BILL ANALYSIS
Senate Appropriations Committee Fiscal Summary
Senator Christine Kehoe, Chair
1216 (Cedillo)
Hearing Date: 05/27/2010 Amended: 05/12/2010
Consultant: Mark McKenzie Policy Vote: T&H 8-0, Rev&Tax
4-0
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BILL SUMMARY: SB 1216 would authorize the California Tax Credit
Allocation Committee (TCAC) to allocate state Low-Income Housing
Tax Credits (LIHTCs) to a project in excess of current allowable
amounts in exchange for a proportionate allocation of federal
credits, as specified. This authority would only apply to
allocations made prior to January 1, 2016 in a year in which
there are surplus state credits available.
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Fiscal Impact (in thousands)
Major Provisions 2010-11 2011-12 2012-13 Fund
Accelerated LIHTC claims Annual revenue loss of $500
from 2013-14 General
through 2015-16, and $160 in 2016-17,
with
offsetting revenue gains of a similar
amount over
four to five years. (see staff comments)
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STAFF COMMENTS: SUSPENSE FILE.
Existing state and federal allows a tax credit for the costs of
constructing, rehabilitating, and acquiring low-income housing,
the low-income housing tax credit (LIHTC). Tax credits are
computed based on a project's "eligible basis," or its costs
less non-depreciable items. 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 an inflationary factor. Existing law also specifies
that credits allocated to a project receiving a preliminary
reservation of the LIHTC from January 1, 2009 until January 1,
2016 may be distributed to investors pursuant to a partnership
agreement rather than in accordance with the investors'
ownership interest in the project.
The annual state credit ceiling is currently approximately $89.8
million, plus any unused and returned amounts from previous
years. TCAC administers the LIHTC and allocates both federal
and state credits to low-income housing developers through a
competitive application process. Current law limits the amount
of state credits allocated to a project at 30 percent of the
eligible basis. TCAC regulations allow TCAC to "force swap"
federal credits for additional state credits when there are
unused state credits at the end of a year, but the state credit
allocation is limited by statute to 30 percent of the project's
basis. Project sponsors willing to swap the credits receive
bonus points on their applications.
SB 1216 would expand the authority of CTAC to swap federal
credits for state credits until January 1, 2016 in any year in
which there are excess state credits to allocate, provided the
state credits do not exceed 80 percent of the eligible basis and
the total amount of credits do not exceed the maximum allowable
under state and federal law.
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SB 1216 (Cedillo)
SB 1216 expands a creative application of LIHTCs currently
practiced by TCAC by regulation, which provides a bonus during
application evaluation for those applicants that are willing to
swap out state credits for federal credits. In a swap, TCAC
takes federal credits from a project whilst swapping in unused
state credits, then allocates the swapped out federal credits to
additional projects that did not receive allocations in that
year. However, current law caps the amount of state credit in
any project at 30% of basis, so only those projects allocated
less than the full amount of state credits are eligible for the
forced swap, and even then, TCAC can only fill-in state credits
in up to the cap. SB 1216 allows TCAC to push-in to a project
state credits left unallocated at the end of they year, and
pull-out federal credits to allocate to other projects if the
applicant approves, up to 80% of basis.
Staff notes that to the extent more state credits are allocated
in a given year due to the authority provided in this bill,
there would be an acceleration of tax credit claims when the
projects are completed. Under current law, any unallocated or
unused state credits are added to the subsequent year for
allocation to future projects, and all of these credits will
presumably be claimed when there is more interest in investing
in low-income housing projects. With less demand for credits,
project applicants receive less project capital for each tax
credit, if they can find demand for the tax credits at all. SB
1216 is intended to make investments in low-income housing
projects more attractive over the next five years to certain
investors that may have more interest in state credits than
federal credits due to state tax liability. The Franchise Tax
Board estimates that this bill would result in increased state
tax credit allocations and claims of $1.8 million over 5 years,
with a corresponding tax revenue loss of approximately $500,000
from 2013-14 through 2015-16 and $160,000 in 2016-17, followed
by similar revenue gains over four to five years. It is assumed
that absent this bill, these credits would have been allocated
and claimed in future years, so this bill's impact represents an
acceleration of claims and the corresponding revenue impact;
the long-term fiscal impact is revenue neutral over an eight or
nine year period.