BILL ANALYSIS Ó
AB 2817
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ASSEMBLY THIRD READING
AB
2817 (Chiu)
As Amended May 27, 2016
Majority vote. Tax levy
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|Committee |Votes|Ayes |Noes |
| | | | |
| | | | |
| | | | |
|----------------+-----+----------------------+--------------------|
|Housing |7-0 |Chiu, Steinorth, | |
| | |Burke, Chau, Beth | |
| | |Gaines, Lopez, Mullin | |
| | | | |
|----------------+-----+----------------------+--------------------|
|Revenue & |9-0 |Ridley-Thomas, | |
|Taxation | |Brough, Dababneh, | |
| | |Gipson, Mullin, | |
| | |O'Donnell, Patterson, | |
| | |Quirk, Wagner | |
| | | | |
|----------------+-----+----------------------+--------------------|
|Appropriations |19-0 |Gonzalez, Bigelow, | |
| | |Bloom, Bonilla, | |
| | |Bonta, Calderon, | |
| | |Chang, Daly, Eggman, | |
| | | | |
| | | | |
| | |Eduardo Garcia, | |
| | | | |
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| | | | |
| | |Roger Hernández, | |
| | |Holden, Jones, | |
| | |Obernolte, Quirk, | |
| | |Santiago, Wagner, | |
| | |Weber, Wood | |
| | | | |
| | | | |
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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, increases 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
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
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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;
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.
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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 California Code of
Regulations Title 4 Section 10325.
d) "SRO" means single room occupancy.
e) "Very low-income" has the same meaning as in Health and
Safety Code Section 50053.
FISCAL EFFECT: According to the Assembly Appropriations
Committee, annual General Fund cost pressures of $17 million,
$50 million, and $90 million in Fiscal Year (FY) 2018-19, FY
2019-20, and FY 2020-21, respectively.
COMMENTS:
Background: 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 9% and 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.
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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. 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% while the
median income has dropped by 8%. The private housing market is
simply not meeting the demand for low to moderate income homes.
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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% -- 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
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% 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: This bill 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
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created by the loss of redevelopment and the exhaustion of state
voter-approved bonds. In addition to increasing the total
amount of state LIHTC, this bill 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.
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. This bill 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 (Chiu)
of 2015, which was largely similar to this bill. This bill 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. This bill 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.
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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, this bill 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.
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
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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
Analysis Prepared by:
Lisa Engel / H. & C.D. / (916) 319-2085 FN:
0003250
AB 2817
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