BILL ANALYSIS
AB 97
Page 1
Date of Hearing: April 5, 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
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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
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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)
AARP State Legislative Committee
Advisory Council of the Council on Aging of Santa Clara Co.,Inc.
California Apartment Association
California Building Industry Association (CBIA)
California Housing Council, Inc.
California Manufactured Housing Institute (CMHI)
California Redevelopment Association
Congress of California Seniors
Edison Capital
Friends Committee on Legislation of CA
Honorable Philip Angelides, State Treasurer
Housing California
League of California Cities
League of Women Voters of California
Lutheran Office of Public Policy
Personal Insurance Federation of California (PIFC)
Opposition
None on file
Analysis Prepared by : Eileen A. Roush / REV. & TAX. / (916)
319-2098