BILL ANALYSIS
AB 97
Page 1
Date of Hearing: April 14, 1999
ASSEMBLY COMMITTEE ON HOUSING AND COMMUNITY DEVELOPMENT
Alan Lowenthal, Chair
AB 97 (Torlakson) - As Amended: February 25, 1999
SUBJECT : Low Income Housing Tax Credit
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:
Federal and state law provides 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 the state's high land and housing costs make it
difficult for the federal credits to be effective in leveraging
private investment standing alone. Federal law provides
approximately $40 million in credits annually to California;
California offers an additional $50 million in state credits.
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.
State credits may be used to offset personal income, bank and
corporation, and/or insurance gross premiums tax liability.
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
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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
The fiscal impact is less than the amount of the credit increase
because there are delays between the time the credit is
allocated by the Tax Credit Allocation Committee and the credit
is actually claimed by the taxpayer.
BACKGROUND : The Federal Tax Reform Act of 1986 and the
Reconciliation Act of 1989 created low-income housing tax
credits to stimulate the production and rehabilitation of
affordable housing. The federal tax credit is limited in each
state to $1.25 per capita per year. California's 1996 tax
credit allocation was approximately $47.2 million.
California enacted a similar state low-income housing tax credit
program to augment the federal tax credit program (AB 53 (Klehs)
Chapter 1138, Statutes of 1987). The state tax credit is only
available for projects that receive federal tax credits; it
supplements the federal tax credit program. The state tax
credit is limited to $1.25 per capita and currently cannot
exceed $50 million per year. The credits are taken by investors
over a four-year period in contrast to the ten-year federal
allocation period.
The TCAC administers both the state and federal low-income tax
credit programs. The programs have financed over 55,000
affordable rental housing units and leveraged $3 billion in
additional private and public funds.
Each year, the request for tax credits increase and the demand
for tax credits far exceeds the supply. The $35 million cap has
not increased since it was enacted but the demand continues to
increase: $180 million in 1996; $125 million in 1995; and $80
million in 1994. During the last five years, the percentage of
funded applications has been decreasing. Last year, TCAC
received 274 applications but only 107 (39%) received tax
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credits; compared to 1993, when TCAC received 169 applications
and 73 (70%) received tax credits. The author wants to increase
the state tax credit cap.
COMMENTS :
1)Meeting the increasing demand for housing. As the demand for
affordable housing continues to increase, the financial
resources to build housing continues to diminish. Affordable
housing providers must search for more funding sources. The
author has introduced this bill to ensure that the state
commits to offering low-income housing tax credits for at
least as long as federal low-income housing tax credits are
available. The Legislature increased the cap on state credits
from $35 million to $50 million (AB 168 (Torlakson) Chapter 9,
Statutes of 1998). AB 1265 (Torlakson) of 1998 would have
removed the January 1, 2000 sunset date on the credits but
died on the Senate Appropriations Suspense file. Permanently
extending this increase in annual tax credits will help meet
the increasing demand for affordable housing.
2)Dual benefit . Based on a competitive application process,
housing developers receive an allocation of low-income housing
tax credits from the TCAC. The developers then sell the
credits to investors to raise capital to build affordable
housing units. Investors typically pay 50 to 75 cents for
each dollar of tax credit. The state credit is claimed over a
four-year period. AB 97 benefits both investors and housing
developers.
3)A commitment to housing . Affordable housing providers rely on
federal, state, and local funding sources to build affordable
housing. The state's financial resources for low-income
housing have dwindled because the general obligation bond
funds (i.e., Propositions 77 and 84, approved by the voters in
1988, and Proposition 107 approved by voters in 1990) that
funded many of the state's housing programs have been
committed and no additional funds have been allocated. By
permanently increasing the amount of state tax credits, AB 97
renews the state's commitment to finance affordable housing.
REGISTERED SUPPORT / OPPOSITION :
Support
AB 97
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Local Initiative Support Corporation (co-sponsor)
Enterprise Foundation (co-sponsor)
American Association of Retired Persons
Association of Bay Area Governments
California Apartment Association
California Association of Homes and Services for the Aging
California Housing Council, Inc.
California Manufactured Housing Institute
City of Los Angeles
Congress of California Seniors
Council on Aging
Edison Capital
Friends Committee on Legislation of California
Housing California
League of Women Voters of California
Lutheran Office of Public Policy - California
Personal Insurance Federation of California
Santa Clara County Board of Supervisors
State Treasurer, Philip Angelides
Urban Counties Caucus
Opposition
None
Analysis Prepared by : Tia Boatman / H. & C.D. / (916)319-2085