BILL ANALYSIS
AB 97
Page 1
ASSEMBLY THIRD READING
AB 97 (Torlakson)
As Amended February 25, 1999
Majority vote
REVENUE AND TAXATION 7-0 HOUSING
11-0
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|Ayes:|Knox, Kaloogian, Aroner, |Ayes:|Lowenthal, House, Battin, |
| |Briggs, Ducheny, Honda | |Corbett, Dutra, Knox, |
| | | |Cedillo, Olberg, Runner, |
| | | |Torlakson, Wildman |
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APPROPRIATIONS 21-0
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|Ayes:|Migden, Brewer, Ashburn, | | |
| |Battin, Cedillo, Davis, | | |
| |Pescetti, Hertzberg, | | |
| |Kuehl, Maldonado, Papan, | | |
| |Romero, Runner, Shelley, | | |
| |Steinberg, Thomson, | | |
| |Wesson, Wiggins, Wright, | | |
| |Zettel, Aroner | | |
|-----+--------------------------+-----+--------------------------|
| | | | |
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SUMMARY : 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 provides that:
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
AB 97
Page 2
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.
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):
2001-2002 2002-2003
2003-2004 2004-2005 2005-2006
-$2 -$10
-$25 -$40 -$50
This revenue estimate reflects past experience that there is
often a lag between when a low-income tax credit is authorized
and when it is first claimed by a taxpayer.
COMMENTS : 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 in the Senate]. 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.
AB 97
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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.
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 (i.e.,
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 (e.g., 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.
Analysis Prepared by : Eileen A. Roush / REV. & TAX. / (916)
319-2098
FN: 0001087