Amended in Assembly March 2, 2015

California Legislature—2015–16 Regular Session

Assembly BillNo. 35


Introduced bybegin delete Assembly Member Chiuend deletebegin insert Assembly Members Chiu and Atkinsend insert

December 1, 2014


begin deleteAn act to add Sections 17059 and 23610.6 to the Revenue and Taxation Code, relating to taxation, to take effect immediately, tax levy. end deletebegin insertAn act to amend Sections 12206, 17058, and 23610.5 of the Revenue and Taxation Code, relating to taxation, to take effect immediately, tax levy.end insert

LEGISLATIVE COUNSEL’S DIGEST

AB 35, as amended, Chiu. begin deleteTaxation: income taxes: very-low and extremely low-income housing credit. end deletebegin insertIncome taxes: credits: low-income housing: allocation increase.end insert

begin insert

Existing law establishes a low-income housing tax credit program pursuant to which the California Tax Credit Allocation Committee provides procedures and requirements for the allocation of state insurance, income, and corporation tax credit amounts among low-income housing projects based on federal law. Existing law limits the total annual amount of the credit that the committee may allocate to $70 million per year, as specified.

end insert
begin insert

This bill, for calendar years beginning 2015, would increase the aggregate housing credit dollar amount that may be allocated among low-income housing projects by $300,000,000, as specified.

end insert
begin insert

This bill would take effect immediately as a tax levy.

end insert
begin delete

The Personal Income Tax Law and the Corporation Tax Law allow various credits against the taxes imposed by those laws, including a state low-income housing tax credit, administered by the California Tax Credit Allocation Committee, which provides procedures and requirements for the allocation of state tax credit amounts among low-income housing projects based on federal law, which requires a 30 % present value credit for existing buildings, with the credit claimed over a 10-year period, as modified. Existing law generally requires the project’s housing sponsor to have been allocated a credit for federal income tax purposes, as specified.

end delete
begin delete

This bill would allow a very low-income and extremely low-income housing credit against those taxes for each taxable year on or after January 1, 2015, in an amount computed and allowed in accordance with a specified section of the Internal Revenue Code, as provided. The bill would specify that a project is not required to have been previously or currently allocated a credit for federal or state income tax purposes, as specified. The bill would make the aggregate housing credit dollar amount $40,000,000 to be allocated annually by the committee on a first-come-first-served basis subject to certain requirements being met, including that the project will be used exclusively for the restructuring, including the acquisition and substantial rehabilitation, of buildings at least 20 years old that currently serve very low-income, extremely low-income, single room occupancy (SRO) or rural area residents. The bill would authorize the committee and the Franchise Tax Board to adopt regulations to carry out the purposes of this section. The bill would make findings and declarations in this regard.

end delete
begin delete

This bill would take effect immediately as a tax levy.

end delete

Vote: majority. Appropriation: no. Fiscal committee: yes. State-mandated local program: no.

The people of the State of California do enact as follows:

P2    1begin insert

begin insertSECTION 1.end insert  

end insert

begin insertSection 12206 of the end insertbegin insertRevenue and Taxation Codeend insert
2begin insert is amended to read:end insert

3

12206.  

(a) (1) There shall be allowed as a credit against the
4begin delete “tax” (asend deletebegin insert “tax,” asend insert described by Sectionbegin delete 12201)end deletebegin insert 12201,end insert a state
5low-income housing tax credit in an amount equal to the amount
6determined in subdivision (c), computed in accordance with Section
742 of the Internal Revenue Code,begin insert relating to low-income housing
8credit,end insert
except as otherwise provided in this section.

9(2) “Taxpayer,” for purposes of this section, means the sole
10owner in the case of a “C” corporation, the partners in the case of
P3    1a partnership, and the shareholders in the case of an “S”
2corporation.

3(3) “Housing sponsor,” for purposes of this section, means the
4sole owner in the case of a “C” corporation, the partnership in the
5case of a partnership, and the “S” corporation in the case of an “S”
6corporation.

7(b) (1) The amount of the credit allocated to any housing
8sponsor shall be authorized by the California Tax Credit Allocation
9Committee, or any successor thereof, based on a project’s need
10for the credit for economic feasibility in accordance with the
11requirements of this section.

12(A) Except for projects to provide farmworker housing, as
13defined in subdivision (h) of Section 50199.7 of the Health and
14Safety Code, that are allocated credits solely under the set-aside
15described in subdivision (c) of Section 50199.20 of the Health and
16Safety Code, the low-income housing project shall be located in
17California and shall meet either of the following requirements:

18(i) The project’s housing sponsorbegin delete shall haveend deletebegin insert hasend insert been allocated
19by the California Tax Credit Allocation Committee a credit for
20federal income tax purposes under Section 42 of the Internal
21Revenue Codebegin insert, relating to low-income housing creditend insert.

22(ii) Itbegin delete shall qualifyend deletebegin insert qualifiesend insert for a credit under Section
2342(h)(4)(B) of the Internal Revenue Codebegin insert, relating to special rule
24where 50 percent or more of building is financed with tax-exempt
25bonds subject to volume capend insert
.

26(B) The California Tax Credit Allocation Committee shall not
27require fees for the credit under this section in addition to those
28fees required for applications for the tax credit pursuant to Section
2942 of the Internal Revenue Codebegin insert, relating to low-income housing
30creditend insert
. The committee may require a fee if the application for the
31credit under this section is submitted in a calendar year after the
32year the application is submitted for the federal tax credit.

33(C) (i) For a project that receives a preliminary reservation of
34the state low-income housing tax credit, allowed pursuant to
35subdivision (a), on or after January 1, 2009, and before January 1,
362016, the credit shall be allocated to the partners of a partnership
37owning the project in accordance with the partnership agreement,
38regardless of how the federal low-income housing tax credit with
39respect to the project is allocated to the partners, or whether the
40allocation of the credit under the terms of the agreement has
P4    1substantial economic effect, within the meaning of Section 704(b)
2of the Internal Revenue Codebegin insert, relating to determination of
3distributive shareend insert
.

4(ii) This subparagraph shall not apply to a project that receives
5a preliminary reservation of state low-income housing tax credits
6under the set-aside described in subdivision (c) of Section 50199.20
7of the Health and Safety Code unless the project also receives a
8preliminary reservation of federal low-income housing tax credits.

9(iii) This subparagraph shall cease to be operative with respect
10to any project that receives a preliminary reservation of a credit
11on or after January 1, 2016.

12(2) (A) The California Tax Credit Allocation Committee shall
13certify to the housing sponsor the amount of tax credit under this
14section allocated to the housing sponsor for each credit period.

15(B) In the case of a partnership or an “S” corporation, the
16housing sponsor shall provide a copy of the California Tax Credit
17Allocation Committee certification to the taxpayer.

18(C) The taxpayer shall attach a copy of the certification to any
19return upon which a tax credit is claimed under this section.

20(D) In the case of a failure to attach a copy of the certification
21for the year to the return in which a tax credit is claimed under this
22section, no credit under this section shall be allowed for that year
23until a copy of that certification is provided.

24(E) All elections made by the taxpayer pursuant to Section 42
25of the Internal Revenue Codebegin insert, relating to low-income housing
26credit,end insert
shall apply to this section.

27(F) (i) Except as described in clause (ii), for buildings located
28in designated difficult development areas (DDAs) or qualified
29census tracts (QCTs), as defined in Section 42(d)(5)(B) of the
30Internal Revenue Code,begin insert relating to increase in credit for buildings
31in high-cost areas,end insert
credits may be allocated under this section in
32the amounts prescribed in subdivision (c), provided that the amount
33of credit allocated under Section 42 of the Internal Revenue Codebegin insert,
34relating to low-income housing credit,end insert
is computed on 100 percent
35of the qualified basis of the building.

36(ii) Notwithstanding clause (i), the California Tax Credit
37Allocation Committee may allocate the credit for buildings located
38in DDAs or QCTs that are restricted to having 50 percent of its
39occupants be special needs households, as defined in the California
40Code of Regulations by the California Tax Credit Allocation
P5    1Committee, even if the taxpayer receives federal credits pursuant
2to Section 42(d)(5)(B) of the Internal Revenue Code,begin insert relating to
3increase in credit for buildings in high-cost areas,end insert
provided that
4the credit allowed under this section shall not exceed 30 percent
5of the eligible basis of the building.

6(G) (i) The California Tax Credit Allocation Committee may
7allocate a credit under this section in exchange for a credit allocated
8pursuant to Section 42(d)(5)(B) of the Internal Revenue Codebegin insert,
9relating to increase in credit for buildings in high-cost areas,end insert
in
10amounts up to 30 percent of the eligible basis of a building if the
11credits allowed under Section 42 of the Internal Revenue Codebegin insert,
12relating to low-income nursing credit,end insert
are reduced by an equivalent
13amount.

14(ii) An equivalent amount shall be determined by the California
15Tax Credit Allocation Committee based upon the relative amount
16required to produce an equivalent state tax credit to the taxpayer.

17(c) Section 42(b) of the Internal Revenue Codebegin insert, relating to
18applicable percentage,end insert
shall be modified as follows:

19(1) In the case of any qualified low-income building that receives
20an allocation after 1989 and is a new building not federally
21subsidized, the term “applicable percentage” means the following:

22(A) For each of the first three years, the percentage prescribed
23by the Secretary of the Treasury for new buildings that are not
24federally subsidized for the taxable year, determined in accordance
25with the requirements of Section 42(b)(2) of the Internal Revenue
26Code,begin insert relating to temporary minimum credit rate for nonend insertbegin insertfederally
27subsidized new buildings,end insert
in lieu of the percentage prescribed in
28Section 42(b)(1)(A) of the Internal Revenue Code.

29(B) For the fourth year, the difference between 30 percent and
30the sum of the applicable percentages for the first three years.

31(2) In the case of any qualified low-income building that receives
32an allocation after 1989 and that is a new building that is federally
33subsidized or that is an existing building that is “at risk of
34conversion,” the term “applicable percentage” means the following:

35(A) For each of the first three years, the percentage prescribed
36by the Secretary of the Treasury for new buildings that are federally
37subsidized for the taxable year.

38(B) For the fourth year, the difference between 13 percent and
39the sum of the applicable percentages for the first three years.

P6    1(3) For purposes of this section, the term “at risk of conversion,”
2with respect to an existing property means a property that satisfies
3all of the following criteria:

4(A) The property is a multifamily rental housing development
5in which at least 50 percent of the units receive governmental
6assistance pursuant to any of the following:

7(i) New construction, substantial rehabilitation, moderate
8rehabilitation, property disposition, and loan management set-aside
9programs, or any other program providing project-based assistance
10pursuant to Section 8 of the United States Housing Act of 1937,
11Section 1437f of Title 42 of the United States Code, as amended.

12(ii) The Below-Market-Interest-Rate Program pursuant to
13Section 221(d)(3) of the National Housing Act, Sections
141715l(d)(3) and (5) of Title 12 of the United States Code.

15(iii) Section 236 of the National Housing Act, Section 1715z-1
16of Title 12 of the United States Code.

17(iv) Programs for rent supplement assistance pursuant to Section
18101 of the Housing and Urban Development Act of 1965, Section
191701s of Title 12 of the United States Code, as amended.

20(v) Programs pursuant to Section 515 of the Housing Act of
211949, Section 1485 of Title 42 of the United States Code, as
22amended.

23(vi) The low-income housing credit program set forth in Section
2442 of the Internal Revenue Codebegin insert, relating to low-income housing
25creditend insert
.

26(B) The restrictions on rent and income levels will terminate or
27the federal insured mortgage on the property is eligible for
28prepayment any time within five years before or after the date of
29application to the California Tax Credit Allocation Committee.

30(C) The entity acquiring the property enters into a regulatory
31agreement that requires the property to be operated in accordance
32with the requirements of this section for a period equal to the
33greater of 55 years or the life of the property.

34(D) The property satisfies the requirements of Section 42(e) of
35the Internal Revenue Codebegin insert, relating to rehabilitation expenditures
36treated as separate new building,end insert
regarding rehabilitation
37expenditures, except that the provisions of Section
3842(e)(3)(A)(ii)(I) shall not apply.

39(d) The term “qualified low-income housing project” as defined
40in Section 42(c)(2) of the Internal Revenue Codebegin insert, relating to
P7    1qualified low-income building,end insert
is modified by adding the following
2requirements:

3(1) The taxpayer shall be entitled to receive a cash distribution
4from the operations of the project, after funding required reserves,
5begin delete which,end deletebegin insert that,end insert at the election of the taxpayer, is equal to:

6(A) An amount not to exceed 8 percent of the lesser of:

7(i) The owner equitybegin delete whichend deletebegin insert thatend insert shall include the amount of the
8capital contributions actually paid to the housing sponsor and shall
9not include any amounts until they are paid on an investor note.

10(ii) Twenty percent of the adjusted basis of the building as of
11the close of the first taxable year of the credit period.

12(B) The amount of the cashflow from those units in the building
13that are not low-income units. For purposes of computing cashflow
14under this subparagraph, operating costs shall be allocated to the
15low-income units using the “floor space fraction,” as defined in
16Section 42 of the Internal Revenue Codebegin insert, relating to low-income
17housing creditend insert
.

18(C) Any amount allowed to be distributed under subparagraph
19(A) that is not available for distribution during the first five years
20of the compliance period may accumulate and be distributed any
21time during the first 15 years of the compliance period but not
22thereafter.

23(2) The limitation on return shall apply in the aggregate to the
24partners if the housing sponsor is a partnership and in the aggregate
25to the shareholders if the housing sponsor is an “S” corporation.

26(3) The housing sponsor shall apply any cash available for
27distribution in excess of the amount eligible to be distributed under
28paragraph (1) to reduce the rent on rent-restricted units or to
29increase the number of rent-restricted units subject to the tests of
30Section 42(g)(1) of the Internal Revenue Codebegin insert, relating to in
31generalend insert
.

32(e) The provisions of Section 42(f) of the Internal Revenue
33Codebegin insert, relating to definition and special rules relating to credit
34period,end insert
shall be modified as follows:

35(1) The term “credit period” as defined in Section 42(f)(1) of
36the Internal Revenue Codebegin insert, relating to credit period defined,end insert is
37modified by substituting “four taxable years” for “10 taxable
38years.”

39(2) The special rule for the first taxable year of the credit period
40under Section 42(f)(2) of the Internal Revenue Codebegin insert, relating to
P8    1special rule for first year of credit period,end insert
shall not apply to the
2tax credit under this section.

3(3) Section 42(f)(3) of the Internal Revenue Codebegin insert, relating to
4determination of applicable percentage with respect to increases
5in qualified basis after first year of credit period,end insert
is modified to
6read:

7If, as of the close of any taxable year in the compliance period,
8after the first year of the credit period, the qualified basis of any
9building exceeds the qualified basis of that building as of the close
10of the first year of the credit period, the housing sponsor, to the
11extent of its tax credit allocation, shall be eligible for a credit on
12the excess in an amount equal to the applicable percentage
13determined pursuant to subdivision (c) for the four-year period
14beginning with the later of the taxable years in which the increase
15in qualified basis occurs.

16(f) The provisions of Section 42(h) of the Internal Revenue
17Codebegin insert, relating to limitation on aggregate credit allowable with
18respect to projects located in a state,end insert
shall be modified as follows:

19(1) Section 42(h)(2) of the Internal Revenue Codebegin insert, relating to
20allocated credit amount to apply to all taxable years ending during
21or after credit allocation year,end insert
shall not be applicable and instead
22the following provisions shall be applicable:

23The total amount for the four-year credit period of the housing
24credit dollars allocated in a calendar year to any building shall
25reduce the aggregate housing credit dollar amount of the California
26Tax Credit Allocation Committee for the calendar year in which
27the allocation is made.

28(2) Paragraphs (3), (4), (5), (6)(E)(i)(II), (6)(F), (6)(G), (6)(I),
29(7), and (8) of Section 42(h) of the Internal Revenue Codebegin insert, relating
30to limitation on aggregate credit allowable with respect to projects
31located in a state,end insert
shall not be applicable.

32(g) The aggregate housing credit dollar amount that may be
33allocated annually by the California Tax Credit Allocation
34Committee pursuant to this section, Section 17058, and Section
3523610.5 shall be an amount equal to the sum of all the following:

36(1) begin insert(A)end insertbegin insertend insertSeventy million dollars ($70,000,000) for the 2001
37calendar year, and, for begin delete the 2002 calendar year and each calendar
38year thereafter,end delete
begin insert calendar years 2002 to 2014, inclusive,end insert seventy
39million dollars ($70,000,000) increased by the percentage, if any,
40by which the Consumer Price Index for the preceding calendar
P9    1year exceeds the Consumer Price Index for the 2001 calendar year.
2For the purposes of this paragraph, the term “Consumer Price
3Index” means the last Consumer Price Index for All Urban
4Consumers published by the federal Department of Labor.

begin insert

5(B) Three hundred seventy million dollars ($370,000,000) for
6the 2015 calendar year, and, for the 2016 calendar year and each
7calendar year thereafter, three hundred seventy million dollars
8($370,000,000) increased by the percentage, if any, by which the
9Consumer Price Index for the preceding calendar year exceeds
10the Consumer Price Index for the 2015 calendar year. For the
11purposes of this paragraph, the term “Consumer Price Index”
12means the last Consumer Price Index for All Urban Consumers
13published by the federal Department of Labor.

end insert

14(2) The unused housing credit ceiling, if any, for the preceding
15calendar years.

16(3) The amount of housing credit ceiling returned in the calendar
17year. For purposes of this paragraph, the amount of housing credit
18dollar amount returned in the calendar year equals the housing
19credit dollar amount previously allocated to any project that does
20not become a qualified low-income housing project within the
21period required by this section or to any project with respect to
22which an allocation is canceled by mutual consent of the California
23Tax Credit Allocation Committee and the allocation recipient.

24(4) Five hundred thousand dollars ($500,000) per calendar year
25for projects to provide farmworker housing, as defined in
26subdivision (h) of Section 50199.7 of the Health and Safety Code.

27(5) The amount of any unallocated or returned credits under
28former Sections 17053.14, 23608.2, and 23608.3, as those sections
29read prior to January 1, 2009, until fully exhausted for projects to
30provide farmworker housing, as defined in subdivision (h) of
31Section 50199.7 of the Health and Safety Code.

32(h) The term “compliance period” as defined in Section 42(i)(1)
33of the Internal Revenue Codebegin insert, relating to compliance period,end insert is
34modified to mean, with respect to any building, the period of 30
35consecutive taxable years beginning with the first taxable year of
36the credit period with respect thereto.

37(i) (1) Section 42(j) of the Internal Revenue Codebegin insert, relating to
38recapture of credit,end insert
shall not be applicable and the provisions in
39paragraph (2) shall be substituted in its place.

P10   1(2) The requirements of this section shall be set forth in a
2regulatory agreement between the California Tax Credit Allocation
3Committee and the housing sponsor,begin delete whichend deletebegin insert and thisend insert agreement
4shall be subordinated, when required, to any lien or encumbrance
5of any banks or other institutional lenders to the project. The
6regulatory agreement entered into pursuant to subdivision (f) of
7Section 50199.14 of the Health and Safety Code, shall apply,
8providing the agreement includes all of the following provisions:

9(A) A term not less than the compliance period.

10(B) A requirement that the agreement be recorded in the official
11records of the county in which the qualified low-income housing
12project is located.

13(C) A provision stating which state and local agencies can
14enforce the regulatory agreement in the event the housing sponsor
15fails to satisfy any of the requirements of this section.

16(D) A provision that the regulatory agreement shall be deemed
17a contract enforceable by tenants as third-party beneficiaries thereto
18andbegin delete whichend deletebegin insert thatend insert allows individuals, whether prospective, present,
19or former occupants of the building, who meet the income
20limitation applicable to the building, the right to enforce the
21regulatory agreement in any state court.

22(E) A provision incorporating the requirements of Section 42
23of the Internal Revenue Codebegin insert, relating to low-income housing
24credit,end insert
as modified by this section.

25(F) A requirement that the housing sponsor notify the California
26Tax Credit Allocation Committee or its designee and the local
27agency that can enforce the regulatory agreement if there is a
28determination by the Internal Revenue Service that the project is
29not in compliance with Section 42(g) of the Internal Revenue Codebegin insert,
30 relating to qualified low-income housing projectend insert
.

31(G) A requirement that the housing sponsor, as security for the
32performance of the housing sponsor’s obligations under the
33regulatory agreement, assign the housing sponsor’s interest in rents
34that it receives from the project, provided that until there is a
35default under the regulatory agreement, the housing sponsor is
36entitled to collect and retain the rents.

37(H) The remedies available in the event of a default under the
38regulatory agreement that is not cured within a reasonable cure
39period, include, but are not limited to, allowing any of the parties
40designated to enforce the regulatory agreement to collect all rents
P11   1with respect to the project; taking possession of the project and
2operating the project in accordance with the regulatory agreement
3until the enforcer determines the housing sponsor is in a position
4to operate the project in accordance with the regulatory agreement;
5applying to any court for specific performance; securing the
6appointment of a receiver to operate the project; or any other relief
7as may be appropriate.

8(j) (1) The committee shall allocate the housing credit on a
9regular basis consisting of two or more periods in each calendar
10year during which applications may be filed and considered. The
11committee shall establish application filing deadlines, the maximum
12percentage of federal and state low-income housing tax credit
13ceiling that may be allocated by the committee in that period, and
14the approximate date on which allocations shall be made. If the
15enactment of federal or state law, the adoption of rules or
16regulations, or other similar events prevent the use of two allocation
17periods, the committee may reduce the number of periods and
18adjust the filing deadlines, maximum percentage of credit allocated,
19and the allocation dates.

20(2) The committee shall adopt a qualified allocation plan, as
21provided in Section 42(m)(1) of the Internal Revenue Codebegin insert,
22relating to plans for allocation of credit among projectsend insert
. In
23adopting this plan, the committee shall comply with the provisions
24of Sections 42(m)(1)(B) and 42(m)(1)(C) of the Internal Revenue
25Codebegin insert, relating to qualified allocation plan and relating to certain
26 selection criteria must be used, respectivelyend insert
.

27(3) Notwithstanding Section 42(m) of the Internal Revenue
28Code,begin insert relating to responsibilities of housing credit agencies,end insert the
29California Tax Credit Allocation Committee shall allocate housing
30credits in accordance with the qualified allocation plan and
31regulations, which shall include the following provisions:

32(A) All housing sponsors, as defined by paragraph (3) of
33subdivision (a), shall demonstrate at the time the application is
34filed with the committee that the project meets the following
35threshold requirements:

36(i) The housing sponsor shall demonstrate there is a need and
37demand for low-income housing in the community or region for
38which it is proposed.

39(ii) The project’s proposed financing, including tax credit
40proceeds, shall be sufficient to complete the project and that the
P12   1proposed operating income shall be adequate to operate the project
2for the extended use period.

3(iii) The project shall have enforceable financing commitments,
4either construction or permanent financing, for at least 50 percent
5of the total estimated financing of the project.

6(iv) The housing sponsor shall have and maintain control of the
7site for the project.

8(v) The housing sponsor shall demonstrate that the project
9complies with all applicable local land use and zoning ordinances.

10(vi) The housing sponsor shall demonstrate that the project
11development team has the experience and the financial capacity
12to ensure project completion and operation for the extended use
13period.

14(vii) The housing sponsor shall demonstrate the amount of tax
15credit that is necessary for the financial feasibility of the project
16and its viability as a qualified low-income housing project
17throughout the extended use period, taking into account operating
18expenses, a supportable debt service, reserves, funds set aside for
19rental subsidies, and required equity, and a development fee that
20does not exceed a specified percentage of the eligible basis of the
21project prior to inclusion of the development fee in the eligible
22basis, as determined by the committee.

23(B) The committee shall give a preference to those projects
24satisfying all of the threshold requirements of subparagraph (A)
25if both of the following apply:

26(i) The project serves the lowest income tenants at rents
27affordable to those tenants.

28(ii) The project is obligated to serve qualified tenants for the
29longest period.

30(C) In addition to the provisions of subparagraphs (A) and (B),
31the committee shall use the following criteria in allocating housing
32credits:

33(i) Projects serving large families in which a substantial number,
34as defined by the committee, of all residential units is comprised
35of low-income units with three and more bedrooms.

36(ii) Projects providing single-room occupancy units serving
37very low income tenants.

38(iii) Existing projects that are “at risk of conversion,” as defined
39by paragraph (3) of subdivision (c).

P13   1(iv) Projects for which a public agency provides direct or indirect
2long-term financial support for at least 15 percent of the total
3project development costs or projects for which the owner’s equity
4constitutes at least 30 percent of the total project development
5costs.

6(v) Projects that provide tenant amenities not generally available
7to residents of low-income housing projects.

8(4) For purposes of allocating credits pursuant to this section,
9the committee shall not give preference to any project by virtue
10of the date of submission of its application except to break a tie
11when two or more of the projects have an equal rating.

12(k) Section 42(l) of the Internal Revenue Codebegin insert, relating to
13certifications and other reports to secretary,end insert
shall be modified as
14follows:

15The term “secretary” shall be replaced by the term “California
16Franchise Tax Board.”

17(l) In the case where thebegin delete stateend delete credit allowed under this section
18exceeds the “tax,” the excess may be carried over to reduce the
19“tax” in the following year, and succeeding years if necessary,
20until the credit has been exhausted.

21(m) The provisions of Section 11407(a) of Public Law 101-508,
22relating to the effective date of the extension of the low-income
23housing credit, shall apply to calendar years after 1993.

24(n) The provisions of Section 11407(c) of Public Law 101-508,
25relating to election to accelerate credit, shall not apply.

26(o) This section shall remain in effect for as long as Section 42
27of the Internal Revenue Code, relating to low-income housing
28begin delete credits,end deletebegin insert credit,end insert remains in effect.

29begin insert

begin insertSEC. 2.end insert  

end insert

begin insertSection 17058 of the end insertbegin insertRevenue and Taxation Codeend insertbegin insert is
30amended to read:end insert

31

17058.  

(a) (1) There shall be allowed as a credit against the
32“netbegin delete tax” (asend deletebegin insert tax,” asend insert defined in Sectionbegin delete 17039)end deletebegin insert 17039,end insert a state
33low-income housingbegin insert taxend insert credit in an amount equal to the amount
34determined in subdivision (c), computed in accordance withbegin delete the
35provisions ofend delete
Section 42 of the Internal Revenue Code,begin insert relating
36to low-income housing credit,end insert
except as otherwise provided in this
37section.

38(2) “Taxpayer” for purposes of this section means the sole owner
39in the case of an individual, the partners in the case of a partnership,
40and the shareholders in the case of an “S” corporation.

P14   1(3) “Housing sponsor” for purposes of this section means the
2sole owner in the case of an individual, the partnership in the case
3of a partnership, and the “S” corporation in the case of an “S”
4corporation.

5(b) (1) The amount of the credit allocated to any housing
6sponsor shall be authorized by the California Tax Credit Allocation
7Committee, or any successor thereof, based on a project’s need
8for the credit for economic feasibility in accordance with the
9requirements of this section.

10(A) The low-income housing project shall be located in
11California and shall meet either of the following requirements:

12(i) Except for projects to provide farmworker housing, as defined
13in subdivision (h) of Section 50199.7 of the Health and Safety
14Code, that are allocated credits solely under the set-aside described
15in subdivision (c) of Section 50199.20 of the Health and Safety
16Code, the project’s housing sponsor has been allocated by the
17California Tax Credit Allocation Committee a credit for federal
18income tax purposes under Section 42 of the Internal Revenue
19Codebegin insert, relating to low-income housing creditend insert.

20(ii) It qualifies for a credit under Section 42(h)(4)(B) of the
21Internal Revenue Codebegin insert, relating to special rule where 50 percent
22or more of building is financed with tax-exempt bonds subject to
23volume capend insert
.

24(B) The California Tax Credit Allocation Committee shall not
25require fees for the credit under this section in addition to those
26fees required for applications for the tax credit pursuant to Section
2742 of the Internal Revenue Codebegin insert, relating to low-income housing
28creditend insert
. The committee may require a fee if the application for the
29credit under this section is submitted in a calendar year after the
30year the application is submitted for the federal tax credit.

31(C) (i) For a project that receives a preliminary reservation of
32the state low-income housing tax credit, allowed pursuant to
33subdivision (a), on or after January 1, 2009, and before January 1,
342016, the credit shall be allocated to the partners of a partnership
35owning the project in accordance with the partnership agreement,
36regardless of how the federal low-income housing tax credit with
37respect to the project is allocated to the partners, or whether the
38allocation of the credit under the terms of the agreement has
39substantial economic effect, within the meaning of Section 704(b)
P15   1of the Internal Revenue Codebegin insert, relating to determination of
2distributive shareend insert
.

3(ii) To the extent the allocation of the credit to a partner under
4this section lacks substantial economic effect, any loss or deduction
5otherwise allowable under this part that is attributable to the sale
6or other disposition of that partner’s partnership interest made prior
7to the expiration of the federal credit shall not be allowed in the
8taxable year in which the sale or other disposition occurs, but shall
9instead be deferred until and treated as if it occurred in the first
10taxable year immediately following the taxable year in which the
11federal credit period expires for the project described in clause (i).

12(iii) This subparagraph shall not apply to a project that receives
13a preliminary reservation of state low-income housing tax credits
14under the set-aside described in subdivision (c) of Section 50199.20
15of the Health and Safety Code unless the project also receives a
16preliminary reservation of federal low-income housing tax credits.

17(iv) This subparagraph shall cease to be operative with respect
18to any project that receives a preliminary reservation of a credit
19on or after January 1, 2016.

20(2) (A) The California Tax Credit Allocation Committee shall
21certify to the housing sponsor the amount of tax credit under this
22section allocated to the housing sponsor for each credit period.

23(B) In the case of a partnership or an “S” corporation, the
24housing sponsor shall provide a copy of the California Tax Credit
25Allocation Committee certification to the taxpayer.

26(C) The taxpayer shall, upon request, provide a copy of the
27certification to the Franchise Tax Board.

28(D) All elections made by the taxpayer pursuant to Section 42
29of the Internal Revenue Codebegin insert, relating to low-income housing
30credit,end insert
shall apply to this section.

31(E) (i) Except as described in clause (ii), for buildings located
32in designated difficult development areas (DDAs) or qualified
33census tracts (QCTs), as defined in Section 42(d)(5)(B) of the
34Internal Revenue Code,begin insert relating to increase in credit for buildings
35in high-cost areas,end insert
credits may be allocated under this section in
36the amounts prescribed in subdivision (c), provided that the amount
37of credit allocated under Section 42 of the Internal Revenue Codebegin insert,
38relating to low-income housing credit,end insert
is computed on 100 percent
39of the qualified basis of the building.

P16   1(ii) Notwithstanding clause (i), the California Tax Credit
2Allocation Committee may allocate the credit for buildings located
3in DDAs or QCTs that are restricted to having 50 percent of its
4occupants be special needs households, as defined in the California
5Code of Regulations by the California Tax Credit Allocation
6Committee, even if the taxpayer receives federal credits pursuant
7to Section 42(d)(5)(B) of the Internal Revenue Code,begin insert relating to
8increase in credit for buildings in high-cost areas,end insert
provided that
9the credit allowed under this section shall not exceed 30 percent
10of the eligible basis of the building.

11(G) (i) The California Tax Credit Allocation Committee may
12allocate a credit under this section in exchange for a credit allocated
13pursuant to Section 42(d)(5)(B) of the Internal Revenue Codebegin insert,
14relating to increase in credit for buildings in high-cost areas,end insert
in
15amounts up to 30 percent of the eligible basis of a building if the
16credits allowed under Section 42 of the Internal Revenue Codebegin insert,
17relating to low-income nursing credit,end insert
are reduced by an equivalent
18amount.

19(ii) An equivalent amount shall be determined by the California
20Tax Credit Allocation Committee based upon the relative amount
21required to produce an equivalent state tax credit to the taxpayer.

22(c) Section 42(b) of the Internal Revenue Codebegin insert, relating to
23applicable percentage,end insert
shall be modified as follows:

24(1) In the case of any qualified low-income building placed in
25service by the housing sponsor during 1987, the term “applicable
26percentage” means 9 percent for each of the first three years and
273 percent for the fourth year for new buildings (whether or not the
28building is federally subsidized) and for existing buildings.

29(2) In the case of any qualified low-income building that receives
30an allocation after 1989 and is a new building not federally
31 subsidized, the term “applicable percentage” means the following:

32(A) For each of the first three years, the percentage prescribed
33by the Secretary of the Treasury for new buildings that are not
34federally subsidized for the taxable year, determined in accordance
35with the requirements of Section 42(b)(2) of the Internal Revenue
36Code,begin insert relating to temporary minimum credit rate for nonend insertbegin insertfederally
37subsidized new buildings,end insert
in lieu of the percentage prescribed in
38Section 42(b)(1)(A) of the Internal Revenue Code.

39(B) For the fourth year, the difference between 30 percent and
40the sum of the applicable percentages for the first three years.

P17   1(3) In the case of any qualified low-income building that receives
2an allocation after 1989 and that is a new building that is federally
3subsidized or that is an existing building that is “at risk of
4conversion,” the term “applicable percentage” means the following:

5(A) For each of the first three years, the percentage prescribed
6by the Secretary of the Treasury for new buildings that are federally
7subsidized for the taxable year.

8(B) For the fourth year, the difference between 13 percent and
9the sum of the applicable percentages for the first three years.

10(4) For purposes of this section, the term “at risk of conversion,”
11with respect to an existing property means a property that satisfies
12all of the following criteria:

13(A) The property is a multifamily rental housing development
14in which at least 50 percent of the units receive governmental
15assistance pursuant to any of the following:

16(i) New construction, substantial rehabilitation, moderate
17rehabilitation, property disposition, and loan management set-aside
18programs, or any other program providing project-based assistance
19pursuant to Section 8 of the United States Housing Act of 1937,
20Section 1437f of Title 42 of the United States Code, as amended.

21(ii) The Below-Market-Interest-Rate Program pursuant to
22Section 221(d)(3) of the National Housing Act, Sections
231715l(d)(3) and (5) of Title 12 of the United States Code.

24(iii) Section 236 of the National Housing Act, Section 1715z-1
25of Title 12 of the United States Code.

26(iv) Programs for rent supplement assistance pursuant to Section
27101 of the Housing and Urban Development Act of 1965, Section
281701s of Title 12 of the United States Code, as amended.

29(v) Programs pursuant to Section 515 of the Housing Act of
301949, Section 1485 of Title 42 of the United States Code, as
31amended.

32(vi) The low-income housing credit program set forth in Section
3342 of the Internal Revenue Codebegin insert, relating to low-income housing
34creditend insert
.

35(B) The restrictions on rent and income levels will terminate or
36thebegin delete federalend deletebegin insert federallyend insert insured mortgage on the property is eligible
37for prepayment any time within five years before or after the date
38of application to the California Tax Credit Allocation Committee.

39(C) The entity acquiring the property enters into a regulatory
40agreement that requires the property to be operated in accordance
P18   1with the requirements of this section for a period equal to the
2greater of 55 years or the life of the property.

3(D) The property satisfies the requirements of Section 42(e) of
4the Internal Revenue Codebegin insert, relating to rehabilitation expenditures
5treated as separate new building,end insert
regarding rehabilitation
6expenditures, except that the provisions of Section
742(e)(3)(A)(ii)(I) shall not apply.

8(d) The term “qualified low-income housing project” as defined
9in Section 42(c)(2) of the Internal Revenue Codebegin insert, relating to
10qualified low-income building,end insert
is modified by adding the following
11requirements:

12(1) The taxpayer shall be entitled to receive a cash distribution
13from the operations of the project, after funding required reserves,
14that, at the election of the taxpayer, is equal to:

15(A) An amount not to exceed 8 percent of the lesser of:

16(i) The owner equity that shall include the amount of the capital
17contributions actually paid to the housing sponsor and shall not
18include any amounts until they are paid on an investor note.

19(ii) Twenty percent of the adjusted basis of the building as of
20the close of the first taxable year of the credit period.

21(B) The amount of the cashflow from those units in the building
22that are not low-income units. For purposes of computing cashflow
23under this subparagraph, operating costs shall be allocated to the
24low-income units using the “floor space fraction,” as defined in
25Section 42 of the Internal Revenue Codebegin insert, relating to low-income
26housing creditend insert
.

27(C) Any amount allowed to be distributed under subparagraph
28(A) that is not available for distribution during the first five years
29of the compliance period may be accumulated and distributed any
30time during the first 15 years of the compliance period but not
31 thereafter.

32(2) The limitation on return shall apply in the aggregate to the
33partners if the housing sponsor is a partnership and in the aggregate
34to the shareholders if the housing sponsor is an “S” corporation.

35(3) The housing sponsor shall apply any cash available for
36distribution in excess of the amount eligible to be distributed under
37paragraph (1) to reduce the rent on rent-restricted units or to
38increase the number of rent-restricted units subject to the tests of
39Section 42(g)(1) of the Internal Revenue Codebegin insert, relating to in
40generalend insert
.

P19   1(e) The provisions of Section 42(f) of the Internal Revenue
2Codebegin insert, relating to definition and special rules relating to credit
3period,end insert
shall be modified as follows:

4(1) The term “credit period” as defined in Section 42(f)(1) of
5the Internal Revenue Codebegin insert, relating to credit period defined,end insert is
6modified by substituting “four taxable years” for “10 taxable
7years.”

8(2) The special rule for the first taxable year of the credit period
9under Section 42(f)(2) of the Internal Revenue Codebegin insert, relating to
10special rule for first year of credit period,end insert
shall not apply to the
11tax credit under this section.

12(3) Section 42(f)(3) of the Internal Revenue Codebegin insert, relating to
13determination of applicable percentage with respect to increases
14in qualified basis after first year of credit period,end insert
is modified to
15read:

16If, as of the close of any taxable year in the compliance period,
17after the first year of the credit period, the qualified basis of any
18building exceeds the qualified basis of that building as of the close
19of the first year of the credit period, the housing sponsor, to the
20extent of its tax credit allocation, shall be eligible for a credit on
21the excess in an amount equal to the applicable percentage
22determined pursuant to subdivision (c) for the four-year period
23beginning with the taxable year in which the increase in qualified
24basis occurs.

25(f) The provisions of Section 42(h) of the Internal Revenue
26Codebegin insert, relating to limitation on aggregate credit allowable with
27respect to projects located in a state,end insert
shall be modified as follows:

28(1) Section 42(h)(2) of the Internal Revenue Codebegin insert, relating to
29allocated credit amount to apply to all taxable years ending during
30or after credit allocation year,end insert
shall not be applicable and instead
31the following provisions shall be applicable:

32The total amount for the four-yearbegin insert creditend insert period of the housing
33credit dollars allocated in a calendar year to any building shall
34reduce the aggregate housing credit dollar amount of the California
35Tax Credit Allocation Committee for the calendar year in which
36the allocation is made.

37(2) Paragraphs (3), (4), (5), (6)(E)(i)(II), (6)(F), (6)(G), (6)(I),
38(7), and (8) of Section 42(h) of the Internal Revenue Codebegin insert, relating
39to limitation on aggregate credit allowable with respect to projects
40located in a state,end insert
shall not bebegin delete applicable to this section.end deletebegin insert applicable.end insert

P20   1(g) The aggregate housing credit dollar amount that may be
2allocated annually by the California Tax Credit Allocation
3Committee pursuant to this section, Section 12206, and Section
423610.5 shall be an amount equal to the sum of all the following:

5(1) begin insert(A)end insertbegin insertend insertSeventy million dollars ($70,000,000) for the 2001
6calendar year, and, forbegin delete the 2002 calendar year and each calendar
7year thereafter,end delete
begin insert calendar years 2002 to 2014, inclusive,end insert seventy
8million dollars ($70,000,000) increased by the percentage, if any,
9by which the Consumer Price Index for the preceding calendar
10year exceeds the Consumer Price Index for the 2001 calendar year.
11For the purposes of this paragraph, the term “Consumer Price
12Index” means the last Consumer Price Index for All Urban
13Consumers published by the federal Department of Labor.

begin insert

14(B) Three hundred seventy million dollars ($370,000,000) for
15the 2015 calendar year, and, for the 2016 calendar year and each
16calendar year thereafter, three hundred seventy million dollars
17($370,000,000) increased by the percentage, if any, by which the
18Consumer Price Index for the preceding calendar year exceeds
19the Consumer Price Index for the 2015 calendar year. For the
20purposes of this paragraph, the term “Consumer Price Index”
21means the last Consumer Price Index for All Urban Consumers
22published by the federal Department of Labor.

end insert

23(2) The unused housing credit ceiling, if any, for the preceding
24calendar years.

25(3) The amount of housing credit ceiling returned in the calendar
26year. For purposes of this paragraph, the amount of housing credit
27dollar amount returned in the calendar year equals the housing
28credit dollar amount previously allocated to any project that does
29not become a qualified low-income housing project within the
30period required by this section or to any project with respect to
31which an allocation is canceled by mutual consent of the California
32Tax Credit Allocation Committee and the allocation recipient.

33(4) Five hundred thousand dollars ($500,000) per calendar year
34for projects to provide farmworker housing, as defined in
35subdivision (h) of Section 50199.7 of the Health and Safety Code.

36(5) The amount of any unallocated or returned credits under
37former Sections 17053.14, 23608.2, and 23608.3, as those sections
38read prior to January 1, 2009, until fully exhausted for projects to
39provide farmworker housing, as defined in subdivision (h) of
40Section 50199.7 of the Health and Safety Code.

P21   1(h) The term “compliance period” as defined in Section 42(i)(1)
2of the Internal Revenue Codebegin insert, relating to compliance period,end insert is
3modified to mean, with respect to any building, the period of 30
4consecutive taxable years beginning with the first taxable year of
5the credit period with respect thereto.

6(i) Section 42(j) of the Internal Revenue Codebegin insert, relating to
7recapture of credit,end insert
shall not be applicable and the following
8requirements of this section shall be set forth in a regulatory
9agreement between the California Tax Credit Allocation Committee
10and the housing sponsor,begin delete whichend deletebegin insert and thisend insert agreement shall be
11subordinated, when required, to any lien or encumbrance of any
12banks or other institutional lenders to the project. The regulatory
13agreement entered into pursuant to subdivision (f) of Section
1450199.14 of the Health and Safety Code shall apply, provided that
15the agreement includes all of the following provisions:

16(1) A term not less than the compliance period.

17(2) A requirement that the agreement be recorded in the official
18records of the county in which the qualified low-income housing
19project is located.

20(3) A provision stating which state and local agencies can
21enforce the regulatory agreement in the event the housing sponsor
22fails to satisfy any of the requirements of this section.

23(4) A provision that the regulatory agreement shall be deemed
24a contract enforceable by tenants as third-party beneficiaries thereto
25and that allows individuals, whether prospective, present, or former
26occupants of the building, who meet the income limitation
27applicable to the building, the right to enforce the regulatory
28agreement in any state court.

29(5) A provision incorporating the requirements of Section 42
30of the Internal Revenue Codebegin insert, relating to low-income housing
31credit,end insert
as modified by this section.

32(6) A requirement that the housing sponsor notify the California
33Tax Credit Allocation Committee or its designee if there is a
34determination by the Internal Revenue Service that the project is
35not in compliance with Section 42(g) of the Internal Revenue Codebegin insert,
36relating to qualified low-income housing projectend insert
.

37(7) A requirement that the housing sponsor, as security for the
38performance of the housing sponsor’s obligations under the
39regulatory agreement, assign the housing sponsor’s interest in rents
40that it receives from the project, provided that until there is a
P22   1default under the regulatory agreement, the housing sponsor is
2entitled to collect and retain the rents.

3(8) The remedies available in the event of a default under the
4regulatory agreement that is not cured within a reasonable cure
5period, include, but are not limited to, allowing any of the parties
6designated to enforce the regulatory agreement to collect all rents
7with respect to the project; taking possession of the project and
8operating the project in accordance with the regulatory agreement
9until the enforcer determines the housing sponsor is in a position
10to operate the project in accordance with the regulatory agreement;
11 applying to any court for specific performance; securing the
12appointment of a receiver to operate the project; or any other relief
13as may be appropriate.

14(j) (1) The committee shall allocate the housing credit on a
15regular basis consisting of two or more periods in each calendar
16year during which applications may be filed and considered. The
17committee shall establish application filing deadlines, the maximum
18percentage of federal and state low-income housing tax credit
19ceiling that may be allocated by the committee in that period, and
20the approximate date on which allocations shall be made. If the
21enactment of federal or state law, the adoption of rules or
22regulations, or other similar events prevent the use of two allocation
23periods, the committee may reduce the number of periods and
24adjust the filing deadlines, maximum percentage of credit allocated,
25and the allocation dates.

26(2) The committee shall adopt a qualified allocation plan, as
27provided in Section 42(m)(1) of the Internal Revenue Codebegin insert,
28relating to plans for allocation of credit among projectsend insert
. In
29adopting this plan, the committee shall comply with the provisions
30of Sections 42(m)(1)(B) and 42(m)(1)(C) of the Internal Revenue
31Codebegin insert, relating to qualified allocation plan and relating to certain
32selection criteria must be used, respectivelyend insert
.

33(3) Notwithstanding Section 42(m) of the Internal Revenue
34Code,begin insert relating to responsibilities of housing credit agencies,end insert the
35California Tax Credit Allocation Committee shall allocate housing
36credits in accordance with the qualified allocation plan and
37regulations, which shall include the following provisions:

38(A) All housing sponsors, as defined by paragraph (3) of
39subdivision (a), shall demonstrate at the time the application is
P23   1filed with the committee that the project meets the following
2threshold requirements:

3(i) The housing sponsor shall demonstrate there is a need and
4demand for low-income housing in the community or region for
5which it is proposed.

6(ii) The project’s proposed financing, including tax credit
7proceeds, shall be sufficient to complete the project and that the
8proposed operating income shall be adequate to operate the project
9for the extended use period.

10(iii) The project shall have enforceable financing commitments,
11either construction or permanent financing, for at least 50 percent
12of the total estimated financing of the project.

13(iv) The housing sponsor shall have and maintain control of the
14site for the project.

15(v) The housing sponsor shall demonstrate that the project
16complies with all applicable local land use and zoning ordinances.

17(vi) The housing sponsor shall demonstrate that the project
18development team has the experience and the financial capacity
19to ensure project completion and operation for the extended use
20period.

21(vii) The housing sponsor shall demonstrate the amount of tax
22credit that is necessary for the financial feasibility of the project
23and its viability as a qualified low-income housing project
24throughout the extended use period, taking into account operating
25expenses, a supportable debt service, reserves, funds set aside for
26rental subsidies and required equity, and a development fee that
27does not exceed a specified percentage of the eligible basis of the
28project prior to inclusion of the development fee in the eligible
29basis, as determined by the committee.

30(B) The committee shall give a preference to those projects
31satisfying all of the threshold requirements of subparagraph (A)
32if both of the following apply:

33(i) The project serves the lowest income tenants at rents
34affordable to those tenants.

35(ii) The project is obligated to serve qualified tenants for the
36longest period.

37(C) In addition to the provisions of subparagraphs (A) and (B),
38the committee shall use the following criteria in allocating housing
39credits:

P24   1(i) Projects serving large families in which a substantial number,
2as defined by the committee, of all residential unitsbegin delete is comprised
3ofend delete
begin insert areend insert low-income units with three and more bedrooms.

4(ii) Projects providing single-room occupancy units serving
5very low income tenants.

6(iii) Existing projects that are “at risk of conversion,” as defined
7by paragraph (4) of subdivision (c).

8(iv) Projects for which a public agency provides direct or indirect
9long-term financial support for at least 15 percent of the total
10project development costs or projects for which the owner’s equity
11constitutes at least 30 percent of the total project development
12costs.

13(v) Projects that provide tenant amenities not generally available
14to residents of low-income housing projects.

15(4) For purposes of allocating credits pursuant to this section,
16the committee shall not give preference to any project by virtue
17of the date of submission of its application.

18(k) Section 42(l) of the Internal Revenue Codebegin insert, relating to
19certifications and other reports to secretary,end insert
shall be modified as
20follows:

21The term “secretary” shall be replaced by the term “California
22Franchise Tax Board.”

23(l) In the case where the credit allowed under this section
24exceeds the net tax, the excessbegin delete creditend delete may be carried over to reduce
25the net tax in the following year, and succeeding taxable years, if
26necessary, until the credit has been exhausted.

27(m) A project that received an allocation of a 1989 federal
28housing credit dollar amount shall be eligible to receive an
29allocation of a 1990 state housing credit dollar amount, subject to
30all of the following conditions:

31(1) The project was not placed in service prior to 1990.

32(2) To the extent the amendments made to this section by the
33 Statutes of 1990 conflict with any provisions existing in this section
34prior to those amendments, the prior provisions of law shall prevail.

35(3) Notwithstanding paragraph (2), a project applying for an
36allocation under this subdivision shall be subject to the
37requirements of paragraph (3) of subdivision (j).

38(n) The credit period with respect to an allocation of credit in
391989 by the California Tax Credit Allocation Committee of which
P25   1any amount is attributable to unallocated credit from 1987 or 1988
2shall not begin until after December 31, 1989.

3(o) The provisions of Section 11407(a) of Public Law 101-508,
4relating to the effective date of the extension of the low-income
5housing credit, shall apply to calendar years after 1989.

6(p) The provisions of Section 11407(c) of Public Law 101-508,
7relating to election to accelerate credit, shall not apply.

8(q) Any unused credit may continue to be carried forward, as
9provided in subdivision (l), until the credit has been exhausted.

10This section shall remain in effect on and after December 1,
111990, for as long as Section 42 of the Internal Revenue Code,
12relating to low-income housingbegin delete credits,end deletebegin insert credit,end insert remains in effect.

13(r) The amendments to this section made bybegin delete the act adding this
14subdivisionend delete
begin insert Chapter 1222 of the Statutes of 1993end insert shall apply only
15to taxable years beginning on or after January 1, 1994.

16begin insert

begin insertSEC. 3.end insert  

end insert

begin insertSection 23610.5 of the end insertbegin insertRevenue and Taxation Codeend insertbegin insert is
17amended to read:end insert

18

23610.5.  

(a) (1) There shall be allowed as a credit against the
19begin delete “tax” (asend deletebegin insert “tax,” asend insert defined by Sectionbegin delete 23036)end deletebegin insert 23036,end insert a state
20low-income housing tax credit in an amount equal to the amount
21determined in subdivision (c), computed in accordance with Section
2242 of the Internal Revenue Code of 1986,begin insert relating to low-income
23housing credit,end insert
except as otherwise provided in this section.

24(2) “Taxpayer,” for purposes of this section, means the sole
25owner in the case of a “C” corporation, the partners in the case of
26a partnership, and the shareholders in the case of an “S”
27corporation.

28(3) “Housing sponsor,” for purposes of this section, means the
29sole owner in the case of a “C” corporation, the partnership in the
30case of a partnership, and the “S” corporation in the case of an “S”
31corporation.

32(b) (1) The amount of the credit allocated to any housing
33sponsor shall be authorized by the California Tax Credit Allocation
34Committee, or any successor thereof, based on a project’s need
35for the credit for economic feasibility in accordance with the
36requirements of this section.

37(A) The low-income housing project shall be located in
38California and shall meet either of the following requirements:

39(i) Except for projects to provide farmworker housing, as defined
40in subdivision (h) of Section 50199.7 of the Health and Safety
P26   1Code, that are allocated credits solely under the set-aside described
2in subdivision (c) of Section 50199.20 of the Health and Safety
3Code, the project’s housing sponsor has been allocated by the
4California Tax Credit Allocation Committee a credit for federal
5income tax purposes under Section 42 of the Internal Revenue
6Codebegin insert, relating to low-income housing creditend insert.

7(ii) It qualifies for a credit under Section 42(h)(4)(B) of the
8Internal Revenue Codebegin insert, relating to special rule where 50 percent
9or more of building is financed with tax-exempt bonds subject to
10volume capend insert
.

11(B) The California Tax Credit Allocation Committee shall not
12require fees for the credit under this section in addition to those
13fees required for applications for the tax credit pursuant to Section
1442 of the Internal Revenue Codebegin insert, relating to low-income housing
15creditend insert
. The committee may require a fee if the application for the
16credit under this section is submitted in a calendar year after the
17year the application is submitted for the federal tax credit.

18(C) (i) For a project that receives a preliminary reservation of
19the state low-income housing tax credit, allowed pursuant to
20subdivision (a), on or after January 1, 2009, and before January 1,
212016, the credit shall be allocated to the partners of a partnership
22owning the project in accordance with the partnership agreement,
23regardless of how the federal low-income housing tax credit with
24respect to the project is allocated to the partners, or whether the
25allocation of the credit under the terms of the agreement has
26substantial economic effect, within the meaning of Section 704(b)
27of the Internal Revenue Codebegin insert, relating to determination of
28distributive shareend insert
.

29(ii) To the extent the allocation of the credit to a partner under
30this section lacks substantial economic effect, any loss or deduction
31otherwise allowable under this part that is attributable to the sale
32or other disposition of that partner’s partnership interest made prior
33to the expiration of the federal credit shall not be allowed in the
34taxable year in which the sale or other disposition occurs, but shall
35instead be deferred until and treated as if it occurred in the first
36taxable year immediately following the taxable year in which the
37federal credit period expires for the project described in clause (i).

38(iii) This subparagraph shall not apply to a project that receives
39a preliminary reservation of state low-income housing tax credits
40under the set-aside described in subdivision (c) of Section 50199.20
P27   1of the Health and Safety Code unless the project also receives a
2preliminary reservation of federal low-income housing tax credits.

3(iv) This subparagraph shall cease to be operative with respect
4to any project that receives a preliminary reservation of a credit
5on or after January 1, 2016.

6(2) (A) The California Tax Credit Allocation Committee shall
7certify to the housing sponsor the amount of tax credit under this
8section allocated to the housing sponsor for each credit period.

9(B) In the case of a partnership or an “S” corporation, the
10housing sponsor shall provide a copy of the California Tax Credit
11Allocation Committee certification to the taxpayer.

12(C) The taxpayer shall, upon request, provide a copy of the
13certification to the Franchise Tax Board.

14(D) All elections made by the taxpayer pursuant to Section 42
15of the Internal Revenue Codebegin insert, relating to low-income housing
16credit,end insert
shall apply to this section.

17(E) (i) Except as described in clause (ii), for buildings located
18in designated difficult development areas (DDAs) or qualified
19census tracts (QCTs), as defined in Section 42(d)(5)(B) of the
20Internal Revenue Code,begin insert relating to increase in credit for buildings
21in high-cost areas,end insert
credits may be allocated under this section in
22the amounts prescribed in subdivision (c), provided that the amount
23of credit allocated under Section 42 of the Internal Revenue Codebegin insert,
24relating to low-income housing credit,end insert
is computed on 100 percent
25of the qualified basis of the building.

26(ii) Notwithstanding clause (i), the California Tax Credit
27Allocation Committee may allocate the credit for buildings located
28in DDAs or QCTs that are restricted to having 50 percent of its
29occupants be special needs households, as defined in the California
30Code of Regulations by the California Tax Credit Allocation
31Committee, even if the taxpayer receives federal credits pursuant
32to Section 42(d)(5)(B) of the Internal Revenue Code,begin insert relating to
33increase in credit for buildings in high-cost areas,end insert
provided that
34the credit allowed under this section shall not exceed 30 percent
35of the eligible basis of the building.

36(G) (i) The California Tax Credit Allocation Committee may
37allocate a credit under this section in exchange for a credit allocated
38pursuant to Section 42(d)(5)(B) of the Internal Revenue Codebegin insert,
39relating to increase in credit for buildings in high-cost areas,end insert
in
40amounts up to 30 percent of the eligible basis of a building if the
P28   1credits allowed under Section 42 of the Internal Revenue Code are
2reduced by an equivalent amount.

3(ii) An equivalent amount shall be determined by the California
4Tax Credit Allocation Committee based upon the relative amount
5required to produce an equivalent state tax credit to the taxpayer.

6(c) Section 42(b) of the Internal Revenue Codebegin insert, relating to
7applicable percentage,end insert
shall be modified as follows:

8(1) In the case of any qualified low-income building placed in
9service by the housing sponsor during 1987, the term “applicable
10percentage” means 9 percent for each of the first three years and
113 percent for the fourth year for new buildings (whether or not the
12building is federally subsidized) and for existing buildings.

13(2) In the case of any qualified low-income building that receives
14an allocation after 1989 and is a new building not federally
15subsidized, the term “applicable percentage” means the following:

16(A) For each of the first three years, the percentage prescribed
17by the Secretary of the Treasury for new buildings that are not
18federally subsidized for the taxable year, determined in accordance
19with the requirements of Section 42(b)(2) of the Internal Revenue
20Code,begin insert relating to temporary minimum credit rate for nonfederally
21subsidized new buildings,end insert
in lieu of the percentage prescribed in
22Section 42(b)(1)(A) of the Internal Revenue Code.

23(B) For the fourth year, the difference between 30 percent and
24the sum of the applicable percentages for the first three years.

25(3) In the case of any qualified low-income building that receives
26an allocation after 1989 and that is a new building that is federally
27subsidized or that is an existing building that is “at risk of
28conversion,” the term “applicable percentage” means the following:

29(A) For each of the first three years, the percentage prescribed
30by the Secretary of the Treasury for new buildings that are federally
31subsidized for the taxable year.

32(B) For the fourth year, the difference between 13 percent and
33the sum of the applicable percentages for the first three years.

34(4) For purposes of this section, the term “at risk of conversion,”
35with respect to an existing property means a property that satisfies
36all of the following criteria:

37(A) The property is a multifamily rental housing development
38in which at least 50 percent of the units receive governmental
39assistance pursuant to any of the following:

P29   1(i) New construction, substantial rehabilitation, moderate
2rehabilitation, property disposition, and loan management set-aside
3programs, or any other program providing project-based assistance
4pursuant to Section 8 of the United States Housing Act of 1937,
5Section 1437f of Title 42 of the United States Code, as amended.

6(ii) The Below-Market-Interest-Rate Program pursuant to
7Section 221(d)(3) of the National Housing Act, Sections
81715l(d)(3) and (5) of Title 12 of the United States Code.

9(iii) Section 236 of the National Housing Act, Section 1715z-1
10of Title 12 of the United States Code.

11(iv) Programs for rent supplement assistance pursuant to Section
12101 of the Housing and Urban Development Act of 1965, Section
131701s of Title 12 of the United States Code, as amended.

14(v) Programs pursuant to Section 515 of the Housing Act of
151949, Section 1485 of Title 42 of the United States Code, as
16amended.

17(vi) The low-income housing credit program set forth in Section
1842 of the Internal Revenue Codebegin insert, relating to low-income housing
19creditend insert
.

20(B) The restrictions on rent and income levels will terminate or
21the federally insured mortgage on the property is eligible for
22prepayment any time within five years before or after the date of
23application to the California Tax Credit Allocation Committee.

24(C) The entity acquiring the property enters into a regulatory
25agreement that requires the property to be operated in accordance
26with the requirements of this section for a period equal to the
27greater of 55 years or the life of the property.

28(D) The property satisfies the requirements of Section 42(e) of
29the Internal Revenue Codebegin insert, relating to rehabilitation expenditures
30treated as separate new building,end insert
regarding rehabilitation
31expenditures, except that the provisions of Section
3242(e)(3)(A)(ii)(I) shall not apply.

33(d) The term “qualified low-income housing project” as defined
34in Section 42(c)(2) of the Internal Revenue Codebegin insert, relating to
35qualified low-income building,end insert
is modified by adding the following
36requirements:

37(1) The taxpayer shall be entitled to receive a cash distribution
38from the operations of the project, after funding required reserves,
39that at the election of the taxpayer, is equal to:

40(A) An amount not to exceed 8 percent of the lesser of:

P30   1(i) The owner equity, that shall include the amount of the capital
2contributions actually paid to the housing sponsor and shall not
3include any amounts until they are paid on an investor note.

4(ii) Twenty percent of the adjusted basis of the building as of
5the close of the first taxable year of the credit period.

6(B) The amount of the cashflow from those units in the building
7that are not low-income units. For purposes of computing cashflow
8under this subparagraph, operating costs shall be allocated to the
9low-income units using the “floor space fraction,” as defined in
10Section 42 of the Internal Revenue Codebegin insert, relating to low-income
11housing creditend insert
.

12(C) Any amount allowed to be distributed under subparagraph
13(A) that is not available for distribution during the first five years
14of the compliance period may be accumulated and distributed any
15time during the first 15 years of the compliance period but not
16thereafter.

17(2) The limitation on return shall apply in the aggregate to the
18partners if the housing sponsor is a partnership and in the aggregate
19to the shareholders if the housing sponsor is an “S” corporation.

20(3) The housing sponsor shall apply any cash available for
21distribution in excess of the amount eligible to be distributed under
22paragraph (1) to reduce the rent on rent-restricted units or to
23increase the number of rent-restricted units subject to the tests of
24Section 42(g)(1) of the Internal Revenue Codebegin insert, relating to in
25generalend insert
.

26(e) The provisions of Section 42(f) of the Internal Revenue
27Codebegin insert, relating to definition and special rules relating to credit
28period,end insert
shall be modified as follows:

29(1) The term “credit period” as defined in Section 42(f)(1) of
30the Internal Revenue Codebegin insert, relating to credit period defined,end insert is
31modified by substituting “four taxable years” for “10 taxable
32years.”

33(2) The special rule for the first taxable year of the credit period
34under Section 42(f)(2) of the Internal Revenue Codebegin insert, relating to
35special rule for first year of credit period,end insert
shall not apply to the
36tax credit under this section.

37(3) Section 42(f)(3) of the Internal Revenue Codebegin insert, relating to
38determination of applicable percentage with respect to increases
39in qualified basis after first year of credit period,end insert
is modified to
40read:

P31   1If, as of the close of any taxable year in the compliance period,
2after the first year of the credit period, the qualified basis of any
3building exceeds the qualified basis of that building as of the close
4of the first year of the credit period, the housing sponsor, to the
5extent of its tax credit allocation, shall be eligible for a credit on
6the excess in an amount equal to the applicable percentage
7determined pursuant to subdivision (c) for the four-year period
8beginning with the later of the taxable years in which the increase
9in qualified basis occurs.

10(f) The provisions of Section 42(h) of the Internal Revenue
11Codebegin insert, relating to limitation on aggregate credit allowable with
12respect to projects located in a state,end insert
shall be modified as follows:

13(1) Section 42(h)(2) of the Internal Revenue Codebegin insert, relating to
14allocated credit amount to apply to all taxable years ending during
15or after credit allocation year,end insert
shall not be applicable and instead
16the following provisions shall be applicable:

17The total amount for the four-year credit period of the housing
18credit dollars allocated in a calendar year to any building shall
19reduce the aggregate housing credit dollar amount of the California
20Tax Credit Allocation Committee for the calendar year in which
21the allocation is made.

22(2) Paragraphs (3), (4), (5), (6)(E)(i)(II), (6)(F), (6)(G), (6)(I),
23(7), and (8) of Section 42(h) of the Internal Revenue Codebegin insert, relating
24to limitation on aggregate credit allowable with respect to projects
25located in a state,end insert
shall not be applicable.

26(g) The aggregate housing credit dollar amount that may be
27allocated annually by the California Tax Credit Allocation
28Committee pursuant to this section, Section 12206, and Section
2917058 shall be an amount equal to the sum of all the following:

30(1) begin insert(A)end insertbegin insertend insertSeventy million dollars ($70,000,000) for the 2001
31calendar year, and, forbegin delete the 2002 calendar year and each calendar
32year thereafter,end delete
begin insert calendar years 2002 to 2014, inclusive,end insert seventy
33million dollars ($70,000,000) increased by the percentage, if any,
34by which the Consumer Price Index for the preceding calendar
35year exceeds the Consumer Price Index for the 2001 calendar year.
36For the purposes of this paragraph, the term “Consumer Price
37Index” means the last Consumer Price Index for All Urban
38Consumers published by the federal Department of Labor.

begin insert

39(B) Three hundred seventy million dollars ($370,000,000) for
40the 2015 calendar year, and, for the 2016 calendar year and each
P32   1calendar year thereafter, three hundred seventy million dollars
2($370,000,000) increased by the percentage, if any, by which the
3Consumer Price Index for the preceding calendar year exceeds
4the Consumer Price Index for the 2015 calendar year. For the
5purposes of this paragraph, the term “Consumer Price Index”
6means the last Consumer Price Index for All Urban Consumers
7published by the federal Department of Labor.

end insert

8(2) The unused housing credit ceiling, if any, for the preceding
9calendar years.

10(3) The amount of housing credit ceiling returned in the calendar
11year. For purposes of this paragraph, the amount of housing credit
12dollar amount returned in the calendar year equals the housing
13credit dollar amount previously allocated to any project that does
14not become a qualified low-income housing project within the
15period required by this section or to any project with respect to
16which an allocation is canceled by mutual consent of the California
17Tax Credit Allocation Committee and the allocation recipient.

18(4) Five hundred thousand dollars ($500,000) per calendar year
19for projects to provide farmworker housing, as defined in
20subdivision (h) of Section 50199.7 of the Health and Safety Code.

21(5) The amount of any unallocated or returned credits under
22former Sections 17053.14, 23608.2, and 23608.3, as those sections
23read prior to January 1, 2009, until fully exhausted for projects to
24provide farmworker housing, as defined in subdivision (h) of
25Section 50199.7 of the Health and Safety Code.

26(h) The term “compliance period” as defined in Section 42(i)(1)
27of the Internal Revenue Codebegin insert, relating to compliance period,end insert is
28modified to mean, with respect to any building, the period of 30
29consecutive taxable years beginning with the first taxable year of
30the credit period with respect thereto.

31(i) Section 42(j) of the Internal Revenue Codebegin insert, relating to
32recapture of credit,end insert
shall not be applicable and the following shall
33be substituted in its place:

34The requirements of this section shall be set forth in a regulatory
35agreement between the California Tax Credit Allocation Committee
36and the housing sponsor, and this agreement shall be subordinated,
37when required, to any lien or encumbrance of any banks or other
38institutional lenders to the project. The regulatory agreement
39entered into pursuant to subdivision (f) of Section 50199.14 of the
P33   1Health and Safety Code shall apply, provided that the agreement
2includes all of the following provisions:

3(1) A term not less than the compliance period.

4(2) A requirement that the agreement be recorded in the official
5records of the county in which the qualified low-income housing
6project is located.

7(3) A provision stating which state and local agencies can
8enforce the regulatory agreement in the event the housing sponsor
9fails to satisfy any of the requirements of this section.

10(4) A provision that the regulatory agreement shall be deemed
11a contract enforceable by tenants as third-party beneficiaries
12thereto, and that allows individuals, whether prospective, present,
13or former occupants of the building, who meet the income
14limitation applicable to the building, the right to enforce the
15regulatory agreement in any state court.

16(5) A provision incorporating the requirements of Section 42
17of the Internal Revenue Codebegin insert, relating to low-income housing
18credit,end insert
as modified by this section.

19(6) A requirement that the housing sponsor notify the California
20Tax Credit Allocation Committee or its designee if there is a
21determination by the Internal Revenue Service that the project is
22not in compliance with Section 42(g) of the Internal Revenue Codebegin insert,
23relating to qualified low-income housing projectend insert
.

24(7) A requirement that the housing sponsor, as security for the
25performance of the housing sponsor’s obligations under the
26regulatory agreement, assign the housing sponsor’s interest in rents
27that it receives from the project, provided that until there is a
28default under the regulatory agreement, the housing sponsor is
29entitled to collect and retain the rents.

30(8) begin deleteA provision that the end deletebegin insertThe end insertremedies available in the event of
31a default under the regulatory agreement that is not cured within
32a reasonable cure period include, but are not limited to, allowing
33any of the parties designated to enforce the regulatory agreement
34to collect all rents with respect to the project; taking possession of
35the project and operating the project in accordance with the
36regulatory agreement until the enforcer determines the housing
37sponsor is in a position to operate the project in accordance with
38the regulatory agreement; applying to any court for specific
39performance; securing the appointment of a receiver to operate
40the project; or any other relief as may be appropriate.

P34   1(j) (1) The committee shall allocate the housing credit on a
2regular basis consisting of two or more periods in each calendar
3year during which applications may be filed and considered. The
4committee shall establish application filing deadlines, the maximum
5percentage of federal and state low-income housing tax credit
6ceiling that may be allocated by the committee in that period, and
7the approximate date on which allocations shall be made. If the
8enactment of federal or state law, the adoption of rules or
9regulations, or other similar events prevent the use of two allocation
10periods, the committee may reduce the number of periods and
11adjust the filing deadlines, maximum percentage of credit allocated,
12and allocation dates.

13(2) The committee shall adopt a qualified allocation plan, as
14provided in Section 42(m)(1) of the Internal Revenue Codebegin insert,
15 relating to plans for allocation of credit among projectsend insert
. In
16adopting this plan, the committee shall comply with the provisions
17of Sections 42(m)(1)(B) and 42(m)(1)(C) of the Internal Revenue
18Codebegin insert, relating to qualified allocation plan and relating to certain
19selection criteria must be used, respectivelyend insert
.

20(3) Notwithstanding Section 42(m) of the Internal Revenue
21Code,begin insert relating to responsibilities of housing credit agencies,end insert the
22California Tax Credit Allocation Committee shall allocate housing
23credits in accordance with the qualified allocation plan and
24regulations, which shall include the following provisions:

25(A) All housing sponsors, as defined by paragraph (3) of
26subdivision (a), shall demonstrate at the time the application is
27filed with the committee that the project meets the following
28threshold requirements:

29(i) The housing sponsor shall demonstratebegin delete thatend delete there is a need
30for low-income housing in the community or region for which it
31is proposed.

32(ii) The project’s proposed financing, including tax credit
33proceeds, shall be sufficient to complete the project and shall be
34adequate to operate the project for the extended use period.

35(iii) The project shall have enforceable financing commitments,
36either construction or permanent financing, for at least 50 percent
37of the total estimated financing of the project.

38(iv) The housing sponsor shall have and maintain control of the
39site for the project.

P35   1(v) The housing sponsor shall demonstrate that the project
2complies with all applicable local land use and zoning ordinances.

3(vi) The housing sponsor shall demonstrate that the project
4development team has the experience and the financial capacity
5to ensure project completion and operation for the extended use
6period.

7(vii) The housing sponsor shall demonstrate the amount of tax
8credit that is necessary for the financial feasibility of the project
9and its viability as a qualified low-income housing project
10throughout the extended use period, taking into account operating
11expenses, a supportable debt service, reserves, funds set aside for
12rental subsidies and required equity, and a development fee that
13does not exceed a specified percentage of the eligible basis of the
14project prior to inclusion of the development fee in the eligible
15basis, as determined by the committee.

16(B) The committee shall give a preference to those projects
17satisfying all of the threshold requirements of subparagraph (A)
18if both of the following apply:

19(i) The project serves the lowest income tenants at rents
20affordable to those tenants.

21(ii) The project is obligated to serve qualified tenants for the
22longest period.

23(C) In addition to the provisions of subparagraphs (A) and (B),
24the committee shall use the following criteria in allocating housing
25credits:

26(i) Projects serving large families in which a substantial number,
27as defined by the committee, of all residential units are low-income
28units with three and more bedrooms.

29(ii) Projects providing single-room occupancy units serving
30very low income tenants.

31(iii) Existing projects that are “at risk of conversion,” as defined
32by paragraph (4) of subdivision (c).

33(iv) Projects for which a public agency provides direct or indirect
34long-term financial support for at least 15 percent of the total
35project development costs or projects for which the owner’s equity
36constitutes at least 30 percent of the total project development
37costs.

38(v) Projects that provide tenant amenities not generally available
39to residents of low-income housing projects.

P36   1(4) For purposes of allocating credits pursuant to this section,
2the committee shall not give preference to any project by virtue
3of the date of submission of its application except to break a tie
4when two or more of the projects have an equal rating.

5(5) Not less than 20 percent of the low-income housing tax
6credits available annually under this section, Section 12206, and
7Section 17058 shall be set aside for allocation to rural areas as
8defined in Section 50199.21 of the Health and Safety Code. Any
9amount of credit set aside for rural areas remaining on or after
10October 31 of any calendar year shall be available for allocation
11 to any eligible project. No amount of credit set aside for rural areas
12shall be considered available for any eligible project so long as
13there are eligible rural applications pending on October 31.

14(k) Section 42(l) of the Internal Revenue Codebegin insert, relating to
15certifications and other reports to secretary,end insert
shall be modified as
16follows:

17The term “secretary” shall be replaced by the term “California
18Franchise Tax Board.”

19(l) In the case where thebegin delete stateend delete credit allowed under this section
20exceeds the “tax,” the excess may be carried over to reduce the
21“tax” in the following year, and succeedingbegin insert taxableend insert years if
22necessary, until the credit has been exhausted.

23(m) A project that received an allocation of a 1989 federal
24housing credit dollar amount shall be eligible to receive an
25allocation of a 1990 state housing credit dollar amount, subject to
26all of the following conditions:

27(1) The project was not placed in service prior to 1990.

28(2) To the extent the amendments made to this section by the
29Statutes of 1990 conflict with any provisions existing in this section
30prior to those amendments, the prior provisions of law shall prevail.

31(3) Notwithstanding paragraph (2), a project applying for an
32allocation under this subdivision shall be subject to the
33requirements of paragraph (3) of subdivision (j).

34(n) The credit period with respect to an allocation of credit in
351989 by the California Tax Credit Allocation Committee of which
36any amount is attributable to unallocated credit from 1987 or 1988
37shall not begin until after December 31, 1989.

38(o) The provisions of Section 11407(a) of Public Law 101-508,
39relating to the effective date of the extension of the low-income
40housing credit, shall apply to calendar years after 1989.

P37   1(p) The provisions of Section 11407(c) of Public Law 101-508,
2relating to election to accelerate credit, shall not apply.

3(q) (1) A corporation may elect to assign any portion of any
4credit allowed under this section to one or more affiliated
5corporations for each taxable year in which the credit is allowed.
6For purposes of this subdivision, “affiliated corporation” has the
7meaning provided in subdivision (b) of Section 25110, as that
8section was amended by Chapter 881 of the Statutes of 1993, as
9of the last day of the taxable year in which the credit is allowed,
10except that “100 percent” is substituted for “more than 50 percent”
11wherever it appears in the section, as that section was amended by
12Chapter 881 of the Statutes of 1993, and “voting common stock”
13is substituted for “voting stock” wherever it appears in the section,
14as that section was amended by Chapter 881 of the Statutes of
151993.

16(2) The election provided in paragraph (1):

17(A) May be based on any method selected by the corporation
18that originally receives the credit.

19(B) Shall be irrevocable for the taxable year the credit is allowed,
20once made.

21(C) May be changed for any subsequent taxable year if the
22election to make the assignment is expressly shown on each of the
23returns of the affiliated corporations that assign and receive the
24credits.

25(r) Any unused credit may continue to be carried forward, as
26provided in subdivision (l), until the credit has been exhausted.

27This section shall remain in effect on and after December 1,
281990, for as long as Section 42 of the Internal Revenue Code,
29relating to low-income housingbegin delete credits,end deletebegin insert credit,end insert remains in effect.

30(s) The amendments to this section made bybegin delete the act adding this
31subdivisionend delete
begin insert Chapter 1222 of the Statutes of 1993end insert shall apply only
32to taxable years beginning on or after January 1, 1994, except that
33paragraph (1) of subdivision (q), as amended, shall apply to taxable
34years beginning on or after January 1, 1993.

35begin insert

begin insertSEC. 4.end insert  

end insert
begin insert

This act provides for a tax levy within the meaning of
36Article IV of the Constitution and shall go into immediate effect.

end insert
begin delete
37

SECTION 1.  

(a) The Legislature finds and declares all of the
38following:

P38   1(1) The preservation and rehabilitation of existing affordable
2housing stock initially created through public investment is a
3critical strategy to address the affordable housing crisis in our state.

4(2) It is particularly important that older single room occupancy
5(SRO), special needs, and other buildings with deeply
6income-targeted rents be preserved and refurbished for low-income
7tenants and the public investment protected.

8(3) However, currently, most properties that are being
9recapitalized and resyndicated through the California Tax Credit
10Allocation Committee system for substantial rehabilitation tend
11to have higher rents and shallower income targeting because they
12appraise well and generate significant acquisition credits.

13(4) Unfortunately, the deeply targeted mostly SRO, special
14needs, and rural projects that very much need to capitalize are
15largely shut out of this opportunity precisely because they have
16agreed to very deep income-targeting which excludes them from
17acquisition credits.

18(b) Therefore, it is the intent of the Legislature to create a new
19source of investment and a pipeline for these older but very
20valuable public assets, which are often in the greatest need of
21rehabilitation.

22

SEC. 2.  

Section 17059 is added to the Revenue and Taxation
23Code
, to read:

24

17059.  

(a) For each taxable year beginning on or after January
251, 2015, there shall be allowed as a credit against the “net tax,” as
26defined in Section 17039, a very low-income and extremely
27low-income housing credit in an amount computed in accordance
28with Section 42 of the Internal Revenue Code, except as otherwise
29provided in this section.

30(b) For the purposes of this section, the following definitions
31shall apply:

32(1) “Taxpayer” means the sole owner in the case of an
33individual, the partners in the case of a partnership, and the
34shareholders in the case of an “S” corporation.

35(2) “Housing sponsor” means the sole owner in the case of an
36individual, the partnership in the case of a partnership, and the “S”
37corporation in the case of an “S” corporation.

38(3) “Very low-income” has the same meaning as in Section
3950053 of the Health and Safety Code.

P39   1(4) “Extremely low-income” has the same meaning as in Section
250053 of the Health and Safety Code.

3(5) “SRO” means single room occupancy.

4(6) “Rural area resident” means a resident of a rural area as
5defined in Section 50199.21 of the Health and Safety Code.

6(7) “Committee” means the California Tax Credit Allocation
7Committee.

8(c) (1) The amount of the credit allocated to any housing
9sponsor shall be authorized by the committee, or any successor
10thereof, based on a project’s need for the credit in accordance with
11paragraph (2) of subdivision (e).

12(A) The very low-income or extremely low-income housing
13project shall be located in California.

14(B) Nothing in this section shall be construed to require a
15housing sponsor to have been previously or currently allocated a
16credit for federal income tax purposes under Section 42 of the
17Internal Revenue Code or for state income tax purposes under
18Section 17058.

19(2) (A) The committee shall certify to the housing sponsor the
20amount of tax credit under this section allocated to the housing
21sponsor for each credit period.

22(B) In the case of a partnership or an “S” corporation, the
23housing sponsor shall provide a copy of the committee certification
24to the taxpayer.

25(C) The taxpayer shall, upon request, provide a copy of the
26certification to the Franchise Tax Board.

27(d) The aggregate housing credit dollar amount that may be
28allocated annually by the committee pursuant to this section and
29Section 23610.6 shall be an amount equal to the sum of all of the
30following:

31(1) Forty million dollars ($40,000,000).

32(2) The unused allocation credit amount, if any, for the preceding
33fiscal year.

34(3) The amount of housing credits returned in the calendar year.

35(e) (1) Subject to subdivision (c), the committee shall allocate
36the housing credit on a regular basis consisting of two or more
37periods in each calendar year during which applications may be
38filed and considered. The committee shall establish application
39filing deadlines, the maximum amounts of state very low-income
40and extremely low-income housing tax credits that may be
P40   1allocated by the committee in that period, and the approximate
2date on which allocations shall be made. If the enactment of federal
3or state law, the adoption of rules or regulations, or other similar
4events prevent the use of two allocation periods, the committee
5may reduce the number of periods and adjust the filing deadlines,
6maximum percentage of credit allocated, and the allocation dates.

7(2) The committee shall, on a first-come-first-served basis,
8allocate the very low-income and extremely low-income housing
9credit in accordance with the following provisions:

10(A) All housing sponsors shall demonstrate at the time the
11application is filed with the committee that the project meets the
12following threshold requirements:

13(B) The housing sponsor shall demonstrate that the project will
14be used exclusively for the restructuring, including the acquisition
15and substantial rehabilitation, of buildings at least 20 years old
16and that currently serve very low-income, extremely low-income,
17SRO, or rural area residents. No new construction shall be eligible
18for a credit under this section.

19(C) The housing sponsor shall demonstrate that acquisition
20credits that would be received as part of the restructuring through
21the existing state credit program described in Section 17058 would
22be insufficient to complete substantial rehabilitation due to a low
23appraised fair market value.

24(D) The housing sponsor shall demonstrate that the project is
25currently subsidized, but may or may not currently be “at risk” for
26conversion to market rate.

27(E) There is no requirement that the project previously received
28federal or state tax credits when originally constructed.

29(f) In the case where the credit allowed under this section
30exceeds the “net tax,” the excess may be carried over to reduce
31the “net tax” in the following year, and succeeding taxable years,
32if necessary, until the credit is exhausted.

33(g) A deduction otherwise allowed under this part for any
34amount paid or incurred by the qualified taxpayer upon which the
35credit is based shall be reduced by the amount of the credit allowed
36by this section.

37(h) Credit under this section shall be allowed only for credits
38claimed on a timely filed original return of the qualified taxpayer.

P41   1(i) (1) The committee and the Franchise Tax Board may adopt
2regulations, rules, guidelines, or procedures necessary or
3appropriate to carry out the purposes of this section.

4(2) The Administrative Procedure Act (Chapter 3.5
5(commencing with Section 11340) of Part 1 of Division 3 of Title
62 of the Government Code) shall apply to any regulation, rule,
7guideline, or procedure adopted pursuant to this section.

8

SEC. 3.  

Section 23610.6 is added to the Revenue and Taxation
9Code
, to read:

10

23610.6.  

(a) For each taxable year beginning on or after
11January 1, 2015, there shall be allowed as a credit against the “tax,”
12as defined in Section 23036, a very low-income and extremely
13low-income housing credit in an amount computed in accordance
14with Section 42 of the Internal Revenue Code, except as otherwise
15provided in this section.

16(b) For the purposes of this section, the following definitions
17shall apply:

18(1) “Taxpayer” means the sole owner in the case of a “C”
19corporation, the partners in the case of a partnership, and the
20shareholders in the case of an “S” corporation.

21(2) “Housing sponsor” means the sole owner in the case of a
22“C” corporation, the partnership in the case of a partnership, and
23the “S” corporation in the case of an “S” corporation.

24(3) “Very low-income” has the same meaning as in Section
2550053 of the Health and Safety Code.

26(4) “Extremely low-income” has the same meaning as in Section
2750053 of the Health and Safety Code.

28(5) “SRO” means single room occupancy.

29(6) “Rural area resident” means a resident of a rural area as
30defined in Section 50199.21 of the Health and Safety Code.

31(7) “Committee” means the California Tax Credit Allocation
32Committee.

33(c) (1) The amount of the credit allocated to any housing
34sponsor shall be authorized by the committee, or any successor
35thereof, based on a project’s need for the credit in accordance with
36paragraph (2) of subdivision (e).

37(A) The very low-income or extremely low-income housing
38project shall be located in California.

39(B) Nothing in this section shall be construed to require a
40housing sponsor to have been previously or currently allocated a
P42   1credit for federal income tax purposes under Section 42 of the
2Internal Revenue Code or for state income tax purposes under
3Section 23610.5.

4(2) (A) The committee shall certify to the housing sponsor the
5amount of tax credit under this section allocated to the housing
6sponsor for each credit period.

7(B) In the case of a partnership or an “S” corporation, the
8housing sponsor shall provide a copy of the committee certification
9to the taxpayer.

10(C) The taxpayer shall, upon request, provide a copy of the
11certification to the Franchise Tax Board.

12(d) (1) The aggregate housing credit dollar amount that may
13be allocated annually by the committee pursuant to this section
14and Section 17059 shall be an amount equal to the sum of all of
15the following:

16(1) Forty million dollars ($40,000,000).

17(2) The unused allocation credit amount, if any, for the preceding
18fiscal year.

19(3) The amount of housing credits returned in the calendar year.

20(e) (1) Subject to subdivision (c), the committee shall allocate
21the housing credit on a regular basis consisting of two or more
22periods in each calendar year during which applications may be
23filed and considered. The committee shall establish application
24filing deadlines, the maximum amounts of state very low-income
25and extremely low-income housing tax credits that may be
26allocated by the committee in that period, and the approximate
27date on which allocations shall be made. If the enactment of federal
28or state law, the adoption of rules or regulations, or other similar
29events prevent the use of two allocation periods, the committee
30may reduce the number of periods and adjust the filing deadlines,
31maximum percentage of credit allocated, and the allocation dates.

32(2) The committee shall, on a first-come-first-served basis,
33allocate the very low-income and extremely low-income housing
34credit in accordance with the following provisions:

35(A) All housing sponsors shall demonstrate at the time the
36application is filed with the committee that the project meets the
37following threshold requirements:

38(B) The housing sponsor shall demonstrate that the project will
39be used exclusively for the restructuring, including the acquisition
40and substantial rehabilitation, of buildings at least 20 years old
P43   1and that currently serve very low-income, extremely low-income,
2SRO, or rural area residents. No new construction shall be eligible
3for a credit under this section.

4(C) The housing sponsor shall demonstrate that acquisition
5credits that would be received as part of the restructuring through
6the existing state credit program described in Section 23610.5
7would be insufficient to complete substantial rehabilitation due to
8a low appraised fair market value.

9(D) The housing sponsor shall demonstrate that the project is
10currently subsidized, but may or may not currently be “at risk” for
11conversion to market rate.

12(E) There is no requirement that the project previously received
13federal or state tax credits when originally constructed.

14(f) (1) A corporation may elect to assign any portion of any
15credit allowed under this section to one or more affiliated
16corporations for each taxable year in which the credit is allowed.
17For purposes of this subdivision, “affiliated corporation” has the
18meaning provided in subdivision (b) of Section 25110, as of the
19last day of the taxable year in which the credit is allowed, except
20that “100 percent” is substituted for “more than 50 percent”
21wherever it appears in the section, and “voting common stock” is
22substituted for “voting stock” wherever it appears in the section.

23(2) The election provided in paragraph (1):

24(A) May be based on any method selected by the corporation
25that originally receives the credit.

26(B) Shall be irrevocable for the taxable year the credit is allowed,
27once made.

28(C) May be changed for any subsequent taxable year if the
29election to make the assignment is expressly shown on each of the
30returns of the affiliated corporations that assign and receive the
31credits.

32(g) In the case where the credit allowed under this section
33exceeds the “tax,” the excess may be carried over to reduce the
34“tax” in the following year, and succeeding taxable years, if
35necessary, until the credit is exhausted.

36(h) A deduction otherwise allowed under this part for any
37amount paid or incurred by the qualified taxpayer upon which the
38credit is based shall be reduced by the amount of the credit allowed
39by this section.

P44   1(i) Credit under this section shall be allowed only for credits
2claimed on a timely filed original return of the qualified taxpayer.

3(j) (1) The committee and the Franchise Tax Board may adopt
4regulations, rules, guidelines, or procedures necessary or
5appropriate to carry out the purposes of this section.

6(2) The Administrative Procedure Act (Chapter 3.5
7(commencing with Section 11340) of Part 1 of Division 3 of Title
82 of the Government Code) shall apply to any regulation, rule,
9guideline, or procedure adopted pursuant to this section.

10

SEC. 4.  

In order to comply with the requirements of Section
1141 of the Revenue and Taxation Code, it is the intent of the
12Legislature that the California Tax Credit Allocation Committee
13provide the information required by that section to the Legislature.

14

SEC. 5.  

This act provides for a tax levy within the meaning of
15Article IV of the Constitution and shall go into immediate effect.

end delete


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