BILL ANALYSIS Ó
SB 377
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Date of Hearing: July 1, 2015
ASSEMBLY COMMITTEE ON HOUSING AND COMMUNITY DEVELOPMENT
Ed Chau, Chair
SB
377 (Beall) - As Amended June 1, 2015
SENATE VOTE: 38-1
SUBJECT: Income taxes: insurance taxes: credits: low-income
housing: sale of credit
SUMMARY: Allows a taxpayer who receives an allocation of state
low- income housing tax credits (LIHTC) from the California Tax
Credit Allocation Committee (TCAC) to sell all or any portion
of the credit to one or more unrelated parties for each taxable
year in which the credit is allowed for not less than 80% of the
amount of the credit. Specifically, this bill:
1)Allows a taxpayer who receives an allocation of state LIHTC to
sell all or any portion of the credit to one or more unrelated
parties for each taxable year in which the credit is allowed
for not less than 80% of the amount of the credit.
2)Provides that the taxpayer that originally received the credit
must report to TCAC within 10 days of the sale of the credit
to the social security or other taxpayer identification number
of the unrelated party to whom the credit was sold, the face
amount of the credit sold, and the amount of consideration
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received by the taxpayer for the sale of the credit.
3)Requires TCAC to annually provide the Franchise Tax Board with
a list of the taxpayers that have sold or purchased a credit.
4)Allows a credit to be sold to more than one unrelated party
but cannot be resold by the unrelated party to another
taxpayer or other party.
5)Provides that the taxpayer that originally received the credit
that is sold is solely liable for all obligations and
liabilities imposed on the taxpayer with respect to the credit
and not to the party to whom the credit was sold or
subsequently transferred.
6)Allows the party that purchases a credit to utilize the credit
in the same manner in which the taxpayer that originally
received the credit could use it.
7)Provides that a taxpayer cannot sell a credit if the taxpayer
was allowed the credit on any tax return of the taxpayer.
8)Allows a taxpayer with the approval of TCAC to rescind the
election to sell all or any portion of the credit if the
consideration of the credit falls below 80% of the amount of
the credit after the TCAC reservation.
9)Allows the Franchise Tax Board to prescribe rules, guidelines,
or procedures necessary or appropriate to implement the sale
of credits by taxpayers who receives a credit, to an unrelated
party.
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10)Removes the sunset on a provision that allows state credits
to be allocated to investors in a manner that is different
than the proportional division of the federal credit.
EXISTING LAW:
1)Allows a state tax credit for costs related to construction,
rehabilitation, or acquisition of low-income housing. This
credit, which mirrors a federal LIHTC, may be used by
taxpayers to offset the tax under the Personal Income Tax
(PIT), the Corporation Tax (CT), and the Insurance Tax (IT)
laws. (Revenue and Taxation Code Sections 12206, 17058, and
23610.5)
2)Requires the California Tax Credit Allocation Committee (TCAC)
to allocate the California LIHTC each year based upon
qualification of the applicant and proposed project. The
California LIHTC is available only to projects that received
an allocation of the federal LIHTC. (Revenue and Taxation
Code Sections 12206, 17058, and 23610.5)
3)Limits the annual aggregate amount of the state LIHTC to $70
million, as adjusted for an increase in the California
consumer price index from 2002, plus any unused LIHTC for the
preceding calendar year and any LIHTC returned in the calendar
year. The California LIHTC awarded may be claimed as a credit
against tax over a four-year period. (Revenue and Taxation
Code Sections 12206, 17058, and 23610.5)
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4)Requires TCAC to certify the amount of tax credit amount
allocated. In the case of a partnership or an S Corporation,
a copy of the certificate is provided to each taxpayer. The
taxpayer is required, upon request, to provide a copy of the
certificate to the Franchise Tax Board (FTB). (Revenue and
Taxation Code Sections 12206, 17058, and 23610.5)
5)Allows any unused credit to be carried forward until the
credit is exhausted. (Revenue and Taxation Code Sections
12206, 17058, and 23610.5)
FISCAL EFFECT: According to the Senate Appropriations
Committee, the Franchise Tax Board (FTB) estimates that the bill
would lead to General Fund revenue gains of $170,000 in 2015-16,
and $450,000 in 2016-17. A General Fund revenue loss of $250,000
would occur in 2017-18.
FTB would incur increased annual administrative costs in the low
hundreds of thousands of dollars (General Fund). To the extent
that the California Tax Credit Allocation Committee (CTCAC)
requires additional resources as a result of the bill, fee
revenue would likely be used.
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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 nine percent (9%) and four percent (4%) credits.
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
$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.
TCAC administers the programs and awards credits to qualified
developers who do not have sufficient tax liability to use the
credits themselves so they sell those credits to private
investors who use the credits to reduce their federal or state
tax liability. The developer in turn invests the capital into
the affordable housing project. Under current law, the
investors must become owners of the property to claim the
credits.
SB 377 would allow a developer who receives an award of state
LIHTCs to sell the credits to an investor without requiring the
investor to be part of the ownership entity for the project,
typically a limited liability partnership. A developer could
sell the tax credit to one or more unrelated parties if they
received at least 80% of the value of the credit. The
legislature has permitted taxpayers to sell tax credits in some
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limited cases. Taxpayers with motion picture production credits
from independent films can sell the credit to unrelated
investors, which can be a key financing tool for filmmakers to
raise capital to produce a motion picture. In addition,
corporate taxpayers can share credits within their unitary
group.
SB 585 (Lowenthal) Statutes of 2008, Chapter 382 allowed the
partnership agreement to allocate state tax credits to investors
in a manner that differs from the proportional division of the
federal credit. This authorization is set to sunset on January
1, 2016. SB 377 would delete the sunset and allow the
authorization to continue indefinitely. CTAC reports that this
ability has been used several times and allows much more
flexibility for insurance companies and banks to invest in
low-income housing drawing additional investors and capital into
the state.
Affordable Housing Shortage : The Public Policy Institute of
California has identified that more than 36% of mortgaged
homeowners and 47% of all renters are spending more than 35% of
their household incomes on housing. In California we have about
134,000 homeless people living in our streets, parks, alleys,
and freeway off-ramps. At the same time vacancy rates are low
and rents are increasing. Out of 5.1 million renters in
California, 60% are in lower-income households, while one in
four renter households are in the extremely low-income. One in
two renters in California pay in excess of 30% of their income
towards housing and one in four renters pay half of their income
towards housing.
The funding sources to support construction of affordable
housing have drastically diminished over the last five years.
The dissolution of redevelopment agencies eliminated up to $1
billion in funding that was available for affordable housing
construction. The last statewide housing bond was approved in
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2008 and the proceeds of those bonds have been exhausted.
State and federal LIHTC represent one of the few remaining
sources of funding for affordable housing construction in the
state. Currently, investors receive approximately .65 cents on
the dollar for state low-income housing tax credits.
Purpose of the bill : According to the author, "SB 377 seeks to
increase the impact of the state's existing low-income housing
tax credit (LIHTC) with no fiscal impact to the state by
structuring the credits in a way that is not subject to federal
taxation. LIHTCs are awarded to developers of qualified
projects and are the primary source of capital to construct and
rehabilitate thousands of affordable housing units each year.
Non-profit affordable housing developers, who do not have the
required tax liability on their own, must seek out private
equity investments for their developments. Under current law,
investors must become owners of the property to claim the
credits against their state tax liabilities. Due to the fact
that state taxes are deductible from federal taxes, a reduction
in the state tax liability increases the federal tax liability
for the investor. With the federal corporate tax rate at 35%,
investors will generally invest no more than 65 cents for each
dollar of state credit. SB 377 addresses this issue by allowing
a developer who is awarded state credits to sell the credits to
an investor without admitting the investor to the ownership
partnership and thereby increasing the value of the credit,
closer to one dollar for each dollar of credit, to the investor.
SB 377 will significantly increase the value of state LIHTCs and
therefore the public benefit because it will largely eliminate
the federal tax impacts associated with investors claiming state
credits. It will also greatly increase the efficiency of the
program and allow many more affordable housing units to be built
for the same level of state tax expenditure. In other words,
this bill gives the state a bigger bang for its buck."
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Related legislation:
AB 35 (Chiu) (2015): Would modify the existing LIHTC program
and increases the aggregate credit amount that may be annually
allocated to low-income housing projects by $300 million for the
2015 calendar year and each calendar year thereafter. This bill
is pending hearing in the Senate Governance and Finance
Committee.
REGISTERED SUPPORT / OPPOSITION:
Support
California State Treasurer John Chiang (Co-Sponsor)
California Housing Partnership Corporation (Co-Sponsor)
Access to Independence
Arthur J. Gallagher & Co.
Burbank Housing Development Corporation
Burbank Housing Management Corporation
C&C Development Co.
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California Association of Housing Authorities (CAHA)
California Association of Local Housing Finance Agencies
(CAL-ALHFA)
California Catholic Conference, Inc.
California Coalition for Rural Housing (CCRH)
California Commission on Aging (CCoA)
California Housing Consortium (CHC)
California Housing Partnership Corporation
California Institute for Rural Studies
California Land Title Association
California Reinvestment Coalition
Center for Sustainable Neighborhoods
Charities Housing
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Chinatown Community Development Center
Christian Church Homes (CCH)
City Heights Community Development Corporation
City of Morgan Hill
Community Action North Bay (CAN-B)
Community Economics Inc.
Community Housing Partnership
Creswell Consulting
EAH Housing
East Bay Asian Local Development Corporation
East Bay Housing Organizations (EBHO)
Eden Housing
ElderFocus
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First Community Housing
Housing California
Housing Leadership Council of San Mateo County
Integrity Housing
Irvine Community Land Trust
Leadership Council for Justice & Accountability
LINC Housing
MidPen Housing Corporation
Mogavero Notestine Associates
Monterey County Supervisor Jane Parker
Mutual Housing California
Non-Profit Housing Association of Northern California (NPH)
Northern California Community Loan Fund
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Paulette Taggart Architects
Peoples' Self-Help Housing
Public Interest Law Project
Rural Communities Housing Development Corporation (RCHDC)
Rural Smart Growth Task Force
San Diego Habitat for Humanity
San Diego Housing Federation
San Diego-Imperial Counties Labor Council
San Luis Obispo County Housing Trust Fund
Satellite Affordable Housing Associates (SAHA)
Self-Help Enterprises
Sierra Business Council
Sonoma County Task Force for the Homeless
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Tenderloin Neighborhood Development Corporation
Terrex Development Corp.
The Hampstead Companies
Wakeland Housing and Development Corporation
ZO Dwellings
Opposition
None on file
Analysis Prepared by:Lisa Engel / H. & C.D. / (916)
319-2085