BILL ANALYSIS Ó
SB 873
Page 1
SENATE THIRD READING
SB
873 (Beall)
As Amended June 27, 2016
Majority vote. Urgency
SENATE VOTE: 39-0
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|Committee |Votes|Ayes |Noes |
| | | | |
| | | | |
| | | | |
|----------------+-----+----------------------+--------------------|
|Housing |6-0 |Chiu, Steinorth, | |
| | |Burke, Chau, Beth | |
| | |Gaines, Lopez | |
| | | | |
|----------------+-----+----------------------+--------------------|
|Revenue & |9-0 |Ridley-Thomas, | |
|Taxation | |Brough, Dababneh, | |
| | |Gipson, Mullin, | |
| | |O'Donnell, Patterson, | |
| | |Quirk, Wagner | |
| | | | |
|----------------+-----+----------------------+--------------------|
|Appropriations |15-0 |Gonzalez, Bigelow, | |
| | |Bloom, Bonilla, | |
| | |Bonta, Chang, Eggman, | |
| | |Eduardo Garcia, | |
| | |Jones, Obernolte, | |
SB 873
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| | |Quirk, Santiago, | |
| | |Weber, Wood, McCarty | |
| | | | |
| | | | |
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SUMMARY: 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
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.
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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: According to the Assembly Appropriations
Committee, General Fund (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:
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%.
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,
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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 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 Tax Credit
Allocation Committee (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.
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
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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 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.
Purpose. According to the author, this bill 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.
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 this bill.
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Analysis Prepared by:
Lisa Engel / H. & C.D. / (961) 319-2085 FN: 0004131