BILL ANALYSIS ------------------------------------------------------------ |SENATE RULES COMMITTEE | SB 73| |Office of Senate Floor Analyses | | |1020 N Street, Suite 524 | | |(916) 445-6614 Fax: (916) | | |327-4478 | | ------------------------------------------------------------ THIRD READING Bill No: SB 73 Author: Dunn (D), et al Amended: 6/19/01 Vote: 21 SENATE HOUSING & COMM. DEV. COMMITTEE : 7-0, 4/2/01 AYES: Dunn, Monteith, Ackerman, Alarcon, Costa, Escutia, Romero SENATE APPROPRIATIONS COMMITTEE : 11-0, 6/25/01 AYES: Alpert, Battin, Bowen, Escutia, Johannessen, Johnson, Karnette, McPherson, Perata, Poochigian, Speier SUBJECT : Taxation: low-income housing SOURCE : State Treasurer, Phil Angelides California Rural Legal Assistance Foundation Western Center on Law and Poverty DIGEST : This bill increases the amount of low-income housing credits that can be allocated from $50 million to $70 million for the 2001 calendar year, and adjusts the amount for inflation each year thereafter. ANALYSIS : The federal Tax Reform Act of 1986 created the Low-Income Housing Tax Credit Program to stimulate private investment in the production and rehabilitation of affordable rental housing. The federal tax credits were initially capped for each state at $1.25 per capita per year. As part of last year's omnibus budget bill, Congress increased the cap on federal credits per state to $1.50 per CONTINUED SB 73 Page 2 resident for 2001 and $1.75 per capita for 2002. In following years the cap will increase further by a percentage equal to the rise in the federal Consumer Price Index. Because high housing costs make it particularly difficult to produce affordable housing in California, the Legislature created a state low income housing tax credit program in 1987 to supplement federal tax credits. The state tax credit is only available to projects that receive federal tax credits and are intended to stretch the federal credits over more projects. The state tax credits are currently limited to $50 million per year. The California Tax Credit Allocation Committee (TCAC) administers both the state and federal low income housing tax credit programs. Based on a competitive application process, TCAC allocates the tax credits to housing developers who effectively sell the credits to investors to raise capital for the construction of affordable housing units. Investors typically pay 80 cents for each dollar of tax credit. The program is currently oversubscribed by a ratio of at least three to one. Moreover, TCAC ran out of state credits last year before credits could be awarded to all geographic areas of the state as required by their guidelines. Since their inception, the tax credit programs have helped finance more than 100,000 affordable rental housing units and have leveraged $3 billion in additional private and public funds. This bill increases the cap on state low-income housing tax credits from $50 million per year to $70 million per year for calendar year 2001 and indexes the cap to the federal Consumer Price Index in following years. This bill requires the California Tax Credit Allocation Committee to review and evaluate the geographic apportionment methodology of the low-income housing tax credit program and report to the Legislature by June 30, 2002. Comments SB 73 Page 3 California's population continues to grow at a rapid rate, and housing construction has not kept up with demand. The State Department of Housing and Community Development estimates that California needs to build 220,000 new homes per year through 2020 to meet new demand. In 2000, the best year in a decade, only 149,000 new homes and apartments were built. This year an estimated 154,000 new dwellings will be built. In addition, at least two million renter households in California pay more than the recommended 30 percent of their incomes toward shelter. The author's office believes that there is a clear need for additional resources to support affordable housing development and that the low-income housing tax credit program has been an effective means to leverage additional private investment in affordable rental housing. The author's office also points out that, because the two programs are complementary, the recent increase in the federal tax credits actually exacerbates the shortage in state tax credits. This bill ensures that the state credits will keep pace with increases in the federal credits over time. The demand for state low-income housing tax credits increased from $84 million in 1994 to $212 million in 2000. As a result of the intense competition, only 86 of the 270 developers (32%) who applied for tax credits last year were able to receive an allocation. Almost of all of the applications are made on behalf of proposed projects that are ready to proceed. Increasing funding for the state tax credit program will have an immediate benefit in that more of these development that are already in the pipeline will be able to proceed to construction. FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes Local: No SUPPORT : (Verified 6/25/01) State Treasurer, Phil Angelides (co-source) California Rural Legal Assistance Foundation (co-source) Western Center on Law and Poverty (co-source) AARP SB 73 Page 4 Asian Law Alliance, San Jose Barbara Sanders and Associates BRIDGE Housing Brown, Winfield & Canzoneri, Inc. Burbank Housing Development Corporation, Santa Rosa California Church Impact California Coalition for Rural Housing California Housing Consortium California Labor Federation, AFL-CIO California Network of Neighborhood Programs California Reinvestment Committee California State Association of Electrical Workers California State Pipe Trades Council Capital Vision Equities Chico Housing Improvement Program Children's Advocacy Institute Children Now Citizens Housing City and County of San Francisco City of Los Angeles City of Merced City of Sacramento Civic Center Barrio Housing Corporation, Santa Ana Coachella Valley Housing Coalition, Indio Coalition for Economic Survival, Los Angeles Community Resource Associates, Clayton Congress of California Seniors Council of Community Housing Organizations, San Francisco Devine & Gong, Inc. East Bay Asian Local Development East Bay Asian Local Development Corporation, Oakland Eden Housing, Hayward Enterprise Foundation, Los Angeles Forest City Development Friends Committee on Legislation of California General Assistance Advocacy Project, San Francisco Goldrich & Kest Industries Gray Panthers Great Northern Corporation, Weed Harbor Interfaith Shelter, San Pedro Homeward Bound of Marin Housing Authority of the County of Santa Clara Housing California Housing Council SB 73 Page 5 Inglewood Neighborhood Housing Services JERICHO JRT and Associates, Sausalito La Raza Centro Legal, Inc., San Francisco League of California Cities Los Angeles Community Design Center Los Angeles Housing Law Project Lutheran Office of Public Policy, California Mid-Peninsula Housing Coalition, Redwood City Nancy Lewis Associates, Inc. Napa Valley Community Housing Neighborhood House Association, San Diego Nevada County Housing and Community Development, Nevada City New Urban West, Inc. Northbay Ecumenical Homes Orange County Community Housing Corporation, Santa Ana Orange County Congregation Community Organizations Pacific American Properties, Inc. Pajaro Valley Housing Corporation, Watsonville People's Self-Help Housing Corporation, San Luis Obispo Preservation Properties, Santa Monica Protection and Advocacy, Inc. Related Companies of California Renee Franken Associates, Sacramento Rubicon Programs, Inc., Richmond Rural Communities Housing Development Corporation, Ukiah Sacramento Gray Panthers Sacramento Mutual Housing Association Sacramento Neighborhood Housing Services San Diego Housing Federation Shelter Partnership, Los Angeles Sisters of Saint Joseph's of Carondelet, Los Angeles Southern California Association of Non-Profit Housing St. Peters Housing Committee, San Francisco Suburban Salt Shelter Partnership, Los Angeles Tenderloin Housing Clinic The Agora Group, Goleta The California Apartment Association The Fair Housing Council of San Diego The PAM Companies USA Properties Fund Venice Community Housing SB 73 Page 6 West Hollywood Community Housing Corporation Western States Council of Sheet Metal Workers Westside Fair Housing Council, Los Angeles WNC & Associates, Costa Mesa NC:cm 6/26/01 Senate Floor Analyses SUPPORT/OPPOSITION: SEE ABOVE **** END ****