BILL ANALYSIS �
AB 2175
Page A
Date of Hearing: April 28, 2014
ASSEMBLY COMMITTEE ON REVENUE AND TAXATION
Raul Bocanegra, Chair
AB 2175 (Daly) - As Amended: April 1, 2014
Majority vote. Fiscal committee.
SUBJECT : Renter's Tax Assistance Act.
SUMMARY : Enacts the Renter's Tax Assistance Act ("Act") to
provide assistance payments to eligible individuals who rent
their principal residences. Specifically, this bill :
1)Establishes the Act within the Senior Citizens Property Tax
Assistance and Postponement Law and allows an individual
("claimant") to apply and receive an assistance payment from
the State if she/he satisfies all of the following
requirements:
a) Has filed with the Franchise Tax Board (FTB) a claim for
assistance, under penalty of perjury, in the form and
manner prescribed by the FBT;
b) Was a renter of a rented residence, as defined, on or
before the last day of the calendar year, which ends within
the fiscal year for which assistance is claimed; and,
c) His/her gross household income, after allowance for
actual cash expenditures that are reasonable, ordinary, and
necessary to realize income, is $42,588 or less.
2)Specifies that the amount of assistance provided to a
claimant:
a) Shall be based on the claimant's household income
determined for the calendar year (or approved fiscal year
ending within that calendar year), which ends within the
fiscal year for which assistance is claimed; and,
b) Is an amount equal to a percentage of the applicable
statutory property tax equivalent, which is set at $250 for
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the 2015 calendar year and each subsequent calendar year.
The percentage, in turn, depends on the claimant's total
household income.
3)Requires the FTB to do all of the following:
a) Compute the amount of assistance and authorize payment;
and,
b) Apply the amount of the assistance against any liability
due from the claimant, or the claimant's spouse if a joint
return is filed.
4)Adjusts annually for inflation the household income figures
for the 2015 calendar year and each year thereafter, based on
the percentage change in California Consumer Price Index
provided by the Department of Industrial Relations to the FTB.
5)Authorizes the FTB to prescribe, by regulation, the
information necessary to constitute a valid claim.
6)Requires a claimant to file a claim after June 30th of the
fiscal year (FY) for which assistance is claimed but on or
before October 15th of succeeding fiscal year.
7)Allows the FBT to accept claims through June 30th of the year
following the year for which assistance is claimed.
8)Requires the state to assist the claimant after July 15th and
before November 15th of the calendar year in which the claim
is filed, except that if the claim is defective, assistance
shall be made as promptly as practicable after the claim has
been perfected.
9)Allows a claimant who, because of medical incapacity, is
prevented from filing a timely claim, to file a claim within
six months after the end of his or her medical incapacity or
three years succeeding the end of the fiscal year for which
assistance is claimed, whichever date is earlier.
10)Provides that a claimant will not lose his/her eligibility
for assistance if he/she is temporarily confined to a hospital
or medical institution for medical reasons where the
residential dwelling was the principal place of residence of
the claimant immediately prior to such confinement.
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11)Specifies that, when two or more individuals pay rent for the
same premises and each individual meets the qualifications for
a renter-claimant, each qualified individual will be entitled
to the assistance.
12)Presumes that a husband and wife residing in the same
premises to be one renter.
13)States that the right to file a claim is personal to the
claimant and will not survive his/her death. However, a
claimant dies after filing the timely claim, the assistance
payment may be disbursed to the surviving spouse or to other
member of the household, as provided.
14)Defines "household income" as income received by all persons
of a household. In the case of a nonresident claimant,
"household income" also includes all income of the claimant
for the year.
15)Defines "income" as adjusted gross income (AGI), plus all of
the following cash items:
a) Public assistance and relief.
b) Nontaxable amount of pensions and annuities.
c) Social security benefits (except Medicare).
d) Railroad retirement benefits.
e) Unemployment insurance payments.
f) Veterans' benefits.
g) Exempt interest received from any source.
h) Gifts and inheritance in excess of $300, other than
transfers between members of the household.
i) Amounts contributed on behalf of the taxpayer to a
tax-sheltered retirement plan or deferred compensation
plan.
j) Temporary workers' compensation payments.
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aa) Sick leave payments.
bb) Nontaxable military compensation, as defined in Internal
Revenue Code (IRC) Section 117.
cc) Nontaxable scholarship and fellowship grants, as defined
in IRC Section 117.
dd) Life insurance proceeds, to the extent they exceed the
expenses incurred for the last illness and funeral of the
claimant's deceased spouse.
ee) Annual winnings from the California Lottery, in excess
of $600 for the current year.
ff) The amount of alternative minimum taxable income in
excess of the regular taxable income, if an alternative
minimum tax is due pursuant to Chapter 2.1 (commencing with
Section 17062) of Part 10 of the Revenue and Taxation Code
(R&TC).
16)Defines a "claimant" as an individual who was the renter of a
rented residence on or before the last day of the calendar
year.
17)Defines a "rented residence" as premises rented and occupied
by the claimant as his/her principal place of residence during
the calendar year for which assistance is claimed, including a
mobilehome owned by the claimant. Does not include premises
that are exempt from property taxation or premises that are
not located in California.
18)Provides that the amount of residence must be prorated, as
prescribed by the FTB, in the case where the claimant's
principal place of residence is less than 12 months during the
calendar year for which assistance is claimed.
19)Defines "rent" as the amount paid at arm's length solely for
the right of occupancy of a residence and utility payments
required to be paid by the rental agreement. Requires that
at least $50 per month must be paid by each renter claimant.
20)States that no reimbursement to local governments is required
as provided in Section 6 of Article XIII B of the California
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Constitution.
EXISTING LAW :
1)Establishes the Senior Citizens and Disabled Citizens
Postponement Law, the Senior Citizens Tenant-Stockholder
Postponement Law, the Senior Citizens Mobilehome Postponement
Law, and the Senior Citizens Possessory Interest Holder
Postponement Law in the R&TC, all of which allow the State
Controller (SC) to pay property taxes to county tax collectors
on behalf of individuals over the age of 62 or disabled
persons making less than $39,000. (R&TC Sections 20581-
20641.)
2)Establishes the Senior Citizens Homeowners and Renters
Property Tax Assistance Law (Homeowners and Renters Assistance
(HRA) program), administered by the FTB, which is a direct
grant program to income eligible senior citizens. (R&TC
Sections 20501 - 20561.)
3)Suspends funding for the HRA and postponement programs
indefinitely.
4)Establishes the County Deferred Property Tax Postponement for
Senior and Disabled Citizens, with participating counties, to
pay property taxes to county tax collectors on behalf of
individuals over the age of 62 or disabled persons making less
than $35,500. (R&TC Sections 20800 - 20825.)
5)Allows a non-refundable income tax credit of $60 for qualified
taxpayers who are renters filing single or married filing
separately with an AGI of $36,955 or less. For married
taxpayers filing jointly, a head of household, or a qualified
widow or widower with an AGI of $73,910 or less, the credit
amount is increased to $120. The AGI amount is adjusted
annually for inflation.
FISCAL EFFECT : The FTB staff estimates that this bill will
result in an annual General Fund revenue loss of $380 million in
the fiscal year (FY) 2014-15, $800 million in FY 2015-16, and
$900 million in FY 2016-17.
COMMENTS :
1)The Author's Statement . The author provided the following
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statement in support of this bill:
"As the cost of living in California has increased, growing
numbers of low-income tenants have struggled to make ends
meet. A recent study by the Council for Community and
Economic Research found that California is home to three of
the top 10 areas in the country with the highest cost of
living - San Francisco, San Jose, and Orange County.
"Under current law, homeowners in California receive significant
state and federal tax benefits, including the mortgage
interest deduction and the homeowner's exemption. However,
renters do not receive any comparable tax benefits. It is
reasonable to provide renters, who may not be able to purchase
a home, with some tax relief too."
2)Arguments in Support. The proponents of this bill note that
AB 2175 would improve on the prior program by opening
eligibility "to all low-income households, not just seniors
and disabled." They argue that this bill "maintains a balance
of fiscal restraint while providing a modicum of aid for those
most in need." They state that low-income persons are "in
dire need of the modest assistance provided" by this bill, and
that the applicants "would have to prove the need for the
assistance each year."
3)Background: the HRA Program . California has several property
tax programs benefiting the elderly and disabled individuals,
including property tax reappraisal relief, the HRA program,
and property tax postponement. However, a few years ago, the
funding for the HRA and property tax postponement programs has
been suspended indefinitely.
The HRA program provided a direct grant to qualifying seniors
(62 years of age or older) and disabled individuals who owned
or rented a residence. This program, administered by the FTB,
was established in 1967 to provide direct property tax relief
to seniors living on a fixed income. The HRA program was
later expanded to include renters who meet the income
requirement, and to homeowners who are blind and or disabled,
regardless of their age. Under the HRA program, both renters
and homeowners were eligible to receive a partial
reimbursement of the previous fiscal year's property taxes on
a personal residence paid directly by a homeowner and
indirectly by a renter. If a claimant owned a home part of
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the year and rented the other part of that year, he or she
could file for either the homeowner or renter program, but not
both. The program was only available to applicants with a
certain amount of total household income. For example, for
2006, the income threshold was $42,770. Actual relief was
computed based on total, not gross, household income. Gross
household income included all sources of income from all
members of the household (including wages, salaries, pensions,
social security payments) less certain expenses. In contrast,
total household income included gross income minus exempt
income, such as public assistance payments and health
insurance premiums paid by self-employed individuals.
For purposes of the HRA program, the term "residential dwelling"
was defined to include condominiums, co-op units, mobilehomes
subject to property tax, houseboats, floating homes, and that
portion of farm, business or apartment building that is
owner-occupied. The phrase "rented residence" was defined as
premises occupied by a renter as a principal place of
residence and generally did not include any premises exempt
from property taxation. It applied to land only in the case
of mobilehome residents where the claimant paid rent for a
mobilehome park space.
For homeowners, assistance was provided only for the portion
of taxes paid on the first $34,000 of the home's full value,
after taking into account the $7,000 homeowners' exemption.
For renters, the procedure was different since renters do not
pay property taxes directly. For administrative ease, all
renters' assistance was computed on the basis of a "property
tax equivalent," and reimbursement equaled a percentage of the
property tax equivalent amount. The percentage on which the
reimbursement amount was based varied inversely with the
claimant's income level and ranged from 4% to 96%. Each
qualified renter-claimant in the same household was eligible
to receive the full amount of assistance. The assistance
payment was reduced by one-twelfth for each month of the
calendar year that the renter-claimant was not a renter.
Claimants had to file an annual application with FTB between
July 1 and October 15 of the fiscal year for which assistance
was sought. The state budget approved for the 2008-09 Fiscal
Year deleted funding for the Homeowner and Renter Assistance
Program. Because there is no funding in the state budget for
this program, claims for 2008 or any subsequent year cannot be
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paid or processed until and unless funding is restored.
4)The Property Tax Postponement Programs . Unlike the assistance
program that refunded a percentage of property taxes paid, the
postponement programs allowed eligible homeowners to defer
payment of all, or a portion, of the property taxes on their
residence. But, as noted above, the state has not provided
funding for either program since 2009 [SBx3 8 (Ducheny),
Chapter 4, Statutes of 2009]. In 2011, a new program - the
County Deferred Property Tax Program for Senior Citizens and
Disabled Citizens - was created [AB 1090 (Blumenfield),
Chapter 369, Statutes of 2011.] In contrast to the earlier
postponement tax property program, the County Deferred
Property Tax program is voluntary, entirely self-financing and
not reliant on an annual General Fund appropriation. However,
since the enactment of the new program, only one county has
implemented this optional program.
5)How Different is the Proposed Program ? The proposed rental
assistance program is similar to the defunded HRA program in
several ways. The program would provide cash assistance to
renters, where the amount of the assistance would vary based
on the renter's household income. And the program would also
be administered by the FTB in a very similar manner. However,
while the original HRA program was created to provide
assistance to seniors and disabled individuals with certain
limited household income, the proposed assistance program
would be open to any eligible individual, regardless of the
age or disability. The Committee may wish to consider whether
funding of the existing HRA program, albeit in a somewhat
modified form, is preferable to the establishment of a new,
but similar, assistance program. The Committee may also wish
to consider whether the renters' assistance should be
available only to seniors and disabled persons or all eligible
individuals.
6)Renters' Credit . The Personal Income Tax (PIT) law allows an
eligible individual who rents his/her principal residence to
reduce his/her state income tax with a tax credit. The
renters' credit was suspended for the 1993 through 1997 tax
years, but was reinstated beginning with the 1998 taxable
year. The credit eligibility is based on the taxpayer's AGI
and his/her filing status. AGI amounts are indexed annually
for inflation. For the 2013 tax year, a credit of $120 is
allowed for married taxpayers filing joint returns; heads of
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household and surviving spouses with an AGI of $73,910 or
less; and $60 for other individuals (single or married/RDP
filing separately) with an AGI of $36,955 or less.<1> The
renters' credit is nonrefundable. The Committee may wish to
consider whether an increase in the amount of the renters'
credit or an implementation of a refundable renters' credit
would adequately accomplish the author's goal of providing a
tax benefit to renters that is comparable to tax benefits of
homeownership.
7)Federal Rental Assistance Programs . The federal Rental
Assistance Program is comprised of three major programs:
housing choice vouchers, Section 8 Project-based Rental
Assistance, and Public Housing. The program enables five
million low-income households to afford modest homes. Other
federal programs serve households with special needs,
including supportive housing programs for the elderly and for
people with disabilities, housing opportunities for people
with AIDS/HIV, and McKinney-Vento permanent housing programs
for the homeless. In addition, the federal program provides
grants; tax credits, including a low-income housing tax
credit; and reduced-interest loans to build or rehabilitate
rental housing. Federal rental assistance programs help
"low-income" households, defined as households with income
that is 80% or less of the local median income. Some programs
limit initial eligibility to households at or below the 50% of
the local median.
Historically, California has invested in rental housing for
very-low and low-income households and supportive housing for
special needs populations by providing funding for the
---------------------------
<1> The California Constitution requires the State Legislature
to provide a comparable increase in benefits to qualified
renters wherever it proposes to increase the homeowner's
exemption, as provided by Article XIII, Section 3(k) of the
California Constitution. The current exemption amount is the
first $7,000 of the full value of a dwelling occupied as the
owner's principal residence on the January 1 lien date from
property taxation. The Legislature may increase the size of the
homeowners' exemption; but if it does so, it must also: (a)
increase the rate of state taxes in an amount sufficient to pay
for the increased cost of state subventions to local
governments, and (b) provide a comparable increase in benefits
to qualified renters.
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construction of housing. Because of high land and
construction costs and the subsidy needed to keep housing
affordable to tenants, affordable housing is expensive to
build. Combinations of financing tools leveraged together are
typically needed. In California, these sources include
voter-approved housing bonds, state and federal low-income
housing tax credits, private bank financing, and local
matching dollars. Voter approved bonds have provided the bulk
of the state's investment in affordable housing production
over the last 15 years. Proposition 46 of 2002 and
Proposition 1C of 2006 together provided $4.95 billion for
affordable housing production. Voter-approved bonds have been
an important but unreliable source of funding to address the
statewide housing need and are largely exhausted.
This bill proposes to cap the renter's eligibility for the
assistance based on the total household income of $42,588 or
less, adjusted annually for inflation. The actual payment
amount would range between $250 and $347.50. In California, a
local median income ranges from $57,900 in Tulare County to
$105,500 in Santa Clara County. According to the Public
Policy Institute of California, one of the biggest factors
contributing to California's high rate of poverty is the high
cost of housing in California, particularly in densely
populated "high-cost" counties. If every person in California
had housing costs equal to the housing costs of a "low-cost"
county, the poverty rate would drop by about 7%, bringing
California much closer to the official poverty rate
nationwide. The Committee may wish to consider whether the
"one size fits all" approach proposed by this bill is the most
efficient way to help the renters. The Committee may wish to
consider utilizing a percentage of a county median income as a
measurement of one's eligibility for the assistance payment,
similar to the federal programs.
8)Housing Choice Vouchers . In 2013, due to federal
sequestration California lost close to 9,618 Housing Choice
Vouchers. These federal vouchers represent the largest rental
housing assistance program in the nation. Vouchers are
administered by local housing authorities who have extensive
waiting lists of low-income people who could qualify for a
voucher if more funding was made available. Under the
program, a tenant is required to pay 30% to 40% of his or her
income toward the cost of the rent and the rest is paid by the
federal voucher. Private owners in California received
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$3,043,496,090 in housing choice voucher assistance payments
in 2013, helping owners to pay property taxes and prevent
blight by maintaining their properties in good condition, in
addition to helping low-income families to afford housing.
The Committee may wish to consider another approach to
assisting renters in the state, which is to provide state
funding for the existing home choice voucher program.
9)Any Impact on the Rental Market ? Some economists have argued
that tax subsidies for homeownership, such as the mortgage
interest deduction, for example, are factored into the price
of housing and, thus, essentially inflate the prices of homes.
This preferential tax treatment may encourage households to
over-invest in housing and invest less in business investments
that might contribute more to the nation's productivity and
output. Would state payments to renters have a similar
impact on the rental market? Will it make the rent more
affordable or simply nudge the rents higher? As an
alternative to the state assistance payments, the Committee
may wish to consider creating a grant program targeting the
high-rent areas, to be administered by local governments.
REGISTERED SUPPORT / OPPOSITION :
Support
Western Center on Law and Poverty
Apartment Association, California Southern Cities
East Bay Rental Housing Association
Apartment Association of Orange County
NorCal Rental Property Association
Opposition
None on file
Analysis Prepared by : Lisa Engel - H. & C. D./ Oksana Jaffe -
REV. & TAX. / (916) 319-2098