BILL ANALYSIS
AB 884
Page 1
Date of Hearing: April 25, 2007
ASSEMBLY COMMITTEE ON HOUSING AND COMMUNITY DEVELOPMENT
Lori Saldana, Chair
AB 884 (Dymally) - As Amended: April 11, 2007
SUBJECT : Low income housing tax credit: allocation program
SUMMARY : Amends existing rules dealing with the allocation of
tax credits for low-income housing. Specifically, this bill :
1)States that public interest is best served through the
allocation of tax credits for low-income housing with special
efforts in urban areas and for projects sponsored by
community-based nonprofit organizations.
2)States that public interest is best served by the allocation
of tax credits under a system that allows fair competition for
new tax credit sponsors and developers.
3)Adds two additional voting members to the California Tax
Credit Allocation Committee (TCAC): one appointed by the
Senate Committee on Rules and one appointed by the Speaker of
the Assembly.
4)Expands credit allocation criteria to include infill projects
and those that eliminate urban blight.
EXISTING LAW provides for a TCAC composed of the Governor (or
the Director of Finance in the Governor's absence), the
Controller, and the Treasurer. The Director of Housing and
Community Development, the Executive Director of the California
Housing Finance Agency, and two representatives of local
government serve TCAC as ex officio, nonvoting members. The
local government representatives are members of the California
Legislature appointed to represent the interests of cities and
counties (Health & Safety Code Section 50199.8).
FISCAL EFFECT : Unknown.
COMMENTS :
Background :
TCAC administers two low income housing tax credit programs - a
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federal program and a state program. Both programs were
authorized to encourage private investment in affordable rental
housing for households meeting certain income requirements.
Congress created the federal Low Income Housing Tax Credit
Program in 1986. It 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 sale of tax benefits to investors. Two types
of federal tax credits are available and are generally referred
to as nine percent (9%) and four percent (4%) credits. These
terms refer to the approximate percentage of a project's
"qualified basis" a taxpayer may deduct from their annual
federal tax liability in each of ten years. Recognizing the
extremely high cost of developing housing in California, the
state legislature authorized a state low income housing tax
credit program to augment the federal tax credit program.
Authorized by Chapter 1138, Statutes of 1987, the state credit
is only available to a project which has previously received, or
is concurrently receiving, an allocation of federal credits.
Thus the state program does not stand alone, but instead,
supplements the federal tax credit program.
In California, the demand for housing tax credit has recently
exceeded the supply by approximately two to one (2:1).
According to TCAC, this means many good, worthwhile projects are
unable to be awarded credit. It also means a rather elaborate
set of legal and regulatory rules for determining what projects
are awarded credit has been established. State and federal law
require at least 10 % of the annual credit be awarded to
projects that materially involve non-profits. State law also
requires 20% of the annual credit be awarded to projects located
in rural areas of the state, and 2% of the credit be set-aside
for "Small Development" projects of 20 or fewer units.
Additionally, to assure geographic distribution of the tax
credit, a certain percentage of credit is awarded each year to
projects located in twelve geographic regions of the state.
Public policies encouraging smart growth principles, energy
efficiencies, and the like are part of
California's housing tax credit program. In its competitive
scoring system, points are awarded for a variety of items,
ranging from serving lower income tenants, to achieving energy
efficiencies, to the degree that the project will contribute to
revitalization efforts in the area where it will be located.
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Applicants are required to meet a list of threshold criteria and
provided those are met TCAC may give preference to projects that
meet an additional list of criteria including:
a) serving large families with three or more bedrooms;
b) single room occupancy serving very low-income tenants;
c) at risk of conversion;
d) a public agency provides long-term financial support for
at least 15% of the total project or where the owner's
equity constitutes at least 30% of the total project costs;
and
e) tenant amenities or services not generally available to
residents of low-income housing projects.
AB 884 would add "infill and the elimination of neighborhood
blight" to this list of criteria.
Purpose of the bill :
According to the author, the primary objective of this bill is
to ensure that the TCAC process of allocating credits is fair
and provides opportunity for small and emerging firms a
likelihood of success for securing an allocation of credits to
rehabilitate, reposition and develop low-income rental real
estate projects. Concerned about the ability of new project
sponsors/developers to secure tax credit to build projects in
blighted in-fill areas, NAACP sponsored this measure.
Additionally, the author believes granting the Legislature
voting representation on the TCAC board will insure that the
allocation process is fair and impartial and encourages the
participation of new and emerging tax credit project sponsors
and project developers.
Oppose unless amended:
Housing California has an oppose unless amended position on the
bill. Housing California is opposed to the intent language in
the bill which states it is in the best interest of the public
to allocate low income housing tax credits under a system that
provides fair competition for new tax credit sponsors and
developers. According to Housing California, allowing
organizations without any experience in this specialized field
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to access tax credits is not in the best interest of the state.
Tax credit developments involve complex financing long-term
affordability commitments, and significant compliance
requirements. The involvement of a partner that has completed at
least one such development provides a measure of assurance that
the development will be completed and the state resources
well-spent. Historically, the program has received applications
for two to four times as much funding as it has available. This
indicates a robust industry. It also allows the program to
choose to fund only the highest quality projects. Maintaining a
high quality is the public's best interest.
Requested Committee Amendment :
The committee recommends removing the intent language on page 3
lines 3-5 of the bill which states it is in the public interest
for TCAC to allocate tax credits to "new tax credits sponsors".
TCAC funds are in high demand and should be awarded to the most
qualified applicant. This legislative intent language appears
to allow for a set aside or preference to new tax credit
sponsors that may or may not be qualified. Under both the 4%
and the 9% program new tax credit sponsors or developers can
qualify for tax credit funds. New sponsors can apply for the 4%
tax credits which are non-competitive. If awarded 4% tax
credits the new sponsor will build capacity and can apply for
the competitive 9% credits. Under the 9% federal tax credit
program points are awarded for joint venture partnerships. New
sponsors can partner with seasoned developers on projects in
this competitive program. Since TCAC is already providing
options for new sponsors it is unnecessary to include the
language in the intent section of the bill and could weaken a
very effective program by potentially reducing the value of the
tax credits and allowing a preference for unqualified new tax
credit sponsors. The TCAC program is a major source of funding
for affordable housing in the state and the tax-credits should
be used in the most effective means possible as not to
jeopardize the value of the tax credits.
Staff Comments :
Although the author states that the primary objective of this
measure is to ensure that the TCAC process of allocating credits
is fair and impartial to small and emerging firms, it is unclear
as to why this is needed or how this bill would actually
accomplish that. Additionally, the legislature has an
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opportunity to participate and advise the TCAC board regarding
its criteria for awarding credits with the ability of the
Speaker of the Assembly and the Senate Rules Committee to
appoint two representatives of local government who serve as ex
officio, nonvoting members. The ex-offico, non-voting members
to the TCAC board serve at the discretion of the Speaker and the
Senate Rules Committee.
Double referred : The Assembly Committee on Rules referred AB
884 to Revenue and Taxation and Housing and Community
Development Committee. The bill passed the Assembly Committee
on Revenue and Taxation on April 16, 2007 by a vote of 6 to 3.
REGISTERED SUPPORT / OPPOSITION :
Support
California State Conference of the NAACP (Sponsor)
Opposition
None in file.
Analysis Prepared by : Lisa Engel / H. & C.D. / (916) 319-2085