BILL ANALYSIS Ó
SB 873
Page 1
Date of Hearing: August 3, 2016
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Lorena Gonzalez, Chair
SB 873
(Beall) - As Amended June 27, 2016
-----------------------------------------------------------------
|Policy |Housing and Community |Vote:|6 - 0 |
|Committee: |Development | | |
| | | | |
| | | | |
|-------------+-------------------------------+-----+-------------|
| |Revenue and Taxation | |9 - 0 |
| | | | |
| | | | |
-----------------------------------------------------------------
Urgency: No State Mandated Local Program: NoReimbursable: No
SUMMARY:
This bill allows taxpayers to sell Low-Income Housing Tax
Credits (LIHTCs) and extends the sunset date on provisions
relating to the allocation of federal and state LIHTCs.
Specifically, this bill:
1)Allows a taxpayer to make an irrevocable election to sell all
or any portion of the state LIHTC to an unrelated party for
SB 873
Page 2
projects that receive a preliminary reservation on or after
January 1, 2017, and before January 1, 2020, subject to both
of the following conditions:
a) The consideration received by the taxpayer from the sale
of the LIHTC equals at least 80% of the credit amount; and,
b) The purchaser of the credit is a taxpayer allowed a
state or federal LIHTC in connection with a project in this
state in the same taxable year as the credit purchased, or
any previous taxable year.
2)Allows an LIHTC purchaser to resell the credit once, subject
to all of the applicable requirements.
3)Specifies that the taxpayer that originally received the LIHTC
will remain solely liable for all obligations and liabilities
imposed on the taxpayer by law with respect to the credit,
none of which shall apply to any party to whom the credit has
been sold or subsequently transferred.
4)Extends the sunset date the provisions allowing the state
LIHTC to be allocated within the partnership agreement
differently than federal LIHTCs to January 1, 2020.
FISCAL EFFECT:
GF revenue gain of $300,000 in 2016-17, and GF revenue losses of
$100,000 and $700,000 in 2017-18 and 2018-19, respectively.
COMMENTS:
SB 873
Page 3
1)Federal LIHTC Program. The LIHTC is an indirect federal
subsidy developed in 1986 to incentivize the private
development of affordable rental housing for low-income
households. The federal LIHTC program replaced traditional
housing tax incentives, such as accelerated depreciation, with
a tax credit that enables low-income housing sponsors and
developers to raise project equity through the allocation of
tax benefits to investors.
Two types of federal tax credits are available, the 9% and 4%
credits. These terms refer to the approximate percentage of a
project's "qualified basis" a taxpayer may deduct from his/her
annual federal tax liability in each of 10 years. For projects
that are not financed with a federal subsidy, the applicable
rate is 9%. For projects that are federally subsidized
(including projects financed with more than 50% with
tax-exempt bonds), the applicable rate is 4%.
2)State LIHTC Program. In 1987, the Legislature authorized a
state LIHTC program to augment the federal program. While the
state LIHTC program is patterned after the federal program,
there are several differences, including a provision allowing
investors to claim the state LIHTC over a four-year allocation
period, rather than the federal 10-year. Furthermore, unlike
the federal LIHTC program, the California LIHTC law requires
project developers or housing sponsors to agree to a minimum
of 55 years of rent and income restrictions.
State tax credits can only be awarded to projects that have
SB 873
Page 4
also received, or are concurrently receiving, an allocation of
the federal LIHTCs. Federal law specifies that each state
must designate a "housing credit agency" to administer the
federal LIHTC program. In California, responsibility for
administering the federal program is assigned to the
California TCAC, which is comprised of the State Treasurer,
the State Controller, the Director of Finance, and three
non-voting members. TCAC allocates both federal and state
LIHTCs through a competitive application process.
The amount of state LIHTC that may be annually allocated by
the TCAC is limited to $70 million, adjusted for inflation,
plus any unallocated or unused credits from previous years.
In 2015, the total state credit amount available for
allocation was approximately $90 million (representing all
four years of allocation), plus $5.5 million in farmworker
state credit available for agricultural worker housing. The
TCAC awarded approximately $123.1 million in state tax credits
to 47 projects in 2015, including one farmworker state credit
award of almost $1 million.
3)Housing partnership agreements and tax liability. Investment
partnerships are a primary source of equity financing for
LIHTC projects. A typical arrangement is to match a corporate
tax credit investor with a project developer or sponsor,
creating a partnership (such as a general partnership or a
LLC) where the investor is allocated the LIHTC in exchange for
cash and the developer acts as a general partner (or managing
member). The money that investors pay for the partnership
interest is paid into the low-income housing project as equity
financing. Although investors are buying an interest in a
SB 873
Page 5
rental housing partnership, this process is commonly referred
to as "buying" tax credits because they receive tax credits in
return for their investment. According to TCAC, this
arrangement usually finances 30% to 60% of the capital costs
of project construction.
This structure of investors being able to claim state LIHTCs
in exchange for part ownership of the project can also lead to
adverse federal tax consequences for those investors.
Specifically, because taxpayers can deduct their state taxes
paid from their federal taxes, a state LIHTC can actually
increase federal taxpayer liabilities. Because of these
federal tax liabilities, the amount of tax credits an investor
will receive often exceed the amount of investments actually
made.
4)Purpose. According to the author, SB 873 will increase the
value of state LIHTCs by eliminating the federal tax impacts
associated with investors claiming the state LIHTCs. The
author argues that allowing developers to sell their state
LIHTCs to investors will make the state LIHTC more lucrative
for these investors and allow them to invest more dollars into
affordable housing projects. By selling their credits to other
eligible taxpayers, investors can devote more resources to
affordable housing projects without concern for federal tax
liability.
5)Enacted Budget. This bill duplicates provisions in the enacted
2016-17 budget. The enacted budget modifies the state LIHTC to
allow developers to sell the credit, with similar restrictions
established by SB 873.
SB 873
Page 6
Analysis Prepared by:Luke Reidenbach / APPR. / (916)
319-2081