BILL ANALYSIS Ó
AB 2140
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ASSEMBLY THIRD READING
AB
2140 (Roger Hernández, et al.)
As Amended May 31, 2016
2/3 vote. Tax levy
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|Committee |Votes|Ayes |Noes |
| | | | |
| | | | |
| | | | |
|----------------+-----+----------------------+--------------------|
|Housing |7-0 |Chiu, Steinorth, | |
| | |Burke, Chau, Beth | |
| | |Gaines, Lopez, Mullin | |
| | | | |
|----------------+-----+----------------------+--------------------|
|Revenue & |9-0 |Ridley-Thomas, | |
|Taxation | |Brough, Dababneh, | |
| | |Gipson, Mullin, | |
| | |O'Donnell, Patterson, | |
| | |Quirk, Wagner | |
| | | | |
|----------------+-----+----------------------+--------------------|
|Appropriations |16-0 |Gonzalez, Bigelow, | |
| | |Bloom, Bonilla, | |
| | |Bonta, Calderon, | |
| | |Daly, Eggman, | |
| | |Gallagher, | |
| | | | |
| | | | |
| | |Eduardo Garcia, | |
AB 2140
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| | | | |
| | | | |
| | |Roger Hernández, | |
| | |Holden, Quirk, | |
| | |Santiago, Weber, Wood | |
| | | | |
| | | | |
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SUMMARY: Makes changes to the farmworker housing tax credit
set-aside within the Low Income Housing Tax Credit (LIHTC)
Program. Specifically, this bill:
1)Redefines "farmworker housing" as housing in which at least
50% of the units are available to and occupied by farmworkers,
instead of 100%.
2)Allows farmworker housing developments that receive 4% federal
LIHTCs that are in qualified census tracts (QCT) or designated
development areas (DDA) to receive state LIHTCs.
3)Makes qualified farmworker housing developments eligible for
state LIHTC of 75% of the qualified basis of the building over
four years.
4)Takes effect immediately as a tax levy.
FISCAL EFFECT: According to the Assembly Appropriations
Committee:
1)No additional loss in state revenues would occur as a result
of this bill. While the farmworker housing credit program has
been underutilized, this has not meant these dollars return to
the General Fund. Instead, those unused dollars are rolled
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forward for future use. This bill attempts to increase
utilization of the credit, but no additional dollars are
provided to the program.
2)Minor and absorbable administrative costs to Tax Credit
Allocation Committee (TCAC) to review additional number of
potential projects and to update application documents.
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 benefits to investors. The federal
program offers 9% and 4% credits on the approximate percentage
of a project's "qualified basis" a taxpayer who purchases
credits from a developer may deduct from their annual federal
tax liability in each of ten years. 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.
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
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credits without federal credits. Investors claim the state
credit over four years. Projects that receive either state or
federal tax credits are required to keep the housing at
affordable levels for 55 years. Both the federal and state tax
credits are capped, which limits the amount of credit that TCAC
can award each year. Each state receives an annual ceiling of
federal credits. In 2015 it was $2.30 per capita, which worked
out to $94 million in credits in California that can be taken by
investors each year for 10 years. Federal 9 % LIHTCs are
oversubscribed by a 3:1 ratio.
Federal law requires TCAC to conduct a feasibility study on
every project to ensure that the amount of tax credits allocated
do not exceed the amount required to make the project feasible.
To calculate the amount of tax credits a project may receive,
TCAC determines the total project cost. Next, it determines the
"eligible basis" by subtracting the non-depreciable costs, such
as land, permanent financing costs, rent reserves, and marketing
costs. However, the eligible basis is reduced by the applicable
percentage, a measure of the amount of affordable units of floor
space in the project as a share of the entire project. For
example, a project with $5 million in total development costs
but $1 million in land acquisition costs has a $4 million basis.
If half of the units will be affordable, the total basis is $2
million, which is multiplied by 9% to determine the annual
amount of the credit of $180,000, for a ten-year value of $1.8
million.
In 1996, the Legislature created the Farmworker Housing
Assistance Tax Credit Program and set aside $500,000 a year from
the LIHTC allocation for farmworker housing projects. In an
effort to streamline administration and make the farmworker
program more user-friendly, SB 1247 (Lowenthal), Chapter 521,
Statues of 2008, eliminated the Farmworker Housing Assistance
Tax Credit Program as a separate program and consolidated it
into the state LIHTC program as a farmworker set-aside. The
amount of funding dedicated to farmworker housing remained the
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same. The amount of the credit accrues over time and there is
$5,047,118 available.
Purpose of the bill: According to the author, "AB 2140 makes
improvements to the farmworker housing assistance tax credit
program to better facilitate its use of this financing tool.
Over the years, the State Treasurer's Office has made changes to
improve the broader housing tax credit program, however, the
farmworker tax credit has not benefited from some of those
policy changes. In fact, given the fiscal and policy
constraints of the existing farmworker housing tax credit, no
project since 2008 had been awarded tax credits until last year.
The underinvestment in farmworker housing has created hardships
for this labor force and their families. This bill seeks to
bolster the legislative intent behind the farmworker housing
assistance tax credit program and improve the efficacy and
flexibility of this financial resource for developers of
farmworker housing. "
Changes proposed to the farmworker housing tax credit program:
This bill changes several components of the LIHTC program
set-aside for farmworker housing developments in an effort to
make the projects more feasible and increase the supply of
farmworker housing.
Occupancy requirements: To qualify for LIHTCs, occupancy in
farmworkers developments must be limited to farmworkers and
their families, except that TCAC can allow owners to
temporarily house non-farmworkers in vacant units during a
disaster. This bill would reduce the occupancy requirement
from 100% farmworkers and their families to 50%. In some
cases, a tenant in a farmworker housing development may begin
their tenancy employed as a farmworker but change employment
while living in the development. The change in employment can
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jeopardize their tenancy in the project. Reducing the
occupancy to 50% will provide great flexibility to developers
in responding to this and other types of challenges.
Increased access to state credits: This bill also seeks to
increase the amount of credits that farmworker tax credit
projects can receive in order to make the credits more
valuable and to allow greater leveraging of other bonding
authority. 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 deeper
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.
This bill would allow state tax credits to be awarded to
farmworker housing projects without regard to DDA or QCT
status with the main purpose of making the state credits more
valuable and providing enough state tax credits to match the
value of a 9% federal tax credit. Allowing state credits to
be used for farmworker projects in DDAs and QCTs would
increase the equity projects could generate from tax credits
because the projects can already qualify for more federal tax
credits than projects outside of a DDA or a QCT. As an
example, if a project qualifies for $10 million in eligible
basis in a DDA or QCT, the project could get up to 130% of
that basis in federal tax credits, which means the project
sponsor would have $13 million in federal credits to sell to
an investor. This bill would allow that project to get an
additional 30% in state tax credits against the $10 million in
eligible basis, which would create an additional $3 million in
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state tax credits.
The amount of federal 9% credits available each year are
capped, however 4% federal credits are unlimited. 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 addition, federal 9%
credits are oversubscribed where as 4% federal credits are
less highly subscribed. This bill would encourage developers
constructing farmworker housing to apply for 4% federal
credits by increasing the value of the state credits that
would accompany those credits. Developers that receive 4%
federal credits would receive state credits that would be
worth 75% of a project's eligible basis over four years.
Under existing law, state LIHTC are worth 30% of a project's
eligible basis over four years.
Related legislation: AB 2817 (Chiu) of the current legislative
session proposes to increase the LIHTC by $300 million on an
annual basis, subject to annual approval, and increase the
set-a-side for farmworker housing tax credits within that pool
from $500,000 to $25 million. Any funds not used for farmworker
housing tax credit projects in a calendar year would be
available to other qualified projects that apply for the larger
LIHTC pool. This bill is pending in the Assembly.
Analysis Prepared by:
Rebecca Rabovsky / H. & C.D. / (961) 319-2085
FN:
0003259
AB 2140
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