AB 571: Farmworker housing: income taxes: insurance tax: credits: low-income housing: migrant farm labor centers.
- Session Year: 2017-2018
- House: Assembly
- Latest Version Date: 2017-09-29
(1)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 tax credit amounts among qualified low-income housing projects in modified conformity to federal law that have been allocated, or qualify for, a federal low-income housing tax credit, and for farmworker housing. Existing law limits the total annual amount of the state low-income housing credit for which a federal low-income housing credit is required to the sum of $70,000,000, as increased by any percentage increase in the Consumer Price Index for the preceding calendar year, any unused credit for the preceding calendar years, and the amount of housing credit ceiling returned in the calendar year. Existing law additionally allows a state credit, which is not dependent on receiving a federal low-income housing credit, of $500,000 per calendar year for projects to provide farmworker housing. Existing law defines farmworker housing to mean housing for agricultural workers that is available to, and occupied by, only farmworkers and their households.
This bill, under the law governing the taxation of insurers, the Personal Income Tax Law, and the Corporation Tax Law, would modify the definition of applicable percentage relating to qualified low-income buildings that are farmworker housing projects, as provided. The bill would authorize the California Tax Credit Allocation Committee to allocate the farmworker housing credit even if the taxpayer receives federal credits for buildings located in designated difficult development areas or qualified census tracts. The bill would also redefine farmworker housing to mean housing in which at least 50% of the units are available to, and occupied by, farmworkers and their households. The bill would make the aforementioned provisions operative on January 1, 2018. The bill would make specified declarations of legislative intent in this regard.
(2)Existing law requires the Department of Housing and Community Development, through its Office of Migrant Services, to assist in the development, construction, reconstruction, rehabilitation, or operation of migrant farm labor centers, as provided. Existing law authorizes the Director of Housing and Community Development to contract with specified local public and private entities, including school districts and housing authorities, for the procurement or construction of housing or shelter and to obtain specified services for migratory agricultural workers.
This bill would authorize the director to provide for advance payments of up to 20% of annual operating costs of the migrant farm labor centers to contractors, provided that the contractors do not have outstanding advance balances from prior contract periods.
Under existing law, the department designates a period of 180 days each calendar year during which migrant farm labor centers are open to migratory agricultural workers and their families for occupancy, as provided. Existing law authorizes a migrant farm labor center governed by specified law to operate for an extended period prior to or beyond the standard 180-day period after approval by the department if certain conditions are met, including, among other things, that no additional subsidies provided by the department are used for the operation or administration of the migrant farm labor center during the extended occupancy period except to the extent that state funds are appropriated or authorized for the purpose of funding all or part of the cost of subsidizing occupancy periods during the first 14 days only.
This bill would delete the limitation that funds appropriated or authorized to fund the cost of subsidizing occupancy periods be for the first 14 days only. The bill would also prohibit the standard 180-day occupancy period combined with any extended occupancy period under these provisions from exceeding a cumulative operating period of 275 days in any calendar year.
(3)This bill would include a change in state statute that would result in a taxpayer paying a higher tax within the meaning of Section 3 of Article XIIIA of the California Constitution, and thus would require for passage the approval of 2/3 of the membership of each house of the Legislature.
(4)This bill would declare that it is to take effect immediately as an urgency statute.
(1)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 tax credit amounts among qualified low-income housing projects in modified conformity to federal law that have been allocated, or qualify for, a federal low-income housing tax credit, and for farmworker housing. Existing law limits the total annual amount of the state low-income housing credit for which a federal low-income housing credit is required to the sum of $70,000,000, as increased by any percentage increase in the Consumer Price Index for the preceding calendar year, any unused credit for the preceding calendar years, and the amount of housing credit ceiling returned in the calendar year. Existing law additionally allows a state credit, which is not dependent on receiving a federal low-income housing credit, of $500,000 per calendar year for projects to provide farmworker housing. Existing law defines farmworker housing to mean housing for agricultural workers that is available to, and occupied by, only farmworkers and their households.
This bill, under the law governing the taxation of insurers, the Personal Income Tax Law, and the Corporation Tax Law, would modify the definition of applicable percentage relating to qualified low-income buildings that are farmworker housing projects, as provided. The bill would authorize the California Tax Credit Allocation Committee to allocate the farmworker housing credit even if the taxpayer receives federal credits for buildings located in designated difficult development areas or qualified census tracts. The bill would also redefine farmworker housing to mean housing in which at least 50% of the units are available to, and occupied by, farmworkers and their households. The bill would make the aforementioned provisions operative on January 1, 2018. The bill would make specified declarations of legislative intent in this regard.
(2)Existing law requires the Department of Housing and Community Development, through its Office of Migrant Services, to assist in the development, construction, reconstruction, rehabilitation, or operation of migrant farm labor centers, as provided. Existing law authorizes the Director of Housing and Community Development to contract with specified local public and private entities, including school districts and housing authorities, for the procurement or construction of housing or shelter and to obtain specified services for migratory agricultural workers.
This bill would authorize the director to provide for advance payments of up to 20% of annual operating costs of the migrant farm labor centers to contractors, provided that the contractors do not have outstanding advance balances from prior contract periods.
Under existing law, the department designates a period of 180 days each calendar year during which migrant farm labor centers are open to migratory agricultural workers and their families for occupancy, as provided. Existing law authorizes a migrant farm labor center governed by specified law to operate for an extended period prior to or beyond the standard 180-day period after approval by the department if certain conditions are met, including, among other things, that no additional subsidies provided by the department are used for the operation or administration of the migrant farm labor center during the extended occupancy period except to the extent that state funds are appropriated or authorized for the purpose of funding all or part of the cost of subsidizing occupancy periods during the first 14 days only.
This bill would delete the limitation that funds appropriated or authorized to fund the cost of subsidizing occupancy periods be for the first 14 days only. The bill would also prohibit the standard 180-day occupancy period combined with any extended occupancy period under these provisions from exceeding a cumulative operating period of 275 days in any calendar year.
(3)This bill would include a change in state statute that would result in a taxpayer paying a higher tax within the meaning of Section 3 of Article XIIIA of the California Constitution, and thus would require for passage the approval of 2/3 of the membership of each house of the Legislature.
(4)This bill would declare that it is to take effect immediately as an urgency statute.
(1)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 tax credit amounts among qualified low-income housing projects in modified conformity to federal law that have been allocated, or qualify for, a federal low-income housing tax credit, and for farmworker housing. Existing law limits the total annual amount of the state low-income housing credit for which a federal low-income housing credit is required to the sum of $70,000,000, as increased by any percentage increase in the Consumer Price Index for the preceding calendar year, any unused credit for the preceding calendar years, and the amount of housing credit ceiling returned in the calendar year. Existing law additionally allows a state credit, which is not dependent on receiving a federal low-income housing credit, of $500,000 per calendar year for projects to provide farmworker housing. Existing law defines farmworker housing to mean housing for agricultural workers that is available to, and occupied by, only farmworkers and their households.
This bill, under the law governing the taxation of insurers, the Personal Income Tax Law, and the Corporation Tax Law, would modify the definition of applicable percentage relating to qualified low-income buildings that are farmworker housing projects, as provided. The bill would authorize the California Tax Credit Allocation Committee to allocate the farmworker housing credit even if the taxpayer receives federal credits for buildings located in designated difficult development areas or qualified census tracts. The bill would also redefine farmworker housing to mean housing in which at least 50% of the units are available to, and occupied by, farmworkers and their households. The bill would make the aforementioned provisions operative on January 1, 2018. The bill would make specified declarations of legislative intent in this regard.
(2)Existing law requires the Department of Housing and Community Development, through its Office of Migrant Services, to assist in the development, construction, reconstruction, rehabilitation, or operation of migrant farm labor centers, as provided. Existing law authorizes the Director of Housing and Community Development to contract with specified local public and private entities, including school districts and housing authorities, for the procurement or construction of housing or shelter and to obtain specified services for migratory agricultural workers.
This bill would authorize the director to provide for advance payments of up to 20% of annual operating costs of the migrant farm labor centers to contractors, provided that the contractors do not have outstanding advance balances from prior contract periods.
Under existing law, the department designates a period of 180 days each calendar year during which migrant farm labor centers are open to migratory agricultural workers and their families for occupancy, as provided. Existing law authorizes a migrant farm labor center governed by specified law to operate for an extended period prior to or beyond the standard 180-day period after approval by the department if certain conditions are met, including, among other things, that no additional subsidies provided by the department are used for the operation or administration of the migrant farm labor center during the extended occupancy period except to the extent that state funds are appropriated or authorized for the purpose of funding all or part of the cost of subsidizing occupancy periods during the first 14 days only.
This bill would delete the limitation that funds appropriated or authorized to fund the cost of subsidizing occupancy periods be for the first 14 days only. The bill would also prohibit the standard 180-day occupancy period combined with any extended occupancy period under these provisions from exceeding a cumulative operating period of 275 days in any calendar year.
This(3)This bill would include a change in state statute that would result in a taxpayer paying a higher tax within the meaning of Section 3 of Article XIIIA of the California Constitution, and thus would require for passage the approval of 2/3 of the membership of each house of the Legislature.
This bill would take effect immediately as a tax levy.(4)This bill would declare that it is to take effect immediately as an urgency statute.
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 tax credit amounts among qualified low-income housing projects in modified conformity to federal law that have been allocated, or qualify for, a federal low-income housing tax credit, and for farmworker housing. Existing law limits the total annual amount of the state low-income housing credit for which a federal low-income housing credit is required to the sum of $70,000,000, as increased by any percentage increase in the Consumer Price Index for the preceding calendar year, any unused credit for the preceding calendar years, and the amount of housing credit ceiling returned in the calendar year. Existing law additionally allows a state credit, which is not dependent on receiving a federal low-income housing credit, of $500,000 per calendar year for projects to provide farmworker housing. Existing law defines farmworker housing to mean housing for agricultural workers that is available to, and occupied by, only farmworkers and their households.
This bill, under the insurance taxation law, law governing the taxation of insurers, the Personal Income Tax Law, and the Corporation Tax Law, would modify the definition of applicable percentage relating to qualified low-income buildings that are farmworker housing projects, as provided. The bill would authorize the California Tax Credit Allocation Committee to allocate the farmworker housing credit even if the taxpayer receives federal credits for buildings located in designated difficult development areas or qualified census tracts. The bill would also redefine farmworker housing to mean housing in which at least 50% of the units are available to, and occupied by, farmworkers and their households. The bill would make the aforementioned provisions operative on January 1, 2018. The bill would make specified declarations of legislative intent in this regard.
This bill would include a change in state statute that would result in a taxpayer paying a higher tax within the meaning of Section 3 of Article XIIIA of the California Constitution, and thus would require for passage the approval of 2/3 of the membership of each house of the Legislature.
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 tax credit amounts among qualified low-income housing projects in modified conformity to federal law that have been allocated, or qualify for, a federal low-income housing tax credit, and for farmworker housing. Existing law limits the total annual amount of the state low-income housing credit for which a federal low-income housing credit is required to the sum of $70,000,000, as increased by any percentage increase in the Consumer Price Index for the preceding calendar year, any unused credit for the preceding calendar years, and the amount of housing credit ceiling returned in the calendar year. Existing law additionally allows a state credit, which is not dependent on receiving a federal low-income housing credit, of $500,000 per calendar year for projects to provide farmworker housing. Existing law defines farmworker housing to mean housing for agricultural workers that is available to, and occupied by, only farmworkers and their households.
This 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 are farmworker housing projects, as provided. The bill would authorize the California Tax Credit Allocation Committee to allocate the farmworker housing credit even if the taxpayer receives federal credits for buildings located in designated difficult development areas or qualified census tracts. The bill would also redefine farmworker housing to mean housing in which at least 50% of the units are available to, and occupied by, farmworkers and their households. The bill would make specified declarations of legislative intent in this regard.
This bill would include a change in state statute that would result in a taxpayer paying a higher tax within the meaning of Section 3 of Article XIIIA of the California Constitution, and thus would require for passage the approval of 2/3 of the membership of each house of the Legislature.
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 tax credit amounts among qualified low-income housing projects in modified conformity to federal law that have been allocated, or qualify for, a federal low-income housing tax credit, and for farmworker housing. Existing law limits the total annual amount of the state low-income housing credit for which a federal low-income housing credit is required to the sum of $70,000,000, as increased by any percentage increase in the Consumer Price Index for the preceding calendar year, any unused credit for the preceding calendar years, and the amount of housing credit ceiling returned in the calendar year. Existing law additionally allows a state credit, which is not dependent on receiving a federal low-income housing credit, of $500,000 per calendar year for projects to provide farmworker housing. Existing law defines farmworker housing to mean housing for agricultural workers that is available to, and occupied by, only farmworkers and their households.
This 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 are farmworker housing projects, as provided. The bill would authorize the California Tax Credit Allocation Committee to allocate the farmworker housing credit even if the taxpayer receives federal credits for buildings located in designated difficult development areas or qualified census tracts. The bill would also redefine farmworker housing to mean housing in which at least 50% of the units are available to, and occupied by, farmworkers and their households.
This bill would include a change in state statute that would result in a taxpayer paying a higher tax within the meaning of Section 3 of Article XIIIA of the California Constitution, and thus would require for passage the approval of 2/3 of the membership of each house of the Legislature.
This bill would take effect immediately as a tax levy.
It is the intent of the Legislature in enacting this act that the California Tax Credit Allocation Committee shall not allocate tax credits pursuant to Sections 12206, 17058, and 23610.5 of the Revenue and Taxation Code for projects to provide farmworker housing, as defined in subdivision (h) of Section 50199.7 of the Health and Safety Code, in amounts beyond the amounts authorized to be allocated pursuant to Sections 12206, 17058, and 23610.5 of the Revenue and Taxation Code, as those sections read prior to the effective date of this act.
SEC. 2.Section 50199.7 of the Health and Safety Code is amended to read:50199.7.As used in this chapter:
(a)Committee means the Mortgage Bond and Tax Credit Allocation Committee, which is renamed the California Tax Credit Allocation Committee. All references to committee shall mean the California Tax Credit Allocation Committee.
(b)Household has the same meaning as defined in Section 7602 of Title 25 of the California Code of Regulations.
(c)Housing credit means the tax credit for low-income rental housing provided under Section 42 of the federal Internal Revenue Code (26 U.S.C. Sec. 42).
(d)Housing credit applicant means any owner, sponsor, or developer of a qualifying low-income building or project who applies to the committee for either of the following:
(1)An allocation of a portion of the current state housing credit ceiling.
(2)A reservation of a portion of the anticipated state housing credit ceiling of a subsequent year.
(e)Housing credit ceiling means the amount specified in Section 42(h)(3)(C) of the federal Internal Revenue Code (26 U.S.C. Sec. 42(h)(3)(C)).
(f)Qualified low-income building or project has the meaning specified in Section 42(c)(2) of the federal Internal Revenue Code (26 U.S.C. Sec. 42(c)(2)).
(g)Agricultural worker or farmworker shall have the same meaning as specified in subdivision (b) of Section 1140.4 of the Labor Code.
(h)(1)Before January 1, 2018, farmworker housing means housing for agricultural workers that is available to, and occupied by, only farmworkers and their households. The committee may permit an owner to temporarily house nonfarmworkers in vacant units in the event of a disaster or other critical occurrence. However, such emergency shelter shall only be permitted if there are no pending qualified farmworker household applications for residency.
(2)On and after January 1, 2018, farmworker housing means housing in which at least 50 percent of the units are available to, and occupied by, farmworkers and their households. The committee may permit an owner to temporarily house nonfarmworkers in vacant units in the event of a disaster or other critical occurrence. However, such emergency shelter shall only be permitted if there are no pending qualified farmworker household applications for residency.
SEC. 3.Section 50710 of the Health and Safety Code is amended to read:50710.The Director of Housing and Community Development may contract with school districts, housing authorities, health agencies, and other appropriate local public and private nonprofit agencies, for the procurement, or construction of housing or shelter and to obtain services for migratory agricultural workers in the fields of education and sanitation, to obtain day care services for the children of those workers, and the director may adopt regulations as the director deems necessary in order to provide that housing service. Notwithstanding any other provision of law, contracts made pursuant to this chapter are deemed to be for local assistance. Notwithstanding any other law, the director may provide for advance payments of up to 20 percent of annual operating costs of the migrant farm labor center to contractors, provided that the contractors do not have outstanding advance balances from the prior contract periods.
SEC. 4.Section 50710.1 of the Health and Safety Code is amended to read:50710.1.(a)If all the development costs of any migrant farm labor center assisted pursuant to this chapter are provided by federal, state, or local grants, and if inadequate funds are available from any federal, state, or local service to write-down operating costs, the department may approve rents for that center that are in excess of rents charged in other centers assisted by the Office of Migrant Services. However, notwithstanding any other provision of law, commencing with the 2006 growing season, the department shall not increase rents for residents of any facility assisted by the Office of Migrant Services to a level that exceeds 30 percent of the average annualized household incomes of residents of the facility without specific legislative authorization. Prior to approving these rents, the department shall consider the adequacy of evidence presented by the entity operating the center that the rents reimburse actual, reasonable, and necessary costs of operation.
(b)At the end of each fiscal year, any entity operating a migrant farm labor center pursuant to this chapter may establish a reserve account comprised of the excess funds provided through the annual operating contract received from the department if the department certifies there is no need to address reasonable general maintenance requirements or repairs, rehabilitation, and replacement needs of the requesting migrant farm labor center which affect the immediate health and safety of residents. The cumulative balance of the reserve account shall not exceed 10 percent of the annual operating funds annually committed to the entity by the department. Funds in the reserve account shall be used only for capital improvements such as replacing or repairing structural elements, furniture, fixtures, or equipment of the migrant farm labor center, the replacement or repair of which are reasonably required to preserve the migrant farm labor center. Withdrawals from the reserve account shall be made only upon the written approval of the department of the amount and nature of expenditures.
(c)A migrant farm labor center governed by this chapter may be operated for an extended period prior to or beyond the standard 180-day period, as further provided in paragraph (8) below, after approval by the department, provided that all of the following conditions are satisfied:
(1)No additional subsidies provided by the department are used for the operation or administration of the migrant farm center during the extended occupancy period except to the extent that state funds are appropriated or authorized for the purpose of funding all or part of the cost of subsidizing extended occupancy periods.
(2)Rents are not to be increased above the rents charged during the standard 180-day occupancy period unless the department finds that an increase is necessary to cover the difference between reasonable operating costs necessary to keep the center open during the extended occupancy period and the amount of state funds available pursuant to paragraph (1) and any contributions from agricultural employers or other federal, local, or private sources. These contributions shall not be used to reduce the amount of state funds that otherwise would be made available to the center to subsidize rents during an extended occupancy period.
(3)In no event shall the rent during the extended occupancy period exceed the average daily operating cost of the center, less any subsidy funds available pursuant to paragraph (1) or (2). With respect to an extended occupancy beyond the standard 180-day period, households representing at least 25 percent of the units in the center shall have indicated their desire and intention to remain in residency by signing a petition to the local entity to keep the center open for an extended period at rents that are the same or higher than rents during the regular period of occupancy. Each household shall receive a clear bilingual notice describing the extended occupancy options attached to the lease.
The Legislature finds and declares that because the number of residents may be substantially reduced during the extended occupancy period, a rent increase may be necessary to cover operating costs. It is the intent of the Legislature that the public sector, private sector, and farmworkers should each play an important role in ensuring the financial viability of this important source of needed housing.
(4)An extended occupancy period is requested by an entity operating the migrant farm labor center and received by the department no earlier than 30 days and no later than 15 days prior to the centers scheduled opening or closing date. The department shall notify the entity and petitioning residents of the final decision no later than seven days prior to the centers scheduled opening or closing date. During the extended occupancy period, occupancy shall be limited to migrant farmworkers and their families who resided or intended to reside at a migrant center during the regular period of occupancy.
(5)Before approving or denying an early opening or an extension and establishing the rents for the extended occupancy period, both of which shall be within the sole discretion of the department, the department shall take into consideration all of the following factors:
(A)The structural and physical condition of the center, including water and sewer pond capacity and the capacity and willingness of the local entity to operate the center during the extended occupancy period.
(B)Whether local approvals are required, and whether there are competing demands for the use of the centers facilities.
(C)Whether there is adequate documentation that there is a need for residents of the migrant center to continue work in the area, as confirmed by the local entity.
(D)The climate during the extended occupancy period.
(E)The amount of subsidy funds available that can be allocated to each center to subsidize rents below the operating costs and the cost of operating each center during the extended occupancy period.
(F)The extended occupancy period is deemed necessary for the health and safety of the migrant farmworkers and their families.
(G)Other relevant factors affecting the migrant farmworkers and their families and the operation of the centers.
(6)The rents collected during the extended occupancy period shall be remitted to the department. However, based on financial records to the satisfaction of the department, the department may reduce the amount to be remitted by an amount it determines the local entity has expended during the extended occupancy period that is not being reimbursed by department funds.
(7)The occupancy during the extended occupancy period represents a new tenancy and is not subject to existing and statutory and regulatory limitations governing rents. Prior to the beginning of the extended occupancy period, residents shall be provided at least two days advance written notice of any rent increase and of the expected length of the extended occupancy period, including the scheduled date of the beginning of the extended occupancy period and closure of the center. Prior to being eligible for residency during the extended occupancy period, residents shall sign rental documents deemed necessary by the department.
(8)Notwithstanding anything to the contrary contained in this section, the standard 180-day occupancy period combined with any extended occupancy periods shall not exceed a cumulative operating period of 275 days in any calendar year.
(d)The Legislature finds and declares that variable annual climates and changing agricultural techniques create an inability to accurately predict the end of a harvest season for the purposes of housing migrant farmworkers and their families. Because of these factors, in any part of this state, and in any specific year, one or more migrant farmworker housing centers governed by this chapter need to open early or remain open up to a total of 275 days to allow the residents to provide critical assistance to growers in harvesting crops while also fulfilling work expectations that encouraged them to migrate to the areas of the centers. In addition, if the centers close prematurely or open late, the migrant farmworkers often must remain or reside in the areas to work. During this time they will not be able to obtain decent, safe, and affordable housing and the health and safety of their families and the surrounding community will be threatened.
The Legislature therefore finds and declares that, for the purposes of any public or private right, obligation, or authorization related to the use of property and improvements thereon as a 180-day migrant center, an extended use of any housing center governed by this chapter pursuant to this section is deemed to be the same as the 180-day use generally authorized by this chapter.
(e)Because of the presumed income levels of the occupants of migrant farm labor centers, an entity operating a migrant farm labor center shall be deemed eligible for the California Alternative Rates for Energy program established pursuant to Sections 382 and 739.1 of the Public Utilities Code. Any savings from a reduction in energy rates shall be passed on to the occupants of the migrant farm labor center.
SEC. 5.Section 12206 of the Revenue and Taxation Code is amended to read:12206.(a)(1)There shall be allowed as a credit against the tax, 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, relating to low-income housing credit, 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.
(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, relating to low-income housing credit.
(ii)It qualifies for a credit under Section 42(h)(4)(B) of the Internal Revenue Code, relating to special rule where 50 percent or more of building is financed with tax-exempt bonds subject to volume cap.
(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, relating to low-income housing credit. 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, 2020, 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, relating to determination of distributive share.
(ii)This subparagraph does 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.
(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)(i) The taxpayer shall attach a copy of the certification to any return upon which a tax credit is claimed under this section.
(ii)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.
(D)All elections made by the taxpayer pursuant to Section 42 of the Internal Revenue Code, relating to low-income housing credit, shall apply to this section.
(E)(i)Except as described in clause (ii) or (iii), 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, relating to increase in credit for buildings in high-cost areas, 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, relating to low-income housing credit, 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, relating to increase in credit for buildings in high-cost areas, provided that the credit allowed under this section shall not exceed 30 percent of the eligible basis of the building.
(iii)On and after January 1, 2018, notwithstanding clause (i), the California Tax Credit Allocation Committee may allocate the credit pursuant to paragraph (4) of subdivision (c) even if the taxpayer receives federal credits, pursuant to Section 42(d)(5)(B) of the Internal Revenue Code, relating to increase in credit for buildings in high-cost areas.
(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, relating to increase in credit for buildings in high-cost areas, 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, relating to low-income housing credit, 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, relating to applicable percentage: 70 percent present value credit for certain new buildings; 30 percent present value credit for certain other buildings, 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 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) of the Internal Revenue Code, relating to temporary minimum credit rate for nonfederally subsidized new buildings, 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 is a new building that is federally subsidized or that is an existing building that is at risk of conversion, 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.
(3)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 low-income housing credit program set forth in Section 42 of the Internal Revenue Code, relating to low-income housing credit.
(B)The restrictions on rent and income levels will terminate or the federally 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.
(C)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.
(D)The property satisfies the requirements of Section 42(e) of the Internal Revenue Code, relating to rehabilitation expenditures treated as separate new building, except that the provisions of Section 42(e)(3)(A)(ii)(I) shall not apply.
(4)On and after January 1, 2018, in the case of any qualified low-income building that is (A) farmworker housing, as defined by paragraph (2) of subdivision (h) of Section 50199.7 of the Health and Safety Code, and (B) is federally subsidized, the term applicable percentage means for each of the first three years, 20 percent of the qualified basis of the building, and for the fourth year, 15 percent of the qualified basis of the building.
(d)The term qualified low-income housing project as defined in Section 42(c)(2) of the Internal Revenue Code, relating to qualified low-income building, 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, which 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, relating to low-income housing credit.
(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 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, relating to in general.
(e)The provisions of Section 42(f) of the Internal Revenue Code, relating to definition and special rules relating to credit period, shall be modified as follows:
(1)The term credit period as defined in Section 42(f)(1) of the Internal Revenue Code, relating to credit period defined, 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, relating to special rule for 1st year of credit period, shall not apply to the tax credit under this section.
(3)Section 42(f)(3) of the Internal Revenue Code, relating to determination of applicable percentage with respect to increases in qualified basis after 1st year of credit period, 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, relating to limitation on aggregate credit allowable with respect to projects located in a state, shall be modified as follows:
(1)Section 42(h)(2) of the Internal Revenue Code, relating to allocated credit amount to apply to all taxable years ending during or after credit allocation year, does not apply and instead the following provisions apply:
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, relating to limitation on aggregate credit allowable with respect to projects located in a state, do not apply to this section.
(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)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.
(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, relating to compliance period, 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, relating to recapture of credit, 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 this 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, relating to low-income housing credit, 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, relating to qualified low-income housing project.
(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)A provision that 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, relating to plans for allocation of credit among projects. 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, relating to qualified allocation plan and relating to certain selection criteria must be used, respectively.
(3)Notwithstanding Section 42(m) of the Internal Revenue Code, relating to responsibilities of housing credit agencies, 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 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)Existing projects that are at risk of conversion, as defined by paragraph (3) of subdivision (c).
(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, relating to certifications and other reports to secretary, shall be modified as follows:
The term secretary shall be replaced by the term Franchise Tax Board.
(l)In the case in which 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, apply to calendar years after 1993.
(n)The provisions of Section 11407(c) of Public Law 101-508, relating to election to accelerate credit, do not apply.
(o)(1)For a project that receives a preliminary reservation under this section beginning on or after January 1, 2016, and before January 1, 2020, a taxpayer may make an irrevocable election in its application to the California Tax Credit Allocation Committee to sell all or any portion of any credit allowed under this section to one or more unrelated parties for each taxable year in which the credit is allowed subject to both of the following conditions:
(A)The credit is sold for consideration that is not less than 80 percent of the amount of the credit.
(B)The unrelated party or parties purchasing any or all of the credit pursuant to this subdivision is a taxpayer allowed the credit under this section for the taxable year of the purchase or any prior taxable year or is a taxpayer allowed the federal credit under Section 42 of the Internal Revenue Code, relating to low-income housing credit, for the taxable year of the purchase or any prior taxable year in connection with any project located in this state. For purposes of this subparagraph, taxpayer allowed the credit under this section means a taxpayer that is allowed the credit under this section without regard to the purchase of a credit pursuant to this subdivision.
(2)(A)The taxpayer that originally received the credit shall report to the California Tax Credit Allocation Committee within 10 days of the sale of the credit, in the form and manner specified by the California Tax Credit Allocation Committee, all required information regarding the purchase and sale of the credit, including the social security or other taxpayer identification number of the unrelated party or parties to whom the credit has been sold, the face amount of the credit sold, and the amount of consideration received by the taxpayer for the sale of the credit.
(B)The California Tax Credit Allocation Committee shall provide an annual listing to the Franchise Tax Board, in a form and manner agreed upon by the California Tax Credit Allocation Committee and the Franchise Tax Board, of the taxpayers that have sold or purchased a credit pursuant to this subdivision.
(3)(A)A credit may be sold pursuant to this subdivision to more than one unrelated party.
(B)(i)Except as provided in clause (ii), a credit shall not be resold by the unrelated party to another taxpayer or other party.
(ii)All or any portion of any credit allowed under this section may be resold once by an original purchaser to one or more unrelated parties, subject to all of the requirements of this subdivision.
(4)Notwithstanding any other law, the taxpayer that originally received the credit that is sold pursuant to paragraph (1) shall remain solely liable for all obligations and liabilities imposed on the taxpayer by this section with respect to the credit, none of which shall apply to a party to whom the credit has been sold or subsequently transferred. Parties that purchase credits pursuant to paragraph (1) shall be entitled to utilize the purchased credits in the same manner in which the taxpayer that originally received the credit could utilize them.
(5)A taxpayer shall not sell a credit allowed by this section if the taxpayer was allowed the credit on any tax return of the taxpayer.
(6)Notwithstanding paragraph (1), the taxpayer, with the approval of the Executive Director of the California Tax Credit Allocation Committee, may rescind the election to sell all or any portion of the credit allowed under this section if the consideration for the credit falls below 80 percent of the amount of the credit after the California Tax Credit Allocation Committee reservation.
(p)The California Tax Credit Allocation Committee may prescribe rules, guidelines, or procedures necessary or appropriate to carry out the purposes of this section, including any guidelines regarding the allocation of the credit allowed under this section. Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code shall not apply to any rule, guideline, or procedure prescribed by the California Tax Credit Allocation Committee pursuant to this section.
(q)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. 6.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, defined by 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, relating to low-income housing credit, 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.
(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, relating to low-income housing credit.
(ii)It qualifies for a credit under Section 42(h)(4)(B) of the Internal Revenue Code, relating to special rule where 50 percent or more of building is financed with tax-exempt bonds subject to volume cap.
(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, relating to low-income housing credit. 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, 2020, 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, relating to determination of distributive share.
(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 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.
(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, relating to low-income housing credit, apply to this section.
(E)(i)Except as described in clause (ii) or (iii), 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, relating to increase in credit for buildings in high-cost areas, 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, relating to low-income housing credit, 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, relating to increase in credit for buildings in high-cost areas, provided that the credit allowed under this section shall not exceed 30 percent of the eligible basis of the building.
(iii)On and after January 1, 2018, notwithstanding clause (i), the California Tax Credit Allocation Committee may allocate the credit pursuant to paragraph (5) of subdivision (c) even if the taxpayer receives federal credits, pursuant to Section 42(d)(5)(B) of the Internal Revenue Code, relating to increase in credit for buildings in high-cost areas.
(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, relating to increase in credit for buildings in high-cost areas, 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, relating to low-income housing credit, 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, relating to applicable percentage: 70 percent present value credit for certain new buildings; 30 percent present value credit for certain other buildings, shall be modified as follows:
(1)In the case of any qualified low-income building placed in service by the housing sponsor during 1987, 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.
(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) of the Internal Revenue Code, relating to temporary minimum credit rate for nonfederally subsidized new buildings, 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.
(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 an existing building that is at risk of conversion, 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)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 low-income housing credit program set forth in Section 42 of the Internal Revenue Code, relating to low-income housing credit.
(B)The restrictions on rent and income levels will terminate or the federally 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.
(C)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.
(D)The property satisfies the requirements of Section 42(e) of the Internal Revenue Code, relating to rehabilitation expenditures treated as separate new building, except that the provisions of Section 42(e)(3)(A)(ii)(I) shall not apply.
(5)On and after January 1, 2018, in the case of any qualified low-income building that is (A) farmworker housing, as defined by paragraph (2) of subdivision (h) of Section 50199.7 of the Health and Safety Code, and (B) is federally subsidized, the term applicable percentage means for each of the first three years, 20 percent of the qualified basis of the building, and for the fourth year, 15 percent of the qualified basis of the building.
(d)The term qualified low-income housing project as defined in Section 42(c)(2) of the Internal Revenue Code, relating to qualified low-income building, 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, which 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, relating to low-income housing credit.
(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 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, relating to in general.
(e)The provisions of Section 42(f) of the Internal Revenue Code, relating to definition and special rules relating to credit period, shall be modified as follows:
(1)The term credit period as defined in Section 42(f)(1) of the Internal Revenue Code, relating to credit period defined, 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, relating to special rule for 1st year of credit period, shall not apply to the tax credit under this section.
(3)Section 42(f)(3) of the Internal Revenue Code, relating to determination of applicable percentage with respect to increases in qualified basis after 1st year of credit period, 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, relating to limitation on aggregate credit allowable with respect to projects located in a state, shall be modified as follows:
(1)Section 42(h)(2) of the Internal Revenue Code, relating to allocated credit amount to apply to all taxable years ending during or after credit allocation year, does not apply and instead the following provisions apply:
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, relating to limitation on aggregate credit allowable with respect to projects located in a state, do not apply to this section.
(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)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.
(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, relating to compliance period, 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, relating to recapture of credit, does not apply 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 this 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, relating to low-income housing credit, 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, relating to qualified low-income housing project.
(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 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, relating to plans for allocation of credit among projects. 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, relating to qualified allocation plan and relating to certain selection criteria must be used, respectively.
(3)Notwithstanding Section 42(m) of the Internal Revenue Code, relating to responsibilities of housing credit agencies, 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 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)Existing projects that are at risk of conversion, as defined by paragraph (4) of subdivision (c).
(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, relating to certifications and other reports to secretary, shall be modified as follows:
The term secretary shall be replaced by the term Franchise Tax Board.
(l)In the case in which 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 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 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, 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 not apply.
(q)(1)For a project that receives a preliminary reservation under this section beginning on or after January 1, 2016, and before January 1, 2020, a taxpayer may make an irrevocable election in its application to the California Tax Credit Allocation Committee to sell all or any portion of any credit allowed under this section to one or more unrelated parties for each taxable year in which the credit is allowed subject to both of the following conditions:
(A)The credit is sold for consideration that is not less than 80 percent of the amount of the credit.
(B)The unrelated party or parties purchasing any or all of the credit pursuant to this subdivision is a taxpayer allowed the credit under this section for the taxable year of the purchase or any prior taxable year or is a taxpayer allowed the federal credit under Section 42 of the Internal Revenue Code, relating to low-income housing credit, for the taxable year of the purchase or any prior taxable year in connection with any project located in this state. For purposes of this subparagraph, taxpayer allowed the credit under this section means a taxpayer that is allowed the credit under this section without regard to the purchase of a credit pursuant to this subdivision.
(2)(A)The taxpayer that originally received the credit shall report to the California Tax Credit Allocation Committee within 10 days of the sale of the credit, in the form and manner specified by the California Tax Credit Allocation Committee, all required information regarding the purchase and sale of the credit, including the social security or other taxpayer identification number of the unrelated party or parties to whom the credit has been sold, the face amount of the credit sold, and the amount of consideration received by the taxpayer for the sale of the credit.
(B)The California Tax Credit Allocation Committee shall provide an annual listing to the Franchise Tax Board, in a form and manner agreed upon by the California Tax Credit Allocation Committee and the Franchise Tax Board, of the taxpayers that have sold or purchased a credit pursuant to this subdivision.
(3)(A)A credit may be sold pursuant to this subdivision to more than one unrelated party.
(B)(i)Except as provided in clause (ii), a credit shall not be resold by the unrelated party to another taxpayer or other party.
(ii)All or any portion of any credit allowed under this section may be resold once by an original purchaser to one or more unrelated parties, subject to all of the requirements of this subdivision.
(4)Notwithstanding any other law, the taxpayer that originally received the credit that is sold pursuant to paragraph (1) shall remain solely liable for all obligations and liabilities imposed on the taxpayer by this section with respect to the credit, none of which shall apply to a party to whom the credit has been sold or subsequently transferred. Parties that purchase credits pursuant to paragraph (1) shall be entitled to utilize the purchased credits in the same manner in which the taxpayer that originally received the credit could utilize them.
(5)A taxpayer shall not sell a credit allowed by this section if the taxpayer was allowed the credit on any tax return of the taxpayer.
(6)Notwithstanding paragraph (1), the taxpayer, with the approval of the Executive Director of the California Tax Credit Allocation Committee, may rescind the election to sell all or any portion of the credit allowed under this section if the consideration for the credit falls below 80 percent of the amount of the credit after the California Tax Credit Allocation Committee reservation.
(r)The California Tax Credit Allocation Committee may prescribe rules, guidelines, or procedures necessary or appropriate to carry out the purposes of this section, including any guidelines regarding the allocation of the credit allowed under this section. Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code shall not apply to any rule, guideline, or procedure prescribed by the California Tax Credit Allocation Committee pursuant to this section.
(s)The amendments to this section made by Chapter 1222 of the Statutes of 1993 apply only to taxable years beginning on or after January 1, 1994.
(t)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. Any unused credit may continue to be carried forward, as provided in subdivision (l), until the credit has been exhausted.
SEC. 7.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, 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, relating to low-income housing credit, 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.
(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, relating to low-income housing credit.
(ii)It qualifies for a credit under Section 42(h)(4)(B) of the Internal Revenue Code, relating to special rule where 50 percent or more of building is financed with tax-exempt bonds subject to volume cap.
(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, relating to low-income housing credit. 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, 2020, 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, relating to determination of distributive share.
(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 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.
(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, relating to low-income housing credit, apply to this section.
(E)(i)Except as described in clause (ii) or (iii), 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, relating to increase in credit for buildings in high-cost areas, 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, relating to low-income housing credit, 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, relating to increase in credit for buildings in high-cost areas, provided that the credit allowed under this section shall not exceed 30 percent of the eligible basis of the building.
(iii)On and after January 1, 2018, notwithstanding clause (i), the California Tax Credit Allocation Committee may allocate the credit pursuant to paragraph (5) of subdivision (c) even if the taxpayer receives federal credits, pursuant to Section 42(d)(5)(B) of the Internal Revenue Code, relating to increase in credit for buildings in high-cost areas.
(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, relating to increase in credit for buildings in high-cost areas, 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, relating to low-income housing credit, 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, relating to applicable percentage: 70 percent present value credit for certain new buildings; 30 percent present value credit for certain other buildings, shall be modified as follows:
(1)In the case of any qualified low-income building placed in service by the housing sponsor during 1987, 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.
(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) of the Internal Revenue Code, relating to temporary minimum credit rate for nonfederally subsidized new buildings, 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.
(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 an existing building that is at risk of conversion, 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)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 low-income housing credit program set forth in Section 42 of the Internal Revenue Code, relating to low-income housing credit.
(B)The restrictions on rent and income levels will terminate or the federally 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.
(C)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.
(D)The property satisfies the requirements of Section 42(e) of the Internal Revenue Code, relating to rehabilitation expenditures treated as separate new building, except that the provisions of Section 42(e)(3)(A)(ii)(I) shall not apply.
(5)On and after January 1, 2018, in the case of any qualified low-income building that is (A) farmworker housing, as defined by paragraph (2) of subdivision (h) of Section 50199.7 of the Health and Safety Code, and (B) is federally subsidized, the term applicable percentage means for each of the first three years, 20 percent of the qualified basis of the building, and for the fourth year, 15 percent of the qualified basis of the building.
(d)The term qualified low-income housing project as defined in Section 42(c)(2) of the Internal Revenue Code, relating to qualified low-income building, 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, which 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, relating to low-income housing credit.
(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 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, relating to in general.
(e)The provisions of Section 42(f) of the Internal Revenue Code, relating to definition and special rules relating to credit period, shall be modified as follows:
(1)The term credit period as defined in Section 42(f)(1) of the Internal Revenue Code, relating to credit period defined, 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, relating to special rule for 1st year of credit period, shall not apply to the tax credit under this section.
(3)Section 42(f)(3) of the Internal Revenue Code, relating to determination of applicable percentage with respect to increases in qualified basis after 1st year of credit period, 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, relating to limitation on aggregate credit allowable with respect to projects located in a state, shall be modified as follows:
(1)Section 42(h)(2) of the Internal Revenue Code, relating to allocated credit amount to apply to all taxable years ending during or after credit allocation year, does not apply and instead the following provisions apply:
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, relating to limitation on aggregate credit allowable with respect to projects located in a state, do not apply to this section.
(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)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.
(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, relating to compliance period, 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, relating to recapture of credit, does not apply 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 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, relating to low-income housing credit, 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, relating to qualified low-income housing project.
(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 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, relating to plans for allocation of credit among projects. 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, relating to qualified allocation plan and relating to certain selection criteria must be used, respectively.
(3)Notwithstanding Section 42(m) of the Internal Revenue Code, relating to responsibilities of housing credit agencies, 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)Existing projects that are at risk of conversion, as defined by paragraph (4) of subdivision (c).
(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, relating to certifications and other reports to secretary, shall be modified as follows:
The term secretary shall be replaced by the term Franchise Tax Board.
(l)In the case in which 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)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 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, 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 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)(1)For a project that receives a preliminary reservation under this section beginning on or after January 1, 2016, and before January 1, 2020, a taxpayer may make an irrevocable election in its application to the California Tax Credit Allocation Committee to sell all or any portion of any credit allowed under this section to one or more unrelated parties for each taxable year in which the credit is allowed subject to both of the following conditions:
(A)The credit is sold for consideration that is not less than 80 percent of the amount of the credit.
(B)(i)The unrelated party or parties purchasing any or all of the credit pursuant to this subdivision is a taxpayer allowed the credit under this section for the taxable year of the purchase or any prior taxable year or is a taxpayer allowed the federal credit under Section 42 of the Internal Revenue Code, relating to low-income housing credit, for the taxable year of the purchase or any prior taxable year in connection with any project located in this state.
(ii)For purposes of this subparagraph, taxpayer allowed the credit under this section means a taxpayer that is allowed the credit under this section without regard to the purchase of a credit pursuant to this subdivision without regard to any of the following:
(I)The purchase of a credit under this section pursuant to this subdivision.
(II)The assignment of a credit under this section pursuant to subdivision (q).
(III)The assignment of a credit under this section pursuant to Section 23363.
(2)(A)The taxpayer that originally received the credit shall report to the California Tax Credit Allocation Committee within 10 days of the sale of the credit, in the form and manner specified by the California Tax Credit Allocation Committee, all required information regarding the purchase and sale of the credit, including the social security or other taxpayer identification number of the unrelated party or parties to whom the credit has been sold, the face amount of the credit sold, and the amount of consideration received by the taxpayer for the sale of the credit.
(B)The California Tax Credit Allocation Committee shall provide an annual listing to the Franchise Tax Board, in a form and manner agreed upon by the California Tax Credit Allocation Committee and the Franchise Tax Board, of the taxpayers that have sold or purchased a credit pursuant to this subdivision.
(3)(A)A credit may be sold pursuant to this subdivision to more than one unrelated party.
(B)(i)Except as provided in clause (ii), a credit shall not be resold by the unrelated party to another taxpayer or other party.
(ii)All or any portion of any credit allowed under this section may be resold once by an original purchaser to one or more unrelated parties, subject to all of the requirements of this subdivision.
(4)Notwithstanding any other law, the taxpayer that originally received the credit that is sold pursuant to paragraph (1) shall remain solely liable for all obligations and liabilities imposed on the taxpayer by this section with respect to the credit, none of which shall apply to a party to whom the credit has been sold or subsequently transferred. Parties that purchase credits pursuant to paragraph (1) shall be entitled to utilize the purchased credits in the same manner in which the taxpayer that originally received the credit could utilize them.
(5)A taxpayer shall not sell a credit allowed by this section if the taxpayer was allowed the credit on any tax return of the taxpayer.
(6)Notwithstanding paragraph (1), the taxpayer, with the approval of the Executive Director of the California Tax Credit Allocation Committee, may rescind the election to sell all or any portion of the credit allowed under this section if the consideration for the credit falls below 80 percent of the amount of the credit after the California Tax Credit Allocation Committee reservation.
(s)The California Tax Credit Allocation Committee may prescribe rules, guidelines, or procedures necessary or appropriate to carry out the purposes of this section, including any guidelines regarding the allocation of the credit allowed under this section. Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code shall not apply to any rule, guideline, or procedure prescribed by the California Tax Credit Allocation Committee pursuant to this section.
(t)Any unused credit may continue to be carried forward, as provided in subdivision (l), until the credit has been exhausted.
(u)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.
(v)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. 8.This act is an urgency statute necessary for the immediate preservation of the public peace, health, or safety within the meaning of Article IV of the California Constitution and shall go into immediate effect. The facts constituting the necessity are:
In order to expeditiously provide for additional farmworker housing, it is necessary that this act take effect immediately.
It is the intent of the Legislature in enacting this act that the California Tax Credit Allocation Committee shall not allocate tax credits pursuant to Sections 12206, 17058, and 23610.5 of the Revenue and Taxation Code for projects to provide farmworker housing, as defined in subdivision (h) of Section 50199.7 of the Health and Safety Code, in amounts beyond the amounts authorized to be allocated pursuant to Sections 12206, 17058, and 23610.5 of the Revenue and Taxation Code, as those sections read prior to the effective date of this act.
SEC. 2.Section 50199.7 of the Health and Safety Code is amended to read:50199.7.As used in this chapter:
(a)Committee means the Mortgage Bond and Tax Credit Allocation Committee, which is renamed the California Tax Credit Allocation Committee. All references to committee shall mean the California Tax Credit Allocation Committee.
(b)Household has the same meaning as defined in Section 7602 of Title 25 of the California Code of Regulations.
(c)Housing credit means the tax credit for low-income rental housing provided under Section 42 of the federal Internal Revenue Code (26 U.S.C. Sec. 42).
(d)Housing credit applicant means any owner, sponsor, or developer of a qualifying low-income building or project who applies to the committee for either of the following:
(1)An allocation of a portion of the current state housing credit ceiling.
(2)A reservation of a portion of the anticipated state housing credit ceiling of a subsequent year.
(e)Housing credit ceiling means the amount specified in Section 42(h)(3)(C) of the federal Internal Revenue Code (26 U.S.C. Sec. 42(h)(3)(C)).
(f)Qualified low-income building or project has the meaning specified in Section 42(c)(2) of the federal Internal Revenue Code (26 U.S.C. Sec. 42(c)(2)).
(g)Agricultural worker or farmworker shall have the same meaning as specified in subdivision (b) of Section 1140.4 of the Labor Code.
(h)(1)Before January 1, 2018, farmworker housing means housing for agricultural workers that is available to, and occupied by, only farmworkers and their households. The committee may permit an owner to temporarily house nonfarmworkers in vacant units in the event of a disaster or other critical occurrence. However, such emergency shelter shall only be permitted if there are no pending qualified farmworker household applications for residency.
(2)On and after January 1, 2018, farmworker housing means housing in which at least 50 percent of the units are available to, and occupied by, farmworkers and their households. The committee may permit an owner to temporarily house nonfarmworkers in vacant units in the event of a disaster or other critical occurrence. However, such emergency shelter shall only be permitted if there are no pending qualified farmworker household applications for residency.
SEC. 3.Section 50710 of the Health and Safety Code is amended to read:50710.The Director of Housing and Community Development may contract with school districts, housing authorities, health agencies, and other appropriate local public and private nonprofit agencies, for the procurement, or construction of housing or shelter and to obtain services for migratory agricultural workers in the fields of education and sanitation, to obtain day care services for the children of those workers, and the director may adopt regulations as the director deems necessary in order to provide that housing service. Notwithstanding any other provision of law, contracts made pursuant to this chapter are deemed to be for local assistance. Notwithstanding any other law, the director may provide for advance payments of up to 20 percent of annual operating costs of the migrant farm labor center to contractors, provided that the contractors do not have outstanding advance balances from the prior contract periods.
SEC. 4.Section 50710.1 of the Health and Safety Code is amended to read:50710.1.(a)If all the development costs of any migrant farm labor center assisted pursuant to this chapter are provided by federal, state, or local grants, and if inadequate funds are available from any federal, state, or local service to write-down operating costs, the department may approve rents for that center that are in excess of rents charged in other centers assisted by the Office of Migrant Services. However, notwithstanding any other provision of law, commencing with the 2006 growing season, the department shall not increase rents for residents of any facility assisted by the Office of Migrant Services to a level that exceeds 30 percent of the average annualized household incomes of residents of the facility without specific legislative authorization. Prior to approving these rents, the department shall consider the adequacy of evidence presented by the entity operating the center that the rents reimburse actual, reasonable, and necessary costs of operation.
(b)At the end of each fiscal year, any entity operating a migrant farm labor center pursuant to this chapter may establish a reserve account comprised of the excess funds provided through the annual operating contract received from the department if the department certifies there is no need to address reasonable general maintenance requirements or repairs, rehabilitation, and replacement needs of the requesting migrant farm labor center which affect the immediate health and safety of residents. The cumulative balance of the reserve account shall not exceed 10 percent of the annual operating funds annually committed to the entity by the department. Funds in the reserve account shall be used only for capital improvements such as replacing or repairing structural elements, furniture, fixtures, or equipment of the migrant farm labor center, the replacement or repair of which are reasonably required to preserve the migrant farm labor center. Withdrawals from the reserve account shall be made only upon the written approval of the department of the amount and nature of expenditures.
(c)A migrant farm labor center governed by this chapter may be operated for an extended period prior to or beyond the standard 180-day period, as further provided in paragraph (8) below, after approval by the department, provided that all of the following conditions are satisfied:
(1)No additional subsidies provided by the department are used for the operation or administration of the migrant farm center during the extended occupancy period except to the extent that state funds are appropriated or authorized for the purpose of funding all or part of the cost of subsidizing extended occupancy periods.
(2)Rents are not to be increased above the rents charged during the standard 180-day occupancy period unless the department finds that an increase is necessary to cover the difference between reasonable operating costs necessary to keep the center open during the extended occupancy period and the amount of state funds available pursuant to paragraph (1) and any contributions from agricultural employers or other federal, local, or private sources. These contributions shall not be used to reduce the amount of state funds that otherwise would be made available to the center to subsidize rents during an extended occupancy period.
(3)In no event shall the rent during the extended occupancy period exceed the average daily operating cost of the center, less any subsidy funds available pursuant to paragraph (1) or (2). With respect to an extended occupancy beyond the standard 180-day period, households representing at least 25 percent of the units in the center shall have indicated their desire and intention to remain in residency by signing a petition to the local entity to keep the center open for an extended period at rents that are the same or higher than rents during the regular period of occupancy. Each household shall receive a clear bilingual notice describing the extended occupancy options attached to the lease.
The Legislature finds and declares that because the number of residents may be substantially reduced during the extended occupancy period, a rent increase may be necessary to cover operating costs. It is the intent of the Legislature that the public sector, private sector, and farmworkers should each play an important role in ensuring the financial viability of this important source of needed housing.
(4)An extended occupancy period is requested by an entity operating the migrant farm labor center and received by the department no earlier than 30 days and no later than 15 days prior to the centers scheduled opening or closing date. The department shall notify the entity and petitioning residents of the final decision no later than seven days prior to the centers scheduled opening or closing date. During the extended occupancy period, occupancy shall be limited to migrant farmworkers and their families who resided or intended to reside at a migrant center during the regular period of occupancy.
(5)Before approving or denying an early opening or an extension and establishing the rents for the extended occupancy period, both of which shall be within the sole discretion of the department, the department shall take into consideration all of the following factors:
(A)The structural and physical condition of the center, including water and sewer pond capacity and the capacity and willingness of the local entity to operate the center during the extended occupancy period.
(B)Whether local approvals are required, and whether there are competing demands for the use of the centers facilities.
(C)Whether there is adequate documentation that there is a need for residents of the migrant center to continue work in the area, as confirmed by the local entity.
(D)The climate during the extended occupancy period.
(E)The amount of subsidy funds available that can be allocated to each center to subsidize rents below the operating costs and the cost of operating each center during the extended occupancy period.
(F)The extended occupancy period is deemed necessary for the health and safety of the migrant farmworkers and their families.
(G)Other relevant factors affecting the migrant farmworkers and their families and the operation of the centers.
(6)The rents collected during the extended occupancy period shall be remitted to the department. However, based on financial records to the satisfaction of the department, the department may reduce the amount to be remitted by an amount it determines the local entity has expended during the extended occupancy period that is not being reimbursed by department funds.
(7)The occupancy during the extended occupancy period represents a new tenancy and is not subject to existing and statutory and regulatory limitations governing rents. Prior to the beginning of the extended occupancy period, residents shall be provided at least two days advance written notice of any rent increase and of the expected length of the extended occupancy period, including the scheduled date of the beginning of the extended occupancy period and closure of the center. Prior to being eligible for residency during the extended occupancy period, residents shall sign rental documents deemed necessary by the department.
(8)Notwithstanding anything to the contrary contained in this section, the standard 180-day occupancy period combined with any extended occupancy periods shall not exceed a cumulative operating period of 275 days in any calendar year.
(d)The Legislature finds and declares that variable annual climates and changing agricultural techniques create an inability to accurately predict the end of a harvest season for the purposes of housing migrant farmworkers and their families. Because of these factors, in any part of this state, and in any specific year, one or more migrant farmworker housing centers governed by this chapter need to open early or remain open up to a total of 275 days to allow the residents to provide critical assistance to growers in harvesting crops while also fulfilling work expectations that encouraged them to migrate to the areas of the centers. In addition, if the centers close prematurely or open late, the migrant farmworkers often must remain or reside in the areas to work. During this time they will not be able to obtain decent, safe, and affordable housing and the health and safety of their families and the surrounding community will be threatened.
The Legislature therefore finds and declares that, for the purposes of any public or private right, obligation, or authorization related to the use of property and improvements thereon as a 180-day migrant center, an extended use of any housing center governed by this chapter pursuant to this section is deemed to be the same as the 180-day use generally authorized by this chapter.
(e)Because of the presumed income levels of the occupants of migrant farm labor centers, an entity operating a migrant farm labor center shall be deemed eligible for the California Alternative Rates for Energy program established pursuant to Sections 382 and 739.1 of the Public Utilities Code. Any savings from a reduction in energy rates shall be passed on to the occupants of the migrant farm labor center.
SEC. 5.Section 12206 of the Revenue and Taxation Code is amended to read:12206.(a)(1)There shall be allowed as a credit against the tax, 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, relating to low-income housing credit, 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.
(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, relating to low-income housing credit.
(ii)It qualifies for a credit under Section 42(h)(4)(B) of the Internal Revenue Code, relating to special rule where 50 percent or more of building is financed with tax-exempt bonds subject to volume cap.
(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, relating to low-income housing credit. 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, 2020, 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, relating to determination of distributive share.
(ii)This subparagraph does 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.
(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)(i) The taxpayer shall attach a copy of the certification to any return upon which a tax credit is claimed under this section.
(ii)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.
(D)All elections made by the taxpayer pursuant to Section 42 of the Internal Revenue Code, relating to low-income housing credit, shall apply to this section.
(E)(i)Except as described in clause (ii) or (iii), 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, relating to increase in credit for buildings in high-cost areas, 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, relating to low-income housing credit, 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, relating to increase in credit for buildings in high-cost areas, provided that the credit allowed under this section shall not exceed 30 percent of the eligible basis of the building.
(iii)On and after January 1, 2018, notwithstanding clause (i), the California Tax Credit Allocation Committee may allocate the credit pursuant to paragraph (4) of subdivision (c) even if the taxpayer receives federal credits, pursuant to Section 42(d)(5)(B) of the Internal Revenue Code, relating to increase in credit for buildings in high-cost areas.
(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, relating to increase in credit for buildings in high-cost areas, 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, relating to low-income housing credit, 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, relating to applicable percentage: 70 percent present value credit for certain new buildings; 30 percent present value credit for certain other buildings, 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 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) of the Internal Revenue Code, relating to temporary minimum credit rate for nonfederally subsidized new buildings, 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 is a new building that is federally subsidized or that is an existing building that is at risk of conversion, 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.
(3)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 low-income housing credit program set forth in Section 42 of the Internal Revenue Code, relating to low-income housing credit.
(B)The restrictions on rent and income levels will terminate or the federally 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.
(C)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.
(D)The property satisfies the requirements of Section 42(e) of the Internal Revenue Code, relating to rehabilitation expenditures treated as separate new building, except that the provisions of Section 42(e)(3)(A)(ii)(I) shall not apply.
(4)On and after January 1, 2018, in the case of any qualified low-income building that is (A) farmworker housing, as defined by paragraph (2) of subdivision (h) of Section 50199.7 of the Health and Safety Code, and (B) is federally subsidized, the term applicable percentage means for each of the first three years, 20 percent of the qualified basis of the building, and for the fourth year, 15 percent of the qualified basis of the building.
(d)The term qualified low-income housing project as defined in Section 42(c)(2) of the Internal Revenue Code, relating to qualified low-income building, 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, which 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, relating to low-income housing credit.
(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 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, relating to in general.
(e)The provisions of Section 42(f) of the Internal Revenue Code, relating to definition and special rules relating to credit period, shall be modified as follows:
(1)The term credit period as defined in Section 42(f)(1) of the Internal Revenue Code, relating to credit period defined, 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, relating to special rule for 1st year of credit period, shall not apply to the tax credit under this section.
(3)Section 42(f)(3) of the Internal Revenue Code, relating to determination of applicable percentage with respect to increases in qualified basis after 1st year of credit period, 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, relating to limitation on aggregate credit allowable with respect to projects located in a state, shall be modified as follows:
(1)Section 42(h)(2) of the Internal Revenue Code, relating to allocated credit amount to apply to all taxable years ending during or after credit allocation year, does not apply and instead the following provisions apply:
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, relating to limitation on aggregate credit allowable with respect to projects located in a state, do not apply to this section.
(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)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.
(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, relating to compliance period, 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, relating to recapture of credit, 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 this 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, relating to low-income housing credit, 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, relating to qualified low-income housing project.
(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)A provision that 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, relating to plans for allocation of credit among projects. 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, relating to qualified allocation plan and relating to certain selection criteria must be used, respectively.
(3)Notwithstanding Section 42(m) of the Internal Revenue Code, relating to responsibilities of housing credit agencies, 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 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)Existing projects that are at risk of conversion, as defined by paragraph (3) of subdivision (c).
(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, relating to certifications and other reports to secretary, shall be modified as follows:
The term secretary shall be replaced by the term Franchise Tax Board.
(l)In the case in which 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, apply to calendar years after 1993.
(n)The provisions of Section 11407(c) of Public Law 101-508, relating to election to accelerate credit, do not apply.
(o)(1)For a project that receives a preliminary reservation under this section beginning on or after January 1, 2016, and before January 1, 2020, a taxpayer may make an irrevocable election in its application to the California Tax Credit Allocation Committee to sell all or any portion of any credit allowed under this section to one or more unrelated parties for each taxable year in which the credit is allowed subject to both of the following conditions:
(A)The credit is sold for consideration that is not less than 80 percent of the amount of the credit.
(B)The unrelated party or parties purchasing any or all of the credit pursuant to this subdivision is a taxpayer allowed the credit under this section for the taxable year of the purchase or any prior taxable year or is a taxpayer allowed the federal credit under Section 42 of the Internal Revenue Code, relating to low-income housing credit, for the taxable year of the purchase or any prior taxable year in connection with any project located in this state. For purposes of this subparagraph, taxpayer allowed the credit under this section means a taxpayer that is allowed the credit under this section without regard to the purchase of a credit pursuant to this subdivision.
(2)(A)The taxpayer that originally received the credit shall report to the California Tax Credit Allocation Committee within 10 days of the sale of the credit, in the form and manner specified by the California Tax Credit Allocation Committee, all required information regarding the purchase and sale of the credit, including the social security or other taxpayer identification number of the unrelated party or parties to whom the credit has been sold, the face amount of the credit sold, and the amount of consideration received by the taxpayer for the sale of the credit.
(B)The California Tax Credit Allocation Committee shall provide an annual listing to the Franchise Tax Board, in a form and manner agreed upon by the California Tax Credit Allocation Committee and the Franchise Tax Board, of the taxpayers that have sold or purchased a credit pursuant to this subdivision.
(3)(A)A credit may be sold pursuant to this subdivision to more than one unrelated party.
(B)(i)Except as provided in clause (ii), a credit shall not be resold by the unrelated party to another taxpayer or other party.
(ii)All or any portion of any credit allowed under this section may be resold once by an original purchaser to one or more unrelated parties, subject to all of the requirements of this subdivision.
(4)Notwithstanding any other law, the taxpayer that originally received the credit that is sold pursuant to paragraph (1) shall remain solely liable for all obligations and liabilities imposed on the taxpayer by this section with respect to the credit, none of which shall apply to a party to whom the credit has been sold or subsequently transferred. Parties that purchase credits pursuant to paragraph (1) shall be entitled to utilize the purchased credits in the same manner in which the taxpayer that originally received the credit could utilize them.
(5)A taxpayer shall not sell a credit allowed by this section if the taxpayer was allowed the credit on any tax return of the taxpayer.
(6)Notwithstanding paragraph (1), the taxpayer, with the approval of the Executive Director of the California Tax Credit Allocation Committee, may rescind the election to sell all or any portion of the credit allowed under this section if the consideration for the credit falls below 80 percent of the amount of the credit after the California Tax Credit Allocation Committee reservation.
(p)The California Tax Credit Allocation Committee may prescribe rules, guidelines, or procedures necessary or appropriate to carry out the purposes of this section, including any guidelines regarding the allocation of the credit allowed under this section. Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code shall not apply to any rule, guideline, or procedure prescribed by the California Tax Credit Allocation Committee pursuant to this section.
(q)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. 6.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, defined by 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, relating to low-income housing credit, 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.
(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, relating to low-income housing credit.
(ii)It qualifies for a credit under Section 42(h)(4)(B) of the Internal Revenue Code, relating to special rule where 50 percent or more of building is financed with tax-exempt bonds subject to volume cap.
(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, relating to low-income housing credit. 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, 2020, 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, relating to determination of distributive share.
(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 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.
(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, relating to low-income housing credit, apply to this section.
(E)(i)Except as described in clause (ii) or (iii), 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, relating to increase in credit for buildings in high-cost areas, 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, relating to low-income housing credit, 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, relating to increase in credit for buildings in high-cost areas, provided that the credit allowed under this section shall not exceed 30 percent of the eligible basis of the building.
(iii)On and after January 1, 2018, notwithstanding clause (i), the California Tax Credit Allocation Committee may allocate the credit pursuant to paragraph (5) of subdivision (c) even if the taxpayer receives federal credits, pursuant to Section 42(d)(5)(B) of the Internal Revenue Code, relating to increase in credit for buildings in high-cost areas.
(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, relating to increase in credit for buildings in high-cost areas, 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, relating to low-income housing credit, 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, relating to applicable percentage: 70 percent present value credit for certain new buildings; 30 percent present value credit for certain other buildings, shall be modified as follows:
(1)In the case of any qualified low-income building placed in service by the housing sponsor during 1987, 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.
(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) of the Internal Revenue Code, relating to temporary minimum credit rate for nonfederally subsidized new buildings, 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.
(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 an existing building that is at risk of conversion, 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)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 low-income housing credit program set forth in Section 42 of the Internal Revenue Code, relating to low-income housing credit.
(B)The restrictions on rent and income levels will terminate or the federally 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.
(C)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.
(D)The property satisfies the requirements of Section 42(e) of the Internal Revenue Code, relating to rehabilitation expenditures treated as separate new building, except that the provisions of Section 42(e)(3)(A)(ii)(I) shall not apply.
(5)On and after January 1, 2018, in the case of any qualified low-income building that is (A) farmworker housing, as defined by paragraph (2) of subdivision (h) of Section 50199.7 of the Health and Safety Code, and (B) is federally subsidized, the term applicable percentage means for each of the first three years, 20 percent of the qualified basis of the building, and for the fourth year, 15 percent of the qualified basis of the building.
(d)The term qualified low-income housing project as defined in Section 42(c)(2) of the Internal Revenue Code, relating to qualified low-income building, 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, which 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, relating to low-income housing credit.
(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 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, relating to in general.
(e)The provisions of Section 42(f) of the Internal Revenue Code, relating to definition and special rules relating to credit period, shall be modified as follows:
(1)The term credit period as defined in Section 42(f)(1) of the Internal Revenue Code, relating to credit period defined, 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, relating to special rule for 1st year of credit period, shall not apply to the tax credit under this section.
(3)Section 42(f)(3) of the Internal Revenue Code, relating to determination of applicable percentage with respect to increases in qualified basis after 1st year of credit period, 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, relating to limitation on aggregate credit allowable with respect to projects located in a state, shall be modified as follows:
(1)Section 42(h)(2) of the Internal Revenue Code, relating to allocated credit amount to apply to all taxable years ending during or after credit allocation year, does not apply and instead the following provisions apply:
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, relating to limitation on aggregate credit allowable with respect to projects located in a state, do not apply to this section.
(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)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.
(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, relating to compliance period, 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, relating to recapture of credit, does not apply 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 this 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, relating to low-income housing credit, 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, relating to qualified low-income housing project.
(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 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, relating to plans for allocation of credit among projects. 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, relating to qualified allocation plan and relating to certain selection criteria must be used, respectively.
(3)Notwithstanding Section 42(m) of the Internal Revenue Code, relating to responsibilities of housing credit agencies, 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 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)Existing projects that are at risk of conversion, as defined by paragraph (4) of subdivision (c).
(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, relating to certifications and other reports to secretary, shall be modified as follows:
The term secretary shall be replaced by the term Franchise Tax Board.
(l)In the case in which 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 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 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, 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 not apply.
(q)(1)For a project that receives a preliminary reservation under this section beginning on or after January 1, 2016, and before January 1, 2020, a taxpayer may make an irrevocable election in its application to the California Tax Credit Allocation Committee to sell all or any portion of any credit allowed under this section to one or more unrelated parties for each taxable year in which the credit is allowed subject to both of the following conditions:
(A)The credit is sold for consideration that is not less than 80 percent of the amount of the credit.
(B)The unrelated party or parties purchasing any or all of the credit pursuant to this subdivision is a taxpayer allowed the credit under this section for the taxable year of the purchase or any prior taxable year or is a taxpayer allowed the federal credit under Section 42 of the Internal Revenue Code, relating to low-income housing credit, for the taxable year of the purchase or any prior taxable year in connection with any project located in this state. For purposes of this subparagraph, taxpayer allowed the credit under this section means a taxpayer that is allowed the credit under this section without regard to the purchase of a credit pursuant to this subdivision.
(2)(A)The taxpayer that originally received the credit shall report to the California Tax Credit Allocation Committee within 10 days of the sale of the credit, in the form and manner specified by the California Tax Credit Allocation Committee, all required information regarding the purchase and sale of the credit, including the social security or other taxpayer identification number of the unrelated party or parties to whom the credit has been sold, the face amount of the credit sold, and the amount of consideration received by the taxpayer for the sale of the credit.
(B)The California Tax Credit Allocation Committee shall provide an annual listing to the Franchise Tax Board, in a form and manner agreed upon by the California Tax Credit Allocation Committee and the Franchise Tax Board, of the taxpayers that have sold or purchased a credit pursuant to this subdivision.
(3)(A)A credit may be sold pursuant to this subdivision to more than one unrelated party.
(B)(i)Except as provided in clause (ii), a credit shall not be resold by the unrelated party to another taxpayer or other party.
(ii)All or any portion of any credit allowed under this section may be resold once by an original purchaser to one or more unrelated parties, subject to all of the requirements of this subdivision.
(4)Notwithstanding any other law, the taxpayer that originally received the credit that is sold pursuant to paragraph (1) shall remain solely liable for all obligations and liabilities imposed on the taxpayer by this section with respect to the credit, none of which shall apply to a party to whom the credit has been sold or subsequently transferred. Parties that purchase credits pursuant to paragraph (1) shall be entitled to utilize the purchased credits in the same manner in which the taxpayer that originally received the credit could utilize them.
(5)A taxpayer shall not sell a credit allowed by this section if the taxpayer was allowed the credit on any tax return of the taxpayer.
(6)Notwithstanding paragraph (1), the taxpayer, with the approval of the Executive Director of the California Tax Credit Allocation Committee, may rescind the election to sell all or any portion of the credit allowed under this section if the consideration for the credit falls below 80 percent of the amount of the credit after the California Tax Credit Allocation Committee reservation.
(r)The California Tax Credit Allocation Committee may prescribe rules, guidelines, or procedures necessary or appropriate to carry out the purposes of this section, including any guidelines regarding the allocation of the credit allowed under this section. Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code shall not apply to any rule, guideline, or procedure prescribed by the California Tax Credit Allocation Committee pursuant to this section.
(s)The amendments to this section made by Chapter 1222 of the Statutes of 1993 apply only to taxable years beginning on or after January 1, 1994.
(t)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. Any unused credit may continue to be carried forward, as provided in subdivision (l), until the credit has been exhausted.
SEC. 7.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, 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, relating to low-income housing credit, 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.
(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, relating to low-income housing credit.
(ii)It qualifies for a credit under Section 42(h)(4)(B) of the Internal Revenue Code, relating to special rule where 50 percent or more of building is financed with tax-exempt bonds subject to volume cap.
(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, relating to low-income housing credit. 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, 2020, 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, relating to determination of distributive share.
(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 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.
(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, relating to low-income housing credit, apply to this section.
(E)(i)Except as described in clause (ii) or (iii), 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, relating to increase in credit for buildings in high-cost areas, 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, relating to low-income housing credit, 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, relating to increase in credit for buildings in high-cost areas, provided that the credit allowed under this section shall not exceed 30 percent of the eligible basis of the building.
(iii)On and after January 1, 2018, notwithstanding clause (i), the California Tax Credit Allocation Committee may allocate the credit pursuant to paragraph (5) of subdivision (c) even if the taxpayer receives federal credits, pursuant to Section 42(d)(5)(B) of the Internal Revenue Code, relating to increase in credit for buildings in high-cost areas.
(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, relating to increase in credit for buildings in high-cost areas, 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, relating to low-income housing credit, 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, relating to applicable percentage: 70 percent present value credit for certain new buildings; 30 percent present value credit for certain other buildings, shall be modified as follows:
(1)In the case of any qualified low-income building placed in service by the housing sponsor during 1987, 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.
(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) of the Internal Revenue Code, relating to temporary minimum credit rate for nonfederally subsidized new buildings, 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.
(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 an existing building that is at risk of conversion, 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)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 low-income housing credit program set forth in Section 42 of the Internal Revenue Code, relating to low-income housing credit.
(B)The restrictions on rent and income levels will terminate or the federally 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.
(C)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.
(D)The property satisfies the requirements of Section 42(e) of the Internal Revenue Code, relating to rehabilitation expenditures treated as separate new building, except that the provisions of Section 42(e)(3)(A)(ii)(I) shall not apply.
(5)On and after January 1, 2018, in the case of any qualified low-income building that is (A) farmworker housing, as defined by paragraph (2) of subdivision (h) of Section 50199.7 of the Health and Safety Code, and (B) is federally subsidized, the term applicable percentage means for each of the first three years, 20 percent of the qualified basis of the building, and for the fourth year, 15 percent of the qualified basis of the building.
(d)The term qualified low-income housing project as defined in Section 42(c)(2) of the Internal Revenue Code, relating to qualified low-income building, 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, which 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, relating to low-income housing credit.
(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 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, relating to in general.
(e)The provisions of Section 42(f) of the Internal Revenue Code, relating to definition and special rules relating to credit period, shall be modified as follows:
(1)The term credit period as defined in Section 42(f)(1) of the Internal Revenue Code, relating to credit period defined, 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, relating to special rule for 1st year of credit period, shall not apply to the tax credit under this section.
(3)Section 42(f)(3) of the Internal Revenue Code, relating to determination of applicable percentage with respect to increases in qualified basis after 1st year of credit period, 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, relating to limitation on aggregate credit allowable with respect to projects located in a state, shall be modified as follows:
(1)Section 42(h)(2) of the Internal Revenue Code, relating to allocated credit amount to apply to all taxable years ending during or after credit allocation year, does not apply and instead the following provisions apply:
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, relating to limitation on aggregate credit allowable with respect to projects located in a state, do not apply to this section.
(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)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.
(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, relating to compliance period, 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, relating to recapture of credit, does not apply 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 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, relating to low-income housing credit, 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, relating to qualified low-income housing project.
(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 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, relating to plans for allocation of credit among projects. 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, relating to qualified allocation plan and relating to certain selection criteria must be used, respectively.
(3)Notwithstanding Section 42(m) of the Internal Revenue Code, relating to responsibilities of housing credit agencies, 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)Existing projects that are at risk of conversion, as defined by paragraph (4) of subdivision (c).
(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, relating to certifications and other reports to secretary, shall be modified as follows:
The term secretary shall be replaced by the term Franchise Tax Board.
(l)In the case in which 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)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 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, 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 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)(1)For a project that receives a preliminary reservation under this section beginning on or after January 1, 2016, and before January 1, 2020, a taxpayer may make an irrevocable election in its application to the California Tax Credit Allocation Committee to sell all or any portion of any credit allowed under this section to one or more unrelated parties for each taxable year in which the credit is allowed subject to both of the following conditions:
(A)The credit is sold for consideration that is not less than 80 percent of the amount of the credit.
(B)(i)The unrelated party or parties purchasing any or all of the credit pursuant to this subdivision is a taxpayer allowed the credit under this section for the taxable year of the purchase or any prior taxable year or is a taxpayer allowed the federal credit under Section 42 of the Internal Revenue Code, relating to low-income housing credit, for the taxable year of the purchase or any prior taxable year in connection with any project located in this state.
(ii)For purposes of this subparagraph, taxpayer allowed the credit under this section means a taxpayer that is allowed the credit under this section without regard to the purchase of a credit pursuant to this subdivision without regard to any of the following:
(I)The purchase of a credit under this section pursuant to this subdivision.
(II)The assignment of a credit under this section pursuant to subdivision (q).
(III)The assignment of a credit under this section pursuant to Section 23363.
(2)(A)The taxpayer that originally received the credit shall report to the California Tax Credit Allocation Committee within 10 days of the sale of the credit, in the form and manner specified by the California Tax Credit Allocation Committee, all required information regarding the purchase and sale of the credit, including the social security or other taxpayer identification number of the unrelated party or parties to whom the credit has been sold, the face amount of the credit sold, and the amount of consideration received by the taxpayer for the sale of the credit.
(B)The California Tax Credit Allocation Committee shall provide an annual listing to the Franchise Tax Board, in a form and manner agreed upon by the California Tax Credit Allocation Committee and the Franchise Tax Board, of the taxpayers that have sold or purchased a credit pursuant to this subdivision.
(3)(A)A credit may be sold pursuant to this subdivision to more than one unrelated party.
(B)(i)Except as provided in clause (ii), a credit shall not be resold by the unrelated party to another taxpayer or other party.
(ii)All or any portion of any credit allowed under this section may be resold once by an original purchaser to one or more unrelated parties, subject to all of the requirements of this subdivision.
(4)Notwithstanding any other law, the taxpayer that originally received the credit that is sold pursuant to paragraph (1) shall remain solely liable for all obligations and liabilities imposed on the taxpayer by this section with respect to the credit, none of which shall apply to a party to whom the credit has been sold or subsequently transferred. Parties that purchase credits pursuant to paragraph (1) shall be entitled to utilize the purchased credits in the same manner in which the taxpayer that originally received the credit could utilize them.
(5)A taxpayer shall not sell a credit allowed by this section if the taxpayer was allowed the credit on any tax return of the taxpayer.
(6)Notwithstanding paragraph (1), the taxpayer, with the approval of the Executive Director of the California Tax Credit Allocation Committee, may rescind the election to sell all or any portion of the credit allowed under this section if the consideration for the credit falls below 80 percent of the amount of the credit after the California Tax Credit Allocation Committee reservation.
(s)The California Tax Credit Allocation Committee may prescribe rules, guidelines, or procedures necessary or appropriate to carry out the purposes of this section, including any guidelines regarding the allocation of the credit allowed under this section. Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code shall not apply to any rule, guideline, or procedure prescribed by the California Tax Credit Allocation Committee pursuant to this section.
(t)Any unused credit may continue to be carried forward, as provided in subdivision (l), until the credit has been exhausted.
(u)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.
(v)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. 8.This act is an urgency statute necessary for the immediate preservation of the public peace, health, or safety within the meaning of Article IV of the California Constitution and shall go into immediate effect. The facts constituting the necessity are:
In order to expeditiously provide for additional farmworker housing, it is necessary that this act take effect immediately.
It is the intent of the Legislature in enacting this act that the California Tax Credit Allocation Committee shall not allocate tax credits pursuant to Sections 12206, 17058, and 23610.5 of the Revenue and Taxation Code for projects to provide farmworker housing, as defined in subdivision (h) of Section 50199.7 of the Health and Safety Code, in amounts beyond the amounts authorized to be allocated pursuant to Sections 12206, 17058, and 23610.5 of the Revenue and Taxation Code, as those sections read prior to the effective date of this act.
SEC. 2.Section 50199.7 of the Health and Safety Code is amended to read:50199.7.As used in this chapter:
(a)Committee means the Mortgage Bond and Tax Credit Allocation Committee, which is renamed the California Tax Credit Allocation Committee. All references to committee shall mean the California Tax Credit Allocation Committee.
(b)Household has the same meaning as defined in Section 7602 of Title 25 of the California Code of Regulations.
(c)Housing credit means the tax credit for low-income rental housing provided under Section 42 of the federal Internal Revenue Code (26 U.S.C. Sec. 42).
(d)Housing credit applicant means any owner, sponsor, or developer of a qualifying low-income building or project who applies to the committee for either of the following:
(1)An allocation of a portion of the current state housing credit ceiling.
(2)A reservation of a portion of the anticipated state housing credit ceiling of a subsequent year.
(e)Housing credit ceiling means the amount specified in Section 42(h)(3)(C) of the federal Internal Revenue Code (26 U.S.C. Sec. 42(h)(3)(C)).
(f)Qualified low-income building or project has the meaning specified in Section 42(c)(2) of the federal Internal Revenue Code (26 U.S.C. Sec. 42(c)(2)).
(g)Agricultural worker or farmworker shall have the same meaning as specified in subdivision (b) of Section 1140.4 of the Labor Code.
(h)(1)Before January 1, 2018, farmworker housing means housing for agricultural workers that is available to, and occupied by, only farmworkers and their households. The committee may permit an owner to temporarily house nonfarmworkers in vacant units in the event of a disaster or other critical occurrence. However, such emergency shelter shall only be permitted if there are no pending qualified farmworker household applications for residency.
(2)On and after January 1, 2018, farmworker housing means housing in which at least 50 percent of the units are available to, and occupied by, farmworkers and their households. The committee may permit an owner to temporarily house nonfarmworkers in vacant units in the event of a disaster or other critical occurrence. However, such emergency shelter shall only be permitted if there are no pending qualified farmworker household applications for residency.
SEC. 3.Section 50710 of the Health and Safety Code is amended to read:50710.The Director of Housing and Community Development may contract with school districts, housing authorities, health agencies, and other appropriate local public and private nonprofit agencies, for the procurement, or construction of housing or shelter and to obtain services for migratory agricultural workers in the fields of education and sanitation, to obtain day care services for the children of those workers, and the director may adopt regulations as the director deems necessary in order to provide that housing service. Notwithstanding any other provision of law, contracts made pursuant to this chapter are deemed to be for local assistance. Notwithstanding any other law, the director may provide for advance payments of up to 20 percent of annual operating costs of the migrant farm labor center to contractors, provided that the contractors do not have outstanding advance balances from the prior contract periods.
SEC. 4.Section 50710.1 of the Health and Safety Code is amended to read:50710.1.(a)If all the development costs of any migrant farm labor center assisted pursuant to this chapter are provided by federal, state, or local grants, and if inadequate funds are available from any federal, state, or local service to write-down operating costs, the department may approve rents for that center that are in excess of rents charged in other centers assisted by the Office of Migrant Services. However, notwithstanding any other provision of law, commencing with the 2006 growing season, the department shall not increase rents for residents of any facility assisted by the Office of Migrant Services to a level that exceeds 30 percent of the average annualized household incomes of residents of the facility without specific legislative authorization. Prior to approving these rents, the department shall consider the adequacy of evidence presented by the entity operating the center that the rents reimburse actual, reasonable, and necessary costs of operation.
(b)At the end of each fiscal year, any entity operating a migrant farm labor center pursuant to this chapter may establish a reserve account comprised of the excess funds provided through the annual operating contract received from the department if the department certifies there is no need to address reasonable general maintenance requirements or repairs, rehabilitation, and replacement needs of the requesting migrant farm labor center which affect the immediate health and safety of residents. The cumulative balance of the reserve account shall not exceed 10 percent of the annual operating funds annually committed to the entity by the department. Funds in the reserve account shall be used only for capital improvements such as replacing or repairing structural elements, furniture, fixtures, or equipment of the migrant farm labor center, the replacement or repair of which are reasonably required to preserve the migrant farm labor center. Withdrawals from the reserve account shall be made only upon the written approval of the department of the amount and nature of expenditures.
(c)A migrant farm labor center governed by this chapter may be operated for an extended period prior to or beyond the standard 180-day period period, as further provided in paragraph (8) below, after approval by the department, provided that all of the following conditions are satisfied:
(1)No additional subsidies provided by the department are used for the operation or administration of the migrant farm center during the extended occupancy period except to the extent that state funds are appropriated or authorized for the purpose of funding all or part of the cost of subsidizing extended occupancy periods during the first 14 days only. periods.
(2)Rents are not to be increased above the rents charged during the standard 180-day occupancy period unless the department finds that an increase is necessary to cover the difference between reasonable operating costs necessary to keep the center open during the extended occupancy period and the amount of state funds available pursuant to paragraph (1) and any contributions from agricultural employers or other federal, local, or private sources. These contributions shall not be used to reduce the amount of state funds that otherwise would be made available to the center to subsidize rents during an extended occupancy period.
(3)In no event shall the rent during the extended occupancy period exceed the average daily operating cost of the center, less any subsidy funds available pursuant to paragraph (1) or (2). With respect to an extended occupancy beyond the standard 180-day period, households representing at least 25 percent of the units in the center shall have indicated their desire and intention to remain in residency by signing a petition to the local entity to keep the center open for an extended period at rents that are the same or higher than rents during the regular period of occupancy. Each household shall receive a clear bilingual notice describing the extended occupancy options attached to the lease.
The Legislature finds and declares that because the number of residents may be substantially reduced during the extended occupancy period, a rent increase may be necessary to cover operating costs. It is the intent of the Legislature that the public sector, private sector, and farmworkers should each play an important role in ensuring the financial viability of this important source of needed housing.
(4)An extended occupancy period is requested by an entity operating the migrant farm labor center and received by the department no earlier than 30 days and no later than 15 days prior to the centers scheduled opening or closing date. The department shall notify the entity and petitioning residents of the final decision no later than seven days prior to the centers scheduled opening or closing date. During the extended occupancy period, occupancy shall be limited to migrant farmworkers and their families who resided or intended to reside at a migrant center during the regular period of occupancy.
(5)Before approving or denying an early opening or an extension and establishing the rents for the extended occupancy period, both of which shall be within the sole discretion of the department, the department shall take into consideration all of the following factors:
(A)The structural and physical condition of the center, including water and sewer pond capacity and the capacity and willingness of the local entity to operate the center during the extended occupancy period.
(B)Whether local approvals are required, and whether there are competing demands for the use of the centers facilities.
(C)Whether there is adequate documentation that there is a need for residents of the migrant center to continue work in the area, as confirmed by the local entity.
(D)The climate during the extended occupancy period.
(E)The amount of subsidy funds available that can be allocated to each center to subsidize rents below the operating costs and the cost of operating each center during the extended occupancy period.
(F)The extended occupancy period is deemed necessary for the health and safety of the migrant farmworkers and their families.
(G)Other relevant factors affecting the migrant farmworkers and their families and the operation of the centers.
(6)The rents collected during the extended occupancy period shall be remitted to the department. However, based on financial records to the satisfaction of the department, the department may reduce the amount to be remitted by an amount it determines the local entity has expended during the extended occupancy period that is not being reimbursed by department funds.
(7)The occupancy during the extended occupancy period represents a new tenancy and is not subject to existing and statutory and regulatory limitations governing rents. Prior to the beginning of the extended occupancy period, residents shall be provided at least two days advance written notice of any rent increase and of the expected length of the extended occupancy period, including the scheduled date of the beginning of the extended occupancy period and closure of the center. Prior to being eligible for residency during the extended occupancy period, residents shall sign rental documents deemed necessary by the department.
(8)Notwithstanding anything to the contrary contained in this section, the standard 180-day occupancy period combined with any extended occupancy periods shall not exceed a cumulative operating period of 275 days in any calendar year.
(d)The Legislature finds and declares that variable annual climates and changing agricultural techniques create an inability to accurately predict the end of a harvest season for the purposes of housing migrant farmworkers and their families. Because of these factors, in any part of this state, and in any specific year, one or more migrant farmworker housing centers governed by this chapter need to open early or remain open for up to two additional weeks up to a total of 275 days to allow the residents to provide critical assistance to growers in harvesting crops while also fulfilling work expectations that encouraged them to migrate to the areas of the centers. In addition, if the centers close prematurely or open late, the migrant farmworkers often must remain or reside in the areas to work for up to two weeks. work. During this time they will not be able to obtain decent, safe, and affordable housing and the health and safety of their families and the surrounding community will be threatened.
The Legislature therefore finds and declares that, for the purposes of any public or private right, obligation, or authorization related to the use of property and improvements thereon as a 180-day migrant center, an extended use of any housing center governed by this chapter pursuant to this section is deemed to be the same as the 180-day use generally authorized by this chapter.
(e)Because of the presumed income levels of the occupants of migrant farm labor centers, an entity operating a migrant farm labor center shall be deemed eligible for the California Alternative Rates for Energy program established pursuant to Sections 382 and 739.1 of the Public Utilities Code. Any savings from a reduction in energy rates shall be passed on to the occupants of the migrant farm labor center.
SEC. 3.SEC. 5.Section 12206 of the Revenue and Taxation Code is amended to read:12206.(a)(1)There shall be allowed as a credit against the tax, 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, relating to low-income housing credit, 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.
(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, relating to low-income housing credit.
(ii)It qualifies for a credit under Section 42(h)(4)(B) of the Internal Revenue Code, relating to special rule where 50 percent or more of building is financed with tax-exempt bonds subject to volume cap.
(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, relating to low-income housing credit. 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, 2020, 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, relating to determination of distributive share.
(ii)This subparagraph does 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.
(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)(i) The taxpayer shall attach a copy of the certification to any return upon which a tax credit is claimed under this section.
(ii)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.
(D)All elections made by the taxpayer pursuant to Section 42 of the Internal Revenue Code, relating to low-income housing credit, shall apply to this section.
(E)(i)Except as described in clause (ii) or (iii), 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, relating to increase in credit for buildings in high-cost areas, 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, relating to low-income housing credit, 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, relating to increase in credit for buildings in high-cost areas, provided that the credit allowed under this section shall not exceed 30 percent of the eligible basis of the building.
(iii)On and after January 1, 2018, notwithstandingclause (i), the California Tax Credit Allocation Committee may allocate the credit pursuant to paragraph (4) of subdivision (c) even if the taxpayer receives federal credits, pursuant to Section 42(d)(5)(B) of the Internal Revenue Code, relating to increase in credit for buildings in high-cost areas.
(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, relating to increase in credit for buildings in high-cost areas, 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, relating to low-income housing credit, 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, relating to applicable percentage: 70 percent present value credit for certain new buildings; 30 percent present value credit for certain other buildings, 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 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) of the Internal Revenue Code, relating to temporary minimum credit rate for nonfederally subsidized new buildings, 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 is a new building that is federally subsidized or that is an existing building that is at risk of conversion, 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.
(3)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 low-income housing credit program set forth in Section 42 of the Internal Revenue Code, relating to low-income housing credit.
(B)The restrictions on rent and income levels will terminate or the federally 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.
(C)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.
(D)The property satisfies the requirements of Section 42(e) of the Internal Revenue Code, relating to rehabilitation expenditures treated as separate new building, except that the provisions of Section 42(e)(3)(A)(ii)(I) shall not apply.
(4)On and after January 1, 2018, in the case of any qualified low-income building that is (A) farmworker housing, as defined by paragraph (2) of subdivision (h) of Section 50199.7 of the Health and Safety Code, and (B) is federally subsidized, the term applicable percentage means for each of the first three years, 20 percent of the qualified basis of the building, and for the fourth year, 15 percent of the qualified basis of the building.
(d)The term qualified low-income housing project as defined in Section 42(c)(2) of the Internal Revenue Code, relating to qualified low-income building, 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, which 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, relating to low-income housing credit.
(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 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, relating to in general.
(e)The provisions of Section 42(f) of the Internal Revenue Code, relating to definition and special rules relating to credit period, shall be modified as follows:
(1)The term credit period as defined in Section 42(f)(1) of the Internal Revenue Code, relating to credit period defined, 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, relating to special rule for 1st year of credit period, shall not apply to the tax credit under this section.
(3)Section 42(f)(3) of the Internal Revenue Code, relating to determination of applicable percentage with respect to increases in qualified basis after 1st year of credit period, 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, relating to limitation on aggregate credit allowable with respect to projects located in a state, shall be modified as follows:
(1)Section 42(h)(2) of the Internal Revenue Code, relating to allocated credit amount to apply to all taxable years ending during or after credit allocation year, does not apply and instead the following provisions apply:
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, relating to limitation on aggregate credit allowable with respect to projects located in a state, do not apply to this section.
(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)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.
(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, relating to compliance period, 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, relating to recapture of credit, 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 this 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, relating to low-income housing credit, 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, relating to qualified low-income housing project.
(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)A provision that 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, relating to plans for allocation of credit among projects. 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, relating to qualified allocation plan and relating to certain selection criteria must be used, respectively.
(3)Notwithstanding Section 42(m) of the Internal Revenue Code, relating to responsibilities of housing credit agencies, 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 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)Existing projects that are at risk of conversion, as defined by paragraph (3) of subdivision (c).
(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, relating to certifications and other reports to secretary, shall be modified as follows:
The term secretary shall be replaced by the term Franchise Tax Board.
(l)In the case in which 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, apply to calendar years after 1993.
(n)The provisions of Section 11407(c) of Public Law 101-508, relating to election to accelerate credit, do not apply.
(o)(1)For a project that receives a preliminary reservation under this section beginning on or after January 1, 2016, and before January 1, 2020, a taxpayer may make an irrevocable election in its application to the California Tax Credit Allocation Committee to sell all or any portion of any credit allowed under this section to one or more unrelated parties for each taxable year in which the credit is allowed subject to both of the following conditions:
(A)The credit is sold for consideration that is not less than 80 percent of the amount of the credit.
(B)The unrelated party or parties purchasing any or all of the credit pursuant to this subdivision is a taxpayer allowed the credit under this section for the taxable year of the purchase or any prior taxable year or is a taxpayer allowed the federal credit under Section 42 of the Internal Revenue Code, relating to low-income housing credit, for the taxable year of the purchase or any prior taxable year in connection with any project located in this state. For purposes of this subparagraph, taxpayer allowed the credit under this section means a taxpayer that is allowed the credit under this section without regard to the purchase of a credit pursuant to this subdivision.
(2)(A)The taxpayer that originally received the credit shall report to the California Tax Credit Allocation Committee within 10 days of the sale of the credit, in the form and manner specified by the California Tax Credit Allocation Committee, all required information regarding the purchase and sale of the credit, including the social security or other taxpayer identification number of the unrelated party or parties to whom the credit has been sold, the face amount of the credit sold, and the amount of consideration received by the taxpayer for the sale of the credit.
(B)The California Tax Credit Allocation Committee shall provide an annual listing to the Franchise Tax Board, in a form and manner agreed upon by the California Tax Credit Allocation Committee and the Franchise Tax Board, of the taxpayers that have sold or purchased a credit pursuant to this subdivision.
(3)(A)A credit may be sold pursuant to this subdivision to more than one unrelated party.
(B)(i)Except as provided in clause (ii), a credit shall not be resold by the unrelated party to another taxpayer or other party.
(ii)All or any portion of any credit allowed under this section may be resold once by an original purchaser to one or more unrelated parties, subject to all of the requirements of this subdivision.
(4)Notwithstanding any other law, the taxpayer that originally received the credit that is sold pursuant to paragraph (1) shall remain solely liable for all obligations and liabilities imposed on the taxpayer by this section with respect to the credit, none of which shall apply to a party to whom the credit has been sold or subsequently transferred. Parties that purchase credits pursuant to paragraph (1) shall be entitled to utilize the purchased credits in the same manner in which the taxpayer that originally received the credit could utilize them.
(5)A taxpayer shall not sell a credit allowed by this section if the taxpayer was allowed the credit on any tax return of the taxpayer.
(6)Notwithstanding paragraph (1), the taxpayer, with the approval of the Executive Director of the California Tax Credit Allocation Committee, may rescind the election to sell all or any portion of the credit allowed under this section if the consideration for the credit falls below 80 percent of the amount of the credit after the California Tax Credit Allocation Committee reservation.
(p)The California Tax Credit Allocation Committee may prescribe rules, guidelines, or procedures necessary or appropriate to carry out the purposes of this section, including any guidelines regarding the allocation of the credit allowed under this section. Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code shall not apply to any rule, guideline, or procedure prescribed by the California Tax Credit Allocation Committee pursuant to this section.
(q)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. 4.SEC. 6.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, defined by 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, relating to low-income housing credit, 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.
(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, relating to low-income housing credit.
(ii)It qualifies for a credit under Section 42(h)(4)(B) of the Internal Revenue Code, relating to special rule where 50 percent or more of building is financed with tax-exempt bonds subject to volume cap.
(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, relating to low-income housing credit. 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, 2020, 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, relating to determination of distributive share.
(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 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.
(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, relating to low-income housing credit, apply to this section.
(E)(i)Except as described in clause (ii) or (iii), 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, relating to increase in credit for buildings in high-cost areas, 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, relating to low-income housing credit, 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, relating to increase in credit for buildings in high-cost areas, provided that the credit allowed under this section shall not exceed 30 percent of the eligible basis of the building.
(iii)On and after January 1, 2018, notwithstanding clause (i), the California Tax Credit Allocation Committee may allocate the credit pursuant to paragraph (5) of subdivision (c) even if the taxpayer receives federal credits, pursuant to Section 42(d)(5)(B) of the Internal Revenue Code, relating to increase in credit for buildings in high-cost areas.
(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, relating to increase in credit for buildings in high-cost areas, 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, relating to low-income housing credit, 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, relating to applicable percentage: 70 percent present value credit for certain new buildings; 30 percent present value credit for certain other buildings, shall be modified as follows:
(1)In the case of any qualified low-income building placed in service by the housing sponsor during 1987, 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.
(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) of the Internal Revenue Code, relating to temporary minimum credit rate for nonfederally subsidized new buildings, 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.
(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 an existing building that is at risk of conversion, 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)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 low-income housing credit program set forth in Section 42 of the Internal Revenue Code, relating to low-income housing credit.
(B)The restrictions on rent and income levels will terminate or the federally 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.
(C)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.
(D)The property satisfies the requirements of Section 42(e) of the Internal Revenue Code, relating to rehabilitation expenditures treated as separate new building, except that the provisions of Section 42(e)(3)(A)(ii)(I) shall not apply.
(5)On and after January 1, 2018, in the case of any qualified low-income building that is (A) farmworker housing, as defined by paragraph (2) of subdivision (h) of Section 50199.7 of the Health and Safety Code, and (B) is federally subsidized, the term applicable percentage means for each of the first three years, 20 percent of the qualified basis of the building, and for the fourth year, 15 percent of the qualified basis of the building.
(d)The term qualified low-income housing project as defined in Section 42(c)(2) of the Internal Revenue Code, relating to qualified low-income building, 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, which 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, relating to low-income housing credit.
(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 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, relating to in general.
(e)The provisions of Section 42(f) of the Internal Revenue Code, relating to definition and special rules relating to credit period, shall be modified as follows:
(1)The term credit period as defined in Section 42(f)(1) of the Internal Revenue Code, relating to credit period defined, 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, relating to special rule for 1st year of credit period, shall not apply to the tax credit under this section.
(3)Section 42(f)(3) of the Internal Revenue Code, relating to determination of applicable percentage with respect to increases in qualified basis after 1st year of credit period, 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, relating to limitation on aggregate credit allowable with respect to projects located in a state, shall be modified as follows:
(1)Section 42(h)(2) of the Internal Revenue Code, relating to allocated credit amount to apply to all taxable years ending during or after credit allocation year, does not apply and instead the following provisions apply:
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, relating to limitation on aggregate credit allowable with respect to projects located in a state, do not apply to this section.
(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)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.
(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, relating to compliance period, 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, relating to recapture of credit, does not apply 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 this 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, relating to low-income housing credit, 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, relating to qualified low-income housing project.
(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 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, relating to plans for allocation of credit among projects. 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, relating to qualified allocation plan and relating to certain selection criteria must be used, respectively.
(3)Notwithstanding Section 42(m) of the Internal Revenue Code, relating to responsibilities of housing credit agencies, 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 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)Existing projects that are at risk of conversion, as defined by paragraph (4) of subdivision (c).
(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, relating to certifications and other reports to secretary, shall be modified as follows:
The term secretary shall be replaced by the term Franchise Tax Board.
(l)In the case in which 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 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 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, 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 not apply.
(q)(1)For a project that receives a preliminary reservation under this section beginning on or after January 1, 2016, and before January 1, 2020, a taxpayer may make an irrevocable election in its application to the California Tax Credit Allocation Committee to sell all or any portion of any credit allowed under this section to one or more unrelated parties for each taxable year in which the credit is allowed subject to both of the following conditions:
(A)The credit is sold for consideration that is not less than 80 percent of the amount of the credit.
(B)The unrelated party or parties purchasing any or all of the credit pursuant to this subdivision is a taxpayer allowed the credit under this section for the taxable year of the purchase or any prior taxable year or is a taxpayer allowed the federal credit under Section 42 of the Internal Revenue Code, relating to low-income housing credit, for the taxable year of the purchase or any prior taxable year in connection with any project located in this state. For purposes of this subparagraph, taxpayer allowed the credit under this section means a taxpayer that is allowed the credit under this section without regard to the purchase of a credit pursuant to this subdivision.
(2)(A)The taxpayer that originally received the credit shall report to the California Tax Credit Allocation Committee within 10 days of the sale of the credit, in the form and manner specified by the California Tax Credit Allocation Committee, all required information regarding the purchase and sale of the credit, including the social security or other taxpayer identification number of the unrelated party or parties to whom the credit has been sold, the face amount of the credit sold, and the amount of consideration received by the taxpayer for the sale of the credit.
(B)The California Tax Credit Allocation Committee shall provide an annual listing to the Franchise Tax Board, in a form and manner agreed upon by the California Tax Credit Allocation Committee and the Franchise Tax Board, of the taxpayers that have sold or purchased a credit pursuant to this subdivision.
(3)(A)A credit may be sold pursuant to this subdivision to more than one unrelated party.
(B)(i)Except as provided in clause (ii), a credit shall not be resold by the unrelated party to another taxpayer or other party.
(ii)All or any portion of any credit allowed under this section may be resold once by an original purchaser to one or more unrelated parties, subject to all of the requirements of this subdivision.
(4)Notwithstanding any other law, the taxpayer that originally received the credit that is sold pursuant to paragraph (1) shall remain solely liable for all obligations and liabilities imposed on the taxpayer by this section with respect to the credit, none of which shall apply to a party to whom the credit has been sold or subsequently transferred. Parties that purchase credits pursuant to paragraph (1) shall be entitled to utilize the purchased credits in the same manner in which the taxpayer that originally received the credit could utilize them.
(5)A taxpayer shall not sell a credit allowed by this section if the taxpayer was allowed the credit on any tax return of the taxpayer.
(6)Notwithstanding paragraph (1), the taxpayer, with the approval of the Executive Director of the California Tax Credit Allocation Committee, may rescind the election to sell all or any portion of the credit allowed under this section if the consideration for the credit falls below 80 percent of the amount of the credit after the California Tax Credit Allocation Committee reservation.
(r)The California Tax Credit Allocation Committee may prescribe rules, guidelines, or procedures necessary or appropriate to carry out the purposes of this section, including any guidelines regarding the allocation of the credit allowed under this section. Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code shall not apply to any rule, guideline, or procedure prescribed by the California Tax Credit Allocation Committee pursuant to this section.
(s)The amendments to this section made by Chapter 1222 of the Statutes of 1993 apply only to taxable years beginning on or after January 1, 1994.
(t)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. Any unused credit may continue to be carried forward, as provided in subdivision (l), until the credit has been exhausted.
SEC. 5.SEC. 7.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, 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, relating to low-income housing credit, 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.
(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, relating to low-income housing credit.
(ii)It qualifies for a credit under Section 42(h)(4)(B) of the Internal Revenue Code, relating to special rule where 50 percent or more of building is financed with tax-exempt bonds subject to volume cap.
(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, relating to low-income housing credit. 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, 2020, 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, relating to determination of distributive share.
(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 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.
(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, relating to low-income housing credit, apply to this section.
(E)(i)Except as described in clause (ii) or (iii), 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, relating to increase in credit for buildings in high-cost areas, 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, relating to low-income housing credit, 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, relating to increase in credit for buildings in high-cost areas, provided that the credit allowed under this section shall not exceed 30 percent of the eligible basis of the building.
(iii)On and after January 1, 2018, notwithstanding clause (i), the California Tax Credit Allocation Committee may allocate the credit pursuant to paragraph (5) of subdivision (c) even if the taxpayer receives federal credits, pursuant to Section 42(d)(5)(B) of the Internal Revenue Code, relating to increase in credit for buildings in high-cost areas.
(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, relating to increase in credit for buildings in high-cost areas, 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, relating to low-income housing credit, 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, relating to applicable percentage: 70 percent present value credit for certain new buildings; 30 percent present value credit for certain other buildings, shall be modified as follows:
(1)In the case of any qualified low-income building placed in service by the housing sponsor during 1987, 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.
(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) of the Internal Revenue Code, relating to temporary minimum credit rate for nonfederally subsidized new buildings, 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.
(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 an existing building that is at risk of conversion, 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)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 low-income housing credit program set forth in Section 42 of the Internal Revenue Code, relating to low-income housing credit.
(B)The restrictions on rent and income levels will terminate or the federally 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.
(C)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.
(D)The property satisfies the requirements of Section 42(e) of the Internal Revenue Code, relating to rehabilitation expenditures treated as separate new building, except that the provisions of Section 42(e)(3)(A)(ii)(I) shall not apply.
(5)On and after January 1, 2018, in the case of any qualified low-income building that is (A) farmworker housing, as defined by paragraph (2) of subdivision (h) of Section 50199.7 of the Health and Safety Code, and (B) is federally subsidized, the term applicable percentage means for each of the first three years, 20 percent of the qualified basis of the building, and for the fourth year, 15 percent of the qualified basis of the building.
(d)The term qualified low-income housing project as defined in Section 42(c)(2) of the Internal Revenue Code, relating to qualified low-income building, 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, which 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, relating to low-income housing credit.
(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 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, relating to in general.
(e)The provisions of Section 42(f) of the Internal Revenue Code, relating to definition and special rules relating to credit period, shall be modified as follows:
(1)The term credit period as defined in Section 42(f)(1) of the Internal Revenue Code, relating to credit period defined, 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, relating to special rule for 1st year of credit period, shall not apply to the tax credit under this section.
(3)Section 42(f)(3) of the Internal Revenue Code, relating to determination of applicable percentage with respect to increases in qualified basis after 1st year of credit period, 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, relating to limitation on aggregate credit allowable with respect to projects located in a state, shall be modified as follows:
(1)Section 42(h)(2) of the Internal Revenue Code, relating to allocated credit amount to apply to all taxable years ending during or after credit allocation year, does not apply and instead the following provisions apply:
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, relating to limitation on aggregate credit allowable with respect to projects located in a state, do not apply to this section.
(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)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.
(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, relating to compliance period, 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, relating to recapture of credit, does not apply 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 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, relating to low-income housing credit, 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, relating to qualified low-income housing project.
(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 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, relating to plans for allocation of credit among projects. 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, relating to qualified allocation plan and relating to certain selection criteria must be used, respectively.
(3)Notwithstanding Section 42(m) of the Internal Revenue Code, relating to responsibilities of housing credit agencies, 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)Existing projects that are at risk of conversion, as defined by paragraph (4) of subdivision (c).
(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, relating to certifications and other reports to secretary, shall be modified as follows:
The term secretary shall be replaced by the term Franchise Tax Board.
(l)In the case in which 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)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 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, 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 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)(1)For a project that receives a preliminary reservation under this section beginning on or after January 1, 2016, and before January 1, 2020, a taxpayer may make an irrevocable election in its application to the California Tax Credit Allocation Committee to sell all or any portion of any credit allowed under this section to one or more unrelated parties for each taxable year in which the credit is allowed subject to both of the following conditions:
(A)The credit is sold for consideration that is not less than 80 percent of the amount of the credit.
(B)(i)The unrelated party or parties purchasing any or all of the credit pursuant to this subdivision is a taxpayer allowed the credit under this section for the taxable year of the purchase or any prior taxable year or is a taxpayer allowed the federal credit under Section 42 of the Internal Revenue Code, relating to low-income housing credit, for the taxable year of the purchase or any prior taxable year in connection with any project located in this state.
(ii)For purposes of this subparagraph, taxpayer allowed the credit under this section means a taxpayer that is allowed the credit under this section without regard to the purchase of a credit pursuant to this subdivision without regard to any of the following:
(I)The purchase of a credit under this section pursuant to this subdivision.
(II)The assignment of a credit under this section pursuant to subdivision (q).
(III)The assignment of a credit under this section pursuant to Section 23363.
(2)(A)The taxpayer that originally received the credit shall report to the California Tax Credit Allocation Committee within 10 days of the sale of the credit, in the form and manner specified by the California Tax Credit Allocation Committee, all required information regarding the purchase and sale of the credit, including the social security or other taxpayer identification number of the unrelated party or parties to whom the credit has been sold, the face amount of the credit sold, and the amount of consideration received by the taxpayer for the sale of the credit.
(B)The California Tax Credit Allocation Committee shall provide an annual listing to the Franchise Tax Board, in a form and manner agreed upon by the California Tax Credit Allocation Committee and the Franchise Tax Board, of the taxpayers that have sold or purchased a credit pursuant to this subdivision.
(3)(A)A credit may be sold pursuant to this subdivision to more than one unrelated party.
(B)(i)Except as provided in clause (ii), a credit shall not be resold by the unrelated party to another taxpayer or other party.
(ii)All or any portion of any credit allowed under this section may be resold once by an original purchaser to one or more unrelated parties, subject to all of the requirements of this subdivision.
(4)Notwithstanding any other law, the taxpayer that originally received the credit that is sold pursuant to paragraph (1) shall remain solely liable for all obligations and liabilities imposed on the taxpayer by this section with respect to the credit, none of which shall apply to a party to whom the credit has been sold or subsequently transferred. Parties that purchase credits pursuant to paragraph (1) shall be entitled to utilize the purchased credits in the same manner in which the taxpayer that originally received the credit could utilize them.
(5)A taxpayer shall not sell a credit allowed by this section if the taxpayer was allowed the credit on any tax return of the taxpayer.
(6)Notwithstanding paragraph (1), the taxpayer, with the approval of the Executive Director of the California Tax Credit Allocation Committee, may rescind the election to sell all or any portion of the credit allowed under this section if the consideration for the credit falls below 80 percent of the amount of the credit after the California Tax Credit Allocation Committee reservation.
(s)The California Tax Credit Allocation Committee may prescribe rules, guidelines, or procedures necessary or appropriate to carry out the purposes of this section, including any guidelines regarding the allocation of the credit allowed under this section. Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code shall not apply to any rule, guideline, or procedure prescribed by the California Tax Credit Allocation Committee pursuant to this section.
(t)Any unused credit may continue to be carried forward, as provided in subdivision (l), until the credit has been exhausted.
(u)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.
(v)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. 6.This act provides for a tax levy within the meaning of Article IV of the California Constitution and shall go into immediate effect.SEC. 8.This act is an urgency statute necessary for the immediate preservation of the public peace, health, or safety within the meaning of Article IV of the California Constitution and shall go into immediate effect. The facts constituting the necessity are:
In order to expeditiously provide for additional farmworker housing, it is necessary that this act take effect immediately.
It is the intent of the Legislature in enacting this act that the California Tax Credit Allocation Committee shall not allocate tax credits pursuant to Sections 12206, 17058, and 23610.5 of the Revenue and Taxation Code for projects to provide farmworker housing, as defined in subdivision (h) of Section 50199.7 of the Health and Safety Code, in amounts beyond the amounts authorized to be allocated pursuant to Sections 12206, 17058, and 23610.5 of the Revenue and Taxation Code, as those sections read prior to the effective date of this act.
SEC. 2.Section 50199.7 of the Health and Safety Code is amended to read:50199.7.As used in this chapter:
(a)Committee means the Mortgage Bond and Tax Credit Allocation Committee, which is renamed the California Tax Credit Allocation Committee. All references to committee shall mean the California Tax Credit Allocation Committee.
(b)Household has the same meaning as defined in Section 7602 of Title 25 of the California Code of Regulations.
(c)Housing credit means the tax credit for low-income rental housing provided under Section 42 of the federal Internal Revenue Code (26 U.S.C. Sec. 42).
(d)Housing credit applicant means any owner, sponsor, or developer of a qualifying low-income building or project who applies to the committee for either of the following:
(1)An allocation of a portion of the current state housing credit ceiling.
(2)A reservation of a portion of the anticipated state housing credit ceiling of a subsequent year.
(e)Housing credit ceiling means the amount specified in Section 42(h)(3)(C) of the federal Internal Revenue Code (26 U.S.C. Sec. 42(h)(3)(C)).
(f)Qualified low-income building or project has the meaning specified in Section 42(c)(2) of the federal Internal Revenue Code (26 U.S.C. Sec. 42(c)(2)).
(g)Agricultural worker or farmworker shall have the same meaning as specified in subdivision (b) of Section 1140.4 of the Labor Code.
(h)(1)Before January 1, 2018, farmworker housing means housing for agricultural workers that is available to, and occupied by, only farmworkers and their households. The committee may permit an owner to temporarily house nonfarmworkers in vacant units in the event of a disaster or other critical occurrence. However, such emergency shelter shall only be permitted if there are no pending qualified farmworker household applications for residency.
(h)Farmworker(2)On and after January 1, 2018, farmworker housing means housing in which at least 50 percent of the units are available to, and occupied by, farmworkers and their households. The committee may permit an owner to temporarily house nonfarmworkers in vacant units in the event of a disaster or other critical occurrence. However, such emergency shelter shall only be permitted if there are no pending qualified farmworker household applications for residency.
SEC. 3.Section 12206 of the Revenue and Taxation Code is amended to read:12206.(a)(1)There shall be allowed as a credit against the tax, 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, relating to low-income housing credit, 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.
(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, relating to low-income housing credit.
(ii)It qualifies for a credit under Section 42(h)(4)(B) of the Internal Revenue Code, relating to special rule where 50 percent or more of building is financed with tax-exempt bonds subject to volume cap.
(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, relating to low-income housing credit. 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, 2020, 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, relating to determination of distributive share.
(ii)This subparagraph does 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.
(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)(i) The taxpayer shall attach a copy of the certification to any return upon which a tax credit is claimed under this section.
(ii)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.
(D)All elections made by the taxpayer pursuant to Section 42 of the Internal Revenue Code, relating to low-income housing credit, shall apply to this section.
(E)(i)Except as described in clause (ii) or (iii), 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, relating to increase in credit for buildings in high-cost areas, 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, relating to low-income housing credit, 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, relating to increase in credit for buildings in high-cost areas, provided that the credit allowed under this section shall not exceed 30 percent of the eligible basis of the building.
(iii)Notwithstanding On and after January 1, 2018, notwithstandingclause (i), the California Tax Credit Allocation Committee may allocate the credit pursuant to paragraph (4) of subdivision (c) even if the taxpayer receives federal credits, pursuant to Section 42(d)(5)(B) of the Internal Revenue Code, relating to increase in credit for buildings in high-cost areas.
(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, relating to increase in credit for buildings in high-cost areas, 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, relating to low-income housing credit, 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, relating to applicable percentage: 70 percent present value credit for certain new buildings; 30 percent present value credit for certain other buildings, 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 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) of the Internal Revenue Code, relating to temporary minimum credit rate for nonfederally subsidized new buildings, 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 is a new building that is federally subsidized or that is an existing building that is at risk of conversion, 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.
(3)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 low-income housing credit program set forth in Section 42 of the Internal Revenue Code, relating to low-income housing credit.
(B)The restrictions on rent and income levels will terminate or the federally 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.
(C)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.
(D)The property satisfies the requirements of Section 42(e) of the Internal Revenue Code, relating to rehabilitation expenditures treated as separate new building, except that the provisions of Section 42(e)(3)(A)(ii)(I) shall not apply.
(4)In On and after January 1, 2018, in the case of any qualified low-income building that is (A) farmworker housing, as defined by paragraph (2) of subdivision (h) of Section 50199.7 of the Health and Safety Code, and (B) is federally subsidized, the term applicable percentage means for each of the first three years, 20 percent of the qualified basis of the building, and for the fourth year, 15 percent of the qualified basis of the building.
(d)The term qualified low-income housing project as defined in Section 42(c)(2) of the Internal Revenue Code, relating to qualified low-income building, 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, which 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, relating to low-income housing credit.
(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 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, relating to in general.
(e)The provisions of Section 42(f) of the Internal Revenue Code, relating to definition and special rules relating to credit period, shall be modified as follows:
(1)The term credit period as defined in Section 42(f)(1) of the Internal Revenue Code, relating to credit period defined, 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, relating to special rule for 1st year of credit period, shall not apply to the tax credit under this section.
(3)Section 42(f)(3) of the Internal Revenue Code, relating to determination of applicable percentage with respect to increases in qualified basis after 1st year of credit period, 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, relating to limitation on aggregate credit allowable with respect to projects located in a state, shall be modified as follows:
(1)Section 42(h)(2) of the Internal Revenue Code, relating to allocated credit amount to apply to all taxable years ending during or after credit allocation year, does not apply and instead the following provisions apply:
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, relating to limitation on aggregate credit allowable with respect to projects located in a state, do not apply to this section.
(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)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.
(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, relating to compliance period, 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, relating to recapture of credit, 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 this 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, relating to low-income housing credit, 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, relating to qualified low-income housing project.
(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)A provision that 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, relating to plans for allocation of credit among projects. 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, relating to qualified allocation plan and relating to certain selection criteria must be used, respectively.
(3)Notwithstanding Section 42(m) of the Internal Revenue Code, relating to responsibilities of housing credit agencies, 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 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)Existing projects that are at risk of conversion, as defined by paragraph (3) of subdivision (c).
(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, relating to certifications and other reports to secretary, shall be modified as follows:
The term secretary shall be replaced by the term Franchise Tax Board.
(l)In the case in which 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, apply to calendar years after 1993.
(n)The provisions of Section 11407(c) of Public Law 101-508, relating to election to accelerate credit, do not apply.
(o)(1)For a project that receives a preliminary reservation under this section beginning on or after January 1, 2016, and before January 1, 2020, a taxpayer may make an irrevocable election in its application to the California Tax Credit Allocation Committee to sell all or any portion of any credit allowed under this section to one or more unrelated parties for each taxable year in which the credit is allowed subject to both of the following conditions:
(A)The credit is sold for consideration that is not less than 80 percent of the amount of the credit.
(B)The unrelated party or parties purchasing any or all of the credit pursuant to this subdivision is a taxpayer allowed the credit under this section for the taxable year of the purchase or any prior taxable year or is a taxpayer allowed the federal credit under Section 42 of the Internal Revenue Code, relating to low-income housing credit, for the taxable year of the purchase or any prior taxable year in connection with any project located in this state. For purposes of this subparagraph, taxpayer allowed the credit under this section means a taxpayer that is allowed the credit under this section without regard to the purchase of a credit pursuant to this subdivision.
(2)(A)The taxpayer that originally received the credit shall report to the California Tax Credit Allocation Committee within 10 days of the sale of the credit, in the form and manner specified by the California Tax Credit Allocation Committee, all required information regarding the purchase and sale of the credit, including the social security or other taxpayer identification number of the unrelated party or parties to whom the credit has been sold, the face amount of the credit sold, and the amount of consideration received by the taxpayer for the sale of the credit.
(B)The California Tax Credit Allocation Committee shall provide an annual listing to the Franchise Tax Board, in a form and manner agreed upon by the California Tax Credit Allocation Committee and the Franchise Tax Board, of the taxpayers that have sold or purchased a credit pursuant to this subdivision.
(3)(A)A credit may be sold pursuant to this subdivision to more than one unrelated party.
(B)(i)Except as provided in clause (ii), a credit shall not be resold by the unrelated party to another taxpayer or other party.
(ii)All or any portion of any credit allowed under this section may be resold once by an original purchaser to one or more unrelated parties, subject to all of the requirements of this subdivision.
(4)Notwithstanding any other law, the taxpayer that originally received the credit that is sold pursuant to paragraph (1) shall remain solely liable for all obligations and liabilities imposed on the taxpayer by this section with respect to the credit, none of which shall apply to a party to whom the credit has been sold or subsequently transferred. Parties that purchase credits pursuant to paragraph (1) shall be entitled to utilize the purchased credits in the same manner in which the taxpayer that originally received the credit could utilize them.
(5)A taxpayer shall not sell a credit allowed by this section if the taxpayer was allowed the credit on any tax return of the taxpayer.
(6)Notwithstanding paragraph (1), the taxpayer, with the approval of the Executive Director of the California Tax Credit Allocation Committee, may rescind the election to sell all or any portion of the credit allowed under this section if the consideration for the credit falls below 80 percent of the amount of the credit after the California Tax Credit Allocation Committee reservation.
(p)The California Tax Credit Allocation Committee may prescribe rules, guidelines, or procedures necessary or appropriate to carry out the purposes of this section, including any guidelines regarding the allocation of the credit allowed under this section. Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code shall not apply to any rule, guideline, or procedure prescribed by the California Tax Credit Allocation Committee pursuant to this section.
(q)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. 4.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, defined by 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, relating to low-income housing credit, 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.
(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, relating to low-income housing credit.
(ii)It qualifies for a credit under Section 42(h)(4)(B) of the Internal Revenue Code, relating to special rule where 50 percent or more of building is financed with tax-exempt bonds subject to volume cap.
(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, relating to low-income housing credit. 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, 2020, 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, relating to determination of distributive share.
(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 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.
(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, relating to low-income housing credit, apply to this section.
(E)(i)Except as described in clause (ii) or (iii), 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, relating to increase in credit for buildings in high-cost areas, 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, relating to low-income housing credit, 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, relating to increase in credit for buildings in high-cost areas, provided that the credit allowed under this section shall not exceed 30 percent of the eligible basis of the building.
(iii)Notwithstanding On and after January 1, 2018, notwithstanding clause (i), the California Tax Credit Allocation Committee may allocate the credit pursuant to paragraph (5) of subdivision (c) even if the taxpayer receives federal credits, pursuant to Section 42(d)(5)(B) of the Internal Revenue Code, relating to increase in credit for buildings in high-cost areas.
(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, relating to increase in credit for buildings in high-cost areas, 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, relating to low-income housing credit, 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, relating to applicable percentage: 70 percent present value credit for certain new buildings; 30 percent present value credit for certain other buildings, shall be modified as follows:
(1)In the case of any qualified low-income building placed in service by the housing sponsor during 1987, 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.
(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) of the Internal Revenue Code, relating to temporary minimum credit rate for nonfederally subsidized new buildings, 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.
(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 an existing building that is at risk of conversion, 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)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 low-income housing credit program set forth in Section 42 of the Internal Revenue Code, relating to low-income housing credit.
(B)The restrictions on rent and income levels will terminate or the federally 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.
(C)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.
(D)The property satisfies the requirements of Section 42(e) of the Internal Revenue Code, relating to rehabilitation expenditures treated as separate new building, except that the provisions of Section 42(e)(3)(A)(ii)(I) shall not apply.
(5)In On and after January 1, 2018, in the case of any qualified low-income building that is (A) farmworker housing, as defined by paragraph (2) of subdivision (h) of Section 50199.7 of the Health and Safety Code, and (B) is federally subsidized, the term applicable percentage means for each of the first three years, 20 percent of the qualified basis of the building, and for the fourth year, 15 percent of the qualified basis of the building.
(d)The term qualified low-income housing project as defined in Section 42(c)(2) of the Internal Revenue Code, relating to qualified low-income building, 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, which 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, relating to low-income housing credit.
(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 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, relating to in general.
(e)The provisions of Section 42(f) of the Internal Revenue Code, relating to definition and special rules relating to credit period, shall be modified as follows:
(1)The term credit period as defined in Section 42(f)(1) of the Internal Revenue Code, relating to credit period defined, 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, relating to special rule for 1st year of credit period, shall not apply to the tax credit under this section.
(3)Section 42(f)(3) of the Internal Revenue Code, relating to determination of applicable percentage with respect to increases in qualified basis after 1st year of credit period, 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, relating to limitation on aggregate credit allowable with respect to projects located in a state, shall be modified as follows:
(1)Section 42(h)(2) of the Internal Revenue Code, relating to allocated credit amount to apply to all taxable years ending during or after credit allocation year, does not apply and instead the following provisions apply:
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, relating to limitation on aggregate credit allowable with respect to projects located in a state, do not apply to this section.
(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)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.
(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, relating to compliance period, 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, relating to recapture of credit, does not apply 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 this 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, relating to low-income housing credit, 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, relating to qualified low-income housing project.
(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 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, relating to plans for allocation of credit among projects. 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, relating to qualified allocation plan and relating to certain selection criteria must be used, respectively.
(3)Notwithstanding Section 42(m) of the Internal Revenue Code, relating to responsibilities of housing credit agencies, 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 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)Existing projects that are at risk of conversion, as defined by paragraph (4) of subdivision (c).
(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, relating to certifications and other reports to secretary, shall be modified as follows:
The term secretary shall be replaced by the term Franchise Tax Board.
(l)In the case in which 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 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 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, 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 not apply.
(q)(1)For a project that receives a preliminary reservation under this section beginning on or after January 1, 2016, and before January 1, 2020, a taxpayer may make an irrevocable election in its application to the California Tax Credit Allocation Committee to sell all or any portion of any credit allowed under this section to one or more unrelated parties for each taxable year in which the credit is allowed subject to both of the following conditions:
(A)The credit is sold for consideration that is not less than 80 percent of the amount of the credit.
(B)The unrelated party or parties purchasing any or all of the credit pursuant to this subdivision is a taxpayer allowed the credit under this section for the taxable year of the purchase or any prior taxable year or is a taxpayer allowed the federal credit under Section 42 of the Internal Revenue Code, relating to low-income housing credit, for the taxable year of the purchase or any prior taxable year in connection with any project located in this state. For purposes of this subparagraph, taxpayer allowed the credit under this section means a taxpayer that is allowed the credit under this section without regard to the purchase of a credit pursuant to this subdivision.
(2)(A)The taxpayer that originally received the credit shall report to the California Tax Credit Allocation Committee within 10 days of the sale of the credit, in the form and manner specified by the California Tax Credit Allocation Committee, all required information regarding the purchase and sale of the credit, including the social security or other taxpayer identification number of the unrelated party or parties to whom the credit has been sold, the face amount of the credit sold, and the amount of consideration received by the taxpayer for the sale of the credit.
(B)The California Tax Credit Allocation Committee shall provide an annual listing to the Franchise Tax Board, in a form and manner agreed upon by the California Tax Credit Allocation Committee and the Franchise Tax Board, of the taxpayers that have sold or purchased a credit pursuant to this subdivision.
(3)(A)A credit may be sold pursuant to this subdivision to more than one unrelated party.
(B)(i)Except as provided in clause (ii), a credit shall not be resold by the unrelated party to another taxpayer or other party.
(ii)All or any portion of any credit allowed under this section may be resold once by an original purchaser to one or more unrelated parties, subject to all of the requirements of this subdivision.
(4)Notwithstanding any other law, the taxpayer that originally received the credit that is sold pursuant to paragraph (1) shall remain solely liable for all obligations and liabilities imposed on the taxpayer by this section with respect to the credit, none of which shall apply to a party to whom the credit has been sold or subsequently transferred. Parties that purchase credits pursuant to paragraph (1) shall be entitled to utilize the purchased credits in the same manner in which the taxpayer that originally received the credit could utilize them.
(5)A taxpayer shall not sell a credit allowed by this section if the taxpayer was allowed the credit on any tax return of the taxpayer.
(6)Notwithstanding paragraph (1), the taxpayer, with the approval of the Executive Director of the California Tax Credit Allocation Committee, may rescind the election to sell all or any portion of the credit allowed under this section if the consideration for the credit falls below 80 percent of the amount of the credit after the California Tax Credit Allocation Committee reservation.
(r)The California Tax Credit Allocation Committee may prescribe rules, guidelines, or procedures necessary or appropriate to carry out the purposes of this section, including any guidelines regarding the allocation of the credit allowed under this section. Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code shall not apply to any rule, guideline, or procedure prescribed by the California Tax Credit Allocation Committee pursuant to this section.
(s)The amendments to this section made by Chapter 1222 of the Statutes of 1993 apply only to taxable years beginning on or after January 1, 1994.
(t)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. Any unused credit may continue to be carried forward, as provided in subdivision (l), until the credit has been exhausted.
SEC. 5.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, 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, relating to low-income housing credit, 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.
(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, relating to low-income housing credit.
(ii)It qualifies for a credit under Section 42(h)(4)(B) of the Internal Revenue Code, relating to special rule where 50 percent or more of building is financed with tax-exempt bonds subject to volume cap.
(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, relating to low-income housing credit. 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, 2020, 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, relating to determination of distributive share.
(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 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.
(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, relating to low-income housing credit, apply to this section.
(E)(i)Except as described in clause (ii) or (iii), 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, relating to increase in credit for buildings in high-cost areas, 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, relating to low-income housing credit, 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, relating to increase in credit for buildings in high-cost areas, provided that the credit allowed under this section shall not exceed 30 percent of the eligible basis of the building.
(iii)Notwithstanding On and after January 1, 2018, notwithstanding clause (i), the California Tax Credit Allocation Committee may allocate the credit pursuant to paragraph (5) of subdivision (c) even if the taxpayer receives federal credits, pursuant to Section 42(d)(5)(B) of the Internal Revenue Code, relating to increase in credit for buildings in high-cost areas.
(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, relating to increase in credit for buildings in high-cost areas, 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, relating to low-income housing credit, 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, relating to applicable percentage: 70 percent present value credit for certain new buildings; 30 percent present value credit for certain other buildings, shall be modified as follows:
(1)In the case of any qualified low-income building placed in service by the housing sponsor during 1987, 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.
(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) of the Internal Revenue Code, relating to temporary minimum credit rate for nonfederally subsidized new buildings, 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.
(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 an existing building that is at risk of conversion, 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)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 low-income housing credit program set forth in Section 42 of the Internal Revenue Code, relating to low-income housing credit.
(B)The restrictions on rent and income levels will terminate or the federally 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.
(C)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.
(D)The property satisfies the requirements of Section 42(e) of the Internal Revenue Code, relating to rehabilitation expenditures treated as separate new building, except that the provisions of Section 42(e)(3)(A)(ii)(I) shall not apply.
(5)In On and after January 1, 2018, in the case of any qualified low-income building that is (A) farmworker housing, as defined by paragraph (2) of subdivision (h) of Section 50199.7 of the Health and Safety Code, and (B) is federally subsidized, the term applicable percentage means for each of the first three years, 20 percent of the qualified basis of the building, and for the fourth year, 15 percent of the qualified basis of the building.
(d)The term qualified low-income housing project as defined in Section 42(c)(2) of the Internal Revenue Code, relating to qualified low-income building, 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, which 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, relating to low-income housing credit.
(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 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, relating to in general.
(e)The provisions of Section 42(f) of the Internal Revenue Code, relating to definition and special rules relating to credit period, shall be modified as follows:
(1)The term credit period as defined in Section 42(f)(1) of the Internal Revenue Code, relating to credit period defined, 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, relating to special rule for 1st year of credit period, shall not apply to the tax credit under this section.
(3)Section 42(f)(3) of the Internal Revenue Code, relating to determination of applicable percentage with respect to increases in qualified basis after 1st year of credit period, 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, relating to limitation on aggregate credit allowable with respect to projects located in a state, shall be modified as follows:
(1)Section 42(h)(2) of the Internal Revenue Code, relating to allocated credit amount to apply to all taxable years ending during or after credit allocation year, does not apply and instead the following provisions apply:
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, relating to limitation on aggregate credit allowable with respect to projects located in a state, do not apply to this section.
(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)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.
(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, relating to compliance period, 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, relating to recapture of credit, does not apply 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 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, relating to low-income housing credit, 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, relating to qualified low-income housing project.
(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 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, relating to plans for allocation of credit among projects. 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, relating to qualified allocation plan and relating to certain selection criteria must be used, respectively.
(3)Notwithstanding Section 42(m) of the Internal Revenue Code, relating to responsibilities of housing credit agencies, 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)Existing projects that are at risk of conversion, as defined by paragraph (4) of subdivision (c).
(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, relating to certifications and other reports to secretary, shall be modified as follows:
The term secretary shall be replaced by the term Franchise Tax Board.
(l)In the case in which 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)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 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, 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 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)(1)For a project that receives a preliminary reservation under this section beginning on or after January 1, 2016, and before January 1, 2020, a taxpayer may make an irrevocable election in its application to the California Tax Credit Allocation Committee to sell all or any portion of any credit allowed under this section to one or more unrelated parties for each taxable year in which the credit is allowed subject to both of the following conditions:
(A)The credit is sold for consideration that is not less than 80 percent of the amount of the credit.
(B)(i)The unrelated party or parties purchasing any or all of the credit pursuant to this subdivision is a taxpayer allowed the credit under this section for the taxable year of the purchase or any prior taxable year or is a taxpayer allowed the federal credit under Section 42 of the Internal Revenue Code, relating to low-income housing credit, for the taxable year of the purchase or any prior taxable year in connection with any project located in this state.
(ii)For purposes of this subparagraph, taxpayer allowed the credit under this section means a taxpayer that is allowed the credit under this section without regard to the purchase of a credit pursuant to this subdivision without regard to any of the following:
(I)The purchase of a credit under this section pursuant to this subdivision.
(II)The assignment of a credit under this section pursuant to subdivision (q).
(III)The assignment of a credit under this section pursuant to Section 23363.
(2)(A)The taxpayer that originally received the credit shall report to the California Tax Credit Allocation Committee within 10 days of the sale of the credit, in the form and manner specified by the California Tax Credit Allocation Committee, all required information regarding the purchase and sale of the credit, including the social security or other taxpayer identification number of the unrelated party or parties to whom the credit has been sold, the face amount of the credit sold, and the amount of consideration received by the taxpayer for the sale of the credit.
(B)The California Tax Credit Allocation Committee shall provide an annual listing to the Franchise Tax Board, in a form and manner agreed upon by the California Tax Credit Allocation Committee and the Franchise Tax Board, of the taxpayers that have sold or purchased a credit pursuant to this subdivision.
(3)(A)A credit may be sold pursuant to this subdivision to more than one unrelated party.
(B)(i)Except as provided in clause (ii), a credit shall not be resold by the unrelated party to another taxpayer or other party.
(ii)All or any portion of any credit allowed under this section may be resold once by an original purchaser to one or more unrelated parties, subject to all of the requirements of this subdivision.
(4)Notwithstanding any other law, the taxpayer that originally received the credit that is sold pursuant to paragraph (1) shall remain solely liable for all obligations and liabilities imposed on the taxpayer by this section with respect to the credit, none of which shall apply to a party to whom the credit has been sold or subsequently transferred. Parties that purchase credits pursuant to paragraph (1) shall be entitled to utilize the purchased credits in the same manner in which the taxpayer that originally received the credit could utilize them.
(5)A taxpayer shall not sell a credit allowed by this section if the taxpayer was allowed the credit on any tax return of the taxpayer.
(6)Notwithstanding paragraph (1), the taxpayer, with the approval of the Executive Director of the California Tax Credit Allocation Committee, may rescind the election to sell all or any portion of the credit allowed under this section if the consideration for the credit falls below 80 percent of the amount of the credit after the California Tax Credit Allocation Committee reservation.
(s)The California Tax Credit Allocation Committee may prescribe rules, guidelines, or procedures necessary or appropriate to carry out the purposes of this section, including any guidelines regarding the allocation of the credit allowed under this section. Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code shall not apply to any rule, guideline, or procedure prescribed by the California Tax Credit Allocation Committee pursuant to this section.
(t)Any unused credit may continue to be carried forward, as provided in subdivision (l), until the credit has been exhausted.
(u)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.
(v)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. 6.This act provides for a tax levy within the meaning of Article IV of the California Constitution and shall go into immediate effect.
It is the intent of the Legislature in enacting this act that the California Tax Credit Allocation Committee shall not allocate tax credits pursuant to Sections 12206, 17058, and 23610.5 of the Revenue and Taxation Code for projects to provide farmworker housing, as defined in subdivision (h) of Section 50199.7 of the Health and Safety Code, in amounts beyond the amounts authorized to be allocated pursuant to Sections 12206, 17058, and 23610.5 of the Revenue and Taxation Code, as those sections read prior to the effective date of this act.
SECTION 1.SEC. 2.Section 50199.7 of the Health and Safety Code is amended to read:50199.7.As used in this chapter:
(a)Committee means the Mortgage Bond and Tax Credit Allocation Committee, which is renamed the California Tax Credit Allocation Committee. All references to committee shall mean the California Tax Credit Allocation Committee.
(b)Household has the same meaning as defined in Section 7602 of Title 25 of the California Code of Regulations.
(c)Housing credit means the tax credit for low-income rental housing provided under Section 42 of the federal Internal Revenue Code (26 U.S.C. Sec. 42).
(d)Housing credit applicant means any owner, sponsor, or developer of a qualifying low-income building or project who applies to the committee for either of the following:
(1)An allocation of a portion of the current state housing credit ceiling.
(2)A reservation of a portion of the anticipated state housing credit ceiling of a subsequent year.
(e)Housing credit ceiling means the amount specified in Section 42(h)(3)(C) of the federal Internal Revenue Code (26 U.S.C. Sec. 42(h)(3)(C)).
(f)Qualified low-income building or project has the meaning specified in Section 42(c)(2) of the federal Internal Revenue Code (26 U.S.C. Sec. 42(c)(2)).
(g)Agricultural worker or farmworker shall have the same meaning as specified in subdivision (b) of Section 1140.4 of the Labor Code.
(h)Farmworker housing means housing in which at least 50 percent of the units are available to, and occupied by, farmworkers and their households. The committee may permit an owner to temporarily house nonfarmworkers in vacant units in the event of a disaster or other critical occurrence. However, such emergency shelter shall only be permitted if there are no pending qualified farmworker household applications for residency.
SEC. 2.SEC. 3.Section 12206 of the Revenue and Taxation Code is amended to read:12206.(a)(1)There shall be allowed as a credit against the tax, 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, relating to low-income housing credit, 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.
(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, relating to low-income housing credit.
(ii)It qualifies for a credit under Section 42(h)(4)(B) of the Internal Revenue Code, relating to special rule where 50 percent or more of building is financed with tax-exempt bonds subject to volume cap.
(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, relating to low-income housing credit. 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, 2020, 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, relating to determination of distributive share.
(ii)This subparagraph does 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.
(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)(i) The taxpayer shall attach a copy of the certification to any return upon which a tax credit is claimed under this section.
(ii)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.
(D)All elections made by the taxpayer pursuant to Section 42 of the Internal Revenue Code, relating to low-income housing credit, shall apply to this section.
(E)(i)Except as described in clause (ii) or (iii), 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, relating to increase in credit for buildings in high-cost areas, 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, relating to low-income housing credit, 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, relating to increase in credit for buildings in high-cost areas, provided that the credit allowed under this section shall not exceed 30 percent of the eligible basis of the building.
(iii)Notwithstanding clause (i), the California Tax Credit Allocation Committee may allocate the credit pursuant to paragraph (4) of subdivision (c) even if the taxpayer receives federal credits, pursuant to Section 42(d)(5)(B) of the Internal Revenue Code, relating to increase in credit for buildings in high-cost areas.
(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, relating to increase in credit for buildings in high-cost areas, 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, relating to low-income housing credit, 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, relating to applicable percentage: 70 percent present value credit for certain new buildings; 30 percent present value credit for certain other buildings, 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 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) of the Internal Revenue Code, relating to temporary minimum credit rate for nonfederally subsidized new buildings, 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 is a new building that is federally subsidized or that is an existing building that is at risk of conversion, 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.
(3)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 low-income housing credit program set forth in Section 42 of the Internal Revenue Code, relating to low-income housing credit.
(B)The restrictions on rent and income levels will terminate or the federally 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.
(C)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.
(D)The property satisfies the requirements of Section 42(e) of the Internal Revenue Code, relating to rehabilitation expenditures treated as separate new building, except that the provisions of Section 42(e)(3)(A)(ii)(I) shall not apply.
(4)In the case of any qualified low-income building that is (A) farmworker housing, as defined by Section 50199.7 of the Health and Safety Code, and (B) is federally subsidized, the term applicable percentage means for each of the first three years, 20 percent of the qualified basis of the building, and for the fourth year, 15 percent of the qualified basis of the building.
(d)The term qualified low-income housing project as defined in Section 42(c)(2) of the Internal Revenue Code, relating to qualified low-income building, 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, which 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, relating to low-income housing credit.
(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 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, relating to in general.
(e)The provisions of Section 42(f) of the Internal Revenue Code, relating to definition and special rules relating to credit period, shall be modified as follows:
(1)The term credit period as defined in Section 42(f)(1) of the Internal Revenue Code, relating to credit period defined, 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, relating to special rule for 1st year of credit period, shall not apply to the tax credit under this section.
(3)Section 42(f)(3) of the Internal Revenue Code, relating to determination of applicable percentage with respect to increases in qualified basis after 1st year of credit period, 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, relating to limitation on aggregate credit allowable with respect to projects located in a state, shall be modified as follows:
(1)Section 42(h)(2) of the Internal Revenue Code, relating to allocated credit amount to apply to all taxable years ending during or after credit allocation year, does not apply and instead the following provisions apply:
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, relating to limitation on aggregate credit allowable with respect to projects located in a state, do not apply to this section.
(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)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.
(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, relating to compliance period, 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, relating to recapture of credit, 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 this 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, relating to low-income housing credit, 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, relating to qualified low-income housing project.
(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)A provision that 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, relating to plans for allocation of credit among projects. 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, relating to qualified allocation plan and relating to certain selection criteria must be used, respectively.
(3)Notwithstanding Section 42(m) of the Internal Revenue Code, relating to responsibilities of housing credit agencies, 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 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)Existing projects that are at risk of conversion, as defined by paragraph (3) of subdivision (c).
(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, relating to certifications and other reports to secretary, shall be modified as follows:
The term secretary shall be replaced by the term Franchise Tax Board.
(l)In the case in which 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, apply to calendar years after 1993.
(n)The provisions of Section 11407(c) of Public Law 101-508, relating to election to accelerate credit, do not apply.
(o)(1)For a project that receives a preliminary reservation under this section beginning on or after January 1, 2016, and before January 1, 2020, a taxpayer may make an irrevocable election in its application to the California Tax Credit Allocation Committee to sell all or any portion of any credit allowed under this section to one or more unrelated parties for each taxable year in which the credit is allowed subject to both of the following conditions:
(A)The credit is sold for consideration that is not less than 80 percent of the amount of the credit.
(B)The unrelated party or parties purchasing any or all of the credit pursuant to this subdivision is a taxpayer allowed the credit under this section for the taxable year of the purchase or any prior taxable year or is a taxpayer allowed the federal credit under Section 42 of the Internal Revenue Code, relating to low-income housing credit, for the taxable year of the purchase or any prior taxable year in connection with any project located in this state. For purposes of this subparagraph, taxpayer allowed the credit under this section means a taxpayer that is allowed the credit under this section without regard to the purchase of a credit pursuant to this subdivision.
(2)(A)The taxpayer that originally received the credit shall report to the California Tax Credit Allocation Committee within 10 days of the sale of the credit, in the form and manner specified by the California Tax Credit Allocation Committee, all required information regarding the purchase and sale of the credit, including the social security or other taxpayer identification number of the unrelated party or parties to whom the credit has been sold, the face amount of the credit sold, and the amount of consideration received by the taxpayer for the sale of the credit.
(B)The California Tax Credit Allocation Committee shall provide an annual listing to the Franchise Tax Board, in a form and manner agreed upon by the California Tax Credit Allocation Committee and the Franchise Tax Board, of the taxpayers that have sold or purchased a credit pursuant to this subdivision.
(3)(A)A credit may be sold pursuant to this subdivision to more than one unrelated party.
(B)(i)Except as provided in clause (ii), a credit shall not be resold by the unrelated party to another taxpayer or other party.
(ii)All or any portion of any credit allowed under this section may be resold once by an original purchaser to one or more unrelated parties, subject to all of the requirements of this subdivision.
(4)Notwithstanding any other law, the taxpayer that originally received the credit that is sold pursuant to paragraph (1) shall remain solely liable for all obligations and liabilities imposed on the taxpayer by this section with respect to the credit, none of which shall apply to a party to whom the credit has been sold or subsequently transferred. Parties that purchase credits pursuant to paragraph (1) shall be entitled to utilize the purchased credits in the same manner in which the taxpayer that originally received the credit could utilize them.
(5)A taxpayer shall not sell a credit allowed by this section if the taxpayer was allowed the credit on any tax return of the taxpayer.
(6)Notwithstanding paragraph (1), the taxpayer, with the approval of the Executive Director of the California Tax Credit Allocation Committee, may rescind the election to sell all or any portion of the credit allowed under this section if the consideration for the credit falls below 80 percent of the amount of the credit after the California Tax Credit Allocation Committee reservation.
(p)The California Tax Credit Allocation Committee may prescribe rules, guidelines, or procedures necessary or appropriate to carry out the purposes of this section, including any guidelines regarding the allocation of the credit allowed under this section. Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code shall not apply to any rule, guideline, or procedure prescribed by the California Tax Credit Allocation Committee pursuant to this section.
(q)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. 3.SEC. 4.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, defined by 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, relating to low-income housing credit, 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.
(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, relating to low-income housing credit.
(ii)It qualifies for a credit under Section 42(h)(4)(B) of the Internal Revenue Code, relating to special rule where 50 percent or more of building is financed with tax-exempt bonds subject to volume cap.
(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, relating to low-income housing credit. 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, 2020, 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, relating to determination of distributive share.
(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 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.
(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, relating to low-income housing credit, apply to this section.
(E)(i)Except as described in clause (ii) or (iii), 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, relating to increase in credit for buildings in high-cost areas, 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, relating to low-income housing credit, 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, relating to increase in credit for buildings in high-cost areas, provided that the credit allowed under this section shall not exceed 30 percent of the eligible basis of the building.
(iii)Notwithstanding clause (i), the California Tax Credit Allocation Committee may allocate the credit pursuant to paragraph (5) of subdivision (c) even if the taxpayer receives federal credits, pursuant to Section 42(d)(5)(B) of the Internal Revenue Code, relating to increase in credit for buildings in high-cost areas.
(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, relating to increase in credit for buildings in high-cost areas, 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, relating to low-income housing credit, 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, relating to applicable percentage: 70 percent present value credit for certain new buildings; 30 percent present value credit for certain other buildings, shall be modified as follows:
(1)In the case of any qualified low-income building placed in service by the housing sponsor during 1987, 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.
(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) of the Internal Revenue Code, relating to temporary minimum credit rate for nonfederally subsidized new buildings, 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.
(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 an existing building that is at risk of conversion, 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)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 low-income housing credit program set forth in Section 42 of the Internal Revenue Code, relating to low-income housing credit.
(B)The restrictions on rent and income levels will terminate or the federally 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.
(C)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.
(D)The property satisfies the requirements of Section 42(e) of the Internal Revenue Code, relating to rehabilitation expenditures treated as separate new building, except that the provisions of Section 42(e)(3)(A)(ii)(I) shall not apply.
(5)In the case of any qualified low-income building that is (A) farmworker housing, as defined by Section 50199.7 of the Health and Safety Code, and (B) is federally subsidized, the term applicable percentage means for each of the first three years, 20 percent of the qualified basis of the building, and for the fourth year, 15 percent of the qualified basis of the building.
(d)The term qualified low-income housing project as defined in Section 42(c)(2) of the Internal Revenue Code, relating to qualified low-income building, 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, which 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, relating to low-income housing credit.
(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 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, relating to in general.
(e)The provisions of Section 42(f) of the Internal Revenue Code, relating to definition and special rules relating to credit period, shall be modified as follows:
(1)The term credit period as defined in Section 42(f)(1) of the Internal Revenue Code, relating to credit period defined, 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, relating to special rule for 1st year of credit period, shall not apply to the tax credit under this section.
(3)Section 42(f)(3) of the Internal Revenue Code, relating to determination of applicable percentage with respect to increases in qualified basis after 1st year of credit period, 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, relating to limitation on aggregate credit allowable with respect to projects located in a state, shall be modified as follows:
(1)Section 42(h)(2) of the Internal Revenue Code, relating to allocated credit amount to apply to all taxable years ending during or after credit allocation year, does not apply and instead the following provisions apply:
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, relating to limitation on aggregate credit allowable with respect to projects located in a state, do not apply to this section.
(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)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.
(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, relating to compliance period, 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, relating to recapture of credit, does not apply 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 this 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, relating to low-income housing credit, 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, relating to qualified low-income housing project.
(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 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, relating to plans for allocation of credit among projects. 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, relating to qualified allocation plan and relating to certain selection criteria must be used, respectively.
(3)Notwithstanding Section 42(m) of the Internal Revenue Code, relating to responsibilities of housing credit agencies, 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 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)Existing projects that are at risk of conversion, as defined by paragraph (4) of subdivision (c).
(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, relating to certifications and other reports to secretary, shall be modified as follows:
The term secretary shall be replaced by the term Franchise Tax Board.
(l)In the case in which 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 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 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, 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 not apply.
(q)(1)For a project that receives a preliminary reservation under this section beginning on or after January 1, 2016, and before January 1, 2020, a taxpayer may make an irrevocable election in its application to the California Tax Credit Allocation Committee to sell all or any portion of any credit allowed under this section to one or more unrelated parties for each taxable year in which the credit is allowed subject to both of the following conditions:
(A)The credit is sold for consideration that is not less than 80 percent of the amount of the credit.
(B)The unrelated party or parties purchasing any or all of the credit pursuant to this subdivision is a taxpayer allowed the credit under this section for the taxable year of the purchase or any prior taxable year or is a taxpayer allowed the federal credit under Section 42 of the Internal Revenue Code, relating to low-income housing credit, for the taxable year of the purchase or any prior taxable year in connection with any project located in this state. For purposes of this subparagraph, taxpayer allowed the credit under this section means a taxpayer that is allowed the credit under this section without regard to the purchase of a credit pursuant to this subdivision.
(2)(A)The taxpayer that originally received the credit shall report to the California Tax Credit Allocation Committee within 10 days of the sale of the credit, in the form and manner specified by the California Tax Credit Allocation Committee, all required information regarding the purchase and sale of the credit, including the social security or other taxpayer identification number of the unrelated party or parties to whom the credit has been sold, the face amount of the credit sold, and the amount of consideration received by the taxpayer for the sale of the credit.
(B)The California Tax Credit Allocation Committee shall provide an annual listing to the Franchise Tax Board, in a form and manner agreed upon by the California Tax Credit Allocation Committee and the Franchise Tax Board, of the taxpayers that have sold or purchased a credit pursuant to this subdivision.
(3)(A)A credit may be sold pursuant to this subdivision to more than one unrelated party.
(B)(i)Except as provided in clause (ii), a credit shall not be resold by the unrelated party to another taxpayer or other party.
(ii)All or any portion of any credit allowed under this section may be resold once by an original purchaser to one or more unrelated parties, subject to all of the requirements of this subdivision.
(4)Notwithstanding any other law, the taxpayer that originally received the credit that is sold pursuant to paragraph (1) shall remain solely liable for all obligations and liabilities imposed on the taxpayer by this section with respect to the credit, none of which shall apply to a party to whom the credit has been sold or subsequently transferred. Parties that purchase credits pursuant to paragraph (1) shall be entitled to utilize the purchased credits in the same manner in which the taxpayer that originally received the credit could utilize them.
(5)A taxpayer shall not sell a credit allowed by this section if the taxpayer was allowed the credit on any tax return of the taxpayer.
(6)Notwithstanding paragraph (1), the taxpayer, with the approval of the Executive Director of the California Tax Credit Allocation Committee, may rescind the election to sell all or any portion of the credit allowed under this section if the consideration for the credit falls below 80 percent of the amount of the credit after the California Tax Credit Allocation Committee reservation.
(r)The California Tax Credit Allocation Committee may prescribe rules, guidelines, or procedures necessary or appropriate to carry out the purposes of this section, including any guidelines regarding the allocation of the credit allowed under this section. Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code shall not apply to any rule, guideline, or procedure prescribed by the California Tax Credit Allocation Committee pursuant to this section.
(s)The amendments to this section made by Chapter 1222 of the Statutes of 1993 apply only to taxable years beginning on or after January 1, 1994.
(t)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. Any unused credit may continue to be carried forward, as provided in subdivision (l), until the credit has been exhausted.
SEC. 4.SEC. 5.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, 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, relating to low-income housing credit, 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.
(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, relating to low-income housing credit.
(ii)It qualifies for a credit under Section 42(h)(4)(B) of the Internal Revenue Code, relating to special rule where 50 percent or more of building is financed with tax-exempt bonds subject to volume cap.
(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, relating to low-income housing credit. 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, 2020, 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, relating to determination of distributive share.
(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 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.
(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, relating to low-income housing credit, apply to this section.
(E)(i)Except as described in clause (ii) or (iii), 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, relating to increase in credit for buildings in high-cost areas, 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, relating to low-income housing credit, 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, relating to increase in credit for buildings in high-cost areas, provided that the credit allowed under this section shall not exceed 30 percent of the eligible basis of the building.
(iii)Notwithstanding clause (i), the California Tax Credit Allocation Committee may allocate the credit pursuant to paragraph (5) of subdivision (c) even if the taxpayer receives federal credits, pursuant to Section 42(d)(5)(B) of the Internal Revenue Code, relating to increase in credit for buildings in high-cost areas.
(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, relating to increase in credit for buildings in high-cost areas, 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, relating to low-income housing credit, 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, relating to applicable percentage: 70 percent present value credit for certain new buildings; 30 percent present value credit for certain other buildings, shall be modified as follows:
(1)In the case of any qualified low-income building placed in service by the housing sponsor during 1987, 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.
(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) of the Internal Revenue Code, relating to temporary minimum credit rate for nonfederally subsidized new buildings, 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.
(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 an existing building that is at risk of conversion, 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)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 low-income housing credit program set forth in Section 42 of the Internal Revenue Code, relating to low-income housing credit.
(B)The restrictions on rent and income levels will terminate or the federally 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.
(C)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.
(D)The property satisfies the requirements of Section 42(e) of the Internal Revenue Code, relating to rehabilitation expenditures treated as separate new building, except that the provisions of Section 42(e)(3)(A)(ii)(I) shall not apply.
(5)In the case of any qualified low-income building that is (A) farmworker housing, as defined by Section 50199.7 of the Health and Safety Code, and (B) is federally subsidized, the term applicable percentage means for each of the first three years, 20 percent of the qualified basis of the building, and for the fourth year, 15 percent of the qualified basis of the building.
(d)The term qualified low-income housing project as defined in Section 42(c)(2) of the Internal Revenue Code, relating to qualified low-income building, 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, which 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, relating to low-income housing credit.
(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 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, relating to in general.
(e)The provisions of Section 42(f) of the Internal Revenue Code, relating to definition and special rules relating to credit period, shall be modified as follows:
(1)The term credit period as defined in Section 42(f)(1) of the Internal Revenue Code, relating to credit period defined, 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, relating to special rule for 1st year of credit period, shall not apply to the tax credit under this section.
(3)Section 42(f)(3) of the Internal Revenue Code, relating to determination of applicable percentage with respect to increases in qualified basis after 1st year of credit period, 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, relating to limitation on aggregate credit allowable with respect to projects located in a state, shall be modified as follows:
(1)Section 42(h)(2) of the Internal Revenue Code, relating to allocated credit amount to apply to all taxable years ending during or after credit allocation year, does not apply and instead the following provisions apply:
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, relating to limitation on aggregate credit allowable with respect to projects located in a state, do not apply to this section.
(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)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.
(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, relating to compliance period, 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, relating to recapture of credit, does not apply 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 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, relating to low-income housing credit, 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, relating to qualified low-income housing project.
(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 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, relating to plans for allocation of credit among projects. 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, relating to qualified allocation plan and relating to certain selection criteria must be used, respectively.
(3)Notwithstanding Section 42(m) of the Internal Revenue Code, relating to responsibilities of housing credit agencies, 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)Existing projects that are at risk of conversion, as defined by paragraph (4) of subdivision (c).
(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, relating to certifications and other reports to secretary, shall be modified as follows:
The term secretary shall be replaced by the term Franchise Tax Board.
(l)In the case in which 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)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 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, 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 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)(1)For a project that receives a preliminary reservation under this section beginning on or after January 1, 2016, and before January 1, 2020, a taxpayer may make an irrevocable election in its application to the California Tax Credit Allocation Committee to sell all or any portion of any credit allowed under this section to one or more unrelated parties for each taxable year in which the credit is allowed subject to both of the following conditions:
(A)The credit is sold for consideration that is not less than 80 percent of the amount of the credit.
(B)(i)The unrelated party or parties purchasing any or all of the credit pursuant to this subdivision is a taxpayer allowed the credit under this section for the taxable year of the purchase or any prior taxable year or is a taxpayer allowed the federal credit under Section 42 of the Internal Revenue Code, relating to low-income housing credit, for the taxable year of the purchase or any prior taxable year in connection with any project located in this state.
(ii)For purposes of this subparagraph, taxpayer allowed the credit under this section means a taxpayer that is allowed the credit under this section without regard to the purchase of a credit pursuant to this subdivision without regard to any of the following:
(I)The purchase of a credit under this section pursuant to this subdivision.
(II)The assignment of a credit under this section pursuant to subdivision (q).
(III)The assignment of a credit under this section pursuant to Section 23363.
(2)(A)The taxpayer that originally received the credit shall report to the California Tax Credit Allocation Committee within 10 days of the sale of the credit, in the form and manner specified by the California Tax Credit Allocation Committee, all required information regarding the purchase and sale of the credit, including the social security or other taxpayer identification number of the unrelated party or parties to whom the credit has been sold, the face amount of the credit sold, and the amount of consideration received by the taxpayer for the sale of the credit.
(B)The California Tax Credit Allocation Committee shall provide an annual listing to the Franchise Tax Board, in a form and manner agreed upon by the California Tax Credit Allocation Committee and the Franchise Tax Board, of the taxpayers that have sold or purchased a credit pursuant to this subdivision.
(3)(A)A credit may be sold pursuant to this subdivision to more than one unrelated party.
(B)(i)Except as provided in clause (ii), a credit shall not be resold by the unrelated party to another taxpayer or other party.
(ii)All or any portion of any credit allowed under this section may be resold once by an original purchaser to one or more unrelated parties, subject to all of the requirements of this subdivision.
(4)Notwithstanding any other law, the taxpayer that originally received the credit that is sold pursuant to paragraph (1) shall remain solely liable for all obligations and liabilities imposed on the taxpayer by this section with respect to the credit, none of which shall apply to a party to whom the credit has been sold or subsequently transferred. Parties that purchase credits pursuant to paragraph (1) shall be entitled to utilize the purchased credits in the same manner in which the taxpayer that originally received the credit could utilize them.
(5)A taxpayer shall not sell a credit allowed by this section if the taxpayer was allowed the credit on any tax return of the taxpayer.
(6)Notwithstanding paragraph (1), the taxpayer, with the approval of the Executive Director of the California Tax Credit Allocation Committee, may rescind the election to sell all or any portion of the credit allowed under this section if the consideration for the credit falls below 80 percent of the amount of the credit after the California Tax Credit Allocation Committee reservation.
(s)The California Tax Credit Allocation Committee may prescribe rules, guidelines, or procedures necessary or appropriate to carry out the purposes of this section, including any guidelines regarding the allocation of the credit allowed under this section. Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code shall not apply to any rule, guideline, or procedure prescribed by the California Tax Credit Allocation Committee pursuant to this section.
(t)Any unused credit may continue to be carried forward, as provided in subdivision (l), until the credit has been exhausted.
(u)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.
(v)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. 5.SEC. 6.This act provides for a tax levy within the meaning of Article IV of the California Constitution and shall go into immediate effect.
As used in this chapter:
(a)Committee means the Mortgage Bond and Tax Credit Allocation Committee, which is renamed the California Tax Credit Allocation Committee. All references to committee shall mean the California Tax Credit Allocation Committee.
(b)Household has the same meaning as defined in Section 7602 of Title 25 of the California Code of Regulations.
(c)Housing credit means the tax credit for low-income rental housing provided under Section 42 of the federal Internal Revenue Code (26 U.S.C. Sec. 42).
(d)Housing credit applicant means any owner, sponsor, or developer of a qualifying low-income building or project who applies to the committee for either of the following:
(1)An allocation of a portion of the current state housing credit ceiling.
(2)A reservation of a portion of the anticipated state housing credit ceiling of a subsequent year.
(e)Housing credit ceiling means the amount specified in Section 42(h)(3)(C) of the federal Internal Revenue Code (26 U.S.C. Sec. 42(h)(3)(C)).
(f)Qualified low-income building or project has the meaning specified in Section 42(c)(2) of the federal Internal Revenue Code (26 U.S.C. Sec. 42(c)(2)).
(g)Agricultural worker or farmworker shall have the same meaning as specified in subdivision (b) of Section 1140.4 of the Labor Code.
(h)Farmworker housing means housing for agricultural workers that is in which at least 50 percent of the units are available to, and occupied by, only farmworkers and their households. The committee may permit an owner to temporarily house nonfarmworkers in vacant units in the event of a disaster or other critical occurrence. However, such emergency shelter shall only be permitted if there are no pending qualified farmworker household applications for residency.
SEC. 2.Section 12206 of the Revenue and Taxation Code is amended to read:12206.(a)(1)There shall be allowed as a credit against the tax, 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, relating to low-income housing credit, 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.
(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, relating to low-income housing credit.
(ii)It qualifies for a credit under Section 42(h)(4)(B) of the Internal Revenue Code, relating to special rule where 50 percent or more of building is financed with tax-exempt bonds subject to volume cap.
(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, relating to low-income housing credit. 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, 2020, 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, relating to determination of distributive share.
(ii)This subparagraph does 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.
(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)(i) The taxpayer shall attach a copy of the certification to any return upon which a tax credit is claimed under this section.
(D)(ii)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)(D)All elections made by the taxpayer pursuant to Section 42 of the Internal Revenue Code, relating to low-income housing credit, shall apply to this section.
(F)(E)(i)Except as described in clause (ii), (ii) or (iii), 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, relating to increase in credit for buildings in high-cost areas, 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, relating to low-income housing credit, 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, relating to increase in credit for buildings in high-cost areas, provided that the credit allowed under this section shall not exceed 30 percent of the eligible basis of the building.
(iii)Notwithstanding clause (i), the California Tax Credit Allocation Committee may allocate the credit pursuant to paragraph (4) of subdivision (c) even if the taxpayer receives federal credits, pursuant to Section 42(d)(5)(B) of the Internal Revenue Code, relating to increase in credit for buildings in high-cost areas.
(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, relating to increase in credit for buildings in high-cost areas, 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, relating to low-income housing credit, 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, relating to applicable percentage: 70 percent present value credit for certain new buildings; 30 percent present value credit for certain other buildings, 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 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) of the Internal Revenue Code, relating to temporary minimum credit rate for nonfederally subsidized new buildings, 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 is a new building that is federally subsidized or that is an existing building that is at risk of conversion, 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.
(3)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 low-income housing credit program set forth in Section 42 of the Internal Revenue Code, relating to low-income housing credit.
(B)The restrictions on rent and income levels will terminate or the federally 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.
(C)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.
(D)The property satisfies the requirements of Section 42(e) of the Internal Revenue Code, relating to rehabilitation expenditures treated as separate new building, except that the provisions of Section 42(e)(3)(A)(ii)(I) shall not apply.
(4)In the case of any qualified low-income building that is (A) farmworker housing, as defined by Section 50199.7 of the Health and Safety Code, and (B) is federally subsidized, the term applicable percentage means for each of the first three years, 20 percent of the qualified basis of the building, and for the fourth year, 15 percent of the qualified basis of the building.
(d)The term qualified low-income housing project as defined in Section 42(c)(2) of the Internal Revenue Code, relating to qualified low-income building, 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, which 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, relating to low-income housing credit.
(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 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, relating to in general.
(e)The provisions of Section 42(f) of the Internal Revenue Code, relating to definition and special rules relating to credit period, shall be modified as follows:
(1)The term credit period as defined in Section 42(f)(1) of the Internal Revenue Code, relating to credit period defined, 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, relating to special rule for 1st year of credit period, shall not apply to the tax credit under this section.
(3)Section 42(f)(3) of the Internal Revenue Code, relating to determination of applicable percentage with respect to increases in qualified basis after 1st year of credit period, 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, relating to limitation on aggregate credit allowable with respect to projects located in a state, shall be modified as follows:
(1)Section 42(h)(2) of the Internal Revenue Code, relating to allocated credit amount to apply to all taxable years ending during or after credit allocation year, does not apply and instead the following provisions apply:
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, relating to limitation on aggregate credit allowable with respect to projects located in a state, do not apply to this section.
(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)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.
(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, relating to compliance period, 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, relating to recapture of credit, 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 this 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, relating to low-income housing credit, 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, relating to qualified low-income housing project.
(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)A provision that 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, relating to plans for allocation of credit among projects. 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, relating to qualified allocation plan and relating to certain selection criteria must be used, respectively.
(3)Notwithstanding Section 42(m) of the Internal Revenue Code, relating to responsibilities of housing credit agencies, 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 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 and or more bedrooms.
(ii)Projects providing single-room occupancy units serving very low income tenants.
(iii)Existing projects that are at risk of conversion, as defined by paragraph (3) of subdivision (c).
(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, relating to certifications and other reports to secretary, shall be modified as follows:
The term secretary shall be replaced by the term Franchise Tax Board.
(l)In the case in which 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, apply to calendar years after 1993.
(n)The provisions of Section 11407(c) of Public Law 101-508, relating to election to accelerate credit, do not apply.
(o)(1)For a project that receives a preliminary reservation under this section beginning on or after January 1, 2016, and before January 1, 2020, a taxpayer may make an irrevocable election in its application to the California Tax Credit Allocation Committee to sell all or any portion of any credit allowed under this section to one or more unrelated parties for each taxable year in which the credit is allowed subject to both of the following conditions:
(A)The credit is sold for consideration that is not less than 80 percent of the amount of the credit.
(B)The unrelated party or parties purchasing any or all of the credit pursuant to this subdivision is a taxpayer allowed the credit under this section for the taxable year of the purchase or any prior taxable year or is a taxpayer allowed the federal credit under Section 42 of the Internal Revenue Code, relating to low-income housing credit, for the taxable year of the purchase or any prior taxable year in connection with any project located in this state. For purposes of this subparagraph, taxpayer allowed the credit under this section means a taxpayer that is allowed the credit under this section without regard to the purchase of a credit pursuant to this subdivision.
(2)(A)The taxpayer that originally received the credit shall report to the California Tax Credit Allocation Committee within 10 days of the sale of the credit, in the form and manner specified by the California Tax Credit Allocation Committee, all required information regarding the purchase and sale of the credit, including the social security or other taxpayer identification number of the unrelated party or parties to whom the credit has been sold, the face amount of the credit sold, and the amount of consideration received by the taxpayer for the sale of the credit.
(B)The California Tax Credit Allocation Committee shall provide an annual listing to the Franchise Tax Board, in a form and manner agreed upon by the California Tax Credit Allocation Committee and the Franchise Tax Board, of the taxpayers that have sold or purchased a credit pursuant to this subdivision.
(3)(A)A credit may be sold pursuant to this subdivision to more than one unrelated party.
(B)(i)Except as provided in clause (ii), a credit shall not be resold by the unrelated party to another taxpayer or other party.
(ii)All or any portion of any credit allowed under this section may be resold once by an original purchaser to one or more unrelated parties, subject to all of the requirements of this subdivision.
(4)Notwithstanding any other law, the taxpayer that originally received the credit that is sold pursuant to paragraph (1) shall remain solely liable for all obligations and liabilities imposed on the taxpayer by this section with respect to the credit, none of which shall apply to a party to whom the credit has been sold or subsequently transferred. Parties that purchase credits pursuant to paragraph (1) shall be entitled to utilize the purchased credits in the same manner in which the taxpayer that originally received the credit could utilize them.
(5)A taxpayer shall not sell a credit allowed by this section if the taxpayer was allowed the credit on any tax return of the taxpayer.
(6)Notwithstanding paragraph (1), the taxpayer, with the approval of the Executive Director of the California Tax Credit Allocation Committee, may rescind the election to sell all or any portion of the credit allowed under this section if the consideration for the credit falls below 80 percent of the amount of the credit after the California Tax Credit Allocation Committee reservation.
(p)The California Tax Credit Allocation Committee may prescribe rules, guidelines, or procedures necessary or appropriate to carry out the purposes of this section, including any guidelines regarding the allocation of the credit allowed under this section. Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code shall not apply to any rule, guideline, or procedure prescribed by the California Tax Credit Allocation Committee pursuant to this section.
(q)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. 3.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, defined by 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, relating to low-income housing credit, 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.
(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, relating to low-income housing credit.
(ii)It qualifies for a credit under Section 42(h)(4)(B) of the Internal Revenue Code, relating to special rule where 50 percent or more of building is financed with tax-exempt bonds subject to volume cap.
(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, relating to low-income housing credit. 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, 2020, 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, relating to determination of distributive share.
(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 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.
(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, relating to low-income housing credit, apply to this section.
(E)(i)Except as described in clause (ii), (ii) or (iii), 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, relating to increase in credit for buildings in high-cost areas, 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, relating to low-income housing credit, 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, relating to increase in credit for buildings in high-cost areas, provided that the credit allowed under this section shall not exceed 30 percent of the eligible basis of the building.
(iii)Notwithstanding clause (i), the California Tax Credit Allocation Committee may allocate the credit pursuant to paragraph (5) of subdivision (c) even if the taxpayer receives federal credits, pursuant to Section 42(d)(5)(B) of the Internal Revenue Code, relating to increase in credit for buildings in high-cost areas.
(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, relating to increase in credit for buildings in high-cost areas, 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, relating to low-income housing credit, 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, relating to applicable percentage: 70 percent present value credit for certain new buildings; 30 percent present value credit for certain other buildings, shall be modified as follows:
(1)In the case of any qualified low-income building placed in service by the housing sponsor during 1987, 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.
(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) of the Internal Revenue Code, relating to temporary minimum credit rate for nonfederally subsidized new buildings, 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.
(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 an existing building that is at risk of conversion, 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)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 low-income housing credit program set forth in Section 42 of the Internal Revenue Code, relating to low-income housing credit.
(B)The restrictions on rent and income levels will terminate or the federally 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.
(C)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.
(D)The property satisfies the requirements of Section 42(e) of the Internal Revenue Code, relating to rehabilitation expenditures treated as separate new building, except that the provisions of Section 42(e)(3)(A)(ii)(I) shall not apply.
(5)In the case of any qualified low-income building that is (A) farmworker housing, as defined by Section 50199.7 of the Health and Safety Code, and (B) is federally subsidized, the term applicable percentage means for each of the first three years, 20 percent of the qualified basis of the building, and for the fourth year, 15 percent of the qualified basis of the building.
(d)The term qualified low-income housing project as defined in Section 42(c)(2) of the Internal Revenue Code, relating to qualified low-income building, 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, which 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, relating to low-income housing credit.
(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 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, relating to in general.
(e)The provisions of Section 42(f) of the Internal Revenue Code, relating to definition and special rules relating to credit period, shall be modified as follows:
(1)The term credit period as defined in Section 42(f)(1) of the Internal Revenue Code, relating to credit period defined, 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, relating to special rules rule for 1st year of credit period, shall not apply to the tax credit under this section.
(3)Section 42(f)(3) of the Internal Revenue Code, relating to determination of applicable percentage with respect to increases in qualified basis after 1st year of credit period, 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, relating to limitation on aggregate credit allowable with respect to projects located in a state, shall be modified as follows:
(1)Section 42(h)(2) of the Internal Revenue Code, relating to allocated credit amount to apply to all taxable years ending during or after credit allocation year, does not apply and instead the following provisions apply:
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, relating to limitation on aggregate credit allowable with respect to projects located in a state, do not apply to this section.
(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)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.
(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, relating to compliance period, 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, relating to recapture of credit, does not apply 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 this 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, relating to low-income housing credit, 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, relating to qualified low-income housing project.
(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 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, relating to plans for allocation of credit among projects. 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, relating to qualified allocation plan and relating to certain selection criteria must be used, respectively.
(3)Notwithstanding Section 42(m) of the Internal Revenue Code, relating to responsibilities of housing credit agencies, 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 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 and or more bedrooms.
(ii)Projects providing single-room occupancy units serving very low income tenants.
(iii)Existing projects that are at risk of conversion, as defined by paragraph (4) of subdivision (c).
(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, relating to certifications and other reports to secretary, shall be modified as follows:
The term secretary shall be replaced by the term Franchise Tax Board.
(l)In the case in which 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 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 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, 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 not apply.
(q)(1)For a project that receives a preliminary reservation under this section beginning on or after January 1, 2016, and before January 1, 2020, a taxpayer may make an irrevocable election in its application to the California Tax Credit Allocation Committee to sell all or any portion of any credit allowed under this section to one or more unrelated parties for each taxable year in which the credit is allowed subject to both of the following conditions:
(A)The credit is sold for consideration that is not less than 80 percent of the amount of the credit.
(B)The unrelated party or parties purchasing any or all of the credit pursuant to this subdivision is a taxpayer allowed the credit under this section for the taxable year of the purchase or any prior taxable year or is a taxpayer allowed the federal credit under Section 42 of the Internal Revenue Code, relating to low-income housing credit, for the taxable year of the purchase or any prior taxable year in connection with any project located in this state. For purposes of this subparagraph, taxpayer allowed the credit under this section means a taxpayer that is allowed the credit under this section without regard to the purchase of a credit pursuant to this subdivision.
(2)(A)The taxpayer that originally received the credit shall report to the California Tax Credit Allocation Committee within 10 days of the sale of the credit, in the form and manner specified by the California Tax Credit Allocation Committee, all required information regarding the purchase and sale of the credit, including the social security or other taxpayer identification number of the unrelated party or parties to whom the credit has been sold, the face amount of the credit sold, and the amount of consideration received by the taxpayer for the sale of the credit.
(B)The California Tax Credit Allocation Committee shall provide an annual listing to the Franchise Tax Board, in a form and manner agreed upon by the California Tax Credit Allocation Committee and the Franchise Tax Board, of the taxpayers that have sold or purchased a credit pursuant to this subdivision.
(3)(A)A credit may be sold pursuant to this subdivision to more than one unrelated party.
(B)(i)Except as provided in clause (ii), a credit shall not be resold by the unrelated party to another taxpayer or other party.
(ii)All or any portion of any credit allowed under this section may be resold once by an original purchaser to one or more unrelated parties, subject to all of the requirements of this subdivision.
(4)Notwithstanding any other law, the taxpayer that originally received the credit that is sold pursuant to paragraph (1) shall remain solely liable for all obligations and liabilities imposed on the taxpayer by this section with respect to the credit, none of which shall apply to a party to whom the credit has been sold or subsequently transferred. Parties that purchase credits pursuant to paragraph (1) shall be entitled to utilize the purchased credits in the same manner in which the taxpayer that originally received the credit could utilize them.
(5)A taxpayer shall not sell a credit allowed by this section if the taxpayer was allowed the credit on any tax return of the taxpayer.
(6)Notwithstanding paragraph (1), the taxpayer, with the approval of the Executive Director of the California Tax Credit Allocation Committee, may rescind the election to sell all or any portion of the credit allowed under this section if the consideration for the credit falls below 80 percent of the amount of the credit after the California Tax Credit Allocation Committee reservation.
(r)The California Tax Credit Allocation Committee may prescribe rules, guidelines, or procedures necessary or appropriate to carry out the purposes of this section, including any guidelines regarding the allocation of the credit allowed under this section. Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code shall not apply to any rule, guideline, or procedure prescribed by the California Tax Credit Allocation Committee pursuant to this section.
(s)The amendments to this section made by Chapter 1222 of the Statutes of 1993 apply only to taxable years beginning on or after January 1, 1994.
(t)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. Any unused credit may continue to be carried forward, as provided in subdivision (l), until the credit has been exhausted.
SEC. 4.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, 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, relating to low-income housing credit, 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.
(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, relating to low-income housing credit.
(ii)It qualifies for a credit under Section 42(h)(4)(B) of the Internal Revenue Code, relating to special rule where 50 percent or more of building is financed with tax-exempt bonds subject to volume cap.
(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, relating to low-income housing credit. 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, 2020, 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, relating to determination of distributive share.
(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 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.
(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, relating to low-income housing credit, apply to this section.
(E)(i)Except as described in clause (ii), (ii) or (iii), 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, relating to increase in credit for buildings in high-cost areas, 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, relating to low-income housing credit, 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, relating to increase in credit for buildings in high-cost areas, provided that the credit allowed under this section shall not exceed 30 percent of the eligible basis of the building.
(iii)Notwithstanding clause (i), the California Tax Credit Allocation Committee may allocate the credit pursuant to paragraph (5) of subdivision (c) even if the taxpayer receives federal credits, pursuant to Section 42(d)(5)(B) of the Internal Revenue Code, relating to increase in credit for buildings in high-cost areas.
(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, relating to increase in credit for buildings in high-cost areas, 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, relating to low-income housing credit, 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, relating to applicable percentage: 70 percent present value credit for certain new buildings; 30 percent present value credit for certain other buildings, shall be modified as follows:
(1)In the case of any qualified low-income building placed in service by the housing sponsor during 1987, 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.
(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) of the Internal Revenue Code, relating to temporary minimum credit rate for nonfederally subsidized new buildings, 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.
(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 an existing building that is at risk of conversion, 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)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 low-income housing credit program set forth in Section 42 of the Internal Revenue Code, relating to low-income housing credit.
(B)The restrictions on rent and income levels will terminate or the federally 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.
(C)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.
(D)The property satisfies the requirements of Section 42(e) of the Internal Revenue Code, relating to rehabilitation expenditures treated as separate new building, except that the provisions of Section 42(e)(3)(A)(ii)(I) shall not apply.
(5)In the case of any qualified low-income building that is (A) farmworker housing, as defined by Section 50199.7 of the Health and Safety Code, and (B) is federally subsidized, the term applicable percentage means for each of the first three years, 20 percent of the qualified basis of the building, and for the fourth year, 15 percent of the qualified basis of the building.
(d)The term qualified low-income housing project as defined in Section 42(c)(2) of the Internal Revenue Code, relating to qualified low-income building, 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, which 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, relating to low-income housing credit.
(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 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, relating to in general.
(e)The provisions of Section 42(f) of the Internal Revenue Code, relating to definition and special rules relating to credit period, shall be modified as follows:
(1)The term credit period as defined in Section 42(f)(1) of the Internal Revenue Code, relating to credit period defined, 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, relating to special rule for 1st year of credit period, shall not apply to the tax credit under this section.
(3)Section 42(f)(3) of the Internal Revenue Code, relating to determination of applicable percentage with respect to increases in qualified basis after 1st year of credit period, 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, relating to limitation on aggregate credit allowable with respect to projects located in a state, shall be modified as follows:
(1)Section 42(h)(2) of the Internal Revenue Code, relating to allocated credit amount to apply to all taxable years ending during or after credit allocation year, does not apply and instead the following provisions apply:
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, relating to limitation on aggregate credit allowable with respect to projects located in a state, do not apply to this section.
(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)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.
(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, relating to compliance period, 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, relating to recapture of credit, does not apply 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 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, relating to low-income housing credit, 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, relating to qualified low-income housing project.
(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 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, relating to plans for allocation of credit among projects. 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, relating to qualified allocation plan and relating to certain selection criteria must be used, respectively.
(3)Notwithstanding Section 42(m) of the Internal Revenue Code, relating to responsibilities of housing credit agencies, 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)Existing projects that are at risk of conversion, as defined by paragraph (4) of subdivision (c).
(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, relating to certifications and other reports to secretary, shall be modified as follows:
The term secretary shall be replaced by the term Franchise Tax Board.
(l)In the case in which 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 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 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, 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 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)(1)For a project that receives a preliminary reservation under this section beginning on or after January 1, 2016, and before January 1, 2020, a taxpayer may make an irrevocable election in its application to the California Tax Credit Allocation Committee to sell all or any portion of any credit allowed under this section to one or more unrelated parties for each taxable year in which the credit is allowed subject to both of the following conditions:
(A)The credit is sold for consideration that is not less than 80 percent of the amount of the credit.
(B)(i)The unrelated party or parties purchasing any or all of the credit pursuant to this subdivision is a taxpayer allowed the credit under this section for the taxable year of the purchase or any prior taxable year or is a taxpayer allowed the federal credit under Section 42 of the Internal Revenue Code, relating to low-income housing credit, for the taxable year of the purchase or any prior taxable year in connection with any project located in this state.
(ii)For purposes of this subparagraph, taxpayer allowed the credit under this section means a taxpayer that is allowed the credit under this section without regard to the purchase of a credit pursuant to this subdivision without regard to any of the following:
(I)The purchase of a credit under this section pursuant to this subdivision.
(II)The assignment of a credit under this section pursuant to subdivision (q).
(III)The assignment of a credit under this section pursuant to Section 23363.
(2)(A)The taxpayer that originally received the credit shall report to the California Tax Credit Allocation Committee within 10 days of the sale of the credit, in the form and manner specified by the California Tax Credit Allocation Committee, all required information regarding the purchase and sale of the credit, including the social security or other taxpayer identification number of the unrelated party or parties to whom the credit has been sold, the face amount of the credit sold, and the amount of consideration received by the taxpayer for the sale of the credit.
(B)The California Tax Credit Allocation Committee shall provide an annual listing to the Franchise Tax Board, in a form and manner agreed upon by the California Tax Credit Allocation Committee and the Franchise Tax Board, of the taxpayers that have sold or purchased a credit pursuant to this subdivision.
(3)(A)A credit may be sold pursuant to this subdivision to more than one unrelated party.
(B)(i)Except as provided in clause (ii), a credit shall not be resold by the unrelated party to another taxpayer or other party.
(ii)All or any portion of any credit allowed under this section may be resold once by an original purchaser to one or more unrelated parties, subject to all of the requirements of this subdivision.
(4)Notwithstanding any other law, the taxpayer that originally received the credit that is sold pursuant to paragraph (1) shall remain solely liable for all obligations and liabilities imposed on the taxpayer by this section with respect to the credit, none of which shall apply to a party to whom the credit has been sold or subsequently transferred. Parties that purchase credits pursuant to paragraph (1) shall be entitled to utilize the purchased credits in the same manner in which the taxpayer that originally received the credit could utilize them.
(5)A taxpayer shall not sell a credit allowed by this section if the taxpayer was allowed the credit on any tax return of the taxpayer.
(6)Notwithstanding paragraph (1), the taxpayer, with the approval of the Executive Director of the California Tax Credit Allocation Committee, may rescind the election to sell all or any portion of the credit allowed under this section if the consideration for the credit falls below 80 percent of the amount of the credit after the California Tax Credit Allocation Committee reservation.
(s)The California Tax Credit Allocation Committee may prescribe rules, guidelines, or procedures necessary or appropriate to carry out the purposes of this section, including any guidelines regarding the allocation of the credit allowed under this section. Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code shall not apply to any rule, guideline, or procedure prescribed by the California Tax Credit Allocation Committee pursuant to this section.
(t)Any unused credit may continue to be carried forward, as provided in subdivision (l), until the credit has been exhausted.
(u)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.
(v)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. 5.This act provides for a tax levy within the meaning of Article IV of the California Constitution and shall go into immediate effect.
|
Date
|
Status
|
|---|---|
| Sep 29, 2017 | Chaptered by Secretary of State - Chapter 372, Statutes of 2017. |
| Sep 29, 2017 | Approved by the Governor. |
| Sep 26, 2017 | Enrolled and presented to the Governor at 3 p.m. |
| Sep 15, 2017 | In Assembly. Concurrence in Senate amendments pending. |
| Sep 15, 2017 | Read third time. Urgency clause adopted. Passed. Ordered to the Assembly. |
| Jul 18, 2017 | Read second time. Ordered to third reading. |
| Jul 17, 2017 | In committee: Reconsideration of a favorable vote granted. |
| Jul 13, 2017 | From committee chair, with author's amendments: Amend, and re-refer to committee. Read second time, amended, and re-referred to Com. on APPR. |
| Jul 11, 2017 | From committee chair, with author's amendments: Amend, and re-refer to committee. Read second time, amended, and re-referred to Com. on APPR. |
| Jul 5, 2017 | From committee: Do pass and re-refer to Com. on APPR. (Ayes 6. Noes 1.) (July 5). Re-referred to Com. on APPR. |
| Jun 28, 2017 | From committee: Do pass and re-refer to Com. on GOV. & F. with recommendation: To Consent Calendar. (Ayes 12. Noes 0.) (June 27). Re-referred to Com. on GOV. & F. |
| Jun 8, 2017 | Referred to Coms. on T. & H. and GOV. & F. |
| May 30, 2017 | In Senate. Read first time. To Com. on RLS. for assignment. |
| May 30, 2017 | Read third time. Passed. Ordered to the Senate. (Ayes 77. Noes 0. Page 1821.) |
| May 26, 2017 | From committee: Do pass. (Ayes 17. Noes 0.) (May 26). |
| May 24, 2017 | In committee: Set, first hearing. Referred to APPR. suspense file. |
| May 17, 2017 | Re-referred to Com. on APPR. |
| May 16, 2017 | Read second time and amended. |
| May 15, 2017 | From committee: Amend, and do pass as amended and re-refer to Com. on APPR. (Ayes 9. Noes 0.) (May 8). |
| Apr 5, 2017 | From committee: Do pass and re-refer to Com. on REV. & TAX. (Ayes 7. Noes 0.) (April 5). Re-referred to Com. on REV. & TAX. |
| Mar 16, 2017 | In committee: Hearing postponed by committee. |
| Feb 27, 2017 | Referred to Coms. on H. & C.D. and REV. & TAX. |
| Feb 15, 2017 | From printer. May be heard in committee March 17. |
| Feb 14, 2017 | Read first time. To print. |
|
Date
|
Description
|
Location
|
Votes
|
|
|---|---|---|---|---|
| Sep 15, 2017 | AB 571 GARCIA, E. Concurrence - Urgency Added | Assembly Floor |
Passed |
|
| Sep 15, 2017 | Assembly 3rd Reading AB571 Eduardo Garcia et al. By Beall Urgency Clause | Senate Floor |
Passed |
|
| Jul 17, 2017 | Do pass | Senate Standing Committee on Appropriations |
Passed |
|
| Jul 17, 2017 | Passage | Senate Standing Committee on Appropriations |
Passed |
|
| Jul 17, 2017 | Do pass | Senate Standing Committee on Appropriations |
Passed |
|
| Jul 5, 2017 | Do pass, but first be re-referred to the Committee on [Appropriations] | Senate Standing Committee on Governance and Finance |
Passed |
|
| Jun 27, 2017 | Do pass, but first be re-referred to the Committee on [Governance and Finance] with the recommendation: To Consent Calendar | Senate Standing Committee on Transportation and Housing |
Passed |
|
| May 30, 2017 | AB 571 GARCIA, E. Assembly Third Reading | Assembly Floor |
Passed |
|
| May 26, 2017 | Do pass. | Assembly Standing Committee on Appropriations |
Passed |
|
| May 8, 2017 | Do pass as amended and be re-referred to the Committee on [Appropriations] | Assembly Standing Committee on Revenue and Taxation |
Passed |
|
| Apr 5, 2017 | 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
|
|---|---|---|
| Burbank Housing Development Corporation | ** Support | Jul 19, 2017 |
| California Coalition For Rural Housing | ** Support | Jul 19, 2017 |
| California Housing Consortium | ** Support | Jul 19, 2017 |
| California Rural Legal Assistance Foundation | ** Support | Jul 19, 2017 |
| CHISPA | ** Support | Apr 3, 2017 |
| Coachella Valley Housing Coalition | ** Support | Jul 19, 2017 |
| Community Economics, Inc. | ** Support | Jul 19, 2017 |
| community housing improvement systems and planning association, inc. | ** Support | Jul 19, 2017 |
| Community Housing Opportunities Corporation | ** Support | Jul 19, 2017 |
| County of Tuolumne Housing Division | ** Support | Jul 19, 2017 |
| Eden Housing | * Support | Apr 5, 2017 |
| First Congregational UCC Barstow | ** Support | Jul 19, 2017 |
| Housing California | * Support | Apr 5, 2017 |
| Individuals | ** Support | Apr 3, 2017 |
| Mutual Housing California | ** Support | Jul 19, 2017 |
| Non-Profit Housing Association of Northern California | ** Support | Jul 19, 2017 |
| Our Town St. Helena | ** Support | Jul 19, 2017 |
| Project Sentinel | ** Support | Jul 19, 2017 |
| Rural Community Assistance Corporation | ** Support | Jul 19, 2017 |
| San Luis Obispo County Housing Trust Fund | ** Support | Jul 19, 2017 |
| Self-Help Enterprises | ** Support | Jul 19, 2017 |
| Unknown. | ** Against | Jun 30, 2017 |
| Western Center On Law And Poverty Inc. | * Support | Apr 5, 2017 |
| Western Growers Association | ** Support | Jul 19, 2017 |
(Without Reference to File)
CONCURRENCE IN SENATE AMENDMENTS
CSA1 Bill Id:AB 571
Author:(Eduardo Garcia)
As Amended Ver:July 13, 2017
2/3 vote. Urgency
ASSEMBLY: | 77-0 | (May 30, 2017) | SENATE: | 35-3 | (September 15, 2017) |
Original Committee Reference: H. & C.D.
SUMMARY: Makes changes to the farmworker housing tax credit set-aside within the Low Income Housing Tax Credit (LIHTC) Program and to the Department of Housing And Community Development's (HCD) Office of Migrant Services (OMS). Specifically, this bill:
- Makes the following changes to the LIHTC Program:
- Redefines "farmworker housing" to mean housing which is available to and occupied by not less than 50% of farmworkers and their households.
- Allows farmworker housing developments that receive 4% federal LIHTCs that are in qualified census tracts (QCT) or designated development areas (DDA) to receive state LIHTCs.
- Makes qualified farmworker housing developments eligible for state LIHTCs of 75% of the qualified basis of the building over four years.
- Makes the following changes to HCD's OMS:
- Authorizes HCD to provide for advance payments of up to 20% of annual operating costs of the migrant farm labor centers to contractors, provided that the contractors do not have outstanding advance balances from prior contract periods.
- Deletes the limitation in existing law that funds appropriated or authorized to fund the cost of subsidizing occupancy periods are for the first 14 days only.
- Prohibits the standard 180-day occupancy period combined with any extended occupancy period under these provisions from exceeding a cumulative operating period of 275 days in any calendar year.
- Provides that this is an urgency measure.
The Senate amendments:
- Make the following changes to HCD's OMS:
- Authorize HCD to provide for advance payments of up to 20% of annual operating costs of the migrant farm labor centers to contractors, provided that the contractors do not have outstanding advance balances from prior contract periods.
- Delete the limitation in existing law that funds appropriated or authorized to fund the cost of subsidizing occupancy periods are for the first 14 days only.
- Prohibit the standard 180-day occupancy period combined with any extended occupancy period under these provisions from exceeding a cumulative operating period of 275 days in any calendar year.
- Apply the revised definition of farmworker housing, meaning developments were at least 50% of the units are occupied by agricultural workers or their families, to developments that receive LIHTC after January 1, 2018.
- Provide that this is an urgency measure.
FISCAL EFFECT: Unknown impact on General Fund (GF) revenues. This impact depends on the extent to which this bill accelerates the use of state credits that are available. As of 2016, there was approximately $5 million in unused farmworker housing credits available.
COMMENTS: Background: In 1986, the federal government authorized the LIHTC program to enable affordable housing developers to raise private capital through the sale of tax benefits to investors. The federal program offers 9% and 4% credits on the approximate percentage of a project’s "qualified basis" a taxpayer who purchases credits from a developer may deduct from their annual federal tax liability in each of 10 years. TCAC administers the program and awards credits to qualified developers who can then sell those credits to private investors who use the credits to reduce their federal tax liability. The developer in turn invests the capital into the affordable housing project.
In 1987, the legislature authorized a state LIHTC program to augment the federal tax credit program. State tax credits can only be awarded to projects that also receive federal LIHTCs, except for farmworker housing projects, which can receive state credits without federal credits. Investors claim the state credit over four years. Projects that receive either state or federal tax credits are required to keep the housing at affordable levels for 55 years. Both the federal and state tax credits are capped, which limits the amount of credit that TCAC can award each year. Each state receives an annual ceiling of federal credits. In 2015 it was $2.30 per capita, which worked out to $94 million in credits in California that can be taken by investors each year for 10 years. Federal 9% LIHTCs are oversubscribed by a 3:1 ratio.
Federal law requires TCAC to conduct a feasibility study on every project to ensure that the amount of tax credits allocated do not exceed the amount required to make the project feasible. To calculate the amount of tax credits a project may receive, TCAC determines the total project cost. Next, it determines the "eligible basis" by subtracting the non-depreciable costs, such as land, permanent financing costs, rent reserves, and marketing costs. However, the eligible basis is reduced by the applicable percentage, a measure of the amount of affordable units of floor space in the project as a share of the entire project. For example, a project with $5 million in total development costs but $1 million in land acquisition costs has a $4 million basis. If half of the units will be affordable, the total basis is $2 million, which is multiplied by 9% to determine the annual amount of the credit of $180,000, for a ten-year value of $1.8 million.
In 1996, the Legislature created the Farmworker Housing Assistance Tax Credit Program and set aside $500,000 a year from the LIHTC allocation for farmworker housing projects. In an effort to streamline administration and make the farmworker program more user-friendly, SB 1247 (Lowenthal), Chapter 521, Statues of 2008, eliminated the Farmworker Housing Assistance Tax Credit Program as a separate program and consolidated it into the state LIHTC program as a farmworker set-aside. The amount of funding dedicated to farmworker housing remained the same. In recent years the Farmworker Housing Assistance Tax Credit Program has been underutilized. The amount of the credit accrues over time and there is currently $5,529,815 available. Since 2008 only one applicant has successfully sought the credit.
Additionally, other traditional state supported farmworker housing programs, such as the Joe Serna, Jr, Farmworker Housing Grant Program have no fiscal resources to assist in the development of farmworker housing.
Purpose of the bill: The purpose of this bill is to ensure the investment of state low income housing tax credit in farmworker housing projects. The underinvestment in farmworker housing has created hardships for this labor force and their families; this bill intends to counteract that by improving the efficacy and flexibility of the financial resource for developers of farmworker housing.
Changes proposed to the farmworker housing tax credit program:
This bill changes several components of the LIHTC program set-aside for farmworker housing developments in an effort to make the projects more feasible and increase the supply of farmworker housing.
Occupancy requirements: To qualify for LIHTCs, occupancy in farmworkers developments must be limited to farmworkers and their families, except that TCAC can allow owners to temporarily house non-farmworkers in vacant units during a disaster. This bill would reduce the occupancy requirement from 100% farmworkers and their families to 50%. In some cases, a tenant in a farmworker housing development may begin their tenancy employed as a farmworker but change employment while living in the development. The change in employment can jeopardize their tenancy in the project. Reducing the occupancy to 50% will provide greater flexibility to developers in responding to this and other types of challenges.
Increased access to state credits: This bill also seeks to increase the amount of credits that farmworker tax credit projects can receive in order to make the credits more valuable and to allow greater leveraging of other bonding authority. Federal LIHTC can be used anywhere in the state, but projects are given an additional 30% boost on their eligible basis if the project is located in a DDA or a QCT. Because these areas by definition have a higher-poverty level and there is a higher concentration of extremely low-income or homeless individuals and families, housing needs deeper subsidy to make it affordable. Existing state law does not allow state tax credits to be awarded in DDAs and QCTs with one exception: housing developments where 50% of the units are for special needs populations. The rationale for this prohibition is projects in these areas can qualify for more federal tax credits and therefore are already advantaged.
This bill would allow state tax credits to be awarded to farmworker housing projects without regard to DDA or QCT status with the main purpose of making the state credits more valuable and providing enough state tax credits to match the value of a 9% federal tax credit. Allowing state credits to be used for farmworker projects in DDAs and QCTs would increase the equity projects could generate from tax credits because the projects can already qualify for more federal tax credits than projects outside of a DDA or a QCT. As an example, if a project qualifies for $10 million in eligible basis in a DDA or QCT, the project could get up to 130% of that basis in federal tax credits, which means the project sponsor, would have $13 million in federal credits to sell to an investor. This bill would allow that project to get an additional 30% in state tax credits against the $10 million in eligible basis, which would create an additional $3 million in state tax credits.
The amount of federal 9% credits available each year are capped, however 4% federal credits are unlimited. The value of the 4% tax credits are less than half of the 9% tax credits and, as a result, 4% federal credits are generally used in conjunction with another funding source like state housing bonds or local funding sources. In addition, federal 9% credits are oversubscribed where as 4% federal credits are less highly subscribed. This bill would encourage developers constructing farmworker housing to apply for 4% federal credits by increasing the value of the state credits that would accompany those credits. Developers that receive 4% federal credits would receive state credits that would be worth 75% of the projects eligible basis over four years. Under existing law, state LIHTCs are worth 30% of the projects eligible basis over four years.
Changes proposed to OMS: HCD assists agricultural communities in California with the development, construction, reconstruction, rehabilitation, and operation of migrant farm labor centers. Through OMS, HCD provides rental housing during the peak harvesting season.
Existing law authorizes HCD to contract with specified local public and private entities, including school districts and housing authorities, for the procurement or construction of housing or shelter and to obtain specified services for migratory agricultural workers. HCD designates a period of 180 days each calendar year during which migrant farm labor centers are open to migratory agricultural workers and their families for occupancy. Existing law authorizes an OMS migrant farm labor center to operate for an extended period prior to or beyond the standard 180-day period after approval by HCD if certain conditions are met, including, among other things, that no additional subsidies provided by HCD are used for the operation or administration of the migrant farm labor center during the extended occupancy period except to the extent that state funds are appropriated or authorized for the purpose of funding all or part of the cost of subsidizing occupancy periods during the first 14 days only.
This bill would provide more flexibility in extending the occupancy period by 1) authorizing HCD to provide for advance payments of up to 20% of annual operating costs of the migrant farm labor centers to contractors, provided that the contractors do not have outstanding advance balances from prior contract periods; 2) deleting the limitation that funds appropriated or authorized to fund the cost of subsidizing occupancy periods are for the first 14 days only; and 3) prohibiting the standard 180-day occupancy period combined with any extended occupancy period under these provisions from exceeding a cumulative operating period of 275 days in any calendar year.
Related legislation: Last year an identical bill to this bill, AB 2140 (Hernandez) of 2016 passed out of this committee 7-0. It was held in Senate Appropriations Committee.
AB 71 (Chiu) of the current legislative session, proposes to increase the LIHTC by $300 million on an annual basis and increase the set-aside for farmworker housing tax credits within that pool from $500,000 to $25 million. Any funds not used for farmworker housing tax credit projects in a calendar year would be available to other qualified projects that apply for the larger LIHTC pool. AB 71 is pending on the Assembly Floor.
Analysis Prepared by: Lisa Engel / H. & C.D. / (916) 319-2085 FN: 0002365
Office of Senate Floor Analyses (916) 651-1520 Fax: (916) 327-4478 | AB |
THIRD READING
Bill No: AB 571
:
SENATE TRANS. & HOUSING COMMITTEE: 12-0, 6/27/17
AYES: Beall, Cannella, Allen, Atkins, Bates, Gaines, McGuire, Mendoza, Morrell, Roth, Wieckowski, Wiener
NO VOTE RECORDED: Skinner
SENATE GOVERNANCE & FIN. COMMITTEE: 6-1, 7/5/17
AYES: McGuire, Nguyen, Beall, Hernandez, Hertzberg, Lara
NOES: Moorlach
SENATE APPROPRIATIONS COMMITTEE: 7-0, 7/17/17
AYES: Lara, Bates, Beall, Bradford, Hill, Nielsen, Wiener
ASSEMBLY FLOOR: 77-0, 5/30/17 - See last page for vote
SUBJECT: Farmworker housing: income taxes: insurance tax: credits: low-income housing: migrant farm labor centers
SOURCE: California Coalition for Rural Housing
California Rural Legal Assistance Foundation
DIGEST:
This bill makes changes to the farmworker housing tax credit set-aside within the Low Income Housing Tax Credit (LIHTC) program. This bill also makes changes to the Office of Migrant Services (OMS) under the Department of Housing and Community Development (HCD).
Existing law:
- Defines "farmworker" housing to mean housing for agricultural workers that is available to and occupied only by farmworkers and their households.
- Allows the Tax Credit Allocation Committee (TCAC) to permit an owner to temporarily house non-farmworkers in vacant units in the event of a disaster or other critical occurrence provided there are no pending qualified farmworker applications for residency.
- 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 eligible basis of the building.
- Allows TCAC to award state LIHTCs to developments in a qualified census tract (QCT) or a 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; 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 QCT as any census tract designated by the U.S. 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.
- Requires OMS to assist in the development, construction, rehabilitation, or operation of migrant farm labor centers. HCD may contract with specified local public and private entities for the procurement or construction of housing or shelter and to obtain specified services for migratory agricultural workers.
- Authorizes a migrant farm labor center governed by specified existing law to operate for an extended period prior to or beyond the standard 180-day period after approval by HCD if certain conditions are met, including, among other things, that no additional subsidies provided by HCD are used for the operation or administration of the migrant farm labor center during the extended occupancy period except to the extent that state funds are appropriated or authorized for the purpose of funding all or part of the costs of subsidizing occupancy periods during the first 14 days only.
This bill:
- Redefines “farmworker housing” as housing in which at least 50% is available to, and occupied by, farmworkers and their households.
- Allows farmworker housing developments that receive 4% federal LIHTCs that are in QCT or DDA to receive state LIHTCs.
- Makes qualified farmworker housing developments eligible for state LIHTCs of 75% of the qualified basis of the building over four years.
- Authorizes the HCD director to provide for advance payments of up to 20% of annual operating costs of the migrant farm labor centers to contractors, provided that the contractors do not have outstanding advance balances from prior contract periods.
- Deletes the limitation that funds appropriated or authorized to fund the cost of subsidizing occupancy periods be for the first 14 days only. Also, prohibits the standard 180-day occupancy period combined with any extended occupancy period under these provisions from exceeding a cumulative operating period of 275 days in any calendar year.
Comments
- Purpose. According to the author, “California’s farmworkers face tough obstacles and historically have lacked sufficient investment into ensuring their growth and vitality. Despite this, California’s farmworkers are the backbone of a $46 billion agricultural industry that provides fresh fruit and vegetables to America and the entire world. While at one time the farmworker population was characterized by its mobility, today it has become much more stable and permanent in the agricultural areas of the State. In 1996, the Legislature created the Farmworker Housing Assistance Tax Credit Program to ensure the investment of tax credits, specifically in farmworker housing projects. Over the years, legislative changes have been made to improve the broader housing tax credit program, however, the Farmworker Housing Tax Credit Program has not benefitted from some of those policy changes. Currently, California does not utilize its entire private activity tax-exempt bond authority and accordingly does not access the 4% low-income housing tax credits to the fullest extent possible. AB 571 makes improvements to the existing Farmworker Housing Assistance Tax Credit Program to better facilitate the use of this financing tool in several ways.”
- 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. 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 2016, developers used $230 million in annual federal 4% tax credits.
- State LIHTC program. In 1987, the Legislature authorized a state LIHTC program to augment the federal tax credit program. 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.
- 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.
- Farmworker housing credit set-aside. According to TCAC, there is currently nearly $5 million in farmworker credits available. TCAC awarded farmworker credits project with state farmworker credits in each of the following years: 2008, 2015, and 2017. It should be noted that TCAC awards farmworker projects with regular 9% and 4% state credits. In the last three 9% rounds, there has been at least one farmworker project funded without state farmworker credits (all had regular state credits).
- Occupancy requirements and increased access to state credits. This bill makes several changes to the farmworker housing set-aside to make the projects more feasible and increase the supply of farmworker housing. First, this bill reduces the occupancy requirement from 100% farmworkers and their families to 50%. In some cases, a tenant in a farmworker housing development may begin their tenancy employed as a farmworker but change employment while living in the development. The change in employment can jeopardize their tenancy in the project. Reducing the occupancy to 50% will provide greater flexibility to developers in responding to this and other types of challenges.
Second, this bill seeks to increase the amount of credits that farmworker tax credit projects can receive to make the credits more valuable and to allow greater leveraging of other bonding authority. Federal LIHTC can be used anywhere in the state, but projects are given an additional 30% boost on their eligible basis if the project is located in a DDA or a QCT. Because these areas by definition have a higher-poverty level and there is a higher concentration of extremely low-income or homeless individuals and families, housing needs deeper subsidy to make it affordable. Existing state law does not allow state tax credits to be awarded in DDAs and QCTs with one exception: housing developments where 50% of the units are for special needs populations. The rationale for this prohibition is projects in these areas can qualify for more federal tax credits and therefore are already advantaged.
This bill allows state tax credits to be awarded to farmworker housing projects without regard to DDA or QCT status with the main purpose of making the state credits more valuable and providing enough state tax credits to match the value of a 9% federal tax credit. Allowing state credits to be used for farmworker projects in DDAs and QCTs would increase the equity projects could generate from tax credits because the projects can already qualify for more federal tax credits than projects outside of a DDA or a QCT. As an example, if a project qualifies for $10 million in eligible basis in a DDA or QCT, the project could get up to 130% of that basis in federal tax credits, which means the project sponsor, would have $13 million in federal credits to sell to an investor. This bill allows that project to get an additional 30% in state tax credits against the $10 million in eligible basis, which would create an additional $3 million in state tax credits.
This bill encourages developers constructing farmworker housing to apply for 4% federal credits by increasing the value of the state credits that would accompany those credits. The amount of federal 9% credits available each year are capped, however 4% federal credits are unlimited. The value of the 4% tax credits are less than half of the 9% tax credits and, as a result, 4% federal credits are generally used in conjunction with another funding source like state housing bonds or local funding sources. In addition, federal 9% credits are oversubscribed where as 4% federal credits are less highly subscribed. Developers that receive 4% federal credits would receive state credits that would be worth 75% of the projects eligible basis over four years. Additionally, these 4% projects would get the 30% boost if the project were in a DDA or QCT.
- Office of Migrant Services. The purpose of OMS is to provide safe, decent, and affordable seasonal rental housing and support services for migrant farmworker families during the peak harvest season. OMS provides grants to local government agencies that contract with HCD to operate OMS centers located throughout the state. HCD obtains and administers funds for the construction and rebuilding of centers. Counties, housing authorities, and grower associations typically provide land for migrant centers as an in-kind contribution while HCD owns the structures. Child day care and after-school support services are typically available and tenants are charged a subsidized, affordable daily rent. HCD contracts annually with local operating agencies and provides grants for OMS center operation, paid from the State General Fund and from OMS rental income. Given that this program was created for migrant farmworkers, occupancy is normally limited to six months per year.
This bill provides HCD with more flexibility in the operating period for these centers by deleting the limitation that funds appropriated or authorized to fund the cost of subsidizing occupancy periods occur for the first 14 days only. Further, this bill prohibits the standard 180-day occupancy period combined with any extended occupancy period under these provisions from exceeding a cumulative operating period of 275 days in any calendar year.
FISCAL EFFECT: Appropriation: Fiscal Com.: Local:
According to the Senate Appropriations Committee:
- This bill increases overall usage of the low-income housing tax credit beyond historical levels under current law. The amount of the increase is unknown, but the associated revenue loss would likely be in the millions of dollars over several years.
- TCAC would incur minor and absorbable costs to update application materials and review an unknown additional number of applications.
- HCD would incur minor additional administrative costs related to extended occupancy periods at migrant farm labor centers, and to ensure compliance with advance payment provisions. (General Fund)
- Unknown, potentially significant ongoing cost pressures to increase state support for the operation of migrant farm labor centers for up to 95 additional days annually, depending on demand to operate more centers during an extended occupancy period. (General Fund)
California Coalition for Rural Housing (co-source)
California Rural Legal Assistance Foundation (co-source)
Burbank Housing Development Corporation
California Housing Consortium
Coachella Valley Housing Coalition
Community Economics, Inc.
Community Housing Improvement Systems and Planning Association, Inc.
Community Housing Opportunities Corporation
County of Tuolumne Housing Division
First Congregational UCC Barstow
Mutual Housing California
Non-Profit Housing Association of Northern California
Our Town St. Helena
Project Sentinel
Rural Community Assistance Corporation
San Luis Obispo County Housing Trust Fund
Self-Help Enterprises
Western Growers Association
OPPOSITION: (Verified 7/15/17)
None received
ASSEMBLY FLOOR: 77-0, 5/30/17
AYES: Acosta, Aguiar-Curry, Travis Allen, Arambula, Baker, Berman, Bigelow, Bloom, Bocanegra, Bonta, Brough, Burke, Caballero, Calderon, Cervantes, Chávez, Chen, Chiu, Chu, Cooley, Cooper, Cunningham, Dababneh, Dahle, Daly, Flora, Fong, Frazier, Friedman, Gallagher, Cristina Garcia, Eduardo Garcia, Gipson, Gloria, Gomez, Gonzalez Fletcher, Gray, Grayson, Harper, Holden, Irwin, Jones-Sawyer, Kalra, Kiley, Lackey, Levine, Limón, Low, Maienschein, Mathis, Mayes, McCarty, Medina, Melendez, Mullin, Muratsuchi, Nazarian, Obernolte, O'Donnell, Patterson, Quirk, Quirk-Silva, Reyes, Ridley-Thomas, Rodriguez, Rubio, Salas, Santiago, Steinorth, Mark Stone, Thurmond, Ting, Voepel, Waldron, Weber, Wood, Rendon
NO VOTE RECORDED: Chau, Choi, Eggman
7/19/17 15:19:59
**** END ****
SENATE COMMITTEE ON
Senator Ricardo Lara, Chair
2017 - 2018 Regular Session
AB 571 (Eduardo Garcia) - Farmworker housing: income taxes: insurance tax: credits: low-income housing: migrant farm labor centers
Version: | Policy Vote: |
Urgency: | Mandate: |
Hearing Date: | Consultant: |
This bill meets the criteria for referral to the Suspense File.
Bill Summary:
AB 571 would modify the farmworker housing assistance component of the low-income housing tax credit to increase (1) credit percentages, and (2) flexibility to increase potential demand.
The bill would also authorize extended occupancy periods at state-supported migrant farm labor centers, eliminate limits on state support during those extended periods, and authorize the Department of Housing and Community Development (HCD) to provide advance payments of up to 20 percent to contractors that operate farmworker centers, as specified.
Fiscal Impact:
- This bill would increase overall usage of the low-income housing tax credit beyond historical levels under current law. The amount of the increase is unknown, but the associated revenue loss would likely be in the millions of dollars over several years (General Fund, see Staff Comments).
- The California Tax Credit Allocation Committee (CTCAC) would incur minor and absorbable costs to update application materials and review an unknown additional number of applications.
- HCD would incur minor additional administrative costs related to extended occupancy periods at migrant farm labor centers, and to ensure compliance with advance payment provisions. (General Fund)
- Unknown, potentially significant ongoing cost pressures to increase state support for the operation of migrant farm labor centers for up to 95 additional days annually, depending on demand to operate more centers during an extended occupancy period. (General Fund, see Staff Comments)
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. Projects must remain affordable to residents for 55 years.
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 lower rate of return. In return for providing the tax shelter, the State gets more low-income housing than otherwise would have occurred on the natural. Low-income housing projects face several barriers in California, including (1) high costs of land, labor, and capital, (2) resistance from local residents, and (3) state and local laws and policies protecting the environment. 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 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 percent of tax credits to an investor that provides 75 percent 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.
State LIHTCs are calculated in partial conformity with federal LIHTCs, 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 3 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 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 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 percent of a project’s eligible basis. However, CTCAC can replace federal LIHTC with state LIHTC of up to 30 percent 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 percent. 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.
In 1996, the Legislature created the Farmworker Housing Assistance Tax Credit Program and set aside $500,000 a year from the LIHTC allocation for farmworker housing projects. In an effort to streamline administration and make the farmworker program more user-friendly, the Legislature eliminated the Farmworker Housing Assistance Tax Credit Program as a separate program and consolidated it into the state LIHTC program as a farmworker set-aside (SB 1247, Lowenthal, 2008.) The amount of funding dedicated to farmworker housing remained the same, totaling an inflation-adjusted $5,047,118 in 2016. To qualify, farmworker housing must be available to and occupied only by farmworkers and their households. Projects awarded farmworker state credit must comply with all CTCAC regulatory requirements, so other than the ability to receive state credit without federal tax credit, farmworker state credit program requirements are identical to all other LIHTC program requirements.
Existing law requires HCD, through its Office of Migrant Services (OMS), to assist in the development, construction, reconstruction, rehabilitation, and operation of migrant farm labor centers, which provide subsidized farmworker rental housing during the peak harvesting season. HCD contracts with local public and private entities for the operation of farmworker centers and provision of specified services, such as education and childcare, for farmworker tenants and their family members. Occupancy in the 24 OMS migrant farmworker centers is generally limited to 180 days, but existing law authorizes HCD to approve extended occupancy periods under specified conditions, including a provision that limits state subsidies for operations and administration to the first 14 days of the extended period. Currently, three migrant farmworker centers in San Joaquin County have been granted approval to operate for extended occupancy periods. HCD provides grants for OMS center operation, paid from the General Fund and OMS rental income. OMS centers currently receive approximately $5.6 million in General Fund support annually.
Proposed Law:
This bill would modify the farmworker housing assistance component of the LIHTC, to increase credit percentages, and to allow additional flexibility to increase potential demand. Specifically, the bill would make three changes to the LIHTC: (1) remove the requirement that to be eligible for the current LIHTC set aside for farmworker housing, a project only be available to and occupied by farmworkers and their households, instead making eligible those projects where at least 50 percent of units meet that threshold, (2) allow CTCAC to award state LIHTCs to federally subsidized farmworker housing projects in a QCT or DDA, so long as it receives the federal credit, and (3) increase the percentage of basis of the state LIHTC for federally-subsidized farmworker housing projects from 30 percent of eligible basis over four years to 75 percent.
This bill would also make changes to an HCD program that provides subsidized rental housing for migrant farmworkers during the peak harvest season. Specifically, this bill would make three changes to the OMS migrant farm labor center program: (1) authorize HCD to provide advance payments of up to 20 percent of annual operating costs to contractors operating an OMS center; (2) eliminate a provision that limits state subsidies to the first 14 days of an extended OMS center occupancy period authorized by HCD; and (3) authorize an OMS center to operate for a maximum of 275 days in a calendar year, including the standard 180-day occupancy period combined with any extended operating period, as specified.
Related Legislation:
AB 2140 (Hernandez, 2016), was substantially similar to the provisions of this bill pertaining to the LIHTC, and was held under submission on the Suspense File of this Committee.
Staff Comments:
CTCAC made a single farmworker state credit award in 2015, in the amount of about $1 million. Additionally, CTCAC did not approve a project under the farmworker program between 2008 and 2015, leaving roughly $5 million in farmworker state credits available for future project applicants. This bill responds to this lack of usage, and would likely stimulate demand from developers seeking to build these projects by allowing projects which are less than fully occupied by farmworkers and their households to qualify for LIHTCs set aside for farmworker projects. In doing so, the bill would result in additional tax credits likely being allocated beyond what would have occurred under current law.
This bill provides additional flexibility to the OMS migrant farm labor center program by authorizing state subsidies during extended operating periods approved by HCD beyond the current 14-day limit. Staff notes that currently only three of the 24 centers operate during an extended occupancy period. These extended occupancy periods provide stable housing to the families of farmworkers, especially for those with children who attend local schools. To the extent additional centers apply to HCD for approval to operate beyond the current 180-day period, this bill would create General Fund cost pressures to provide more funding for the program, or create pressures to increase rental rates paid by farmworker tenants.
-- END --
SENATE COMMITTEE ON GOVERNANCE AND FINANCE
Senator Mike McGuire, Chair
2017 - 2018 Regular
Bill No: | AB 571 | Hearing Date: | 7/5/17 |
Author: | Eduardo Garcia | Tax Levy: | Yes |
Version: | 5/16/17 | Fiscal: | Yes |
Consultant: | Grinnell | ||
Income taxes: insurance tax: credits: low-income housing: farmworker housing assistance
Amends the farmworker housing assistance component of the low-income housing tax credit to
increase credit percentages, and allow additional flexibility to increase potential demand.
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, while federal credits allow taxpayers to claim credits equal to 70%,, not federally subsidized, or 30% for federally subsidized of a project’s basis over 10 years. Tax-exempt bonds are generally the source of any qualifying federal subsidy. Additionally, acquisition costs cannot be used as part of basis 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 state and federal credits for non-subsidized projects based on a formula in federal law, totaling $94.9 million for 82 non-subsidized projects in 2016, and $229.6 million in federal credits for 187 subsidized projects. CTCAC awarded state credits of $87.4 million for 32 of these projects. Housing developers design projects and apply to CTCAC for credits. CTCAC then reviews the application and either denies it or grants it 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 1996, the Legislature created the Farmworker Housing Assistance Tax Credit Program and set aside $500,000 a year from the LIHTC allocation for farmworker housing projects. In an effort to streamline administration and make the farmworker program more user-friendly, the Legislature eliminated the Farmworker Housing Assistance Tax Credit Program as a separate program and consolidated it into the state LIHTC program as a farmworker set-aside (SB 1247, Lowenthal, 2008.) The amount of funding dedicated to farmworker housing remained the same, totaling an inflation-adjusted $5,047,118 in 2016. To qualify, farmworker housing must be available to and occupied only by farmworkers and their households. Projects awarded farmworker state credit must comply with all CTCAC regulatory requirements, so other than the ability to receive state credit without federal tax credit, farmworker state credit program requirements are identical to all other LIHTC program requirements. Responding to a lack of demand credits for farmworker housing projects, affordable housing groups want to modify the LIHTC program to enhance subsidies for these projects.
Proposed Law
Assembly Bill 2140 makes three changes to the LIHTCs under the Personal Income Tax, Corporation Tax, and Gross Premiums Tax. The bill:
- Removes the requirement that to be eligible for the current LIHTC set aside for farmworker housing, that a project only be available to and occupied by farmworkers and their households, instead making eligible those projects where at least 50% of units meet that threshold.
- Allows CTCAC to award state LIHTCs to federally subsidized farmworker housing projects in a QCT or DDA, so long as it receives the federal credit.
- Increases the percentage of basis of the state LIHTC for federally-subsidized farmworker housing projects from 30% of eligible basis over four years to 75%.
The measure also makes technical and conforming changes.
State Revenue Impact
FTB states that it is unable to estimate potential annual credit usage due to its infrequent usage.
Comments
1. Purpose of the bill. According to the author, “California farmworkers face tough obstacles and historically have lacked sufficient investment into ensuring their growth and vitality. Despite this, California’s farmworkers are the backbone of a $46 billion agricultural industry that provides fresh fruit and vegetables to American and the entire world. While at one time the farmworker population was characterized by its mobility, today it has become much more stable and permanent in the agricultural areas of the state. In 1996, the Legislature created the Farmworker Housing Assistance Tax Credit Program to ensure the investment of tax credits, specifically in farmworker housing projects. Over the years, legislative changes have been made to improve the broader housing tax credit program, however, the Farmworker Housing Tax Credit program has not benefitted from some of these policy changes. Currently, California does not utilize its entire private activity tax-exempt bond authority and according does not access the 4% low-income housing tax credits to the fullest extent possible. AB 571 makes improvements to the existing the Farmworker Housing Tax Credit program to better facilitate the use of this financing tool in several ways.”
2. Need. The LIHTC is highly competitive, where developers for projects across the state apply for a finite amount of state and federal tax credits. CTCAC has awarded farmworker projects with state farmworker projects in 2008, 2015, and 2017, but there is currently nearly $5 million in farmworker credits available. While demand for farmworker credits has been low, CTCAC frequently awards general 9% and 4% credits for units for farmworkers out of its general authorization: in the last three allocation rounds for the 9% credit, there has been at least one farmworker project approved. AB 571 should help increase demand from developers seeking to build these projects by allowing projects which are less than 100% occupied by farmworkers and their households to qualify for LIHTCs set aside for farmworker projects. Additionally, allowing farmworker projects within QCTs and DDAs to obtain both the basis boost and state tax credits will allow for higher subsidies: if a project qualifies for $10 million in eligible basis in a DDA or QCT, the project could get up to 130% (100% federal plus 30% state) of that basis, which means the project sponsor, would have $13 million in federal credits to sell to an investor. AB 571 also allows CTCAC to allocate up to 30% in additional state tax credits to that project, generating $3 million in potential project capital. This bill would encourage developers constructing farmworker housing to apply for 4% federal credits by increasing the value of the state credits that would accompany those credits. The amount of federal 9% credits available each year are capped, however 4% federal credits are unlimited. The value of the 4% tax credits are less than half of the 9% tax credits and, as a result, 4% federal credits are generally used in conjunction with another funding source like state housing bonds or local funding sources. In addition, federal 9% credits are oversubscribed where as 4% federal credits are less highly subscribed. Developers that receive 4% federal credits would receive state credits that would be worth 75% of the projects eligible basis over four years. Additionally, these 4% projects would get the 30% boost if the project were in a DDA or QCT.
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 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. Related legislation. AB 571 is almost identical to AB 2140 (Hernandez, 2016), which the Committee approved on a 4 to 1 vote on 6/22/16. However, the measure was subsequently held on the Senate Appropriations Committee’s suspense file.
5. Incoming! On June 27th, the Committee on Transportation and Housing approved AB 571 by a vote of 12 to 0. The Governance and Finance Committee is hearing the measure as the committee of second reference.
6. Technicals. Franchise Tax Board (FTB) and committee staff recommend the following technical amendments:
- On P. 8, L. 4, P.21, L. 4; and P.34, L. 20; after “defined by” insert: “subdivision (h) of.”
- Apply its changes to allocations made on or after January 1, 2018.
Assembly Actions
Assembly Housing and Community Development 7-0
Assembly Revenue and Taxation 9-0
Assembly Appropriations 17-0
Assembly Floor 77-0
Support and Opposition
(6/30/17)
Support: Burbank Housing Development Corporation; California Coalition for Rural Housing; California Housing Consortium; California Rural Legal Assistance Foundation; Coachella Valley Housing Coalition; Community Economics; Community Housing Improvement Systems and Planning Association, Inc.; Community Housing Opportunities; Community Resources Agency; First Congregational UCC; Mutual Housing California; Non-profit Housing Association of Northern California; Our Town St. Helena; Project Sentinel; Rural Community Assistance Corporation; San Luis Obispo County Housing Trust Fund; Self-Help Enterprises; Western Growers Association
Opposition: Unknown.
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SENATE COMMITTEE ON TRANSPORTATION AND HOUSING
Senator Jim Beall, Chair
2017 - 2018 Regular
Bill No: AB 571 Hearing Date: 6/27/17
Author: | Eduardo Garcia | ||
Version: | 5/16/2017 Amended | ||
Urgency: | Yes | Fiscal: | Yes |
Consultant: | Alison Hughes | ||
SUBJECT: Income taxes: insurance tax: credits: low-income housing: farmworker housing assistance.
DIGEST: This bill makes changes to the farmworker housing tax credit set-aside within the Low Income Housing Tax Credit (LIHTC) program.
ANALYSIS:
Existing law:
- Defines "farmworker" housing to mean housing for agricultural workers that is available to and occupied only by farmworkers and their households.
- Allows the Tax Credit Allocation Committee (TCAC) to permit an owner to temporarily house non-farmworkers in vacant units in the event of a disaster or other critical occurrence provided there are no pending qualified farmworker applications for residency.
- 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 eligible basis of the building.
- Allows TCAC to award state LIHTCs to developments in a qualified census tract (QCT) or a 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; 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 QCT as any census tract designated by the U.S. 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.
This bill:
- Redefines “farmworker housing” as housing in which at least 50% is available to, and occupied by, farmworkers and their households.
- Allows farmworker housing developments that receive 4% federal LIHTCs that are in qualified census tracts (QCT) or designated development areas (DDA) to receive state LIHTCs.
- Makes qualified farmworker housing developments eligible for state LIHTCs of 75% of the qualified basis of the building over four years.
COMMENTS:
- Purpose. According to the author, “California’s farmworkers face tough obstacles and historically have lacked sufficient investment into ensuring their growth and vitality. Despite this, California’s farmworkers are the backbone of a $46 billion agricultural industry that provides fresh fruit and vegetables to America and the entire world. While at one time the farmworker population was characterized by its mobility, today it has become much more stable and permanent in the agricultural areas of the State. In 1996, the Legislature created the Farmworker Housing Assistance Tax Credit Program to ensure the investment of tax credits, specifically in farmworker housing projects. Over the years, legislative changes have been made to improve the broader housing tax credit program, however, the Farmworker Housing Tax Credit Program has not benefitted from some of those policy changes. Currently, California does not utilize its entire private activity tax-exempt bond authority and accordingly does not access the 4% low-income housing tax credits to the fullest extent possible. AB 571 makes improvements to the existing Farmworker Housing Assistance Tax Credit Program to better facilitate the use of this financing tool in several ways.”
- 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 they are oversubscribed on a per credit basis by 2.4:1 ratio (per project, on a 2.7:1 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 2016, the state ceiling for private activity bonds is set at $3.91 billion. In addition, there was $1.06 billion in bond authority carried forward from previous years.
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 2016, developers used $230 million in annual federal 4% tax credits.
- 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 the 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.
- 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.
- Farmworker housing credit set-aside. According to TCAC, there is currently nearly $5 million in farmworker credits available. TCAC awarded farmworker credits project with state farmworker credits in each of the following years: 2008, 2015, and 2017. It should be noted that TCAC awards farmworker projects with regular 9% and 4% state credits. In the last three 9% rounds, there has been at least one farmworker project funded without state farmworker credits (all had regular state credits).
- Occupancy requirements. This bill makes several changes to the farmworker housing set-aside to make the projects more feasible and increase the supply of farmworker housing.
To qualify for LIHTCs, occupancy in farmworkers developments must be limited to farmworkers and their families, except that TCAC can allow owners to temporarily house non-farmworkers in vacant units during a disaster. This bill would reduce the occupancy requirement from 100% farmworkers and their families to 50%. In some cases, a tenant in a farmworker housing development may begin their tenancy employed as a farmworker but change employment while living in the development. The change in employment can jeopardize their tenancy in the project. Reducing the occupancy to 50% will provide greater flexibility to developers in responding to this and other types of challenges.
- Increased access to state credits. This bill seeks to increase the amount of credits that farmworker tax credit projects can receive to make the credits more valuable and to allow greater leveraging of other bonding authority. Federal LIHTC can be used anywhere in the state, but projects are given an additional 30% boost on their eligible basis if the project is located in a DDA or a QCT. Because these areas by definition have a higher-poverty level and there is a higher concentration of extremely low-income or homeless individuals and families, housing needs deeper subsidy to make it affordable. Existing state law does not allow state tax credits to be awarded in DDAs and QCTs with one exception: housing developments where 50% of the units are for special needs populations. The rationale for this prohibition is projects in these areas can qualify for more federal tax credits and therefore are already advantaged.
This bill would allow state tax credits to be awarded to farmworker housing projects without regard to DDA or QCT status with the main purpose of making the state credits more valuable and providing enough state tax credits to match the value of a 9% federal tax credit. Allowing state credits to be used for farmworker projects in DDAs and QCTs would increase the equity projects could generate from tax credits because the projects can already qualify for more federal tax credits than projects outside of a DDA or a QCT. As an example, if a project qualifies for $10 million in eligible basis in a DDA or QCT, the project could get up to 130% of that basis in federal tax credits, which means the project sponsor, would have $13 million in federal credits to sell to an investor. This bill would allow that project to get an additional 30% in state tax credits against the $10 million in eligible basis, which would create an additional $3 million in state tax credits.
This bill would encourage developers constructing farmworker housing to apply for 4% federal credits by increasing the value of the state credits that would accompany those credits. The amount of federal 9% credits available each year are capped, however 4% federal credits are unlimited. The value of the 4% tax credits are less than half of the 9% tax credits and, as a result, 4% federal credits are generally used in conjunction with another funding source like state housing bonds or local funding sources. In addition, federal 9% credits are oversubscribed where as 4% federal credits are less highly subscribed. Developers that receive 4% federal credits would receive state credits that would be worth 75% of the projects eligible basis over four years. Additionally, these 4% projects would get the 30% boost if the project were in a DDA or QCT.
- Double-referral. This bill is double-referred to the Governance and Finance Committee.
Related Legislation:
AB 2140 (Hernandez, 2016) — would have made changes to the farmworker housing tax credit set-aside within the LIHTC program. This bill was held in Senate Appropriations Committee.
AB 71 (Chiu, 2017) — proposed to increase the LIHTC by $300 million on an annual basis and increase the set-aside for farmworker housing tax credits within that pool from $500,000 to $25 million. This bill is pending on the Assembly Floor.
Assembly Votes:
Floor: 77-0
Appr: 17-0
Rev&Tax: 9-0
H&CD: 7-0
FISCAL EFFECT: Appropriation: Fiscal Com.: Local:
POSITIONS: (Communicated to the committee before noon on Wednesday,
June 21, 2016.)
SUPPORT:
California Coalition for Rural Housing (co-sponsor)
California Rural Legal Assistance Foundation (co-sponsor)
Burbank Housing Development Corporation
California Housing Consortium
Coachella Valley Housing Coalition
Community Economics, Inc.
Community Housing Improvement Systems and Planning Association, Inc.
Community Housing Opportunities Corporation
County of Tuolumne Housing Division
First Congregational UCC Barstow
Mutual Housing California
Non-Profit Housing Association of Northern California
Our Town St. Helena
Project Sentinel
Rural Community Assistance Corporation
San Luis Obispo County Housing Trust Fund
Self-Help Enterprises
Western Growers Association
OPPOSITION:
None received.
-- END --
ASSEMBLY THIRD READING
ATR Bill Id:AB 571
Author:(Eduardo Garcia)
As Amended Ver:May 16, 2017
2/3 vote. Tax Levy
Committee | Votes | Ayes | Noes |
Housing | 7-0 | Chiu, Steinorth, Bocanegra, Chau, Choi, Kalra, Limón | |
Revenue & Taxation | 9-0 | Ridley-Thomas, Brough, Travis Allen, Bocanegra, Burke, Chen, Dababneh, Mullin, Quirk | |
Appropriations | 17-0 | Gonzalez Fletcher, Bigelow, Bloom, Bocanegra, Bonta, Brough, Calderon, McCarty, Quirk, Fong, Friedman, Gallagher, Eduardo Garcia, Gray, Muratsuchi, Obernolte, Reyes |
|
SUMMARY: Makes changes to the farmworker housing tax credit set-aside within the Low Income Housing Tax Credit (LIHTC) Program. Specifically, this bill:
- Redefines "farmworker housing" to mean housing which is available to and occupied by not less than 50% of farmworkers and their households.
- Allows farmworker housing developments that receive 4% federal LIHTCs that are in qualified census tracts (QCT) or designated development areas (DDA) to receive state LIHTCs.
- Makes qualified farmworker housing developments eligible for state LIHTCs of 75% of the qualified basis of the building over four years.
FISCAL EFFECT:
Unknown impact on General Fund (GF) revenues. This impact depends on the extent to which this bill accelerates the use of state credits that are available. As of 2016, there was approximately $5 million in unused farmworker housing credits available.
COMMENTS:
Background: In 1986, the federal government authorized the LIHTC program to enable affordable housing developers to raise private capital through the sale of tax benefits to investors. The federal program offers 9% and 4% credits on the approximate percentage of a project's "qualified basis" a taxpayer who purchases credits from a developer may deduct from their annual federal tax liability in each of ten years. California Tax Credit Allocation Committee (TCAC) administers the program and awards credits to qualified developers who can then sell those credits to private investors who use the credits to reduce their federal tax liability. The developer in turn invests the capital into the affordable housing project.
In 1987, the legislature authorized a state LIHTC program to augment the federal tax credit program. State tax credits can only be awarded to projects that also receive federal LIHTCs, except for farmworker housing projects, which can receive state credits without federal credits. Investors claim the state credit over four years. Projects that receive either state or federal tax credits are required to keep the housing at affordable levels for 55 years. Both the federal and state tax credits are capped, which limits the amount of credit that TCAC can award each year. Each state receives an annual ceiling of federal credits. In 2015 it was $2.30 per capita, which worked out to $94 million in credits in California that can be taken by investors each year for 10 years. Federal 9% LIHTCs are oversubscribed by a 3:1 ratio.
Federal law requires TCAC to conduct a feasibility study on every project to ensure that the amount of tax credits allocated do not exceed the amount required to make the project feasible. To calculate the amount of tax credits a project may receive, TCAC determines the total project cost. Next, it determines the "eligible basis" by subtracting the non-depreciable costs, such as land, permanent financing costs, rent reserves, and marketing costs. However, the eligible basis is reduced by the applicable percentage, a measure of the amount of affordable units of floor space in the project as a share of the entire project. For example, a project with $5 million in total development costs but $1 million in land acquisition costs has a $4 million basis. If half of the units will be affordable, the total basis is $2 million, which is multiplied by 9% to determine the annual amount of the credit of $180,000, for a ten-year value of $1.8 million.
In 1996, the Legislature created the Farmworker Housing Assistance Tax Credit Program and set aside $500,000 a year from the LIHTC allocation for farmworker housing projects. In an effort to streamline administration and make the farmworker program more user-friendly, SB 1247 (Lowenthal), Chapter 521, Statues of 2008, eliminated the Farmworker Housing Assistance Tax Credit Program as a separate program and consolidated it into the state LIHTC program as a farmworker set-aside. The amount of funding dedicated to farmworker housing remained the same. In recent years the Farmworker Housing Assistance Tax Credit Program has been underutilized. The amount of the credit accrues over time and there is currently $5,529,815 available. Since 2008 only one applicant has successfully sought the credit.
Additionally, other traditional state supported farmworker housing programs, such as the Joe Serna, Jr, Farmworker Housing Grant Program have no fiscal resources to assist in the development of farmworker housing.
Purpose of the bill: The purpose of this bill is to ensure the investment of state low income housing tax credit in farmworker housing projects. The underinvestment in farmworker housing has created hardships for this labor force and their families; this bill intends to counteract that by improving the efficacy and flexibility of the financial resource for developers of farmworker housing.
Changes proposed to the farmworker housing tax credit program:
This bill changes several components of the LIHTC program set-aside for farmworker housing developments in an effort to make the projects more feasible and increase the supply of farmworker housing.
Occupancy requirements: To qualify for LIHTCs, occupancy in farmworkers developments must be limited to farmworkers and their families, except that TCAC can allow owners to temporarily house non-farmworkers in vacant units during a disaster. This bill would reduce the occupancy requirement from 100% farmworkers and their families to 50%. In some cases, a tenant in a farmworker housing development may begin their tenancy employed as a farmworker but change employment while living in the development. The change in employment can jeopardize their tenancy in the project. Reducing the occupancy to 50% will provide greater flexibility to developers in responding to this and other types of challenges.
Increased access to state credits: This bill also seeks to increase the amount of credits that farmworker tax credit projects can receive in order to make the credits more valuable and to allow greater leveraging of other bonding authority. Federal LIHTC can be used anywhere in the state, but projects are given an additional 30% boost on their eligible basis if the project is located in a DDA or a QCT. Because these areas by definition have a higher-poverty level and there is a higher concentration of extremely low-income or homeless individuals and families, housing needs deeper subsidy to make it affordable. Existing state law does not allow state tax credits to be awarded in DDAs and QCTs with one exception: housing developments where 50% of the units are for special needs populations. The rationale for this prohibition is projects in these areas can qualify for more federal tax credits and therefore are already advantaged.
This bill would allow state tax credits to be awarded to farmworker housing projects without regard to DDA or QCT status with the main purpose of making the state credits more valuable and providing enough state tax credits to match the value of a 9% federal tax credit. Allowing state credits to be used for farmworker projects in DDAs and QCTs would increase the equity projects could generate from tax credits because the projects can already qualify for more federal tax credits than projects outside of a DDA or a QCT. As an example, if a project qualifies for $10 million in eligible basis in a DDA or QCT, the project could get up to 130% of that basis in federal tax credits, which means the project sponsor, would have $13 million in federal credits to sell to an investor. This bill would allow that project to get an additional 30% in state tax credits against the $10 million in eligible basis, which would create an additional $3 million in state tax credits.
The amount of federal 9% credits available each year are capped, however 4% federal credits are unlimited. The value of the 4% tax credits are less than half of the 9% tax credits and, as a result, 4% federal credits are generally used in conjunction with another funding source like state housing bonds or local funding sources. In addition, federal 9% credits are oversubscribed where as 4% federal credits are less highly subscribed. This bill would encourage developers constructing farmworker housing to apply for 4% federal credits by increasing the value of the state credits that would accompany those credits. Developers that receive 4% federal credits would receive state credits that would be worth 75% of the projects eligible basis over four years. Under existing law, state LIHTCs are worth 30% of the projects eligible basis over four years.
Related legislation: Last year an identical bill to this bill, AB 2140 (Hernández) of 2016 passed out of this committee 7-0. It was held in Senate Appropriations Committee.
AB 71 (Chiu) of the current legislative session, proposes to increase the LIHTC by $300 million on an annual basis and increase the set-aside for farmworker housing tax credits within that pool from $500,000 to $25 million. Any funds not used for farmworker housing tax credit projects in a calendar year would be available to other qualified projects that apply for the larger LIHTC pool. AB 71 is pending on the Assembly Floor.
Analysis Prepared by: Lisa Engel / H. & C.D. / (916) 319-2085 FN: 0000811
Date of Hearing: May 24, 2017
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Lorena Gonzalez Fletcher, Chair
ABPCA Bill Id:AB 571
Author:(Eduardo Garcia) – As Amended Ver:May 16, 2017
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 modifies the Farmworker Housing Assistance (FHA) tax credit program. Specifically, this bill:
- Redefines “farmworker housing” as housing in which at least 50% of the units are available to farmworkers, instead of 100%.
- Authorizes the California Tax Credit Allocation Committee (TCAC) to award a state Low Income Housing Tax Credit (LIHTC) to farmworker projects located in a qualified census tract or a designated development area if the project has received a federal 4% LIHTC.
- Revises the state applicable state LIHTC percentage relating to farmworker housing to provide that a farmworker housing building, which is federally subsidized, is eligible for the state LIHT credit equal to 75% of the qualified basis of the building over four years.
FISCAL EFFECT:
Unknown impact on General Fund (GF) revenues. This impact depends on the extent to which AB 571 accelerates the use of state credits that are available. As of 2016, there was approximately $5 million in unused farmworker housing credits available.
COMMENTS:
- 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. 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 or 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, the applicable rate is 4%.
- State LIHTC program. In 1987, the Legislature authorized a state LIHTC program to augment the federal program. While the state LIHTC program is patterned after the federal program, there are several differences, including a provision allowing investors to claim the state LIHTC over a 4-year, rather than the federal 10-year, allocation period. State tax credits can only be awarded to projects that have also received, or are concurrently receiving, an allocation of the federal credits.
The amount of state credits that may be annually allocated is limited to $70 million, adjusted for inflation, plus any unallocated or unused credits from previous years. In 2016, the total state credit amount available for allocation was approximately $67 million.
- Farmworker housing allocation. Each year, $500,000 of the total allocation of state LIHTCs is set aside for farmworker housing developments. These credits are available for projects dedicating 100% of their affordable units to agricultural workers and their families. The funding may be carried forward into future years if not allocated. Farmworker state tax credits can be requested in combination 9% or 4% federal tax credits, or can be requested without federal tax credits. Beyond the ability to receive state credit without federal tax credit, farmworker state credit program requirements are identical to all other LIHT credit program requirements.
- What does this bill do? To improve utilization of the farmworker housing tax allcation, AB 571 modifies existing law in three ways. First, this bill reduces the occupancy requirement so as to make the credit available to more projects. Second, this bill allows state credits to be awarded to farmworker housing projects without regard to whether that project is located ina qualified census tract or a designated development area. Projects in these areas are generally prohibited from receiving a state LIHTC because projects in these areas tend to get more federal credits. Finally, this bill increases the state credit for farmworker housing projects to be 75% of the qualified basis for housing projects that receive a 4% federal credit. In effect, this makes the subsidy about the same for projects receiving a 4% federal credit as a project receiving a 9% federal credit, but the 4% credit is less competitive.
- Related Legislation. AB 71 (Chiu) proposes to increase the LIHTC by $300 million on an annual basis and increase the set-aside for farmworker housing tax credits within that pool from $500,000 to $25 million. Any funds not used for farmworker housing tax credit projects in a calendar year will be available to other qualified projects that apply for the larger LIHTC pool. AB 71 will also be heard in this committee today.
Analysis Prepared by: Luke Reidenbach / APPR. / (916) 319-2081
Date of Hearing: May 8, 2017
ASSEMBLY COMMITTEE ON REVENUE AND TAXATION
Sebastian Ridley-Thomas, Chair
ABPCA Bill Id:AB 571 (
Author:Eduardo Garcia) – As Introduced Ver:February 14, 2017
2/3 vote. Tax levy. Fiscal committee.
SUBJECT: Income taxes: insurance tax: credits: low-income housing: farmworker housing assistance
SUMMARY: Modifies the Farmworker Housing Assistance (FHA) tax credit program. Specifically, this bill:
- Redefines "farmworker housing" as housing in which at least 50% of the units are available to, and occupied by, farmworkers and their households.
- Authorizes the California Tax Credit Allocation Committee (TCAC) to award a state low income housing tax credit (LIHTC), as specified, to a farmworker housing project located in a qualified census tract (QCT) or a designated development area (DDA) if the project has received the federal 4% LIHTC.
- Revises the applicable state LIHTC credit percentage relating to farmworker housing to provide that a farmworker housing building that receives a federal 4% credit is eligible for the state LIHTC equal to 75% of the qualified basis of the building over four years.
- 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 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 receive 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.
- Allows a taxpayer to make an irrevocable election to sell all or any portion of the state LIHTC to an unrelated party, subject to both of the following conditions:
- The consideration received by the taxpayer from the sale of the LIHTC equals at least 80% of the credit amount; and,
- The purchaser of the credit is a taxpayer allowed a state or federal LIHTC in connection with a project in this state in the same taxable year as the credit purchased, or any previous taxable year.
- The sale of credits applies to projects that receive a preliminary reservation beginning on or after January 1, 2016, and before January 1, 2020. A LIHTC purchaser may resell the credit once, subject to all of the applicable requirements. The sale of a tax credit is disallowed if the taxpayer was allowed the credit on any of his/her tax returns.
- Permanently allows the state LIHTC to be allocated within the partnership agreement differently than federal LIHTCs, or irrespective of whether the agreement has substantial economic effect.
- Allows a taxpayer, with the approval of TCAC, to rescind the election to sell all or any portion of the LIHTC allowed if the consideration falls below 80% of the amount of the LIHTC.
- Provides that gross income includes all income from whatever source derived, including gains derived from dealings in property, unless specifically excluded.
- Treats the sale of a credit for federal and state income tax purposes as a sale of property. Therefore, the seller is required to report gain from the sale. The gain from the sale of the credit is the excess of the total consideration received over the seller's basis in the credit. The total amount of consideration received is the sum of any money received plus the fair market value of the property (other than money) received. Since the seller’s basis in the credit is $0 (zero), the seller will recognize and report gain on the full amount of consideration received.
- Requires that $500,000 of the LIHTC be set aside for farmworker housing developments and provides that the farmworker tax credit awards are not dependent on receiving a federal LIHTC.
- Defines "farmworker" housing to mean housing for agricultural workers that is available to, and occupied by, only farmworkers and their households.
- Allows TCAC to permit an owner to temporarily house non-farmworkers in vacant units in the event of a disaster or other critical occurrence provided there are no pending qualified farmworker applications for residency.
- Allows TCAC to award state LIHTCs to developments in a QCT or a DDA, if the project is also receiving a 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.
- Defines a "QCT" 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.
FISCAL EFFECT: According to the Franchise Tax Board "there would be a revenue impact to the general fund in an unknown amount."
COMMENTS:
- The author has provided the following statement in support of this bill:
California’s rural farmworkers face tough obstacles and historically have lacked the proper investment into ensuring their growth and vitality. Despite this, California’s farmworkers are the backbone of a $46 billion agricultural industry that provides fresh fruit and vegetables to America and the entire world. While at one time the farmworker population was characterized by its mobility, today it has become much more stable and permanent in the agricultural areas of the State. In 1996, the Legislature created the Farmworker Housing Assistance Tax Credit Program to ensure the investment of tax credits, specifically in farmworker housing projects. Over the years, legislative changes have been made to improve the broader STO housing tax credit program, however, the Farmworker Housing Tax Credit Program has not benefitted from some of those policy changes. In fact, given the fiscal and policy constraints of the existing Farmworker Housing Assistance Tax Credit Program, no projects since 2008 had been awarded tax credits until last year. That is why I put forward, AB 571, which makes improvements to the existing State Treasurer’s Office (STO) Farmworker Housing Assistance Tax Credit Program to better facilitate the use of this financing tool. However, this is only one of the many issues facing farmworker and rural Californians and I hope that this bill will better facilitate a focus on these important issues and possibly produce some great ideas on where to go from here.
- Supporters of this bill state that "policy constraints of the existing Farmworker Housing Assistance Tax Credit Program have made it difficult to utilize. The changes proposed in AB 571 will make this program much more effective and help leverage underutilized federal tax-exempt bonds and 4% low income housing tax credits."
- Committee staff comments:
- 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 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. 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. The 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
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 2016, the total credit amount available for allocation was slightly over $67 million (representing all four years of allocation) plus any unused or returned credit allocations from previous years.
- Credit Percentages: 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 claim from his/her annual federal tax liability in each of the 10 years.
- 9% credit (70% subsidy): For projects that are not financed with a federal subsidy, the applicable rate is 9%. The 9% credit is generally reserved for new construction. Each year, a credit equal to roughly 9% of the project's qualified basis (cost of construction) may be claimed. Even though the credit is designated as the "9%" credit, it varies so that the value of the 10-year stream of credit is equal to a 70% subsidy of the qualified basis[1]. Over time, the 9% credit has ranged between 7.89% to 9.27%.
- 4% credit (30% subsidy): The 4% credit is generally claimed for rehabilitation and new construction that is federally subsidized (including projects financed by more than 50% with tax-exempt bonds). Like the 9% credit, the actual credit rate of the 4% fluctuates over the 10-year period to deliver a present value subsidy equal to 30% of the project's qualified basis.
- 30% "basis boost": An additional subsidy is provided to incentivize investors to develop in DDAs and QCTs by providing a "basis boost" of 30% to help offset the higher cost of building affordable units in these difficult to develop areas. As such, a developer can claim the LIHTC for up to 130% of the projects total basis instead of 100%.
- California's augmentation: The California LIHTC can be claimed over four years instead of a 10-year federal allocation period, and the total amount of the state tax subsidy is roughly 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. Combining the federal 9% credit (70% subsidy) with a state credit (30% subsidy) generally provides a 100% subsidy of a project's eligible basis. Combining the federal 4% credit (30% subsidy) with a state credit (13% subsidy), only results in a subsidy of 43% of a project's eligible basis. As such, obtaining a 9% credit is extremely competitive. Currently, federal 9% LIHTCs are oversubscribed by a ratio of 3:1.
- FHA Program: In 1996, the Legislature created the Farmworker Housing Assistance Tax Credit Program and set aside $500,000 per year from the LIHTC allocation for farmworker housing projects. In an effort to streamline administration and make the farmworker program more user-friendly, SB 1247 (Lowenthal), Chapter 521, Statutes of 2008, eliminated the FHA Tax Credit Program as a separate program, consolidated it into the state LIHTC program, and established an annual set-aside of state LIHTCs for farmworker housing developments (Farmworker State Credits). The amount of funding dedicated to farmworker housing remained the same - $500,000 each year, available for projects dedicating 100% of their affordable units to agricultural workers and their families. The funding may be carried forward into future years if not allocated.
- Credit Percentages: 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 claim from his/her annual federal tax liability in each of the 10 years.
Farmworker housing tax credit applicants apply in California TCAC's competitive rounds using TCAC application documents. Farmworker state tax credits can be requested in combination with 9% or 4% federal tax credits, or can be requested without federal tax credits. Farmworker state credit applicants requesting a 9% federal credit compete within the TCAC competitive system as part of the applicant pool. If successful, an applicant is awarded the 9% federal and farmworker state credit. If multiple applications for Farmworker State Credits are received requesting a 9% credit, TCAC will award available farmworker credits to the highest scoring Farmworker Housing application that will receive a reservation of federal credits. Applications for only Farmworker State Credits or Farmworker State Credits in conjunction with the 4% federal credits can be done through a non-competitive "over-the-counter" process. Projects awarded Farmworker State Credit must comply with all TCAC regulatory requirements. Beyond the ability to receive a state credit without a federal tax credit, the requirements of the Farmworker State Credit program are generally identical to all other LIHTC program requirements.
- Farmworker Housing Deficiency in Current Law: According to the TCAC annual report, the total state LIHTC available in 2016 was $67,118,373, plus $5,047,118 in farmworker state credit available for agricultural worker housing. Beginning in 2016, TCAC regulations permitted applicants to request farmworker state credits through a non-competitive over-the-counter process. No farmworker state credits were awarded in 2016. In 2015, TCAC made one farmworker state credit award of $982,697 to a 4% project in Santa Rosa, Ortiz Plaza. It should be noted that TCAC funded two additional farmworker housing projects in 2015 with the standard federal and state tax credits. As can be seen, the FHA tax credit has been largely underutilized - no project was awarded an FHA tax credit between 2008 and 2015, with $4.5 million in farmworker state credit remaining available for future project applicants in 2016.
- Proposed Solution: To improve the FHA tax credit program's utilization, this bill proposes three modifications to existing law. First, this bill would reduce the occupancy requirement from 100% farmworkers and their families to 50%. Second, this bill would allow state LIHTCs to be awarded to farmworker housing projects without regard to DDA or QCT status. Finally, this bill would encourage developers constructing farmworker housing to apply for 4% federal credits by increasing the value of the state credits that would accompany those credits.
- Occupancy Requirements: Under current law, occupancy in farmworker developments must be limited to farmworkers and their families, except that TCAC can allow owners to temporarily house non-farmworkers in vacant units during a disaster. As noted in the Housing and Community Development Committee's analysis of this bill, in some cases a tenant in a farmworker housing development may begin his or her tenancy employed as a farmworker and then change employment while living in the development; the change in employment can jeopardize their tenancy in the project. Reducing the occupancy requirement to 50% may provide great flexibility to developers in responding to this and other types of challenges.
- Increasing the credit percentage: This bill increases the credit percentage to 75% of the qualifying basis over four years for a farmworker housing project if it receives a 4% federal credit. By increasing the value of the state credits, this bill would encourage developers constructing farmworker housing to apply for 4% federal credits since it would be less competitive than trying to obtain a 9% credit. By increasing the state credit to 75% of the qualifying basis, this bill would subsidize farmworker housing projects that receive a 4% credit as if it had received a 9% credit[2]. The incentive is arguably needed since California does not currently utilize its entire private activity, tax-exempt bond authority and accordingly does not access the 4% credit to the fullest extent possible. However, TCAC, in partnership with the California Debt Limit Allocation Committee, adopted a number of changes in the fall of 2015 intended to reduce costs and increase the amount of tax credits available to 4% projects. According to TCAC's 2016 annual report, "[c]oupled with positive market conditions, these changes have resulted in a historic increase in 4% tax credit projects and units newly constructed or rehabilitated. Whereas TCAC awarded 4% tax credits to 9,213 total units in 2014, TCAC provided 4% tax credits to 20,847 total units in 2016, an increase of 126% over two years." California was able to draw down an additional $1.5 billion in 2016, which should continue to increase if the provisions of this bill are enacted.
- DDAs and QCTs: In general, TCAC is prohibited from allocating state credits in QCTs or DDAs. 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. However, TCAC was recently authorized to award state LIHTCs for use in DDAs or QCTs, in addition to the federal credits for special-needs projects. 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 on 130% of the project's basis along with federal credits.
This bill would additionally allow TCAC to provide state credits for farmworker housing projects that are built in a DDA or QCT. However, for a farmworker housing project to qualify for state LIHTCs, the project must also receive a federal 4% credit, which will be accompanied by the increased state LIHTC of 75%. In effect, farmworker housing projects being built in QCTs or DDAs can potentially receive a 100% subsidy of the qualifying basis, which in this case would be boosted by an additional 30%. As an example, if a farmworker housing development project in a QCT or DDA qualifies for $10 million in "eligible basis," the project could get up to 130% of that basis in federal and state LIHTCs, which means that the project sponsor would receive $13 million in credits to sell to an investor.
- Do tax incentives work? 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 as efficient as compared to other forms of subsidy mechanisms[3]. In general, some studies have found that housing supplied or subsidized by the government might increase the average quality of housing available to low-income tenants, but has little lasting effect on the quantity or price of housing available to the poor. Even if it were found that government subsidies substantially increase the number of affordable housing units for lower income individuals, it is not clear if the existing LIHTC structure is the most efficient. The LIHTC program obviously enjoys certain benefits because housing units are built by the private sector and tax credits are generally viewed as tax cuts rather than government spending. Unfortunately, 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.
- Double referred: This bill was heard in the Assembly Housing and Community Development Committee on April 5, 2017 and passed with a vote of 7 to 0.
- Related legislation: AB 71 (Chiu) proposes to increase the LIHTC by $300 million on an annual basis and increase the set-aside for farmworker housing tax credits within that pool from $500,000 to $25 million. Any funds not used for farmworker housing tax credit projects in a calendar year would be available to other qualified projects that apply for the larger LIHTC pool. AB 71 will be heard in this Committee on May 15th.
REGISTERED SUPPORT / OPPOSITION:
Support
California Housing Consortium
Western Growers Association
Opposition
None on file
Analysis Prepared by: Carlos Anguiano / REV. & TAX. / (916) 319-2098
Assuming the credit is actually 9% per year, the developer will receive 90% of the total cost of the project's basis. The present value, however, will be roughly 70% of the eligible basis because money today is worth more than money in the future. ↑
A 9% credit (70% subsidy of the qualifying costs) is generally accompanied by a 30% subsidy from the state for a total of about 100% of the qualifying costs. This bill increases the state's subsidy to 75% (20% for first three years and 15% for the last year) of the projects eligible basis over four years if accompanied by a federal 4% (30% subsidy of the qualifying costs). The present value of the two credits, as proposed by this bill, is roughly 100%, which is the same as if the project had qualified for a federal 9% credit and received a state credit. ↑
L. E. Burman, Low-Income Housing Credit, The Urban Institute ↑
Date of Hearing: April 5, 2017
ASSEMBLY COMMITTEE ON HOUSING AND COMMUNITY DEVELOPMENT
David Chiu, Chair
ABPCA Bill Id:AB 571 (
Author:Eduardo Garcia) – As Introduced Ver:February 14, 2017
SUBJECT: Income taxes: insurance tax: credits: low-income housing: farmworker housing assistance
SUMMARY: Makes changes to the farmworker housing tax credit set-aside within the Low Income Housing Tax Credit (LIHTC) Program. Specifically, this bill:
- Redefines "farmworker housing" to mean housing which is available to and occupied by not less than 50% of farmworkers and their households.
- Allows farmworker housing developments that receive 4% federal LIHTCs that are in qualified census tracts (QCT) or designated development areas (DDA) to receive state LIHTCs.
- Makes qualified farmworker housing developments eligible for state LIHTCs of 75% of the qualified basis of the building over four years.
EXISTING LAW:
- Defines "farmworker" housing to mean housing for agricultural workers that is available to and occupied only by farmworkers and their households.
- Allows the Tax Credit Allocation Committee (TCAC) to permit an owner to temporarily house nonfarmworkers in vacant units in the event of a disaster or other critical occurrence provided there are no pending qualified farmworker applications for residency.
- Defines a QCT 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.
- 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.
FISCAL EFFECT: Unknown. Tax levy. 2/3 vote
COMMENTS:
Background:
In 1986, the federal government authorized the LIHTC program to enable affordable housing developers to raise private capital through the sale of tax benefits to investors. The federal program offers 9% and 4% credits on the approximate percentage of a project’s “qualified basis” a taxpayer who purchases credits from a developer may deduct from their annual federal tax liability in each of ten years. TCAC administers the program and awards credits to qualified developers who can then sell those credits to private investors who use the credits to reduce their federal tax liability. The developer in turn invests the capital into the affordable housing project.
In 1987, the legislature authorized a state LIHTC program to augment the federal tax credit program. State tax credits can only be awarded to projects that also receive federal LIHTCs, except for farmworker housing projects, which can receive state credits without federal credits. Investors claim the state credit over four years. Projects that receive either state or federal tax credits are required to keep the housing at affordable levels for 55 years. Both the federal and state tax credits are capped, which limits the amount of credit that TCAC can award each year. Each state receives an annual ceiling of federal credits. In 2015 it was $2.30 per capita, which worked out to $94 million in credits in California that can be taken by investors each year for 10 years. Federal 9% LIHTCs are oversubscribed by a 3:1 ratio.
Federal law requires TCAC to conduct a feasibility study on every project to ensure that the amount of tax credits allocated do not exceed the amount required to make the project feasible. To calculate the amount of tax credits a project may receive, TCAC determines the total project cost. Next, it determines the "eligible basis" by subtracting the non-depreciable costs, such as land, permanent financing costs, rent reserves, and marketing costs. However, the eligible basis is reduced by the applicable percentage, a measure of the amount of affordable units of floor space in the project as a share of the entire project. For example, a project with $5 million in total development costs but $1 million in land acquisition costs has a $4 million basis. If half of the units will be affordable, the total basis is $2 million, which is multiplied by 9% to determine the annual amount of the credit of $180,000, for a ten-year value of $1.8 million.
In 1996, the Legislature created the Farmworker Housing Assistance Tax Credit Program and set aside $500,000 a year from the LIHTC allocation for farmworker housing projects. In an effort to streamline administration and make the farmworker program more user-friendly, SB 1247 (Lowenthal), Chapter 521, Statues of 2008, eliminated the Farmworker Housing Assistance Tax Credit Program as a separate program and consolidated it into the state LIHTC program as a farmworker set-aside. The amount of funding dedicated to farmworker housing remained the same. In recent years the Farmworker Housing Assistance Tax Credit Program has been underutilized. The amount of the credit accrues over time and there is currently $5,529,815 available. Since 2008 only one applicant has successfully sought the credit.
Additionally, other traditional state supported farmworker housing programs, such as the Joe Serna, Jr, Farmworker Housing Grant Program have no fiscal resources to assist in the development of farmworker housing.
Purpose of the bill: The purpose of this bill is to ensure the investment of state low income housing tax credit in farmworker housing projects. The underinvestment in farmworker housing has created hardships for this labor force and their families; this bill intends to counteract that by improving the efficacy and flexibility of the financial resource for developers of farmworker housing.
Changes proposed to the farmworker housing tax credit program:
AB 571 changes several components of the LIHTC program set-aside for farmworker housing developments in an effort to make the projects more feasible and increase the supply of farmworker housing.
Occupancy requirements: To qualify for LIHTCs, occupancy in farmworkers developments must be limited to farmworkers and their families, except that TCAC can allow owners to temporarily house non-farmworkers in vacant units during a disaster. AB 571 would reduce the occupancy requirement from 100% farmworkers and their families to 50%. In some cases, a tenant in a farmworker housing development may begin their tenancy employed as a farmworker but change employment while living in the development. The change in employment can jeopardize their tenancy in the project. Reducing the occupancy to 50% will provide greater flexibility to developers in responding to this and other types of challenges.
Increased access to state credits: AB 571 also seeks to increase the amount of credits that farmworker tax credit projects can receive in order to make the credits more valuable and to allow greater leveraging of other bonding authority. Federal LIHTC can be used anywhere in the state, but projects are given an additional 30% boost on their eligible basis if the project is located in a DDA or a QCT. Because these areas by definition have a higher-poverty level and there is a higher concentration of extremely low-income or homeless individuals and families, housing needs deeper subsidy to make it affordable. Existing state law does not allow state tax credits to be awarded in DDAs and QCTs with one exception: housing developments where 50% of the units are for special needs populations. The rationale for this prohibition is projects in these areas can qualify for more federal tax credits and therefore are already advantaged.
AB 571 would allow state tax credits to be awarded to farmworker housing projects without regard to DDA or QCT status with the main purpose of making the state credits more valuable and providing enough state tax credits to match the value of a 9% federal tax credit. Allowing state credits to be used for farmworker projects in DDAs and QCTs would increase the equity projects could generate from tax credits because the projects can already qualify for more federal tax credits than projects outside of a DDA or a QCT. As an example, if a project qualifies for $10 million in eligible basis in a DDA or QCT, the project could get up to 130% of that basis in federal tax credits, which means the project sponsor, would have $13 million in federal credits to sell to an investor. This bill would allow that project to get an additional 30% in state tax credits against the $10 million in eligible basis, which would create an additional $3 million in state tax credits.
The amount of federal 9% credits available each year are capped, however 4% federal credits are unlimited. The value of the 4% tax credits are less than half of the 9% tax credits and, as a result, 4% federal credits are generally used in conjunction with another funding source like state housing bonds or local funding sources. In addition, federal 9% credits are oversubscribed where as 4% federal credits are less highly subscribed. AB 571 would encourage developers constructing farmworker housing to apply for 4% federal credits by increasing the value of the state credits that would accompany those credits. Developers that receive 4% federal credits would receive state credits that would be worth 75% of the projects eligible basis over four years. Under existing law, state LIHTCs are worth 30% of the projects eligible basis over four years.
Related legislation: Last year an identical bill to this bill, AB 2140 (Hernandez) (2016) passed out of this committee 7-0. It was held in Senate Appropriations Committee.
AB 71 (Chiu) (2017) proposes to increase the LIHTC by $300 million on an annual basis and increase the set-aside for farmworker housing tax credits within that pool from $500,000 to $25 million. Any funds not used for farmworker housing tax credit projects in a calendar year would be available to other qualified projects that apply for the larger LIHTC pool. AB 71 is pending review in the Assembly Revenue and Tax Committee.
Double-referred: This bill was also referred to the Committee on Revenue and Taxation where it will be heard should it pass out of this committee.
REGISTERED SUPPORT / OPPOSITION:
Support
California Coalition for Rural Housing (co-sponsor)
California Rural Legal Assistance Foundation (co-sponsor)
Burbank Housing Development Corporation
CHISPA
Coachella Valley Housing Coalition
Community Economics, Inc.
Community Housing Opportunities Corporation
County of Tuolumne Housing Division
First Congregational UCC Barstow
Mutual Housing California
Non-Profit Housing Association of Northern California
Our Town St. Helena
Project Sentinel
Rural Community Assistance Corporation
San Luis Obispo County Housing Trust Fund
Self-Help Enterprises
Western Growers Association
Individuals (1)
Opposition
None on file.
Analysis Prepared by: Peter Stevens and Lisa Engel / H. & C.D. / 916-319-2085
Discussed in Hearing
1MIN
Assembly Floor
5MIN
Senate Floor
2MIN
Senate Standing Committee on Appropriations
11MIN
Senate Standing Committee on Governance and Finance
1MIN
Assembly Floor
1H
Assembly Standing Committee on Appropriations
7MIN
Assembly Standing Committee on Revenue and Taxation
6MIN
Assembly Standing Committee on Housing and Community Development
Bill Author
