BILL ANALYSIS
Senate Appropriations Committee Fiscal Summary
Senator Christine Kehoe, Chair
16 (Lowenthal)
Hearing Date: 4/27/09 Amended: 2/11/09
Consultant: Mark McKenzie Policy Vote: Rev.&Tax. 5-1
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BILL SUMMARY:
SB 16, an urgency measure, would make the Low Income Housing Tax
Credit (LIHTC) a refundable credit for qualified taxpayers from
July 1, 2008 until January 1, 2011. This bill would also extend
partnership allocation rules to credits awarded to qualified
projects, and specify that any refunded amounts would not be
subject to taxation.
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Fiscal Impact (in thousands)
Major Provisions 2009-10 2010-11 2011-12 Fund
Tax Revenue Loss $200 General
2012-13 2013-14 2014-15 Fund
$1,600 $6,200 $10,500 General
Staff notes that revenue losses would be $8.5 million in
2015-16, and $1.7 million in 2016-17. Starting in 2017-18,
there would be revenue gains to offset prior years' losses.
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STAFF COMMENTS: This bill meets the criteria for referral to the
Suspense File.
Existing state and federal law, the low-income housing tax
credit (LIHTC), allows a tax credit for the costs of
constructing, rehabilitating, and acquiring low-income housing.
The federal credit is claimed over ten years, while the state
credit is claimed over four-years and the amount of the credit
is statutorily capped, but increases annually by the Consumer
Price Index. The annual state credit ceiling is currently
approximately $85 million, plus any unused and returned amounts
from previous years. The California Tax Credit Allocation
Committee (TCAC) administers the LIHTC and allocates the credits
to low-income housing developers through a competitive
application process. The average value of state credits
allocated per project is approximately $3.3 million.
SB 16 would allow the LIHTC to be refundable for projects that
have received a preliminary reservation for a state low-income
housing tax credit on or after July 1, 2008 and before January
1, 2011. Currently, TCAC allocates the LIHTC to the taxpayer.
The credit is applied to reduce taxes owed, and any remaining
amounts are carried forward to reduce taxes in future years.
Under this bill, after applying the credit to reduce taxes owed,
the excess amount would be refundable. Refunded amounts would
not be subject to taxation and credits would not be allowed to
be carried over and claimed in future years. This bill would
also extend partnership allocation rules to all of the
refundable credits so that the credits would be allocated in
accordance with the partnership agreement on the qualified
low-income housing project, rather than in accordance with
proportional ownership shares.
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SB 16 (Lowenthal)
SB 16 would result in an acceleration of tax credit claims on
personal and corporate income tax returns, beginning in 2012
(the first year in which the refundable credits could be
claimed), resulting in revenue losses from 2011-12 through
2016-17, as noted above. These losses would be offset by
revenue gains beginning in 2017-18. Over eight tax years the
General Fund revenue impact would be neutral. The fiscal impact
includes a total revenue loss of $2.7 million over four years
(2011-12 through 2014-15) as a result of the extension of
partnership allocation rules, as well as a revenue loss related
to the exclusion of the refunded credits from income of
approximately $75,000 in 2013-14, $287,000 in 2014-15, and
$504,000 in 2015-16.
Staff notes that this bill would set a precedent for business
tax credits by allowing the LIHTC to be refundable; there are
currently no refundable tax credits under the corporation tax
law. The Franchise Tax Board (FTB) estimates a combined
one-time cost of approximately $521,000 (4.3 PYs) to develop,
program, and test the refundable credit processes within
existing systems for both personal and corporation tax.
Proposed amendments would authorize TCAC to charge a fee to
applicants for the credits sufficient to cover FTB's one-time
costs of $521,000. FTB would not be required to implement the
refundable credits until they receive this revenue from TCAC to
cover first-year costs.