BILL ANALYSIS Ó
AB 35
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Date of Hearing: April 15, 2015
ASSEMBLY COMMITTEE ON HOUSING AND COMMUNITY DEVELOPMENT
Ed Chau, Chair
AB 35
(Chiu) - As Amended April 6, 2015
SUBJECT: Income taxes: credits: low-income housing:
allocation increase
SUMMARY: Makes changes to the state Low-Income Housing Tax
Credit (LIHTC) Program. Specifically, this bill:
1)Beginning in 2015 and each year thereafter, increases the
allocation of state LIHTC by an additional $300 million and
adjusts that amount for inflation beginning in 2016.
2)Provides that a sponsor that receives an award of 9% federal
LIHTC cannot receive an allocation from the additional $300
million of state LIHTC but shall remain eligible for the $70
million allocation available prior to 2015.
3)Provides a newly constructed or the rehabilitation portion of
an existing low-income housing project that is not located in
a Difficult to Develop Area (DDA) or a Qualified Census Tract
(QCT) and receives federal 4% LIHTC is eligible for
cumulative state LIHTC over four years of 50% of the qualified
basis of the building.
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4)Provides the acquisition portion of an existing low-income
housing project that is not located in a DDA or a QCT and
receives federal 4% LIHTC is eligible for state LIHTC over
four years of 13% of the qualified basis of the building.
5)Allows the Tax Credit Allocation Committee (TCAC) to replace
federal LIHTC with state LIHTC for a new or existing
low-income housing project that is a located in a DDA or QCT
and receives federal 4% LIHTC of up to 50% of the qualified
basis of the building, provided that the total amount of
credits does not exceed 130%.
6)Provides that a low-income housing project is eligible for a
cumulative state LIHTC of 95% of the qualified basis of the
building over four years of the eligible basis if it meets all
of the following requirements:
a) It is at least 15 years old;
b) It is a SRO, special needs housing building, is in a
rural area, or serves households with very-low income or
extremely low-income residents;
c) It is serving households of very low-income or extremely
low-income provided that the average income at the time of
admission is no more than 45% of the median gross income
adjusted for household size; and
d) It would have insufficient state credits to qualify to
complete substantial rehabilitation due to a low appraised
value.
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1)Adds the following definitions:
a) "Extremely low-income" has the same meaning as Health
and Safety Code Section 50053.
b) "Rural area" means a rural area as defined in Health and
Safety Code Section 50199.21.
c) "Special needs housing" has the same meaning as
paragraph (4) of Subdivision (g) of Section 10325 of Title
4 of the California Code of Regulations.
d) "SRO" means single room occupancy.
e) "Very low-income" has the same meaning as in Health and
Safety Code Section 50053.
EXISTING LAW:
1)Allows TCAC to award state LIHTCs to developments in a QCT or
a DDA if the project is also receiving federal LIHTC, under
the following conditions:
a) Developments restrict at least 50% of the units to
special needs households; and
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b) The state credits do not exceed 130% of the eligible
basis of the building.
1)Allows TCAC to replace federal LIHTC with state LIHTC of up to
130% of a project's eligible basis if the federal LIHTC is
reduced in an equivalent amount.
2)Defines a QTC as any census tract designated by the Department
of Housing and Urban Development (HUD) in which either 50% or
more of the households have an income that is less than 60% of
the area median gross income or that has a poverty rate of at
least 25%.
3)Defines a DDA as an area designated by HUD on an annual basis
that has high construction, land, and utility costs relative
to area median gross income.
4)Provides that a low-income housing development that is a new
building and is receiving 9% federal LIHTC credits is eligible
to receive state LIHTC over four years of 30% of the qualified
basis of the building.
5)Provides that a low-income housing development that is a new
building that is receiving federal LIHTC that is "at risk of
conversion" is eligible to receive state LIHTC over four years
of 13% of the qualified basis of the building.
6)Defines "at risk of conversion" to mean a property that
satisfies all of the following criteria:
a) A multifamily rental housing development in which at
least 50% of the units receive government assistance
pursuant to any of the following:
b) Project based Section 8 vouchers;
c) Below-Market-Interest-Rate Program;
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d) Federal Rental Housing Assistance Program;
e) Programs for rent supplement assistance pursuant to
Section 101 of the Housing and Urban Development Act of
1965;
f) Programs pursuant to Section 515 of the Housing Act of
1949; and
g) Federal LIHTC.
1)Includes an urgency clause.
FISCAL EFFECT: Unknown.
COMMENTS:
Background :
In 1986, the federal government authorized the LIHTC program to
enable affordable housing developers to raise private capital
through the sale of tax credits to investors. Two types of
federal tax credits are available and are generally referred to
as nine percent (9%) and four percent (4%) credits. TCAC
administers the program and awards credits to qualified
developers who can then sell those credits to private investors
who use the credits to reduce their federal tax liability. The
developer in turn invests the capital into the affordable
housing project.
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Each state receives an annual ceiling of 9% federal tax credits.
In 2015 it was $2.30 per capita, which worked out to $88.5
million in credits in California that can be taken by investors
each year for 10 years. Federal LIHTCs are oversubscribed by a
3:1 ratio. Unlike 9% LIHTC, federal 4% tax credits are not
capped, however they must be used in conjunction with tax-exempt
private activity mortgage revenue bonds which are capped and are
administered by the California Debt Limit Allocation Committee.
In 2015, the state ceiling for private activity bonds is set at
$5.61 billion. The value of the 4% tax credits are less than
half of the 9% tax credits and, as a result, 4% federal credits
are generally used in conjunction with another funding source
like state housing bonds or local funding sources. In 2014,
developers only used $80.5 million in annual federal 4% tax
credits, significantly less than prior years. The loss of
redevelopment funding and state housing bond funds, which were
used in combination with 4% federal credits to achieve higher
affordability, has made the 4% federal credits less effective.
In 1987, the legislature authorized a state LIHTC program to
augment the federal tax credit program. State tax credits can
only be awarded to projects that also receive federal LIHTCs,
except for farmworker housing projects, which can receive state
credits without federal credits. Investors can claim the state
credit over four years. TCAC has authority for approximately
$103 million in state tax credits each year but has as many as
$25 million in credits remaining at the end of the year due to
lack of demand. Projects that receive either state or federal
tax credits are required to maintain the housing at affordable
levels for 55 years.
Purpose of this bill :
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According to the author, "California is undergoing a serious
housing affordability crisis with a shortfall of over one
million affordable homes. According to a 2014 report by the
California Housing Partnership Corporation, median rents in
California have increased by over 20 percent while the median
income has dropped by 8 percent. The private housing market is
simply not meeting the demand for low to moderate income homes.
The shortage is particularly challenging in the rental market,
typically the last resort for lower-income households, many of
whom were forced out of single-family homes during the great
recession.
State and Federal divestment in affordable housing has
exacerbated this problem. With the elimination of California's
redevelopment agencies and the exhaustion of state housing
bonds, California has reduced its funding for the development
and preservation of affordable homes by 79 percent -- from
approximately $1.7 billion a year to nearly nothing. There is
currently no permanent source of funding to compensate for this
loss.
The housing crisis has contributed to a growing homeless
population, increased pressure on local public safety nets, an
unstable development and construction marketplace, and the
outward migration of thousands of long-time California
residents.
The LIHTC program is the only major source of funding available
for affordable development in the state, making it competitive
and overprescribed. In 2014, only 49 percent of applicants were
awarded credits - leaving many qualified projects without a
secure source of funding or any incentive to build additional
affordable housing units."
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The proposal :
AB 35 would increase the state LIHTC allocation by an additional
$300 million which would allow the state to leverage and
additional $200 million in federal 4% LIHTC and at least $400
million in federal tax-exempt bond authority annually for the
creation and preservation of affordable rental homes for a broad
range of lower income households through the state. An increase
in the amount of state LIHTC would help to fill the gap in
funding that was created by the loss of redevelopment and the
exhaustion of state voter-approved bonds. In addition to
increasing the total amount of state LIHTC, AB 35 proposes to
increase the amount of state tax credits awarded to a project
that is also receiving 4% federal tax credits from 13% to 50% of
the qualified basis. This would more than triple the amount of
equity that an investor purchasing a state tax credit would
receive which would bring the return on 4% credits in line with
9% credits and result in greater affordability for the project.
Federal LIHTC can be used anywhere in the state, but projects
are given an additional 30% boost on their eligible basis if the
project is located in a DDA or a QCT. Because these areas by
definition have a higher-poverty level and there is a higher
concentration of extremely low-income or homeless individuals
and families, housing needs deep subsidy to make it affordable.
Existing state law does not allow state tax credits to be
awarded in DDAs and QCTs with one exception: housing
developments where 50% of the units are for special needs
populations. The rationale for this prohibition is projects in
these areas can qualify for more federal tax credits and
therefore are already advantaged. AB 35 would also allow state
tax credits to be awarded to projects without regard to DDA or
QCT status with the main purpose of providing enough state tax
credits to match the value of a 9% federal tax credit.
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Older housing stock:
Many low-income housing developments in the state are older and
in need of rehabilitation. These projects need higher levels of
equity investments because of their age , level of repairs
needed, and the low rents. It is hard for these projects to
compete for state tax credits because the assessed value is low
and therefore the eligible basis upon which the amount of tax
credits the project can qualify for is also low. To assist these
projects, AB 35 would allow these older projects to receive
state tax credits of 95% over four years. To qualify projects
would need to be at least 15 years old, serve low- and extremely
low-income households, be an SRO, in a rural area, and have
insufficient state credits to complete substantial
rehabilitation due to a low appraised value.
Technical amendment:
On page 6, line 36, delete "45" and replace it with "42"
On page 7, line 4, delete "45" and replace it with "42"
On page 20, line 33, delete "45" and replace it with "42"
On page 21, line 1, delete "45" and replace it with "42"
On page 35, line 11, delete "45" and replace it with "42"
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On page 35, line 19 delete "45" and replace it with "42"
REGISTERED SUPPORT / OPPOSITION:
Support
A Community of Friends (ACOF)
Affirmed Housing Group
Affordable Housing Access (AHA)
Affordable Housing Management Association-Pacific Southwest
(AHMA)
Alameda County Housing Authority
Alpha Construction
American Planning Association California Chapter (APA
California)
Amy Hiestand Consulting
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Angelus Plaza
Apartment Association
Apartment Association of Orange County
Association of Bay Area Governments (ABAG)
Be.group
Bridge Housing
Burbank Housing Corporation
Burbank Housing Development Corporation
Cabrillo Economic Development Corporation (CEDC)
California Alliance for Retired Americans
California Association of Local Housing Finance Agencies
(CAL-ALHFA)
California Building Industry Association (CBIA)
California Center for Cooperative Development
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California Coalition for Rural Housing
California Coalition for Youth (CCY)
California Council for Affordable Housing (CCAH)
California Housing Consortium (CHC)
California Infill Builders Federation
California Partnership to End Domestic Violence
California Southern Cities
California Rural Legal Assistance Foundation
Capitol Area Development Authority (CADA)
City of Concord
City of Emeryville
City of Eureka
City of Fremont
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City of Lafayette
City of Lakeport
City of Livermore
City of Napa
City of National City
City of Oakland
City of Sacramento
City of San Diego
City of Santa Barbara
City of Taft
City of Tulare
City of Union City
Community Action North Bay (CAN-B)
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Community Economics
Community Housing Opportunities Corporation (CHOC)
Community Housing Partnership
Community Land Trust Association (CLAM)
Community Overcoming Relationship Abuse (CORA)
Contra Costa Interfaith Housing
Core Affordable Housing
Corporation For Supportive Housing (CSH)
Devine & Gong, Ink
Domus Development
Downtown Women's Center
Dr. Jaime Becker
EAH Housing
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East Bay Developmental Disabilities Legislative Coalition
East Bay Rental Housing Association
Eden Housing
Goldfarb & Lipman LLP
Habitat for Humanity
Highridge Costa Investors, LLC
HIP Housing, Inc.
HKIT Architects
Housing Authority of the County of Santa Clara (HACSC)
Housing Authority of the City of San Buenaventura
Housing Authority of the City of Santa Barbara
Housing California
Housing Choices Coalition
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Housing Consortium of the East Bay (HCEB)
Housing Leadership Council of San Mateo County
Housing Trust Silicon Valley
Hudson Housing Capital
Iturriaga, Nicole, MA
Iturriaga, Rodolfo H., Ph.D.
Jamboree
Korean Resource center (KRC)
Larkin Street Youth Services
Laurin Associates
Law Foundation of Silicon Valley
Leading Age California
League of California Cities
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League of Women Voters of California (Support if Amended)
Leich, Douglas A.
LINC Housing
Little Tokyo Service Center CDC (LTSC CDC)
Loaves & Fishes
Loni Gray
Los Angeles Community Action Network (LA CAN)
Lutheran Office of Public Policy - California
Lynette Jung Lee
Many Mansions
Mercy Housing
Nancy Lewis Associates, Inc.
Napa Valley Community Housing (NVCH)
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NASW
Neighbor Works Orange County
Nelson Rental Consultant
Non-Profit Housing Association of Northern California (NPH)
Nor Cal Rental Property Association
North Bay Leadership Council
North Valley Property Owners Association
Northern California Community Loan Fund
Orange Coast Interfaith Shelter
Pacific West Communities
Palm Communities
Peoples' Self-Help Housing
PEP Housing
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Phil Ritter, CPA
Powell & Partners Architects
Project Access Recourse Center
Promise Energy Inc.
Retirement Housing Foundation (RHF)
Rural Communities Assistance Corporation (RCAC)
Rural Communities Housing Development Corporation (RCHDC)
Rural Smart Growth Task Force
Rystad, Robert D.
Sacramento Homeless Organizing Committee (SHOC)
San Diego County Apartment Association (SDCAA)
San Diego Housing Federation
San Diego Organizing Project (SDOP)
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San Francisco Housing Action Coalition
San Francisco Unified School District
San Luis Obispo County Housing Trust Fund (HTF)
Satellite Affordable Housing Associates (SAHA)
Schreiber, Debora
Shelter Partnership
Silicon Valley Bank
Skid Row Housing Trust
Sonoma County Housing Advocacy Group
Southern California Association of Non Profit Housing (SCANPH)
St. Anthony Foundation
St. Vincent's
T.R.U.S.T. South LA
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TELACU
The Kennedy Commission
Thomas Safran & Associates
TransForm
Trinity Center Walnut Greek
Urban Habitat
Venice Community Housing Corporation
Ward Economic Development Corporation (WEDC)
Western Center on Law and Poverty
Western Seniors Housing
Wolfe, Marian, Ph.D.
Works
Yolo Housing
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Opposition
None on file.
Analysis Prepared by:Lisa Engel / H. & C.D. / (916) 319-2085