BILL ANALYSIS �
SENATE TRANSPORTATION & HOUSING COMMITTEE BILL NO: ab 952
SENATOR MARK DESAULNIER, CHAIRMAN AUTHOR: atkins
VERSION: 5/2/13
Analysis by: Carrie Cornwell FISCAL: yes
Hearing date: June 25, 2013
SUBJECT:
Low-income housing tax credits
DESCRIPTION:
This bill allows the state's Tax Credit Allocation Committee to
allocate state low-income housing tax credits to housing
projects in federally designated areas in which it is difficult
to develop housing as long as the housing built is restricted so
that 50 percent of the occupants will be special needs
households.
ANALYSIS:
Federal law enacted in 1986 created the federal low-income
housing tax credit (LIHTC) and required that each state
designate a state agency to administer the LIHTC program. SB
113 (Leroy Greene), Chapter 658, Statutes of 1987, assigned
responsibility for administering the federal LIHTC to the
California Tax Credit Allocation Committee (TCAC), which
consists of three voting members: the State Treasurer, the
State Controller, and the Governor, or in the Governor's
absence, the Director of Finance. The Treasurer chairs TCAC,
and the committee's staff is housed within the State Treasurer's
Office.
The federal government assigns each state a ceiling on the
amount of LIHTC it can allocate each year. In 2013, the amount
is $2.25 per capita or $86 million total for California.
(Taxpayers claim federal credits each year for 10 years so this
results in a total federal tax credit amount of $860 million for
this year's awards.) TCAC allocates these federal credits
through a competitive process to those who are developing
qualified affordable rental housing. These developers then take
on investors as limited liability partners, who in exchange for
the tax credits provide funds in the form of equity for building
the affordable housing.
AB 952 (ATKINS) Page 2
In 1987, AB 53 (Klehs), Chapter 1138, created the state
low-income housing tax credit in recognition of the high cost of
housing in California. TCAC allocates state LIHTC to be used in
concert with federal credits. The annual state credit ceiling
for 2012 is approximately $92 million. Investors claim the
state LIHTC over a four-year period, and the credit amount is
divided over these four years, unlike the federal credit amount
which is multiplied over its ten-year allocation period.
In determining the amount of LIHTC for which a project may be
eligible, first, total project cost is calculated. Secondly,
"eligible basis" is determined by subtracting non-depreciable
costs, such as land, permanent financing costs, rent reserves,
and marketing costs. If the development is located in a
HUD-designated Difficult to Develop Area (DDA) or Qualified
Census Tract (QCT), the eligible basis for federal tax credit
purposes receives a 30 percent adjustment or "basis boost" so
that it receives a credit equal to 130 percent of its eligible
basis.
As a general rule state credits go to projects outside DDAs and
QCTs so that they too can receive the 30 percent basis boost.
Pursuant to regulations that TCAC has adopted, however, when not
enough projects need a basis boost to use all of the state
credits, then TCAC, with the developer's consent, can switch
state LIHTC for federal LIHTC for the 30 percent of added basis.
This effectively stretches out the number of projects that TCAC
can help to fund with the limited federal credits in a given
year. State law, however, caps the amount of state tax credit
for a project at 30 percent of the eligible basis.
This bill :
1.Allows TCAC to allocate state LIHTCs to projects in DDAs and
QCTs that are subject to restrictions ensuring that 50 percent
of the occupants will be special needs households, as defined
in TCAC's regulations, and in which the state credits do not
exceed 30 percent of the eligible basis.
2.Provides statutory authority for TCAC to replace federal LIHTC
with state LIHTC of up to 30 percent of a project's eligible
basis if the federal LIHTC is reduced in an equivalent amount
and allows TCAC to do this without developer consent. TCAC
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determines what constitutes an equivalent amount of state
LIHTC necessary to replace the federal LIHTC a taxpayer would
have received.
3. Is a tax levy that takes effect immediately.
COMMENTS:
1.Purpose . The Low-Income Housing Tax Credit Program supports
the development, rehabilitation, and preservation of rental
housing that is affordable to very-low and extremely-low
income households. Federal tax credits can be used anywhere
in the state, but projects are given an additional 30 percent
on their eligible basis if the project is located in a DDA or
a QCT. Because these areas by definition have a
higher-poverty level and a higher concentration of extremely
low-income or homeless individuals and families, housing in
them typically needs larger subsidies to make it affordable.
Existing state law does not allow TCAC to award state tax
credits in DDAs and QCTs. The rationale for this prohibition
is that projects in these areas can qualify for more federal
tax credits through a basis boost and therefore are already
advantaged.
This bill allows, in limited cases, for TCAC to award state
credits for use in DDAs or QCTs, which would be in addition to
the federal credits. To qualify, a development must restrict
at least 50 percent of the units to special needs households.
Projects that serve special needs populations need greater
subsidy in order to offer deeply affordable rents.
This bill also clarifies TCAC's authority to swap out state
LIHTC for federal LIHTC if the sponsor agrees when making the
application. TCAC awards project sponsors additional points
in their applications if they agree to accept a swap. This
practice is authorized in TCAC's regulations. This bill would
confirm that authority in statute.
2.An example . By allowing state credits to be used in DDAs and
QCTs, this bill will increase the equity these projects can
generate from tax credits because the projects qualify already
for a basis boost that results in more federal tax credits
than projects outside of a DDA or a QCT. Under existing
federal law, projects can receive 30 percent more federal
LIHTC if they locate in a DDA or QCT. This bill would allow
projects to receive state tax credits of up to an additional
AB 952 (ATKINS) Page 4
30 percent of the project's eligible basis. As an example, if
a project qualifies for $10 million in eligible basis in a DDA
or QCT, the project could get up to 130 percent of that basis
in federal tax credits, which means the project sponsor would
have $13 million in federal credits to offer to investors who
buy into the project. This bill would allow that project to
get an additional 30 percent in state tax credits against the
$10 million in eligible basis, which would create an
additional $3 million in state tax credits.
3.No change in amount, just use . This bill does not change the
amount of state low-income housing tax credits that TCAC can
award each year. It does, however, allow TCAC to use the
existing credits to more deeply subsidize housing targeted to
Californians with special needs, such as mental or physical
disabilities.
4.Double-referral . The Rules Committee has referred this bill
to both this committee and the Governance and Finance
Committee. Therefore, if this bill passes this committee, it
will be referred to the Committee on Governance and Finance.
5.Technical amendments .
On page 4, line 37, strike "(iii)(I)" and insert
"(G)(i)"
On page 5, line 3, strike "(II)" and insert "(ii)"
On page 15, line 3, strike "(iii)(I)" and insert
"(G)(i)"
On page 15, line 9, strike "(II)" and insert "(ii)"
On page 25, line 33, strike "(iii)(I)" and insert
"(G)(i)"
On page 26, line 1, strike "(II)" and insert "(ii)"
Assembly Votes:
Floor: 78-0
Appr: 17-0
R&T: 9-0
H&CD: 7-0
POSITIONS: (Communicated to the committee before noon on
Wednesday, June 19,
2013.)
SUPPORT: State Treasurer Bill Lockyer (sponsor)
California Housing Partnership Corporation
AB 952 (ATKINS) Page 5
OPPOSED: None received.