BILL ANALYSIS                                                                                                                                                                                                    



                                                          AB 97
                                                          Page  1

Date of Hearing:   March 22, 1999

           ASSEMBLY COMMITTEE ON REVENUE AND TAXATION 
                      Wally Knox, Chairman
        AB 97 (Torlakson) - As Amended: February 25, 1999

Majority vote.  Tax levy.  Fiscal committee.
  
SUBJECT  :  Personal Income, Bank and Corporation, and Insurance  
Gross Premiums Taxes:  Low-Income Housing Credits

  SUMMARY  :  This bill deletes the January 1, 2000 sunset date for  
California's low-income housing credits and ensures that $50  
million in state housing credits will be available annually for  
as long as the federal government offers low-income housing  
credits.

  EXISTING LAW:

  1)Federal and state law provide credits for taxpayers who invest  
  in low-income housing projects.  Congress began the federal  
  program in 1986 in order to encourage the private sector to  
  acquire, rehabilitate, and construct low-income rental  
  housing.  California created a companion program in 1987 in  
  recognition of the fact that our high land and housing costs  
  make it difficult for the federal credits to be effective in  
  leveraging private investment on their own.  Federal law  
  provides approximately $40 million in credits annually to  
  California; California offers $50 million in state credits.

2)California's Tax Credit Allocation Committee (TCAC, housed  
  within the State Treasurer's Office) administers both the  
  state and federal credits.  Both credits are nearly identical  
  to each other, and state credits are only available to  
  projects that have received federal credits.  To qualify for a  
  credit, a rental housing developer must reserve either 20% of  
  his/her development units for persons earning below 50% of the  
  area median income or 40% of his/her development units for  
  persons earning below 60% of the area median.  The low-income  
  units must be retained for the target population for a minimum  
  of 55 years.  Twenty percent of the tax credits are reserved  
  for rural areas and 10% for non-profit sponsors. 

3)State credits may be used to offset personal income, bank and  
  corporation, and/or insurance gross premiums tax liability.   








                                                          AB 97
                                                          Page  2

  Federal credits may be used to offset personal income and  
  corporate income taxes.  State credits must be spread over  
  four years; federal credits over ten years.  Credit amounts  
  that may be claimed each year are determined by formulas  
  specified in law.

 FISCAL EFFECT  :  The Franchise Tax Board (FTB) estimates revenue  
losses as follows (in $ millions):

                        2001-02            2002-03           2003-04    
        2004-05           2005-06  
                          -$2                  -$10               
 -$25               -$40                -$50

  COMMENTS  :

1)Last year, the Legislature increased the cap on state credits  
  from $35 million to $50 million (AB 168, Torlakson, Chapter 9,  
  Statutes of 1998) but rejected an attempt to remove the  
  January 1, 2000 sunset date on the credits (AB 1265,  
  Torlakson, which died on the Senate Appropriations Suspense  
  file).  The author has introduced this bill to ensure that the  
  state commits to offering low-income housing credits for at  
  least as long as federal low-income housing credits are  
  available.

2)Competition for low-income housing credits is intense.  Last  
  year, the state received applications for $308 million in  
  credits but was limited by the $50 million cap.  To date,  
  federal and state credits allocated to California have  
  leveraged over $3 billion in private and public funds and  
  financed over 55,000 low-income rental housing units.  

3)The ability of low-income housing credits to generate private  
  investment is due in large part to the secondary market that  
  has been established for them.  Developers who receive tax  
  credit allocations sell these tax benefits to investors  
  (typically at about 70 cents on the dollar) in order to  
  generate the capital necessary to build low-income units.   
  Investors who purchase the credits (typically corporations)  
  can then use them to offset their tax liability.  The intense  
  competition for credits has increased the value of a credit  
  from about 50 cents on the dollar to the current value of  
  about 70 cents today.  









                                                          AB 97
                                                          Page  3

4)Current law already requires significant reporting  
  requirements to measure the effectiveness of the low-income  
  tax credit program.  TCAC is required to submit a  
  comprehensive annual report to the Legislature that includes  
  the following information for each calendar year:  the total  
  amount of low-income housing credits allocated; total number  
  of low-income units created by the credits; the amount of  
  low-income credits allocated to each project, other financing  
  available to each project; the number of low-income units per  
  project; and recommendations for improving the low-income  
  housing credit program. 

  REGISTERED SUPPORT / OPPOSITION  :

  Support  

Local Initiatives Support Corporation (co-sponsor)
Enterprise Foundation (co-sponsor)
California Apartment Association
California Housing Council, Inc.
California Redevelopment Association
Congress of California Seniors
Housing California
League of California Cities
Personal Insurance Federation of California (PIFC)

  Opposition  

None on file
  
Analysis Prepared by  :    Eileen A. Roush / REV. & TAX. / (916)  
319-2098