BILL ANALYSIS
SENATE TRANSPORTATION & HOUSING COMMITTEE BILL NO: SB 477
SENATOR ALAN LOWENTHAL, CHAIRMAN AUTHOR: florez
VERSION: 2/26/09
Analysis by: Carrie Cornwell FISCAL: yes
Hearing date: April 21, 2009
SUBJECT:
Redevelopment: low and moderate income housing
DESCRIPTION:
This bill clarifies that a redevelopment agency may use its low-
and moderate-income housing funds to finance the purchase of
low-income housing tax credits.
ANALYSIS:
Low-Income Housing Tax Credits
The Low-Income Housing Tax Credit (LIHTC) Program supports the
development, rehabilitation, and preservation of affordable
rental housing that is affordable to very-low and extremely-low
income households. The California Tax Credit Allocation
Committee (TCAC) awards these tax credits to individual
developments through a competitive process. Because the
developers who receive credits generally have little or no tax
liability of their own, they invite corporations to buy in to
their projects in order to take advantage of the tax credits.
These equity investments can cover up to 60% of a project's
total development cost.
The amount of federal credits available to California each year
is equal to $1.95 per capita, or roughly $71 million. Because
investors can take the credit each year for a ten-year period,
the actual up-front value of the annual federal credits is ten
times this amount, or $710 million.
SB 477 (FLOREZ) Page 2
Redevelopment Low and Moderate Income Housing Funds
The Community Redevelopment Law allows local governments to
establish redevelopment areas and capture all of the increase in
property taxes that is generated within the area (referred to as
"tax increment"). The law requires redevelopment agencies to
deposit 20 percent of tax increment funds into a Low & Moderate
Income Housing Fund (L&M Fund) to be used to increase, improve,
and preserve the community's supply of low and moderate income
housing at affordable housing cost. In carrying out these
responsibilities, a redevelopment agency may exercise any of all
of its powers for the construction, rehabilitation, and
preservation of affordable housing, including the following:
Acquire real property or building sites
Improve real property or building sites with onsite or offsite
improvements
Donate real property to public or private persons or entities
Finance insurance premiums
Construct buildings or structures
Acquire buildings or structures
Rehabilitate buildings or structures
Provide subsidies to income-qualified households to the extent
they cannot obtain housing at affordable costs on the open
market
Develop plans, pay principal and interest on indebtedness, or
pay financing charges
Maintain a community's supply of mobilehomes
Preserve affordable housing units that are threatened with
imminent conversion to market rates
This bill clarifies that a redevelopment agency may loan, grant,
or otherwise contribute or pledge funds to an authorized
purchaser of low-income housing tax credits for the construction
of low-income rental housing located within the agency's
jurisdiction. The bill defines an authorized purchaser as a
joint powers entity that consists of no less than 100 local
agencies.
COMMENTS:
1.Purpose . Last year TCAC awarded tax credit allocations of more
than a billion dollars in order to assist over 15,000 units of
affordable rental housing. Proponents estimate that 50 percent
or more of these tax credits will go unused, as developers are
SB 477 (FLOREZ) Page 3
unable to secure equity investors with the tax liability to
make use of the tax credits. Thus, developers will be unable
to proceed with construction of the affordable housing units,
costing California both these affordable housing units and the
related construction jobs. This bill seeks to use L&M funds of
redevelopment agencies as a source of financing to serve as a
substitute for the lack of tax credit equity investors
throughout California and to stimulate the economy by way of
creating immediate jobs in the construction arena.
2.Just a clarification ? Under existing law, redevelopment
agencies have broad powers to increase, improve, and preserve
the community's supply of low and moderate income housing. It
is likely, though there may be some legal debate, that
redevelopment agencies may now purchase low-income housing tax
credits in order to contribute to the financing of affordable
housing in their communities. Because redevelopment agencies
have no tax liability, they would hold the tax credits only
until a private investor could be found.
3.Joint powers entities with 100 members . The bill defines an
authorized purchaser that a redevelopment agency may assist to
purchase tax credits as a joint powers entity that consists of
no less than 100 local agencies. This defines a very small
number of authorized purchasers. Two that would be included
are the California Statewide Communities Development Authority
and the Association of Bay Area Governments, both of which
issue bonds on behalf of local agencies for affordable housing
projects. These are often used in concert with low-income
housing tax credits. These two joint powers entities are
therefore already acting for redevelopment agencies on
affordable housing financing deals. This bill would permit an
agency to also rely on one of these entities to purchase tax
credits via a loan or grant from the agency.
POSITIONS: (Communicated to the Committee before noon on
Wednesday,
April 15, 2009)
SUPPORT: California Redevelopment Association
OPPOSED: None received.