
I am returning the following nine bills without my signature:
Assembly Bill 35
Assembly Bill 88
Assembly Bill 99
Assembly Bill 428
Assembly Bill 437
Assembly Bill 515
Assembly Bill 931
Senate Bill 251
Senate Bill 377
Each of these bills creates a new tax credit or expands an
existing tax credit.
Despite strong revenue performance over the past few years,
the state's budget has remained precariously balanced due to
unexpected costs and the provision of new services. Now,
without the extension of the managed care organization tax
that I called for in special session, next year's budget faces
the prospect of over $1 billion in cuts.
Given these financial uncertainties, I cannot support
providing additional tax credits that will make balancing the
state's budget even more difficult. Tax credits, like new
spending on programs, need to be considered comprehensively as
part of the budget deliberations.
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REGISTERED SUPPORT / OPPOSITION:
Support
California Building Industry Association (CBIA)
California Chamber of Commerce
California Housing Consortium
California Rural Legal Assistance Foundation
Housing California
League of California Cities
Santa Clara County Board of Supervisors
The Arc California
United Cerebral Palsy California Collaboration
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Western Center on Law and Poverty
Opposition
None on File
Analysis Prepared by:Lisa Engel / H. & C.D. / (916) 319-2085