Under existing law, the California Tax Credit Allocation Committee administers the federal and state low-income housing tax credit programs. Existing law requires the committee to allocate the housing credit on a specified regular basis and requires the committee to only allocate credits to a project if the housing sponsor enters into a specified regulatory agreement. Existing law authorizes the committee to make any allocation or reservation of the states housing credit ceiling to a housing credit applicant subject to specified terms and conditions.

Existing law establishes the Housing Rehabilitation Loan Fund, which is continuously appropriated to the Department of Housing and Community Development, to fund various housing-related purposes.

This bill would authorize the committee to establish a specified schedule of fines for violations of the terms and conditions, the regulatory agreement, other agreements, or program regulations. The bill would require the committee to define serious violations and, except for serious violations, would require a first-time property owner violator to be given the opportunity to correct the violation before the fine is imposed. The bill would authorize a property owner to appeal a fine to the committee. The bill would require these fines to be deposited in the Housing Rehabilitation Loan Fund and would authorize the committee to record a property lien if the fine has not been paid within a specified period of time. By depositing these fines into the Housing Rehabilitation Loan Fund, a continuously appropriated fund, the bill would make an appropriation.

Under existing law, the California Tax Credit Allocation Committee administers the federal and state low-income housing tax credit programs. Existing law requires the committee to allocate the housing credit on a specified regular basis and requires the committee to only allocate credits to a project if the housing sponsor enters into a specified regulatory agreement. Existing law authorizes the committee to make any allocation or reservation of the states housing credit ceiling to a housing credit applicant subject to specified terms and conditions.

Existing law establishes the Housing Rehabilitation Loan Fund, which is continuously appropriated to the Department of Housing and Community Development, to fund various housing-related purposes.

This bill would authorize the committee to establish a specified schedule of fines for violations of the terms and conditions, the regulatory agreement, other agreements, or program regulations. The bill would require the committee to define serious violations and, except for serious violations, would require a first-time property owner violator to be given the opportunity to correct the violation before the fine is imposed. The bill would authorize a property owner to appeal a fine to the committee. The bill would require these fines to be deposited in the Housing Rehabilitation Loan Fund and would authorize the committee to record a property lien if the fine has not been paid within a specified period of time. By depositing these fines into the Housing Rehabilitation Loan Fund, a continuously appropriated fund, the bill would make an appropriation.

Under existing law, the California Tax Credit Allocation Committee administers the federal and state low-income housing tax credit programs. Existing law requires the committee to allocate the housing credit on a specified regular basis and requires the committee to only allocate credits to a project if the housing sponsor enters into a specified regulatory agreement. Existing law authorizes the committee to make any allocation or reservation of the states housing credit ceiling to a housing credit applicant subject to specified terms and conditions.

Existing law establishes the Housing Rehabilitation Loan Fund, which is continuously appropriated to the Department of Housing and Community Development, to fund various housing-related purposes.

This bill would authorize the committee to establish a specified schedule of fines for violations of the terms and conditions, the regulatory agreement, covenants, other agreements, or program regulations. The bill would require the committee to define serious violations and, except for serious violations, would require a first-time property owner violator to be given the opportunity to correct the violation before the fine is imposed. The bill would authorize a property owner to appeal a fine to the committee. The bill would require these fines to be deposited in the Housing Rehabilitation Loan Fund and would authorize the committee to record a property lien if the fine has not been paid within a specified period of time. By depositing these fines into the Housing Rehabilitation Loan Fund, a continuously appropriated fund, the bill would make an appropriation.

Under existing law, the California Tax Credit Allocation Committee administers the federal and state low-income housing tax credit programs. Existing law requires the committee to allocate the housing credit on a specified regular basis and requires the committee to only allocate credits to a project if the housing sponsor enters into a specified regulatory agreement. Existing law authorizes the committee to make any allocation or reservation of the states housing credit ceiling to a housing credit applicant subject to specified terms and conditions.

Existing law establishes the Housing Rehabilitation Loan Fund, which is continuously appropriated to the Department of Housing and Community Development, to fund various housing-related purposes.

This bill would authorize the committee to establish a specified schedule of fines for violations of the terms and conditions, the regulatory agreement, covenants, or program regulations. The bill would require these fines to be deposited in the Housing Rehabilitation Loan Fund and would authorize the committee to record a property lien if the fine has not been paid within a specified period of time. By depositing these fines into the Housing Rehabilitation Loan Fund, a continuously appropriated fund, the bill would make an appropriation.

Under existing law, the California Tax Credit Allocation Committee administers the federal and state low-income housing tax credit programs. Existing law requires the committee to allocate the housing credit on a specified regular basis and requires the committee to only allocate credits to a project if the housing sponsor enters into a specified regulatory agreement. Existing law authorizes the committee to make any allocation or reservation of the states housing credit ceiling to a housing credit applicant subject to specified terms and conditions.

Existing law establishes the Housing Rehabilitation Loan Fund, which is continuously appropriated to the Department of Housing and Community Development, to fund various housing-related purposes.

This bill would authorize the committee to establish a specified schedule of fines for violations of the terms and conditions, the regulatory agreement, covenants, or program regulations. The bill would require these fines to be deposited in the Housing Rehabilitation Loan Fund and would authorize the committee to record a property lien if the fine has not been paid within a specified period of time. By depositing these fines into the Housing Rehabilitation Loan Fund, a continuously appropriated fund, the bill would make an appropriation.

CONCURRENCE IN SENATE AMENDMENTS

CSA1 Bill Id:AB 1920

Author:(Chau)

As Amended Ver:June 8, 2016

2/3 vote

Original Committee Reference: H. & C.D.

SUMMARY: Allows the California Tax Credit Allocation Committee (TCAC) to establish a schedule of fines for violations of the terms and conditions, the regulatory agreement, covenants, or program regulations for affordable housing developments that received low-income housing tax credits (LIHTC). Specifically, this bill:

1. Allows TCAC to charge up to $500 per violation or double the amount of the financial gain to the housing credit application because of the violation, whichever is greater.
2. Allows the fine to be reoccurring if the violation is not corrected within a reasonable period of time, as determined by TCAC.
3. Requires TCAC to adopt and revise, by resolution at a public meeting, the schedule of fines for specific violations and the fine amounts for each violation.
4. Requires all fines collected to be deposited into the Housing Rehabilitation Loan Fund.
5. Provides that if a fine is not paid within six months from the date when the fine was initially assessed by TCAC and reasonable notice is given to the housing credit applicant, the committee may record a lien against the property.
6. Provides that any lien recorded by TCAC against a property, to secure fines, shall be junior to any liens recorded before it.

The Senate amendments:

1. Allow a property owner to appeal a fine levied by TCAC.
2. Gives a property owner 30 days to correct a first-time violation, unless it is a serious violation as defined by TCAC.
3. Provides that a serial violation that occurs prior to discovery is considered one violation for purpose of fines, but fines may be recurring after discovery, if the violation is not corrected.
4. Make technical changes.

FISCAL EFFECT: According to the Senate Appropriations Committee:

1. Minor and absorbable TCAC administrative costs to amend existing program regulations, develop a schedule of fines that would be adopted at a public meeting, impose fees on property owners, and to manage ministerial appeals. (Tax Credit Allocation Fee Account)
2. Unknown, likely minor fine revenue gains. (Housing Rehabilitation Loan Fund)

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 9% and 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.

Rental housing developments that receive low-income housing tax credits from TCAC are required to rent to income eligible applicants, limit rents, and maintain the physical condition of the units for 55 years. Owners agree to further commitments, such as more deeply targeting units to be affordable to extremely-low income households, as part of the competitive scoring process. The Internal Revenue Service (IRS) enforces the basic program requirements for 15 years, but does not enforce deeper affordability or other requirements imposed by TCAC during the first 15 years, or any requirements after year 15. TCAC has few enforcement remedies for an owner's failure to comply with program requirements that the IRS does not enforce. TCAC can impose negative points, which only work if the owner wants to propose new applications. TCAC can also bring a lawsuit to seek compliance or receivership, however this expensive and time-consuming.

This bill would provide TCAC with the legislative authority to levy fines for non-compliance with the terms and conditions, the regulatory agreement, covenants, or program regulations. Fines may not exceed the greater of $500 or double the amount of the financial gain to the violator and could be recurring if the violations are not corrected in a reasonable amount of time. Fines would be deposited in the Housing Rehabilitation Loan Fund and be made available to the Multifamily Housing Program at the Department of Housing and Community Development. TCAC could record a lien on the property, if fines are not paid within six months of being assessed. TCAC would adopt the fine schedule through a public process and provide for due process through appeals to the Committee.

Purpose of this bill: According to the author, "AB 1920 would provide TCAC with a more efficient and effective enforcement tool by giving TCAC the legislative authority to levy fines for non-compliance with the terms and conditions, the regulatory agreement, covenants, or program regulations."

Analysis Prepared by: Lisa Engel / H. & C.D. / (961) 319-2085, FN: 0003848

 THIRD READING  

Bill No: AB 1920

Author:

:

Vote:

SENATE TRANS. & HOUSING COMMITTEE: 11-0, 6/14/16

AYES: Beall, Cannella, Allen, Bates, Gaines, Galgiani, Leyva, McGuire, Mendoza, Roth, Wieckowski

SENATE APPROPRIATIONS COMMITTEE: 7-0, 8/1/16

AYES: Lara, Bates, Beall, Hill, McGuire, Mendoza, Nielsen

ASSEMBLY FLOOR: 78-0, 5/12/16 (Consent) - See last page for vote

SUBJECT:

SOURCE: State Treasurer John Chiang

DIGEST: This bill permits the Tax Credit Allocation Committee (TCAC) to establish a schedule of fines for violations of the terms and conditions, the regulatory agreement, other agreements, or program regulations.

ANALYSIS: Existing law designates the TCAC as the state’s low-income housing tax credit (LIHTC) agency and requires TCAC to review applications for and administer federal and state housing tax credit applicants.

This bill:

1) Permits TCAC to establish a schedule of fines for violations of the terms and conditions, the regulatory agreement, covenants, or program regulations. TCAC shall establish the fines for violations up to $500 per violation or double the amount of the financial gain, whichever is greater. Except for serious violations, which shall be defined by the committee, a first-time property owner violator shall be given at least 30 days to correct the violation before a fine is imposed. A violation that has occurred for some time prior to discovery is one violation, but fines may be a recurring amount if the violation is not corrected within a reasonable period of time thereafter, as determined by TCAC.

2) Permits a property owner to appeal a fine to TCAC.

3) Provides TCAC shall adopt and may revise the schedule of fines at a public general committee meeting. The schedule may include specific violations of the terms and conditions, the regulatory agreement, other agreements, or program regulations and fine amounts. All fines received by the TCAC shall be deposited in the Housing Rehabilitation Loan Fund.

4) Provides, if a fine assessed against a property owner is not paid within six months from the date of the initial fine assessment and after TCAC provides reasonable notice to the property owner, TCAC may record a lien against the property.

Comments

1. Purpose. According to the author, rental housing developments that receive low-income housing tax credits from TCAC are required to rent to income-eligible applicants, limit rents, and maintain the physical condition of the units for 55 years. Owners agree to further commitments, such as more deeply targeted units to be affordable to extremely low-income households as part of the competitive scoring. The Internal Revenue Service enforces the basic program requirements for 15 years, but does not enforce deeper affordability or other requirements imposed by TCAC during the first 15 years, or any requirements after year 15. TCAC has few enforcement remedies for an owner’s failure to comply with program requirements that the IRS does not enforce. These remedies include imposing negative points on future applications (which only work if the owner wants to propose new applications), or bringing a lawsuit to seek compliance or receivership (which is expensive and time consuming).

AB 1920 provides the TCAC with a more efficient and effective enforcement tool by giving TCAC the legislative authority to levy fines for non-compliance with the terms and conditions, the regulatory agreement, other agreements, or program regulations.

1. Background of the LIHTC Program. The LIHTC is an indirect federal subsidy developed in 1986 to incentivize the private development of affordable rental housing for low-income households. The federal LIHTC program enables low-income housing sponsors and developers to raise project equity through the allocation of tax benefits to investors. 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 have also received, or are concurrently receiving, an allocation of the federal LIHTCs. TCAC administers the program for both federal and state LIHTCs 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.
2. Enforcing program requirements. This bill will provide TCAC with the legislative authority to levy fines against a property owner for non-compliance with the terms and conditions, the regulatory agreement, other agreements, or program regulations. The fine schedule would be adopted through a public process and would provide due process through appeals to the Committee. Except for serious violations, a first-time property-owner violator shall be given at least 30 days to correct the violation before a fine is imposed. A violation that has occurred for some time prior to discovery is one violation, but fines may be a recurring amount if the violation is not corrected within a reasonable period of time. These fines may not exceed $500 per violation or double the amount of the financial gain to the housing credit applicant and could be recurring if the violations are not corrected in a reasonable amount of time. Fines must be deposited in the Housing Rehabilitation Loan Fund and made available to the Multifamily Housing Program at the Department of Housing and Community Development. TCAC may record a lien on the property if fines are not paid within six months of being assessed.

FISCAL EFFECT: Appropriation: Fiscal Com.: Local:

SUPPORT: (Verified 8/2/16)

State Treasurer John Chiang (source)

Arc and United Cerebral Palsy California Collaboration

California Rural Legal Assistance Foundation

Western Center on Law and Poverty

OPPOSITION: (Verified 8/2/16)

None received

ASSEMBLY FLOOR: 78-0, 5/12/16

AYES: Achadjian, Alejo, Travis Allen, Arambula, Atkins, Baker, Bigelow, Bloom, Bonilla, Bonta, Brough, Brown, Calderon, Campos, Chang, Chau, Chávez, Chiu, Chu, Cooley, Cooper, Dababneh, Dahle, Daly, Dodd, Eggman, Frazier, Beth Gaines, Gallagher, Cristina Garcia, Eduardo Garcia, Gatto, Gipson, Gomez, Gonzalez, Gordon, Gray, Grove, Hadley, Harper, Roger Hernández, Holden, Irwin, Jones, Kim, Lackey, Levine, Linder, Lopez, Low, Maienschein, Mathis, Mayes, McCarty, Medina, Melendez, Mullin, Nazarian, Obernolte, O'Donnell, Olsen, Patterson, Quirk, Ridley-Thomas, Rodriguez, Salas, Santiago, Steinorth, Mark Stone, Thurmond, Ting, Wagner, Waldron, Weber, Wilk, Williams, Wood, Rendon

NO VOTE RECORDED: Burke, Jones-Sawyer

Prepared by:

8/15/16 9:52:49

**** END ****

SENATE COMMITTEE ON

Senator Ricardo Lara, Chair

2015 - 2016 Regular Session

AB 1920 (Chau) - California Tax Credit Allocation Committee: low-income housing credit: fines

This bill does not meet the criteria for referral to the Suspense File.

Bill Summary:

AB 1920 would authorize the California Tax Credit Allocation Committee (TCAC) to establish a schedule of fines that may be imposed on a recipient of low-income housing tax credits for a violation of terms and conditions, program regulations, regulatory agreements, or other agreements, as specified.

Fiscal Impact:

• Minor and absorbable TCAC administrative costs to amend existing program regulations, develop a schedule of fines that would be adopted at a public meeting, impose fees on property owners, and to manage ministerial appeals. (Tax Credit Allocation Fee Account)
  
• Unknown, likely minor fine revenue gains. (Housing Rehabilitation Loan Fund)

Background:

Existing federal law provides for a federal low-income housing tax credit (LIHTC) to incentivize private development of affordable rental housing. The tax credit enables low-income housing sponsors and developers to raise project equity through the allocation of tax benefits to investors. Eligible projects must meet specified rent and income restrictions, and housing units must generally remain affordable for at least 30 years, as specified in regulatory agreements. During the first 15 years, project owners must annually report to both the Internal Revenue Service (IRS) and the state monitoring agency (TCAC). The IRS has the authority to recapture some or all of the credits allocated for a particular project if the taxpayer fails to meet all of the federal program requirements during the 15-year compliance period.

Existing law also provides for a state LIHTC to augment the federal tax credit program. The state program is generally patterned after the federal program, but project developers or housing sponsors that receive a state credit allocation must agree to a minimum of 55 years of rent and tenant income restrictions, specified terms and conditions applicable to federal credit allocations, and additional commitments as part of the competitive application scoring process.

Existing law designates TCAC as the entity responsible for administering both the federal and state LIHTC programs, including the allocation of tax credits through a competitive application process. While the IRS has the authority to “claw-back” some or all federal tax credits for non-compliance with terms and conditions and other regulatory agreements during the first 15 years, there are few remedies available to TCAC to enforce compliance with state program requirements, other than bringing a lawsuit or imposing negative points on future LIHTC applications.

Proposed Law:

AB 1920 would authorize TCAC to establish a schedule of fines for violations of terms and conditions, the regulatory agreement, other agreements, and program regulations by recipients of LIHTC allocations. Specifically, this bill would:

• Specify that fines would be up to $500 per violation, or double the amount of the financial gain resulting from the violation, whichever is greater.
• Require that first-time violators be provided a 30-day period to correct a violation before a fine is imposed, unless it is a serious violation, as specified by TCAC.
• Specify that a violation may be subject to a recurring fine, once discovered, if the violation is not corrected within a reasonable period of time, as determined by TCAC.
• Require TCAC to adopt and revise the schedule of fines for specific violations, and the fine amount for each violation, by resolution at a public meeting.
• Authorize a property owner to appeal a fine to TCAC.
• Require all fines received by TCAC to be deposited into the Housing Rehabilitation Loan Fund, which is a continuously appropriated fund.
• Authorizes TCAC to record a lien against a property if a fine assessed against a property owner is not paid within six months from the date the fine was initially assessed, and after reasonable notice has been provided to the property owner.
• Specify that the lien would not be superior to other liens on the property that were previously recorded.

Staff Comments:

While the IRS provides an oversight function for low-income housing projects that receive LIHTC allocations for the first 15 years, it does not enforce compliance with additional requirements imposed as a part of the state program, or with any federal or state requirements after the 15-year compliance period ends. According to TCAC, approximately 1,000 LIHTC projects are inspected annually, and about 120 violations are reported to the IRS for non-compliance issues each year, but most violations are corrected before they are reported to the IRS. As noted above, TCAC only has limited enforcement options available, such as imposing negative points on future LIHTC applications, or filing a lawsuit, which is expensive and time consuming. This bill provides additional enforcement options to ensure property owners comply with all conditions and agreements related to the program.

Staff notes that the bill requires fines to be deposited into the Housing Rehabilitation Loan Fund. All money in this fund is continuously appropriated to the Department of Housing and Community Development for making deferred payment loans, primarily as part of the Multifamily Housing Program. By depositing revenues into a continuously appropriated fund, the bill technically makes an appropriation.

-- END --

SENATE COMMITTEE ON TRANSPORTATION AND HOUSING

Senator Jim Beall, Chair

2015 - 2016 Regular

Bill No: AB 1920 Hearing Date: 6/14/2016

SUBJECT: California Tax Credit Allocation Committee: low-income housing credit: fines

DIGEST: This bill permits the Tax Credit Allocation Committee (TCAC) to establish a schedule of fines for violations of the terms and conditions, the regulatory agreement, other agreements, or program regulations.

ANALYSIS:

Existing law designates the TCAC as the state’s low-income housing tax credit (LIHTC) agency and requires TCAC to review applications for and administer federal and state housing tax credit applicants.

This bill:

1) Permits TCAC to establish a schedule of fines for violations of the terms and conditions, the regulatory agreement, covenants, or program regulations. TCAC shall establish the fines for violations up to $500 per violation or double the amount of the financial gain, whichever is greater. Except for serious violations, which shall be defined by the committee, a first-time property owner violator shall be given at least 30 days to correct the violation before a fine is imposed. A violation that has occurred for some time prior to discovery is one violation, but fines may be a recurring amount if the violation is not corrected within a reasonable period of time thereafter, as determined by TCAC.

2) Permits a property owner to appeal a fine to TCAC.

3) TCAC shall adopt and may revise the schedule of fines at a public general committee meeting. The schedule may include specific violations of the terms and conditions, the regulatory agreement, other agreements, or program regulations and fine amounts. All fines received by the TCAC shall be deposited in the Housing Rehabilitation Loan Fund.

3) If a fine assessed against a property owner is not paid within six months from the date of the initial fine assessment and after TCAC provides reasonable notice to the property owner, TCAC may record a lien against the property.

COMMENTS:

1) Purpose of the bill. According to the author, rental housing developments that receive low-income housing tax credits from TCAC are required to rent to income-eligible applicants, limit rents, and maintain the physical condition of the units for 55 years. Owners agree to further commitments, such as more deeply targeted units to be affordable to extremely low-income households as part of the competitive scoring. The Internal Revenue Service enforces the basic program requirements for 15 years, but does not enforce deeper affordability or other requirements imposed by TCAC during the first 15 years, or any requirements after year 15. TCAC has few enforcement remedies for an owner’s failure to comply with program requirements that the IRS does not enforce. These remedies include imposing negative points on future applications (which only work if the owner wants to propose new applications), or bringing a lawsuit to seek compliance or receivership (which is expensive and time consuming).

AB 1920 would provide the TCAC with a more efficient and effective enforcement tool by giving TCAC the legislative authority to levy fines for non-compliance with the terms and conditions, the regulatory agreement, other agreements, or program regulations.

2) Background of the LIHTC Program. The LIHTC is an indirect federal subsidy developed in 1986 to incentivize the private development of affordable rental housing for low-income households. The federal LIHTC program enables low-income housing sponsors and developers to raise project equity through the allocation of tax benefits to investors. 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 have also received, or are concurrently receiving, an allocation of the federal LIHTCs. TCAC administers the program for both federal and state LIHTCs 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.

3) Enforcing program requirements. This bill will provide TCAC with the legislative authority to levy fines against a property owner for non-compliance with the terms and conditions, the regulatory agreement, other agreements, or program regulations. The fine schedule would be adopted through a public process and would provide due process through appeals to the Committee. Except for serious violations, a first-time property owner violator shall be given at least 30 days to correct the violation before a fine is imposed. A violation that has occurred for some time prior to discovery is one violation, but fines may be a recurring amount if the violation is not corrected within a reasonable period of time. These fines may not exceed $500 per violation or double the amount of the financial gain to the housing credit applicant and could be recurring if the violations are not corrected in a reasonable amount of time. Fines must be deposited in the Housing Rehabilitation Loan Fund and made available to the Multifamily Housing Program at the Department of Housing and Community Development. TCAC may record a lien on the property if fines are not paid within six months of being assessed.

Assembly Votes:

Floor: 78-0

Appr: 20-0

Rev&Tax: 9-0

H&CD: 7-0

FISCAL EFFECT: Appropriation: Fiscal Com.: Local:

POSITIONS: (Communicated to the committee before noon on Wednesday,

June 8, 2016.)

SUPPORT:

State Treasurer John Chiang (sponsor)

California Rural Legal Assistance Foundation

Arc and United Cerebral Palsy California Collaboration

Western Center on Law and Poverty

OPPOSITION:

None received

-- END --

Date of Hearing: May 4, 2016

ASSEMBLY COMMITTEE ON APPROPRIATIONS

Lorena Gonzalez, Chair

ABPCA Bill Id:AB 1920

Author:(Chau) – As Amended Ver:March 18, 2016

Urgency: No State Mandated Local Program: No Reimbursable: No

SUMMARY:

This bill allows the California Tax Credit Allocation Committee (TCAC) to establish a schedule of fines for violations of the terms and conditions, the regulatory agreement, covenants, or program regulations for affordable housing developments that received low-income housing tax credits (LIHTC). Specifically, this bill:

1. Allows TCAC to charge up to $500 per violation or double the amount of the financial gain to the housing credit application because of the violation, whichever is greater.
2. Allows the fine to be reoccurring if the violation is not corrected within a reasonable period of time, as determined by TCAC.
3. Requires TCAC to adopt and revise, by resolution at a public meeting, the schedule of fines for specific violations and the fine amounts for each violation.

1. Requires all fines collected to be deposited into the Housing Rehabilitation Loan Fund.
2. Provides that if a fine is not paid within six months from the date when the fine was initially assessed by TCAC and reasonable notice is given to the housing credit applicant, the committee may record a lien against the property.
3. Provides that any lien recorded by TCAC against a property, to secure fines, shall be junior to any liens recorded before it.

FISCAL EFFECT:

1. Minor and absorbable administrative costs to TCAC to adopt a fine schedule at a public meeting.
2. Minor and absorbable administrative costs to administer new fines because TCAC already has a system for collecting fees and for issuing negative points to applicants.
3. Possible state savings due to collection in fines and reduced litigation costs.

COMMENTS:

1. Purpose. According to the author, TCAC has few enforcement remedies for an owner's failure to comply with program requirements that the IRS does not enforce. TCAC needs a more efficient and effective enforcement tool to ensure correction of violations that do not merit litigation or a receivership. This bill would provide TCAC with the legislative authority to levy fines for violations of the terms and conditions, the regulatory agreement, covenants, or LIHT credit program regulations.
2. Federal LIHT Credit Program. The LIHT credit is an indirect federal subsidy developed in 1986 to incentivize the private development of affordable rental housing for low-income households. The federal LIHT credit program replaced traditional housing tax incentives, such as accelerated depreciation, with a tax credit that enables low-income housing sponsors and developers to raise project equity through the allocation of tax benefits to investors.

1. State LIHT Credit Program. In 1987, the Legislature authorized a state LIHT credit program to augment the federal program. While the state LIHT credit program is patterned after the federal program, there are several differences, including a provision allowing investors to claim the state LIHT credit over a four-year, rather than the federal 10-year, allocation period. Furthermore, unlike the federal LIHT credit program, the California LIHT credit law requires project developers or housing sponsors to agree to a minimum of 55 years of rent and income restrictions.

State tax credits can only be awarded to projects that have also received, or are concurrently receiving, an allocation of the federal LIHT credits. Federal law specifies that each state must designate a "housing credit agency" to administer the federal LIHT credit program. In California, responsibility for administering the federal program is assigned to the California TCAC, which is comprised of the State Treasurer, the State Controller, the Director of Finance, and three non-voting members. TCAC allocates both federal and state LIHT credits through a competitive application process.

The amount of state LIHT credit that may be annually allocated by the TCAC is limited to $70 million, adjusted for inflation, plus any unallocated or unused credits from previous years. In 2015, the total state credit amount available for allocation was approximately $90 million (representing all four years of allocation), plus $5.5 million in farmworker state credit available for agricultural worker housing. The TCAC awarded approximately $123.1 million in state tax credits to 47 projects in 2015, including one farmworker state credit award of almost 1 million.

1. Current enforcement tools. Supporters of this bill contend that TCAC has limited options to enforce program requirements. Current tools include:
2. Imposing negative points, which means TCAC can deduct points from the overall score during the application process for a new credit.
3. Bringing a lawsuit, which supporters say is expensive and time-consuming.

Analysis Prepared by: Luke Reidenbach / APPR. / (916) 319-2081

Date of Hearing: April 18, 2016

ASSEMBLY COMMITTEE ON REVENUE AND TAXATION

Sebastian Ridley-Thomas, Chair

ABPCA Bill Id:AB 1920 (

Author:Chau) – As Amended Ver:March 18, 2016

2/3 vote. Fiscal committee.

SUBJECT: California Tax Credit Allocation Committee: low-income housing credit: fines

SUMMARY: Allows the California Tax Credit Allocation Committee (TCAC) to establish a schedule of fines for violations of the terms and conditions, the regulatory agreement, covenants, or program regulations for affordable housing developments that received low-income housing tax (LIHT) credits. Specifically, this bill:

1. Allows TCAC to charge up to $500 per violation or double the amount of the financial gain to the housing credit application because of the violation, whichever is greater.
2. Allows the fine to be reoccurring if the violation is not corrected within a reasonable period of time, as determined by TCAC.
3. Requires TCAC to adopt and revise, by resolution at a public meeting, the schedule of fines for specific violations and the fine amounts for each violation.
4. Requires all fines collected to be deposited into the Housing Rehabilitation Loan Fund, which is continuously appropriated to the Department of Housing and Community Development, and thereby makes an appropriation.
5. Provides that if a fine is not paid within six months from the date when the fine was initially assessed by TCAC and reasonable notice is given to the housing credit applicant, the committee may record a lien against the property. Specifies that a lien shall not be superior to any lien recorded prior to the recording of this lien.

EXISTING LAW:

1. Allows a state tax credit for costs related to construction, rehabilitation, or acquisition of low-income housing. This credit, which mirrors a federal LIHT credit, may be used by taxpayers to offset the tax under the Personal Income Tax (PIT), the Corporation Tax (CT), and the Insurance Tax (IT) laws.
   
2. Requires the California TCAC to allocate each year the California LIHT credits based upon qualifications of the applicant and proposed project. The California LIHT credit is available only to projects that have received an allocation of the federal LIHT credit.
   
3. Limits the annual aggregate amount of the state LIHT credit to $70 million, as adjusted for an increase in the California consumer price index from 2002, plus any unused LIHT credits for the preceding calendar year and any LIHT credits returned in the calendar year. The California LIHT credit awarded may be claimed as a credit against tax over a four-year period.
4. Requires TCAC to certify the amount of tax credit allocated. In the case of a partnership or an S Corporation, a copy of the certificate is provided to each taxpayer. The taxpayer is required, upon request, to provide a copy of the certificate to the FTB.

FISCAL EFFECT: Unknown.

COMMENTS:

1. Author's Statement. The author has provided the following statement in support of this bill:
   
   "Rental housing developments that receive low-income housing tax credits from the Tax Credit Allocation Committee (TCAC) are required to rent to income eligible applicants, limit rents, and maintain the physical condition of the units for 55 years. Owners agree to further commitments, such as more deeply targeting units to be affordable to extremely low income households, as part of the competitive scoring process. The Internal Revenue Service (IRS) enforces the basic program requirements for 15 years, but does not enforce deeper affordability or other requirements imposed by TCAC during the first 15 years, or any requirements after year 15.
   
   "TCAC has few enforcement remedies for an owner's failure to comply with program requirements that the IRS does not enforce. TCAC can impose negative points, which only work if the owner wants to propose new applications. Or, TCAC can bring a lawsuit to seek compliance or receivership, which is expensive, time-consuming, and only appropriate for worst-case scenarios. TCAC needs a more efficient and effective enforcement tool to ensure correction of violations that do not merit litigation or a receivership.
   
   "AB 1920 addresses this issue by providing TCAC with the legislative authority to levy fines for non-compliance with the regulatory agreement and program regulations."
2. Background: Federal LIHT Credit Program. The LIHT credit is an indirect federal subsidy developed in 1986 to incentivize the private development of affordable rental housing for low-income households. The federal LIHT credit program replaced traditional housing tax incentives, such as accelerated depreciation, with a tax credit that enables low-income housing sponsors and developers to raise project equity through the allocation of tax benefits to investors. Two types of federal tax credits are available: the 9% and 4% credits.^[1]
   
   Each year, the Federal Government allocates funding to the states for LIHT credits on the basis of a per-resident formula. State or local housing authorities review proposals submitted by developers and select projects based on a variety of prescribed criteria. Only rental housing buildings, which are either undergoing rehabilitation or newly constructed, are eligible for the LIHT credit programs. In addition, the qualified low-income housing projects must comply with both rent and income restrictions. Rents on qualified units cannot exceed 30% of an imputed income based on 1.5 persons per bedroom. Furthermore, the initial incomes of households in those units may not exceed either 60% or 50% of the area median income, adjusted for household size. A project developer or sponsor who applies for the tax credit allocation must also elect to set aside a minimum of either 40% of the units to be occupied by households with incomes of 60% or less of the area median gross income or 20% of the units to household with incomes of 50% or less of the area median gross income.
   
   LIHT credit projects must remain affordable for at least 15 or 30 years, whichever is applicable. Properties that received LIHT credit allocation before 1990 are subject to a 15-year compliance period during which the units must remain affordable. Beginning in 1990, federal law required tax credit projects to remain affordable for a minimum of 30 years, for the 15-year initial compliance period and a subsequent 15-year extended use period. During the compliance period, owners must report annually to both the IRS and the state monitoring agency. After 15 years, the obligation to report to the IRS on compliance issues ends, and investors are no longer at risk for tax credit recapture. However, for properties with allocations in 1990 or later, there is an additional 15-year restricted-use period, for a total of 30 years.
3. State LIHT Credit Program. In 1987, the Legislature authorized a state LIHT credit program to augment the federal program. Current state tax law generally conforms to federal law with respect to the LIHT credit, except that it is limited to projects located in California. While the state LIHT credit program is patterned after the federal program, there are several differences, including a provision allowing investors to claim the state LIHT credit over a four-year, rather than the federal 10-year, allocation period. Furthermore, unlike the federal LIHT credit program, the California LIHT credit law requires project developers or housing sponsors to agree to a minimum of 55 years of rent and income restrictions.
   
   State tax credits can only be awarded to projects that have also received, or are concurrently receiving, an allocation of the federal LIHT credits. Federal law specifies that each state must designate a "housing credit agency" to administer the federal LIHT credit program. In California, responsibility for administering the federal program is assigned to the California TCAC, which is comprised of the State Treasurer, the State Controller, the Director of Finance, and three non-voting members. TCAC allocates both federal and state LIHT credits through a competitive application process.
   
   The amount of state LIHT credit that may be annually allocated by the TCAC is limited to $70 million, adjusted for inflation, plus any unallocated or unused credits from previous years. In 2015, the total state credit amount available for allocation was $89,452,736 (representing all four years of allocation), plus $5,529,815 in farmworker state credit available for agricultural worker housing. The TCAC awarded approximately $123.1 million in state tax credits to 47 projects in 2015, including one farmworker state credit award of $982,697.
   
4. Federal LIHT Credit Program: Compliance: Federal Enforcement Efforts. The Federal LIHT credit program is jointly administered by the IRS and state housing finance agencies (HFAs). The IRS is the federal entity responsible for enforcing taxpayer compliance as well as overseeing HFAs' implementation of the program.^[2] In addition, the United States (U.S.) Department of Housing and Urban Development (HUD) is required to collect data collection on the LIHT credit program.^[3] HUD also participates in designating difficult development areas and qualified census tracts.^[4] However, HUD's role in the LIHT credit program is generally limited to the collection of information on tenant characteristics.
   
   According to a report issued by the U.S. Government Accountability Office (GAO), the IRS relies on HFAs to administer and oversee the LIHT credit programs in their respective states. The IRS can recapture some or all of the credits received by taxpayers if the taxpayers have not met the requirements during the 15-year compliance period. The GAO reported that IRS oversight to identify and address compliance issues has been minimal.^[5] While the IRS conducted some audits of taxpayers claiming the tax credits, it does not have detailed information on the results of these audits.^[6] The GAO reports that the IRS's database on LIHT credit programs is neither complete nor reliable to assess compliance. According to the IRS officials, competing audit priorities have limited the number of LIHT credit taxpayer audits conducted.^[7]
   
   Once the IRS monitoring of LIHT credit projects ends after year 15, HFAs have sole authority to monitor compliance for at least another 15 years, and the taxpayer must ensure that the project continues to meet program requirements, as defined in the project's extended use agreement with the HFA.^[8] In the case a project becomes non-compliant, the HFA could take action by litigating the issue of noncompliance under state law.
   
   As required by federal law, TCAC monitors a tax credit project located in California that has received an award of the federal LIHT credit. Specifically, TCAC ensures that the project meets milestones and reservation requirements up until it is completed and placed in service. Additionally, TCAC is required to monitor compliance throughout the entire term of the project's regulatory period, i.e., every three years during the 15 years of the federal credit compliance period. If non-compliance is discovered, the IRS could recapture credits claimed during the 15-year compliance period. However, for the remaining term of the regulatory agreement, TCAC is solely responsible for enforcement.
   
5. California LIHT Credit Program: Compliance: State Enforcement. In California, housing developments that receive LIHT credit awards from TCAC are required to rent to income eligible applicants, limit rents, and maintain the physical condition of the units for 55 years. Furthermore, owners must agree to further commitments, such as more deeply targeting units to be affordable to extremely-low income households, as part of the competitive scoring process. TCAC has few enforcement remedies when the project owner fails to comply with program requirements. TCAC can deduct points from the overall score during the application process for a new LIHT credit award (a so-called "negative points" procedure). But this approach only works if the owner submits a new application for the credit award. Alternatively, TCAC can bring a lawsuit to seek compliance or receivership. However, potential litigation is expensive and time-consuming.
   
6. What is the Problem? While the IRS oversees the basic federal program requirements for 15 years, it does not enforce compliance with the additional requirements imposed by TCAC for California-based LIHT credit projects. For example, if a developer agreed to keeping rents affordable to tenants with incomes at 30% of the area median income, as opposed to 60% (in order to receive a higher score during the application process) and later failed to comply with this requirement, federal agencies will not view this compliance failure as a violation of the federal requirements. The TCAC staff reports a recent case where a developer had committed during the competitive application process to include a play area as part of the housing development. Upon inspection two years later, TCAC found out that the play area had not been constructed. In this case, TCAC was able to enforce compliance with the previous agreement successfully by using the "negative points" approach because the developer was planning a new project and was applying for a new round of LIHT credit. However, had the developer not been planning a new project, TCAC would have had little ability to require the developer to correct the violation.

Nor does the IRS enforce compliance with any LIHT credit program requirement after the 15-year compliance period ends. According to TCAC, approximately 1,000 LIHT credit projects per year are inspected by the state and about 120 projects are reported to the IRS for various non-compliance issues, including ineligible residents, over-charged rents, and more significant maintenance issues. Most of these violations (probably 90%) are corrected by the time the violations are reported to the IRS. Without IRS's oversight, the responsibility to enforce affordability requirements and other commitments made by housing development owners after the 15-year compliance period falls to TCAC. In other words, TCAC is the only enforcement agency for the remaining 40 years of the 55-year regulatory agreement. And the limited enforcement tools available to TCAC may not be sufficient to enforce the LIHT credit program's requirements effectively.

1. Proposed Solution. This bill would provide TCAC with the legislative authority to levy fines for violations of the terms and conditions, the regulatory agreement, covenants, or LIHT credit program regulations. Fines may not exceed the greater of $500 or double the amount of the financial gain to the violator, whichever is greater, and could be recurring if the violations are not corrected in a reasonable amount of time. Fines would be deposited in the Housing Rehabilitation Loan Fund and be made available to the Multifamily Housing Program at the Department of Housing and Community Development. TCAC could record a lien on the property if fines are not paid within six months of being assessed. TCAC would adopt the fine schedule through a public process and provide for due process through appeals to the TCAC.
   
2. What is the Urgency? As more and more of LIHT credit projects in California approach the end of the 15-year federal compliance period, TCAC is concerned about the lack of adequate enforcement tools to deter or remedy non-compliance, which is likely to occur at a greater rate as projects age. In addition, many of the existing projects are being sold to REITs, which are non-traditional affordable housing developers. A REIT may choose to ignore the regulatory agreement, knowing that the deterrent of not qualifying for future LIHT credit awards is irrelevant, unless the REIT decides to become a low-income housing project developer in California. The sponsor argues that the lack of enforcement tools to deter future non-compliance has been a long standing issue, and there is no better time than the present to authorize TCAC to levy fines and hold developers accountable for keeping housing affordable beyond the 15-year federal compliance window. The sponsor believes that this bill is needed to preserve availability of California's affordable housing.
3. Double-referral. This bill was double-referred to the Assembly Committee on Housing and Community Development. This bill passed the Assembly Committee on Housing and Community Development on a 7 – 0 vote on March 30, 2016. For additional discussion of this bill's provisions, please refer to that committee's analysis.

REGISTERED SUPPORT / OPPOSITION:

Support

John Chiang, Treasurer, State of California (Sponsor)

The Arc of California

United Cerebral Palsy California

Opposition

None on file

Analysis Prepared by: Oksana Jaffe / REV. & TAX. / (916) 319-2098

1. These terms refer to the approximate percentage of a project's "qualified basis" a taxpayer may deduct from his/her annual federal tax liability in each of 10 years. For projects that are not financed with a federal subsidy, the applicable rate is 9%. For projects that are federally subsidized (including projects financed more than 50% with tax-exempt bonds), the applicable rate is 4%. Although the credits are known as the "9% and 4% credits", the actual rates fluctuate every month, based on the determination made by the Internal Revenue Service on a monthly basis. Nonetheless, Congress has established the minimum applicable percentage of 9% for allocations made for non-federally subsidized new buildings before January 1, 2015. ↑

2. United States Government Accountability Office, Low-Income Housing Tax Credit Report, Joint IRS-HUD Administration Could Help Address Weaknesses in Oversight, July 2015, p.6. ↑

3. In 2008, with the passage of the Housing and Economic Recovery Act, HFAs were required to submit annual data to HUD on race, ethnicity, family composition, age, income, use of rental assistance, disability status, and monthly rental payments of households residing in each property receiving LIHT credits. ↑

4. Ibid. ↑

5. Id., pp.18-28. ↑

6. According to the IRS, the agency had completed a review of a sample of 402 audits of LIHT credit program taxpayers. The review did not find evidence of widespread noncompliance with the law. The IRS audited additional 555 taxpayers claiming LIHT credit from 2001 through 2013, of which 29% resulted in no change to the amount of credit claimed and 24% resulted in changes to the amount of credit claimed. The IRS did not pursue the remaining audits because either the statute of limitation was within one year of expiring or the taxpayer requested adjudication. Id., p. 21. ↑

7. Id., p. 22. ↑

8. Id., p. 14. ↑

Date of Hearing: March 30, 2016

ASSEMBLY COMMITTEE ON HOUSING AND COMMUNITY DEVELOPMENT

David Chiu, Chair

ABPCA Bill Id:AB 1920 (

Author:Chau) – As Amended Ver:March 18, 2016

SUBJECT: California Tax Credit Allocation Committee: low-income housing credit: fines

SUMMARY: Allows the California Tax Credit Allocation Committee (TCAC) to establish a schedule of fines for violations of the terms and conditions, the regulatory agreement, covenants, or program regulations for affordable housing developments that received low-income housing tax credits (LIHTC). Specifically, this bill:

1. Allows TCAC to charge up to $500 per violation or double the amount of the financial gain to the housing credit application because of the violation, whichever is greater.
2. Allows the fine to be reoccurring if the violation is not corrected within a reasonable period of time, as determined by TCAC.
3. Requires TCAC to adopt and revise, by resolution at a public meeting, the schedule of fines for specific violations and the fine amounts for each violation.
4. Requires all fines collected to be deposited into the Housing Rehabilitation Loan Fund.
5. Provides that if a fine is not paid within six months from the date when the fine was initially assessed by TCAC and reasonable notice is given to the housing credit applicant, the committee may record a lien against the property.
6. Provides that any lien recorded by TCAC against a property, to secure fines, shall be junior to any liens recorded before it.

EXISTING LAW: Designates the TCAC as the state's only housing credit agency responsible for administering federal and low-income housing tax credits.

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.

Rental housing developments that receive low-income housing tax credits from TCAC are required to rent to income eligible applicants, limit rents, and maintain the physical condition of the units for 55 years. Owners agree to further commitments, such as more deeply targeting units to be affordable to extremely-low income households, as part of the competitive scoring process. The Internal Revenue Service (IRS) enforces the basic program requirements for 15 years, but does not enforce deeper affordability or other requirements imposed by TCAC during the first 15 years, or any requirements after year 15. TCAC has few enforcement remedies for an owner’s failure to comply with program requirements that the IRS does not enforce. TCAC can impose negative points, which only work if the owner wants to propose new applications. TCAC can also bring a lawsuit to seek compliance or receivership, however this expensive and time-consuming.

AB 1920 would provide TCAC with the legislative authority to levy fines for non-compliance with the terms and conditions, the regulatory agreement, covenants, or program regulations. Fines may not exceed the greater of $500 or double the amount of the financial gain to the violator and could be recurring if the violations are not corrected in a reasonable amount of time. Fines would be deposited in the Housing Rehabilitation Loan Fund and be made available to the Multifamily Housing Program at the Department of Housing and Community Development. TCAC could record a lien on the property, if fines are not paid within 6 months of being assessed. TCAC would adopt the fine schedule through a public process and provide for due process through appeals to the Committee.

Purpose of this bill: According to the author, "AB 1920 would provide TCAC with a more efficient and effective enforcement tool by giving TCAC the legislative authority to levy fines for non-compliance with the terms and conditions, the regulatory agreement, covenants, or program regulations."

REGISTERED SUPPORT / OPPOSITION:

Support

The Arc California

United Cerebral Palsy California Collaboration

Opposition

None on file.

Analysis Prepared by: Lisa Engel / H. & C.D. / (916) 319-2085