AB 2817: Taxes: credits: low-income housing: allocation increase.
- Session Year: 2015-2016
- House: Assembly
- Latest Version Date: 2016-05-27
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, personal income, and corporation income tax credit amounts among low-income housing projects based on federal law. Existing law, in modified conformity to federal income tax law, allows the credit based upon the applicable percentage, as defined, of the qualified basis of each qualified low-income building. Existing law limits the total annual amount of the credit that the committee may allocate to $70 million per year and allows $500,000 per year of that amount to be allocated for projects to provide farmworker housing, as specified.
This bill, for calendar years beginning 2017, would increase the aggregate housing credit dollar amount that may be allocated among low-income housing projects by $300,000,000, subject to annual approval, as specified. The bill would also increase the amount the committee may allocate to farmworker housing projects from $500,000 to $25,000,000 per year. The bill, under the insurance taxation law, the Personal Income Tax Law, and the Corporation Tax Law, would modify the definition of applicable percentage relating to qualified low-income buildings that meet specified criteria.
This bill would take effect immediately as a tax levy.
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, personal income, and corporation income tax credit amounts among low-income housing projects based on federal law. Existing law, in modified conformity to federal income tax law, allows the credit based upon the applicable percentage, as defined, of the qualified basis of each qualified low-income building. Existing law limits the total annual amount of the credit that the committee may allocate to $70 million per year and allows $500,000 per year of that amount to be allocated for projects to provide farmworker housing, as specified.
This bill, for calendar years beginning 2017, would increase the aggregate housing credit dollar amount that may be allocated among low-income housing projects by $300,000,000, subject to annual approval, as specified. The bill would also increase the amount the committee may allocate to farmworker housing projects from $500,000 to $25,000,000 per year. The bill, under the insurance taxation law, the Personal Income Tax Law, and the Corporation Tax Law, would modify the definition of applicable percentage relating to qualified low-income buildings that meet specified criteria.
This bill would take effect immediately as a tax levy.
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, personal income, and corporation income tax credit amounts among low-income housing projects based on federal law. Existing law, in modified conformity to federal income tax law, allows the credit based upon the applicable percentage, as defined, of the qualified basis of each qualified low-income building. Existing law limits the total annual amount of the credit that the committee may allocate to $70 million per year, as specified. year and allows $500,000 per year of that amount to be allocated for projects to provide farmworker housing, as specified.
This bill, for calendar years 2017 through 2022, inclusive, beginning 2017, would increase the aggregate housing credit dollar amount that may be allocated among low-income housing projects by $100,000,000, $300,000,000, as specified. The bill would also increase the amount the committee may allocate to farmworker housing projects from $500,000 to $25,000,000 per year. The bill, under the insurance taxation law, the Personal Income Tax Law, and the Corporation Tax Law, would modify the definition of applicable percentage relating to qualified low-income buildings that meet specified criteria.
This bill would take effect immediately as a tax levy.
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, personal income, and corporation income tax credit amounts among low-income housing projects based on federal law. Existing law, in modified conformity to federal income tax law, allows the credit based upon the applicable percentage, as defined, of the qualified basis of each qualified low-income building. Existing law limits the total annual amount of the credit that the committee may allocate to $70 million per year, as specified.
This bill, for calendar years 2017 through 2022, inclusive, would increase the aggregate housing credit dollar amount that may be allocated among low-income housing projects by $100,000,000, as specified. The bill, under the insurance taxation law, the Personal Income Tax Law, and the Corporation Tax Law, would modify the definition of applicable percentage relating to qualified low-income buildings that meet specified criteria.
This bill would take effect immediately as a tax levy.
(a)(1)There shall be allowed as a credit against the tax, as described by Section 12201, a state low-income housing tax credit in an amount equal to the amount determined in subdivision (c), computed in accordance with Section 42 of the Internal Revenue Code except as otherwise provided in this section.
(2)Taxpayer, for purposes of this section, means the sole owner in the case of a C corporation, the partners in the case of a partnership, members in the case of a limited liability company, and the shareholders in the case of an S corporation.
(3)Housing sponsor, for purposes of this section, means the sole owner in the case of a C corporation, the partnership in the case of a partnership, the limited liability company in the case of a limited liability company, and the S corporation in the case of an S corporation.
(4)Extremely low-income households has the same meaning as in Section 50053 of the Health and Safety Code.
(5)Very low-income households has the same meaning as in Section 50053 of the Health and Safety Code.
(b)(1)The amount of the credit allocated to any housing sponsor shall be authorized by the California Tax Credit Allocation Committee, or any successor thereof, based on a projects need for the credit for economic feasibility in accordance with the requirements of this section.
(A)Except for projects to provide farmworker housing, as defined in subdivision (h) of Section 50199.7 of the Health and Safety Code, that are allocated credits solely under the set-aside described in subdivision (c) of Section 50199.20 of the Health and Safety Code, the low-income housing project shall be located in California and shall meet either of the following requirements:
(i)The projects housing sponsor has been allocated by the California Tax Credit Allocation Committee a credit for federal income tax purposes under Section 42 of the Internal Revenue Code.
(ii)It qualifies for a credit under Section 42(h)(4)(B) of the Internal Revenue Code.
(B)The California Tax Credit Allocation Committee shall not require fees for the credit under this section in addition to those fees required for applications for the tax credit pursuant to Section 42 of the Internal Revenue Code. The committee may require a fee if the application for the credit under this section is submitted in a calendar year after the year the application is submitted for the federal tax credit.
(C)(i)For a project that receives a preliminary reservation of the state low-income housing tax credit, allowed pursuant to subdivision (a), on or after January 1, 2009, and before January 1, 2016, the credit shall be allocated to the partners of a partnership owning the project in accordance with the partnership agreement, regardless of how the federal low-income housing tax credit with respect to the project is allocated to the partners, or whether the allocation of the credit under the terms of the agreement has substantial economic effect, within the meaning of Section 704(b) of the Internal Revenue Code.
(ii)This subparagraph shall not apply to a project that receives a preliminary reservation of state low-income housing tax credits under the set-aside described in subdivision (c) of Section 50199.20 of the Health and Safety Code unless the project also receives a preliminary reservation of federal low-income housing tax credits.
(iii)This subparagraph shall cease to be operative with respect to any project that receives a preliminary reservation of a credit on or after January 1, 2016.
(2)(A)The California Tax Credit Allocation Committee shall certify to the housing sponsor the amount of tax credit under this section allocated to the housing sponsor for each credit period.
(B)In the case of a partnership or an S corporation, the housing sponsor shall provide a copy of the California Tax Credit Allocation Committee certification to the taxpayer.
(C)The taxpayer shall attach a copy of the certification to any return upon which a tax credit is claimed under this section.
(D)In the case of a failure to attach a copy of the certification for the year to the return in which a tax credit is claimed under this section, no credit under this section shall be allowed for that year until a copy of that certification is provided.
(E)All elections made by the taxpayer pursuant to Section 42 of the Internal Revenue Code shall apply to this section.
(F)(i)The California Tax Credit Allocation Committee may allocate a credit under this section in exchange for a credit allocated pursuant to Section 42(d)(5)(B) of the Internal Revenue Code in amounts up to 30 percent of the eligible basis of a building if the credits allowed under Section 42 of the Internal Revenue Code are reduced by an equivalent amount.
(ii)An equivalent amount shall be determined by the California Tax Credit Allocation Committee based upon the relative amount required to produce an equivalent state tax credit to the taxpayer.
(c)Section 42(b) of the Internal Revenue Code shall be modified as follows:
(1)In the case of any qualified low-income building that is a new building, as defined in Section 42 of the Internal Revenue Code and the regulations promulgated thereunder, and not federally subsidized, the term applicable percentage means the following:
(A)For each of the first three years, the percentage prescribed by the Secretary of the Treasury for new buildings that are not federally subsidized for the taxable year, determined in accordance with the requirements of Section 42(b)(1) of the Internal Revenue Code.
(B)For the fourth year, the difference between 30 percent and the sum of the applicable percentages for the first three years.
(2)In the case of any qualified low-income building that (i) is a new building, as defined in Section 42 of the Internal Revenue Code and the regulations promulgated thereunder, (ii) not located in designated difficult development areas (DDAs) or qualified census tracts (QCTs), as defined in Section 42(d)(5)(B) of the Internal Revenue Code, and (iii) is federally subsidized, the term applicable percentage means for the first three years, 15 percent of the qualified basis of the building, and for the fourth year, 5 percent of the qualified basis of the building.
(3)In the case of any qualified low-income building that is (i) an existing building, as defined in Section 42 of the Internal Revenue Code and the regulations promulgated thereunder, (ii) not located in designated difficult development areas (DDAs) or qualified census tracts (QCTs), as defined in Section 42(d)(5)(B) of the Internal Revenue Code, and (iii) is federally subsidized, the term applicable percentage means the following:
(A)For each of the first three years, the percentage prescribed by the Secretary of the Treasury for new buildings that are federally subsidized for the taxable year.
(B)For the fourth year, the difference between 13 percent and the sum of the applicable percentages for the first three years.
(4)In the case of any qualified low-income building that is (i) a new or an existing building, (ii) located in designated difficult development areas (DDAs) or qualified census tracts (QCTs) as defined in Section 42(d)(5)(B) of the Internal Revenue Code, and (iii) federally subsidized, the California Tax Credit Allocation Committee shall reduce the amount of California credit to be allocated under paragraph paragraphs (2) and (3) by taking into account the increased federal credit received due to the basis boost provided under Section 42(d)(5)(B) of the Internal Revenue Code.
(5)In the case of any qualified low-income building that meets all of the requirements of subparagraphs (A) through (D), inclusive, the term applicable percentage means 30 percent for each of the first three years and 5 percent for the fourth year. A qualified low-income building receiving an allocation under this paragraph is ineligible to also receive an allocation under paragraph (3).
(A)The qualified low-income building is at least 15 years old.
(B)The qualified low-income building is serving households of very low-income or extremely low-income such that the average maximum household income as restricted, pursuant to an existing regulatory agreement with a federal, state, county, local, or other governmental agency, is not more than 45 percent of the area median gross income, as determined under Section 42 of the Internal Revenue Code, adjusted by household size, and a tax credit regulatory agreement is entered into for a period of not less than 55 years restricting the average targeted household income to no more than 45 percent of the area median income.
(C)The qualified low-income building would have insufficient credits under paragraphs (2) and (3) to complete substantial rehabilitation due to a low appraised value.
(D)The qualified low-income building will complete the substantial rehabilitation in connection with the credit allocation herein.
(d)The term qualified low-income housing project as defined in Section 42(c)(2) of the Internal Revenue Code is modified by adding the following requirements:
(1)The taxpayer shall be entitled to receive a cash distribution from the operations of the project, after funding required reserves, that, at the election of the taxpayer, is equal to:
(A)An amount not to exceed 8 percent of the lesser of:
(i)The owner equity that shall include the amount of the capital contributions actually paid to the housing sponsor and shall not include any amounts until they are paid on an investor note.
(ii)Twenty percent of the adjusted basis of the building as of the close of the first taxable year of the credit period.
(B)The amount of the cashflow from those units in the building that are not low-income units. For purposes of computing cashflow under this subparagraph, operating costs shall be allocated to the low-income units using the floor space fraction, as defined in Section 42 of the Internal Revenue Code.
(C)Any amount allowed to be distributed under subparagraph (A) that is not available for distribution during the first five years of the compliance period may be accumulated and distributed any time during the first 15 years of the compliance period but not thereafter.
(2)The limitation on return shall apply in the aggregate to the partners if the housing sponsor is a partnership and in the aggregate to the shareholders if the housing sponsor is an S corporation.
(3)The housing sponsor shall apply any cash available for distribution in excess of the amount eligible to be distributed under paragraph (1) to reduce the rent on rent-restricted units or to increase the number of rent-restricted units subject to the tests of Section 42(g)(1) of the Internal Revenue Code.
(e)The provisions of Section 42(f) of the Internal Revenue Code shall be modified as follows:
(1)The term credit period as defined in Section 42(f)(1) of the Internal Revenue Code is modified by substituting four taxable years for 10 taxable years.
(2)The special rule for the first taxable year of the credit period under Section 42(f)(2) of the Internal Revenue Code shall not apply to the tax credit under this section.
(3)Section 42(f)(3) of the Internal Revenue Code is modified to read:
If, as of the close of any taxable year in the compliance period, after the first year of the credit period, the qualified basis of any building exceeds the qualified basis of that building as of the close of the first year of the credit period, the housing sponsor, to the extent of its tax credit allocation, shall be eligible for a credit on the excess in an amount equal to the applicable percentage determined pursuant to subdivision (c) for the four-year period beginning with the taxable year in which the increase in qualified basis occurs.
(f)The provisions of Section 42(h) of the Internal Revenue Code shall be modified as follows:
(1)Section 42(h)(2) of the Internal Revenue Code shall not be applicable and instead the following provisions shall be applicable:
The total amount for the four-year credit period of the housing credit dollars allocated in a calendar year to any building shall reduce the aggregate housing credit dollar amount of the California Tax Credit Allocation Committee for the calendar year in which the allocation is made.
(2)Paragraphs (3), (4), (5), (6)(E)(i)(II), (6)(F), (6)(G), (6)(I), (7), and (8) of Section 42(h) of the Internal Revenue Code shall not be applicable.
(g)The aggregate housing credit dollar amount that may be allocated annually by the California Tax Credit Allocation Committee pursuant to this section, Section 17058, and Section 23610.5 shall be an amount equal to the sum of all the following:
(1)(A)Seventy million dollars ($70,000,000) for the 2001 calendar year, and, for the 2002 calendar year and each calendar year thereafter, seventy million dollars ($70,000,000) increased by the percentage, if any, by which the Consumer Price Index for the preceding calendar year exceeds the Consumer Price Index for the 2001 calendar year. For the purposes of this paragraph, the term Consumer Price Index means the last Consumer Price Index for All Urban Consumers published by the federal Department of Labor.
(B)Subject to annual approval in a budget measure, three Three hundred million dollars ($300,000,000) for the 2017 calendar year, and, for the 2018 calendar year and each calendar year thereafter, three hundred million dollars ($300,000,000) increased by the percentage, if any, by which the Consumer Price Index for the preceding calendar year exceeds the Consumer Price Index for the 2017 calendar year. For the purposes of this paragraph, the term Consumer Price Index means the last Consumer Price Index for All Urban Consumers published by the federal Department of Labor. A housing sponsor receiving an allocation under paragraph (1) of subdivision (c) shall not be eligible for receipt of the housing credit allocated from the increased amount under this subparagraph. A housing sponsor receiving an allocation under paragraph (1) of subdivision (c) shall remain eligible for receipt of the housing credit allocated from the credit ceiling amount under subparagraph (A).
(2)The unused housing credit ceiling, if any, for the preceding calendar years.
(3)The amount of housing credit ceiling returned in the calendar year. For purposes of this paragraph, the amount of housing credit dollar amount returned in the calendar year equals the housing credit dollar amount previously allocated to any project that does not become a qualified low-income housing project within the period required by this section or to any project with respect to which an allocation is canceled by mutual consent of the California Tax Credit Allocation Committee and the allocation recipient.
(4)(A)Of the amount allocated pursuant to subparagraph (B) of paragraph (1), twenty-five million dollars ($25,000,000) per calendar year for projects to provide farmworker housing, as defined in subdivision (h) of Section 50199.7 of the Health and Safety Code.
(B)The amount of any unallocated or returned credits pursuant to this paragraph per calendar year shall be added to the aggregate amount of credits allocated pursuant to subparagraph (B) of paragraph (1).
(5)The amount of any unallocated or returned credits under former Sections 17053.14, 23608.2, and 23608.3, as those sections read prior to January 1, 2009, until fully exhausted for projects to provide farmworker housing, as defined in subdivision (h) of Section 50199.7 of the Health and Safety Code.
(h)The term compliance period as defined in Section 42(i)(1) of the Internal Revenue Code is modified to mean, with respect to any building, the period of 30 consecutive taxable years beginning with the first taxable year of the credit period with respect thereto.
(i)(1)Section 42(j) of the Internal Revenue Code shall not be applicable and the provisions in paragraph (2) shall be substituted in its place.
(2)The requirements of this section shall be set forth in a regulatory agreement between the California Tax Credit Allocation Committee and the housing sponsor, and the regulatory agreement shall be subordinated, when required, to any lien or encumbrance of any banks or other institutional lenders to the project. The regulatory agreement entered into pursuant to subdivision (f) of Section 50199.14 of the Health and Safety Code shall apply, provided that the agreement includes all of the following provisions:
(A)A term not less than the compliance period.
(B)A requirement that the agreement be recorded in the official records of the county in which the qualified low-income housing project is located.
(C)A provision stating which state and local agencies can enforce the regulatory agreement in the event the housing sponsor fails to satisfy any of the requirements of this section.
(D)A provision that the regulatory agreement shall be deemed a contract enforceable by tenants as third-party beneficiaries thereto and that allows individuals, whether prospective, present, or former occupants of the building, who meet the income limitation applicable to the building, the right to enforce the regulatory agreement in any state court.
(E)A provision incorporating the requirements of Section 42 of the Internal Revenue Code as modified by this section.
(F)A requirement that the housing sponsor notify the California Tax Credit Allocation Committee or its designee and the local agency that can enforce the regulatory agreement if there is a determination by the Internal Revenue Service that the project is not in compliance with Section 42(g) of the Internal Revenue Code.
(G)A requirement that the housing sponsor, as security for the performance of the housing sponsors obligations under the regulatory agreement, assign the housing sponsors interest in rents that it receives from the project, provided that until there is a default under the regulatory agreement, the housing sponsor is entitled to collect and retain the rents.
(H)The remedies available in the event of a default under the regulatory agreement that is not cured within a reasonable cure period, include, but are not limited to, allowing any of the parties designated to enforce the regulatory agreement to collect all rents with respect to the project; taking possession of the project and operating the project in accordance with the regulatory agreement until the enforcer determines the housing sponsor is in a position to operate the project in accordance with the regulatory agreement; applying to any court for specific performance; securing the appointment of a receiver to operate the project; or any other relief as may be appropriate.
(j)(1)The committee shall allocate the housing credit on a regular basis consisting of two or more periods in each calendar year during which applications may be filed and considered. The committee shall establish application filing deadlines, the maximum percentage of federal and state low-income housing tax credit ceiling that may be allocated by the committee in that period, and the approximate date on which allocations shall be made. If the enactment of federal or state law, the adoption of rules or regulations, or other similar events prevent the use of two allocation periods, the committee may reduce the number of periods and adjust the filing deadlines, maximum percentage of credit allocated, and allocation dates.
(2)The committee shall adopt a qualified allocation plan, as provided in Section 42(m)(1) of the Internal Revenue Code. In adopting this plan, the committee shall comply with the provisions of Sections 42(m)(1)(B) and 42(m)(1)(C) of the Internal Revenue Code, respectively.
(3)Notwithstanding Section 42(m) of the Internal Revenue Code the California Tax Credit Allocation Committee shall allocate housing credits in accordance with the qualified allocation plan and regulations, which shall include the following provisions:
(A)All housing sponsors, as defined by paragraph (3) of subdivision (a), shall demonstrate at the time the application is filed with the committee that the project meets the following threshold requirements:
(i)The housing sponsor shall demonstrate there is a need and demand for low-income housing in the community or region for which it is proposed.
(ii)The projects proposed financing, including tax credit proceeds, shall be sufficient to complete the project and that the proposed operating income shall be adequate to operate the project for the extended use period.
(iii)The project shall have enforceable financing commitments, either construction or permanent financing, for at least 50 percent of the total estimated financing of the project.
(iv)The housing sponsor shall have and maintain control of the site for the project.
(v)The housing sponsor shall demonstrate that the project complies with all applicable local land use and zoning ordinances.
(vi)The housing sponsor shall demonstrate that the project development team has the experience and the financial capacity to ensure project completion and operation for the extended use period.
(vii)The housing sponsor shall demonstrate the amount of tax credit that is necessary for the financial feasibility of the project and its viability as a qualified low-income housing project throughout the extended use period, taking into account operating expenses, a supportable debt service, reserves, funds set aside for rental subsidies and required equity, and a development fee that does not exceed a specified percentage of the eligible basis of the project prior to inclusion of the development fee in the eligible basis, as determined by the committee.
(B)The committee shall give a preference to those projects satisfying all of the threshold requirements of subparagraph (A) if both of the following apply:
(i)The project serves the lowest income tenants at rents affordable to those tenants.
(ii)The project is obligated to serve qualified tenants for the longest period.
(C)In addition to the provisions of subparagraphs (A) and (B), the committee shall use the following criteria in allocating housing credits:
(i)Projects serving large families in which a substantial number, as defined by the committee, of all residential units are low-income units with three or more bedrooms.
(ii)Projects providing single-room occupancy units serving very low income tenants.
(iii)(I)Existing projects that are at risk of conversion.
(II)For purposes of this section, the term at risk of conversion, with respect to an existing property means a property that satisfies all of the following criteria:
(ia)The property is a multifamily rental housing development in which at least 50 percent of the units receive governmental assistance pursuant to any of the following:
(Ia)New construction, substantial rehabilitation, moderate rehabilitation, property disposition, and loan management set-aside programs, or any other program providing project-based assistance pursuant to Section 8 of the United States Housing Act of 1937, Section 1437f of Title 42 of the United States Code, as amended.
(Ib)The Below-Market-Interest-Rate Program pursuant to Section 221(d)(3) of the National Housing Act, Sections 1715l(d)(3) and (5) of Title 12 of the United States Code.
(Ic)Section 236 of the National Housing Act, Section 1715z-1 of Title 12 of the United States Code.
(Id)Programs for rent supplement assistance pursuant to Section 18 101 of the Housing and Urban Development Act of 1965, Section 1701s of Title 12 of the United States Code, as amended.
(Ie)Programs pursuant to Section 515 of the Housing Act of 1949, Section 1485 of Title 42 of the United States Code, as amended.
(If)The low-income housing credit program set forth in Section 42 of the Internal Revenue Code.
(ib)The restrictions on rent and income levels will terminate or the federal insured mortgage on the property is eligible for prepayment any time within five years before or after the date of application to the California Tax Credit Allocation Committee.
(ic)The entity acquiring the property enters into a regulatory agreement that requires the property to be operated in accordance with the requirements of this section for a period equal to the greater of 55 years or the life of the property.
(id)The property satisfies the requirements of Section 42(e) of the Internal Revenue Code, regarding rehabilitation expenditures except that the provisions of Section 42(e)(3)(A)(ii)(I) shall not apply.
(iv)Projects for which a public agency provides direct or indirect long-term financial support for at least 15 percent of the total project development costs or projects for which the owners equity constitutes at least 30 percent of the total project development costs.
(v)Projects that provide tenant amenities not generally available to residents of low-income housing projects.
(4)For purposes of allocating credits pursuant to this section, the committee shall not give preference to any project by virtue of the date of submission of its application except to break a tie when two or more of the projects have an equal rating.
(k)Section 42(l) of the Internal Revenue Code shall be modified as follows:
The term secretary shall be replaced by the term California Franchise Tax Board.
(l)In the case where the credit allowed under this section exceeds the tax, the excess may be carried over to reduce the tax in the following year, and succeeding years if necessary, until the credit has been exhausted.
(m)The provisions of Section 11407(a) of Public Law 101-508, relating to the effective date of the extension of the low-income housing credit, shall apply to calendar years after 1993.
(n)The provisions of Section 11407(c) of Public Law 101-508, relating to election to accelerate credit, shall not apply.
(o)This section shall remain in effect for as long as Section 42 of the Internal Revenue Code, relating to low-income housing credit, remains in effect.
SEC. 2.Section 17058 of the Revenue and Taxation Code is amended to read:17058.(a)(1)There shall be allowed as a credit against the net tax, as defined in Section 17039, a state low-income housing tax credit in an amount equal to the amount determined in subdivision (c), computed in accordance with Section 42 of the Internal Revenue Code except as otherwise provided in this section.
(2)Taxpayer, for purposes of this section, means the sole owner in the case of an individual, the partners in the case of a partnership, and the shareholders in the case of an S corporation.
(3)Housing sponsor, for purposes of this section, means the sole owner in the case of an individual, the partnership in the case of a partnership, and the S corporation in the case of an S corporation.
(4)Extremely low-income households has the same meaning as in Section 50053 of the Health and Safety Code.
(5)Very low-income households has the same meaning as in Section 50053 of the Health and Safety Code.
(b)(1)The amount of the credit allocated to any housing sponsor shall be authorized by the California Tax Credit Allocation Committee, or any successor thereof, based on a projects need for the credit for economic feasibility in accordance with the requirements of this section.
(A)The low-income housing project shall be located in California and shall meet either of the following requirements:
(i)Except for projects to provide farmworker housing, as defined in subdivision (h) of Section 50199.7 of the Health and Safety Code, that are allocated credits solely under the set-aside described in subdivision (c) of Section 50199.20 of the Health and Safety Code, the projects housing sponsor has been allocated by the California Tax Credit Allocation Committee a credit for federal income tax purposes under Section 42 of the Internal Revenue Code.
(ii)It qualifies for a credit under Section 42(h)(4)(B) of the Internal Revenue Code.
(B)The California Tax Credit Allocation Committee shall not require fees for the credit under this section in addition to those fees required for applications for the tax credit pursuant to Section 42 of the Internal Revenue Code. The committee may require a fee if the application for the credit under this section is submitted in a calendar year after the year the application is submitted for the federal tax credit.
(C)(i)For a project that receives a preliminary reservation of the state low-income housing tax credit, allowed pursuant to subdivision (a), on or after January 1, 2009, and before January 1, 2016, the credit shall be allocated to the partners of a partnership owning the project in accordance with the partnership agreement, regardless of how the federal low-income housing tax credit with respect to the project is allocated to the partners, or whether the allocation of the credit under the terms of the agreement has substantial economic effect, within the meaning of Section 704(b) of the Internal Revenue Code.
(ii)To the extent the allocation of the credit to a partner under this section lacks substantial economic effect, any loss or deduction otherwise allowable under this part that is attributable to the sale or other disposition of that partners partnership interest made prior to the expiration of the federal credit shall not be allowed in the taxable year in which the sale or other disposition occurs, but shall instead be deferred until and treated as if it occurred in the first taxable year immediately following the taxable year in which the federal credit period expires for the project described in clause (i).
(iii)This subparagraph shall not apply to a project that receives a preliminary reservation of state low-income housing tax credits under the set-aside described in subdivision (c) of Section 50199.20 of the Health and Safety Code unless the project also receives a preliminary reservation of federal low-income housing tax credits.
(iv)This subparagraph shall cease to be operative with respect to any project that receives a preliminary reservation of a credit on or after January 1, 2016.
(2)(A)The California Tax Credit Allocation Committee shall certify to the housing sponsor the amount of tax credit under this section allocated to the housing sponsor for each credit period.
(B)In the case of a partnership, or an S corporation, the housing sponsor shall provide a copy of the California Tax Credit Allocation Committee certification to the taxpayer.
(C)The taxpayer shall, upon request, provide a copy of the certification to the Franchise Tax Board.
(D)All elections made by the taxpayer pursuant to Section 42 of the Internal Revenue Code shall apply to this section.
(E)(i)The California Tax Credit Allocation Committee may allocate a credit under this section in exchange for a credit allocated pursuant to Section 42(d)(5)(B) of the Internal Revenue Code in amounts up to 30 percent of the eligible basis of a building if the credits allowed under Section 42 of the Internal Revenue Code are reduced by an equivalent amount.
(ii)An equivalent amount shall be determined by the California Tax Credit Allocation Committee based upon the relative amount required to produce an equivalent state tax credit to the taxpayer.
(c)Section 42(b) of the Internal Revenue Code shall be modified as follows:
(1)In the case of any qualified low-income building that is a new building, as defined in Section 42 of the Internal Revenue Code and the regulations promulgated thereunder, and not federally subsidized, the term applicable percentage means the following:
(A)For each of the first three years, the percentage prescribed by the Secretary of the Treasury for new buildings that are not federally subsidized for the taxable year, determined in accordance with the requirements of Section 42(b)(1) of the Internal Revenue Code.
(B)For the fourth year, the difference between 30 percent and the sum of the applicable percentages for the first three years.
(2)In the case of any qualified low-income building that (i) is a new building, as defined in Section 42 of the Internal Revenue Code and the regulations promulgated thereunder, (ii) not located in designated difficult development areas (DDAs) or qualified census tracts (QCTs), as defined in Section 42(d)(5)(B) of the Internal Revenue Code, and (iii) is federally subsidized, the term applicable percentage means for the first three years, 15 percent of the qualified basis of the building, and for the fourth year, 5 percent of the qualified basis of the building.
(3)In the case of any qualified low-income building that is (i) an existing building, as defined in Section 42 of the Internal Revenue Code and the regulations promulgated thereunder, (ii) not located in designated difficult development areas (DDAs) or qualified census tracts (QCTs), as defined in Section 42(d)(5)(B) of the Internal Revenue Code, and (iii) is federally subsidized, the term applicable percentage means the following:
(A)For each of the first three years, the percentage prescribed by the Secretary of the Treasury for new buildings that are federally subsidized for the taxable year.
(B)For the fourth year, the difference between 13 percent and the sum of the applicable percentages for the first three years.
(4)In the case of any qualified low-income building that is (i) a new or an existing building, (ii) located in designated difficult development areas (DDAs) or qualified census tracts (QCTs) as defined in Section 42(d)(5)(B) of the Internal Revenue Code, and (iii) federally subsidized, the California Tax Credit Allocation Committee shall reduce the amount of California credit to be allocated under paragraph paragraphs (2) and (3) by taking into account the increased federal credit received due to the basis boost provided under Section 42(d)(5)(B) of the Internal Revenue Code.
(5)In the case of any qualified low-income building that meets all of the requirements of subparagraphs (A) through (D), inclusive, the term applicable percentage means 30 percent for each of the first three years and 5 percent for the fourth year. A qualified low-income building receiving an allocation under this paragraph is ineligible to also receive an allocation under paragraph (3).
(A)The qualified low-income building is at least 15 years old.
(B)The qualified low-income building is serving households of very low-income or extremely low-income such that the average maximum household income as restricted, pursuant to an existing regulatory agreement with a federal, state, county, local, or other governmental agency, is not more than 45 percent of the area median gross income, as determined under Section 42 of the Internal Revenue Code, adjusted by household size, and a tax credit regulatory agreement is entered into for a period of not less than 55 years restricting the average targeted household income to no more than 45 percent of the area median income.
(C)The qualified low-income building would have insufficient credits under paragraphs (2) and (3) to complete substantial rehabilitation due to a low appraised value.
(D)The qualified low-income building will complete the substantial rehabilitation in connection with the credit allocation herein.
(d)The term qualified low-income housing project as defined in Section 42(c)(2) of the Internal Revenue Code is modified by adding the following requirements:
(1)The taxpayer shall be entitled to receive a cash distribution from the operations of the project, after funding required reserves, that, at the election of the taxpayer, is equal to:
(A)An amount not to exceed 8 percent of the lesser of:
(i)The owner equity that shall include the amount of the capital contributions actually paid to the housing sponsor and shall not include any amounts until they are paid on an investor note.
(ii)Twenty percent of the adjusted basis of the building as of the close of the first taxable year of the credit period.
(B)The amount of the cashflow from those units in the building that are not low-income units. For purposes of computing cashflow under this subparagraph, operating costs shall be allocated to the low-income units using the floor space fraction, as defined in Section 42 of the Internal Revenue Code.
(C)Any amount allowed to be distributed under subparagraph (A) that is not available for distribution during the first five years of the compliance period may be accumulated and distributed any time during the first 15 years of the compliance period but not thereafter.
(2)The limitation on return shall apply in the aggregate to the partners if the housing sponsor is a partnership and in the aggregate to the shareholders if the housing sponsor is an S corporation.
(3)The housing sponsor shall apply any cash available for distribution in excess of the amount eligible to be distributed under paragraph (1) to reduce the rent on rent-restricted units or to increase the number of rent-restricted units subject to the tests of Section 42(g)(1) of the Internal Revenue Code.
(e)The provisions of Section 42(f) of the Internal Revenue Code shall be modified as follows:
(1)The term credit period as defined in Section 42(f)(1) of the Internal Revenue Code is modified by substituting four taxable years for 10 taxable years.
(2)The special rule for the first taxable year of the credit period under Section 42(f)(2) of the Internal Revenue Code shall not apply to the tax credit under this section.
(3)Section 42(f)(3) of the Internal Revenue Code is modified to read:
If, as of the close of any taxable year in the compliance period, after the first year of the credit period, the qualified basis of any building exceeds the qualified basis of that building as of the close of the first year of the credit period, the housing sponsor, to the extent of its tax credit allocation, shall be eligible for a credit on the excess in an amount equal to the applicable percentage determined pursuant to subdivision (c) for the four-year period beginning with the taxable year in which the increase in qualified basis occurs.
(f)The provisions of Section 42(h) of the Internal Revenue Code shall be modified as follows:
(1)Section 42(h)(2) of the Internal Revenue Code shall not be applicable and instead the following provisions shall be applicable:
The total amount for the four-year credit period of the housing credit dollars allocated in a calendar year to any building shall reduce the aggregate housing credit dollar amount of the California Tax Credit Allocation Committee for the calendar year in which the allocation is made.
(2)Paragraphs (3), (4), (5), (6)(E)(i)(II), (6)(F), (6)(G), (6)(I), (7), and (8) of Section 42(h) of the Internal Revenue Code shall not be applicable.
(g)The aggregate housing credit dollar amount that may be allocated annually by the California Tax Credit Allocation Committee pursuant to this section, Section 12206, and Section 23610.5 shall be an amount equal to the sum of all the following:
(1)(A)Seventy million dollars ($70,000,000) for the 2001 calendar year, and, for the 2002 calendar year and each calendar year thereafter, seventy million dollars ($70,000,000) increased by the percentage, if any, by which the Consumer Price Index for the preceding calendar year exceeds the Consumer Price Index for the 2001 calendar year. For the purposes of this paragraph, the term Consumer Price Index means the last Consumer Price Index for All Urban Consumers published by the federal Department of Labor.
(B)Subject to annual approval in a budget measure, three Three hundred million dollars ($300,000,000) for the 2017 calendar year, and, for the 2018 calendar year and each calendar year thereafter, three hundred million dollars ($300,000,000) increased by the percentage, if any, by which the Consumer Price Index for the preceding calendar year exceeds the Consumer Price Index for the 2017 calendar year. For the purposes of this paragraph, the term Consumer Price Index means the last Consumer Price Index for All Urban Consumers published by the federal Department of Labor. A housing sponsor receiving an allocation under paragraph (1) of subdivision (c) shall not be eligible for receipt of the housing credit allocated from the increased amount under this subparagraph. A housing sponsor receiving an allocation under paragraph (1) of subdivision (c) shall remain eligible for receipt of the housing credit allocated from the credit ceiling amount under subparagraph (A).
(2)The unused housing credit ceiling, if any, for the preceding calendar years.
(3)The amount of housing credit ceiling returned in the calendar year. For purposes of this paragraph, the amount of housing credit dollar amount returned in the calendar year equals the housing credit dollar amount previously allocated to any project that does not become a qualified low-income housing project within the period required by this section or to any project with respect to which an allocation is canceled by mutual consent of the California Tax Credit Allocation Committee and the allocation recipient.
(4)(A)Of the amount allocated pursuant to subparagraph (B) of paragraph (1), twenty-five million dollars ($25,000,000) per calendar year for projects to provide farmworker housing, as defined in subdivision (h) of Section 50199.7 of the Health and Safety Code.
(B)The amount of any unallocated or returned credits pursuant to this paragraph per calendar year shall be added to the aggregate amount of credits allocated pursuant to subparagraph (B) of paragraph (1).
(5)The amount of any unallocated or returned credits under former Sections 17053.14, 23608.2, and 23608.3, as those sections read prior to January 1, 2009, until fully exhausted for projects to provide farmworker housing, as defined in subdivision (h) of Section 50199.7 of the Health and Safety Code.
(h)The term compliance period as defined in Section 42(i)(1) of the Internal Revenue Code is modified to mean, with respect to any building, the period of 30 consecutive taxable years beginning with the first taxable year of the credit period with respect thereto.
(i)Section 42(j) of the Internal Revenue Code shall not be applicable and the following requirements of this section shall be set forth in a regulatory agreement between the California Tax Credit Allocation Committee and the housing sponsor, and the regulatory agreement shall be subordinated, when required, to any lien or encumbrance of any banks or other institutional lenders to the project. The regulatory agreement entered into pursuant to subdivision (f) of Section 50199.14 of the Health and Safety Code shall apply, provided that the agreement includes all of the following provisions:
(1)A term not less than the compliance period.
(2)A requirement that the agreement be recorded in the official records of the county in which the qualified low-income housing project is located.
(3)A provision stating which state and local agencies can enforce the regulatory agreement in the event the housing sponsor fails to satisfy any of the requirements of this section.
(4)A provision that the regulatory agreement shall be deemed a contract enforceable by tenants as third-party beneficiaries thereto and that allows individuals, whether prospective, present, or former occupants of the building, who meet the income limitation applicable to the building, the right to enforce the regulatory agreement in any state court.
(5)A provision incorporating the requirements of Section 42 of the Internal Revenue Code as modified by this section.
(6)A requirement that the housing sponsor notify the California Tax Credit Allocation Committee or its designee if there is a determination by the Internal Revenue Service that the project is not in compliance with Section 42(g) of the Internal Revenue Code.
(7)A requirement that the housing sponsor, as security for the performance of the housing sponsors obligations under the regulatory agreement, assign the housing sponsors interest in rents that it receives from the project, provided that until there is a default under the regulatory agreement, the housing sponsor is entitled to collect and retain the rents.
(8)The remedies available in the event of a default under the regulatory agreement that is not cured within a reasonable cure period, include, but are not limited to, allowing any of the parties designated to enforce the regulatory agreement to collect all rents with respect to the project; taking possession of the project and operating the project in accordance with the regulatory agreement until the enforcer determines the housing sponsor is in a position to operate the project in accordance with the regulatory agreement; applying to any court for specific performance; securing the appointment of a receiver to operate the project; or any other relief as may be appropriate.
(j)(1)The committee shall allocate the housing credit on a regular basis consisting of two or more periods in each calendar year during which applications may be filed and considered. The committee shall establish application filing deadlines, the maximum percentage of federal and state low-income housing tax credit ceiling that may be allocated by the committee in that period, and the approximate date on which allocations shall be made. If the enactment of federal or state law, the adoption of rules or regulations, or other similar events prevent the use of two allocation periods, the committee may reduce the number of periods and adjust the filing deadlines, maximum percentage of credit allocated, and allocation dates.
(2)The committee shall adopt a qualified allocation plan, as provided in Section 42(m)(1) of the Internal Revenue Code. In adopting this plan, the committee shall comply with the provisions of Sections 42(m)(1)(B) and 42(m)(1)(C) of the Internal Revenue Code, respectively.
(3)Notwithstanding Section 42(m) of the Internal Revenue Code the California Tax Credit Allocation Committee shall allocate housing credits in accordance with the qualified allocation plan and regulations, which shall include the following provisions:
(A)All housing sponsors, as defined by paragraph (3) of subdivision (a), shall demonstrate at the time the application is filed with the committee that the project meets the following threshold requirements:
(i)The housing sponsor shall demonstrate there is a need and demand for low-income housing in the community or region for which it is proposed.
(ii)The projects proposed financing, including tax credit proceeds, shall be sufficient to complete the project and that the proposed operating income shall be adequate to operate the project for the extended use period.
(iii)The project shall have enforceable financing commitments, either construction or permanent financing, for at least 50 percent of the total estimated financing of the project.
(iv)The housing sponsor shall have and maintain control of the site for the project.
(v)The housing sponsor shall demonstrate that the project complies with all applicable local land use and zoning ordinances.
(vi)The housing sponsor shall demonstrate that the project development team has the experience and the financial capacity to ensure project completion and operation for the extended use period.
(vii)The housing sponsor shall demonstrate the amount of tax credit that is necessary for the financial feasibility of the project and its viability as a qualified low-income housing project throughout the extended use period, taking into account operating expenses, a supportable debt service, reserves, funds set aside for rental subsidies and required equity, and a development fee that does not exceed a specified percentage of the eligible basis of the project prior to inclusion of the development fee in the eligible basis, as determined by the committee.
(B)The committee shall give a preference to those projects satisfying all of the threshold requirements of subparagraph (A) if both of the following apply:
(i)The project serves the lowest income tenants at rents affordable to those tenants.
(ii)The project is obligated to serve qualified tenants for the longest period.
(C)In addition to the provisions of subparagraphs (A) and (B), the committee shall use the following criteria in allocating housing credits:
(i)Projects serving large families in which a substantial number, as defined by the committee, of all residential units are low-income units with three or more bedrooms.
(ii)Projects providing single-room occupancy units serving very low income tenants.
(iii)(I)Existing projects that are at risk of conversion.
(II)For purposes of this section, the term at risk of conversion, with respect to an existing property means a property that satisfies all of the following criteria:
(ia)The property is a multifamily rental housing development in which at least 50 percent of the units receive governmental assistance pursuant to any of the following:
(Ia)New construction, substantial rehabilitation, moderate rehabilitation, property disposition, and loan management set-aside programs, or any other program providing project-based assistance pursuant to Section 8 of the United States Housing Act of 1937, Section 1437f of Title 42 of the United States Code, as amended.
(Ib)The Below-Market-Interest-Rate Program pursuant to Section 221(d)(3) of the National Housing Act, Sections 1715l(d)(3) and (5) of Title 12 of the United States Code.
(Ic)Section 236 of the National Housing Act, Section 1715z-1 of Title 12 of the United States Code.
(Id)Programs for rent supplement assistance pursuant to Section 18 101 of the Housing and Urban Development Act of 1965, Section 1701s of Title 12 of the United States Code, as amended.
(Ie)Programs pursuant to Section 515 of the Housing Act of 1949, Section 1485 of Title 42 of the United States Code, as amended.
(If)The low-income housing credit program set forth in Section 42 of the Internal Revenue Code.
(ib)The restrictions on rent and income levels will terminate or the federal insured mortgage on the property is eligible for prepayment any time within five years before or after the date of application to the California Tax Credit Allocation Committee.
(ic)The entity acquiring the property enters into a regulatory agreement that requires the property to be operated in accordance with the requirements of this section for a period equal to the greater of 55 years or the life of the property.
(id)The property satisfies the requirements of Section 42(e) of the Internal Revenue Code, regarding rehabilitation expenditures except that the provisions of Section 42(e)(3)(A)(ii)(I) shall not apply.
(iv)Projects for which a public agency provides direct or indirect long-term financial support for at least 15 percent of the total project development costs or projects for which the owners equity constitutes at least 30 percent of the total project development costs.
(v)Projects that provide tenant amenities not generally available to residents of low-income housing projects.
(4)For purposes of allocating credits pursuant to this section, the committee shall not give preference to any project by virtue of the date of submission of its application.
(k)Section 42(l) of the Internal Revenue Code shall be modified as follows:
The term secretary shall be replaced by the term California Franchise Tax Board.
(l)In the case where the credit allowed under this section exceeds the net tax, the excess may be carried over to reduce the net tax in the following year, and succeeding taxable years, if necessary, until the credit has been exhausted.
(m)A project that received an allocation of a 1989 federal housing credit dollar amount shall be eligible to receive an allocation of a 1990 state housing credit dollar amount, subject to all of the following conditions:
(1)The project was not placed in service prior to 1990.
(2)To the extent the amendments made to this section by the Statutes of 1990 conflict with any provisions existing in this section prior to those amendments, the prior provisions of law shall prevail.
(3)Notwithstanding paragraph (2), a project applying for an allocation under this subdivision shall be subject to the requirements of paragraph (3) of subdivision (j).
(n)The credit period with respect to an allocation of credit in 1989 by the California Tax Credit Allocation Committee of which any amount is attributable to unallocated credit from 1987 or 1988 shall not begin until after December 31, 1989.
(o)The provisions of Section 11407(a) of Public Law 101-508, relating to the effective date of the extension of the low-income housing credit, shall apply to calendar years after 1989.
(p)The provisions of Section 11407(c) of Public Law 101-508, relating to election to accelerate credit, shall not apply.
(q)Any unused credit may continue to be carried forward, as provided in subdivision (l), until the credit has been exhausted.
(r)This section shall remain in effect on and after December 1, 1990, for as long as Section 42 of the Internal Revenue Code, relating to low-income housing credit, remains in effect.
(s)The amendments to this section made by Chapter 1222 of the Statutes of 1993 shall apply only to taxable years beginning on or after January 1, 1994.
SEC. 3.Section 23610.5 of the Revenue and Taxation Code is amended to read:23610.5.(a)(1)There shall be allowed as a credit against the tax, as defined by Section 23036, a state low-income housing tax credit in an amount equal to the amount determined in subdivision (c), computed in accordance with Section 42 of the Internal Revenue Code except as otherwise provided in this section.
(2)Taxpayer, for purposes of this section, means the sole owner in the case of a C corporation, the partners in the case of a partnership, and the shareholders in the case of an S corporation.
(3)Housing sponsor, for purposes of this section, means the sole owner in the case of a C corporation, the partnership in the case of a partnership, and the S corporation in the case of an S corporation.
(4)Extremely low-income households has the same meaning as in Section 50053 of the Health and Safety Code.
(5)Very low-income households has the same meaning as in Section 50053 of the Health and Safety Code.
(b)(1)The amount of the credit allocated to any housing sponsor shall be authorized by the California Tax Credit Allocation Committee, or any successor thereof, based on a projects need for the credit for economic feasibility in accordance with the requirements of this section.
(A)The low-income housing project shall be located in California and shall meet either of the following requirements:
(i)Except for projects to provide farmworker housing, as defined in subdivision (h) of Section 50199.7 of the Health and Safety Code, that are allocated credits solely under the set-aside described in subdivision (c) of Section 50199.20 of the Health and Safety Code, the projects housing sponsor has been allocated by the California Tax Credit Allocation Committee a credit for federal income tax purposes under Section 42 of the Internal Revenue Code.
(ii)It qualifies for a credit under Section 42(h)(4)(B) of the Internal Revenue Code.
(B)The California Tax Credit Allocation Committee shall not require fees for the credit under this section in addition to those fees required for applications for the tax credit pursuant to Section 42 of the Internal Revenue Code. The committee may require a fee if the application for the credit under this section is submitted in a calendar year after the year the application is submitted for the federal tax credit.
(C)(i)For a project that receives a preliminary reservation of the state low-income housing tax credit, allowed pursuant to subdivision (a), on or after January 1, 2009, and before January 1, 2016, the credit shall be allocated to the partners of a partnership owning the project in accordance with the partnership agreement, regardless of how the federal low-income housing tax credit with respect to the project is allocated to the partners, or whether the allocation of the credit under the terms of the agreement has substantial economic effect, within the meaning of Section 704(b) of the Internal Revenue Code.
(ii)To the extent the allocation of the credit to a partner under this section lacks substantial economic effect, any loss or deduction otherwise allowable under this part that is attributable to the sale or other disposition of that partners partnership interest made prior to the expiration of the federal credit shall not be allowed in the taxable year in which the sale or other disposition occurs, but shall instead be deferred until and treated as if it occurred in the first taxable year immediately following the taxable year in which the federal credit period expires for the project described in clause (i).
(iii)This subparagraph shall not apply to a project that receives a preliminary reservation of state low-income housing tax credits under the set-aside described in subdivision (c) of Section 50199.20 of the Health and Safety Code unless the project also receives a preliminary reservation of federal low-income housing tax credits.
(iv)This subparagraph shall cease to be operative with respect to any project that receives a preliminary reservation of a credit on or after January 1, 2016.
(2)(A)The California Tax Credit Allocation Committee shall certify to the housing sponsor the amount of tax credit under this section allocated to the housing sponsor for each credit period.
(B)In the case of a partnership, or an S corporation, the housing sponsor shall provide a copy of the California Tax Credit Allocation Committee certification to the taxpayer.
(C)The taxpayer shall, upon request, provide a copy of the certification to the Franchise Tax Board.
(D)All elections made by the taxpayer pursuant to Section 42 of the Internal Revenue Code shall apply to this section.
(E)(i)The California Tax Credit Allocation Committee may allocate a credit under this section in exchange for a credit allocated pursuant to Section 42(d)(5)(B) of the Internal Revenue Code in amounts up to 30 percent of the eligible basis of a building if the credits allowed under Section 42 of the Internal Revenue Code are reduced by an equivalent amount.
(ii)An equivalent amount shall be determined by the California Tax Credit Allocation Committee based upon the relative amount required to produce an equivalent state tax credit to the taxpayer.
(c)Section 42(b) of the Internal Revenue Code shall be modified as follows:
(1)In the case of any qualified low-income building that is a new building, as defined in Section 42 of the Internal Revenue Code and the regulations promulgated thereunder, and not federally subsidized, the term applicable percentage means the following:
(A)For each of the first three years, the percentage prescribed by the Secretary of the Treasury for new buildings that are not federally subsidized for the taxable year, determined in accordance with the requirements of Section 42(b)(1) of the Internal Revenue Code.
(B)For the fourth year, the difference between 30 percent and the sum of the applicable percentages for the first three years.
(2)In the case of any qualified low-income building that (i) is a new building, as defined in Section 42 of the Internal Revenue Code and the regulations promulgated thereunder, (ii) not located in designated difficult development areas (DDAs) or qualified census tracts (QCTs), as defined in Section 42(d)(5)(B) of the Internal Revenue Code, and (iii) is federally subsidized, the term applicable percentage means for the first three years, 15 percent of the qualified basis of the building, and for the fourth year, 5 percent of the qualified basis of the building.
(3)In the case of any qualified low-income building that is (i) an existing building, as defined in Section 42 of the Internal Revenue Code and the regulations promulgated thereunder, (ii) not located in designated difficult development areas (DDAs) or qualified census tracts (QCTs), as defined in Section 42(d)(5)(B) of the Internal Revenue Code, and (iii) is federally subsidized, the term applicable percentage means the following:
(A)For each of the first three years, the percentage prescribed by the Secretary of the Treasury for new buildings that are federally subsidized for the taxable year.
(B)For the fourth year, the difference between 13 percent and the sum of the applicable percentages for the first three years.
(4)In the case of any qualified low-income building that is (i) a new or an existing building, (ii) located in designated difficult development areas (DDAs) or qualified census tracts (QCTs) as defined in Section 42(d)(5)(B) of the Internal Revenue Code, and (iii) federally subsidized, the California Tax Credit Allocation Committee shall determine the amount of credit to be allocated under subparagraph (E) of paragraph (2) of subdivision (b) required to produce an equivalent state tax credit to the taxpayer, as produced in paragraph (2), taking into account the basis boost provided under Section 42(d)(5)(B) of the Internal Revenue Code.
(5)In the case of any qualified low-income building that meets all of the requirements of subparagraphs (A) through (D), inclusive, the term applicable percentage means 30 percent for each of the first three years and 5 percent for the fourth year. A qualified low-income building receiving an allocation under this paragraph is ineligible to also receive an allocation under paragraph (3).
(A)The qualified low-income building is at least 15 years old.
(B)The qualified low-income building is serving households of very low-income or extremely low-income such that the average maximum household income as restricted, pursuant to an existing regulatory agreement with a federal, state, county, local, or other governmental agency, is not more than 45 percent of the area median gross income, as determined under Section 42 of the Internal Revenue Code, adjusted by household size, and a tax credit regulatory agreement is entered into for a period of not less than 55 years restricting the average targeted household income to no more than 45 percent of the area median income.
(C)The qualified low-income building would have insufficient credits under paragraphs (2) and (3) to complete substantial rehabilitation due to a low appraised value.
(D)The qualified low-income building will complete the substantial rehabilitation in connection with the credit allocation herein.
(d)The term qualified low-income housing project as defined in Section 42(c)(2) of the Internal Revenue Code is modified by adding the following requirements:
(1)The taxpayer shall be entitled to receive a cash distribution from the operations of the project, after funding required reserves, that, at the election of the taxpayer, is equal to:
(A)An amount not to exceed 8 percent of the lesser of:
(i)The owner equity that shall include the amount of the capital contributions actually paid to the housing sponsor and shall not include any amounts until they are paid on an investor note.
(ii)Twenty percent of the adjusted basis of the building as of the close of the first taxable year of the credit period.
(B)The amount of the cashflow from those units in the building that are not low-income units. For purposes of computing cashflow under this subparagraph, operating costs shall be allocated to the low-income units using the floor space fraction, as defined in Section 42 of the Internal Revenue Code.
(C)Any amount allowed to be distributed under subparagraph (A) that is not available for distribution during the first five years of the compliance period may be accumulated and distributed any time during the first 15 years of the compliance period but not thereafter.
(2)The limitation on return shall apply in the aggregate to the partners if the housing sponsor is a partnership and in the aggregate to the shareholders if the housing sponsor is an S corporation.
(3)The housing sponsor shall apply any cash available for distribution in excess of the amount eligible to be distributed under paragraph (1) to reduce the rent on rent-restricted units or to increase the number of rent-restricted units subject to the tests of Section 42(g)(1) of the Internal Revenue Code.
(e)The provisions of Section 42(f) of the Internal Revenue Code shall be modified as follows:
(1)The term credit period as defined in Section 42(f)(1) of the Internal Revenue Code is modified by substituting four taxable years for 10 taxable years.
(2)The special rule for the first taxable year of the credit period under Section 42(f)(2) of the Internal Revenue Code shall not apply to the tax credit under this section.
(3)Section 42(f)(3) of the Internal Revenue Code is modified to read:
If, as of the close of any taxable year in the compliance period, after the first year of the credit period, the qualified basis of any building exceeds the qualified basis of that building as of the close of the first year of the credit period, the housing sponsor, to the extent of its tax credit allocation, shall be eligible for a credit on the excess in an amount equal to the applicable percentage determined pursuant to subdivision (c) for the four-year period beginning with the later of the taxable years in which the increase in qualified basis occurs.
(f)The provisions of Section 42(h) of the Internal Revenue Code shall be modified as follows:
(1)Section 42(h)(2) of the Internal Revenue Code shall not be applicable and instead the following provisions shall be applicable:
The total amount for the four-year credit period of the housing credit dollars allocated in a calendar year to any building shall reduce the aggregate housing credit dollar amount of the California Tax Credit Allocation Committee for the calendar year in which the allocation is made.
(2)Paragraphs (3), (4), (5), (6)(E)(i)(II), (6)(F), (6)(G), (6)(I), (7), and (8) of Section 42(h) of the Internal Revenue Code shall not be applicable.
(g)The aggregate housing credit dollar amount that may be allocated annually by the California Tax Credit Allocation Committee pursuant to this section, Section 12206, and Section 17058 shall be an amount equal to the sum of all the following:
(1)(A)Seventy million dollars ($70,000,000) for the 2001 calendar year, and, for the 2002 calendar year and each calendar year thereafter, seventy million dollars ($70,000,000) increased by the percentage, if any, by which the Consumer Price Index for the preceding calendar year exceeds the Consumer Price Index for the 2001 calendar year. For the purposes of this paragraph, the term Consumer Price Index means the last Consumer Price Index for All Urban Consumers published by the federal Department of Labor.
(B)Subject to annual approval in a budget measure, three Three hundred million dollars ($300,000,000) for the 2017 calendar year, and, for the 2018 calendar year and each calendar year thereafter, three hundred million dollars ($300,000,000) increased by the percentage, if any, by which the Consumer Price Index for the preceding calendar year exceeds the Consumer Price Index for the 2017 calendar year. For the purposes of this paragraph, the term Consumer Price Index means the last Consumer Price Index for All Urban Consumers published by the federal Department of Labor. A housing sponsor receiving an allocation under paragraph (1) of subdivision (c) shall not be eligible for receipt of the housing credit allocated from the increased amount under this subparagraph. A housing sponsor receiving an allocation under paragraph (1) of subdivision (c) shall remain eligible for receipt of the housing credit allocated from the credit ceiling amount under subparagraph (A).
(2)The unused housing credit ceiling, if any, for the preceding calendar years.
(3)The amount of housing credit ceiling returned in the calendar year. For purposes of this paragraph, the amount of housing credit dollar amount returned in the calendar year equals the housing credit dollar amount previously allocated to any project that does not become a qualified low-income housing project within the period required by this section or to any project with respect to which an allocation is canceled by mutual consent of the California Tax Credit Allocation Committee and the allocation recipient.
(4)(A)Of the amount allocated pursuant to subparagraph (B) of paragraph (1), twenty-five million dollars ($25,000,000) per calendar year for projects to provide farmworker housing, as defined in subdivision (h) of Section 50199.7 of the Health and Safety Code.
(B)The amount of any unallocated or returned credits pursuant to this paragraph per calendar year shall be added to the aggregate amount of credits allocated pursuant to subparagraph (B) of paragraph (1).
(5)The amount of any unallocated or returned credits under former Sections 17053.14, 23608.2, and 23608.3, as those sections read prior to January 1, 2009, until fully exhausted for projects to provide farmworker housing, as defined in subdivision (h) of Section 50199.7 of the Health and Safety Code.
(h)The term compliance period as defined in Section 42(i)(1) of the Internal Revenue Code is modified to mean, with respect to any building, the period of 30 consecutive taxable years beginning with the first taxable year of the credit period with respect thereto.
(i)Section 42(j) of the Internal Revenue Code shall not be applicable and the following shall be substituted in its place:
The requirements of this section shall be set forth in a regulatory agreement between the California Tax Credit Allocation Committee and the housing sponsor, and the regulatory agreement shall be subordinated, when required, to any lien or encumbrance of any banks or other institutional lenders to the project. The regulatory agreement entered into pursuant to subdivision (f) of Section 50199.14 of the Health and Safety Code shall apply, provided that the agreement includes all of the following provisions:
(1)A term not less than the compliance period.
(2)A requirement that the agreement be recorded in the official records of the county in which the qualified low-income housing project is located.
(3)A provision stating which state and local agencies can enforce the regulatory agreement in the event the housing sponsor fails to satisfy any of the requirements of this section.
(4)A provision that the regulatory agreement shall be deemed a contract enforceable by tenants as third-party beneficiaries thereto and that allows individuals, whether prospective, present, or former occupants of the building, who meet the income limitation applicable to the building, the right to enforce the regulatory agreement in any state court.
(5)A provision incorporating the requirements of Section 42 of the Internal Revenue Code as modified by this section.
(6)A requirement that the housing sponsor notify the California Tax Credit Allocation Committee or its designee if there is a determination by the Internal Revenue Service that the project is not in compliance with Section 42(g) of the Internal Revenue Code.
(7)A requirement that the housing sponsor, as security for the performance of the housing sponsors obligations under the regulatory agreement, assign the housing sponsors interest in rents that it receives from the project, provided that until there is a default under the regulatory agreement, the housing sponsor is entitled to collect and retain the rents.
(8)The remedies available in the event of a default under the regulatory agreement that is not cured within a reasonable cure period, include, but are not limited to, allowing any of the parties designated to enforce the regulatory agreement to collect all rents with respect to the project; taking possession of the project and operating the project in accordance with the regulatory agreement until the enforcer determines the housing sponsor is in a position to operate the project in accordance with the regulatory agreement; applying to any court for specific performance; securing the appointment of a receiver to operate the project; or any other relief as may be appropriate.
(j)(1)The committee shall allocate the housing credit on a regular basis consisting of two or more periods in each calendar year during which applications may be filed and considered. The committee shall establish application filing deadlines, the maximum percentage of federal and state low-income housing tax credit ceiling that may be allocated by the committee in that period, and the approximate date on which allocations shall be made. If the enactment of federal or state law, the adoption of rules or regulations, or other similar events prevent the use of two allocation periods, the committee may reduce the number of periods and adjust the filing deadlines, maximum percentage of credit allocated, and allocation dates.
(2)The committee shall adopt a qualified allocation plan, as provided in Section 42(m)(1) of the Internal Revenue Code. In adopting this plan, the committee shall comply with the provisions of Sections 42(m)(1)(B) and 42(m)(1)(C) of the Internal Revenue Code, respectively.
(3)Notwithstanding Section 42(m) of the Internal Revenue Code the California Tax Credit Allocation Committee shall allocate housing credits in accordance with the qualified allocation plan and regulations, which shall include the following provisions:
(A)All housing sponsors, as defined by paragraph (3) of subdivision (a), shall demonstrate at the time the application is filed with the committee that the project meets the following threshold requirements:
(i)The housing sponsor shall demonstrate there is a need for low-income housing in the community or region for which it is proposed.
(ii)The projects proposed financing, including tax credit proceeds, shall be sufficient to complete the project and shall be adequate to operate the project for the extended use period.
(iii)The project shall have enforceable financing commitments, either construction or permanent financing, for at least 50 percent of the total estimated financing of the project.
(iv)The housing sponsor shall have and maintain control of the site for the project.
(v)The housing sponsor shall demonstrate that the project complies with all applicable local land use and zoning ordinances.
(vi)The housing sponsor shall demonstrate that the project development team has the experience and the financial capacity to ensure project completion and operation for the extended use period.
(vii)The housing sponsor shall demonstrate the amount of tax credit that is necessary for the financial feasibility of the project and its viability as a qualified low-income housing project throughout the extended use period, taking into account operating expenses, a supportable debt service, reserves, funds set aside for rental subsidies and required equity, and a development fee that does not exceed a specified percentage of the eligible basis of the project prior to inclusion of the development fee in the eligible basis, as determined by the committee.
(B)The committee shall give a preference to those projects satisfying all of the threshold requirements of subparagraph (A) if both of the following apply:
(i)The project serves the lowest income tenants at rents affordable to those tenants.
(ii)The project is obligated to serve qualified tenants for the longest period.
(C)In addition to the provisions of subparagraphs (A) and (B), the committee shall use the following criteria in allocating housing credits:
(i)Projects serving large families in which a substantial number, as defined by the committee, of all residential units are low-income units with three or more bedrooms.
(ii)Projects providing single-room occupancy units serving very low income tenants.
(iii)(I) Existing projects that are at risk of conversion.
(II)For purposes of this section, the term at risk of conversion, with respect to an existing property means a property that satisfies all of the following criteria:
(ia)The property is a multifamily rental housing development in which at least 50 percent of the units receive governmental assistance pursuant to any of the following:
(Ia)New construction, substantial rehabilitation, moderate rehabilitation, property disposition, and loan management set-aside programs, or any other program providing project-based assistance pursuant to Section 8 of the United States Housing Act of 1937, Section 1437f of Title 42 of the United States Code, as amended.
(Ib)The Below-Market-Interest-Rate Program pursuant to Section 221(d)(3) of the National Housing Act, Sections 1715l(d)(3) and (5) of Title 12 of the United States Code.
(Ic)Section 236 of the National Housing Act, Section 1715z-1 of Title 12 of the United States Code.
(Id)Programs for rent supplement assistance pursuant to Section 18 101 of the Housing and Urban Development Act of 1965, Section 1701s of Title 12 of the United States Code, as amended.
(Ie)Programs pursuant to Section 515 of the Housing Act of 1949, Section 1485 of Title 42 of the United States Code, as amended.
(If)The low-income housing credit program set forth in Section 42 of the Internal Revenue Code.
(ib)The restrictions on rent and income levels will terminate or the federal insured mortgage on the property is eligible for prepayment any time within five years before or after the date of application to the California Tax Credit Allocation Committee.
(ic)The entity acquiring the property enters into a regulatory agreement that requires the property to be operated in accordance with the requirements of this section for a period equal to the greater of 55 years or the life of the property.
(id)The property satisfies the requirements of Section 42(e) of the Internal Revenue Code, regarding rehabilitation expenditures except that the provisions of Section 42(e)(3)(A)(ii)(I) shall not apply.
(iv)Projects for which a public agency provides direct or indirect long-term financial support for at least 15 percent of the total project development costs or projects for which the owners equity constitutes at least 30 percent of the total project development costs.
(v)Projects that provide tenant amenities not generally available to residents of low-income housing projects.
(4)For purposes of allocating credits pursuant to this section, the committee shall not give preference to any project by virtue of the date of submission of its application except to break a tie when two or more of the projects have an equal rating.
(5)Not less than 20 percent of the low-income housing tax credits available annually under this section, Section 12206, and Section 17058 shall be set aside for allocation to rural areas as defined in Section 50199.21 of the Health and Safety Code. Any amount of credit set aside for rural areas remaining on or after October 31 of any calendar year shall be available for allocation to any eligible project. No amount of credit set aside for rural areas shall be considered available for any eligible project so long as there are eligible rural applications pending on October 31.
(k)Section 42(l) of the Internal Revenue Code shall be modified as follows:
The term secretary shall be replaced by the term California Franchise Tax Board.
(l)In the case where the credit allowed under this section exceeds the tax, the excess may be carried over to reduce the tax in the following year, and succeeding taxable years if necessary, until the credit has been exhausted.
(m)A project that received an allocation of a 1989 federal housing credit dollar amount shall be eligible to receive an allocation of a 1990 state housing credit dollar amount, subject to all of the following conditions:
(1)The project was not placed in service prior to 1990.
(2)To the extent the amendments made to this section by the Statutes of 1990 conflict with any provisions existing in this section prior to those amendments, the prior provisions of law shall prevail.
(3)Notwithstanding paragraph (2), a project applying for an allocation under this subdivision shall be subject to the requirements of paragraph (3) of subdivision (j).
(n)The credit period with respect to an allocation of credit in 1989 by the California Tax Credit Allocation Committee of which any amount is attributable to unallocated credit from 1987 or 1988 shall not begin until after December 31, 1989.
(o)The provisions of Section 11407(a) of Public Law 101-508, relating to the effective date of the extension of the low-income housing credit, shall apply to calendar years after 1989.
(p)The provisions of Section 11407(c) of Public Law 101-508, relating to election to accelerate credit, shall not apply.
(q)(1)A corporation may elect to assign any portion of any credit allowed under this section to one or more affiliated corporations for each taxable year in which the credit is allowed. For purposes of this subdivision, affiliated corporation has the meaning provided in subdivision (b) of Section 25110, as that section was amended by Chapter 881 of the Statutes of 1993, as of the last day of the taxable year in which the credit is allowed, except that 100 percent is substituted for more than 50 percent wherever it appears in the section, as that section was amended by Chapter 881 of the Statutes of 1993, and voting common stock is substituted for voting stock wherever it appears in the section, as that section was amended by Chapter 881 of the Statutes of 1993.
(2)The election provided in paragraph (1):
(A)May be based on any method selected by the corporation that originally receives the credit.
(B)Shall be irrevocable for the taxable year the credit is allowed, once made.
(C)May be changed for any subsequent taxable year if the election to make the assignment is expressly shown on each of the returns of the affiliated corporations that assign and receive the credits.
(r)Any unused credit may continue to be carried forward, as provided in subdivision (l), until the credit has been exhausted.
(s) This section shall remain in effect on and after December 1, 1990, for as long as Section 42 of the Internal Revenue Code, relating to low-income housing credit, remains in effect.
(t)The amendments to this section made by Chapter 1222 of the Statutes of 1993 shall apply only to taxable years beginning on or after January 1, 1994, except that paragraph (1) of subdivision (q), as amended, shall apply to taxable years beginning on or after January 1, 1993.
SEC. 4.This act provides for a tax levy within the meaning of Article IV of the California Constitution and shall go into immediate effect.
(a)(1)There shall be allowed as a credit against the tax, as described by Section 12201, a state low-income housing tax credit in an amount equal to the amount determined in subdivision (c), computed in accordance with Section 42 of the Internal Revenue Code except as otherwise provided in this section.
(2)Taxpayer, for purposes of this section, means the sole owner in the case of a C corporation, the partners in the case of a partnership, members in the case of a limited liability company, and the shareholders in the case of an S corporation.
(3)Housing sponsor, for purposes of this section, means the sole owner in the case of a C corporation, the partnership in the case of a partnership, the limited liability company in the case of a limited liability company, and the S corporation in the case of an S corporation.
(4)Extremely low-income low-income households has the same meaning as in Section 50053 of the Health and Safety Code.
(5)Very low-income low-income households has the same meaning as in Section 50053 of the Health and Safety Code.
(b)(1)The amount of the credit allocated to any housing sponsor shall be authorized by the California Tax Credit Allocation Committee, or any successor thereof, based on a projects need for the credit for economic feasibility in accordance with the requirements of this section.
(A)Except for projects to provide farmworker housing, as defined in subdivision (h) of Section 50199.7 of the Health and Safety Code, that are allocated credits solely under the set-aside described in subdivision (c) of Section 50199.20 of the Health and Safety Code, the low-income housing project shall be located in California and shall meet either of the following requirements:
(i)The projects housing sponsor has been allocated by the California Tax Credit Allocation Committee a credit for federal income tax purposes under Section 42 of the Internal Revenue Code.
(ii)It qualifies for a credit under Section 42(h)(4)(B) of the Internal Revenue Code.
(B)The California Tax Credit Allocation Committee shall not require fees for the credit under this section in addition to those fees required for applications for the tax credit pursuant to Section 42 of the Internal Revenue Code. The committee may require a fee if the application for the credit under this section is submitted in a calendar year after the year the application is submitted for the federal tax credit.
(C)(i)For a project that receives a preliminary reservation of the state low-income housing tax credit, allowed pursuant to subdivision (a), on or after January 1, 2009, and before January 1, 2016, the credit shall be allocated to the partners of a partnership owning the project in accordance with the partnership agreement, regardless of how the federal low-income housing tax credit with respect to the project is allocated to the partners, or whether the allocation of the credit under the terms of the agreement has substantial economic effect, within the meaning of Section 704(b) of the Internal Revenue Code.
(ii)This subparagraph shall not apply to a project that receives a preliminary reservation of state low-income housing tax credits under the set-aside described in subdivision (c) of Section 50199.20 of the Health and Safety Code unless the project also receives a preliminary reservation of federal low-income housing tax credits.
(iii)This subparagraph shall cease to be operative with respect to any project that receives a preliminary reservation of a credit on or after January 1, 2016.
(2)(A)The California Tax Credit Allocation Committee shall certify to the housing sponsor the amount of tax credit under this section allocated to the housing sponsor for each credit period.
(B)In the case of a partnership or an S corporation, the housing sponsor shall provide a copy of the California Tax Credit Allocation Committee certification to the taxpayer.
(C)The taxpayer shall attach a copy of the certification to any return upon which a tax credit is claimed under this section.
(D)In the case of a failure to attach a copy of the certification for the year to the return in which a tax credit is claimed under this section, no credit under this section shall be allowed for that year until a copy of that certification is provided.
(E)All elections made by the taxpayer pursuant to Section 42 of the Internal Revenue Code shall apply to this section.
(F)(i)The California Tax Credit Allocation Committee may allocate a credit under this section in exchange for a credit allocated pursuant to Section 42(d)(5)(B) of the Internal Revenue Code in amounts up to 30 percent of the eligible basis of a building if the credits allowed under Section 42 of the Internal Revenue Code are reduced by an equivalent amount.
(ii)An equivalent amount shall be determined by the California Tax Credit Allocation Committee based upon the relative amount required to produce an equivalent state tax credit to the taxpayer.
(c)Section 42(b) of the Internal Revenue Code shall be modified as follows:
(1)In the case of any qualified low-income building that is a new building, as defined in Section 42 of the Internal Revenue Code and the regulations promulgated thereunder, and not federally subsidized, the term applicable percentage means the following:
(A)For each of the first three years, the percentage prescribed by the Secretary of the Treasury for new buildings that are not federally subsidized for the taxable year, determined in accordance with the requirements of Section 42(b)(1) of the Internal Revenue Code.
(B)For the fourth year, the difference between 30 percent and the sum of the applicable percentages for the first three years.
(2)In the case of any qualified low-income building that (i) is a new building, as defined in Section 42 of the Internal Revenue Code and the regulations promulgated thereunder, (ii) not located in designated difficult development areas (DDAs) or qualified census tracts (QCTs), as defined in Section 42(d)(5)(B) of the Internal Revenue Code, and (iii) is federally subsidized, the term applicable percentage means for the first three years, 15 percent of the qualified basis of the building, and for the fourth year, 5 percent of the qualified basis of the building.
(3)In the case of any qualified low-income building that is (i) an existing building, as defined in Section 42 of the Internal Revenue Code and the regulations promulgated thereunder, (ii) not located in designated difficult development areas (DDAs) or qualified census tracts (QCTs), as defined in Section 42(d)(5)(B) of the Internal Revenue Code, and (iii) is federally subsidized, the term applicable percentage means the following:
(A)For each of the first three years, the percentage prescribed by the Secretary of the Treasury for new buildings that are federally subsidized for the taxable year.
(B)For the fourth year, the difference between 13 percent and the sum of the applicable percentages for the first three years.
(4)In the case of any qualified low-income building that is (i) a new or an existing building, (ii) located in designated difficult development areas (DDAs) or qualified census tracts (QCTs) as defined in Section 42(d)(5)(B) of the Internal Revenue Code, and (iii) federally subsidized, the California Tax Credit Allocation Committee shall reduce the amount of California credit to be allocated under paragraph (2) and (3) by taking into account the increased federal credit received due to the basis boost provided under Section 42(d)(5)(B) of the Internal Revenue Code.
(5)In the term at risk case of any qualified low-income building that meets all of the requirements of subparagraphs (A) through (D), inclusive, the term applicable percentage means 30 percent for each of the first three years and 5 percent for the fourth year. A qualified low-income building receiving an allocation under this paragraph is ineligible to also receive an allocation under paragraph (3).
(A)The qualified low-income building is at least 15 years old.
(B)The qualified low-income building is serving households of very low-income or extremely low-income such that the average maximum household income as restricted, pursuant to an existing regulatory agreement with a federal, state, county, local, or other governmental agency, is not more than 45 percent of the area median gross income, as determined under Section 42 of the Internal Revenue Code, adjusted by household size, and a tax credit regulatory agreement is entered into for a period of not less than 55 years restricting the average targeted household income to no more than 45 percent of the area median income.
(C)The qualified low-income building would have insufficient credits under paragraphs (2) and (3) to complete substantial rehabilitation due to a low appraised value.
(D)The qualified low-income building will complete the substantial rehabilitation in connection with the credit allocation herein.
(d)The term qualified low-income housing project as defined in Section 42(c)(2) of the Internal Revenue Code is modified by adding the following requirements:
(1)The taxpayer shall be entitled to receive a cash distribution from the operations of the project, after funding required reserves, that, at the election of the taxpayer, is equal to:
(A)An amount not to exceed 8 percent of the lesser of:
(i)The owner equity that shall include the amount of the capital contributions actually paid to the housing sponsor and shall not include any amounts until they are paid on an investor note.
(ii)Twenty percent of the adjusted basis of the building as of the close of the first taxable year of the credit period.
(B)The amount of the cashflow from those units in the building that are not low-income units. For purposes of computing cashflow under this subparagraph, operating costs shall be allocated to the low-income units using the floor space fraction, as defined in Section 42 of the Internal Revenue Code.
(C)Any amount allowed to be distributed under subparagraph (A) that is not available for distribution during the first five years of the compliance period may be accumulated and distributed any time during the first 15 years of the compliance period but not thereafter.
(2)The limitation on return shall apply in the aggregate to the partners if the housing sponsor is a partnership and in the aggregate to the shareholders if the housing sponsor is an S corporation.
(3)The housing sponsor shall apply any cash available for distribution in excess of the amount eligible to be distributed under paragraph (1) to reduce the rent on rent-restricted units or to increase the number of rent-restricted units subject to the tests of Section 42(g)(1) of the Internal Revenue Code.
(e)The provisions of Section 42(f) of the Internal Revenue Code shall be modified as follows:
(1)The term credit period as defined in Section 42(f)(1) of the Internal Revenue Code is modified by substituting four taxable years for 10 taxable years.
(2)The special rule for the first taxable year of the credit period under Section 42(f)(2) of the Internal Revenue Code shall not apply to the tax credit under this section.
(3)Section 42(f)(3) of the Internal Revenue Code is modified to read:
If, as of the close of any taxable year in the compliance period, after the first year of the credit period, the qualified basis of any building exceeds the qualified basis of that building as of the close of the first year of the credit period, the housing sponsor, to the extent of its tax credit allocation, shall be eligible for a credit on the excess in an amount equal to the applicable percentage determined pursuant to subdivision (c) for the four-year period beginning with the taxable year in which the increase in qualified basis occurs.
(f)The provisions of Section 42(h) of the Internal Revenue Code shall be modified as follows:
(1)Section 42(h)(2) of the Internal Revenue Code shall not be applicable and instead the following provisions shall be applicable:
The total amount for the four-year credit period of the housing credit dollars allocated in a calendar year to any building shall reduce the aggregate housing credit dollar amount of the California Tax Credit Allocation Committee for the calendar year in which the allocation is made.
(2)Paragraphs (3), (4), (5), (6)(E)(i)(II), (6)(F), (6)(G), (6)(I), (7), and (8) of Section 42(h) of the Internal Revenue Code shall not be applicable.
(g)The aggregate housing credit dollar amount that may be allocated annually by the California Tax Credit Allocation Committee pursuant to this section, Section 17058, and Section 23610.5 shall be an amount equal to the sum of all the following:
(1)(A)Seventy million dollars ($70,000,000) for the 2001 calendar year, and, for the 2002 calendar year and each calendar year thereafter, seventy million dollars ($70,000,000) increased by the percentage, if any, by which the Consumer Price Index for the preceding calendar year exceeds the Consumer Price Index for the 2001 calendar year. For the purposes of this paragraph, the term Consumer Price Index means the last Consumer Price Index for All Urban Consumers published by the federal Department of Labor.
(B)Three Subject to annual approval in a budget measure, three hundred million dollars ($300,000,000) for the 2017 calendar year, and, for the 2018 calendar year and each calendar year thereafter, three hundred million dollars ($300,000,000) increased by the percentage, if any, by which the Consumer Price Index for the preceding calendar year exceeds the Consumer Price Index for the 2017 calendar year. For the purposes of this paragraph, the term Consumer Price Index means the last Consumer Price Index for All Urban Consumers published by the federal Department of Labor. A housing sponsor receiving an allocation under paragraph (1) of subdivision (c) shall not be eligible for receipt of the housing credit allocated from the increased amount under this subparagraph. A housing sponsor receiving an allocation under paragraph (1) of subdivision (c) shall remain eligible for receipt of the housing credit allocated from the credit ceiling amount under subparagraph (A).
(2)The unused housing credit ceiling, if any, for the preceding calendar years.
(3)The amount of housing credit ceiling returned in the calendar year. For purposes of this paragraph, the amount of housing credit dollar amount returned in the calendar year equals the housing credit dollar amount previously allocated to any project that does not become a qualified low-income housing project within the period required by this section or to any project with respect to which an allocation is canceled by mutual consent of the California Tax Credit Allocation Committee and the allocation recipient.
(4)(A)Of the amount allocated pursuant to subparagraph (B) of paragraph (1), twenty-five million dollars ($25,000,000) per calendar year for projects to provide farmworker housing, as defined in subdivision (h) of Section 50199.7 of the Health and Safety Code.
(B)The amount of any unallocated or returned credits pursuant to this paragraph per calendar year shall be added to the aggregate amount of credits allocated pursuant to subparagraph (B) of paragraph (1).
(5)The amount of any unallocated or returned credits under former Sections 17053.14, 23608.2, and 23608.3, as those sections read prior to January 1, 2009, until fully exhausted for projects to provide farmworker housing, as defined in subdivision (h) of Section 50199.7 of the Health and Safety Code.
(h)The term compliance period as defined in Section 42(i)(1) of the Internal Revenue Code is modified to mean, with respect to any building, the period of 30 consecutive taxable years beginning with the first taxable year of the credit period with respect thereto.
(i)(1)Section 42(j) of the Internal Revenue Code shall not be applicable and the provisions in paragraph (2) shall be substituted in its place.
(2)The requirements of this section shall be set forth in a regulatory agreement between the California Tax Credit Allocation Committee and the housing sponsor, and the regulatory agreement shall be subordinated, when required, to any lien or encumbrance of any banks or other institutional lenders to the project. The regulatory agreement entered into pursuant to subdivision (f) of Section 50199.14 of the Health and Safety Code, Code shall apply, provided that the agreement includes all of the following provisions:
(A)A term not less than the compliance period.
(B)A requirement that the agreement be recorded in the official records of the county in which the qualified low-income housing project is located.
(C)A provision stating which state and local agencies can enforce the regulatory agreement in the event the housing sponsor fails to satisfy any of the requirements of this section.
(D)A provision that the regulatory agreement shall be deemed a contract enforceable by tenants as third-party beneficiaries thereto and that allows individuals, whether prospective, present, or former occupants of the building, who meet the income limitation applicable to the building, the right to enforce the regulatory agreement in any state court.
(E)A provision incorporating the requirements of Section 42 of the Internal Revenue Code as modified by this section.
(F)A requirement that the housing sponsor notify the California Tax Credit Allocation Committee or its designee and the local agency that can enforce the regulatory agreement if there is a determination by the Internal Revenue Service that the project is not in compliance with Section 42(g) of the Internal Revenue Code.
(G)A requirement that the housing sponsor, as security for the performance of the housing sponsors obligations under the regulatory agreement, assign the housing sponsors interest in rents that it receives from the project, provided that until there is a default under the regulatory agreement, the housing sponsor is entitled to collect and retain the rents.
(H)The remedies available in the event of a default under the regulatory agreement that is not cured within a reasonable cure period, include, but are not limited to, allowing any of the parties designated to enforce the regulatory agreement to collect all rents with respect to the project; taking possession of the project and operating the project in accordance with the regulatory agreement until the enforcer determines the housing sponsor is in a position to operate the project in accordance with the regulatory agreement; applying to any court for specific performance; securing the appointment of a receiver to operate the project; or any other relief as may be appropriate.
(j)(1)The committee shall allocate the housing credit on a regular basis consisting of two or more periods in each calendar year during which applications may be filed and considered. The committee shall establish application filing deadlines, the maximum percentage of federal and state low-income housing tax credit ceiling that may be allocated by the committee in that period, and the approximate date on which allocations shall be made. If the enactment of federal or state law, the adoption of rules or regulations, or other similar events prevent the use of two allocation periods, the committee may reduce the number of periods and adjust the filing deadlines, maximum percentage of credit allocated, and allocation dates.
(2)The committee shall adopt a qualified allocation plan, as provided in Section 42(m)(1) of the Internal Revenue Code. In adopting this plan, the committee shall comply with the provisions of Sections 42(m)(1)(B) and 42(m)(1)(C) of the Internal Revenue Code, respectively.
(3)Notwithstanding Section 42(m) of the Internal Revenue Code the California Tax Credit Allocation Committee shall allocate housing credits in accordance with the qualified allocation plan and regulations, which shall include the following provisions:
(A)All housing sponsors, as defined by paragraph (3) of subdivision (a), shall demonstrate at the time the application is filed with the committee that the project meets the following threshold requirements:
(i)The housing sponsor shall demonstrate there is a need and demand for low-income housing in the community or region for which it is proposed.
(ii)The projects proposed financing, including tax credit proceeds, shall be sufficient to complete the project and that the proposed operating income shall be adequate to operate the project for the extended use period.
(iii)The project shall have enforceable financing commitments, either construction or permanent financing, for at least 50 percent of the total estimated financing of the project.
(iv)The housing sponsor shall have and maintain control of the site for the project.
(v)The housing sponsor shall demonstrate that the project complies with all applicable local land use and zoning ordinances.
(vi)The housing sponsor shall demonstrate that the project development team has the experience and the financial capacity to ensure project completion and operation for the extended use period.
(vii)The housing sponsor shall demonstrate the amount of tax credit that is necessary for the financial feasibility of the project and its viability as a qualified low-income housing project throughout the extended use period, taking into account operating expenses, a supportable debt service, reserves, funds set aside for rental subsidies, subsidies and required equity, and a development fee that does not exceed a specified percentage of the eligible basis of the project prior to inclusion of the development fee in the eligible basis, as determined by the committee.
(B)The committee shall give a preference to those projects satisfying all of the threshold requirements of subparagraph (A) if both of the following apply:
(i)The project serves the lowest income tenants at rents affordable to those tenants.
(ii)The project is obligated to serve qualified tenants for the longest period.
(C)In addition to the provisions of subparagraphs (A) and (B), the committee shall use the following criteria in allocating housing credits:
(i)Projects serving large families in which a substantial number, as defined by the committee, of all residential units are low-income units with three or more bedrooms.
(ii)Projects providing single-room occupancy units serving very low income tenants.
(iii)(I)Existing projects that are at risk of conversion.
(II)For purposes of this section, the term at risk of conversion, with respect to an existing property means a property that satisfies all of the following criteria:
(ia)The property is a multifamily rental housing development in which at least 50 percent of the units receive governmental assistance pursuant to any of the following:
(Ia)New construction, substantial rehabilitation, moderate rehabilitation, property disposition, and loan management set-aside programs, or any other program providing project-based assistance pursuant to Section 8 of the United States Housing Act of 1937, Section 1437f of Title 42 of the United States Code, as amended.
(Ib)The Below-Market-Interest-Rate Program pursuant to Section 221(d)(3) of the National Housing Act, Sections 1715l(d)(3) and (5) of Title 12 of the United States Code.
(Ic)Section 236 of the National Housing Act, Section 1715z-1 of Title 12 of the United States Code.
(Id)Programs for rent supplement assistance pursuant to Section 18 101 of the Housing and Urban Development Act of 1965, Section 1701s of Title 12 of the United States Code, as amended.
(Ie)Programs pursuant to Section 515 of the Housing Act of 1949, Section 1485 of Title 42 of the United States Code, as amended.
(If)The low-income housing credit program set forth in Section 42 of the Internal Revenue Code.
(ib)The restrictions on rent and income levels will terminate or the federal insured mortgage on the property is eligible for prepayment any time within five years before or after the date of application to the California Tax Credit Allocation Committee.
(ic)The entity acquiring the property enters into a regulatory agreement that requires the property to be operated in accordance with the requirements of this section for a period equal to the greater of 55 years or the life of the property.
(id)The property satisfies the requirements of Section 42(e) of the Internal Revenue Code, regarding rehabilitation expenditures except that the provisions of Section 42(e)(3)(A)(ii)(I) shall not apply.
(iv)Projects for which a public agency provides direct or indirect long-term financial support for at least 15 percent of the total project development costs or projects for which the owners equity constitutes at least 30 percent of the total project development costs.
(v)Projects that provide tenant amenities not generally available to residents of low-income housing projects.
(4)For purposes of allocating credits pursuant to this section, the committee shall not give preference to any project by virtue of the date of submission of its application except to break a tie when two or more of the projects have an equal rating.
(k)Section 42(l) of the Internal Revenue Code shall be modified as follows:
The term secretary shall be replaced by the term California Franchise Tax Board.
(l)In the case where the credit allowed under this section exceeds the tax, the excess may be carried over to reduce the tax in the following year, and succeeding years if necessary, until the credit has been exhausted.
(m)The provisions of Section 11407(a) of Public Law 101-508, relating to the effective date of the extension of the low-income housing credit, shall apply to calendar years after 1993.
(n)The provisions of Section 11407(c) of Public Law 101-508, relating to election to accelerate credit, shall not apply.
(o)This section shall remain in effect for as long as Section 42 of the Internal Revenue Code, relating to low-income housing credit, remains in effect.
SEC. 2.Section 17058 of the Revenue and Taxation Code is amended to read:17058.(a)(1)There shall be allowed as a credit against the net tax, as defined in Section 17039, a state low-income housing tax credit in an amount equal to the amount determined in subdivision (c), computed in accordance with Section 42 of the Internal Revenue Code except as otherwise provided in this section.
(2)Taxpayer for purposes of this section Taxpayer, for purposes of this section, means the sole owner in the case of an individual, the partners in the case of a partnership, members in the case of a limited liability company, and the shareholders in the case of an S corporation.
(3)Housing sponsor for purposes of this section sponsor, for purposes of this section, means the sole owner in the case of an individual, the partnership in the case of a partnership, the limited liability company in the case of a limited liability company, and the S corporation in the case of an S corporation.
(4)Extremely low-income low-income households has the same meaning as in Section 50053 of the Health and Safety Code.
(5)Very low-income low-income households has the same meaning as in Section 50053 of the Health and Safety Code.
(b)(1)The amount of the credit allocated to any housing sponsor shall be authorized by the California Tax Credit Allocation Committee, or any successor thereof, based on a projects need for the credit for economic feasibility in accordance with the requirements of this section.
(A)The low-income housing project shall be located in California and shall meet either of the following requirements:
(i)Except for projects to provide farmworker housing, as defined in subdivision (h) of Section 50199.7 of the Health and Safety Code, that are allocated credits solely under the set-aside described in subdivision (c) of Section 50199.20 of the Health and Safety Code, the projects housing sponsor has been allocated by the California Tax Credit Allocation Committee a credit for federal income tax purposes under Section 42 of the Internal Revenue Code.
(ii)It qualifies for a credit under Section 42(h)(4)(B) of the Internal Revenue Code.
(B)The California Tax Credit Allocation Committee shall not require fees for the credit under this section in addition to those fees required for applications for the tax credit pursuant to Section 42 of the Internal Revenue Code. The committee may require a fee if the application for the credit under this section is submitted in a calendar year after the year the application is submitted for the federal tax credit.
(C)(i)For a project that receives a preliminary reservation of the state low-income housing tax credit, allowed pursuant to subdivision (a), on or after January 1, 2009, and before January 1, 2016, the credit shall be allocated to the partners of a partnership owning the project in accordance with the partnership agreement, regardless of how the federal low-income housing tax credit with respect to the project is allocated to the partners, or whether the allocation of the credit under the terms of the agreement has substantial economic effect, within the meaning of Section 704(b) of the Internal Revenue Code.
(ii)To the extent the allocation of the credit to a partner under this section lacks substantial economic effect, any loss or deduction otherwise allowable under this part that is attributable to the sale or other disposition of that partners partnership interest made prior to the expiration of the federal credit shall not be allowed in the taxable year in which the sale or other disposition occurs, but shall instead be deferred until and treated as if it occurred in the first taxable year immediately following the taxable year in which the federal credit period expires for the project described in clause (i).
(iii)This subparagraph shall not apply to a project that receives a preliminary reservation of state low-income housing tax credits under the set-aside described in subdivision (c) of Section 50199.20 of the Health and Safety Code unless the project also receives a preliminary reservation of federal low-income housing tax credits.
(iv)This subparagraph shall cease to be operative with respect to any project that receives a preliminary reservation of a credit on or after January 1, 2016.
(2)(A)The California Tax Credit Allocation Committee shall certify to the housing sponsor the amount of tax credit under this section allocated to the housing sponsor for each credit period.
(B)In the case of a partnership, limited liability company, or an S corporation, the housing sponsor shall provide a copy of the California Tax Credit Allocation Committee certification to the taxpayer.
(C)The taxpayer shall, upon request, provide a copy of the certification to the Franchise Tax Board.
(D)All elections made by the taxpayer pursuant to Section 42 of the Internal Revenue Code shall apply to this section.
(E)(i)The California Tax Credit Allocation Committee may allocate a credit under this section in exchange for a credit allocated pursuant to Section 42(d)(5)(B) of the Internal Revenue Code in amounts up to 30 percent of the eligible basis of a building if the credits allowed under Section 42 of the Internal Revenue Code are reduced by an equivalent amount.
(ii)An equivalent amount shall be determined by the California Tax Credit Allocation Committee based upon the relative amount required to produce an equivalent state tax credit to the taxpayer.
(c)Section 42(b) of the Internal Revenue Code shall be modified as follows:
(1)In the case of any qualified low-income building that is a new building, as defined in Section 42 of the Internal Revenue Code and the regulations promulgated thereunder, and not federally subsidized, the term applicable percentage means the following:
(A)For each of the first three years, the percentage prescribed by the Secretary of the Treasury for new buildings that are not federally subsidized for the taxable year, determined in accordance with the requirements of Section 42(b)(1) of the Internal Revenue Code.
(B)For the fourth year, the difference between 30 percent and the sum of the applicable percentages for the first three years.
(2)In the case of any qualified low-income building that (i) is a new building, as defined in Section 42 of the Internal Revenue Code and the regulations promulgated thereunder, (ii) not located in designated difficult development areas (DDAs) or qualified census tracts (QCTs), as defined in Section 42(d)(5)(B) of the Internal Revenue Code, and (iii) is federally subsidized, the term applicable percentage means for the first three years, 15 percent of the qualified basis of the building, and for the fourth year, 5 percent of the qualified basis of the building.
(3)In the case of any qualified low-income building that is (i) an existing building, as defined in Section 42 of the Internal Revenue Code and the regulations promulgated thereunder, (ii) not located in designated difficult development areas (DDAs) or qualified census tracts (QCTs), as defined in Section 42(d)(5)(B) of the Internal Revenue Code, and (iii) is federally subsidized, the term applicable percentage means the following:
(A)For each of the first three years, the percentage prescribed by the Secretary of the Treasury for new buildings that are federally subsidized for the taxable year.
(B)For the fourth year, the difference between 13 percent and the sum of the applicable percentages for the first three years.
(4)In the case of any qualified low-income building that is (i) a new or an existing building, (ii) located in designated difficult development areas (DDAs) or qualified census tracts (QCTs) as defined in Section 42(d)(5)(B) of the Internal Revenue Code, and (iii) federally subsidized, the California Tax Credit Allocation Committee shall reduce the amount of California credit to be allocated under subparagraph paragraph (2) and (3) by taking into account the increased federal credit received due to the basis boost provided under Section 42(d)(5)(B) of the Internal Revenue Code.
(5)In the case of any qualified low-income building that meets all of the requirements of subparagraphs (A) through (D), inclusive, the term applicable percentage means 30 percent for each of the first three years and 5 percent for the fourth year. A qualified low-income building receiving an allocation under this paragraph is ineligible to also receive an allocation under paragraph (3).
(A)The qualified low-income building is at least 15 years old.
(B)The qualified low-income building is serving households of very low-income or extremely low-income such that the average maximum household income as restricted, pursuant to an existing regulatory agreement with a federal, state, county, local, or other governmental agency, is not more than 45 percent of the area median gross income, as determined under Section 42 of the Internal Revenue Code, adjusted by household size, and a tax credit regulatory agreement is entered into for a period of not less than 55 years restricting the average targeted household income to no more than 45 percent of the area median income.
(C)The qualified low-income building would have insufficient credits under paragraphs (2) and (3) to complete substantial rehabilitation due to a low appraised value.
(D)The qualified low-income building will complete the substantial rehabilitation in connection with the credit allocation herein.
(d)The term qualified low-income housing project as defined in Section 42(c)(2) of the Internal Revenue Code is modified by adding the following requirements:
(1)The taxpayer shall be entitled to receive a cash distribution from the operations of the project, after funding required reserves, that, at the election of the taxpayer, is equal to:
(A)An amount not to exceed 8 percent of the lesser of:
(i)The owner equity that shall include the amount of the capital contributions actually paid to the housing sponsor and shall not include any amounts until they are paid on an investor note.
(ii)Twenty percent of the adjusted basis of the building as of the close of the first taxable year of the credit period.
(B)The amount of the cashflow from those units in the building that are not low-income units. For purposes of computing cashflow under this subparagraph, operating costs shall be allocated to the low-income units using the floor space fraction, as defined in Section 42 of the Internal Revenue Code.
(C)Any amount allowed to be distributed under subparagraph (A) that is not available for distribution during the first five years of the compliance period may be accumulated and distributed any time during the first 15 years of the compliance period but not thereafter.
(2)The limitation on return shall apply in the aggregate to the partners if the housing sponsor is a partnership and in the aggregate to the shareholders if the housing sponsor is an S corporation.
(3)The housing sponsor shall apply any cash available for distribution in excess of the amount eligible to be distributed under paragraph (1) to reduce the rent on rent-restricted units or to increase the number of rent-restricted units subject to the tests of Section 42(g)(1) of the Internal Revenue Code.
(e)The provisions of Section 42(f) of the Internal Revenue Code shall be modified as follows:
(1)The term credit period as defined in Section 42(f)(1) of the Internal Revenue Code is modified by substituting four taxable years for 10 taxable years.
(2)The special rule for the first taxable year of the credit period under Section 42(f)(2) of the Internal Revenue Code shall not apply to the tax credit under this section.
(3)Section 42(f)(3) of the Internal Revenue Code is modified to read:
If, as of the close of any taxable year in the compliance period, after the first year of the credit period, the qualified basis of any building exceeds the qualified basis of that building as of the close of the first year of the credit period, the housing sponsor, to the extent of its tax credit allocation, shall be eligible for a credit on the excess in an amount equal to the applicable percentage determined pursuant to subdivision (c) for the four-year period beginning with the taxable year in which the increase in qualified basis occurs.
(f)The provisions of Section 42(h) of the Internal Revenue Code shall be modified as follows:
(1)Section 42(h)(2) of the Internal Revenue Code shall not be applicable and instead the following provisions shall be applicable:
The total amount for the four-year credit period of the housing credit dollars allocated in a calendar year to any building shall reduce the aggregate housing credit dollar amount of the California Tax Credit Allocation Committee for the calendar year in which the allocation is made.
(2)Paragraphs (3), (4), (5), (6)(E)(i)(II), (6)(F), (6)(G), (6)(I), (7), and (8) of Section 42(h) of the Internal Revenue Code shall not be applicable.
(g)The aggregate housing credit dollar amount that may be allocated annually by the California Tax Credit Allocation Committee pursuant to this section, Section 12206, and Section 23610.5 shall be an amount equal to the sum of all the following:
(1)(A)Seventy million dollars ($70,000,000) for the 2001 calendar year, and, for the 2002 calendar year and each calendar year thereafter, seventy million dollars ($70,000,000) increased by the percentage, if any, by which the Consumer Price Index for the preceding calendar year exceeds the Consumer Price Index for the 2001 calendar year. For the purposes of this paragraph, the term Consumer Price Index means the last Consumer Price Index for All Urban Consumers published by the federal Department of Labor.
(B)Three Subject to annual approval in a budget measure, three hundred million dollars ($300,000,000) for the 2017 calendar year, and, for the 2018 calendar year and each calendar year thereafter, three hundred million dollars ($300,000,000) increased by the percentage, if any, by which the Consumer Price Index for the preceding calendar year exceeds the Consumer Price Index for the 2017 calendar year. For the purposes of this paragraph, the term Consumer Price Index means the last Consumer Price Index for All Urban Consumers published by the federal Department of Labor. A housing sponsor receiving an allocation under paragraph (1) of subdivision (c) shall not be eligible for receipt of the housing credit allocated from the increased amount under this subparagraph. A housing sponsor receiving an allocation under paragraph (1) of subdivision (c) shall remain eligible for receipt of the housing credit allocated from the credit ceiling amount under subparagraph (A).
(2)The unused housing credit ceiling, if any, for the preceding calendar years.
(3)The amount of housing credit ceiling returned in the calendar year. For purposes of this paragraph, the amount of housing credit dollar amount returned in the calendar year equals the housing credit dollar amount previously allocated to any project that does not become a qualified low-income housing project within the period required by this section or to any project with respect to which an allocation is canceled by mutual consent of the California Tax Credit Allocation Committee and the allocation recipient.
(4)(A)Of the amount allocated pursuant to subparagraph (B) of paragraph (1), twenty-five million dollars ($25,000,000) per calendar year for projects to provide farmworker housing, as defined in subdivision (h) of Section 50199.7 of the Health and Safety Code.
(B)The amount of any unallocated or returned credits pursuant to this paragraph per calendar year shall be added to the aggregate amount of credits allocated pursuant to subparagraph (B) of paragraph (1).
(5)The amount of any unallocated or returned credits under former Sections 17053.14, 23608.2, and 23608.3, as those sections read prior to January 1, 2009, until fully exhausted for projects to provide farmworker housing, as defined in subdivision (h) of Section 50199.7 of the Health and Safety Code.
(h)The term compliance period as defined in Section 42(i)(1) of the Internal Revenue Code is modified to mean, with respect to any building, the period of 30 consecutive taxable years beginning with the first taxable year of the credit period with respect thereto.
(i)Section 42(j) of the Internal Revenue Code shall not be applicable and the following requirements of this section shall be set forth in a regulatory agreement between the California Tax Credit Allocation Committee and the housing sponsor, and the regulatory agreement shall be subordinated, when required, to any lien or encumbrance of any banks or other institutional lenders to the project. The regulatory agreement entered into pursuant to subdivision (f) of Section 50199.14 of the Health and Safety Code shall apply, provided that the agreement includes all of the following provisions:
(1)A term not less than the compliance period.
(2)A requirement that the agreement be recorded in the official records of the county in which the qualified low-income housing project is located.
(3)A provision stating which state and local agencies can enforce the regulatory agreement in the event the housing sponsor fails to satisfy any of the requirements of this section.
(4)A provision that the regulatory agreement shall be deemed a contract enforceable by tenants as third-party beneficiaries thereto and that allows individuals, whether prospective, present, or former occupants of the building, who meet the income limitation applicable to the building, the right to enforce the regulatory agreement in any state court.
(5)A provision incorporating the requirements of Section 42 of the Internal Revenue Code as modified by this section.
(6)A requirement that the housing sponsor notify the California Tax Credit Allocation Committee or its designee if there is a determination by the Internal Revenue Service that the project is not in compliance with Section 42(g) of the Internal Revenue Code.
(7)A requirement that the housing sponsor, as security for the performance of the housing sponsors obligations under the regulatory agreement, assign the housing sponsors interest in rents that it receives from the project, provided that until there is a default under the regulatory agreement, the housing sponsor is entitled to collect and retain the rents.
(8)The remedies available in the event of a default under the regulatory agreement that is not cured within a reasonable cure period, include, but are not limited to, allowing any of the parties designated to enforce the regulatory agreement to collect all rents with respect to the project; taking possession of the project and operating the project in accordance with the regulatory agreement until the enforcer determines the housing sponsor is in a position to operate the project in accordance with the regulatory agreement; applying to any court for specific performance; securing the appointment of a receiver to operate the project; or any other relief as may be appropriate.
(j)(1)The committee shall allocate the housing credit on a regular basis consisting of two or more periods in each calendar year during which applications may be filed and considered. The committee shall establish application filing deadlines, the maximum percentage of federal and state low-income housing tax credit ceiling that may be allocated by the committee in that period, and the approximate date on which allocations shall be made. If the enactment of federal or state law, the adoption of rules or regulations, or other similar events prevent the use of two allocation periods, the committee may reduce the number of periods and adjust the filing deadlines, maximum percentage of credit allocated, and allocation dates.
(2)The committee shall adopt a qualified allocation plan, as provided in Section 42(m)(1) of the Internal Revenue Code. In adopting this plan, the committee shall comply with the provisions of Sections 42(m)(1)(B) and 42(m)(1)(C) of the Internal Revenue Code, respectively.
(3)Notwithstanding Section 42(m) of the Internal Revenue Code the California Tax Credit Allocation Committee shall allocate housing credits in accordance with the qualified allocation plan and regulations, which shall include the following provisions:
(A)All housing sponsors, as defined by paragraph (3) of subdivision (a), shall demonstrate at the time the application is filed with the committee that the project meets the following threshold requirements:
(i)The housing sponsor shall demonstrate there is a need and demand for low-income housing in the community or region for which it is proposed.
(ii)The projects proposed financing, including tax credit proceeds, shall be sufficient to complete the project and that the proposed operating income shall be adequate to operate the project for the extended use period.
(iii)The project shall have enforceable financing commitments, either construction or permanent financing, for at least 50 percent of the total estimated financing of the project.
(iv)The housing sponsor shall have and maintain control of the site for the project.
(v)The housing sponsor shall demonstrate that the project complies with all applicable local land use and zoning ordinances.
(vi)The housing sponsor shall demonstrate that the project development team has the experience and the financial capacity to ensure project completion and operation for the extended use period.
(vii)The housing sponsor shall demonstrate the amount of tax credit that is necessary for the financial feasibility of the project and its viability as a qualified low-income housing project throughout the extended use period, taking into account operating expenses, a supportable debt service, reserves, funds set aside for rental subsidies and required equity, and a development fee that does not exceed a specified percentage of the eligible basis of the project prior to inclusion of the development fee in the eligible basis, as determined by the committee.
(B)The committee shall give a preference to those projects satisfying all of the threshold requirements of subparagraph (A) if both of the following apply:
(i)The project serves the lowest income tenants at rents affordable to those tenants.
(ii)The project is obligated to serve qualified tenants for the longest period.
(C)In addition to the provisions of subparagraphs (A) and (B), the committee shall use the following criteria in allocating housing credits:
(i)Projects serving large families in which a substantial number, as defined by the committee, of all residential units are low-income units with three or more bedrooms.
(ii)Projects providing single-room occupancy units serving very low income tenants.
(iii)(I)Existing projects that are at risk of conversion.
(II)For purposes of this section, the term at risk of conversion, with respect to an existing property means a property that satisfies all of the following criteria:
(ia)The property is a multifamily rental housing development in which at least 50 percent of the units receive governmental assistance pursuant to any of the following:
(Ia)New construction, substantial rehabilitation, moderate rehabilitation, property disposition, and loan management set-aside programs, or any other program providing project-based assistance pursuant to Section 8 of the United States Housing Act of 1937, Section 1437f of Title 42 of the United States Code, as amended.
(Ib)The Below-Market-Interest-Rate Program pursuant to Section 221(d)(3) of the National Housing Act, Sections 1715l(d)(3) and (5) of Title 12 of the United States Code.
(Ic)Section 236 of the National Housing Act, Section 1715z-1 of Title 12 of the United States Code.
(Id)Programs for rent supplement assistance pursuant to Section 18 101 of the Housing and Urban Development Act of 1965, Section 1701s of Title 12 of the United States Code, as amended.
(Ie)Programs pursuant to Section 515 of the Housing Act of 1949, Section 1485 of Title 42 of the United States Code, as amended.
(If)The low-income housing credit program set forth in Section 42 of the Internal Revenue Code.
(ib)The restrictions on rent and income levels will terminate or the federal insured mortgage on the property is eligible for prepayment any time within five years before or after the date of application to the California Tax Credit Allocation Committee.
(ic)The entity acquiring the property enters into a regulatory agreement that requires the property to be operated in accordance with the requirements of this section for a period equal to the greater of 55 years or the life of the property.
(id)The property satisfies the requirements of Section 42(e) of the Internal Revenue Code, regarding rehabilitation expenditures except that the provisions of Section 42(e)(3)(A)(ii)(I) shall not apply.
(iv)Projects for which a public agency provides direct or indirect long-term financial support for at least 15 percent of the total project development costs or projects for which the owners equity constitutes at least 30 percent of the total project development costs.
(v)Projects that provide tenant amenities not generally available to residents of low-income housing projects.
(4)For purposes of allocating credits pursuant to this section, the committee shall not give preference to any project by virtue of the date of submission of its application.
(k)Section 42(l) of the Internal Revenue Code shall be modified as follows:
The term secretary shall be replaced by the term California Franchise Tax Board.
(l)In the case where the credit allowed under this section exceeds the net tax, the excess may be carried over to reduce the net tax in the following year, and succeeding taxable years, if necessary, until the credit has been exhausted.
(m)A project that received an allocation of a 1989 federal housing credit dollar amount shall be eligible to receive an allocation of a 1990 state housing credit dollar amount, subject to all of the following conditions:
(1)The project was not placed in service prior to 1990.
(2)To the extent the amendments made to this section by the Statutes of 1990 conflict with any provisions existing in this section prior to those amendments, the prior provisions of law shall prevail.
(3)Notwithstanding paragraph (2), a project applying for an allocation under this subdivision shall be subject to the requirements of paragraph (3) of subdivision (j).
(n)The credit period with respect to an allocation of credit in 1989 by the California Tax Credit Allocation Committee of which any amount is attributable to unallocated credit from 1987 or 1988 shall not begin until after December 31, 1989.
(o)The provisions of Section 11407(a) of Public Law 101-508, relating to the effective date of the extension of the low-income housing credit, shall apply to calendar years after 1989.
(p)The provisions of Section 11407(c) of Public Law 101-508, relating to election to accelerate credit, shall not apply.
(q)Any unused credit may continue to be carried forward, as provided in subdivision (l), until the credit has been exhausted.
(r)This section shall remain in effect on and after December 1, 1990, for as long as Section 42 of the Internal Revenue Code, relating to low-income housing credit, remains in effect.
(s)The amendments to this section made by Chapter 1222 of the Statutes of 1993 shall apply only to taxable years beginning on or after January 1, 1994.
SEC. 3.Section 23610.5 of the Revenue and Taxation Code is amended to read:23610.5.(a)(1)There shall be allowed as a credit against the tax, as defined by Section 23036, a state low-income housing tax credit in an amount equal to the amount determined in subdivision (c), computed in accordance with Section 42 of the Internal Revenue Code except as otherwise provided in this section.
(2)Taxpayer, for purposes of this section, means the sole owner in the case of a C corporation, the partners in the case of a partnership, members in the case of a limited liability company, and the shareholders in the case of an S corporation.
(3)Housing sponsor, for purposes of this section, means the sole owner in the case of a C corporation, the partnership in the case of a partnership, the limited liability company in the case of a limited liability company, and the S corporation in the case of an S corporation.
(4)Extremely low-income low-income households has the same meaning as in Section 50053 of the Health and Safety Code.
(5)Very low-income low-income households has the same meaning as in Section 50053 of the Health and Safety Code.
(b)(1)The amount of the credit allocated to any housing sponsor shall be authorized by the California Tax Credit Allocation Committee, or any successor thereof, based on a projects need for the credit for economic feasibility in accordance with the requirements of this section.
(A)The low-income housing project shall be located in California and shall meet either of the following requirements:
(i)Except for projects to provide farmworker housing, as defined in subdivision (h) of Section 50199.7 of the Health and Safety Code, that are allocated credits solely under the set-aside described in subdivision (c) of Section 50199.20 of the Health and Safety Code, the projects housing sponsor has been allocated by the California Tax Credit Allocation Committee a credit for federal income tax purposes under Section 42 of the Internal Revenue Code.
(ii)It qualifies for a credit under Section 42(h)(4)(B) of the Internal Revenue Code.
(B)The California Tax Credit Allocation Committee shall not require fees for the credit under this section in addition to those fees required for applications for the tax credit pursuant to Section 42 of the Internal Revenue Code. The committee may require a fee if the application for the credit under this section is submitted in a calendar year after the year the application is submitted for the federal tax credit.
(C)(i)For a project that receives a preliminary reservation of the state low-income housing tax credit, allowed pursuant to subdivision (a), on or after January 1, 2009, and before January 1, 2016, the credit shall be allocated to the partners of a partnership owning the project in accordance with the partnership agreement, regardless of how the federal low-income housing tax credit with respect to the project is allocated to the partners, or whether the allocation of the credit under the terms of the agreement has substantial economic effect, within the meaning of Section 704(b) of the Internal Revenue Code.
(ii)To the extent the allocation of the credit to a partner under this section lacks substantial economic effect, any loss or deduction otherwise allowable under this part that is attributable to the sale or other disposition of that partners partnership interest made prior to the expiration of the federal credit shall not be allowed in the taxable year in which the sale or other disposition occurs, but shall instead be deferred until and treated as if it occurred in the first taxable year immediately following the taxable year in which the federal credit period expires for the project described in clause (i).
(iii)This subparagraph shall not apply to a project that receives a preliminary reservation of state low-income housing tax credits under the set-aside described in subdivision (c) of Section 50199.20 of the Health and Safety Code unless the project also receives a preliminary reservation of federal low-income housing tax credits.
(iv)This subparagraph shall cease to be operative with respect to any project that receives a preliminary reservation of a credit on or after January 1, 2016.
(2)(A)The California Tax Credit Allocation Committee shall certify to the housing sponsor the amount of tax credit under this section allocated to the housing sponsor for each credit period.
(B)In the case of a partnership, limited liability company, or an S corporation, the housing sponsor shall provide a copy of the California Tax Credit Allocation Committee certification to the taxpayer.
(C)The taxpayer shall, upon request, provide a copy of the certification to the Franchise Tax Board.
(D)All elections made by the taxpayer pursuant to Section 42 of the Internal Revenue Code shall apply to this section.
(E)(i)The California Tax Credit Allocation Committee may allocate a credit under this section in exchange for a credit allocated pursuant to Section 42(d)(5)(B) of the Internal Revenue Code in amounts up to 30 percent of the eligible basis of a building if the credits allowed under Section 42 of the Internal Revenue Code are reduced by an equivalent amount.
(ii)An equivalent amount shall be determined by the California Tax Credit Allocation Committee based upon the relative amount required to produce an equivalent state tax credit to the taxpayer.
(c)Section 42(b) of the Internal Revenue Code shall be modified as follows:
(1)In the case of any qualified low-income building that is a new building, as defined in Section 42 of the Internal Revenue Code and the regulations promulgated thereunder, and not federally subsidized, the term applicable percentage means the following:
(A)For each of the first three years, the percentage prescribed by the Secretary of the Treasury for new buildings that are not federally subsidized for the taxable year, determined in accordance with the requirements of Section 42(b)(1) of the Internal Revenue Code.
(B)For the fourth year, the difference between 30 percent and the sum of the applicable percentages for the first three years.
(2)In the case of any qualified low-income building that (i) is a new building, as defined in Section 42 of the Internal Revenue Code and the regulations promulgated thereunder, (ii) not located in designated difficult development areas (DDAs) or qualified census tracts (QCTs), as defined in Section 42(d)(5)(B) of the Internal Revenue Code, and (iii) is federally subsidized, the term applicable percentage means for the first three years, 15 percent of the qualified basis of the building, and for the fourth year, 5 percent of the qualified basis of the building.
(3)In the case of any qualified low-income building that is (i) an existing building, as defined in Section 42 of the Internal Revenue Code and the regulations promulgated thereunder, (ii) not located in designated difficult development areas (DDAs) or qualified census tracts (QCTs), as defined in Section 42(d)(5)(B) of the Internal Revenue Code, and (iii) is federally subsidized, the term applicable percentage means the following:
(A)For each of the first three years, the percentage prescribed by the Secretary of the Treasury for new buildings that are federally subsidized for the taxable year.
(B)For the fourth year, the difference between 13 percent and the sum of the applicable percentages for the first three years.
(4)In the case of any qualified low-income building that is (i) a new or an existing building, (ii) located in designated difficult development areas (DDAs) or qualified census tracts (QCTs) as defined in Section 42(d)(5)(B) of the Internal Revenue Code, and (iii) federally subsidized, the California Tax Credit Allocation Committee shall determine the amount of credit to be allocated under subparagraph (E) of paragraph (2) of subdivision (b) required to produce an equivalent state tax credit to the taxpayer, as produced in paragraph (2), taking into account the basis boost provided under Section 42(d)(5)(B) of the Internal Revenue Code.
(5)In the case of any qualified low-income building that meets all of the requirements of subparagraphs (A) through (D), inclusive, the term applicable percentage means 30 percent for each of the first three years and 5 percent for the fourth year. A qualified low-income building receiving an allocation under this paragraph is ineligible to also receive an allocation under paragraph (3).
(A)The qualified low-income building is at least 15 years old.
(B)The qualified low-income building is serving households of very low-income or extremely low-income such that the average maximum household income as restricted, pursuant to an existing regulatory agreement with a federal, state, county, local, or other governmental agency, is not more than 45 percent of the area median gross income, as determined under Section 42 of the Internal Revenue Code, adjusted by household size, and a tax credit regulatory agreement is entered into for a period of not less than 55 years restricting the average targeted household income to no more than 45 percent of the area median income.
(C)The qualified low-income building would have insufficient credits under paragraphs (2) and (3) to complete substantial rehabilitation due to a low appraised value.
(D)The qualified low-income building will complete the substantial rehabilitation in connection with the credit allocation herein.
(d)The term qualified low-income housing project as defined in Section 42(c)(2) of the Internal Revenue Code is modified by adding the following requirements:
(1)The taxpayer shall be entitled to receive a cash distribution from the operations of the project, after funding required reserves, that that, at the election of the taxpayer, is equal to:
(A)An amount not to exceed 8 percent of the lesser of:
(i)The owner equity, equity that shall include the amount of the capital contributions actually paid to the housing sponsor and shall not include any amounts until they are paid on an investor note.
(ii)Twenty percent of the adjusted basis of the building as of the close of the first taxable year of the credit period.
(B)The amount of the cashflow from those units in the building that are not low-income units. For purposes of computing cashflow under this subparagraph, operating costs shall be allocated to the low-income units using the floor space fraction, as defined in Section 42 of the Internal Revenue Code.
(C)Any amount allowed to be distributed under subparagraph (A) that is not available for distribution during the first five years of the compliance period may be accumulated and distributed any time during the first 15 years of the compliance period but not thereafter.
(2)The limitation on return shall apply in the aggregate to the partners if the housing sponsor is a partnership and in the aggregate to the shareholders if the housing sponsor is an S corporation.
(3)The housing sponsor shall apply any cash available for distribution in excess of the amount eligible to be distributed under paragraph (1) to reduce the rent on rent-restricted units or to increase the number of rent-restricted units subject to the tests of Section 42(g)(1) of the Internal Revenue Code.
(e)The provisions of Section 42(f) of the Internal Revenue Code shall be modified as follows:
(1)The term credit period as defined in Section 42(f)(1) of the Internal Revenue Code is modified by substituting four taxable years for 10 taxable years.
(2)The special rule for the first taxable year of the credit period under Section 42(f)(2) of the Internal Revenue Code shall not apply to the tax credit under this section.
(3)Section 42(f)(3) of the Internal Revenue Code is modified to read:
If, as of the close of any taxable year in the compliance period, after the first year of the credit period, the qualified basis of any building exceeds the qualified basis of that building as of the close of the first year of the credit period, the housing sponsor, to the extent of its tax credit allocation, shall be eligible for a credit on the excess in an amount equal to the applicable percentage determined pursuant to subdivision (c) for the four-year period beginning with the later of the taxable years in which the increase in qualified basis occurs.
(f)The provisions of Section 42(h) of the Internal Revenue Code shall be modified as follows:
(1)Section 42(h)(2) of the Internal Revenue Code shall not be applicable and instead the following provisions shall be applicable:
The total amount for the four-year credit period of the housing credit dollars allocated in a calendar year to any building shall reduce the aggregate housing credit dollar amount of the California Tax Credit Allocation Committee for the calendar year in which the allocation is made.
(2)Paragraphs (3), (4), (5), (6)(E)(i)(II), (6)(F), (6)(G), (6)(I), (7), and (8) of Section 42(h) of the Internal Revenue Code shall not be applicable.
(g)The aggregate housing credit dollar amount that may be allocated annually by the California Tax Credit Allocation Committee pursuant to this section, Section 12206, and Section 17058 shall be an amount equal to the sum of all the following:
(1)(A)Seventy million dollars ($70,000,000) for the 2001 calendar year, and, for the 2002 calendar year and each calendar year thereafter, seventy million dollars ($70,000,000) increased by the percentage, if any, by which the Consumer Price Index for the preceding calendar year exceeds the Consumer Price Index for the 2001 calendar year. For the purposes of this paragraph, the term Consumer Price Index means the last Consumer Price Index for All Urban Consumers published by the federal Department of Labor.
(B)Three Subject to annual approval in a budget measure, three hundred million dollars ($300,000,000) for the 2017 calendar year, and, for the 2018 calendar year and each calendar year thereafter, three hundred million dollars ($300,000,000) increased by the percentage, if any, by which the Consumer Price Index for the preceding calendar year exceeds the Consumer Price Index for the 2017 calendar year. For the purposes of this paragraph, the term Consumer Price Index means the last Consumer Price Index for All Urban Consumers published by the federal Department of Labor. A housing sponsor receiving an allocation under paragraph (1) of subdivision (c) shall not be eligible for receipt of the housing credit allocated from the increased amount under this subparagraph. A housing sponsor receiving an allocation under paragraph (1) of subdivision (c) shall remain eligible for receipt of the housing credit allocated from the credit ceiling amount under subparagraph (A).
(2)The unused housing credit ceiling, if any, for the preceding calendar years.
(3)The amount of housing credit ceiling returned in the calendar year. For purposes of this paragraph, the amount of housing credit dollar amount returned in the calendar year equals the housing credit dollar amount previously allocated to any project that does not become a qualified low-income housing project within the period required by this section or to any project with respect to which an allocation is canceled by mutual consent of the California Tax Credit Allocation Committee and the allocation recipient.
(4)(A)Of the amount allocated pursuant to subparagraph (B) of paragraph (1), twenty-five million dollars ($25,000,000) per calendar year for projects to provide farmworker housing, as defined in subdivision (h) of Section 50199.7 of the Health and Safety Code.
(B)The amount of any unallocated or returned credits pursuant to this paragraph per calendar year shall be added to the aggregate amount of credits allocated pursuant to subparagraph (B) of paragraph (1).
(5)The amount of any unallocated or returned credits under former Sections 17053.14, 23608.2, and 23608.3, as those sections read prior to January 1, 2009, until fully exhausted for projects to provide farmworker housing, as defined in subdivision (h) of Section 50199.7 of the Health and Safety Code.
(h)The term compliance period as defined in Section 42(i)(1) of the Internal Revenue Code is modified to mean, with respect to any building, the period of 30 consecutive taxable years beginning with the first taxable year of the credit period with respect thereto.
(i)Section 42(j) of the Internal Revenue Code shall not be applicable and the following shall be substituted in its place:
The requirements of this section shall be set forth in a regulatory agreement between the California Tax Credit Allocation Committee and the housing sponsor, and the regulatory agreement shall be subordinated, when required, to any lien or encumbrance of any banks or other institutional lenders to the project. The regulatory agreement entered into pursuant to subdivision (f) of Section 50199.14 of the Health and Safety Code shall apply, provided that the agreement includes all of the following provisions:
(1)A term not less than the compliance period.
(2)A requirement that the agreement be recorded in the official records of the county in which the qualified low-income housing project is located.
(3)A provision stating which state and local agencies can enforce the regulatory agreement in the event the housing sponsor fails to satisfy any of the requirements of this section.
(4)A provision that the regulatory agreement shall be deemed a contract enforceable by tenants as third-party beneficiaries thereto, thereto and that allows individuals, whether prospective, present, or former occupants of the building, who meet the income limitation applicable to the building, the right to enforce the regulatory agreement in any state court.
(5)A provision incorporating the requirements of Section 42 of the Internal Revenue Code as modified by this section.
(6)A requirement that the housing sponsor notify the California Tax Credit Allocation Committee or its designee if there is a determination by the Internal Revenue Service that the project is not in compliance with Section 42(g) of the Internal Revenue Code.
(7)A requirement that the housing sponsor, as security for the performance of the housing sponsors obligations under the regulatory agreement, assign the housing sponsors interest in rents that it receives from the project, provided that until there is a default under the regulatory agreement, the housing sponsor is entitled to collect and retain the rents.
(8)The remedies available in the event of a default under the regulatory agreement that is not cured within a reasonable cure period period, include, but are not limited to, allowing any of the parties designated to enforce the regulatory agreement to collect all rents with respect to the project; taking possession of the project and operating the project in accordance with the regulatory agreement until the enforcer determines the housing sponsor is in a position to operate the project in accordance with the regulatory agreement; applying to any court for specific performance; securing the appointment of a receiver to operate the project; or any other relief as may be appropriate.
(j)(1)The committee shall allocate the housing credit on a regular basis consisting of two or more periods in each calendar year during which applications may be filed and considered. The committee shall establish application filing deadlines, the maximum percentage of federal and state low-income housing tax credit ceiling that may be allocated by the committee in that period, and the approximate date on which allocations shall be made. If the enactment of federal or state law, the adoption of rules or regulations, or other similar events prevent the use of two allocation periods, the committee may reduce the number of periods and adjust the filing deadlines, maximum percentage of credit allocated, and allocation dates.
(2)The committee shall adopt a qualified allocation plan, as provided in Section 42(m)(1) of the Internal Revenue Code. In adopting this plan, the committee shall comply with the provisions of Sections 42(m)(1)(B) and 42(m)(1)(C) of the Internal Revenue Code, respectively.
(3)Notwithstanding Section 42(m) of the Internal Revenue Code the California Tax Credit Allocation Committee shall allocate housing credits in accordance with the qualified allocation plan and regulations, which shall include the following provisions:
(A)All housing sponsors, as defined by paragraph (3) of subdivision (a), shall demonstrate at the time the application is filed with the committee that the project meets the following threshold requirements:
(i)The housing sponsor shall demonstrate there is a need for low-income housing in the community or region for which it is proposed.
(ii)The projects proposed financing, including tax credit proceeds, shall be sufficient to complete the project and shall be adequate to operate the project for the extended use period.
(iii)The project shall have enforceable financing commitments, either construction or permanent financing, for at least 50 percent of the total estimated financing of the project.
(iv)The housing sponsor shall have and maintain control of the site for the project.
(v)The housing sponsor shall demonstrate that the project complies with all applicable local land use and zoning ordinances.
(vi)The housing sponsor shall demonstrate that the project development team has the experience and the financial capacity to ensure project completion and operation for the extended use period.
(vii)The housing sponsor shall demonstrate the amount of tax credit that is necessary for the financial feasibility of the project and its viability as a qualified low-income housing project throughout the extended use period, taking into account operating expenses, a supportable debt service, reserves, funds set aside for rental subsidies and required equity, and a development fee that does not exceed a specified percentage of the eligible basis of the project prior to inclusion of the development fee in the eligible basis, as determined by the committee.
(B)The committee shall give a preference to those projects satisfying all of the threshold requirements of subparagraph (A) if both of the following apply:
(i)The project serves the lowest income tenants at rents affordable to those tenants.
(ii)The project is obligated to serve qualified tenants for the longest period.
(C)In addition to the provisions of subparagraphs (A) and (B), the committee shall use the following criteria in allocating housing credits:
(i)Projects serving large families in which a substantial number, as defined by the committee, of all residential units are low-income units with three or more bedrooms.
(ii)Projects providing single-room occupancy units serving very low income tenants.
(iii)(I) Existing projects that are at risk of conversion.
(II)For purposes of this section, the term at risk of conversion, with respect to an existing property means a property that satisfies all of the following criteria:
(ia)The property is a multifamily rental housing development in which at least 50 percent of the units receive governmental assistance pursuant to any of the following:
(Ia)New construction, substantial rehabilitation, moderate rehabilitation, property disposition, and loan management set-aside programs, or any other program providing project-based assistance pursuant to Section 8 of the United States Housing Act of 1937, Section 1437f of Title 42 of the United States Code, as amended.
(Ib)The Below-Market-Interest-Rate Program pursuant to Section 221(d)(3) of the National Housing Act, Sections 1715l(d)(3) and (5) of Title 12 of the United States Code.
(Ic)Section 236 of the National Housing Act, Section 1715z-1 of Title 12 of the United States Code.
(Id)Programs for rent supplement assistance pursuant to Section 18 101 of the Housing and Urban Development Act of 1965, Section 1701s of Title 12 of the United States Code, as amended.
(Ie)Programs pursuant to Section 515 of the Housing Act of 1949, Section 1485 of Title 42 of the United States Code, as amended.
(If)The low-income housing credit program set forth in Section 42 of the Internal Revenue Code.
(ib)The restrictions on rent and income levels will terminate or the federal insured mortgage on the property is eligible for prepayment any time within five years before or after the date of application to the California Tax Credit Allocation Committee.
(ic)The entity acquiring the property enters into a regulatory agreement that requires the property to be operated in accordance with the requirements of this section for a period equal to the greater of 55 years or the life of the property.
(id)The property satisfies the requirements of Section 42(e) of the Internal Revenue Code, regarding rehabilitation expenditures except that the provisions of Section 42(e)(3)(A)(ii)(I) shall not apply.
(iv)Projects for which a public agency provides direct or indirect long-term financial support for at least 15 percent of the total project development costs or projects for which the owners equity constitutes at least 30 percent of the total project development costs.
(v)Projects that provide tenant amenities not generally available to residents of low-income housing projects.
(4)For purposes of allocating credits pursuant to this section, the committee shall not give preference to any project by virtue of the date of submission of its application except to break a tie when two or more of the projects have an equal rating.
(5)Not less than 20 percent of the low-income housing tax credits available annually under this section, Section 12206, and Section 17058 shall be set aside for allocation to rural areas as defined in Section 50199.21 of the Health and Safety Code. Any amount of credit set aside for rural areas remaining on or after October 31 of any calendar year shall be available for allocation to any eligible project. No amount of credit set aside for rural areas shall be considered available for any eligible project so long as there are eligible rural applications pending on October 31.
(k)Section 42(l) of the Internal Revenue Code shall be modified as follows:
The term secretary shall be replaced by the term California Franchise Tax Board.
(l)In the case where the credit allowed under this section exceeds the tax, the excess may be carried over to reduce the tax in the following year, and succeeding taxable years if necessary, until the credit has been exhausted.
(m)A project that received an allocation of a 1989 federal housing credit dollar amount shall be eligible to receive an allocation of a 1990 state housing credit dollar amount, subject to all of the following conditions:
(1)The project was not placed in service prior to 1990.
(2)To the extent the amendments made to this section by the Statutes of 1990 conflict with any provisions existing in this section prior to those amendments, the prior provisions of law shall prevail.
(3)Notwithstanding paragraph (2), a project applying for an allocation under this subdivision shall be subject to the requirements of paragraph (3) of subdivision (j).
(n)The credit period with respect to an allocation of credit in 1989 by the California Tax Credit Allocation Committee of which any amount is attributable to unallocated credit from 1987 or 1988 shall not begin until after December 31, 1989.
(o)The provisions of Section 11407(a) of Public Law 101-508, relating to the effective date of the extension of the low-income housing credit, shall apply to calendar years after 1989.
(p)The provisions of Section 11407(c) of Public Law 101-508, relating to election to accelerate credit, shall not apply.
(q)(1)A corporation may elect to assign any portion of any credit allowed under this section to one or more affiliated corporations for each taxable year in which the credit is allowed. For purposes of this subdivision, affiliated corporation has the meaning provided in subdivision (b) of Section 25110, as that section was amended by Chapter 881 of the Statutes of 1993, as of the last day of the taxable year in which the credit is allowed, except that 100 percent is substituted for more than 50 percent wherever it appears in the section, as that section was amended by Chapter 881 of the Statutes of 1993, and voting common stock is substituted for voting stock wherever it appears in the section, as that section was amended by Chapter 881 of the Statutes of 1993.
(2)The election provided in paragraph (1):
(A)May be based on any method selected by the corporation that originally receives the credit.
(B)Shall be irrevocable for the taxable year the credit is allowed, once made.
(C)May be changed for any subsequent taxable year if the election to make the assignment is expressly shown on each of the returns of the affiliated corporations that assign and receive the credits.
(r)Any unused credit may continue to be carried forward, as provided in subdivision (l), until the credit has been exhausted.
(s) This section shall remain in effect on and after December 1, 1990, for as long as Section 42 of the Internal Revenue Code, relating to low-income housing credit, remains in effect.
(t)The amendments to this section made by Chapter 1222 of the Statutes of 1993 shall apply only to taxable years beginning on or after January 1, 1994, except that paragraph (1) of subdivision (q), as amended, shall apply to taxable years beginning on or after January 1, 1993.
SEC. 4.This act provides for a tax levy within the meaning of Article IV of the California Constitution and shall go into immediate effect.
(a)(1)There shall be allowed as a credit against the tax, as described by Section 12201, a state low-income housing tax credit in an amount equal to the amount determined in subdivision (c), computed in accordance with Section 42 of the Internal Revenue Code except as otherwise provided in this section.
(2)Taxpayer, for purposes of this section, means the sole owner in the case of a C corporation, the partners in the case of a partnership, members in the case of a limited liability company, and the shareholders in the case of an S corporation.
(3)Housing sponsor, for purposes of this section, means the sole owner in the case of a C corporation, the partnership in the case of a partnership, the limited liability company in the case of a limited liability company, and the S corporation in the case of an S corporation.
(4)Extremely low-income has the same meaning as in Section 50053 of the Health and Safety Code.
(5)Very low-income has the same meaning as in Section 50053 of the Health and Safety Code.
(b)(1)The amount of the credit allocated to any housing sponsor shall be authorized by the California Tax Credit Allocation Committee, or any successor thereof, based on a projects need for the credit for economic feasibility in accordance with the requirements of this section.
(A)Except for projects to provide farmworker housing, as defined in subdivision (h) of Section 50199.7 of the Health and Safety Code, that are allocated credits solely under the set-aside described in subdivision (c) of Section 50199.20 of the Health and Safety Code, the low-income housing project shall be located in California and shall meet either of the following requirements:
(i)The projects housing sponsor has been allocated by the California Tax Credit Allocation Committee a credit for federal income tax purposes under Section 42 of the Internal Revenue Code.
(ii)It qualifies for a credit under Section 42(h)(4)(B) of the Internal Revenue Code.
(B)The California Tax Credit Allocation Committee shall not require fees for the credit under this section in addition to those fees required for applications for the tax credit pursuant to Section 42 of the Internal Revenue Code. The committee may require a fee if the application for the credit under this section is submitted in a calendar year after the year the application is submitted for the federal tax credit.
(C)(i)For a project that receives a preliminary reservation of the state low-income housing tax credit, allowed pursuant to subdivision (a), on or after January 1, 2009, and before January 1, 2016, the credit shall be allocated to the partners of a partnership owning the project in accordance with the partnership agreement, regardless of how the federal low-income housing tax credit with respect to the project is allocated to the partners, or whether the allocation of the credit under the terms of the agreement has substantial economic effect, within the meaning of Section 704(b) of the Internal Revenue Code.
(ii)This subparagraph shall not apply to a project that receives a preliminary reservation of state low-income housing tax credits under the set-aside described in subdivision (c) of Section 50199.20 of the Health and Safety Code unless the project also receives a preliminary reservation of federal low-income housing tax credits.
(iii)This subparagraph shall cease to be operative with respect to any project that receives a preliminary reservation of a credit on or after January 1, 2016.
(2)(A)The California Tax Credit Allocation Committee shall certify to the housing sponsor the amount of tax credit under this section allocated to the housing sponsor for each credit period.
(B)In the case of a partnership or an S corporation, the housing sponsor shall provide a copy of the California Tax Credit Allocation Committee certification to the taxpayer.
(C)The taxpayer shall attach a copy of the certification to any return upon which a tax credit is claimed under this section.
(D)In the case of a failure to attach a copy of the certification for the year to the return in which a tax credit is claimed under this section, no credit under this section shall be allowed for that year until a copy of that certification is provided.
(E)All elections made by the taxpayer pursuant to Section 42 of the Internal Revenue Code shall apply to this section.
(F)(i)The California Tax Credit Allocation Committee may allocate a credit under this section in exchange for a credit allocated pursuant to Section 42(d)(5)(B) of the Internal Revenue Code in amounts up to 30 percent of the eligible basis of a building if the credits allowed under Section 42 of the Internal Revenue Code are reduced by an equivalent amount.
(ii)An equivalent amount shall be determined by the California Tax Credit Allocation Committee based upon the relative amount required to produce an equivalent state tax credit to the taxpayer.
(c)Section 42(b) of the Internal Revenue Code shall be modified as follows:
(1)In the case of any qualified low-income building that is a new building, as defined in Section 42 of the Internal Revenue Code and the regulations promulgated thereunder, and not federally subsidized, the term applicable percentage means the following:
(A)For each of the first three years, the percentage prescribed by the Secretary of the Treasury for new buildings that are not federally subsidized for the taxable year, determined in accordance with the requirements of Section 42(b)(1) of the Internal Revenue Code.
(B)For the fourth year, the difference between 30 percent and the sum of the applicable percentages for the first three years.
(2)In the case of any qualified low-income building that (i) is a new building, as defined in Section 42 of the Internal Revenue Code and the regulations promulgated thereunder, (ii) not located in designated difficult development areas (DDAs) or qualified census tracts (QCTs), as defined in Section 42(d)(5)(B) of the Internal Revenue Code, and (iii) is federally subsidized, the term applicable percentage means for the first three years, 15 percent of the qualified basis of the building, and for the fourth year, 5 percent of the qualified basis of the building.
(3)In the case of any qualified low-income building that is (i) an existing building, as defined in Section 42 of the Internal Revenue Code and the regulations promulgated thereunder, (ii) not located in designated difficult development areas (DDAs) or qualified census tracts (QCTs), as defined in Section 42(d)(5)(B) of the Internal Revenue Code, and (iii) is federally subsidized, the term applicable percentage means the following:
(A)For each of the first three years, the percentage prescribed by the Secretary of the Treasury for new buildings that are federally subsidized for the taxable year.
(B)For the fourth year, the difference between 13 percent and the sum of the applicable percentages for the first three years.
(4)In the case of any qualified low-income building that is (i) a new or an existing building, (ii) located in designated difficult development areas (DDAs) or qualified census tracts (QCTs) as defined in Section 42(d)(5)(B) of the Internal Revenue Code, and (iii) federally subsidized, the California Tax Credit Allocation Committee shall reduce the amount of California credit to be allocated under paragraph (2) and (3) by taking into account the increased federal credit received due to the basis boost provided under Section 42(d)(5)(B) of the Internal Revenue Code.
(5)In the term at risk case of any qualified low-income building that meets all of the requirements of subparagraphs (A) through (D), inclusive, the term applicable percentage means 30 percent for each of the first three years and 5 percent for the fourth year. A qualified low-income building receiving an allocation under this paragraph is ineligible to also receive an allocation under paragraph (3).
(A)The qualified low-income building is at least 15 years old.
(B)The qualified low-income building is serving households of very low-income or extremely low-income such that the average maximum household income as restricted, pursuant to an existing regulatory agreement with a federal, state, county, local, or other governmental agency, is not more than 45 percent of the area median gross income, as determined under Section 42 of the Internal Revenue Code, adjusted by household size, and a tax credit regulatory agreement is entered into for a period of not less than 55 years restricting the average targeted household income to no more than 45 percent of the area median income.
(C)The qualified low-income building would have insufficient credits under paragraphs (2) and (3) to complete substantial rehabilitation due to a low appraised value.
(D)The qualified low-income building will complete the substantial rehabilitation in connection with the credit allocation herein.
(d)The term qualified low-income housing project as defined in Section 42(c)(2) of the Internal Revenue Code is modified by adding the following requirements:
(1)The taxpayer shall be entitled to receive a cash distribution from the operations of the project, after funding required reserves, that, at the election of the taxpayer, is equal to:
(A)An amount not to exceed 8 percent of the lesser of:
(i)The owner equity that shall include the amount of the capital contributions actually paid to the housing sponsor and shall not include any amounts until they are paid on an investor note.
(ii)Twenty percent of the adjusted basis of the building as of the close of the first taxable year of the credit period.
(B)The amount of the cashflow from those units in the building that are not low-income units. For purposes of computing cashflow under this subparagraph, operating costs shall be allocated to the low-income units using the floor space fraction, as defined in Section 42 of the Internal Revenue Code.
(C)Any amount allowed to be distributed under subparagraph (A) that is not available for distribution during the first five years of the compliance period may be accumulated and distributed any time during the first 15 years of the compliance period but not thereafter.
(2)The limitation on return shall apply in the aggregate to the partners if the housing sponsor is a partnership and in the aggregate to the shareholders if the housing sponsor is an S corporation.
(3)The housing sponsor shall apply any cash available for distribution in excess of the amount eligible to be distributed under paragraph (1) to reduce the rent on rent-restricted units or to increase the number of rent-restricted units subject to the tests of Section 42(g)(1) of the Internal Revenue Code.
(e)The provisions of Section 42(f) of the Internal Revenue Code shall be modified as follows:
(1)The term credit period as defined in Section 42(f)(1) of the Internal Revenue Code is modified by substituting four taxable years for 10 taxable years.
(2)The special rule for the first taxable year of the credit period under Section 42(f)(2) of the Internal Revenue Code shall not apply to the tax credit under this section.
(3)Section 42(f)(3) of the Internal Revenue Code is modified to read:
If, as of the close of any taxable year in the compliance period, after the first year of the credit period, the qualified basis of any building exceeds the qualified basis of that building as of the close of the first year of the credit period, the housing sponsor, to the extent of its tax credit allocation, shall be eligible for a credit on the excess in an amount equal to the applicable percentage determined pursuant to subdivision (c) for the four-year period beginning with the taxable year in which the increase in qualified basis occurs.
(f)The provisions of Section 42(h) of the Internal Revenue Code shall be modified as follows:
(1)Section 42(h)(2) of the Internal Revenue Code shall not be applicable and instead the following provisions shall be applicable:
The total amount for the four-year credit period of the housing credit dollars allocated in a calendar year to any building shall reduce the aggregate housing credit dollar amount of the California Tax Credit Allocation Committee for the calendar year in which the allocation is made.
(2)Paragraphs (3), (4), (5), (6)(E)(i)(II), (6)(F), (6)(G), (6)(I), (7), and (8) of Section 42(h) of the Internal Revenue Code shall not be applicable.
(g)The aggregate housing credit dollar amount that may be allocated annually by the California Tax Credit Allocation Committee pursuant to this section, Section 17058, and Section 23610.5 shall be an amount equal to the sum of all the following:
(1)(A)Seventy million dollars ($70,000,000) for the 2001 calendar year, and, for the 2002 calendar year and each calendar year thereafter, seventy million dollars ($70,000,000) increased by the percentage, if any, by which the Consumer Price Index for the preceding calendar year exceeds the Consumer Price Index for the 2001 calendar year. For the purposes of this paragraph, the term Consumer Price Index means the last Consumer Price Index for All Urban Consumers published by the federal Department of Labor.
(B)For calendar years 2017 through 2022, inclusive, an additional one
(B)Three hundred million dollars ($100,000,000) ($300,000,000) for the 2017 calendar year, and, for the 2018 through 2022 calendar years, one hundred million dollars ($100,000,000) calendar year and each calendar year thereafter, three hundred million dollars ($300,000,000) increased by the percentage, if any, by which the Consumer Price Index for the preceding calendar year exceeds the Consumer Price Index for the 2017 calendar year. For the purposes of this paragraph, the term Consumer Price Index means the last Consumer Price Index for All Urban Consumers published by the federal Department of Labor. A housing sponsor receiving an allocation under paragraph (1) of subdivision (c) shall not be eligible for receipt of the housing credit allocated from the increased amount under this subparagraph. A housing sponsor receiving an allocation under paragraph (1) of subdivision (c) shall remain eligible for receipt of the housing credit allocated from the credit ceiling amount under subparagraph (A).
(2)The unused housing credit ceiling, if any, for the preceding calendar years.
(3)The amount of housing credit ceiling returned in the calendar year. For purposes of this paragraph, the amount of housing credit dollar amount returned in the calendar year equals the housing credit dollar amount previously allocated to any project that does not become a qualified low-income housing project within the period required by this section or to any project with respect to which an allocation is canceled by mutual consent of the California Tax Credit Allocation Committee and the allocation recipient.
(4)Five hundred thousand dollars ($500,000) (A)Of the amount allocated pursuant to subparagraph (B) of paragraph (1), twenty-five million dollars ($25,000,000) per calendar year for projects to provide farmworker housing, as defined in subdivision (h) of Section 50199.7 of the Health and Safety Code.
(B)The amount of any unallocated or returned credits pursuant to this paragraph per calendar year shall be added to the aggregate amount of credits allocated pursuant to subparagraph (B) of paragraph (1).
(5)The amount of any unallocated or returned credits under former Sections 17053.14, 23608.2, and 23608.3, as those sections read prior to January 1, 2009, until fully exhausted for projects to provide farmworker housing, as defined in subdivision (h) of Section 50199.7 of the Health and Safety Code.
(h)The term compliance period as defined in Section 42(i)(1) of the Internal Revenue Code is modified to mean, with respect to any building, the period of 30 consecutive taxable years beginning with the first taxable year of the credit period with respect thereto.
(i)(1)Section 42(j) of the Internal Revenue Code shall not be applicable and the provisions in paragraph (2) shall be substituted in its place.
(2)The requirements of this section shall be set forth in a regulatory agreement between the California Tax Credit Allocation Committee and the housing sponsor, and the regulatory agreement shall be subordinated, when required, to any lien or encumbrance of any banks or other institutional lenders to the project. The regulatory agreement entered into pursuant to subdivision (f) of Section 50199.14 of the Health and Safety Code, shall apply, provided that the agreement includes all of the following provisions:
(A)A term not less than the compliance period.
(B)A requirement that the agreement be recorded in the official records of the county in which the qualified low-income housing project is located.
(C)A provision stating which state and local agencies can enforce the regulatory agreement in the event the housing sponsor fails to satisfy any of the requirements of this section.
(D)A provision that the regulatory agreement shall be deemed a contract enforceable by tenants as third-party beneficiaries thereto and that allows individuals, whether prospective, present, or former occupants of the building, who meet the income limitation applicable to the building, the right to enforce the regulatory agreement in any state court.
(E)A provision incorporating the requirements of Section 42 of the Internal Revenue Code as modified by this section.
(F)A requirement that the housing sponsor notify the California Tax Credit Allocation Committee or its designee and the local agency that can enforce the regulatory agreement if there is a determination by the Internal Revenue Service that the project is not in compliance with Section 42(g) of the Internal Revenue Code.
(G)A requirement that the housing sponsor, as security for the performance of the housing sponsors obligations under the regulatory agreement, assign the housing sponsors interest in rents that it receives from the project, provided that until there is a default under the regulatory agreement, the housing sponsor is entitled to collect and retain the rents.
(H)The remedies available in the event of a default under the regulatory agreement that is not cured within a reasonable cure period, include, but are not limited to, allowing any of the parties designated to enforce the regulatory agreement to collect all rents with respect to the project; taking possession of the project and operating the project in accordance with the regulatory agreement until the enforcer determines the housing sponsor is in a position to operate the project in accordance with the regulatory agreement; applying to any court for specific performance; securing the appointment of a receiver to operate the project; or any other relief as may be appropriate.
(j)(1)The committee shall allocate the housing credit on a regular basis consisting of two or more periods in each calendar year during which applications may be filed and considered. The committee shall establish application filing deadlines, the maximum percentage of federal and state low-income housing tax credit ceiling that may be allocated by the committee in that period, and the approximate date on which allocations shall be made. If the enactment of federal or state law, the adoption of rules or regulations, or other similar events prevent the use of two allocation periods, the committee may reduce the number of periods and adjust the filing deadlines, maximum percentage of credit allocated, and allocation dates.
(2)The committee shall adopt a qualified allocation plan, as provided in Section 42(m)(1) of the Internal Revenue Code. In adopting this plan, the committee shall comply with the provisions of Sections 42(m)(1)(B) and 42(m)(1)(C) of the Internal Revenue Code, respectively.
(3)Notwithstanding Section 42(m) of the Internal Revenue Code the California Tax Credit Allocation Committee shall allocate housing credits in accordance with the qualified allocation plan and regulations, which shall include the following provisions:
(A)All housing sponsors, as defined by paragraph (3) of subdivision (a), shall demonstrate at the time the application is filed with the committee that the project meets the following threshold requirements:
(i)The housing sponsor shall demonstrate there is a need and demand for low-income housing in the community or region for which it is proposed.
(ii)The projects proposed financing, including tax credit proceeds, shall be sufficient to complete the project and that the proposed operating income shall be adequate to operate the project for the extended use period.
(iii)The project shall have enforceable financing commitments, either construction or permanent financing, for at least 50 percent of the total estimated financing of the project.
(iv)The housing sponsor shall have and maintain control of the site for the project.
(v)The housing sponsor shall demonstrate that the project complies with all applicable local land use and zoning ordinances.
(vi)The housing sponsor shall demonstrate that the project development team has the experience and the financial capacity to ensure project completion and operation for the extended use period.
(vii)The housing sponsor shall demonstrate the amount of tax credit that is necessary for the financial feasibility of the project and its viability as a qualified low-income housing project throughout the extended use period, taking into account operating expenses, a supportable debt service, reserves, funds set aside for rental subsidies, and required equity, and a development fee that does not exceed a specified percentage of the eligible basis of the project prior to inclusion of the development fee in the eligible basis, as determined by the committee.
(B)The committee shall give a preference to those projects satisfying all of the threshold requirements of subparagraph (A) if both of the following apply:
(i)The project serves the lowest income tenants at rents affordable to those tenants.
(ii)The project is obligated to serve qualified tenants for the longest period.
(C)In addition to the provisions of subparagraphs (A) and (B), the committee shall use the following criteria in allocating housing credits:
(i)Projects serving large families in which a substantial number, as defined by the committee, of all residential units are low-income units with three or more bedrooms.
(ii)Projects providing single-room occupancy units serving very low income tenants.
(iii)(I)Existing projects that are at risk of conversion.
(II)For purposes of this section, the term at risk of conversion, with respect to an existing property means a property that satisfies all of the following criteria:
(ia)The property is a multifamily rental housing development in which at least 50 percent of the units receive governmental assistance pursuant to any of the following:
(Ia)New construction, substantial rehabilitation, moderate rehabilitation, property disposition, and loan management set-aside programs, or any other program providing project-based assistance pursuant to Section 8 of the United States Housing Act of 1937, Section 1437f of Title 42 of the United States Code, as amended.
(Ib)The Below-Market-Interest-Rate Program pursuant to Section 221(d)(3) of the National Housing Act, Sections 1715l(d)(3) and (5) of Title 12 of the United States Code.
(Ic)Section 236 of the National Housing Act, Section 1715z-1 of Title 12 of the United States Code.
(Id)Programs for rent supplement assistance pursuant to Section 18 101 of the Housing and Urban Development Act of 1965, Section 1701s of Title 12 of the United States Code, as amended.
(Ie)Programs pursuant to Section 515 of the Housing Act of 1949, Section 1485 of Title 42 of the United States Code, as amended.
(If)The low-income housing credit program set forth in Section 42 of the Internal Revenue Code.
(ib)The restrictions on rent and income levels will terminate or the federal insured mortgage on the property is eligible for prepayment any time within five years before or after the date of application to the California Tax Credit Allocation Committee.
(ic)The entity acquiring the property enters into a regulatory agreement that requires the property to be operated in accordance with the requirements of this section for a period equal to the greater of 55 years or the life of the property.
(id)The property satisfies the requirements of Section 42(e) of the Internal Revenue Code, regarding rehabilitation expenditures except that the provisions of Section 42(e)(3)(A)(ii)(I) shall not apply.
(iv)Projects for which a public agency provides direct or indirect long-term financial support for at least 15 percent of the total project development costs or projects for which the owners equity constitutes at least 30 percent of the total project development costs.
(v)Projects that provide tenant amenities not generally available to residents of low-income housing projects.
(4)For purposes of allocating credits pursuant to this section, the committee shall not give preference to any project by virtue of the date of submission of its application except to break a tie when two or more of the projects have an equal rating.
(k)Section 42(l) of the Internal Revenue Code shall be modified as follows:
The term secretary shall be replaced by the term California Franchise Tax Board.
(l)In the case where the credit allowed under this section exceeds the tax, the excess may be carried over to reduce the tax in the following year, and succeeding years if necessary, until the credit has been exhausted.
(m)The provisions of Section 11407(a) of Public Law 101-508, relating to the effective date of the extension of the low-income housing credit, shall apply to calendar years after 1993.
(n)The provisions of Section 11407(c) of Public Law 101-508, relating to election to accelerate credit, shall not apply.
(o)This section shall remain in effect for as long as Section 42 of the Internal Revenue Code, relating to low-income housing credit, remains in effect.
SEC. 2.Section 17058 of the Revenue and Taxation Code is amended to read:17058.(a)(1)There shall be allowed as a credit against the net tax, as defined in Section 17039, a state low-income housing tax credit in an amount equal to the amount determined in subdivision (c), computed in accordance with Section 42 of the Internal Revenue Code except as otherwise provided in this section.
(2)Taxpayer for purposes of this section means the sole owner in the case of an individual, the partners in the case of a partnership, members in the case of a limited liability company, and the shareholders in the case of an S corporation.
(3)Housing sponsor for purposes of this section means the sole owner in the case of an individual, the partnership in the case of a partnership, the limited liability company in the case of a limited liability company, and the S corporation in the case of an S corporation.
(4)Extremely low-income has the same meaning as in Section 50053 of the Health and Safety Code.
(5)Very low-income has the same meaning as in Section 50053 of the Health and Safety Code.
(b)(1)The amount of the credit allocated to any housing sponsor shall be authorized by the California Tax Credit Allocation Committee, or any successor thereof, based on a projects need for the credit for economic feasibility in accordance with the requirements of this section.
(A)The low-income housing project shall be located in California and shall meet either of the following requirements:
(i)Except for projects to provide farmworker housing, as defined in subdivision (h) of Section 50199.7 of the Health and Safety Code, that are allocated credits solely under the set-aside described in subdivision (c) of Section 50199.20 of the Health and Safety Code, the projects housing sponsor has been allocated by the California Tax Credit Allocation Committee a credit for federal income tax purposes under Section 42 of the Internal Revenue Code.
(ii)It qualifies for a credit under Section 42(h)(4)(B) of the Internal Revenue Code.
(B)The California Tax Credit Allocation Committee shall not require fees for the credit under this section in addition to those fees required for applications for the tax credit pursuant to Section 42 of the Internal Revenue Code. The committee may require a fee if the application for the credit under this section is submitted in a calendar year after the year the application is submitted for the federal tax credit.
(C)(i)For a project that receives a preliminary reservation of the state low-income housing tax credit, allowed pursuant to subdivision (a), on or after January 1, 2009, and before January 1, 2016, the credit shall be allocated to the partners of a partnership owning the project in accordance with the partnership agreement, regardless of how the federal low-income housing tax credit with respect to the project is allocated to the partners, or whether the allocation of the credit under the terms of the agreement has substantial economic effect, within the meaning of Section 704(b) of the Internal Revenue Code.
(ii)To the extent the allocation of the credit to a partner under this section lacks substantial economic effect, any loss or deduction otherwise allowable under this part that is attributable to the sale or other disposition of that partners partnership interest made prior to the expiration of the federal credit shall not be allowed in the taxable year in which the sale or other disposition occurs, but shall instead be deferred until and treated as if it occurred in the first taxable year immediately following the taxable year in which the federal credit period expires for the project described in clause (i).
(iii)This subparagraph shall not apply to a project that receives a preliminary reservation of state low-income housing tax credits under the set-aside described in subdivision (c) of Section 50199.20 of the Health and Safety Code unless the project also receives a preliminary reservation of federal low-income housing tax credits.
(iv)This subparagraph shall cease to be operative with respect to any project that receives a preliminary reservation of a credit on or after January 1, 2016.
(2)(A)The California Tax Credit Allocation Committee shall certify to the housing sponsor the amount of tax credit under this section allocated to the housing sponsor for each credit period.
(B)In the case of a partnership, limited liability company, or an S corporation, the housing sponsor shall provide a copy of the California Tax Credit Allocation Committee certification to the taxpayer.
(C)The taxpayer shall, upon request, provide a copy of the certification to the Franchise Tax Board.
(D)All elections made by the taxpayer pursuant to Section 42 of the Internal Revenue Code shall apply to this section.
(E)(i)The California Tax Credit Allocation Committee may allocate a credit under this section in exchange for a credit allocated pursuant to Section 42(d)(5)(B) of the Internal Revenue Code in amounts up to 30 percent of the eligible basis of a building if the credits allowed under Section 42 of the Internal Revenue Code are reduced by an equivalent amount.
(ii)An equivalent amount shall be determined by the California Tax Credit Allocation Committee based upon the relative amount required to produce an equivalent state tax credit to the taxpayer.
(c)Section 42(b) of the Internal Revenue Code shall be modified as follows:
(1)In the case of any qualified low-income building that is a new building, as defined in Section 42 of the Internal Revenue Code and the regulations promulgated thereunder, and not federally subsidized, the term applicable percentage means the following:
(A)For each of the first three years, the percentage prescribed by the Secretary of the Treasury for new buildings that are not federally subsidized for the taxable year, determined in accordance with the requirements of Section 42(b)(1) of the Internal Revenue Code.
(B)For the fourth year, the difference between 30 percent and the sum of the applicable percentages for the first three years.
(2)In the case of any qualified low-income building that (i) is a new building, as defined in Section 42 of the Internal Revenue Code and the regulations promulgated thereunder, (ii) not located in designated difficult development areas (DDAs) or qualified census tracts (QCTs), as defined in Section 42(d)(5)(B) of the Internal Revenue Code, and (iii) is federally subsidized, the term applicable percentage means for the first three years, 15 percent of the qualified basis of the building, and for the fourth year, 5 percent of the qualified basis of the building.
(3)In the case of any qualified low-income building that is (i) an existing building, as defined in Section 42 of the Internal Revenue Code and the regulations promulgated thereunder, (ii) not located in designated difficult development areas (DDAs) or qualified census tracts (QCTs), as defined in Section 42(d)(5)(B) of the Internal Revenue Code, and (iii) is federally subsidized, the term applicable percentage means the following:
(A)For each of the first three years, the percentage prescribed by the Secretary of the Treasury for new buildings that are federally subsidized for the taxable year.
(B)For the fourth year, the difference between 13 percent and the sum of the applicable percentages for the first three years.
(4)In the case of any qualified low-income building that is (i) a new or an existing building, (ii) located in designated difficult development areas (DDAs) or qualified census tracts (QCTs) as defined in Section 42(d)(5)(B) of the Internal Revenue Code, and (iii) federally subsidized, the California Tax Credit Allocation Committee shall reduce the amount of California credit to be allocated under subparagraph (2) and (3) by taking into account the increased federal credit received due to the basis boost provided under Section 42(d)(5)(B) of the Internal Revenue Code.
(5)In the case of any qualified low-income building that meets all of the requirements of subparagraphs (A) through (D), inclusive, the term applicable percentage means 30 percent for each of the first three years and 5 percent for the fourth year. A qualified low-income building receiving an allocation under this paragraph is ineligible to also receive an allocation under paragraph (3).
(A)The qualified low-income building is at least 15 years old.
(B)The qualified low-income building is serving households of very low-income or extremely low-income such that the average maximum household income as restricted, pursuant to an existing regulatory agreement with a federal, state, county, local, or other governmental agency, is not more than 45 percent of the area median gross income, as determined under Section 42 of the Internal Revenue Code, adjusted by household size, and a tax credit regulatory agreement is entered into for a period of not less than 55 years restricting the average targeted household income to no more than 45 percent of the area median income.
(C)The qualified low-income building would have insufficient credits under paragraphs (2) and (3) to complete substantial rehabilitation due to a low appraised value.
(D)The qualified low-income building will complete the substantial rehabilitation in connection with the credit allocation herein.
(d)The term qualified low-income housing project as defined in Section 42(c)(2) of the Internal Revenue Code is modified by adding the following requirements:
(1)The taxpayer shall be entitled to receive a cash distribution from the operations of the project, after funding required reserves, that, at the election of the taxpayer, is equal to:
(A)An amount not to exceed 8 percent of the lesser of:
(i)The owner equity that shall include the amount of the capital contributions actually paid to the housing sponsor and shall not include any amounts until they are paid on an investor note.
(ii)Twenty percent of the adjusted basis of the building as of the close of the first taxable year of the credit period.
(B)The amount of the cashflow from those units in the building that are not low-income units. For purposes of computing cashflow under this subparagraph, operating costs shall be allocated to the low-income units using the floor space fraction, as defined in Section 42 of the Internal Revenue Code.
(C)Any amount allowed to be distributed under subparagraph (A) that is not available for distribution during the first five years of the compliance period may be accumulated and distributed any time during the first 15 years of the compliance period but not thereafter.
(2)The limitation on return shall apply in the aggregate to the partners if the housing sponsor is a partnership and in the aggregate to the shareholders if the housing sponsor is an S corporation.
(3)The housing sponsor shall apply any cash available for distribution in excess of the amount eligible to be distributed under paragraph (1) to reduce the rent on rent-restricted units or to increase the number of rent-restricted units subject to the tests of Section 42(g)(1) of the Internal Revenue Code.
(e)The provisions of Section 42(f) of the Internal Revenue Code shall be modified as follows:
(1)The term credit period as defined in Section 42(f)(1) of the Internal Revenue Code is modified by substituting four taxable years for 10 taxable years.
(2)The special rule for the first taxable year of the credit period under Section 42(f)(2) of the Internal Revenue Code shall not apply to the tax credit under this section.
(3)Section 42(f)(3) of the Internal Revenue Code is modified to read:
If, as of the close of any taxable year in the compliance period, after the first year of the credit period, the qualified basis of any building exceeds the qualified basis of that building as of the close of the first year of the credit period, the housing sponsor, to the extent of its tax credit allocation, shall be eligible for a credit on the excess in an amount equal to the applicable percentage determined pursuant to subdivision (c) for the four-year period beginning with the taxable year in which the increase in qualified basis occurs.
(f)The provisions of Section 42(h) of the Internal Revenue Code shall be modified as follows:
(1)Section 42(h)(2) of the Internal Revenue Code shall not be applicable and instead the following provisions shall be applicable:
The total amount for the four-year credit period of the housing credit dollars allocated in a calendar year to any building shall reduce the aggregate housing credit dollar amount of the California Tax Credit Allocation Committee for the calendar year in which the allocation is made.
(2)Paragraphs (3), (4), (5), (6)(E)(i)(II), (6)(F), (6)(G), (6)(I), (7), and (8) of Section 42(h) of the Internal Revenue Code shall not be applicable.
(g)The aggregate housing credit dollar amount that may be allocated annually by the California Tax Credit Allocation Committee pursuant to this section, Section 12206, and Section 23610.5 shall be an amount equal to the sum of all the following:
(1)(A)Seventy million dollars ($70,000,000) for the 2001 calendar year, and, for the 2002 calendar year and each calendar year thereafter, seventy million dollars ($70,000,000) increased by the percentage, if any, by which the Consumer Price Index for the preceding calendar year exceeds the Consumer Price Index for the 2001 calendar year. For the purposes of this paragraph, the term Consumer Price Index means the last Consumer Price Index for All Urban Consumers published by the federal Department of Labor.
(B)For calendar years 2017 through 2022, inclusive, an additional one
(B)Three hundred million dollars ($100,000,000) ($300,000,000) for the 2017 calendar year, and, for the 2018 through 2022 calendar years, one hundred million dollars ($100,000,000) calendar year and each calendar year thereafter, three hundred million dollars ($300,000,000) increased by the percentage, if any, by which the Consumer Price Index for the preceding calendar year exceeds the Consumer Price Index for the 2017 calendar year. For the purposes of this paragraph, the term Consumer Price Index means the last Consumer Price Index for All Urban Consumers published by the federal Department of Labor. A housing sponsor receiving an allocation under paragraph (1) of subdivision (c) shall not be eligible for receipt of the housing credit allocated from the increased amount under this subparagraph. A housing sponsor receiving an allocation under paragraph (1) of subdivision (c) shall remain eligible for receipt of the housing credit allocated from the credit ceiling amount under subparagraph (A).
(2)The unused housing credit ceiling, if any, for the preceding calendar years.
(3)The amount of housing credit ceiling returned in the calendar year. For purposes of this paragraph, the amount of housing credit dollar amount returned in the calendar year equals the housing credit dollar amount previously allocated to any project that does not become a qualified low-income housing project within the period required by this section or to any project with respect to which an allocation is canceled by mutual consent of the California Tax Credit Allocation Committee and the allocation recipient.
(4)Five hundred thousand dollars ($500,000) (A)Of the amount allocated pursuant to subparagraph (B) of paragraph (1), twenty-five million dollars ($25,000,000) per calendar year for projects to provide farmworker housing, as defined in subdivision (h) of Section 50199.7 of the Health and Safety Code.
(B)The amount of any unallocated or returned credits pursuant to this paragraph per calendar year shall be added to the aggregate amount of credits allocated pursuant to subparagraph (B) of paragraph (1).
(5)The amount of any unallocated or returned credits under former Sections 17053.14, 23608.2, and 23608.3, as those sections read prior to January 1, 2009, until fully exhausted for projects to provide farmworker housing, as defined in subdivision (h) of Section 50199.7 of the Health and Safety Code.
(h)The term compliance period as defined in Section 42(i)(1) of the Internal Revenue Code is modified to mean, with respect to any building, the period of 30 consecutive taxable years beginning with the first taxable year of the credit period with respect thereto.
(i)Section 42(j) of the Internal Revenue Code shall not be applicable and the following requirements of this section shall be set forth in a regulatory agreement between the California Tax Credit Allocation Committee and the housing sponsor, and the regulatory agreement shall be subordinated, when required, to any lien or encumbrance of any banks or other institutional lenders to the project. The regulatory agreement entered into pursuant to subdivision (f) of Section 50199.14 of the Health and Safety Code shall apply, provided that the agreement includes all of the following provisions:
(1)A term not less than the compliance period.
(2)A requirement that the agreement be recorded in the official records of the county in which the qualified low-income housing project is located.
(3)A provision stating which state and local agencies can enforce the regulatory agreement in the event the housing sponsor fails to satisfy any of the requirements of this section.
(4)A provision that the regulatory agreement shall be deemed a contract enforceable by tenants as third-party beneficiaries thereto and that allows individuals, whether prospective, present, or former occupants of the building, who meet the income limitation applicable to the building, the right to enforce the regulatory agreement in any state court.
(5)A provision incorporating the requirements of Section 42 of the Internal Revenue Code as modified by this section.
(6)A requirement that the housing sponsor notify the California Tax Credit Allocation Committee or its designee if there is a determination by the Internal Revenue Service that the project is not in compliance with Section 42(g) of the Internal Revenue Code.
(7)A requirement that the housing sponsor, as security for the performance of the housing sponsors obligations under the regulatory agreement, assign the housing sponsors interest in rents that it receives from the project, provided that until there is a default under the regulatory agreement, the housing sponsor is entitled to collect and retain the rents.
(8)The remedies available in the event of a default under the regulatory agreement that is not cured within a reasonable cure period, include, but are not limited to, allowing any of the parties designated to enforce the regulatory agreement to collect all rents with respect to the project; taking possession of the project and operating the project in accordance with the regulatory agreement until the enforcer determines the housing sponsor is in a position to operate the project in accordance with the regulatory agreement; applying to any court for specific performance; securing the appointment of a receiver to operate the project; or any other relief as may be appropriate.
(j)(1)The committee shall allocate the housing credit on a regular basis consisting of two or more periods in each calendar year during which applications may be filed and considered. The committee shall establish application filing deadlines, the maximum percentage of federal and state low-income housing tax credit ceiling that may be allocated by the committee in that period, and the approximate date on which allocations shall be made. If the enactment of federal or state law, the adoption of rules or regulations, or other similar events prevent the use of two allocation periods, the committee may reduce the number of periods and adjust the filing deadlines, maximum percentage of credit allocated, and allocation dates.
(2)The committee shall adopt a qualified allocation plan, as provided in Section 42(m)(1) of the Internal Revenue Code. In adopting this plan, the committee shall comply with the provisions of Sections 42(m)(1)(B) and 42(m)(1)(C) of the Internal Revenue Code, respectively.
(3)Notwithstanding Section 42(m) of the Internal Revenue Code the California Tax Credit Allocation Committee shall allocate housing credits in accordance with the qualified allocation plan and regulations, which shall include the following provisions:
(A)All housing sponsors, as defined by paragraph (3) of subdivision (a), shall demonstrate at the time the application is filed with the committee that the project meets the following threshold requirements:
(i)The housing sponsor shall demonstrate there is a need and demand for low-income housing in the community or region for which it is proposed.
(ii)The projects proposed financing, including tax credit proceeds, shall be sufficient to complete the project and that the proposed operating income shall be adequate to operate the project for the extended use period.
(iii)The project shall have enforceable financing commitments, either construction or permanent financing, for at least 50 percent of the total estimated financing of the project.
(iv)The housing sponsor shall have and maintain control of the site for the project.
(v)The housing sponsor shall demonstrate that the project complies with all applicable local land use and zoning ordinances.
(vi)The housing sponsor shall demonstrate that the project development team has the experience and the financial capacity to ensure project completion and operation for the extended use period.
(vii)The housing sponsor shall demonstrate the amount of tax credit that is necessary for the financial feasibility of the project and its viability as a qualified low-income housing project throughout the extended use period, taking into account operating expenses, a supportable debt service, reserves, funds set aside for rental subsidies and required equity, and a development fee that does not exceed a specified percentage of the eligible basis of the project prior to inclusion of the development fee in the eligible basis, as determined by the committee.
(B)The committee shall give a preference to those projects satisfying all of the threshold requirements of subparagraph (A) if both of the following apply:
(i)The project serves the lowest income tenants at rents affordable to those tenants.
(ii)The project is obligated to serve qualified tenants for the longest period.
(C)In addition to the provisions of subparagraphs (A) and (B), the committee shall use the following criteria in allocating housing credits:
(i)Projects serving large families in which a substantial number, as defined by the committee, of all residential units are low-income units with three or more bedrooms.
(ii)Projects providing single-room occupancy units serving very low income tenants.
(iii)(I)Existing projects that are at risk of conversion.
(II)For purposes of this section, the term at risk of conversion, with respect to an existing property means a property that satisfies all of the following criteria:
(ia)The property is a multifamily rental housing development in which at least 50 percent of the units receive governmental assistance pursuant to any of the following:
(Ia)New construction, substantial rehabilitation, moderate rehabilitation, property disposition, and loan management set-aside programs, or any other program providing project-based assistance pursuant to Section 8 of the United States Housing Act of 1937, Section 1437f of Title 42 of the United States Code, as amended.
(Ib)The Below-Market-Interest-Rate Program pursuant to Section 221(d)(3) of the National Housing Act, Sections 1715l(d)(3) and (5) of Title 12 of the United States Code.
(Ic)Section 236 of the National Housing Act, Section 1715z-1 of Title 12 of the United States Code.
(Id)Programs for rent supplement assistance pursuant to Section 18 101 of the Housing and Urban Development Act of 1965, Section 1701s of Title 12 of the United States Code, as amended.
(Ie)Programs pursuant to Section 515 of the Housing Act of 1949, Section 1485 of Title 42 of the United States Code, as amended.
(If)The low-income housing credit program set forth in Section 42 of the Internal Revenue Code.
(ib)The restrictions on rent and income levels will terminate or the federal insured mortgage on the property is eligible for prepayment any time within five years before or after the date of application to the California Tax Credit Allocation Committee.
(ic)The entity acquiring the property enters into a regulatory agreement that requires the property to be operated in accordance with the requirements of this section for a period equal to the greater of 55 years or the life of the property.
(id)The property satisfies the requirements of Section 42(e) of the Internal Revenue Code, regarding rehabilitation expenditures except that the provisions of Section 42(e)(3)(A)(ii)(I) shall not apply.
(iv)Projects for which a public agency provides direct or indirect long-term financial support for at least 15 percent of the total project development costs or projects for which the owners equity constitutes at least 30 percent of the total project development costs.
(v)Projects that provide tenant amenities not generally available to residents of low-income housing projects.
(4)For purposes of allocating credits pursuant to this section, the committee shall not give preference to any project by virtue of the date of submission of its application.
(k)Section 42(l) of the Internal Revenue Code shall be modified as follows:
The term secretary shall be replaced by the term California Franchise Tax Board.
(l)In the case where the credit allowed under this section exceeds the net tax, the excess may be carried over to reduce the net tax in the following year, and succeeding taxable years, if necessary, until the credit has been exhausted.
(m)A project that received an allocation of a 1989 federal housing credit dollar amount shall be eligible to receive an allocation of a 1990 state housing credit dollar amount, subject to all of the following conditions:
(1)The project was not placed in service prior to 1990.
(2)To the extent the amendments made to this section by the Statutes of 1990 conflict with any provisions existing in this section prior to those amendments, the prior provisions of law shall prevail.
(3)Notwithstanding paragraph (2), a project applying for an allocation under this subdivision shall be subject to the requirements of paragraph (3) of subdivision (j).
(n)The credit period with respect to an allocation of credit in 1989 by the California Tax Credit Allocation Committee of which any amount is attributable to unallocated credit from 1987 or 1988 shall not begin until after December 31, 1989.
(o)The provisions of Section 11407(a) of Public Law 101-508, relating to the effective date of the extension of the low-income housing credit, shall apply to calendar years after 1989.
(p)The provisions of Section 11407(c) of Public Law 101-508, relating to election to accelerate credit, shall not apply.
(q)Any unused credit may continue to be carried forward, as provided in subdivision (l), until the credit has been exhausted.
(r)This section shall remain in effect on and after December 1, 1990, for as long as Section 42 of the Internal Revenue Code, relating to low-income housing credit, remains in effect.
(s)The amendments to this section made by Chapter 1222 of the Statutes of 1993 shall apply only to taxable years beginning on or after January 1, 1994.
SEC. 3.Section 23610.5 of the Revenue and Taxation Code is amended to read:23610.5.(a)(1)There shall be allowed as a credit against the tax, as defined by Section 23036, a state low-income housing tax credit in an amount equal to the amount determined in subdivision (c), computed in accordance with Section 42 of the Internal Revenue Code except as otherwise provided in this section.
(2)Taxpayer, for purposes of this section, means the sole owner in the case of a C corporation, the partners in the case of a partnership, members in the case of a limited liability company, and the shareholders in the case of an S corporation.
(3)Housing sponsor, for purposes of this section, means the sole owner in the case of a C corporation, the partnership in the case of a partnership, the limited liability company in the case of a limited liability company, and the S corporation in the case of an S corporation.
(4)Extremely low-income has the same meaning as in Section 50053 of the Health and Safety Code.
(5)Very low-income has the same meaning as in Section 50053 of the Health and Safety Code.
(b)(1)The amount of the credit allocated to any housing sponsor shall be authorized by the California Tax Credit Allocation Committee, or any successor thereof, based on a projects need for the credit for economic feasibility in accordance with the requirements of this section.
(A)The low-income housing project shall be located in California and shall meet either of the following requirements:
(i)Except for projects to provide farmworker housing, as defined in subdivision (h) of Section 50199.7 of the Health and Safety Code, that are allocated credits solely under the set-aside described in subdivision (c) of Section 50199.20 of the Health and Safety Code, the projects housing sponsor has been allocated by the California Tax Credit Allocation Committee a credit for federal income tax purposes under Section 42 of the Internal Revenue Code.
(ii)It qualifies for a credit under Section 42(h)(4)(B) of the Internal Revenue Code.
(B)The California Tax Credit Allocation Committee shall not require fees for the credit under this section in addition to those fees required for applications for the tax credit pursuant to Section 42 of the Internal Revenue Code. The committee may require a fee if the application for the credit under this section is submitted in a calendar year after the year the application is submitted for the federal tax credit.
(C)(i)For a project that receives a preliminary reservation of the state low-income housing tax credit, allowed pursuant to subdivision (a), on or after January 1, 2009, and before January 1, 2016, the credit shall be allocated to the partners of a partnership owning the project in accordance with the partnership agreement, regardless of how the federal low-income housing tax credit with respect to the project is allocated to the partners, or whether the allocation of the credit under the terms of the agreement has substantial economic effect, within the meaning of Section 704(b) of the Internal Revenue Code.
(ii)To the extent the allocation of the credit to a partner under this section lacks substantial economic effect, any loss or deduction otherwise allowable under this part that is attributable to the sale or other disposition of that partners partnership interest made prior to the expiration of the federal credit shall not be allowed in the taxable year in which the sale or other disposition occurs, but shall instead be deferred until and treated as if it occurred in the first taxable year immediately following the taxable year in which the federal credit period expires for the project described in clause (i).
(iii)This subparagraph shall not apply to a project that receives a preliminary reservation of state low-income housing tax credits under the set-aside described in subdivision (c) of Section 50199.20 of the Health and Safety Code unless the project also receives a preliminary reservation of federal low-income housing tax credits.
(iv)This subparagraph shall cease to be operative with respect to any project that receives a preliminary reservation of a credit on or after January 1, 2016.
(2)(A)The California Tax Credit Allocation Committee shall certify to the housing sponsor the amount of tax credit under this section allocated to the housing sponsor for each credit period.
(B)In the case of a partnership, limited liability company, or an S corporation, the housing sponsor shall provide a copy of the California Tax Credit Allocation Committee certification to the taxpayer.
(C)The taxpayer shall, upon request, provide a copy of the certification to the Franchise Tax Board.
(D)All elections made by the taxpayer pursuant to Section 42 of the Internal Revenue Code shall apply to this section.
(E)(i)The California Tax Credit Allocation Committee may allocate a credit under this section in exchange for a credit allocated pursuant to Section 42(d)(5)(B) of the Internal Revenue Code in amounts up to 30 percent of the eligible basis of a building if the credits allowed under Section 42 of the Internal Revenue Code are reduced by an equivalent amount.
(ii)An equivalent amount shall be determined by the California Tax Credit Allocation Committee based upon the relative amount required to produce an equivalent state tax credit to the taxpayer.
(c)Section 42(b) of the Internal Revenue Code shall be modified as follows:
(1)In the case of any qualified low-income building that is a new building, as defined in Section 42 of the Internal Revenue Code and the regulations promulgated thereunder, and not federally subsidized, the term applicable percentage means the following:
(A)For each of the first three years, the percentage prescribed by the Secretary of the Treasury for new buildings that are not federally subsidized for the taxable year, determined in accordance with the requirements of Section 42(b)(1) of the Internal Revenue Code.
(B)For the fourth year, the difference between 30 percent and the sum of the applicable percentages for the first three years.
(2)In the case of any qualified low-income building that (i) is a new building, as defined in Section 42 of the Internal Revenue Code and the regulations promulgated thereunder, (ii) not located in designated difficult development areas (DDAs) or qualified census tracts (QCTs), as defined in Section 42(d)(5)(B) of the Internal Revenue Code, and (iii) is federally subsidized, the term applicable percentage means for the first three years, 15 percent of the qualified basis of the building, and for the fourth year, 5 percent of the qualified basis of the building.
(3)In the case of any qualified low-income building that is (i) an existing building, as defined in Section 42 of the Internal Revenue Code and the regulations promulgated thereunder, (ii) not located in designated difficult development areas (DDAs) or qualified census tracts (QCTs), as defined in Section 42(d)(5)(B) of the Internal Revenue Code, and (iii) is federally subsidized, the term applicable percentage means the following:
(A)For each of the first three years, the percentage prescribed by the Secretary of the Treasury for new buildings that are federally subsidized for the taxable year.
(B)For the fourth year, the difference between 13 percent and the sum of the applicable percentages for the first three years.
(4)In the case of any qualified low-income building that is (i) a new or an existing building, (ii) located in designated difficult development areas (DDAs) or qualified census tracts (QCTs) as defined in Section 42(d)(5)(B) of the Internal Revenue Code, and (iii) federally subsidized, the California Tax Credit Allocation Committee shall determine the amount of credit to be allocated under subparagraph (E) of paragraph (2) of subdivision (b) required to produce an equivalent state tax credit to the taxpayer, as produced in paragraph (2), taking into account the basis boost provided under Section 42(d)(5)(B) of the Internal Revenue Code.
(5)In the case of any qualified low-income building that meets all of the requirements of subparagraphs (A) through (D), inclusive, the term applicable percentage means 30 percent for each of the first three years and 5 percent for the fourth year. A qualified low-income building receiving an allocation under this paragraph is ineligible to also receive an allocation under paragraph (3).
(A)The qualified low-income building is at least 15 years old.
(B)The qualified low-income building is serving households of very low-income or extremely low-income such that the average maximum household income as restricted, pursuant to an existing regulatory agreement with a federal, state, county, local, or other governmental agency, is not more than 45 percent of the area median gross income, as determined under Section 42 of the Internal Revenue Code, adjusted by household size, and a tax credit regulatory agreement is entered into for a period of not less than 55 years restricting the average targeted household income to no more than 45 percent of the area median income.
(C)The qualified low-income building would have insufficient credits under paragraphs (2) and (3) to complete substantial rehabilitation due to a low appraised value.
(D)The qualified low-income building will complete the substantial rehabilitation in connection with the credit allocation herein.
(d)The term qualified low-income housing project as defined in Section 42(c)(2) of the Internal Revenue Code is modified by adding the following requirements:
(1)The taxpayer shall be entitled to receive a cash distribution from the operations of the project, after funding required reserves, that at the election of the taxpayer, is equal to:
(A)An amount not to exceed 8 percent of the lesser of:
(i)The owner equity, that shall include the amount of the capital contributions actually paid to the housing sponsor and shall not include any amounts until they are paid on an investor note.
(ii)Twenty percent of the adjusted basis of the building as of the close of the first taxable year of the credit period.
(B)The amount of the cashflow from those units in the building that are not low-income units. For purposes of computing cashflow under this subparagraph, operating costs shall be allocated to the low-income units using the floor space fraction, as defined in Section 42 of the Internal Revenue Code.
(C)Any amount allowed to be distributed under subparagraph (A) that is not available for distribution during the first five years of the compliance period may be accumulated and distributed any time during the first 15 years of the compliance period but not thereafter.
(2)The limitation on return shall apply in the aggregate to the partners if the housing sponsor is a partnership and in the aggregate to the shareholders if the housing sponsor is an S corporation.
(3)The housing sponsor shall apply any cash available for distribution in excess of the amount eligible to be distributed under paragraph (1) to reduce the rent on rent-restricted units or to increase the number of rent-restricted units subject to the tests of Section 42(g)(1) of the Internal Revenue Code.
(e)The provisions of Section 42(f) of the Internal Revenue Code shall be modified as follows:
(1)The term credit period as defined in Section 42(f)(1) of the Internal Revenue Code is modified by substituting four taxable years for 10 taxable years.
(2)The special rule for the first taxable year of the credit period under Section 42(f)(2) of the Internal Revenue Code shall not apply to the tax credit under this section.
(3)Section 42(f)(3) of the Internal Revenue Code is modified to read:
If, as of the close of any taxable year in the compliance period, after the first year of the credit period, the qualified basis of any building exceeds the qualified basis of that building as of the close of the first year of the credit period, the housing sponsor, to the extent of its tax credit allocation, shall be eligible for a credit on the excess in an amount equal to the applicable percentage determined pursuant to subdivision (c) for the four-year period beginning with the later of the taxable years in which the increase in qualified basis occurs.
(f)The provisions of Section 42(h) of the Internal Revenue Code shall be modified as follows:
(1)Section 42(h)(2) of the Internal Revenue Code shall not be applicable and instead the following provisions shall be applicable:
The total amount for the four-year credit period of the housing credit dollars allocated in a calendar year to any building shall reduce the aggregate housing credit dollar amount of the California Tax Credit Allocation Committee for the calendar year in which the allocation is made.
(2)Paragraphs (3), (4), (5), (6)(E)(i)(II), (6)(F), (6)(G), (6)(I), (7), and (8) of Section 42(h) of the Internal Revenue Code shall not be applicable.
(g)The aggregate housing credit dollar amount that may be allocated annually by the California Tax Credit Allocation Committee pursuant to this section, Section 12206, and Section 17058 shall be an amount equal to the sum of all the following:
(1)(A)Seventy million dollars ($70,000,000) for the 2001 calendar year, and, for the 2002 calendar year and each calendar year thereafter, seventy million dollars ($70,000,000) increased by the percentage, if any, by which the Consumer Price Index for the preceding calendar year exceeds the Consumer Price Index for the 2001 calendar year. For the purposes of this paragraph, the term Consumer Price Index means the last Consumer Price Index for All Urban Consumers published by the federal Department of Labor.
(B)For calendar years 2017 through 2022, inclusive, an additional one
(B)Three hundred million dollars ($100,000,000) ($300,000,000) for the 2017 calendar year, and, for the 2018 through 2022 calendar years, one hundred million dollars ($100,000,000) calendar year and each calendar year thereafter, three hundred million dollars ($300,000,000) increased by the percentage, if any, by which the Consumer Price Index for the preceding calendar year exceeds the Consumer Price Index for the 2017 calendar year. For the purposes of this paragraph, the term Consumer Price Index means the last Consumer Price Index for All Urban Consumers published by the federal Department of Labor. A housing sponsor receiving an allocation under paragraph (1) of subdivision (c) shall not be eligible for receipt of the housing credit allocated from the increased amount under this subparagraph. A housing sponsor receiving an allocation under paragraph (1) of subdivision (c) shall remain eligible for receipt of the housing credit allocated from the credit ceiling amount under subparagraph (A).
(2)The unused housing credit ceiling, if any, for the preceding calendar years.
(3)The amount of housing credit ceiling returned in the calendar year. For purposes of this paragraph, the amount of housing credit dollar amount returned in the calendar year equals the housing credit dollar amount previously allocated to any project that does not become a qualified low-income housing project within the period required by this section or to any project with respect to which an allocation is canceled by mutual consent of the California Tax Credit Allocation Committee and the allocation recipient.
(4)Five hundred thousand dollars ($500,000) (A)Of the amount allocated pursuant to subparagraph (B) of paragraph (1), twenty-five million dollars ($25,000,000) per calendar year for projects to provide farmworker housing, as defined in subdivision (h) of Section 50199.7 of the Health and Safety Code.
(B)The amount of any unallocated or returned credits pursuant to this paragraph per calendar year shall be added to the aggregate amount of credits allocated pursuant to subparagraph (B) of paragraph (1).
(5)The amount of any unallocated or returned credits under former Sections 17053.14, 23608.2, and 23608.3, as those sections read prior to January 1, 2009, until fully exhausted for projects to provide farmworker housing, as defined in subdivision (h) of Section 50199.7 of the Health and Safety Code.
(h)The term compliance period as defined in Section 42(i)(1) of the Internal Revenue Code is modified to mean, with respect to any building, the period of 30 consecutive taxable years beginning with the first taxable year of the credit period with respect thereto.
(i)Section 42(j) of the Internal Revenue Code shall not be applicable and the following shall be substituted in its place:
The requirements of this section shall be set forth in a regulatory agreement between the California Tax Credit Allocation Committee and the housing sponsor, and the regulatory agreement shall be subordinated, when required, to any lien or encumbrance of any banks or other institutional lenders to the project. The regulatory agreement entered into pursuant to subdivision (f) of Section 50199.14 of the Health and Safety Code shall apply, provided that the agreement includes all of the following provisions:
(1)A term not less than the compliance period.
(2)A requirement that the agreement be recorded in the official records of the county in which the qualified low-income housing project is located.
(3)A provision stating which state and local agencies can enforce the regulatory agreement in the event the housing sponsor fails to satisfy any of the requirements of this section.
(4)A provision that the regulatory agreement shall be deemed a contract enforceable by tenants as third-party beneficiaries thereto, and that allows individuals, whether prospective, present, or former occupants of the building, who meet the income limitation applicable to the building, the right to enforce the regulatory agreement in any state court.
(5)A provision incorporating the requirements of Section 42 of the Internal Revenue Code as modified by this section.
(6)A requirement that the housing sponsor notify the California Tax Credit Allocation Committee or its designee if there is a determination by the Internal Revenue Service that the project is not in compliance with Section 42(g) of the Internal Revenue Code.
(7)A requirement that the housing sponsor, as security for the performance of the housing sponsors obligations under the regulatory agreement, assign the housing sponsors interest in rents that it receives from the project, provided that until there is a default under the regulatory agreement, the housing sponsor is entitled to collect and retain the rents.
(8)The remedies available in the event of a default under the regulatory agreement that is not cured within a reasonable cure period include, but are not limited to, allowing any of the parties designated to enforce the regulatory agreement to collect all rents with respect to the project; taking possession of the project and operating the project in accordance with the regulatory agreement until the enforcer determines the housing sponsor is in a position to operate the project in accordance with the regulatory agreement; applying to any court for specific performance; securing the appointment of a receiver to operate the project; or any other relief as may be appropriate.
(j)(1)The committee shall allocate the housing credit on a regular basis consisting of two or more periods in each calendar year during which applications may be filed and considered. The committee shall establish application filing deadlines, the maximum percentage of federal and state low-income housing tax credit ceiling that may be allocated by the committee in that period, and the approximate date on which allocations shall be made. If the enactment of federal or state law, the adoption of rules or regulations, or other similar events prevent the use of two allocation periods, the committee may reduce the number of periods and adjust the filing deadlines, maximum percentage of credit allocated, and allocation dates.
(2)The committee shall adopt a qualified allocation plan, as provided in Section 42(m)(1) of the Internal Revenue Code. In adopting this plan, the committee shall comply with the provisions of Sections 42(m)(1)(B) and 42(m)(1)(C) of the Internal Revenue Code, respectively.
(3)Notwithstanding Section 42(m) of the Internal Revenue Code the California Tax Credit Allocation Committee shall allocate housing credits in accordance with the qualified allocation plan and regulations, which shall include the following provisions:
(A)All housing sponsors, as defined by paragraph (3) of subdivision (a), shall demonstrate at the time the application is filed with the committee that the project meets the following threshold requirements:
(i)The housing sponsor shall demonstrate there is a need for low-income housing in the community or region for which it is proposed.
(ii)The projects proposed financing, including tax credit proceeds, shall be sufficient to complete the project and shall be adequate to operate the project for the extended use period.
(iii)The project shall have enforceable financing commitments, either construction or permanent financing, for at least 50 percent of the total estimated financing of the project.
(iv)The housing sponsor shall have and maintain control of the site for the project.
(v)The housing sponsor shall demonstrate that the project complies with all applicable local land use and zoning ordinances.
(vi)The housing sponsor shall demonstrate that the project development team has the experience and the financial capacity to ensure project completion and operation for the extended use period.
(vii)The housing sponsor shall demonstrate the amount of tax credit that is necessary for the financial feasibility of the project and its viability as a qualified low-income housing project throughout the extended use period, taking into account operating expenses, a supportable debt service, reserves, funds set aside for rental subsidies and required equity, and a development fee that does not exceed a specified percentage of the eligible basis of the project prior to inclusion of the development fee in the eligible basis, as determined by the committee.
(B)The committee shall give a preference to those projects satisfying all of the threshold requirements of subparagraph (A) if both of the following apply:
(i)The project serves the lowest income tenants at rents affordable to those tenants.
(ii)The project is obligated to serve qualified tenants for the longest period.
(C)In addition to the provisions of subparagraphs (A) and (B), the committee shall use the following criteria in allocating housing credits:
(i)Projects serving large families in which a substantial number, as defined by the committee, of all residential units are low-income units with three or more bedrooms.
(ii)Projects providing single-room occupancy units serving very low income tenants.
(iii)(I) Existing projects that are at risk of conversion.
(II)For purposes of this section, the term at risk of conversion, with respect to an existing property means a property that satisfies all of the following criteria:
(ia)The property is a multifamily rental housing development in which at least 50 percent of the units receive governmental assistance pursuant to any of the following:
(Ia)New construction, substantial rehabilitation, moderate rehabilitation, property disposition, and loan management set-aside programs, or any other program providing project-based assistance pursuant to Section 8 of the United States Housing Act of 1937, Section 1437f of Title 42 of the United States Code, as amended.
(Ib)The Below-Market-Interest-Rate Program pursuant to Section 221(d)(3) of the National Housing Act, Sections 1715l(d)(3) and (5) of Title 12 of the United States Code.
(Ic)Section 236 of the National Housing Act, Section 1715z-1 of Title 12 of the United States Code.
(Id)Programs for rent supplement assistance pursuant to Section 18 101 of the Housing and Urban Development Act of 1965, Section 1701s of Title 12 of the United States Code, as amended.
(Ie)Programs pursuant to Section 515 of the Housing Act of 1949, Section 1485 of Title 42 of the United States Code, as amended.
(If)The low-income housing credit program set forth in Section 42 of the Internal Revenue Code.
(ib)The restrictions on rent and income levels will terminate or the federal insured mortgage on the property is eligible for prepayment any time within five years before or after the date of application to the California Tax Credit Allocation Committee.
(ic)The entity acquiring the property enters into a regulatory agreement that requires the property to be operated in accordance with the requirements of this section for a period equal to the greater of 55 years or the life of the property.
(id)The property satisfies the requirements of Section 42(e) of the Internal Revenue Code, regarding rehabilitation expenditures except that the provisions of Section 42(e)(3)(A)(ii)(I) shall not apply.
(iv)Projects for which a public agency provides direct or indirect long-term financial support for at least 15 percent of the total project development costs or projects for which the owners equity constitutes at least 30 percent of the total project development costs.
(v)Projects that provide tenant amenities not generally available to residents of low-income housing projects.
(4)For purposes of allocating credits pursuant to this section, the committee shall not give preference to any project by virtue of the date of submission of its application except to break a tie when two or more of the projects have an equal rating.
(5)Not less than 20 percent of the low-income housing tax credits available annually under this section, Section 12206, and Section 17058 shall be set aside for allocation to rural areas as defined in Section 50199.21 of the Health and Safety Code. Any amount of credit set aside for rural areas remaining on or after October 31 of any calendar year shall be available for allocation to any eligible project. No amount of credit set aside for rural areas shall be considered available for any eligible project so long as there are eligible rural applications pending on October 31.
(k)Section 42(l) of the Internal Revenue Code shall be modified as follows:
The term secretary shall be replaced by the term California Franchise Tax Board.
(l)In the case where the credit allowed under this section exceeds the tax, the excess may be carried over to reduce the tax in the following year, and succeeding taxable years if necessary, until the credit has been exhausted.
(m)A project that received an allocation of a 1989 federal housing credit dollar amount shall be eligible to receive an allocation of a 1990 state housing credit dollar amount, subject to all of the following conditions:
(1)The project was not placed in service prior to 1990.
(2)To the extent the amendments made to this section by the Statutes of 1990 conflict with any provisions existing in this section prior to those amendments, the prior provisions of law shall prevail.
(3)Notwithstanding paragraph (2), a project applying for an allocation under this subdivision shall be subject to the requirements of paragraph (3) of subdivision (j).
(n)The credit period with respect to an allocation of credit in 1989 by the California Tax Credit Allocation Committee of which any amount is attributable to unallocated credit from 1987 or 1988 shall not begin until after December 31, 1989.
(o)The provisions of Section 11407(a) of Public Law 101-508, relating to the effective date of the extension of the low-income housing credit, shall apply to calendar years after 1989.
(p)The provisions of Section 11407(c) of Public Law 101-508, relating to election to accelerate credit, shall not apply.
(q)(1)A corporation may elect to assign any portion of any credit allowed under this section to one or more affiliated corporations for each taxable year in which the credit is allowed. For purposes of this subdivision, affiliated corporation has the meaning provided in subdivision (b) of Section 25110, as that section was amended by Chapter 881 of the Statutes of 1993, as of the last day of the taxable year in which the credit is allowed, except that 100 percent is substituted for more than 50 percent wherever it appears in the section, as that section was amended by Chapter 881 of the Statutes of 1993, and voting common stock is substituted for voting stock wherever it appears in the section, as that section was amended by Chapter 881 of the Statutes of 1993.
(2)The election provided in paragraph (1):
(A)May be based on any method selected by the corporation that originally receives the credit.
(B)Shall be irrevocable for the taxable year the credit is allowed, once made.
(C)May be changed for any subsequent taxable year if the election to make the assignment is expressly shown on each of the returns of the affiliated corporations that assign and receive the credits.
(r)Any unused credit may continue to be carried forward, as provided in subdivision (l), until the credit has been exhausted.
(s) This section shall remain in effect on and after December 1, 1990, for as long as Section 42 of the Internal Revenue Code, relating to low-income housing credit, remains in effect.
(t)The amendments to this section made by Chapter 1222 of the Statutes of 1993 shall apply only to taxable years beginning on or after January 1, 1994, except that paragraph (1) of subdivision (q), as amended, shall apply to taxable years beginning on or after January 1, 1993.
SEC. 4.This act provides for a tax levy within the meaning of Article IV of the Constitution and shall go into immediate effect.
(a)(1)There shall be allowed as a credit against the tax (as tax, as described by Section 12201) 12201, a state low-income housing tax credit in an amount equal to the amount determined in subdivision (c), computed in accordance with Section 42 of the Internal Revenue Code, Code except as otherwise provided in this section.
(2)Taxpayer, for purposes of this section, means the sole owner in the case of a C corporation, the partners in the case of a partnership, members in the case of a limited liability company, and the shareholders in the case of an S corporation.
(3)Housing sponsor, for purposes of this section, means the sole owner in the case of a C corporation, the partnership in the case of a partnership, the limited liability company in the case of a limited liability company, and the S corporation in the case of an S corporation.
(4)Extremely low-income has the same meaning as in Section 50053 of the Health and Safety Code.
(5)Very low-income has the same meaning as in Section 50053 of the Health and Safety Code.
(b)(1)The amount of the credit allocated to any housing sponsor shall be authorized by the California Tax Credit Allocation Committee, or any successor thereof, based on a projects need for the credit for economic feasibility in accordance with the requirements of this section.
(A)Except for projects to provide farmworker housing, as defined in subdivision (h) of Section 50199.7 of the Health and Safety Code, that are allocated credits solely under the set-aside described in subdivision (c) of Section 50199.20 of the Health and Safety Code, the low-income housing project shall be located in California and shall meet either of the following requirements:
(i)The projects housing sponsor shall have has been allocated by the California Tax Credit Allocation Committee a credit for federal income tax purposes under Section 42 of the Internal Revenue Code.
(ii)It shall qualify qualifies for a credit under Section 42(h)(4)(B) of the Internal Revenue Code.
(B)The California Tax Credit Allocation Committee shall not require fees for the credit under this section in addition to those fees required for applications for the tax credit pursuant to Section 42 of the Internal Revenue Code. The committee may require a fee if the application for the credit under this section is submitted in a calendar year after the year the application is submitted for the federal tax credit.
(C)(i)For a project that receives a preliminary reservation of the state low-income housing tax credit, allowed pursuant to subdivision (a), on or after January 1, 2009, and before January 1, 2016, the credit shall be allocated to the partners of a partnership owning the project in accordance with the partnership agreement, regardless of how the federal low-income housing tax credit with respect to the project is allocated to the partners, or whether the allocation of the credit under the terms of the agreement has substantial economic effect, within the meaning of Section 704(b) of the Internal Revenue Code.
(ii)This subparagraph shall not apply to a project that receives a preliminary reservation of state low-income housing tax credits under the set-aside described in subdivision (c) of Section 50199.20 of the Health and Safety Code unless the project also receives a preliminary reservation of federal low-income housing tax credits.
(iii)This subparagraph shall cease to be operative with respect to any project that receives a preliminary reservation of a credit on or after January 1, 2016.
(2)(A)The California Tax Credit Allocation Committee shall certify to the housing sponsor the amount of tax credit under this section allocated to the housing sponsor for each credit period.
(B)In the case of a partnership or an S corporation, the housing sponsor shall provide a copy of the California Tax Credit Allocation Committee certification to the taxpayer.
(C)The taxpayer shall attach a copy of the certification to any return upon which a tax credit is claimed under this section.
(D)In the case of a failure to attach a copy of the certification for the year to the return in which a tax credit is claimed under this section, no credit under this section shall be allowed for that year until a copy of that certification is provided.
(E)All elections made by the taxpayer pursuant to Section 42 of the Internal Revenue Code shall apply to this section.
(F)(i)Except as described in clause (ii), for buildings located in designated difficult development areas (DDAs) or qualified census tracts (QCTs), as defined in Section 42(d)(5)(B) of the Internal Revenue Code, credits may be allocated under this section in the amounts prescribed in subdivision (c), provided that the amount of credit allocated under Section 42 of the Internal Revenue Code is computed on 100 percent of the qualified basis of the building.
(ii)Notwithstanding clause (i), the California Tax Credit Allocation Committee may allocate the credit for buildings located in DDAs or QCTs that are restricted to having 50 percent of its occupants be special needs households, as defined in the California Code of Regulations by the California Tax Credit Allocation Committee, even if the taxpayer receives federal credits pursuant to Section 42(d)(5)(B) of the Internal Revenue Code, provided that the credit allowed under this section shall not exceed 30 percent of the eligible basis of the building.
(G)
(F)(i)The California Tax Credit Allocation Committee may allocate a credit under this section in exchange for a credit allocated pursuant to Section 42(d)(5)(B) of the Internal Revenue Code in amounts up to 30 percent of the eligible basis of a building if the credits allowed under Section 42 of the Internal Revenue Code are reduced by an equivalent amount.
(ii)An equivalent amount shall be determined by the California Tax Credit Allocation Committee based upon the relative amount required to produce an equivalent state tax credit to the taxpayer.
(c)Section 42(b) of the Internal Revenue Code shall be modified as follows:
(1)In the case of any qualified low-income building that receives an allocation after 1989 and is a new building is a new building, as defined in Section 42 of the Internal Revenue Code and the regulations promulgated thereunder, and not federally subsidized, the term applicable percentage means the following:
(A)For each of the first three years, the percentage prescribed by the Secretary of the Treasury for new buildings that are not federally subsidized for the taxable year, determined in accordance with the requirements of Section 42(b)(2) 42(b)(1) of the Internal Revenue Code, in lieu of the percentage prescribed in Section 42(b)(1)(A) of the Internal Revenue Code.
(B)For the fourth year, the difference between 30 percent and the sum of the applicable percentages for the first three years.
(2)In the case of any qualified low-income building that receives an allocation after 1989 and that (i) is a new building that is federally subsidized or that is an existing building that is at risk of conversion, building, as defined in Section 42 of the Internal Revenue Code and the regulations promulgated thereunder, (ii) not located in designated difficult development areas (DDAs) or qualified census tracts (QCTs), as defined in Section 42(d)(5)(B) of the Internal Revenue Code, and (iii) is federally subsidized, the term applicable percentage means for the following: first three years, 15 percent of the qualified basis of the building, and for the fourth year, 5 percent of the qualified basis of the building.
(3)In the case of any qualified low-income building that is (i) an existing building, as defined in Section 42 of the Internal Revenue Code and the regulations promulgated thereunder, (ii) not located in designated difficult development areas (DDAs) or qualified census tracts (QCTs), as defined in Section 42(d)(5)(B) of the Internal Revenue Code, and (iii) is federally subsidized, the term applicable percentage means the following:
(A)For each of the first three years, the percentage prescribed by the Secretary of the Treasury for new buildings that are federally subsidized for the taxable year.
(B)For the fourth year, the difference between 13 percent and the sum of the applicable percentages for the first three years.
(4)In the case of any qualified low-income building that is (i) a new or an existing building, (ii) located in designated difficult development areas (DDAs) or qualified census tracts (QCTs) as defined in Section 42(d)(5)(B) of the Internal Revenue Code, and (iii) federally subsidized, the California Tax Credit Allocation Committee shall reduce the amount of California credit to be allocated under paragraph (2) and (3) by taking into account the increased federal credit received due to the basis boost provided under Section 42(d)(5)(B) of the Internal Revenue Code.
(3)For purposes of this section,
(5)In the term at risk case of conversion, with respect to an existing property means a property any qualified low-income building that satisfies meets all of the following criteria: requirements of subparagraphs (A) through (D), inclusive, the term applicable percentage means 30 percent for each of the first three years and 5 percent for the fourth year. A qualified low-income building receiving an allocation under this paragraph is ineligible to also receive an allocation under paragraph (3).
(A)The property is a multifamily rental housing development in which qualified low-income building is at least 50 percent of the units receive governmental assistance pursuant to any of the following: 15 years old.
(i)New construction, substantial rehabilitation, moderate rehabilitation, property disposition, and loan management set-aside programs, or any other program providing project-based assistance pursuant to Section 8 of the United States Housing Act of 1937, Section 1437f of Title 42 of the United States Code, as amended.
(ii)The Below-Market-Interest-Rate Program pursuant to Section 221(d)(3) of the National Housing Act, Sections 1715l(d)(3) and (5) of Title 12 of the United States Code.
(iii)Section 236 of the National Housing Act, Section 1715z-1 of Title 12 of the United States Code.
(iv)Programs for rent supplement assistance pursuant to Section 101 of the Housing and Urban Development Act of 1965, Section 1701s of Title 12 of the United States Code, as amended.
(v)Programs pursuant to Section 515 of the Housing Act of 1949, Section 1485 of Title 42 of the United States Code, as amended.
(vi)The low-income housing credit program set forth in Section 42 of the Internal Revenue Code.
(B)The restrictions on rent and qualified low-income building is serving households of very low-income or extremely low-income such that the average maximum household income levels will terminate as restricted, pursuant to an existing regulatory agreement with a federal, state, county, local, or other governmental agency, is not more than 45 percent of the federal insured mortgage on area median gross income, as determined under Section 42 of the property Internal Revenue Code, adjusted by household size, and a tax credit regulatory agreement is eligible entered into for prepayment any time within five a period of not less than 55 years before or after restricting the date of application average targeted household income to no more than 45 percent of the California Tax Credit Allocation Committee. area median income.
(C)The entity acquiring the property enters into a regulatory agreement that requires the property qualified low-income building would have insufficient credits under paragraphs (2) and (3) to be operated in accordance with the requirements of this section for a period equal complete substantial rehabilitation due to the greater of 55 years or the life of the property. a low appraised value.
(D)The property satisfies the requirements of Section 42(e) of the Internal Revenue Code regarding qualified low-income building will complete the substantial rehabilitation expenditures, except that in connection with the provisions of Section 42(e)(3)(A)(ii)(I) shall not apply. credit allocation herein.
(d)The term qualified low-income housing project as defined in Section 42(c)(2) of the Internal Revenue Code is modified by adding the following requirements:
(1)The taxpayer shall be entitled to receive a cash distribution from the operations of the project, after funding required reserves, which, that, at the election of the taxpayer, is equal to:
(A)An amount not to exceed 8 percent of the lesser of:
(i)The owner equity which that shall include the amount of the capital contributions actually paid to the housing sponsor and shall not include any amounts until they are paid on an investor note.
(ii)Twenty percent of the adjusted basis of the building as of the close of the first taxable year of the credit period.
(B)The amount of the cashflow from those units in the building that are not low-income units. For purposes of computing cashflow under this subparagraph, operating costs shall be allocated to the low-income units using the floor space fraction, as defined in Section 42 of the Internal Revenue Code.
(C)Any amount allowed to be distributed under subparagraph (A) that is not available for distribution during the first five years of the compliance period may accumulate and be be accumulated and distributed any time during the first 15 years of the compliance period but not thereafter.
(2)The limitation on return shall apply in the aggregate to the partners if the housing sponsor is a partnership and in the aggregate to the shareholders if the housing sponsor is an S corporation.
(3)The housing sponsor shall apply any cash available for distribution in excess of the amount eligible to be distributed under paragraph (1) to reduce the rent on rent-restricted units or to increase the number of rent-restricted units subject to the tests of Section 42(g)(1) of the Internal Revenue Code.
(e)The provisions of Section 42(f) of the Internal Revenue Code shall be modified as follows:
(1)The term credit period as defined in Section 42(f)(1) of the Internal Revenue Code is modified by substituting four taxable years for 10 taxable years.
(2)The special rule for the first taxable year of the credit period under Section 42(f)(2) of the Internal Revenue Code shall not apply to the tax credit under this section.
(3)Section 42(f)(3) of the Internal Revenue Code is modified to read:
If, as of the close of any taxable year in the compliance period, after the first year of the credit period, the qualified basis of any building exceeds the qualified basis of that building as of the close of the first year of the credit period, the housing sponsor, to the extent of its tax credit allocation, shall be eligible for a credit on the excess in an amount equal to the applicable percentage determined pursuant to subdivision (c) for the four-year period beginning with the later of the taxable years year in which the increase in qualified basis occurs.
(f)The provisions of Section 42(h) of the Internal Revenue Code shall be modified as follows:
(1)Section 42(h)(2) of the Internal Revenue Code shall not be applicable and instead the following provisions shall be applicable:
The total amount for the four-year credit period of the housing credit dollars allocated in a calendar year to any building shall reduce the aggregate housing credit dollar amount of the California Tax Credit Allocation Committee for the calendar year in which the allocation is made.
(2)Paragraphs (3), (4), (5), (6)(E)(i)(II), (6)(F), (6)(G), (6)(I), (7), and (8) of Section 42(h) of the Internal Revenue Code shall not be applicable.
(g)The aggregate housing credit dollar amount that may be allocated annually by the California Tax Credit Allocation Committee pursuant to this section, Section 17058, and Section 23610.5 shall be an amount equal to the sum of all the following:
(1)(A)Seventy million dollars ($70,000,000) for the 2001 calendar year, and, for the 2002 calendar year and each calendar year thereafter, seventy million dollars ($70,000,000) increased by the percentage, if any, by which the Consumer Price Index for the preceding calendar year exceeds the Consumer Price Index for the 2001 calendar year. For the purposes of this paragraph, the term Consumer Price Index means the last Consumer Price Index for All Urban Consumers published by the federal Department of Labor.
(B)For calendar years 2017 through 2022, inclusive, an additional one hundred million dollars ($100,000,000) for the 2017 calendar year, and, for the 2018 through 2022 calendar years, one hundred million dollars ($100,000,000) increased by the percentage, if any, by which the Consumer Price Index for the preceding calendar year exceeds the Consumer Price Index for the 2017 calendar year. For the purposes of this paragraph, the term Consumer Price Index means the last Consumer Price Index for All Urban Consumers published by the federal Department of Labor. A housing sponsor receiving an allocation under paragraph (1) of subdivision (c) shall not be eligible for receipt of the housing credit allocated from the increased amount under this subparagraph. A housing sponsor receiving an allocation under paragraph (1) of subdivision (c) shall remain eligible for receipt of the housing credit allocated from the credit ceiling amount under subparagraph (A).
(2)The unused housing credit ceiling, if any, for the preceding calendar years.
(3)The amount of housing credit ceiling returned in the calendar year. For purposes of this paragraph, the amount of housing credit dollar amount returned in the calendar year equals the housing credit dollar amount previously allocated to any project that does not become a qualified low-income housing project within the period required by this section or to any project with respect to which an allocation is canceled by mutual consent of the California Tax Credit Allocation Committee and the allocation recipient.
(4)Five hundred thousand dollars ($500,000) per calendar year for projects to provide farmworker housing, as defined in subdivision (h) of Section 50199.7 of the Health and Safety Code.
(5)The amount of any unallocated or returned credits under former Sections 17053.14, 23608.2, and 23608.3, as those sections read prior to January 1, 2009, until fully exhausted for projects to provide farmworker housing, as defined in subdivision (h) of Section 50199.7 of the Health and Safety Code.
(h)The term compliance period as defined in Section 42(i)(1) of the Internal Revenue Code is modified to mean, with respect to any building, the period of 30 consecutive taxable years beginning with the first taxable year of the credit period with respect thereto.
(i)(1)Section 42(j) of the Internal Revenue Code shall not be applicable and the provisions in paragraph (2) shall be substituted in its place.
(2)The requirements of this section shall be set forth in a regulatory agreement between the California Tax Credit Allocation Committee and the housing sponsor, which and the regulatory agreement shall be subordinated, when required, to any lien or encumbrance of any banks or other institutional lenders to the project. The regulatory agreement entered into pursuant to subdivision (f) of Section 50199.14 of the Health and Safety Code, shall apply, providing provided that the agreement includes all of the following provisions:
(A)A term not less than the compliance period.
(B)A requirement that the agreement be recorded in the official records of the county in which the qualified low-income housing project is located.
(C)A provision stating which state and local agencies can enforce the regulatory agreement in the event the housing sponsor fails to satisfy any of the requirements of this section.
(D)A provision that the regulatory agreement shall be deemed a contract enforceable by tenants as third-party beneficiaries thereto and which that allows individuals, whether prospective, present, or former occupants of the building, who meet the income limitation applicable to the building, the right to enforce the regulatory agreement in any state court.
(E)A provision incorporating the requirements of Section 42 of the Internal Revenue Code as modified by this section.
(F)A requirement that the housing sponsor notify the California Tax Credit Allocation Committee or its designee and the local agency that can enforce the regulatory agreement if there is a determination by the Internal Revenue Service that the project is not in compliance with Section 42(g) of the Internal Revenue Code.
(G)A requirement that the housing sponsor, as security for the performance of the housing sponsors obligations under the regulatory agreement, assign the housing sponsors interest in rents that it receives from the project, provided that until there is a default under the regulatory agreement, the housing sponsor is entitled to collect and retain the rents.
(H)The remedies available in the event of a default under the regulatory agreement that is not cured within a reasonable cure period, include, but are not limited to, allowing any of the parties designated to enforce the regulatory agreement to collect all rents with respect to the project; taking possession of the project and operating the project in accordance with the regulatory agreement until the enforcer determines the housing sponsor is in a position to operate the project in accordance with the regulatory agreement; applying to any court for specific performance; securing the appointment of a receiver to operate the project; or any other relief as may be appropriate.
(j)(1)The committee shall allocate the housing credit on a regular basis consisting of two or more periods in each calendar year during which applications may be filed and considered. The committee shall establish application filing deadlines, the maximum percentage of federal and state low-income housing tax credit ceiling that may be allocated by the committee in that period, and the approximate date on which allocations shall be made. If the enactment of federal or state law, the adoption of rules or regulations, or other similar events prevent the use of two allocation periods, the committee may reduce the number of periods and adjust the filing deadlines, maximum percentage of credit allocated, and the allocation dates.
(2)The committee shall adopt a qualified allocation plan, as provided in Section 42(m)(1) of the Internal Revenue Code. In adopting this plan, the committee shall comply with the provisions of Sections 42(m)(1)(B) and 42(m)(1)(C) of the Internal Revenue Code. Code, respectively.
(3)Notwithstanding Section 42(m) of the Internal Revenue Code, Code the California Tax Credit Allocation Committee shall allocate housing credits in accordance with the qualified allocation plan and regulations, which shall include the following provisions:
(A)All housing sponsors, as defined by paragraph (3) of subdivision (a), shall demonstrate at the time the application is filed with the committee that the project meets the following threshold requirements:
(i)The housing sponsor shall demonstrate there is a need and demand for low-income housing in the community or region for which it is proposed.
(ii)The projects proposed financing, including tax credit proceeds, shall be sufficient to complete the project and that the proposed operating income shall be adequate to operate the project for the extended use period.
(iii)The project shall have enforceable financing commitments, either construction or permanent financing, for at least 50 percent of the total estimated financing of the project.
(iv)The housing sponsor shall have and maintain control of the site for the project.
(v)The housing sponsor shall demonstrate that the project complies with all applicable local land use and zoning ordinances.
(vi)The housing sponsor shall demonstrate that the project development team has the experience and the financial capacity to ensure project completion and operation for the extended use period.
(vii)The housing sponsor shall demonstrate the amount of tax credit that is necessary for the financial feasibility of the project and its viability as a qualified low-income housing project throughout the extended use period, taking into account operating expenses, a supportable debt service, reserves, funds set aside for rental subsidies, and required equity, and a development fee that does not exceed a specified percentage of the eligible basis of the project prior to inclusion of the development fee in the eligible basis, as determined by the committee.
(B)The committee shall give a preference to those projects satisfying all of the threshold requirements of subparagraph (A) if both of the following apply:
(i)The project serves the lowest income tenants at rents affordable to those tenants.
(ii)The project is obligated to serve qualified tenants for the longest period.
(C)In addition to the provisions of subparagraphs (A) and (B), the committee shall use the following criteria in allocating housing credits:
(i)Projects serving large families in which a substantial number, as defined by the committee, of all residential units is comprised of are low-income units with three and or more bedrooms.
(ii)Projects providing single-room occupancy units serving very low income tenants.
(iii)(I)Existing projects that are at risk of conversion, as defined by paragraph (3) of subdivision (c). conversion.
(II)For purposes of this section, the term at risk of conversion, with respect to an existing property means a property that satisfies all of the following criteria:
(ia)The property is a multifamily rental housing development in which at least 50 percent of the units receive governmental assistance pursuant to any of the following:
(Ia)New construction, substantial rehabilitation, moderate rehabilitation, property disposition, and loan management set-aside programs, or any other program providing project-based assistance pursuant to Section 8 of the United States Housing Act of 1937, Section 1437f of Title 42 of the United States Code, as amended.
(Ib)The Below-Market-Interest-Rate Program pursuant to Section 221(d)(3) of the National Housing Act, Sections 1715l(d)(3) and (5) of Title 12 of the United States Code.
(Ic)Section 236 of the National Housing Act, Section 1715z-1 of Title 12 of the United States Code.
(Id)Programs for rent supplement assistance pursuant to Section 18 101 of the Housing and Urban Development Act of 1965, Section 1701s of Title 12 of the United States Code, as amended.
(Ie)Programs pursuant to Section 515 of the Housing Act of 1949, Section 1485 of Title 42 of the United States Code, as amended.
(If)The low-income housing credit program set forth in Section 42 of the Internal Revenue Code.
(ib)The restrictions on rent and income levels will terminate or the federal insured mortgage on the property is eligible for prepayment any time within five years before or after the date of application to the California Tax Credit Allocation Committee.
(ic)The entity acquiring the property enters into a regulatory agreement that requires the property to be operated in accordance with the requirements of this section for a period equal to the greater of 55 years or the life of the property.
(id)The property satisfies the requirements of Section 42(e) of the Internal Revenue Code, regarding rehabilitation expenditures except that the provisions of Section 42(e)(3)(A)(ii)(I) shall not apply.
(iv)Projects for which a public agency provides direct or indirect long-term financial support for at least 15 percent of the total project development costs or projects for which the owners equity constitutes at least 30 percent of the total project development costs.
(v)Projects that provide tenant amenities not generally available to residents of low-income housing projects.
(4)For purposes of allocating credits pursuant to this section, the committee shall not give preference to any project by virtue of the date of submission of its application except to break a tie when two or more of the projects have an equal rating.
(k)Section 42(l) of the Internal Revenue Code shall be modified as follows:
The term secretary shall be replaced by the term California Franchise Tax Board.
(l)In the case where the state credit allowed under this section exceeds the tax, the excess may be carried over to reduce the tax in the following year, and succeeding years if necessary, until the credit has been exhausted.
(m)The provisions of Section 11407(a) of Public Law 101-508, relating to the effective date of the extension of the low-income housing credit, shall apply to calendar years after 1993.
(n)The provisions of Section 11407(c) of Public Law 101-508, relating to election to accelerate credit, shall not apply.
(o)This section shall remain in effect for as long as Section 42 of the Internal Revenue Code, relating to low-income housing credits, credit, remains in effect.
SEC. 2.Section 17058 of the Revenue and Taxation Code is amended to read:17058.(a)(1)There shall be allowed as a credit against the net tax (as tax, as defined in Section 17039) 17039, a state low-income housing tax credit in an amount equal to the amount determined in subdivision (c), computed in accordance with the provisions of Section 42 of the Internal Revenue Code, Code except as otherwise provided in this section.
(2)Taxpayer for purposes of this section means the sole owner in the case of an individual, the partners in the case of a partnership, members in the case of a limited liability company, and the shareholders in the case of an S corporation.
(3)Housing sponsor for purposes of this section means the sole owner in the case of an individual, the partnership in the case of a partnership, the limited liability company in the case of a limited liability company, and the S corporation in the case of an S corporation.
(4)Extremely low-income has the same meaning as in Section 50053 of the Health and Safety Code.
(5)Very low-income has the same meaning as in Section 50053 of the Health and Safety Code.
(b)(1)The amount of the credit allocated to any housing sponsor shall be authorized by the California Tax Credit Allocation Committee, or any successor thereof, based on a projects need for the credit for economic feasibility in accordance with the requirements of this section.
(A)The low-income housing project shall be located in California and shall meet either of the following requirements:
(i)Except for projects to provide farmworker housing, as defined in subdivision (h) of Section 50199.7 of the Health and Safety Code, that are allocated credits solely under the set-aside described in subdivision (c) of Section 50199.20 of the Health and Safety Code, the projects housing sponsor has been allocated by the California Tax Credit Allocation Committee a credit for federal income tax purposes under Section 42 of the Internal Revenue Code.
(ii)It qualifies for a credit under Section 42(h)(4)(B) of the Internal Revenue Code.
(B)The California Tax Credit Allocation Committee shall not require fees for the credit under this section in addition to those fees required for applications for the tax credit pursuant to Section 42 of the Internal Revenue Code. The committee may require a fee if the application for the credit under this section is submitted in a calendar year after the year the application is submitted for the federal tax credit.
(C)(i)For a project that receives a preliminary reservation of the state low-income housing tax credit, allowed pursuant to subdivision (a), on or after January 1, 2009, and before January 1, 2016, the credit shall be allocated to the partners of a partnership owning the project in accordance with the partnership agreement, regardless of how the federal low-income housing tax credit with respect to the project is allocated to the partners, or whether the allocation of the credit under the terms of the agreement has substantial economic effect, within the meaning of Section 704(b) of the Internal Revenue Code.
(ii)To the extent the allocation of the credit to a partner under this section lacks substantial economic effect, any loss or deduction otherwise allowable under this part that is attributable to the sale or other disposition of that partners partnership interest made prior to the expiration of the federal credit shall not be allowed in the taxable year in which the sale or other disposition occurs, but shall instead be deferred until and treated as if it occurred in the first taxable year immediately following the taxable year in which the federal credit period expires for the project described in clause (i).
(iii)This subparagraph does shall not apply to a project that receives a preliminary reservation of state low-income housing tax credits under the set-aside described in subdivision (c) of Section 50199.20 of the Health and Safety Code unless the project also receives a preliminary reservation of federal low-income housing tax credits.
(iv)This subparagraph shall cease to be operative with respect to any project that receives a preliminary reservation of a credit on or after January 1, 2016.
(2)(A)The California Tax Credit Allocation Committee shall certify to the housing sponsor the amount of tax credit under this section allocated to the housing sponsor for each credit period.
(B)In the case of a partnership partnership, limited liability company, or an S corporation, the housing sponsor shall provide a copy of the California Tax Credit Allocation Committee certification to the taxpayer.
(C)The taxpayer shall, upon request, provide a copy of the certification to the Franchise Tax Board.
(D)All elections made by the taxpayer pursuant to Section 42 of the Internal Revenue Code shall apply to this section.
(E)(i)Except as described in clause (ii), for buildings located in designated difficult development areas (DDAs) or qualified census tracts (QCTs), as defined in Section 42(d)(5)(B) of the Internal Revenue Code, credits may be allocated under this section in the amounts prescribed in subdivision (c), provided that the amount of credit allocated under Section 42 of the Internal Revenue Code is computed on 100 percent of the qualified basis of the building.
(ii)Notwithstanding clause (i), the California Tax Credit Allocation Committee may allocate the credit for buildings located in DDAs or QCTs that are restricted to having 50 percent of its occupants be special needs households, as defined in the California Code of Regulations by the California Tax Credit Allocation Committee, even if the taxpayer receives federal credits pursuant to Section 42(d)(5)(B) of the Internal Revenue Code, provided that the credit allowed under this section shall not exceed 30 percent of the eligible basis of the building.
(F)
(E)(i)The California Tax Credit Allocation Committee may allocate a credit under this section in exchange for a credit allocated pursuant to Section 42(d)(5)(B) of the Internal Revenue Code in amounts up to 30 percent of the eligible basis of a building if the credits allowed under Section 42 of the Internal Revenue Code are reduced by an equivalent amount.
(ii)An equivalent amount shall be determined by the California Tax Credit Allocation Committee based upon the relative amount required to produce an equivalent state tax credit to the taxpayer.
(c)Section 42(b) of the Internal Revenue Code shall be modified as follows:
(1)In the case of any qualified low-income building placed that is a new building, as defined in service by Section 42 of the housing sponsor during 1987, Internal Revenue Code and the term applicable percentage means 9 percent for each of the first three years and 3 percent for the fourth year for new buildings (whether or not the building is federally subsidized) and for existing buildings. regulations promulgated thereunder, and not federally subsidized, the term applicable percentage means the following:
(2)In the case of any qualified low-income building that receives an allocation after 1989 and is a new building not federally subsidized, the term applicable percentage means the following:
(A)For each of the first three years, the percentage prescribed by the Secretary of the Treasury for new buildings that are not federally subsidized for the taxable year, determined in accordance with the requirements of Section 42(b)(2) 42(b)(1) of the Internal Revenue Code, in lieu of the percentage prescribed in Section 42(b)(1)(B) of the Internal Revenue Code.
(B)For the fourth year, the difference between 30 percent and the sum of the applicable percentages for the first three years.
(2)In the case of any qualified low-income building that (i) is a new building, as defined in Section 42 of the Internal Revenue Code and the regulations promulgated thereunder, (ii) not located in designated difficult development areas (DDAs) or qualified census tracts (QCTs), as defined in Section 42(d)(5)(B) of the Internal Revenue Code, and (iii) is federally subsidized, the term applicable percentage means for the first three years, 15 percent of the qualified basis of the building, and for the fourth year, 5 percent of the qualified basis of the building.
(3)In the case of any qualified low-income building that receives an allocation after 1989 and that is a new building that is federally subsidized or that is (i) an existing building that building, as defined in Section 42 of the Internal Revenue Code and the regulations promulgated thereunder, (ii) not located in designated difficult development areas (DDAs) or qualified census tracts (QCTs), as defined in Section 42(d)(5)(B) of the Internal Revenue Code, and (iii) is at risk of conversion, federally subsidized, the term applicable percentage applicable percentage means the following:
(A)For each of the first three years, the percentage prescribed by the Secretary of the Treasury for new buildings that are federally subsidized for the taxable year.
(B)For the fourth year, the difference between 13 percent and the sum of the applicable percentages for the first three years.
(4)For purposes In the case of this section, the term at risk of conversion, with respect to any qualified low-income building that is (i) a new or an existing property means a property that satisfies all building, (ii) located in designated difficult development areas (DDAs) or qualified census tracts (QCTs) as defined in Section 42(d)(5)(B) of the following criteria: Internal Revenue Code, and (iii) federally subsidized, the California Tax Credit Allocation Committee shall reduce the amount of California credit to be allocated under subparagraph (2) and (3) by taking into account the increased federal credit received due to the basis boost provided under Section 42(d)(5)(B) of the Internal Revenue Code.
(5)In the case of any qualified low-income building that meets all of the requirements of subparagraphs (A) through (D), inclusive, the term applicable percentage means 30 percent for each of the first three years and 5 percent for the fourth year. A qualified low-income building receiving an allocation under this paragraph is ineligible to also receive an allocation under paragraph (3).
(A)The property is a multifamily rental housing development in which qualified low-income building is at least 50 percent of the units receive governmental assistance pursuant to any of the following: 15 years old.
(i)New construction, substantial rehabilitation, moderate rehabilitation, property disposition, and loan management set-aside programs, or any other program providing project-based assistance pursuant to Section 8 of the United States Housing Act of 1937, Section 1437f of Title 42 of the United States Code, as amended.
(ii)The Below-Market-Interest-Rate Program pursuant to Section 221(d)(3) of the National Housing Act, Sections 1715l(d)(3) and (5) of Title 12 of the United States Code.
(iii)Section 236 of the National Housing Act, Section 1715z-1 of Title 12 of the United States Code.
(iv)Programs for rent supplement assistance pursuant to Section 101 of the Housing and Urban Development Act of 1965, Section 1701s of Title 12 of the United States Code, as amended.
(v)Programs pursuant to Section 515 of the Housing Act of 1949, Section 1485 of Title 42 of the United States Code, as amended.
(vi)The low-income housing credit program set forth in Section 42 of the Internal Revenue Code.
(B)The restrictions on rent and qualified low-income building is serving households of very low-income or extremely low-income such that the average maximum household income levels will terminate as restricted, pursuant to an existing regulatory agreement with a federal, state, county, local, or other governmental agency, is not more than 45 percent of the federal insured mortgage on area median gross income, as determined under Section 42 of the property Internal Revenue Code, adjusted by household size, and a tax credit regulatory agreement is eligible entered into for prepayment any time within five a period of not less than 55 years before or after restricting the date of application average targeted household income to no more than 45 percent of the California Tax Credit Allocation Committee. area median income.
(C)The entity acquiring the property enters into a regulatory agreement that requires the property qualified low-income building would have insufficient credits under paragraphs (2) and (3) to be operated in accordance with the requirements of this section for a period equal complete substantial rehabilitation due to the greater of 55 years or the life of the property. a low appraised value.
(D)The property satisfies the requirements of Section 42(e) of the Internal Revenue Code regarding qualified low-income building will complete the substantial rehabilitation expenditures, except that in connection with the provisions of Section 42(e)(3)(A)(ii)(I) do not apply. credit allocation herein.
(d)The term qualified low-income housing project as defined in Section 42(c)(2) of the Internal Revenue Code is modified by adding the following requirements:
(1)The taxpayer shall be entitled to receive a cash distribution from the operations of the project, after funding required reserves, that, at the election of the taxpayer, is equal to:
(A)An amount not to exceed 8 percent of the lesser of:
(i)The owner equity that shall include the amount of the capital contributions actually paid to the housing sponsor and shall not include any amounts until they are paid on an investor note.
(ii)Twenty percent of the adjusted basis of the building as of the close of the first taxable year of the credit period.
(B)The amount of the cashflow from those units in the building that are not low-income units. For purposes of computing cashflow under this subparagraph, operating costs shall be allocated to the low-income units using the floor space fraction, as defined in Section 42 of the Internal Revenue Code.
(C)Any amount allowed to be distributed under subparagraph (A) that is not available for distribution during the first five years of the compliance period may be accumulated and distributed any time during the first 15 years of the compliance period but not thereafter.
(2)The limitation on return applies shall apply in the aggregate to the partners if the housing sponsor is a partnership and in the aggregate to the shareholders if the housing sponsor is an S corporation.
(3)The housing sponsor shall apply any cash available for distribution in excess of the amount eligible to be distributed under paragraph (1) to reduce the rent on rent-restricted units or to increase the number of rent-restricted units subject to the tests of Section 42(g)(1) of the Internal Revenue Code.
(e)The provisions of Section 42(f) of the Internal Revenue Code shall be modified as follows:
(1)The term credit period as defined in Section 42(f)(1) of the Internal Revenue Code is modified by substituting four taxable years for 10 taxable years.
(2)The special rule for the first taxable year of the credit period under Section 42(f)(2) of the Internal Revenue Code does shall not apply to the tax credit under this section.
(3)Section 42(f)(3) of the Internal Revenue Code is modified to read:
If, as of the close of any taxable year in the compliance period, after the first year of the credit period, the qualified basis of any building exceeds the qualified basis of that building as of the close of the first year of the credit period, the housing sponsor, to the extent of its tax credit allocation, shall be eligible for a credit on the excess in an amount equal to the applicable percentage determined pursuant to subdivision (c) for the four-year period beginning with the taxable year in which the increase in qualified basis occurs.
(f)The provisions of Section 42(h) of the Internal Revenue Code shall be modified as follows:
(1)Section 42(h)(2) of the Internal Revenue Code does shall not apply be applicable and instead the following provisions apply: shall be applicable:
The total amount for the four-year credit period of the housing credit dollars allocated in a calendar year to any building shall reduce the aggregate housing credit dollar amount of the California Tax Credit Allocation Committee for the calendar year in which the allocation is made.
(2)Paragraphs (3), (4), (5), (6)(E)(i)(II), (6)(F), (6)(G), (6)(I), (7), and (8) of Section 42(h) of the Internal Revenue Code do shall not apply to this section. be applicable.
(g)The aggregate housing credit dollar amount that may be allocated annually by the California Tax Credit Allocation Committee pursuant to this section, Section 12206, and Section 23610.5 shall be an amount equal to the sum of all the following:
(1)(A)Seventy million dollars ($70,000,000) for the 2001 calendar year, and, for the 2002 calendar year and each calendar year thereafter, seventy million dollars ($70,000,000) increased by the percentage, if any, by which the Consumer Price Index for the preceding calendar year exceeds the Consumer Price Index for the 2001 calendar year. For the purposes of this paragraph, the term Consumer Price Index means the last Consumer Price Index for All Urban Consumers published by the federal Department of Labor.
(B)For calendar years 2017 through 2022, inclusive, an additional one hundred million dollars ($100,000,000) for the 2017 calendar year, and, for the 2018 through 2022 calendar years, one hundred million dollars ($100,000,000) increased by the percentage, if any, by which the Consumer Price Index for the preceding calendar year exceeds the Consumer Price Index for the 2017 calendar year. For the purposes of this paragraph, the term Consumer Price Index means the last Consumer Price Index for All Urban Consumers published by the federal Department of Labor. A housing sponsor receiving an allocation under paragraph (1) of subdivision (c) shall not be eligible for receipt of the housing credit allocated from the increased amount under this subparagraph. A housing sponsor receiving an allocation under paragraph (1) of subdivision (c) shall remain eligible for receipt of the housing credit allocated from the credit ceiling amount under subparagraph (A).
(2)The unused housing credit ceiling, if any, for the preceding calendar years.
(3)The amount of housing credit ceiling returned in the calendar year. For purposes of this paragraph, the amount of housing credit dollar amount returned in the calendar year equals the housing credit dollar amount previously allocated to any project that does not become a qualified low-income housing project within the period required by this section or to any project with respect to which an allocation is canceled by mutual consent of the California Tax Credit Allocation Committee and the allocation recipient.
(4)Five hundred thousand dollars ($500,000) per calendar year for projects to provide farmworker housing, as defined in subdivision (h) of Section 50199.7 of the Health and Safety Code.
(5)The amount of any unallocated or returned credits under former Sections 17053.14, 23608.2, and 23608.3, as those sections read prior to January 1, 2009, until fully exhausted for projects to provide farmworker housing, as defined in subdivision (h) of Section 50199.7 of the Health and Safety Code.
(h)The term compliance period as defined in Section 42(i)(1) of the Internal Revenue Code is modified to mean, with respect to any building, the period of 30 consecutive taxable years beginning with the first taxable year of the credit period with respect thereto.
(i)Section 42(j) of the Internal Revenue Code does shall not apply be applicable and the following requirements of this section shall be set forth in a regulatory agreement between the California Tax Credit Allocation Committee and the housing sponsor, which and the regulatory agreement shall be subordinated, when required, to any lien or encumbrance of any banks or other institutional lenders to the project. The regulatory agreement entered into pursuant to subdivision (f) of Section 50199.14 of the Health and Safety Code shall apply, provided that the agreement includes all of the following provisions:
(1)A term not less than the compliance period.
(2)A requirement that the agreement be recorded in the official records of the county in which the qualified low-income housing project is located.
(3)A provision stating which state and local agencies can enforce the regulatory agreement in the event the housing sponsor fails to satisfy any of the requirements of this section.
(4)A provision that the regulatory agreement shall be deemed a contract enforceable by tenants as third-party beneficiaries thereto and that allows individuals, whether prospective, present, or former occupants of the building, who meet the income limitation applicable to the building, the right to enforce the regulatory agreement in any state court.
(5)A provision incorporating the requirements of Section 42 of the Internal Revenue Code as modified by this section.
(6)A requirement that the housing sponsor notify the California Tax Credit Allocation Committee or its designee if there is a determination by the Internal Revenue Service that the project is not in compliance with Section 42(g) of the Internal Revenue Code.
(7)A requirement that the housing sponsor, as security for the performance of the housing sponsors obligations under the regulatory agreement, assign the housing sponsors interest in rents that it receives from the project, provided that until there is a default under the regulatory agreement, the housing sponsor is entitled to collect and retain the rents.
(8)The remedies available in the event of a default under the regulatory agreement that is not cured within a reasonable cure period, include, but are not limited to, allowing any of the parties designated to enforce the regulatory agreement to collect all rents with respect to the project; taking possession of the project and operating the project in accordance with the regulatory agreement until the enforcer determines the housing sponsor is in a position to operate the project in accordance with the regulatory agreement; applying to any court for specific performance; securing the appointment of a receiver to operate the project; or any other relief as may be appropriate.
(j)(1)The committee shall allocate the housing credit on a regular basis consisting of two or more periods in each calendar year during which applications may be filed and considered. The committee shall establish application filing deadlines, the maximum percentage of federal and state low-income housing tax credit ceiling that may be allocated by the committee in that period, and the approximate date on which allocations shall be made. If the enactment of federal or state law, the adoption of rules or regulations, or other similar events prevent the use of two allocation periods, the committee may reduce the number of periods and adjust the filing deadlines, maximum percentage of credit allocated, and the allocation dates.
(2)The committee shall adopt a qualified allocation plan, as provided in Section 42(m)(1) of the Internal Revenue Code. In adopting this plan, the committee shall comply with the provisions of Sections 42(m)(1)(B) and 42(m)(1)(C) of the Internal Revenue Code. Code, respectively.
(3)Notwithstanding Section 42(m) of the Internal Revenue Code, Code the California Tax Credit Allocation Committee shall allocate housing credits in accordance with the qualified allocation plan and regulations, which shall include the following provisions:
(A)All housing sponsors, as defined by paragraph (3) of subdivision (a), shall demonstrate at the time the application is filed with the committee that the project meets the following threshold requirements:
(i)The housing sponsor shall demonstrate there is a need and demand for low-income housing in the community or region for which it is proposed.
(ii)The projects proposed financing, including tax credit proceeds, shall be sufficient to complete the project and that the proposed operating income shall be adequate to operate the project for the extended use period.
(iii)The project shall have enforceable financing commitments, either construction or permanent financing, for at least 50 percent of the total estimated financing of the project.
(iv)The housing sponsor shall have and maintain control of the site for the project.
(v)The housing sponsor shall demonstrate that the project complies with all applicable local land use and zoning ordinances.
(vi)The housing sponsor shall demonstrate that the project development team has the experience and the financial capacity to ensure project completion and operation for the extended use period.
(vii)The housing sponsor shall demonstrate the amount of tax credit that is necessary for the financial feasibility of the project and its viability as a qualified low-income housing project throughout the extended use period, taking into account operating expenses, a supportable debt service, reserves, funds set aside for rental subsidies and required equity, and a development fee that does not exceed a specified percentage of the eligible basis of the project prior to inclusion of the development fee in the eligible basis, as determined by the committee.
(B)The committee shall give a preference to those projects satisfying all of the threshold requirements of subparagraph (A) if both of the following apply:
(i)The project serves the lowest income tenants at rents affordable to those tenants.
(ii)The project is obligated to serve qualified tenants for the longest period.
(C)In addition to the provisions of subparagraphs (A) and (B), the committee shall use the following criteria in allocating housing credits:
(i)Projects serving large families in which a substantial number, as defined by the committee, of all residential units is comprised of are low-income units with three and or more bedrooms.
(ii)Projects providing single-room occupancy units serving very low income tenants.
(iii)(I)Existing projects that are at risk of conversion, as defined by paragraph (4) of subdivision (c). conversion.
(II)For purposes of this section, the term at risk of conversion, with respect to an existing property means a property that satisfies all of the following criteria:
(ia)The property is a multifamily rental housing development in which at least 50 percent of the units receive governmental assistance pursuant to any of the following:
(Ia)New construction, substantial rehabilitation, moderate rehabilitation, property disposition, and loan management set-aside programs, or any other program providing project-based assistance pursuant to Section 8 of the United States Housing Act of 1937, Section 1437f of Title 42 of the United States Code, as amended.
(Ib)The Below-Market-Interest-Rate Program pursuant to Section 221(d)(3) of the National Housing Act, Sections 1715l(d)(3) and (5) of Title 12 of the United States Code.
(Ic)Section 236 of the National Housing Act, Section 1715z-1 of Title 12 of the United States Code.
(Id)Programs for rent supplement assistance pursuant to Section 18 101 of the Housing and Urban Development Act of 1965, Section 1701s of Title 12 of the United States Code, as amended.
(Ie)Programs pursuant to Section 515 of the Housing Act of 1949, Section 1485 of Title 42 of the United States Code, as amended.
(If)The low-income housing credit program set forth in Section 42 of the Internal Revenue Code.
(ib)The restrictions on rent and income levels will terminate or the federal insured mortgage on the property is eligible for prepayment any time within five years before or after the date of application to the California Tax Credit Allocation Committee.
(ic)The entity acquiring the property enters into a regulatory agreement that requires the property to be operated in accordance with the requirements of this section for a period equal to the greater of 55 years or the life of the property.
(id)The property satisfies the requirements of Section 42(e) of the Internal Revenue Code, regarding rehabilitation expenditures except that the provisions of Section 42(e)(3)(A)(ii)(I) shall not apply.
(iv)Projects for which a public agency provides direct or indirect long-term financial support for at least 15 percent of the total project development costs or projects for which the owners equity constitutes at least 30 percent of the total project development costs.
(v)Projects that provide tenant amenities not generally available to residents of low-income housing projects.
(4)For purposes of allocating credits pursuant to this section, the committee shall not give preference to any project by virtue of the date of submission of its application.
(k)Section 42(l) of the Internal Revenue Code shall be modified as follows:
The term secretary shall be replaced by the term California Franchise Tax Board.
(l)In the case in which where the credit allowed under this section exceeds the net tax, the excess credit may be carried over to reduce the net tax in the following year, and succeeding taxable years, if necessary, until the credit has been exhausted.
(m)A project that received an allocation of a 1989 federal housing credit dollar amount shall be eligible to receive an allocation of a 1990 state housing credit dollar amount, subject to all of the following conditions:
(1)The project was not placed in service prior to 1990.
(2)To the extent the amendments made to this section by the Statutes of 1990 conflict with any provisions existing in this section prior to those amendments, the prior provisions of law shall prevail.
(3)Notwithstanding paragraph (2), a project applying for an allocation under this subdivision is shall be subject to the requirements of paragraph (3) of subdivision (j).
(n)The credit period with respect to an allocation of credit in 1989 by the California Tax Credit Allocation Committee of which any amount is attributable to unallocated credit from 1987 or 1988 shall not begin until after December 31, 1989.
(o)The provisions of Section 11407(a) of Public Law 101-508, relating to the effective date of the extension of the low-income housing credit, shall apply to calendar years after 1989.
(p)The provisions of Section 11407(c) of Public Law 101-508, relating to election to accelerate credit, do shall not apply.
(q)The amendments Any unused credit may continue to this section made by the act adding this be carried forward, as provided in subdivision apply only to taxable years beginning on or after January 1, 1994. (l), until the credit has been exhausted.
(r)This section shall remain in effect on and after December 1, 1990, for as long as Section 42 of the Internal Revenue Code, relating to low-income housing credits, credit, remains in effect. Any unused credit may continue to be carried forward, as provided in subdivision ( l ), until the credit has been exhausted.
(s)The amendments to this section made by Chapter 1222 of the Statutes of 1993 shall apply only to taxable years beginning on or after January 1, 1994.
SEC. 3.Section 23610.5 of the Revenue and Taxation Code is amended to read:23610.5.(a)(1)There shall be allowed as a credit against the tax (as tax, as defined by Section 23036) 23036, a state low-income housing tax credit in an amount equal to the amount determined in subdivision (c), computed in accordance with Section 42 of the Internal Revenue Code of 1986, except as otherwise provided in this section.
(2)Taxpayer, for purposes of this section, means the sole owner in the case of a C corporation, the partners in the case of a partnership, members in the case of a limited liability company, and the shareholders in the case of an S corporation.
(3)Housing sponsor, for purposes of this section, means the sole owner in the case of a C corporation, the partnership in the case of a partnership, the limited liability company in the case of a limited liability company, and the S corporation in the case of an S corporation.
(4)Extremely low-income has the same meaning as in Section 50053 of the Health and Safety Code.
(5)Very low-income has the same meaning as in Section 50053 of the Health and Safety Code.
(b)(1)The amount of the credit allocated to any housing sponsor shall be authorized by the California Tax Credit Allocation Committee, or any successor thereof, based on a projects need for the credit for economic feasibility in accordance with the requirements of this section.
(A)The low-income housing project shall be located in California and shall meet either of the following requirements:
(i)Except for projects to provide farmworker housing, as defined in subdivision (h) of Section 50199.7 of the Health and Safety Code, that are allocated credits solely under the set-aside described in subdivision (c) of Section 50199.20 of the Health and Safety Code, the projects housing sponsor has been allocated by the California Tax Credit Allocation Committee a credit for federal income tax purposes under Section 42 of the Internal Revenue Code.
(ii)It qualifies for a credit under Section 42(h)(4)(B) of the Internal Revenue Code.
(B)The California Tax Credit Allocation Committee shall not require fees for the credit under this section in addition to those fees required for applications for the tax credit pursuant to Section 42 of the Internal Revenue Code. The committee may require a fee if the application for the credit under this section is submitted in a calendar year after the year the application is submitted for the federal tax credit.
(C)(i)For a project that receives a preliminary reservation of the state low-income housing tax credit, allowed pursuant to subdivision (a), on or after January 1, 2009, and before January 1, 2016, the credit shall be allocated to the partners of a partnership owning the project in accordance with the partnership agreement, regardless of how the federal low-income housing tax credit with respect to the project is allocated to the partners, or whether the allocation of the credit under the terms of the agreement has substantial economic effect, within the meaning of Section 704(b) of the Internal Revenue Code.
(ii)To the extent the allocation of the credit to a partner under this section lacks substantial economic effect, any loss or deduction otherwise allowable under this part that is attributable to the sale or other disposition of that partners partnership interest made prior to the expiration of the federal credit shall not be allowed in the taxable year in which the sale or other disposition occurs, but shall instead be deferred until and treated as if it occurred in the first taxable year immediately following the taxable year in which the federal credit period expires for the project described in clause (i).
(iii)This subparagraph does shall not apply to a project that receives a preliminary reservation of state low-income housing tax credits under the set-aside described in subdivision (c) of Section 50199.20 of the Health and Safety Code unless the project also receives a preliminary reservation of federal low-income housing tax credits.
(iv)This subparagraph shall cease to be operative with respect to any project that receives a preliminary reservation of a credit on or after January 1, 2016.
(2)(A)The California Tax Credit Allocation Committee shall certify to the housing sponsor the amount of tax credit under this section allocated to the housing sponsor for each credit period.
(B)In the case of a partnership partnership, limited liability company, or an S corporation, the housing sponsor shall provide a copy of the California Tax Credit Allocation Committee certification to the taxpayer.
(C)The taxpayer shall, upon request, provide a copy of the certification to the Franchise Tax Board.
(D)All elections made by the taxpayer pursuant to Section 42 of the Internal Revenue Code shall apply to this section.
(E)(i)Except as described in clause (ii), for buildings located in designated difficult development areas (DDAs) or qualified census tracts (QCTs), as defined in Section 42(d)(5)(B) of the Internal Revenue Code, credits may be allocated under this section in the amounts prescribed in subdivision (c), provided that the amount of credit allocated under Section 42 of the Internal Revenue Code is computed on 100 percent of the qualified basis of the building.
(ii)Notwithstanding clause (i), the California Tax Credit Allocation Committee may allocate the credit for buildings located in DDAs or QCTs that are restricted to having 50 percent of its occupants be special needs households, as defined in the California Code of Regulations by the California Tax Credit Allocation Committee, even if the taxpayer receives federal credits pursuant to Section 42(d)(5)(B) of the Internal Revenue Code, provided that the credit allowed under this section shall not exceed 30 percent of the eligible basis of the building.
(F)
(E)(i)The California Tax Credit Allocation Committee may allocate a credit under this section in exchange for a credit allocated pursuant to Section 42(d)(5)(B) of the Internal Revenue Code in amounts up to 30 percent of the eligible basis of a building if the credits allowed under Section 42 of the Internal Revenue Code are reduced by an equivalent amount.
(ii)An equivalent amount shall be determined by the California Tax Credit Allocation Committee based upon the relative amount required to produce an equivalent state tax credit to the taxpayer.
(c)Section 42(b) of the Internal Revenue Code shall be modified as follows:
(1)In the case of any qualified low-income building placed that is a new building, as defined in service by Section 42 of the housing sponsor during 1987, Internal Revenue Code and the term applicable percentage means 9 percent for each of the first three years and 3 percent for the fourth year for new buildings (whether or not the building is federally subsidized) and for existing buildings. regulations promulgated thereunder, and not federally subsidized, the term applicable percentage means the following:
(2)In the case of any qualified low-income building that receives an allocation after 1989 and is a new building not federally subsidized, the term applicable percentage means the following:
(A)For each of the first three years, the percentage prescribed by the Secretary of the Treasury for new buildings that are not federally subsidized for the taxable year, determined in accordance with the requirements of Section 42(b)(2) 42(b)(1) of the Internal Revenue Code, in lieu of the percentage prescribed in Section 42(b)(1)(A) of the Internal Revenue Code. Code.
(B)For the fourth year, the difference between 30 percent and the sum of the applicable percentages for the first three years.
(2)In the case of any qualified low-income building that (i) is a new building, as defined in Section 42 of the Internal Revenue Code and the regulations promulgated thereunder, (ii) not located in designated difficult development areas (DDAs) or qualified census tracts (QCTs), as defined in Section 42(d)(5)(B) of the Internal Revenue Code, and (iii) is federally subsidized, the term applicable percentage means for the first three years, 15 percent of the qualified basis of the building, and for the fourth year, 5 percent of the qualified basis of the building.
(3)In the case of any qualified low-income building that receives an allocation after 1989 and that is a new building that is federally subsidized or that is (i) an existing building that building, as defined in Section 42 of the Internal Revenue Code and the regulations promulgated thereunder, (ii) not located in designated difficult development areas (DDAs) or qualified census tracts (QCTs), as defined in Section 42(d)(5)(B) of the Internal Revenue Code, and (iii) is at risk of conversion, federally subsidized, the term applicable percentage applicable percentage means the following:
(A)For each of the first three years, the percentage prescribed by the Secretary of the Treasury for new buildings that are federally subsidized for the taxable year.
(B)For the fourth year, the difference between 13 percent and the sum of the applicable percentages for the first three years.
(4)For purposes of this section, the term at risk of conversion, with respect to an existing property means a property that satisfies all of the following criteria:
(A)The property is a multifamily rental housing development in which at least 50 percent of the units receive governmental assistance pursuant to any of the following:
(i)New construction, substantial rehabilitation, moderate rehabilitation, property disposition, and loan management set-aside programs, or any other program providing project-based assistance pursuant to Section 8 of the United States Housing Act of 1937, Section 1437f of Title 42 of the United States Code, as amended.
(ii)The Below-Market-Interest-Rate Program pursuant to Section 221(d)(3) of the National Housing Act, Sections 1715l(d)(3) and (5) of Title 12 of the United States Code.
(iii)Section 236 of the National Housing Act, Section 1715z-1 of Title 12 of the United States Code.
(iv)Programs for rent supplement assistance pursuant to Section 101 of the Housing and Urban Development Act of 1965, Section 1701s of Title 12 of the United States Code, as amended.
(v)Programs pursuant to Section 515 of the Housing Act of 1949, Section 1485 of Title 42 of the United States Code, as amended.
(vi)The
(4)In the case of any qualified low-income housing building that is (i) a new or an existing building, (ii) located in designated difficult development areas (DDAs) or qualified census tracts (QCTs) as defined in Section 42(d)(5)(B) of the Internal Revenue Code, and (iii) federally subsidized, the California Tax Credit Allocation Committee shall determine the amount of credit program set forth to be allocated under subparagraph (E) of paragraph (2) of subdivision (b) required to produce an equivalent state tax credit to the taxpayer, as produced in paragraph (2), taking into account the basis boost provided under Section 42 42(d)(5)(B) of the Internal Revenue Code.
(5)In the case of any qualified low-income building that meets all of the requirements of subparagraphs (A) through (D), inclusive, the term applicable percentage means 30 percent for each of the first three years and 5 percent for the fourth year. A qualified low-income building receiving an allocation under this paragraph is ineligible to also receive an allocation under paragraph (3).
(A)The qualified low-income building is at least 15 years old.
(B)The restrictions on rent and qualified low-income building is serving households of very low-income or extremely low-income such that the average maximum household income levels will terminate as restricted, pursuant to an existing regulatory agreement with a federal, state, county, local, or other governmental agency, is not more than 45 percent of the federally insured mortgage on area median gross income, as determined under Section 42 of the property Internal Revenue Code, adjusted by household size, and a tax credit regulatory agreement is eligible entered into for prepayment any time within five a period of not less than 55 years before or after restricting the date of application average targeted household income to no more than 45 percent of the California Tax Credit Allocation Committee. area median income.
(C)The entity acquiring the property enters into a regulatory agreement that requires the property qualified low-income building would have insufficient credits under paragraphs (2) and (3) to be operated in accordance with the requirements of this section for a period equal complete substantial rehabilitation due to the greater of 55 years or the life of the property. a low appraised value.
(D)The property satisfies the requirements of Section 42(e) of the Internal Revenue Code regarding qualified low-income building will complete the substantial rehabilitation expenditures, except that in connection with the provisions of Section 42(e)(3)(A)(ii)(I) shall not apply. credit allocation herein.
(d)The term qualified low-income housing project as defined in Section 42(c)(2) of the Internal Revenue Code is modified by adding the following requirements:
(1)The taxpayer shall be entitled to receive a cash distribution from the operations of the project, after funding required reserves, that at the election of the taxpayer, is equal to:
(A)An amount not to exceed 8 percent of the lesser of:
(i)The owner equity, that shall include the amount of the capital contributions actually paid to the housing sponsor and shall not include any amounts until they are paid on an investor note.
(ii)Twenty percent of the adjusted basis of the building as of the close of the first taxable year of the credit period.
(B)The amount of the cashflow from those units in the building that are not low-income units. For purposes of computing cashflow under this subparagraph, operating costs shall be allocated to the low-income units using the floor space fraction, as defined in Section 42 of the Internal Revenue Code.
(C)Any amount allowed to be distributed under subparagraph (A) that is not available for distribution during the first five years of the compliance period may be accumulated and distributed any time during the first 15 years of the compliance period but not thereafter.
(2)The limitation on return applies shall apply in the aggregate to the partners if the housing sponsor is a partnership and in the aggregate to the shareholders if the housing sponsor is an S corporation.
(3)The housing sponsor shall apply any cash available for distribution in excess of the amount eligible to be distributed under paragraph (1) to reduce the rent on rent-restricted units or to increase the number of rent-restricted units subject to the tests of Section 42(g)(1) of the Internal Revenue Code.
(e)The provisions of Section 42(f) of the Internal Revenue Code shall be modified as follows:
(1)The term credit period as defined in Section 42(f)(1) of the Internal Revenue Code is modified by substituting four taxable years for 10 taxable years.
(2)The special rule for the first taxable year of the credit period under Section 42(f)(2) of the Internal Revenue Code shall not apply to the tax credit under this section.
(3)Section 42(f)(3) of the Internal Revenue Code is modified to read:
If, as of the close of any taxable year in the compliance period, after the first year of the credit period, the qualified basis of any building exceeds the qualified basis of that building as of the close of the first year of the credit period, the housing sponsor, to the extent of its tax credit allocation, shall be eligible for a credit on the excess in an amount equal to the applicable percentage determined pursuant to subdivision (c) for the four-year period beginning with the later of the taxable years in which the increase in qualified basis occurs.
(f)The provisions of Section 42(h) of the Internal Revenue Code shall be modified as follows:
(1)Section 42(h)(2) of the Internal Revenue Code does shall not apply be applicable and instead the following provisions apply: shall be applicable:
The total amount for the four-year credit period of the housing credit dollars allocated in a calendar year to any building shall reduce the aggregate housing credit dollar amount of the California Tax Credit Allocation Committee for the calendar year in which the allocation is made.
(2)Paragraphs (3), (4), (5), (6)(E)(i)(II), (6)(F), (6)(G), (6)(I), (7), and (8) of Section 42(h) of the Internal Revenue Code do shall not apply. be applicable.
(g)The aggregate housing credit dollar amount that may be allocated annually by the California Tax Credit Allocation Committee pursuant to this section, Section 12206, and Section 17058 shall be an amount equal to the sum of all the following:
(1)(A)Seventy million dollars ($70,000,000) for the 2001 calendar year, and, for the 2002 calendar year and each calendar year thereafter, seventy million dollars ($70,000,000) increased by the percentage, if any, by which the Consumer Price Index for the preceding calendar year exceeds the Consumer Price Index for the 2001 calendar year. For the purposes of this paragraph, the term Consumer Price Index means the last Consumer Price Index for All Urban Consumers published by the federal Department of Labor.
(B)For calendar years 2017 through 2022, inclusive, an additional one hundred million dollars ($100,000,000) for the 2017 calendar year, and, for the 2018 through 2022 calendar years, one hundred million dollars ($100,000,000) increased by the percentage, if any, by which the Consumer Price Index for the preceding calendar year exceeds the Consumer Price Index for the 2017 calendar year. For the purposes of this paragraph, the term Consumer Price Index means the last Consumer Price Index for All Urban Consumers published by the federal Department of Labor. A housing sponsor receiving an allocation under paragraph (1) of subdivision (c) shall not be eligible for receipt of the housing credit allocated from the increased amount under this subparagraph. A housing sponsor receiving an allocation under paragraph (1) of subdivision (c) shall remain eligible for receipt of the housing credit allocated from the credit ceiling amount under subparagraph (A).
(2)The unused housing credit ceiling, if any, for the preceding calendar years.
(3)The amount of housing credit ceiling returned in the calendar year. For purposes of this paragraph, the amount of housing credit dollar amount returned in the calendar year equals the housing credit dollar amount previously allocated to any project that does not become a qualified low-income housing project within the period required by this section or to any project with respect to which an allocation is canceled by mutual consent of the California Tax Credit Allocation Committee and the allocation recipient.
(4)Five hundred thousand dollars ($500,000) per calendar year for projects to provide farmworker housing, as defined in subdivision (h) of Section 50199.7 of the Health and Safety Code.
(5)The amount of any unallocated or returned credits under former Sections 17053.14, 23608.2, and 23608.3, as those sections read prior to January 1, 2009, until fully exhausted for projects to provide farmworker housing, as defined in subdivision (h) of Section 50199.7 of the Health and Safety Code.
(h)The term compliance period as defined in Section 42(i)(1) of the Internal Revenue Code is modified to mean, with respect to any building, the period of 30 consecutive taxable years beginning with the first taxable year of the credit period with respect thereto.
(i)Section 42(j) of the Internal Revenue Code does shall not apply be applicable and the following shall be substituted in its place:
The requirements of this section shall be set forth in a regulatory agreement between the California Tax Credit Allocation Committee and the housing sponsor, and this the regulatory agreement shall be subordinated, when required, to any lien or encumbrance of any banks or other institutional lenders to the project. The regulatory agreement entered into pursuant to subdivision (f) of Section 50199.14 of the Health and Safety Code shall apply, provided that the agreement includes all of the following provisions:
(1)A term not less than the compliance period.
(2)A requirement that the agreement be recorded in the official records of the county in which the qualified low-income housing project is located.
(3)A provision stating which state and local agencies can enforce the regulatory agreement in the event the housing sponsor fails to satisfy any of the requirements of this section.
(4)A provision that the regulatory agreement shall be deemed a contract enforceable by tenants as third-party beneficiaries thereto, and that allows individuals, whether prospective, present, or former occupants of the building, who meet the income limitation applicable to the building, the right to enforce the regulatory agreement in any state court.
(5)A provision incorporating the requirements of Section 42 of the Internal Revenue Code as modified by this section.
(6)A requirement that the housing sponsor notify the California Tax Credit Allocation Committee or its designee if there is a determination by the Internal Revenue Service that the project is not in compliance with Section 42(g) of the Internal Revenue Code.
(7)A requirement that the housing sponsor, as security for the performance of the housing sponsors obligations under the regulatory agreement, assign the housing sponsors interest in rents that it receives from the project, provided that until there is a default under the regulatory agreement, the housing sponsor is entitled to collect and retain the rents.
(8)A provision that the The remedies available in the event of a default under the regulatory agreement that is not cured within a reasonable cure period include, but are not limited to, allowing any of the parties designated to enforce the regulatory agreement to collect all rents with respect to the project; taking possession of the project and operating the project in accordance with the regulatory agreement until the enforcer determines the housing sponsor is in a position to operate the project in accordance with the regulatory agreement; applying to any court for specific performance; securing the appointment of a receiver to operate the project; or any other relief as may be appropriate.
(j)(1)The committee shall allocate the housing credit on a regular basis consisting of two or more periods in each calendar year during which applications may be filed and considered. The committee shall establish application filing deadlines, the maximum percentage of federal and state low-income housing tax credit ceiling that may be allocated by the committee in that period, and the approximate date on which allocations shall be made. If the enactment of federal or state law, the adoption of rules or regulations, or other similar events prevent the use of two allocation periods, the committee may reduce the number of periods and adjust the filing deadlines, maximum percentage of credit allocated, and allocation dates.
(2)The committee shall adopt a qualified allocation plan, as provided in Section 42(m)(1) of the Internal Revenue Code. In adopting this plan, the committee shall comply with the provisions of Sections 42(m)(1)(B) and 42(m)(1)(C) of the Internal Revenue Code. Code, respectively.
(3)Notwithstanding Section 42(m) of the Internal Revenue Code, Code the California Tax Credit Allocation Committee shall allocate housing credits in accordance with the qualified allocation plan and regulations, which shall include the following provisions:
(A)All housing sponsors, as defined by paragraph (3) of subdivision (a), shall demonstrate at the time the application is filed with the committee that the project meets the following threshold requirements:
(i)The housing sponsor shall demonstrate that there is a need for low-income housing in the community or region for which it is proposed.
(ii)The projects proposed financing, including tax credit proceeds, shall be sufficient to complete the project and shall be adequate to operate the project for the extended use period.
(iii)The project shall have enforceable financing commitments, either construction or permanent financing, for at least 50 percent of the total estimated financing of the project.
(iv)The housing sponsor shall have and maintain control of the site for the project.
(v)The housing sponsor shall demonstrate that the project complies with all applicable local land use and zoning ordinances.
(vi)The housing sponsor shall demonstrate that the project development team has the experience and the financial capacity to ensure project completion and operation for the extended use period.
(vii)The housing sponsor shall demonstrate the amount of tax credit that is necessary for the financial feasibility of the project and its viability as a qualified low-income housing project throughout the extended use period, taking into account operating expenses, a supportable debt service, reserves, funds set aside for rental subsidies and required equity, and a development fee that does not exceed a specified percentage of the eligible basis of the project prior to inclusion of the development fee in the eligible basis, as determined by the committee.
(B)The committee shall give a preference to those projects satisfying all of the threshold requirements of subparagraph (A) if both of the following apply:
(i)The project serves the lowest income tenants at rents affordable to those tenants.
(ii)The project is obligated to serve qualified tenants for the longest period.
(C)In addition to the provisions of subparagraphs (A) and (B), the committee shall use the following criteria in allocating housing credits:
(i)Projects serving large families in which a substantial number, as defined by the committee, of all residential units are low-income units with three and or more bedrooms.
(ii)Projects providing single-room occupancy units serving very low income tenants.
(iii)(I) Existing projects that are at risk of conversion, as defined by paragraph (4) of subdivision (c). conversion.
(II)For purposes of this section, the term at risk of conversion, with respect to an existing property means a property that satisfies all of the following criteria:
(ia)The property is a multifamily rental housing development in which at least 50 percent of the units receive governmental assistance pursuant to any of the following:
(Ia)New construction, substantial rehabilitation, moderate rehabilitation, property disposition, and loan management set-aside programs, or any other program providing project-based assistance pursuant to Section 8 of the United States Housing Act of 1937, Section 1437f of Title 42 of the United States Code, as amended.
(Ib)The Below-Market-Interest-Rate Program pursuant to Section 221(d)(3) of the National Housing Act, Sections 1715l(d)(3) and (5) of Title 12 of the United States Code.
(Ic)Section 236 of the National Housing Act, Section 1715z-1 of Title 12 of the United States Code.
(Id)Programs for rent supplement assistance pursuant to Section 18 101 of the Housing and Urban Development Act of 1965, Section 1701s of Title 12 of the United States Code, as amended.
(Ie)Programs pursuant to Section 515 of the Housing Act of 1949, Section 1485 of Title 42 of the United States Code, as amended.
(If)The low-income housing credit program set forth in Section 42 of the Internal Revenue Code.
(ib)The restrictions on rent and income levels will terminate or the federal insured mortgage on the property is eligible for prepayment any time within five years before or after the date of application to the California Tax Credit Allocation Committee.
(ic)The entity acquiring the property enters into a regulatory agreement that requires the property to be operated in accordance with the requirements of this section for a period equal to the greater of 55 years or the life of the property.
(id)The property satisfies the requirements of Section 42(e) of the Internal Revenue Code, regarding rehabilitation expenditures except that the provisions of Section 42(e)(3)(A)(ii)(I) shall not apply.
(iv)Projects for which a public agency provides direct or indirect long-term financial support for at least 15 percent of the total project development costs or projects for which the owners equity constitutes at least 30 percent of the total project development costs.
(v)Projects that provide tenant amenities not generally available to residents of low-income housing projects.
(4)For purposes of allocating credits pursuant to this section, the committee shall not give preference to any project by virtue of the date of submission of its application except to break a tie when two or more of the projects have an equal rating.
(5)Not less than 20 percent of the low-income housing tax credits available annually under this section, Section 12206, and Section 17058 shall be set aside for allocation to rural areas as defined in Section 50199.21 of the Health and Safety Code. Any amount of credit set aside for rural areas remaining on or after October 31 of any calendar year shall be available for allocation to any eligible project. No amount of credit set aside for rural areas shall be considered available for any eligible project so long as there are eligible rural applications pending on October 31.
(k)Section 42(l) of the Internal Revenue Code shall be modified as follows:
The term secretary shall be replaced by the term California Franchise Tax Board.
(l)In the case in which where the state credit allowed under this section exceeds the tax, the excess may be carried over to reduce the tax in the following year, and succeeding taxable years if necessary, until the credit has been exhausted.
(m)A project that received an allocation of a 1989 federal housing credit dollar amount shall be eligible to receive an allocation of a 1990 state housing credit dollar amount, subject to all of the following conditions:
(1)The project was not placed in service prior to 1990.
(2)To the extent the amendments made to this section by the Statutes of 1990 conflict with any provisions existing in this section prior to those amendments, the prior provisions of law shall prevail.
(3)Notwithstanding paragraph (2), a project applying for an allocation under this subdivision shall be subject to the requirements of paragraph (3) of subdivision (j).
(n)The credit period with respect to an allocation of credit in 1989 by the California Tax Credit Allocation Committee of which any amount is attributable to unallocated credit from 1987 or 1988 shall not begin until after December 31, 1989.
(o)The provisions of Section 11407(a) of Public Law 101-508, relating to the effective date of the extension of the low-income housing credit, shall apply to calendar years after 1989.
(p)The provisions of Section 11407(c) of Public Law 101-508, relating to election to accelerate credit, do shall not apply.
(q)(1)A corporation may elect to assign any portion of any credit allowed under this section to one or more affiliated corporations for each taxable year in which the credit is allowed. For purposes of this subdivision, affiliated corporation has the meaning provided in subdivision (b) of Section 25110, as that section was amended by Chapter 881 of the Statutes of 1993, as of the last day of the taxable year in which the credit is allowed, except that 100 percent is substituted for more than 50 percent wherever it appears in the section, as that section was amended by Chapter 881 of the Statutes of 1993, and voting common stock is substituted for voting stock wherever it appears in the section, as that section was amended by Chapter 881 of the Statutes of 1993.
(2)The election provided in paragraph (1):
(A)May be based on any method selected by the corporation that originally receives the credit.
(B)Shall be irrevocable for the taxable year the credit is allowed, once made.
(C)May be changed for any subsequent taxable year if the election to make the assignment is expressly shown on each of the returns of the affiliated corporations that assign and receive the credits.
(r)Any unused credit may continue to be carried forward, as provided in subdivision (l), until the credit has been exhausted.
(s) This section shall remain in effect on and after December 1, 1990, for as long as Section 42 of the Internal Revenue Code, relating to low-income housing credits, credit, remains in effect.
(s)
(t)The amendments to this section made by Chapter 1222 of the act adding this subdivision Statutes of 1993 shall apply only to taxable years beginning on or after January 1, 1994, except that paragraph (1) of subdivision (q), as amended, shall apply to taxable years beginning on or after January 1, 1993.
SEC. 4.This act provides for a tax levy within the meaning of Article IV of the Constitution and shall go into immediate effect.
|
Date
|
Status
|
|---|---|
| May 27, 2016 | Joint Rule 62(a), file notice suspended. |
| Aug 11, 2016 | In committee: Held under submission. |
| Aug 1, 2016 | In committee: Referred to APPR. suspense file. |
| Jun 29, 2016 | From committee: Do pass and re-refer to Com. on APPR. (Ayes 10. Noes 0.) (June 28). Re-referred to Com. on APPR. |
| Jun 22, 2016 | From committee: Do pass and re-refer to Com. on T. & H. (Ayes 5. Noes 0.) (June 22). Re-referred to Com. on T. & H. |
| Jun 9, 2016 | Referred to Coms. on GOV. & F. and T. & H. |
| Jun 2, 2016 | In Senate. Read first time. To Com. on RLS. for assignment. |
| Jun 1, 2016 | Read third time. Passed. Ordered to the Senate. (Ayes 79. Noes 0.) |
| Jun 1, 2016 | Read third time. Passed. Ordered to the Senate. (Ayes 79. Noes 0. Page 5109.) |
| Jun 1, 2016 | Read third time. Passed. Ordered to the Senate. |
| May 31, 2016 | Read second time. Ordered to third reading. |
| May 27, 2016 | Read second time and amended. Ordered returned to second reading. |
| May 27, 2016 | Joint Rule 62(a), file notice suspended. (Page 4943.) |
| Feb 19, 2016 | Introduced. To print. |
| May 27, 2016 | From committee: Amend, and do pass as amended. (Ayes 19. Noes 0.) (May 27). |
| May 25, 2016 | In committee: Set, first hearing. Referred to APPR. suspense file. |
| May 17, 2016 | Re-referred to Com. on APPR. |
| May 16, 2016 | Read second time and amended. |
| May 12, 2016 | From committee: Amend, and do pass as amended and re-refer to Com. on APPR. (Ayes 9. Noes 0.) (May 9). |
| May 9, 2016 | In committee: Set, first hearing. Referred to REV. & TAX. suspense file. |
| Mar 30, 2016 | From committee: Do pass and re-refer to Com. on REV. & TAX. (Ayes 7. Noes 0.) (March 30). Re-referred to Com. on REV. & TAX. |
| Mar 28, 2016 | Re-referred to Com. on H. & C.D. |
| Mar 17, 2016 | From committee chair, with author's amendments: Amend, and re-refer to Com. on H. & C.D. Read second time and amended. |
| Mar 14, 2016 | Referred to Coms. on H. & C.D. and REV. & TAX. |
| Feb 22, 2016 | Read first time. |
| Feb 21, 2016 | From printer. May be heard in committee March 22. |
|
Date
|
Description
|
Location
|
Votes
|
|
|---|---|---|---|---|
| Aug 1, 2016 | Placed on suspense file | Senate Standing Committee on Appropriations |
Passed |
|
| Jun 28, 2016 | Do pass, but first be re-referred to the Committee on [Appropriations] | Senate Standing Committee on Transportation and Housing |
Passed |
|
| Jun 22, 2016 | Do pass, but first be re-referred to the Committee on [Transportation and Housing] | Senate Standing Committee on Governance and Finance |
Passed |
|
| Jun 1, 2016 | AB 2817 CHIU Assembly Third Reading | Assembly Floor |
Passed |
|
| May 27, 2016 | Do pass as amended. | Assembly Standing Committee on Appropriations |
Passed |
|
| May 9, 2016 | Do pass as amended and be re-referred to the Committee on [Appropriations] | Assembly Standing Committee on Revenue and Taxation |
Passed |
|
| Mar 30, 2016 | Do pass and be re-referred to the Committee on [Revenue and Taxation] | Assembly Standing Committee on Housing and Community Development |
Passed |
This list shows positions taken on this bill by organizations on the date displayed, which is linked to the original source.
Positions by individuals are not included.
|
Organization
|
Position
|
Date
|
|---|---|---|
| Apartment Association Of Orange County | ** Support | Jun 28, 2016 |
| Apartment Association, California Southern Cities | ** Support | Jun 28, 2016 |
| Burbank Housing Development Corporation | ** Support | Jun 28, 2016 |
| Burbank, City of | ** Support | May 9, 2016 |
| California Apartment Association | ** Support | Jun 28, 2016 |
| California Association Of Local Housing Finance Agencies | * Support | Mar 30, 2016 |
| California Building Industry Association | ** Support | Jun 28, 2016 |
| California Chamber Of Commerce | ** Support | Jun 28, 2016 |
| California Coalition For Rural Housing | ** Support | Jun 28, 2016 |
| California Credit Union League | ** Support | Jun 28, 2016 |
| California Housing Consortium | ** Support | Jun 28, 2016 |
| California Housing Partnership Corporation | ** Support | Jun 28, 2016 |
| California Rural Legal Assistance Foundation, Inc. | * Support | Jun 28, 2016 |
| California State Association Of Counties | ** Support | Jun 28, 2016 |
| Cities Association of Santa Clara County | ** Support | May 9, 2016 |
| City of Dublin | ** Support | Jun 28, 2016 |
| City Of Livermore | ** Support | Jun 28, 2016 |
| City Of San Mateo | ** Support | Jun 28, 2016 |
| City of Santa Rose | ** Support | Jun 28, 2016 |
| Corporation for Support of Housing | * Support | Jun 28, 2016 |
| Disability Rights California | ** Support | Jun 28, 2016 |
| East Bay Development Disabilities Legislative Coalition | ** Support | May 9, 2016 |
| East Bay Developmental Disabilities Legislative Coalition | ** Support | Jun 28, 2016 |
| East Bay Rental Housing Association | ** Support | Jun 28, 2016 |
| Glendale, City Of | ** Support | Jun 28, 2016 |
| Housing California | * Support | Jun 28, 2016 |
| League Of California Cities | ** Support | Jun 28, 2016 |
| Marin County Board of Supervisors | ** Support | Jun 28, 2016 |
| Non-Profit Housing Association of Northern California | ** Support | Jun 28, 2016 |
| North Valley Property Owners Association | ** Support | Jun 28, 2016 |
| Page V | ** Support | May 9, 2016 |
| Page W | ** Support | May 9, 2016 |
| Peoples' Self Help Housing Corporation | ** Support | May 9, 2016 |
| Santa Clara County Board of Supervisors | ** Support | Jun 28, 2016 |
| Santa Rosa, City Of | ** Support | May 9, 2016 |
| The Arc and United Cerebral Palsy California Collaboration | ** Support | Jun 28, 2016 |
| Thousand Oaks, City Of | ** Support | Jun 28, 2016 |
| Western Center On Law And Poverty Inc. | * Support | Jun 28, 2016 |
SENATE COMMITTEE ON APPROPRIATIONS
Senator Ricardo Lara, Chair
2015 - 2016 Regular Session
AB 2817 (Chiu) - Taxes: credits: low-income housing: allocation increase
Version: May 27, 2016 | Policy Vote: GOV. & F. 5 - 0, T. & H. 10 - 0 |
Urgency: No | Mandate: No |
Hearing Date: August 1, 2016 | Consultant: Robert Ingenito |
This bill meets the criteria for referral to the Suspense File.
Bill Summary:
AB 2817 would (1) increase annual authorization amounts for low-income housing tax credits, and (2) increase the value of the credits for specified projects.
Fiscal Impact:
- The Franchise Tax Board (FTB) indicates that this bill would result in a General Fund revenue loss of $17 million in 2018-19, $50 million in 2019-20, and $90 million in 2020-21.
- The California Tax Credit Allocation Committee (CTCAC) would incur first-year costs of $261,000 and ongoing costs of $123,000 (special funds) to administer its components of the bill.
Background:
Current state law allows tax credits for investors who provide project capital to low-income rental housing projects. Taxpayers claim Low-Income Housing Tax Credits (LIHTCs) approximately equal to a specified percentage of the project’s basis over four years, and start claiming the credit in the taxable year in which the project is placed in service. Projects must remain affordable to residents for 55 years.
State LIHTCs are calculated in partial conformity with their federal counterparts, although the credit rates and durations differ: state tax credits equal 30 percent of the qualified basis of a project over four years (9 percent credits) for project not federally subsidized, and 13 percent of the qualified basis over the same period (4 percent credits) for federally subsidized ones, instead of either 70 percent or 30 percent, respectively, over 10 years for federal LIHTCs. Tax-exempt bonds are generally the source of any qualifying federal subsidy. Additionally, acquisition costs cannot be used to generate state LIHTCs, except for previously subsidized projects that qualify as "at-risk" of being converted to market rate.
CTCAC allocates state and federal LIHTCs. CTCAC awards federal credits for non-subsidized projects based on a formula in federal law, and totaled $91 million for 89 projects in 2015, while federal law does not cap CTCAC allocation for subsidized projects. In 2015, the total state LIHTC amount CTCAC could allocate under state law was almost $89.5 million, which when added to unused or returned credit allocations from previous years, totaled $111 million that funded 39 projects. Housing developers design projects, and apply to CTCAC for credits. CTCAC then reviews the application, and either denies it or grants credits. The housing developer then forms partnership agreements with taxpayers that provide project capital for the low-income housing project in exchange for the credits at a discount.
CTCAC may allocate federal tax credits to any area of the State, but must conduct a feasibility analysis to ensure that the amount of credits granted doesn’t exceed the amount of capital required to build the project. To calculate the amount of credit a project may receive, CTCAC first determines the total project cost. Next, it determines the "eligible basis" by subtracting from total project cost any non-depreciable costs, such as land, permanent financing costs, rent reserves, and marketing costs. Next, CTCAC reduces this eligible basis by the applicable percentage, equal to the percentage 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 that includes $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 percent to determine the annual amount of the credit of $180,000, for a ten-year value of $1.8 million.
Combined state and federal LIHTCs are generally equal to 100 perent of a project’s eligible basis. However, CTCAC can replace federal LIHTC with state LIHTC of up to 30 perent of a project's eligible basis if it equivalently reduces federal LIHTC, thereby increasing the number of projects in can approve by “backing out” limited federal credits. Additionally, while CTCAC can allocate federal LIHTCs to any area of the state, it can grant federal LIHTCs up to an additional 30 percent for a total of 100 percent of eligible basis, known as a "basis boost,” for projects in a “Difficult to Develop Area” (DDA) or a Qualified Census Tract (QCT). The United States Department of Housing and Urban Development (HUD) designates DDAs on an annual basis based on high construction, land, and utility costs relative to area median gross income. HUD designates QCTs as census tracts in which either 50 percent or more of the households have an income that is less than 60 percent of the area median gross income or that has a poverty rate of at least 25%. Prior to 2014, CTCAC could not award state tax credits for projects located in DDAs and QCTs because CTCAC could draw down more federal tax credits through the basis boost, thereby providing a sufficient advantage without allocating limited state credits. However, the Legislature authorized CTCAC to award state LIHTCs to projects in DDAs or QCTs if at least 50 percent of the units to special needs households because projects that serve special needs populations generally need greater subsidies to offer affordable rents (AB 952, Atkins, 2013).
Proposed Law:
This bill would enact several changes to the state LIHTC to establish a new category for LIHTC projects, modify credit percentages, and additionally authorize CTCAC to allocate $300 million in additional credits. The bill would modify state allocations of LIHTCs awarded to federally-subsidized low-income housing projects receiving federal LIHTC for federally subsidized projects as follows:
- Increase state LIHTC to 50 percent of the qualified basis over four years for a new building not located in a DDA or QCT, and keeps unchanged current percentages for existing buildings not located in DDAs or QCTs.
- Increase the state LIHTC to the same amount for new or existing low-income housing building that is located in a DDA or QCT, provided that the federal LIHTC is replaced with state LIHTC.
The bill also would increase LIHTC percentages to a cumulative 95 percent of the qualified basis over four years for rehabilitating qualified low-income buildings at least 15 years old if it meets all of the following requirements:
- The project serves households of very-low and extremely-low income such that its average maximum household income is not more than 45 percent of the area median gross income,
- The project is subject to a regulatory agreement restricting the average maximum household income to the above standard for 55 years,
- The project would have insufficient credits under current categories to complete substantial rehabilitation, and
- CTCAC finds that the credit allocation results in the completion of the project.
The measure authorizes CTCAC to allocate up to $300 million in credits in the 2017 calendar year, and each year thereafter, plus an inflation adjustment. CTCAC can allocate credits to developers eligible for the non-federally subsidized credit from the current authorization, but developers of these projects are ineligible for allocations from the new $300 million. The bill also allocates an additional $25 million per calendar year for farmworker housing projects. The measure makes a conforming change to delete provisions allowing CTCAC to allocate state credits when the project contains at least 50 percent of its occupants are special needs households.
Related Legislation:
AB 35 (Chiu) was similar to this bill, and was vetoed by the Governor.
Staff Comments:
Using LIHC allocation data from CACTC, FTB assumed that the maximum credit allocation threshold would be reached each year ($300 million), with an adjustment based on the assumption that five percent, or $15 million, of the allocation would ultimately be returned to CACTC due to unforeseen project issues. Other key FTB assumptions include that 25 percent of the credit would be carried forward to future years. Because allocated credits cannot be used until after the building has been put into service, FTB assumes that
CACTC would require roughly two positions in the first year and one position annually thereafter to administer the billIf position authority were granted, these costs would be covered by existing fees. AB 2817 would require program changes during the first year to implement the bill and update application documents; this workload would be absorbable.
The increase in projects awarded will also result in increased CTCAC Compliance Section staff monitoring requirements in the future. CACTC estimates that the bill would increase the number of new projects and units monitored by Compliance staff by approximately 15 to 20 percent by 2019. The resulting workload would require additional staff in CACTC’s Compliance Section, but these costs would be covered by monitoring fees.
-- END --
SENATE COMMITTEE ON TRANSPORTATION AND HOUSING
Senator Jim Beall, Chair
2015 - 2016 Regular
Bill No: AB 2817 Hearing Date: 6/28/2016
Author: | Chiu | ||
Version: | 5/27/2016 | ||
Urgency: | No | Fiscal: | Yes |
Consultant: | Alison Dinmore | ||
SUBJECT: Taxes: credits: low-income housing: allocation increase
DIGEST: This bill increases the amount of state tax credits the California Tax Credit Allocation Committee (TCAC) can allocate for low-income housing to $300 million, increases the allocation for the farmworker housing tax credit to $25 million, and makes other changes to the state low-income housing tax credit (LIHTC) program.
ANALYSIS:
Existing law:
- Provides that a low-income housing development that is a new building and is receiving 9% federal LIHTCs is eligible to receive state LIHTC over four years of 30% of the eligible basis of the building.
2) Provides that a low-income housing development that is a new building that is receiving federal LIHTC and is “at risk of conversion” to market rate is eligible to receive state LIHTC over four years of 13% of the eligible basis of the building.
- Allows TCAC to award state LIHTCs to developments in a qualified census tract (QCT) or a difficult to designated difficult development area (DDA) if the project is also receiving federal LIHTC, under the following conditions:
- Developments restrict at least 50% of the units to special-needs households
- The state credits do not exceed 130% of the eligible basis of the building
4) 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.
5) Defines a QCT as any census tract designated by the U.S. Department of Housing and Urban Development (HUD) in which 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%.
6) 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.
This bill:
1) Modifies the allocation of state LIHTC that may be awarded to a federally subsidized low-income housing project receiving federal 4% LIHTC so that:
- A new, qualified low-income housing building is eligible for a cumulative state LIHTC over four years of 50% of the eligible basis of the building, provided that the building is not located in a DDA or a QCT.
- An existing qualified low-income housing building that is not located in a DDA or a QCT is eligible for a cumulative state LIHTC over four years of 13% of the eligible basis of the building.
- A new or existing low-income housing building that is located in a DDA or QCT may be awarded a cumulative state LIHTC in an amount not to exceed 50% of the eligible basis of the building, provided that the federal LIHTC is replaced with state LIHTC, as specified.
- A qualified existing, low-income building that is at least 15 years old is eligible for a cumulative state LIHTC of 95% of the eligible basis over four years if it meets all of the following requirements:
- The project serves households of very low and extremely low income such that its average maximum household income is not more than 45% of the area median gross income
- The project is subject to a regulatory agreement restricting the average maximum household income to the above standard for 55 years
- The project would have insufficient credits under current categories to complete substantial rehabilitation
- The credit allocation results in the completion of the project
- Authorizes TCAC to allocate up to $300 million in credits, beginning in 2017, and each year thereafter, for projects only eligible for the 4% credit. Authorizes TCAC to allocate credits to developers eligible for the 9% credit from the current $75 million authorization, but developers of these projects are ineligible for allocations from the new $300 million.
3) Authorizes TCAC, beginning in 2017, to increase the amount of LIHTCs set aside for farmworker housing from $500,000 to $25 million.
4) Imports current definitions for “low-income” and “extremely low-income” and makes other conforming changes.
5) Takes effect immediately as a tax levy.
COMMENTS:
1) Purpose. 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% while the median income has dropped by 8%. The private housing market is simply not meeting the demand for low- to moderate-income homes. 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% — 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% of applicants were awarded credits —leaving many qualified projects without a secure source of funding or any incentive to build additional affordable housing units. This bill would increase the state’s LIHTC by $300 million and leverage an additional $600 million in federal funds for affordable housing.
2) Background of the federal 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. 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.
Two types of federal tax credits are available: the 9% and 4% credits. These terms refer to the approximate percentage of a project’s “eligible basis” a taxpayer may deduct from his/her annual federal tax liability in each of 10 years. “Eligible basis” means the cost of development excluding land, transaction costs, and costs incurred for work outside the property boundary. 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 tax rates fluctuate every month, based on the determination made by the Internal Revenue Service on a monthly basis. Generally, the 9% tax credit amounts to 70% of a taxpayer’s eligible basis and the 4% tax credit amounts to 30% of a taxpayer’s eligible basis, spread over a 10-year period.
Each year, the federal government allocates funding to the states for LIHTCs on the basis of a per-resident formula. In California, TCAC is the entity that reviews proposals submitted by developers and selects projects based on a variety of prescribed criteria. Only rental housing buildings, which are either undergoing rehabilitation or newly constructed, are eligible for the LIHTC programs. In addition, the qualified low-income housing projects must comply with both rent and income restrictions.
Each state receives an annual ceiling of 9% federal tax credits, and in California they are oversubscribed by a 2:1 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 was set at $5.61 billion.
The value of the 4% tax credits is 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. This is because, unlike in prior years, there is little supplemental funding from housing bonds or local funding sources to fill the remaining financing gap. 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.
3) Background of the state LIHTC program. 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. The amount of state LIHTC that may be annually allocated by TCAC is limited to $70 million, adjusted for inflation. In 2014, the total credit amount available for allocation was $103 million plus any unused or returned credit allocations from previous years. Current state tax law generally conforms to federal law with respect to the LIHTC, except that it is limited to projects located in California.
While the state LIHTC program is patterned after the federal LIHTC program, there are several differences. First, investors may claim the state LIHTC over four years rather than the 10-year federal allocation period. Second, the rates used to determine the total amount of the state tax credit (representing all four years of allocation) are 30% of the eligible basis of a project that is not federally subsidized and 13% of the eligible basis of a project that is federally subsidized, in contrast to 70% and 30% (representing all 10 years of allocation on a present-value basis), respectively, for purposes of the federal LIHTCs. Furthermore, state tax credits are not available for acquisition costs, except for previously subsidized projects that qualify as “at-risk” of being converted to market rate.
Combining federal 9% credits (which amounts to roughly 70%) with state credits (which amounts to 30%) generally equals 100% of a project’s eligible basis. Combining federal 4% credits (which amounts to roughly 30%) with state credits (which amounts to 13%) only results in 43% of a project’s eligible basis.
4) Background of state credits in DDAs and QCTs. Federal law also allows credits equal to 130% of eligible basis if the project is located in a QCT or a DDA, a so-called “basis boost” of 30%. QCTs are designated by the Secretary of 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 have a poverty rate of 25%. The Secretary of HUD also draws DDAs using a ratio of construction, land, and utility costs to area median gross income.
State law prohibits TCAC from allocating state credits in QCTs or DDAs unless TCAC swaps out federal credits willing to forgo the “basis boost,” so that the combined credit amount doesn’t exceed 130% of basis. The rationale for this prohibition is that projects in these areas can qualify for more federal tax credits through a basis boost and therefore are already advantaged.
State law was recently amended to authorize TCAC, in limited cases, to award state LIHTCs for use in DDAs or QCTs, in addition to the federal credits. To qualify, a development must restrict at least 50% of the units to special-needs households. The change allows these projects to receive state credits of 30% of basis in addition to federal ones generated on 130% of basis.
5) Increasing amount of state credits. This bill would increase the state LIHTC allocation by $300 million per year, in addition to the existing $70 million cap, as adjusted for inflation. The increase in the amount of state LIHTC would allow the state to leverage an additional $200 million in federal 4% LIHTC and at least $400 million in federal tax-exempt bond authority annually. The increase would help fill the gap in funding that was created by the loss of redevelopment and the exhaustion of state voter-approved bonds. Additionally, this bill increases the set-aside for farmworker housing from $500,000 to $25 million.
6) Filling the gap. This bill also increases the amount of state tax credits awarded to each qualified low-income housing project from 13% to 50% of the eligible basis, provided the project is also receiving a 4% federal tax credit. Developers that receive federal 9% credits can combine them with a sufficient subsidy to construct a low-income housing project, but TCAC can only allocate those credits up to a federal cap. While the 4% credits are not subject to a cap, they do not have the same value because developers cannot generate sufficient capital to cover the cost of the project. This bill would address this issue by increasing the value of the state credits to secure more interest than the 4%. This increase would apply to new construction and rehabilitation costs of the project and would more than triple the amount of equity that an investor in the project would receive, which would bring the return on 4% credits in line with 9% credits and would likely result in greater affordability for the project. The costs of acquiring an existing low-income building would also be eligible for the state LIHTC allocated from the new additional funding of $300 million, but the applicable percentage used to calculate the amount of that credit would be limited to 13% of the project’s eligible basis.
7) An extra boost. Federal law gives projects an extra 30% boost on eligible basis if the project is located in a DDA or QCT. These areas have a higher poverty level and a higher concentration of extremely low-income individuals and families, so deep subsidy is required to make housing affordable. State law does not allow state credits to be awarded in DDAs or QCTs, except for housing developments where 50% of the units are for special-needs populations. The rationale for the prohibition is that projects in these areas can qualify for more federal tax credits and are already advantaged. The bill allows TCAC to allocate state credits for new or existing buildings in QCTs and DDAs up to 50% of basis of a project receiving a 4% credit, but must replace federal credits with state ones when doing so. In other words, the state would provide the percentage necessary so that the aggregate of the state credits and the federal boost equal 50% of basis. The main purpose of this change is to provide enough state tax credits to match the value of a 9% federal tax credit. As with the other provisions of the bill, this only changes the state tax credit for projects receiving 4% credits and does not affect projects receiving 9% tax credits.
8) Rehabilitating existing housing stock. Many low-income housing developments in the state are older and need significant rehabilitation. These projects, therefore, require more investment due to their age and level of repairs, combined with low rents. This bill will significantly increase an amount of state LIHTC — 95% of the eligible basis — that may be awarded to a qualified low-income housing building that houses very low-income or extremely low-income tenants and meets all specified requirements, including the building’s location, age, and value.
9) Costs and effects. The increase in state LIHTCs is a tax credit, which means this is a tax liability that would have otherwise gone to the General Fund from corporations, which instead choose to invest in LIHTCs. While it’s possible that this bill could take $300 million from the general fund, the idea is that investors would likely be seeking tax credits elsewhere and might, with the enactment of this bill, now build affordable housing. As previously noted, the increase in the amount of state LIHTC would allow the state to leverage an additional $200 million in federal 4% LIHTC and at least $400 million in federal tax-exempt bond authority annually.
Further, there are economic impacts from the construction, job creation, and local tax benefits of building multifamily homes. According to the National Association of Home Builders, the estimated one-year impacts of building 100 rental apartments in a typical local area include $11.7 million in local income, $2.2 million in taxes and other revenue for local governments, and 161 local jobs (1.61 jobs per apartment). The additional, annually recurring impacts of building 100 rental apartments in a typical local area include $2.6 million in local income, $503,000 in taxes and other revenue for local governments, and 44 local jobs (.44 jobs per apartment).
10) Double-referred. This bill was heard in the Senate Governance and Finance Committee on June 22, and approved 5-0.
Assembly Votes:
Floor: 79-0
Appr: 19-0
Rev&Tax: 9-0
H&CD: 7-0
Related Legislation:
AB 873 (Beall, 2016) — allows a taxpayer who receives an allocation of state LIHTC from TCAC to sell all or any portion of the credit to one or more unrelated parties for each taxable year in which the credit is allowed for not less than 80% of the amount of the credit. This bill is pending in the Assembly.
AB 35 (Chiu, 2015) — would have modified the existing LIHTC program and increase the aggregate credit amount that may be annually allocated to low-income housing projects by $100 million for calendar years 2016 through 2021, inclusive, as provided. This bill was vetoed by the Governor.
AB 377 (Beall, 2015) — would have allowed a taxpayer who receives an allocation of state LIHTC from TCAC to sell all or any portion of the credit to one or more unrelated parties for each taxable year in which the credit is allowed for not less than 80% of the amount of the credit. This bill was vetoed by the Governor.
FISCAL EFFECT: Appropriation: Fiscal Com.: Local:
POSITIONS: (Communicated to the committee before noon on Wednesday,
June 22, 2016.)
SUPPORT:
Non-Profit Housing Association of Northern California (sponsor)
Apartment Association, California Southern Cities
Apartment Association of Orange County
Burbank Housing Development Corporation
California Coalition for Rural Housing
California Housing Consortium
California Housing Partnership Corporation
California Rural Legal Assistance Foundation
California State Association of Counties
City of Dublin
City of Glendale
City of Lakewood
City of Livermore
City of Rancho Cucamonga
City of San Luis Obispo
City of San Mateo
City of Santa Rose
City of Thousand Oaks
California Apartment Association
California Building Industry Association
California Chamber of Commerce
California Credit Union League
California Housing Consortium
Disability Rights California
East Bay Developmental Disabilities Legislative Coalition
East Bay Rental Housing Association
Housing California
League of California Cities
Marin County Board of Supervisors
North Valley Property Owners Association
Peoples’ Self-Help Housing
Santa Clara County Board of Supervisors
The Arc and United Cerebral Palsy California Collaboration
Western Center on Law and Poverty
OPPOSITION:
None received
-- END --
SENATE COMMITTEE ON GOVERNANCE AND FINANCE
Senator Robert M. Hertzberg, Chair
2015 - 2016 Regular
Bill No: | AB 2817 | Hearing Date: | 6/22/16 |
Author: | Chiu | Tax Levy: | Yes |
Version: | 5/27/16 | Fiscal: | Yes |
Consultant: | Grinnell | ||
Taxes: credits: low-income housing: allocation increase
Increases annual authorization amounts for low-income housing tax credits, and increases the value of the credits for specified projects.
Background
Current state law allows credits against the Personal Income Tax, Corporation Tax, and Gross Premiums Tax for investors who provide project capital to low-income rental housing projects. Taxpayers claim Low-Income Housing Tax Credits (LIHTCs) approximately equal to a specified percentage of the project’s basis over four years, and start claiming the credit in the taxable year in which the project is placed in service. Projects must remain affordable to residents for 55 years.
State LIHTCs are calculated in partial conformity with federal LIHTCs, although the credit rates and durations differ: state tax credits equal 30% of the qualified basis of a project over four years (9% credits) for project not federally subsidized, and 13% of the qualified basis over the same period (4% credits) for federally subsidized ones, instead of either 70% or 30%, respectively, over 10 years for federal LIHTCs. Tax-exempt bonds are generally the source of any qualifying federal subsidy. Additionally, acquisition costs cannot be used to generate state LIHTCs, except for previously subsidized projects that qualify as "at-risk" of being converted to market rate.
The California Tax Credit Allocation Committee (CTCAC), comprised of the State Treasurer, the State Controller, the Director of Finance, and three non-voting members, allocates state and federal LIHTCs. CTCAC awards federal credits for non-subsidized projects based on a formula in federal law, and totaled $91 million for 89 projects in 2015, while federal law does not cap CTCAC allocation for subsidized projects. In 2015, the total state LIHTC amount CTCAC could allocate under state law was almost $89.5 million, which when added to unused or returned credit allocations from previous years, totaled $111 million that funded 39 projects. Housing developers design projects, and apply to CTCAC for credits. CTCAC then reviews the application, and either denies it or grants credits. The housing developer then forms partnership agreements with taxpayers that provide project capital for the low-income housing project in exchange for the credits at a discount.
CTCAC may allocate federal tax credits to any area of the state, but must conduct a feasibility analysis to ensure that the amount of credits granted doesn’t exceed the amount of capital needed to build the project. To calculate the amount of credit a project may receive, CTCAC first determines the total project cost. Next, it determines the "eligible basis" by subtracting from total project cost any non-depreciable costs, such as land, permanent financing costs, rent reserves, and marketing costs. Next, CTCAC reduces this eligible basis by the applicable percentage, equal to the percentage 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 that includes $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.
Combined state and federal LIHTCs are generally equal to 100% of a project’s eligible basis. However, CTCAC can replace federal LIHTC with state LIHTC of up to 30% of a project's eligible basis if it equivalently reduces federal LIHTC, thereby increasing the number of projects in can approve by “backing out” limited federal credits. Additionally, while CTCAC can allocate federal LIHTCs to any area of the state, it can grant federal LIHTCs up to an additional 30% for a total of 100% of eligible basis, known as a "basis boost,” for projects in a “Difficult to Develop Area” (DDA) or a Qualified Census Tract (QCT). The United States Department of Housing and Urban Development (HUD) designates DDAs on an annual basis based on high construction, land, and utility costs relative to area median gross income. HUD designates QCTs as census tracts 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%. Prior to 2014, CTCAC could not award state tax credits for projects located in DDAs and QCTs because CTCAC could draw down more federal tax credits through the basis boost, thereby providing a sufficient advantage without allocating limited state credits. However, the Legislature authorized CTCAC to award state LIHTCs to projects in DDAs or QCTs if at least 50% of the units to special needs households because projects that serve special needs populations generally need greater subsidies to offer affordable rents (AB 952, Atkins, 2013).
In many areas of the state, housing rents exceed the ability of individuals and families to pay given current wages. Seeking to draw more investment into low-income housing, affordable housing groups want to increase allocations of state LIHTCs for federal subsidized projects, and increase credit percentages for specified low-income housing projects.
Proposed Law
Assembly Bill 2817 makes several changes to the state LIHTC to establish a new category for LIHTC projects, modify credit percentages, and additionally authorize CTCAC to allocate $300 million in additional credits. The bill modifies state allocations of LIHTCs awarded to federally-subsidized low-income housing projects receiving federal LIHTC for federally subsidized projects as follows:
- Increases state LIHTC to 50% of the qualified basis over four years for a new building not located in a DDA or QCT, and keeps unchanged current percentages for existing buildings not located in DDAs or QCTs.
- Increases the state LIHTC to the same amount for new or existing low-income housing building that is located in a DDA or QCT, provided that the federal LIHTC is replaced with state LIHTC.
AB 2817 also increases LIHTC percentages to a cumulative 95% of the qualified basis over four years for rehabilitating qualified low-income buildings at least 15 years old if it meets all of the following requirements:
- The project serves households of very-low and extremely-low income such that its average maximum household income is not more than 45% of the area median gross income,
- The project is subject to a regulatory agreement restricting the average maximum household income to the above standard for 55 years,
- The project would have insufficient credits under current categories to complete substantial rehabilitation, and
- CTCAC finds that the credit allocation results in the completion of the project.
The measure authorizes CTCAC to allocate up to $300 million in credits in the 2017 calendar year, and each year thereafter, plus an inflation adjustment. CTCAC can allocate credits to developers eligible for the non-federally subsidized credit from the current authorization, but developers of these projects are ineligible for allocations from the new $300 million. The bill also allocates an additional $25 million per calendar year for farmworker housing projects. The measure makes a conforming change to delete provisions allowing CTCAC to allocate state credits when the project contains at least 50 percent of its occupants are special needs households.
AB 2817 also imports current definitions in the Health and Safety Code for CTCAC to sue when determining “low-income” and “extremely low-income.” The measure applies it changes to LIHTC sections in the Gross Premiums Tax, Personal Income Tax, and Corporation Tax. The bill also makes conforming changes.
State Revenue Impact
According to the Franchise Tax Board (FTB), AB 2817 results in revenue losses of $40 million in 2016-17, $150 million in 2017-18, and $180 million in 2018-19.
Comments
1. Purpose of the bill. 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. 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. AB 2817 would increase our state’s LIHTC by $300 million and leverage an additional $600 million in federal funds for affordable housing.
2. Bigger and better. Federal law allows CTCAC to allocate 9% credit for projects that are not “federally subsidized,” but 4% for ones that are. Developers that obtain federal 9% credits and combine them with state credits generally have a sufficient subsidy to construct a low-income housing project; however, CTCAC can only allocated these credits up to a cap set by federal law. While the 4% credits aren’t subject to a similar cap, they often do not have the value necessary to generate sufficient project capital for a project to pencil out in a post-redevelopment world. AB 2817 seeks to fill this gap by increasing the value of state credits to hopefully secure more interest in 4% projects to generate sufficient subsidy amounts to construct projects. Another vital component is the federal subsidy, which isn’t a direct monetary subsidy, but instead the issuance of mortgage revenue bonds, where the subsidy is the federal and state income tax exclusion for interest payments. Local housing authorities apply to the California Debt Limit Allocation Committee (CDLAC) for an allocation of tax-exempt private activity bond ceiling. If approved, the local housing authority sells the bonds, loans the proceeds to housing developers, who combine these funds with capital raised from state and federal LIHTCs to construct the project, and then repay the bonds out of rents. Last year, CDLAC allocated $1.25 billion in ceiling for multifamily projects, an amount that should increase should AB 2817 is enacted.
3. A different kind of credit. The LIHTC induces investment in low-income housing by providing a tax shelter for investors for allocating capital to an asset class with a relatively poor rate of return. In return for providing the tax shelter, the state gets more low-income housing than it otherwise would have. Low-income housing projects face many barriers in California: high costs of land, labor, and capital; resistance from local residents and state and local laws and policies protecting the environment, among others. Because the credit is capped and allocated, CTCAC awards tax credits to projects on a competitive process based on an evaluation of the most effective use of the tax credits. This program is much different than other tax credits, where any individual or businesses can qualify for a credit by virtue of incurring specific costs such as research and development or hiring specific individuals. Currently, housing sponsors form partnership agreements with investors, who provide capital to fund the housing construction in exchange for the allocated tax credits. The tax credits exceed the value of the investment because demand for the tax credits does not meet supply. For example, a partnership agreement may allocate 100% of tax credits to an investor that provides 75% of the necessary project funding; the value of the discounted tax credits is sufficient for investors to participate. Investors claim the credit until exhausted, then walk away from the partnership, and deduct the amount paid to the partnership in exchange for the tax credits as a capital loss.
4. Who pays? In addition to LIHTC, the state’s response to its lack of affordable housing has been to fund projects through general obligation bonds, and until recently, authorizing redevelopment agencies to fund projects by securitizing future property tax growth within redevelopment project areas. Both responses are premised on the idea that the lack of affordable housing is a statewide responsibility that should be paid for by the general public in the form of general obligation debt service or foregone revenue from tax expenditures. However, local agencies may also use other measures, such as impact or in-lieu fees, and inclusionary zoning ordinances, which require developers of market rate housing to set aside units as part of a project that are affordable for to residents across the income spectrum. Despite legal challenges from the construction industry, the California Supreme Court recently unanimously upheld the City of San Jose’s inclusionary zoning ordinance which required developers of projects of 20 or more units to set aside 15% of units for individuals earning no more than 120% of the Santa Clara County area median income to purchase in California Building Industry Association v. City of San Jose (Case #S212072). Developers could also pay an in-lieu fee, construct off-site units, dedicate land, or acquire and rehabilitate other units. However, this case only spoke to housing for sale; state law does not yet clearly authorize inclusionary zoning for rental units.
5. Do it again/Budget. AB 2817 is almost identical to AB 35 (Chiu, 2015). However, Governor Brown vetoed the bill, stating:
“Despite strong revenue performance over the past few years, the states’ budget has remained precariously balanced due to unexpected costs and the provision of new services. Now, without the extension of the managed care organization tax that I called for in special session, the next year’s budget faces the prospect of over $1 billion in cuts. Given these financial uncertainties, I cannot support providing additional tax credits that will make balancing the state’s budget even more difficult. Tax credits, like new spending on programs, need to be considered comprehensively as part of the budget deliberations.”
In response to the Governor’s veto message, both Assemblymembers and Senators have proposed measures to modify and enhance the LIHTC program as part of the Budget. In his May Revision, the Governor proposed enhancing “by-right” approval for affordable housing under specified circumstances.
6. Related Legislation. At its June 22, 2016, hearing, the Committee will also hear AB 2140 (Hernandez), which makes changes to enhance the usage of LIHTCs reserved for farmworker housing projects. Earlier this year, the Committee approved SB 873 (Beall), which allows developers receiving LIHTC allocations from CTCAC to sell all or any portion of them to another taxpayer; the Governor vetoed an almost identical bill, SB 377 (Beall), last year using the same veto message as AB 35 listed above.
7. Coming and going. The Senate Rules Committee ordered a double referral for AB 2817 to the Committee on Housing and Transportation to consider its impacts on housing policy.
Assembly Actions
Assembly Housing and Community Development 7-0
Assembly Revenue and Taxation 9-0
Assembly Appropriations 19-0
Assembly Floor 79-0
Support and Opposition
(6/16/16)
Support: Alameda County Board of Supervisors; Burbank Housing Development Corporation; California Apartment Association; California Building Industry Association; California Chamber of Commerce; California Coalition for Rural Housing; California Coalition for Youth; California Credit Union League; California Housing Consortium; California Housing Partnership Corporation; California Political Consulting Group; California Rural Legal Assistance Foundation; California State Association of Counties; City of Burbank; City of Dublin; City of Glendale; City of Lakewood; City of Livermore; City of Rancho Cucamonga; City of San Luis Obispo; City of Sacramento; City of San Mateo; City of Santa Rosa; City of Thousand Oaks; Disability Rights California; East Bay Developmental Disabilities Legislative Coalition; Housing California; League of California Cities; Marin County Board of Supervisors; Non-Profit Housing Association of Northern California; Peoples’ Self-Help Housing Corporation; Santa Clara County Board of Supervisors; The Arc and United Cerebral Palsy California Collaboration; Western Center on Law and Poverty.
Opposition: Unknown.
-- END --
ASSEMBLY THIRD READING
ATR Bill Id:AB 2817
Author:(Chiu)
As Amended Ver:
Majority vote. Tax levy
Committee | Votes | Ayes | Noes |
Housing | 7-0 | Chiu, Steinorth, Burke, Chau, Beth Gaines, Lopez, Mullin | |
Revenue & Taxation | 9-0 | Ridley-Thomas, Brough, Dababneh, Gipson, Mullin, O'Donnell, Patterson, Quirk, Wagner | |
Appropriations | 19-0 | Gonzalez, Bigelow, Bloom, Bonilla, Bonta, Calderon, Chang, Daly, Eggman, Eduardo Garcia, Roger Hernández, Holden, Jones, Obernolte, Quirk, Santiago, Wagner, Weber, Wood |
|
SUMMARY: Makes changes to the state Low-Income Housing Tax Credit (LIHTC) Program. Specifically, this bill:
- Beginning in 2017, and each year thereafter, increases the allocation of state LIHTC by an additional $300 million and adjusts that amount for inflation beginning in 2018.
- Beginning in 2017, increases the amount of low-income housing tax credits set-aside for farmworker housing from $500,000 to $25 million.
- Provides that any low-income housing tax credits set-aside for farmworker housing developments that go unused of the $25 million will be available for qualified nonfarmworker housing projects.
- 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 2016.
- 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.
- 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.
- 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%.
- 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:
- It is at least 15 years old;
- It is a single room occupancy (SRO), special needs housing building, is in a rural area, or serves households with very-low income or extremely low-income residents;
- 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
- It would have insufficient state credits to qualify to complete substantial rehabilitation due to a low appraised value.
- Adds the following definitions:
- "Extremely low-income" has the same meaning as Health and Safety Code Section 50053.
- "Rural area" means a rural area as defined in Health and Safety Code Section 50199.21.
- "Special needs housing" has the same meaning as paragraph 4) of Subdivision g) of California Code of Regulations Title 4 Section 10325.
- "SRO" means single room occupancy.
- "Very low-income" has the same meaning as in Health and Safety Code Section 50053.
FISCAL EFFECT: According to the Assembly Appropriations Committee, annual General Fund cost pressures of $17 million, $50 million, and $90 million in Fiscal Year (FY) 2018-19, FY 2019-20, and FY 2020-21, respectively.
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.
Each state receives an annual ceiling of 9% federal tax 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 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. 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: 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% while the median income has dropped by 8%. 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% -- 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% of applicants were awarded credits – leaving many qualified projects without a secure source of funding or any incentive to build additional affordable housing units."
The proposal: This bill 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, this bill 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. This bill 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.
Farmworker Housing: Last year the author carried AB 35 (Chiu) of 2015, which was largely similar to this bill. This bill is different in that it includes a set-aside from the $300 million increase to the LIHTC program of $25 million for farmworker housing. There is currently a $500,000 set-aside of low-income housing tax credits for farmworker housing developments serving farmworkers and their families. This bill would require any unused credits from the $25 million set-aside to go to qualified nonfarmworker housing projects that don't receive funding under the main program.
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, this bill 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.
Related legislation: Last year, AB 35 (Chiu) would have made similar changes to this bill. That bill was vetoed; the Governor's veto message stated the following:
I am returning the following nine bills without my signature:
Assembly Bill 35
Assembly Bill 88
Assembly Bill 99
Assembly Bill 428
Assembly Bill 437
Assembly Bill 515
Assembly Bill 931
Senate Bill 251
Senate Bill 377
Each of these bills creates a new tax credit or expands an existing tax credit.
Despite strong revenue performance over the past few years, the state's budget has remained precariously balanced due to unexpected costs and the provision of new services. Now, without the extension of the managed care organization tax that I called for in special session, next year's budget faces the prospect of over $1 billion in cuts.
Given these financial uncertainties, I cannot support providing additional tax credits that will make balancing the state's budget even more difficult. Tax credits, like new spending on programs, need to be considered comprehensively as part of the budget deliberations
Analysis Prepared by: Lisa Engel / H. & C.D. / (916) 319-2085 FN: 0003250
Date of Hearing: May 25, 2016
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Lorena Gonzalez, Chair
ABPCA Bill Id:AB 2817
Author:(Chiu) – As Amended Ver:May 16, 2016
Policy Committee: | Housing and Community Development | Vote: | 7 - 0 |
Revenue and Taxation | 9 - 0 |
Urgency: No State Mandated Local Program: No Reimbursable: No
SUMMARY:
This bill expands the existing Low-Income Housing Tax Credit (LIHTC) program. Specifically, this bill:
- Increases the aggregate credit amount that may be allocated to low-income housing projects by $300 million for the 2017 calendar year, and by $300 million, adjusted for inflation, each year thereafter. These increases are subject to annual approval in a budget measure, and only projects that qualify for the 4% federal LIHTC will qualify for this additional allocation.
- Allows up to $25 million in tax credits per calendar year for qualified farmworker housing, from $500,000.
- Modifies the allocation of state LIHTC that may be awarded to a project that has received an award of 4% federal LIHTC based on whether a project is new construction or the acquisition of an existing low-income housing building, and whether a project is located in a “difficult to develop area.”
FISCAL EFFECT:
Annual GF cost pressures of $17 million, $50 million, and $90 million in FY 2018-19, FY 2019-20, and FY 2020-21, respectively.
COMMENTS:
- Purpose. According to the author, 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. This bill will address the state’s affordable housing shortfall by increasing the annual state tax credit allocation and help the state leverage additional federal dollars that would otherwise go unclaimed.
- 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. 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 with more than 50% with tax-exempt bonds), the applicable rate is 4%.
- 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.
Analysis Prepared by: Luke Reidenbach / APPR. / (916) 319-2081
Date of Hearing: May 9, 2016
ASSEMBLY COMMITTEE ON REVENUE AND TAXATION
Sebastian Ridley-Thomas, Chair
ABPCA Bill Id:AB 2817 (
Author:Chiu) – As Amended Ver:March 17, 2016
Majority vote. Fiscal committee. Tax levy.
SUBJECT: Taxes: credits: low-income housing: allocation increase
SUMMARY: Modifies the existing Low-Income Housing Tax Credit (LIHTC) program and increases the aggregate credit amount that may be annually allocated to low-income housing projects by $300 million for the 2017 calendar year and each calendar year thereafter. Specifically, this bill:
- Beginning in 2017 and each year thereafter, increases the amount of state LIHTC by an additional $300 million, as adjusted for inflation beginning in 2018.
- Increases the amount that may be allocated to farmworker housing projects, as specified, from $500,000 to $25 million per calendar year. The amount of any unallocated or returned credits, however, must be added to the aggregate amount of LIHT credits available to other non-farmworker qualified projects.
- Provides that a low-income housing building that has received an award of 9% federal LIHTC is not eligible for an allocation from the additional $300 million of state LIHTC, but shall remain eligible for the existing $70 million allocation, as annually adjusted.
- Modifies the allocation of state LIHTC that may be awarded to a federally subsidized low-income housing project receiving federal 4% LIHTC as follows:
- A new qualified low-income housing building is eligible for a cumulative state LIHTC over four years of 50% of the qualified basis of the building, provided that the building is not located in a Difficult to Develop Area (DDA) or a Qualified Census Tract (QCT).
- An existing qualified low-income housing building that is not located in a DDA or a QCT is eligible for a cumulative state LIHTC over four years of 13% of the qualified basis of the building.
- A new or existing low-income housing building that is located in a DDA or QCT may be awarded a cumulative state LIHTC in an amount not to exceed 50% of the qualified basis of the building, provided that the federal LIHTC is replaced with state LIHTC, as specified.
- A qualified low-income building is eligible for a cumulative state LIHTC of 95% of the qualified basis over four years if it meets all of the following requirement:
- It is at least 15 years old;
- It is serving households of very low-income or extremely low-income residents, provided that the average income at the time of admission is no more than 45% of the area median gross income adjusted for household size and a tax credit regulatory agreement is entered into a for a period of not less than 55 year, as specified;
- It would, otherwise, receive insufficient state credits due to the building's low appraised value, to complete substantial rehabilitation; and,
- It will complete the substantial rehabilitation in connection with the LIHTC allocation.
- Revises the definition of a "taxpayer" for purposes of the state LIHTC program to include members of a limited liability company.
- Revises the definition of a "housing sponsor" for purposes of the LIHTC program to include a limited liability company.
- Adds the following definitions:
- "Extremely low-income" has the same meaning as this phrase is defined in Health and Safety Code (H&SC) Section 50053; and,
- "Very low-income" has the same meaning as this phrase is defined in H&SC Section 50053.
- Makes technical, non-substantive changes to the provisions of the LITHC program.
- Takes effect immediately as a tax levy.
EXISTING LAW:
- Allows a state tax credit for costs related to construction, rehabilitation, or acquisition of low-income housing. This credit, which mirrors a federal LIHTC, 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.
- Requires the California Tax Credit Allocation Committee (TCAC) to allocate each year the California LIHTC based upon qualification of the applicant and proposed project. The California LIHTC is available only to projects that received an allocation of the federal LIHTC.
- Limits the annual aggregate amount of the state LIHTC to $70 million, as adjusted for an increase in the California consumer price index from 2002, plus any unused LIHTC for the preceding calendar year and any LIHTC returned in the calendar year. The California LIHTC awarded may be claimed as a credit against tax over a four-year period.
- Requires TCAC to certify the amount of tax credit amount 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 Franchise Tax Board (FTB).
- Allows any unused credit to be carried forward until the credit is exhausted.
- 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:
- The amount of state credit is computed on 100% of the qualified basis of the building; or,
- If the usage of at least 50% of the units in a low-income housing building is restricted to special needs households, the amount of an allowable state LIHTC may not exceed 30% of the eligible basis of the building.
- Allows TCAC to replace federal LIHTC with state LIHTC of up to 30% of a project's eligible basis of a building, if the federal LIHTC is reduced in an equivalent amount.
- Defines a "QTC" as any census tract designated by the federal 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%.
- 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.
- 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.
- Provides that a low-income housing development that is a new building 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.
- Defines "at risk of conversion" as a property that satisfies all of the following criteria:
- A multifamily rental housing development in which at least 50% of the units receive government assistance pursuant to any of the following:
- Project based Section 8 vouchers;
- Below-Market-Interest-Rate Program;
- Federal Rental Housing Assistance Program;
- Programs for rent supplement assistance pursuant to Section 101 of the Housing and Urban Development Act of 1965;
- Programs pursuant to Section 515 of the Housing Act of 1949; and,
- Federal LIHTC.
FISCAL EFFECT: The Franchise Tax Board (FTB) staff estimates that this bill would result in an annual revenue loss of $190 million in the fiscal year (FY) 2015-16, $180 million in FY 2016-17, and $180 million in FY 2017-18.
COMMENTS:
- Author's Statement. The author has provided the following statement in support of this bill:
"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."
- Arguments in Support. The proponents of this bill state"[s]ince 2008, rents have skyrocketed, while at the same time, state and federal investment in affordable home production dropped 66%," affecting Californians at nearly every income level." They assert that challenges of funding affordable housing development "have increased significantly with the loss of over $1 billion per year of redevelopment housing funds." The proponents maintain that many affordable housing projects are either greatly delayed or never developed because of the lack of the tax credit allocation.
According to proponents, this bill "directly responds to our state's shortfall of over one million affordable homes and the continued dramatic rise in rents at a time when the median income has been falling." By increasing the annual state tax credit allocation amounts to $300 million, this bill will allow California to leverage "an additional $600 million in federal housing resources that would otherwise go unclaimed by our state." In total, "the investment of state funds will allow [the State] to access $200 million in federal 4% credits and at least another $400 million federal tax-exempt bond authority." The proponents argue that this bill "will result in the development of additional and much needed affordable housing across the state" and will also "contribute to state and local tax revenues through economic activity and jobs." - Federal LIHTC Program: Background. The LIHTC is an indirect federal subsidy developed in 1986 to incentivize the private development of affordable rental housing for low-income households. As explained by the TCAC, the federal LIHTC 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. 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 tax 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.
Each year, the Federal Government allocates funding to the states for LIHTCs 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 LIHTC programs. In addition, the qualified low-income housing projects must comply with both rent and income restrictions. Rents on tax credit 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. Finally, credit projects must remain affordable for at least 30 years. However, in California, project developers or housing sponsors must agree to a minimum of 55 years rent and income restrictions.
Federal law specifies that each state must designate a "housing credit agency" to administer the federal LIHTC program. In California, responsibility for administering the federal program is assigned to the California TCAC.
- The 9% credit: projects not financed with a federal subsidy. In 2014, the amount of the 9% LIHTC credit allocated by the Federal Government to each state was based on $2.30 per capita. In addition, states annually qualify for a pro rata share of credits in a national pool of unused credits. From the total amount of federal LIHTC available to California calendar year, the TCAC allocates this credit to housing sponsors of qualified projects based on the estimated amount of eligible costs, as defined in Internal Revenue Code (IRC) Section 42, minus non-depreciable costs (such as land, permanent financing costs, rent reserves and marketing expenses). The amount of the credit is calculated by multiplying this "eligible basis" of the project by the "applicable fraction"[1] and then by the LIHTC 9% rate (in reality, that rate fluctuates monthly and currently is set at 7.70%). If the development is located in the HUD-designated DDA or QCT, the development's "eligible basis" receives a 30% increase or "basis boost." This "boost" allows qualified low-income housing projects to receive a credit equal to 130% of its "eligible basis." The 9% credit is awarded on a competitive basis so that only those projects that meet the highest housing priorities and public policy objectives, as determined by the TCAC, have access to this credit.
- The 4% credit: federally subsidized projects. Unlike the 9% credit, the amount of 4% credit allocated to states is not limited on a per capita basis. In order to access the 4% credit, a developer must first obtain an allocation of tax-exempt private activity mortgage revenue bonds, which are allocated to states on a per capita basis. The amount of the 4% credit is calculated in the same manner as the 9% credit, but an "eligible basis" is multiplied by the federal 4% tax credit. The actual rate also fluctuates and currently TCAC uses 3.36% to determine a project's initial tax credit reservation.
Tax-exempts bonds are debt obligations issued by state or local government agencies for multi-family rental housing, infrastructure improvements and other qualified municipal endeavors having a public purpose. Federal tax law provides that interest on any obligation issued by, or on behalf of, any state or political subdivision is excluded from gross income [IRC Section 103(a)]. Federal tax law limits this exemption in the case of private activity bonds [IRC Section 103(b)], but allows certain facilities to be financed with tax-exempt bonds. Qualified private activity bonds are issued by government agencies on behalf of private businesses and may be issued for various purposes, including low-income, multi-family housing. Unlike typical municipal bonds, the payment of principal and interest on private activity bonds is not the responsibility of the issuing government agency. Instead, the payment is the responsibility of the private business receiving the proceeds. The interest rate on tax-exempt bonds is lower than conventional bank financing, and these savings can promote housing affordability. These bonds assist developers of multifamily rental housing units to acquire land and construct new units or purchase and rehabilitate existing units. The developers, in turn, produce market rate and affordable rental housing for low- and very low-income households by reducing rental rates to these individuals and families. Projects that receive an award of bond authority have the right to apply for non-competitive 4% LIHTC allocations.
Federal law imposes a limit on how much private activity bonds can be issued in a state each year. Agencies and organizations authorized to issue tax-exempt private activity bonds or mortgage credit certificates must receive an allocation from the California Debt Limit Allocation Committee (CDLAC). The limit is determined by a state's population, multiplied by a specified dollar amount. Out of the 2015 state debt ceiling of over $3.8 billion, multifamily housing reservations account for $1.25 billion.
In 2014, California developers, according to the California Housing Partnership, used $80.5 million in annual federal 4% credits, which is a significantly lower amount in comparison to prior years when the redevelopment and Proposition 1C funding was still available.
- The 9% credit: projects not financed with a federal subsidy. In 2014, the amount of the 9% LIHTC credit allocated by the Federal Government to each state was based on $2.30 per capita. In addition, states annually qualify for a pro rata share of credits in a national pool of unused credits. From the total amount of federal LIHTC available to California calendar year, the TCAC allocates this credit to housing sponsors of qualified projects based on the estimated amount of eligible costs, as defined in Internal Revenue Code (IRC) Section 42, minus non-depreciable costs (such as land, permanent financing costs, rent reserves and marketing expenses). The amount of the credit is calculated by multiplying this "eligible basis" of the project by the "applicable fraction"[1] and then by the LIHTC 9% rate (in reality, that rate fluctuates monthly and currently is set at 7.70%). If the development is located in the HUD-designated DDA or QCT, the development's "eligible basis" receives a 30% increase or "basis boost." This "boost" allows qualified low-income housing projects to receive a credit equal to 130% of its "eligible basis." The 9% credit is awarded on a competitive basis so that only those projects that meet the highest housing priorities and public policy objectives, as determined by the TCAC, have access to this credit.
- State LIHTC Program. 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. The amount of state LIHTC that may be annually allocated by the TCAC is limited to $70 million, adjusted for inflation. In 2014, the total credit amount available for allocation was $103 million (representing all four years of allocation) plus any unused or returned credit allocations from previous years. According to the annual report issued by TCAC, the total credit amount available in 2015 was $89,452,736, 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: thirty-nine 9% projects and eight 4% projects, including one farmworker state credit award of $982,697. Approximately $34 million was committed from 2016 state credit, with $4.5 million in farmworker state credit remaining available for future project applicants. These 2015 state credit awards will facilitate developing a total of 2,516 affordable housing units.
Current state tax law generally conforms to federal law with respect to the LIHTC, except that it is limited to projects located in California. While the state LIHTC program is patterned after the federal LIHTC program, there are several differences. First, investors may claim the state LIHTC over four years rather than the 10-year federal allocation period. Second, the rates used to determine the total amount of the state tax credit (representing all four years of allocation) are 30% of the qualified basis of a project that is not federally subsidized and 13% of the qualified basis of a project that is federally subsidized, in contrast to 70% and 30% (representing all 10 years of allocation on a present-value basis), respectively, for purposes of the federal LIHTCs. Furthermore, state tax credits are not available for acquisition costs, except for previously subsidized projects that qualify as "at-risk" of being converted to market rate.
TCAC is authorized to replace the federal LIHTC with the state LIHTC of up to 30% of a project's eligible basis if the federal LIHTC is reduced in an equivalent amount. This provision allows TCAC to increase the number of projects funded with the limited federal credits in a given year. As discussed, the maximum federal tax credit that can be awarded (the 9% credit) is generally equal to 70% (on a present-value basis) of a taxpayer's qualified basis in the project, spread over a 10-year period. Thus, a project that receives the maximum in both state and federal credits receives an amount equal to 100% of the taxpayer's qualified basis over a 10-year period. - DDAs and QCTs. Federal LIHTCs can be used anywhere, but a project is given an additional 30% on its eligible basis (a "basis boost") if the project is located in a DDA or a QCT. These areas, by definition, have a higher poverty level and a higher concentration of extremely low-income or homeless individuals and families who typically need larger housing subsidies. Prior to 2014, TCAC was not allowed to award state tax credits for projects located in DDAs and QCTs. The rationale for this prohibition was that projects in these areas could qualify for more federal tax credits through a basis "boost" and therefore are already advantaged. State law, however, was recently amended to authorize TCAC, in limited cases, to award state LIHTCs for use in DDAs or QCTs, in addition to the federal credits. To qualify, a development must restrict at least 50% of the units to special needs households. Projects that serve special needs populations need larger subsidies in order to offer deeply affordable rents.
- The Financing Structure. In order to raise funds for construction or rehabilitation of low-income housing buildings, project developers or housing sponsors usually enter into various financing transactions with private entities. Investment partnerships are a primary source of equity financing for LIHTC projects. A typical arrangement is to match a corporate tax credit investor with a project developer or sponsor, creating a partnership (such as a general partnership or a LLC) where the investor is allocated the LIHTCs in exchange for cash and the developer acts as a general partner (or managing member). The money that investors pay for the partnership interest is paid into the LIHTC project as equity financing. Although investors are buying an interest in a rental housing partnership, this process is commonly referred to as "buying" tax credits because the investors receive tax credits in return for their investment. According to the TCAC report, partnership equity contributed to the project in exchange for the credit usually finances 30% to 60% of the capital costs of project construction.
The financing of a low-income housing building construction or rehabilitation using the LIHTC thus requires the participation of a private investor (mostly a taxable corporation) that could take advantage of the credits to reduce its income tax liability. Once the LIHTC project is placed in service, or ready for occupancy, investors can receive their share of the federal and/or state credits each year of the 10-year or 4-year credit period, whichever is applicable, and can use the credit to offset federal or state income taxes otherwise owed on their tax returns as long as the project meets the LIHTC requirements. An investor must retain ownership of the property (i.e., remain in the partnership) for at least 15 years after the project is placed in service in order to receive the full benefit of the tax credits, or the tax credits will be subject to recapture.
- Deficiency in Current Law: According to the California Housing Partnership, California used more of the federal 4% LIHTC than any other state during the early part of the last decade. However, with the elimination of California's redevelopment agencies and the exhaustion of state housing bond funding, developers of low-income housing have been left with very few resources to leverage the 4% credit. As a result, the number of newly constructed LIHTC units that have been funded with the 4% credit has plummeted in the last two years, from 4,000 in 2012 to fewer than 2,000 in 2014.
Existing state law prescribes two different tax credit rates – 30% and 13% - to calculate the amount of the state LIHTC. The first tax credit is allowed for projects that are not federally subsidized and thus qualify for the higher 9% federal LIHTC. In contrast, federally subsidized projects that qualify only for the 4% federal LIHTC receive the state LIHTC in the amount equal to 13% of the project's qualified basis. Furthermore, no state credit may be allocated to a low-income housing project located in a DDA or QCT if the project has received a federal LIHTC calculated on the 130% of eligible basis unless the state LIHTC is computed on a 100% of the qualified basis or at least 50% of the building's units are restricted to special need occupants. Thus, existing state law limits the availability of the state LIHTC to projects located outside a DDA or QCT since they do not receive a federal "basis boost" of 30% that is available to projects located in those areas. However, this bill's proponents argue that developing housing in these areas is inherently more expensive because of a higher concentration of extremely low-income or homeless individuals and families. - What Does This Bill Do? This bill would increase the state LIHTC allocation by $300 million per year, in addition to the existing $70 million cap, as adjusted for inflation. While increasing the total amount of state LIHTC, this bill proposes to limit the new funding only to projects that qualify for the 4% federal LIHTC. The projects that receive the 9% federal LIHTC would still qualify for the state LIHTC, albeit the annual amount of those state credits would remain at $70 million, as adjusted for inflation. The increase in the amount of state LIHTC would allow the state to leverage an additional $200 million in federal 4% LIHTC and at least $400 million in federal tax-exempt bond authority annually. This additional funding is intended to be used exclusively for the construction, rehabilitation and preservation of affordable rental homes for a broad range of lower income households throughout the state. The expectation is that an increase in the amount of state LIHTC would help fill the gap in funding that was created by the loss of redevelopment and the exhaustion of state voter-approved bonds.
Furthermore, this bill would increase the amount of state tax credits awarded to each qualified low-income housing project from 13% to 50% of the qualified basis, provided the project is also receiving a 4% federal tax credit. This increase would apply to new construction and rehabilitation costs of the project and would more than triple the amount of equity that an investor in the project would receive, which would bring the return on 4% credits in line with 9% credits and would likely result in greater affordability for the project. The costs of acquiring an existing low-income building would also be eligible for the state LIHTC allocated from the new additional funding of $300 million, but the applicable percentage used to calculate the amount of that credit would be limited to 13% of the project's qualified basis.
In addition, this bill would allow state tax credits to be awarded to qualified 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. However, to ensure a level playing field between DDA/QCT areas and non-DDA/QCT areas, this bill would explicitly allow TCAC to adjust the new higher state credit percentage downward for projects in DDAs or QCTs to equalize the value of the state credit available in the different areas.
This bill would also significantly increase an amount of state LIHTC - 95% of the qualified basis – that may be awarded to a qualified low-income housing building that houses very low-income or extremely low-income tenants and meets all specified requirements, including the building's location, age, and value.
Finally, this bill proposes to increase the amount of the LIHTC allocation for farmworker housing. Existing law provides for a $500,000 set-aside of LIHTC for farmworker housing development serving farmworkers and their families. This bill would increase this amount to $25 million and would require any unused credits from this set-aside to go to qualified non-farmworker housing projects that do not receive funding under the main program.
- A Different Kind of Credit? The LIHTC program induces investment into low-income housing by sanctioning a tax shelter structure that helps compensate private investors for allocating capital to an asset class with a relatively poor rate of return. Low-income housing projects face many barriers in California: the high cost of land, labor, and capitol, as well as state laws and policies protecting the environment, among others. In return for providing the LIHTC, the state arguably gets more affordable housing.
This program is much different from other tax credits. In contrast to many tax incentives in California, the LIHTC is targeted; capped at $70 million, as adjusted for inflation, per calendar year; and allocated to taxpayers by the TCAC mostly on a competitive basis. The TCAC evaluates the applications and allocates the available funds to those investors/developers who promise to produce the most housing for the state's dollar. Although the program is in the form of a tax credit, all the participants behave virtually as though they were dealing with an allocation of grant funds. Thus, traditionally, the state LIHTC program, similarly to the federal program, has been administered just as though it were an allocated grant program.
However, some opponents of the federal LIHTC program believe that government subsidies to the supply of housing are not as efficient as demand-based subsidies, and that the LIHTC program is not efficient as compared with other subsidy mechanisms.[2] Opponents also argue that the equity capital raised from investment generally comes from syndicates of individual investors or from corporations, at a steep price. Furthermore, because the credit is very complex and risky to investors, investors require high after-tax rates of return. Finally, the costs of the LIHTC include the costs of administration by federal and state housing and tax agencies. - FTB's Suggested Technical Amendments. The FTB staff recommended the following technical amendments to this bill:
On page 2, line 17 and line 19 after "income" insert "households"
On page 14, line 10 and line 12 after "income" insert "households"
On page 26, line 10 and line 12 after "income" insert "households"
On page 5, line 22 after "the" delete "term at risk"
On page 14, line 3, delete "members in the case of a limited liability company"
On page 14, lines 7-8, after "partnership" delete "the limited liability company in the case of a limited liability company"
On page 15, line 28, after "partnership" delete "limited liability company"
On page 26, line 3, after "partnership," delete "members in the case of a limited liability company"
On page 26, lines 7-8, after "partnership," delete "the limited liability company in the case of a limited liability company"
On page 27, line 28, after "partnership," delete "limited liability company"
- 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.
- Related Legislation. AB 35 (Chiu and Atkins) is substantially similar to this bill. AB 35 was vetoed by Governor Brown on October 10, 2015. The Governor's veto message stated the following:
"I am returning the following nine bills without my signature:
"Assembly Bill 35
Assembly Bill 88
Assembly Bill 99
Assembly Bill 428
Assembly Bill 437
Assembly Bill 515
Assembly Bill 931
Senate Bill 251
Senate Bill 377
"Each of these bills creates a new tax credit or expands an existing tax credit.
"Despite strong revenue performance over the past few years, the state's budget has remained precariously balanced due to unexpected costs and the provision of new services. Now, without the extension of the managed care organization tax that I called for in special session, next year's budget faces the prospect of over $1 billion in cuts.
"Given these financial uncertainties, I cannot support providing additional tax credits that will make balancing the state's budget even more difficult. Tax credits, like new spending on programs, need to be considered comprehensively as part of the budget deliberations."
REGISTERED SUPPORT / OPPOSITION:
Support
Apartment Association, California Southern Cities
Apartment Association of Orange County
Burbank Housing Development Corporation
California Apartment Association
California Building Industry Association (CBIA)
California Chamber of Commerce
California Coalition for Rural Housing
California Credit Union League
California Housing Consortium
California Rural Legal Assistance Foundation
California State Association of Counties
Cities Association of Santa Clara County
City of Burbank
City of Dublin
City of Glendale
City of Thousand Oaks
City of Lakewood
City of Livermore
City of Santa Rosa
City of Rancho Cucamonga
Cities Association of Santa Clara County
Disability Rights California
East Bay Rental Housing Association
East Bay Development Disabilities Legislative Coalition
Housing California
League of California Cities
Non-Profit Housing Association of Northern California
North Valley Property Owners Association
Peoples' Self Help Housing Corporation
Santa Clara County Board of Supervisors
The Arc California
United Cerebral Palsy California Collaboration
Western Center on Law and Poverty
Opposition
None on file
Analysis Prepared by: Oksana Jaffe / REV. & TAX. / (916) 319-2098
Date of Hearing: March 30, 2016
ASSEMBLY COMMITTEE ON HOUSING AND COMMUNITY DEVELOPMENT
David Chiu, Chair
ABPCA Bill Id:AB 2817 (
Author:Chiu) – As Amended Ver:March 17, 2016
SUBJECT: Taxes: credits: low-income housing: allocation increase
SUMMARY: Makes changes to the state Low-Income Housing Tax Credit (LIHTC) Program. Specifically, this bill:
- Beginning in 2017, and each year thereafter, increases the allocation of state LIHTC by an additional $300 million and adjusts that amount for inflation beginning in 2018.
- Beginning in 2017, increase the amount of low-income housing tax credits set-aside for farmworker housing from $500,000 to $25 million.
- Provides that any low-income housing tax credits set-aside for farmworker housing developments that go unused of the $25 million will be available for qualified nonfarmworker housing projects.
- 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 2016.
- 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.
- 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.
- 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%.
- 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:
- It is at least 15 years old;
- It is a single room occupancy (SRO), special needs housing building, is in a rural area, or serves households with very-low income or extremely low-income residents;
- 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
- It would have insufficient state credits to qualify to complete substantial rehabilitation due to a low appraised value.
- Adds the following definitions:
- "Extremely low-income" has the same meaning as Health and Safety Code Section 50053.
- "Rural area" means a rural area as defined in Health and Safety Code Section 50199.21.
- "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.
- "SRO" means single room occupancy.
- "Very low-income" has the same meaning as in Health and Safety Code Section 50053.
EXISTING LAW:
- 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:
- Developments restrict at least 50% of the units to special needs households; and
- The state credits do not exceed 130% of the eligible basis of the building.
- 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.
- 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%.
- 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.
- 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.
- 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.
- Defines "at risk of conversion" to mean a property that satisfies all of the following criteria:
- A multifamily rental housing development in which at least 50% of the units receive government assistance pursuant to any of the following:
- Project based Section 8 vouchers;
- Below-Market-Interest-Rate Program;
- Federal Rental Housing Assistance Program;
- Programs for rent supplement assistance pursuant to Section 101 of the Housing and Urban Development Act of 1965;
- Programs pursuant to Section 515 of the Housing Act of 1949; and
- Federal LIHTC.
- 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.
Each state receives an annual ceiling of 9% federal tax 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 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:
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."
The proposal:
AB 2517 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 2517 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 2517 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.
Farmworker Housing: Last year the author carried AB 35 which was largely similar to this bill. AB 2817 is different in that it includes a set-aside from the $300 million increase to the LIHTC program of $25 million for farmworker housing. There is currently a $500,000 set-aside of low-income housing tax credits for farmworker housing developments serving farmworkers and their families. AB 2817 would require any unused credits from the $25 million set-aside to go to qualified nonfarmworker housing projects that don't receive funding under the main program.
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 2517 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.
Related legislation: Last year, AB 35 (Chiu) would have made similar changes to this bill. That bill was vetoed; the Governor's veto message stated the following:
I am returning the following nine bills without my signature:
Assembly Bill 35
Assembly Bill 88
Assembly Bill 99
Assembly Bill 428
Assembly Bill 437
Assembly Bill 515
Assembly Bill 931
Senate Bill 251
Senate Bill 377
Each of these bills creates a new tax credit or expands an existing tax credit.
Despite strong revenue performance over the past few years, the state's budget has remained precariously balanced due to unexpected costs and the provision of new services. Now, without the extension of the managed care organization tax that I called for in special session, next year's budget faces the prospect of over $1 billion in cuts.
Given these financial uncertainties, I cannot support providing additional tax credits that will make balancing the state's budget even more difficult. Tax credits, like new spending on programs, need to be considered comprehensively as part of the budget deliberations.
REGISTERED SUPPORT / OPPOSITION:
Support
California Building Industry Association (CBIA)
California Chamber of Commerce
California Housing Consortium
California Rural Legal Assistance Foundation
Housing California
League of California Cities
Santa Clara County Board of Supervisors
The Arc California
United Cerebral Palsy California Collaboration
Western Center on Law and Poverty
Opposition
None on File
Analysis Prepared by: Lisa Engel / H. & C.D. / (916) 319-2085
Discussed in Hearing
2MIN
Senate Standing Committee on Transportation and Housing
1MIN
Assembly Floor
3MIN
Assembly Standing Committee on Revenue and Taxation
5MIN
Assembly Standing Committee on Housing and Community Development
Bill Author
Bill Co-Author(s):