BILL ANALYSIS Ó
SENATE COMMITTEE ON APPROPRIATIONS
Senator Ricardo Lara, Chair
2015 - 2016 Regular Session
AB 2817 (Chiu) - Taxes: credits: low-income housing:
allocation increase
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|Version: May 27, 2016 |Policy Vote: GOV. & F. 5 - 0, |
| | T. & H. 10 - 0 |
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|Urgency: No |Mandate: No |
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|Hearing Date: August 1, 2016 |Consultant: Robert Ingenito |
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This bill meets the criteria for referral to the Suspense File.
Bill
Summary: AB 2817 would (1) increase annual authorization amounts
for low-income housing tax credits, and (2) increase the value
of the credits for specified projects.
Fiscal
Impact:
The Franchise Tax Board (FTB) indicates that this bill
would result in a General Fund revenue loss of $17 million
in 2018-19, $50 million in 2019-20, and $90 million in
2020-21.
The California Tax Credit Allocation Committee (CTCAC)
would incur first-year costs of $261,000 and ongoing costs
of $123,000 (special funds) to administer its components of
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the bill.
Background: Current state law allows tax credits for investors who provide
project capital to low-income rental housing projects. Taxpayers
claim Low-Income Housing Tax Credits (LIHTCs) approximately
equal to a specified percentage of the project's basis over four
years, and start claiming the credit in the taxable year in
which the project is placed in service. Projects must remain
affordable to residents for 55 years.
State LIHTCs are calculated in partial conformity with their
federal counterparts, although the credit rates and durations
differ: state tax credits equal 30 percent of the qualified
basis of a project over four years (9 percent credits) for
project not federally subsidized, and 13 percent of the
qualified basis over the same period (4 percent credits) for
federally subsidized ones, instead of either 70 percent or 30
percent, respectively, over 10 years for federal LIHTCs.
Tax-exempt bonds are generally the source of any qualifying
federal subsidy. Additionally, acquisition costs cannot be used
to generate state LIHTCs, except for previously subsidized
projects that qualify as "at-risk" of being converted to market
rate.
CTCAC allocates state and federal LIHTCs. CTCAC awards federal
credits for non-subsidized projects based on a formula in
federal law, and totaled $91 million for 89 projects in 2015,
while federal law does not cap CTCAC allocation for subsidized
projects. In 2015, the total state LIHTC amount CTCAC could
allocate under state law was almost $89.5 million, which when
added to unused or returned credit allocations from previous
years, totaled $111 million that funded 39 projects. Housing
developers design projects, and apply to CTCAC for credits.
CTCAC then reviews the application, and either denies it or
grants credits. The housing developer then forms partnership
agreements with taxpayers that provide project capital for the
low-income housing project in exchange for the credits at a
discount.
CTCAC may allocate federal tax credits to any area of the State,
but must conduct a feasibility analysis to ensure that the
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amount of credits granted doesn't exceed the amount of capital
required to build the project. To calculate the amount of credit
a project may receive, CTCAC first determines the total project
cost. Next, it determines the "eligible basis" by subtracting
from total project cost any non-depreciable costs, such as land,
permanent financing costs, rent reserves, and marketing costs.
Next, CTCAC reduces this eligible basis by the applicable
percentage, equal to the percentage 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
that includes $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 percent to
determine the annual amount of the credit of $180,000, for a
ten-year value of $1.8 million.
Combined state and federal LIHTCs are generally equal to 100
perent of a project's eligible basis. However, CTCAC can
replace federal LIHTC with state LIHTC of up to 30 perent of a
project's eligible basis if it equivalently reduces federal
LIHTC, thereby increasing the number of projects in can approve
by "backing out" limited federal credits. Additionally, while
CTCAC can allocate federal LIHTCs to any area of the state, it
can grant federal LIHTCs up to an additional 30 percent for a
total of 100 percent of eligible basis, known as a "basis
boost," for projects in a "Difficult to Develop Area" (DDA) or a
Qualified Census Tract (QCT). The United States Department of
Housing and Urban Development (HUD) designates DDAs on an annual
basis based on high construction, land, and utility costs
relative to area median gross income. HUD designates QCTs as
census tracts in which either 50 percent or more of the
households have an income that is less than 60 percent of the
area median gross income or that has a poverty rate of at least
25%. Prior to 2014, CTCAC could not award state tax credits for
projects located in DDAs and QCTs because CTCAC could draw down
more federal tax credits through the basis boost, thereby
providing a sufficient advantage without allocating limited
state credits. However, the Legislature authorized CTCAC to
award state LIHTCs to projects in DDAs or QCTs if at least 50
percent of the units to special needs households because
projects that serve special needs populations generally need
greater subsidies to offer affordable rents (AB 952, Atkins,
2013).
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Proposed Law:
This bill would enact several changes to the state LIHTC to
establish a new category for LIHTC projects, modify credit
percentages, and additionally authorize CTCAC to allocate $300
million in additional credits. The bill would modify state
allocations of LIHTCs awarded to federally-subsidized low-income
housing projects receiving federal LIHTC for federally
subsidized projects as follows:
Increase state LIHTC to 50 percent of the qualified
basis over four years for a new building not located in a
DDA or QCT, and keeps unchanged current percentages for
existing buildings not located in DDAs or QCTs.
Increase the state LIHTC to the same amount for new or
existing low-income housing building that is located in a
DDA or QCT, provided that the federal LIHTC is replaced
with state LIHTC.
The bill also would increase LIHTC percentages to a cumulative
95 percent of the qualified basis over four years for
rehabilitating qualified low-income buildings at least 15 years
old if it meets all of the following requirements:
The project serves households of very-low and
extremely-low income such that its average maximum
household income is not more than 45 percent of the area
median gross income,
The project is subject to a regulatory agreement
restricting the average maximum household income to the
above standard for 55 years,
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The project would have insufficient credits under
current categories to complete substantial rehabilitation,
and
CTCAC finds that the credit allocation results in the
completion of the project.
The measure authorizes CTCAC to allocate up to $300 million in
credits in the 2017 calendar year, and each year thereafter,
plus an inflation adjustment. CTCAC can allocate credits to
developers eligible for the non-federally subsidized credit from
the current authorization, but developers of these projects are
ineligible for allocations from the new $300 million. The bill
also allocates an additional $25 million per calendar year for
farmworker housing projects. The measure makes a conforming
change to delete provisions allowing CTCAC to allocate state
credits when the project contains at least 50 percent of its
occupants are special needs households.
Related
Legislation: AB 35 (Chiu) was similar to this bill, and was
vetoed by the Governor.
Staff
Comments: Using LIHC allocation data from CACTC, FTB assumed
that the maximum credit allocation threshold would be reached
each year ($300 million), with an adjustment based on the
assumption that five percent, or $15 million, of the allocation
would ultimately be returned to CACTC due to unforeseen project
issues. Other key FTB assumptions include that 25 percent of the
credit would be carried forward to future years. Because
allocated credits cannot be used until after the building has
been put into service, FTB assumes that
CACTC would require roughly two positions in the first year and
one position annually thereafter to administer the billIf
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position authority were granted, these costs would be covered by
existing fees. AB 2817 would require program changes during the
first year to implement the bill and update application
documents; this workload would be absorbable.
The increase in projects awarded will also result in increased
CTCAC Compliance Section staff monitoring requirements in the
future. CACTC estimates that the bill would increase the number
of new projects and units monitored by Compliance staff by
approximately 15 to 20 percent by 2019. The resulting workload
would require additional staff in CACTC's Compliance Section,
but these costs would be covered by monitoring fees.
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