BILL NUMBER: AB 35 AMENDED
BILL TEXT
AMENDED IN ASSEMBLY APRIL 16, 2015
AMENDED IN ASSEMBLY APRIL 6, 2015
AMENDED IN ASSEMBLY MARCH 2, 2015
INTRODUCED BY Assembly Members Chiu and Atkins
(Principal coauthor: Assembly Member Wilk)
( Coauthor: Assembly Member
Steinorth Coauthors: Assembly
Members Chau and Steinorth )
DECEMBER 1, 2014
An act to amend Sections 12206, 17058, and 23610.5 of the Revenue
and Taxation Code, relating to taxation, to take effect immediately,
tax levy.
LEGISLATIVE COUNSEL'S DIGEST
AB 35, as amended, Chiu. Income taxes: credits: low-income
housing: allocation increase.
Existing law establishes a low-income housing tax credit program
pursuant to which the California Tax Credit Allocation Committee
provides procedures and requirements for the allocation of state
insurance, personal income, and corporation income tax credit amounts
among low-income housing projects based on federal law. Existing
law, in modified conformity to federal income tax law, allows the
credit based upon the applicable percentage, as defined, of the
qualified basis of each qualified low-income building. Existing law
limits the total annual amount of the credit that the committee may
allocate to $70 million per year, as specified.
This bill, for calendar years beginning 2015, would increase the
aggregate housing credit dollar amount that may be allocated among
low-income housing projects by $300,000,000, as specified. The bill,
under the insurance taxation law, the Personal Income Tax Law, and
the Corporation Tax Law, would modify the definition of applicable
percentage relating to qualified low-income buildings that meet
specified criteria.
This bill would take effect immediately as a tax levy.
Vote: majority. Appropriation: no. Fiscal committee: yes.
State-mandated local program: no.
THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:
SECTION 1. 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," as described by Section 12201, a state low-income housing tax
credit in an amount equal to the amount determined in subdivision
(c), computed in accordance with Section 42 of the Internal Revenue
Code except as otherwise provided in this section.
(2) "Taxpayer," for purposes of this section, means the sole owner
in the case of a "C" corporation, the partners in the case of a
partnership, members in the case of a limited liability company, and
the shareholders in the case of an "S" corporation.
(3) "Housing sponsor," for purposes of this section, means the
sole owner in the case of a "C" corporation, the partnership in the
case of a partnership, the limited liability company in the case of a
limited liability company, and the "S" corporation in the case of an
"S" corporation.
(4) "Extremely low-income" has the same meaning as in Section
50053 of the Health and Safety Code.
(5) "Rural area" means a rural area as defined in Section 50199.21
of the Health and Safety Code.
(6) "Special needs housing" has the meaning as in paragraph (4) of
subdivision (g) of Section 10325 of Title 4 of the California Code
of Regulations.
(7) "SRO" means single room occupancy.
(8) "Very low-income" has the same meaning as in Section 50053 of
the Health and Safety Code."
(b) (1) The amount of the credit allocated to any housing sponsor
shall be authorized by the California Tax Credit Allocation
Committee, or any successor thereof, based on a project's 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 project's housing sponsor has been allocated by the
California Tax Credit Allocation Committee a credit for federal
income tax purposes under Section 42 of the Internal Revenue Code.
(ii) It qualifies for a credit under Section 42(h)(4)(B) of the
Internal Revenue Code.
(B) The California Tax Credit Allocation Committee shall not
require fees for the credit under this section in addition to those
fees required for applications for the tax credit pursuant to Section
42 of the Internal Revenue Code. The committee may require a fee if
the application for the credit under this section is submitted in a
calendar year after the year the application is submitted for the
federal tax credit.
(C) (i) For a project that receives a preliminary reservation of
the state low-income housing tax credit, allowed pursuant to
subdivision (a), on or after January 1, 2009, and before January 1,
2016, the credit shall be allocated to the partners of a partnership
owning the project in accordance with the partnership agreement,
regardless of how the federal low-income housing tax credit with
respect to the project is allocated to the partners, or whether the
allocation of the credit under the terms of the agreement has
substantial economic effect, within the meaning of Section 704(b) of
the Internal Revenue Code.
(ii) This subparagraph shall not apply to a project that receives
a preliminary reservation of state low-income housing tax credits
under the set-aside described in subdivision (c) of Section 50199.20
of the Health and Safety Code unless the project also receives a
preliminary reservation of federal low-income housing tax credits.
(iii) This subparagraph shall cease to be operative with respect
to any project that receives a preliminary reservation of a credit on
or after January 1, 2016.
(2) (A) The California Tax Credit Allocation Committee shall
certify to the housing sponsor the amount of tax credit under this
section allocated to the housing sponsor for each credit period.
(B) In the case of a partnership or an "S" corporation, the
housing sponsor shall provide a copy of the California Tax Credit
Allocation Committee certification to the taxpayer.
(C) The taxpayer shall attach a copy of the certification to any
return upon which a tax credit is claimed under this section.
(D) In the case of a failure to attach a copy of the certification
for the year to the return in which a tax credit is claimed under
this section, no credit under this section shall be allowed for that
year until a copy of that certification is provided.
(E) All elections made by the taxpayer pursuant to Section 42 of
the Internal Revenue Code shall apply to this section.
(F) (i) The California Tax Credit Allocation Committee may
allocate a credit under this section in exchange for a credit
allocated pursuant to Section 42(d)(5)(B) of the Internal Revenue
Code in amounts up to 30 percent of the eligible basis of a building
if the credits allowed under Section 42 of the Internal Revenue Code
are reduced by an equivalent amount.
(ii) An equivalent amount shall be determined by the California
Tax Credit Allocation Committee based upon the relative amount
required to produce an equivalent state tax credit to the taxpayer.
(c) Section 42(b) of the Internal Revenue Code shall be modified
as follows:
(1) In the case of any qualified low-income building that is a new
building not federally subsidized, the term "applicable percentage"
means the following:
(A) For each of the first three years, the percentage prescribed
by the Secretary of the Treasury for new buildings that are not
federally subsidized for the taxable year, determined in accordance
with the requirements of Section 42(b)(1) of the Internal Revenue
Code 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 (i) is a
new building, (ii) not located in designated difficult development
areas (DDAs) or qualified census tracts (QCTs), as defined in Section
45(d)(5)(B) 42(d)(5)(B) of the
Internal Revenue Code, and (iii) is federally subsidized, the term
"applicable percentage" means for the first three years, 15 percent
of the qualified basis of the building, and for the fourth year, 5
percent of the qualified basis of the building.
(3) In the case of any qualified low-income building that is (i)
an existing building, (ii) not located in designated difficult
development areas (DDAs) or qualified census tracts (QCTs), as
defined in Section 45(d)(5)(B) 42(d)(5)(B)
of the Internal Revenue Code, and (iii) is federally
subsidized, the term applicable percentage means the following:
(A) For each of the first three years, the percentage prescribed
by the Secretary of the Treasury for new buildings that are federally
subsidized for the taxable year.
(B) For the fourth year, the difference between 13 percent and the
sum of the applicable percentages for the first three years.
(4) In the case of any qualified low-income building that is (i) a
new or an existing building, (ii) located in designated difficult
development areas (DDAs) or qualified census tracts (QCTs) as defined
in Section 42(d)(5)(B) of the Internal Revenue Code, and (iii)
federally subsidized, the California Tax Credit Allocation Committee
shall determine the amount of credit to be allocated under
subparagraph (F) of paragraph (2) of subdivision (b) required to
produce an equivalent state tax credit to the taxpayer, as produced
in paragraph (2), taking into account the basis boost provided under
Section 42(d)(5)(B) of the Internal Revenue Code.
(5) In the case of any qualified low-income building that meets
all of the requirements of subparagraphs (A) through (D), inclusive,
the term "applicable percentage" means 30 percent for each of the
first three years and 5 percent for the fourth year.
(A) The qualified low-income building is at least 15 years old.
(B) The qualified low-income building is a SRO, special needs
housing, is in a rural area, or serves households with very
low-income or extremely low-income residents.
(C) The qualified low-income building is serving households of
very low-income or extremely low-income provided that the average
income at time admission is not more than 45 percent of the median
gross income, as determined under Section 42 of the Internal Revenue
Code, adjusted by household size.
(D) The qualified low-income building would have insufficient
credits under paragraphs (1) and (2) to complete substantial
rehabilitation due to a low appraised value.
(d) The term "qualified low-income housing project" as defined in
Section 42(c)(2) of the Internal Revenue Code is modified by adding
the following requirements:
(1) The taxpayer shall be entitled to receive a cash distribution
from the operations of the project, after funding required reserves,
that, at the election of the taxpayer, is equal to:
(A) An amount not to exceed 8 percent of the lesser of:
(i) The owner equity that shall include the amount of the capital
contributions actually paid to the housing sponsor and shall not
include any amounts until they are paid on an investor note.
(ii) Twenty percent of the adjusted basis of the building as of
the close of the first taxable year of the credit period.
(B) The amount of the cashflow from those units in the building
that are not low-income units. For purposes of computing cashflow
under this subparagraph, operating costs shall be allocated to the
low-income units using the "floor space fraction," as defined in
Section 42 of the Internal Revenue Code.
(C) Any amount allowed to be distributed under subparagraph (A)
that is not available for distribution during the first five years of
the compliance period may be accumulated and distributed any time
during the first 15 years of the compliance period but not
thereafter.
(2) The limitation on return shall apply in the aggregate to the
partners if the housing sponsor is a partnership and in the aggregate
to the shareholders if the housing sponsor is an "S" corporation.
(3) The housing sponsor shall apply any cash available for
distribution in excess of the amount eligible to be distributed under
paragraph (1) to reduce the rent on rent-restricted units or to
increase the number of rent-restricted units subject to the tests of
Section 42(g)(1) of the Internal Revenue Code.
(e) The provisions of Section 42(f) of the Internal Revenue Code
shall be modified as follows:
(1) The term "credit period" as defined in Section 42(f)(1) of the
Internal Revenue Code is modified by substituting "four taxable
years" for "10 taxable years."
(2) The special rule for the first taxable year of the credit
period under Section 42(f)(2) of the Internal Revenue Code shall not
apply to the tax credit under this section.
(3) Section 42(f)(3) of the Internal Revenue Code is modified to
read:
If, as of the close of any taxable year in the compliance period,
after the first year of the credit period, the qualified basis of any
building exceeds the qualified basis of that building as of the
close of the first year of the credit period, the housing sponsor, to
the extent of its tax credit allocation, shall be eligible for a
credit on the excess in an amount equal to the applicable percentage
determined pursuant to subdivision (c) for the four-year period
beginning with the the taxable year in which the increase in
qualified basis occurs.
(f) The provisions of Section 42(h) of the Internal Revenue Code
shall be modified as follows:
(1) Section 42(h)(2) of the Internal Revenue Code shall not be
applicable and instead the following provisions shall be applicable:
The total amount for the four-year credit period of the housing
credit dollars allocated in a calendar year to any building shall
reduce the aggregate housing credit dollar amount of the California
Tax Credit Allocation Committee for the calendar year in which the
allocation is made.
(2) Paragraphs (3), (4), (5), (6)(E)(i)(II), (6)(F), (6)(G), (6)
(I), (7), and (8) of Section 42(h) of the Internal Revenue Code shall
not be applicable.
(g) The aggregate housing credit dollar amount that may be
allocated annually by the California Tax Credit Allocation Committee
pursuant to this section, Section 17058, and Section 23610.5 shall be
an amount equal to the sum of all the following:
(1) (A) Seventy million dollars ($70,000,000) for the 2001
calendar year, and, for the 2002 calendar year and each calendar year
thereafter, seventy million dollars ($70,000,000) increased by the
percentage, if any, by which the Consumer Price Index for the
preceding calendar year exceeds the Consumer Price Index for the 2001
calendar year. For the purposes of this paragraph, the term
"Consumer Price Index" means the last Consumer Price Index for All
Urban Consumers published by the federal Department of Labor.
(B) An additional three hundred million dollars ($300,000,000)
for the 2015 calendar year, and, for the 2016 calendar year and each
calendar year thereafter, three hundred million dollars
($300,000,000) increased by the percentage, if any, by which the
Consumer Price Index for the preceding calendar year exceeds the
Consumer Price Index for the 2015 calendar year. For the purposes of
this paragraph, the term "Consumer Price Index" means the last
Consumer Price Index for All Urban Consumers published by the federal
Department of Labor. A housing sponsor receiving an allocation under
paragraph (1) of subdivision (c) shall not be eligible for receipt
of the housing credit allocated from the increased amount under this
subparagraph. A housing sponsor receiving an allocation under
paragraph (1) of subdivision (c) shall remain eligible for receipt of
the housing credit allocated from the credit ceiling amount under
subparagraph (A).
(2) The unused housing credit ceiling, if any, for the preceding
calendar years.
(3) The amount of housing credit ceiling returned in the calendar
year. For purposes of this paragraph, the amount of housing credit
dollar amount returned in the calendar year equals the housing credit
dollar amount previously allocated to any project that does not
become a qualified low-income housing project within the period
required by this section or to any project with respect to which an
allocation is canceled by mutual consent of the California Tax Credit
Allocation Committee and the allocation recipient.
(4) Five hundred thousand dollars ($500,000) per calendar year for
projects to provide farmworker housing, as defined in subdivision
(h) of Section 50199.7 of the Health and Safety Code.
(5) The amount of any unallocated or returned credits under former
Sections 17053.14, 23608.2, and 23608.3, as those sections read
prior to January 1, 2009, until fully exhausted for projects to
provide farmworker housing, as defined in subdivision (h) of Section
50199.7 of the Health and Safety Code.
(h) The term "compliance period" as defined in Section 42(i)(1) of
the Internal Revenue Code is modified to mean, with respect to any
building, the period of 30 consecutive taxable years beginning with
the first taxable year of the credit period with respect thereto.
(i) (1) Section 42(j) of the Internal Revenue Code shall not be
applicable and the provisions in paragraph (2) shall be substituted
in its place.
(2) The requirements of this section shall be set forth in a
regulatory agreement between the California Tax Credit Allocation
Committee and the housing sponsor, and the regulatory agreement shall
be subordinated, when required, to any lien or encumbrance of any
banks or other institutional lenders to the project. The regulatory
agreement entered into pursuant to subdivision (f) of Section
50199.14 of the Health and Safety Code, shall apply, provided that
the agreement includes all of the following provisions:
(A) A term not less than the compliance period.
(B) A requirement that the agreement be recorded in the official
records of the county in which the qualified low-income housing
project is located.
(C) A provision stating which state and local agencies can enforce
the regulatory agreement in the event the housing sponsor fails to
satisfy any of the requirements of this section.
(D) A provision that the regulatory agreement shall be deemed a
contract enforceable by tenants as third-party beneficiaries thereto
and that allows individuals, whether prospective, present, or former
occupants of the building, who meet the income limitation applicable
to the building, the right to enforce the regulatory agreement in any
state court.
(E) A provision incorporating the requirements of Section 42 of
the Internal Revenue Code as modified by this section.
(F) A requirement that the housing sponsor notify the California
Tax Credit Allocation Committee or its designee and the local agency
that can enforce the regulatory agreement if there is a determination
by the Internal Revenue Service that the project is not in
compliance with Section 42(g) of the Internal Revenue Code.
(G) A requirement that the housing sponsor, as security for the
performance of the housing sponsor's obligations under the regulatory
agreement, assign the housing sponsor's interest in rents that it
receives from the project, provided that until there is a default
under the regulatory agreement, the housing sponsor is entitled to
collect and retain the rents.
(H) The remedies available in the event of a default under the
regulatory agreement that is not cured within a reasonable cure
period, include, but are not limited to, allowing any of the parties
designated to enforce the regulatory agreement to collect all rents
with respect to the project; taking possession of the project and
operating the project in accordance with the regulatory agreement
until the enforcer determines the housing sponsor is in a position to
operate the project in accordance with the regulatory agreement;
applying to any court for specific performance; securing the
appointment of a receiver to operate the project; or any other relief
as may be appropriate.
(j) (1) The committee shall allocate the housing credit on a
regular basis consisting of two or more periods in each calendar year
during which applications may be filed and considered. The committee
shall establish application filing deadlines, the maximum percentage
of federal and state low-income housing tax credit ceiling that may
be allocated by the committee in that period, and the approximate
date on which allocations shall be made. If the enactment of federal
or state law, the adoption of rules or regulations, or other similar
events prevent the use of two allocation periods, the committee may
reduce the number of periods and adjust the filing deadlines, maximum
percentage of credit allocated, and allocation dates.
(2) The committee shall adopt a qualified allocation plan, as
provided in Section 42(m)(1) of the Internal Revenue Code. In
adopting this plan, the committee shall comply with the provisions of
Sections 42(m)(1)(B) and 42(m)(1)(C) of the Internal Revenue Code,
respectively.
(3) Notwithstanding Section 42(m) of the Internal Revenue Code the
California Tax Credit Allocation Committee shall allocate housing
credits in accordance with the qualified allocation plan and
regulations, which shall include the following provisions:
(A) All housing sponsors, as defined by paragraph (3) of
subdivision (a), shall demonstrate at the time the application is
filed with the committee that the project meets the following
threshold requirements:
(i) The housing sponsor shall demonstrate there is a need and
demand for low-income housing in the community or region for which it
is proposed.
(ii) The project's 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 more bedrooms.
(ii) Projects providing single-room occupancy units serving very
low income tenants.
(iii) (I) Existing projects that are "at risk of conversion."
(II) For purposes of this section, the term "at risk of
conversion," with respect to an existing property means a property
that satisfies all of the following criteria:
(ia) The property is a multifamily rental housing development in
which at least 50 percent of the units receive governmental
assistance pursuant to any of the following:
(Ia) New construction, substantial rehabilitation, moderate
rehabilitation, property disposition, and loan management set-aside
programs, or any other program providing project-based assistance
pursuant to Section 8 of the United States Housing Act of 1937,
Section 1437f of Title 42 of the United States Code, as amended.
(Ib) The Below-Market-Interest-Rate Program pursuant to Section
221(d)(3) of the National Housing Act, Sections 1715l(d)(3) and (5)
of Title 12 of the United States Code.
(Ic) Section 236 of the National Housing Act, Section 1715z-1 of
Title 12 of the United States Code.
(Id) Programs for rent supplement assistance pursuant to Section
18 101 of the Housing and Urban Development Act of 1965, Section
1701s of Title 12 of the United States Code, as amended.
(Ie) Programs pursuant to Section 515 of the Housing Act of 1949,
Section 1485 of Title 42 of the United States Code, as amended.
(If) The low-income housing credit program set forth in Section 42
of the Internal Revenue Code.
(ib) The restrictions on rent and income levels will terminate or
the federal insured mortgage on the property is eligible for
prepayment any time within five years before or after the date of
application to the California Tax Credit Allocation Committee.
(ic) The entity acquiring the property enters into a regulatory
agreement that requires the property to be operated in accordance
with the requirements of this section for a period equal to the
greater of 55 years or the life of the property.
(id) The property satisfies the requirements of Section 42(e) of
the Internal Revenue Code, regarding rehabilitation expenditures
except that the provisions of Section 42(e)(3)(A)(ii)(I) shall not
apply.
(iv) Projects for which a public agency provides direct or
indirect long-term financial support for at least 15 percent of the
total project development costs or projects for which the owner's
equity constitutes at least 30 percent of the total project
development costs.
(v) Projects that provide tenant amenities not generally available
to residents of low-income housing projects.
(4) For purposes of allocating credits pursuant to this section,
the committee shall not give preference to any project by virtue of
the date of submission of its application except to break a tie when
two or more of the projects have an equal rating.
(k) Section 42(l) of the Internal Revenue Code shall be modified
as follows:
The term "secretary" shall be replaced by the term "California
Franchise Tax Board."
( l ) In the case where the credit allowed under this
section exceeds the "tax," the excess may be carried over to reduce
the "tax" in the following year, and succeeding years if necessary,
until the credit has been exhausted.
(m) The provisions of Section 11407(a) of Public Law 101-508,
relating to the effective date of the extension of the low-income
housing credit, shall apply to calendar years after 1993.
(n) The provisions of Section 11407(c) of Public Law 101-508,
relating to election to accelerate credit, shall not apply.
(o) This section shall remain in effect for as long as Section 42
of the Internal Revenue Code, relating to low-income housing credit,
remains in effect.
SEC. 2. Section 17058 of the Revenue and Taxation Code is amended
to read:
17058. (a) (1) There shall be allowed as a credit against the
"net tax," as defined in Section 17039, a state low-income housing
tax credit in an amount equal to the amount determined in subdivision
(c), computed in accordance with Section 42 of the Internal Revenue
Code except as otherwise provided in this section.
(2) "Taxpayer" for purposes of this section means the sole owner
in the case of an individual, the partners in the case of a
partnership, members in the case of a limited liability company, and
the shareholders in the case of an "S" corporation.
(3) "Housing sponsor" for purposes of this section means the sole
owner in the case of an individual, the partnership in the case of a
partnership, the limited liability company in the case of a limited
liability company, and the "S" corporation in the case of an "S"
corporation.
(4) "Extremely low-income" has the same meaning as in
Section 50053 of the Health and Safety Code.
(5) "Rural area" means a rural area as defined in Section 50199.21
of the Health and Safety Code.
(6) "Special needs housing" has the meaning as in paragraph (4) of
subdivision (g) of Section 10325 of Title 4 of the California Code
of Regulations.
(7) "SRO" means single room occupancy.
(8) "Very low-income" has the same meaning as in Section 50053 of
the Health and Safety Code."
(b) (1) The amount of the credit allocated to any housing sponsor
shall be authorized by the California Tax Credit Allocation
Committee, or any successor thereof, based on a project's 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 project's housing sponsor has been allocated by the California
Tax Credit Allocation Committee a credit for federal income tax
purposes under Section 42 of the Internal Revenue Code.
(ii) It qualifies for a credit under Section 42(h)(4)(B) of the
Internal Revenue Code.
(B) The California Tax Credit Allocation Committee shall not
require fees for the credit under this section in addition to those
fees required for applications for the tax credit pursuant to Section
42 of the Internal Revenue Code. The committee may require a fee if
the application for the credit under this section is submitted in a
calendar year after the year the application is submitted for the
federal tax credit.
(C) (i) For a project that receives a preliminary reservation of
the state low-income housing tax credit, allowed pursuant to
subdivision (a), on or after January 1, 2009, and before January 1,
2016, the credit shall be allocated to the partners of a partnership
owning the project in accordance with the partnership agreement,
regardless of how the federal low-income housing tax credit with
respect to the project is allocated to the partners, or whether the
allocation of the credit under the terms of the agreement has
substantial economic effect, within the meaning of Section 704(b) of
the Internal Revenue Code.
(ii) To the extent the allocation of the credit to a partner under
this section lacks substantial economic effect, any loss or
deduction otherwise allowable under this part that is attributable to
the sale or other disposition of that partner's partnership interest
made prior to the expiration of the federal credit shall not be
allowed in the taxable year in which the sale or other disposition
occurs, but shall instead be deferred until and treated as if it
occurred in the first taxable year immediately following the taxable
year in which the federal credit period expires for the project
described in clause (i).
(iii) This subparagraph shall not apply to a project that receives
a preliminary reservation of state low-income housing tax credits
under the set-aside described in subdivision (c) of Section 50199.20
of the Health and Safety Code unless the project also receives a
preliminary reservation of federal low-income housing tax credits.
(iv) This subparagraph shall cease to be operative with respect to
any project that receives a preliminary reservation of a credit on
or after January 1, 2016.
(2) (A) The California Tax Credit Allocation Committee shall
certify to the housing sponsor the amount of tax credit under this
section allocated to the housing sponsor for each credit period.
(B) In the case of a partnership, limited liability company, or an
"S" corporation, the housing sponsor shall provide a copy of the
California Tax Credit Allocation Committee certification to the
taxpayer.
(C) The taxpayer shall, upon request, provide a copy of the
certification to the Franchise Tax Board.
(D) All elections made by the taxpayer pursuant to Section 42 of
the Internal Revenue Code shall apply to this section.
(E) (i) The California Tax Credit Allocation Committee may
allocate a credit under this section in exchange for a credit
allocated pursuant to Section 42(d)(5)(B) of the Internal Revenue
Code in amounts up to 30 percent of the eligible basis of a building
if the credits allowed under Section 42 of the Internal Revenue Code
are reduced by an equivalent amount.
(ii) An equivalent amount shall be determined by the California
Tax Credit Allocation Committee based upon the relative amount
required to produce an equivalent state tax credit to the taxpayer.
(c) Section 42(b) of the Internal Revenue Code shall be modified
as follows:
(1) In the case of any qualified low-income building that is a new
building not federally subsidized, the term "applicable percentage"
means the following:
(A) For each of the first three years, the percentage prescribed
by the Secretary of the Treasury for new buildings that are not
federally subsidized for the taxable year, determined in accordance
with the requirements of Section 42(b)(1) of the Internal Revenue
Code 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 (i) is a
new building, (ii) not located in designated difficult development
areas (DDAs) or qualified census tracts (QCTs), as defined in Section
45(d)(5)(B) 42(d)(5)(B) of the
Internal Revenue Code, and (iii) is federally subsidized, the term
"applicable percentage" means for the first three years, 15 percent
of the qualified basis of the building, and for the fourth year, 5
percent of the qualified basis of the building.
(3) In the case of any qualified low-income building that is (i)
an existing building, (ii) not located in designated difficult
development areas (DDAs) or qualified census tracts (QCTs), as
defined in Section 45(d)(5)(B) 42(d)(5)(B)
of the Internal Revenue Code, and (iii) is federally
subsidized, the term applicable percentage means the following:
(A) For each of the first three years, the percentage prescribed
by the Secretary of the Treasury for new buildings that are federally
subsidized for the taxable year.
(B) For the fourth year, the difference between 13 percent and the
sum of the applicable percentages for the first three years.
(4) In the case of any qualified low-income building that is (i) a
new or an existing building, (ii) located in designated difficult
development areas (DDAs) or qualified census tracts (QCTs) as defined
in Section 42(d)(5)(B) of the Internal Revenue Code, and (iii)
federally subsidized, the California Tax Credit Allocation Committee
shall determine the amount of credit to be allocated under
subparagraph (E) of paragraph (2) of subdivision (b) required to
produce an equivalent state tax credit to the taxpayer, as produced
in paragraph (2), taking into account the basis boost provided under
Section 42(d)(5)(B) of the Internal Revenue Code.
(5) In the case of any qualified low-income building that meets
all of the requirements of subparagraphs (A) through (D), inclusive,
the term "applicable percentage" means 30 percent for each of the
first three years and 5 percent for the fourth year.
(A) The qualified low-income building is at least 15 years old.
(B) The qualified low-income building is a SRO, special needs
housing, is in a rural area, or serves households with very
low-income or extremely low-income residents.
(C) The qualified low-income building is serving households of
very low-income or extremely low-income provided that the average
income at time admission is not more than 45 percent of the median
gross income, as determined under Section 42 of the Internal Revenue
Code, adjusted by household size.
(D) The qualified low-income building would have insufficient
credits under paragraphs (1) and (2) to complete substantial
rehabilitation due to a low appraised value.
(d) The term "qualified low-income housing project" as defined in
Section 42(c)(2) of the Internal Revenue Code is modified by adding
the following requirements:
(1) The taxpayer shall be entitled to receive a cash distribution
from the operations of the project, after funding required reserves,
that, at the election of the taxpayer, is equal to:
(A) An amount not to exceed 8 percent of the lesser of:
(i) The owner equity that shall include the amount of the capital
contributions actually paid to the housing sponsor and shall not
include any amounts until they are paid on an investor note.
(ii) Twenty percent of the adjusted basis of the building as of
the close of the first taxable year of the credit period.
(B) The amount of the cashflow from those units in the building
that are not low-income units. For purposes of computing cashflow
under this subparagraph, operating costs shall be allocated to the
low-income units using the "floor space fraction," as defined in
Section 42 of the Internal Revenue Code.
(C) Any amount allowed to be distributed under subparagraph (A)
that is not available for distribution during the first five years of
the compliance period may be accumulated and distributed any time
during the first 15 years of the compliance period but not
thereafter.
(2) The limitation on return shall apply in the aggregate to the
partners if the housing sponsor is a partnership and in the aggregate
to the shareholders if the housing sponsor is an "S" corporation.
(3) The housing sponsor shall apply any cash available for
distribution in excess of the amount eligible to be distributed under
paragraph (1) to reduce the rent on rent-restricted units or to
increase the number of rent-restricted units subject to the tests of
Section 42(g)(1) of the Internal Revenue Code.
(e) The provisions of Section 42(f) of the Internal Revenue Code
shall be modified as follows:
(1) The term "credit period" as defined in Section 42(f)(1) of the
Internal Revenue Code is modified by substituting "four taxable
years" for "10 taxable years."
(2) The special rule for the first taxable year of the credit
period under Section 42(f)(2) of the Internal Revenue Code shall not
apply to the tax credit under this section.
(3) Section 42(f)(3) of the Internal Revenue Code is modified to
read:
If, as of the close of any taxable year in the compliance period,
after the first year of the credit period, the qualified basis of any
building exceeds the qualified basis of that building as of the
close of the first year of the credit period, the housing sponsor, to
the extent of its tax credit allocation, shall be eligible for a
credit on the excess in an amount equal to the applicable percentage
determined pursuant to subdivision (c) for the four-year period
beginning with the taxable year in which the increase in qualified
basis occurs.
(f) The provisions of Section 42(h) of the Internal Revenue Code
shall be modified as follows:
(1) Section 42(h)(2) of the Internal Revenue Code shall not be
applicable and instead the following provisions shall be applicable:
The total amount for the four-year credit period of the housing
credit dollars allocated in a calendar year to any building shall
reduce the aggregate housing credit dollar amount of the California
Tax Credit Allocation Committee for the calendar year in which the
allocation is made.
(2) Paragraphs (3), (4), (5), (6)(E)(i)(II), (6)(F), (6)(G), (6)
(I), (7), and (8) of Section 42(h) of the Internal Revenue Code shall
not be applicable.
(g) The aggregate housing credit dollar amount that may be
allocated annually by the California Tax Credit Allocation Committee
pursuant to this section, Section 12206, and Section 23610.5 shall be
an amount equal to the sum of all the following:
(1) (A) Seventy million dollars ($70,000,000) for the 2001
calendar year, and, for the 2002 calendar year and each calendar year
thereafter, seventy million dollars ($70,000,000) increased by the
percentage, if any, by which the Consumer Price Index for the
preceding calendar year exceeds the Consumer Price Index for the 2001
calendar year. For the purposes of this paragraph, the term
"Consumer Price Index" means the last Consumer Price Index for All
Urban Consumers published by the federal Department of Labor.
(B) An additional three hundred million dollars ($300,000,000)
for the 2015 calendar year, and, for the 2016 calendar year and each
calendar year thereafter, three hundred million dollars
($300,000,000) increased by the percentage, if any, by which the
Consumer Price Index for the preceding calendar year exceeds the
Consumer Price Index for the 2015 calendar year. For the purposes of
this paragraph, the term "Consumer Price Index" means the last
Consumer Price Index for All Urban Consumers published by the federal
Department of Labor. A housing sponsor receiving an allocation under
paragraph (1) of subdivision (c) shall not be eligible for receipt
of the housing credit allocated from the increased amount under this
subparagraph. A housing sponsor receiving an allocation under
paragraph (1) of subdivision (c) shall remain eligible for receipt of
the housing credit allocated from the credit ceiling amount under
subparagraph (A).
(2) The unused housing credit ceiling, if any, for the preceding
calendar years.
(3) The amount of housing credit ceiling returned in the calendar
year. For purposes of this paragraph, the amount of housing credit
dollar amount returned in the calendar year equals the housing credit
dollar amount previously allocated to any project that does not
become a qualified low-income housing project within the period
required by this section or to any project with respect to which an
allocation is canceled by mutual consent of the California Tax Credit
Allocation Committee and the allocation recipient.
(4) Five hundred thousand dollars ($500,000) per calendar year for
projects to provide farmworker housing, as defined in subdivision
(h) of Section 50199.7 of the Health and Safety Code.
(5) The amount of any unallocated or returned credits under former
Sections 17053.14, 23608.2, and 23608.3, as those sections read
prior to January 1, 2009, until fully exhausted for projects to
provide farmworker housing, as defined in subdivision (h) of Section
50199.7 of the Health and Safety Code.
(h) The term "compliance period" as defined in Section 42(i)(1) of
the Internal Revenue Code is modified to mean, with respect to any
building, the period of 30 consecutive taxable years beginning with
the first taxable year of the credit period with respect thereto.
(i) Section 42(j) of the Internal Revenue Code shall not be
applicable and the following requirements of this section shall be
set forth in a regulatory agreement between the California Tax Credit
Allocation Committee and the housing sponsor, and the regulatory
agreement shall be subordinated, when required, to any lien or
encumbrance of any banks or other institutional lenders to the
project. The regulatory agreement entered into pursuant to
subdivision (f) of Section 50199.14 of the Health and Safety Code
shall apply, provided that the agreement includes all of the
following provisions:
(1) A term not less than the compliance period.
(2) A requirement that the agreement be recorded in the official
records of the county in which the qualified low-income housing
project is located.
(3) A provision stating which state and local agencies can enforce
the regulatory agreement in the event the housing sponsor fails to
satisfy any of the requirements of this section.
(4) A provision that the regulatory agreement shall be deemed a
contract enforceable by tenants as third-party beneficiaries thereto
and that allows individuals, whether prospective, present, or former
occupants of the building, who meet the income limitation applicable
to the building, the right to enforce the regulatory agreement in any
state court.
(5) A provision incorporating the requirements of Section 42 of
the Internal Revenue Code as modified by this section.
(6) A requirement that the housing sponsor notify the California
Tax Credit Allocation Committee or its designee if there is a
determination by the Internal Revenue Service that the project is not
in compliance with Section 42(g) of the Internal Revenue Code.
(7) A requirement that the housing sponsor, as security for the
performance of the housing sponsor's obligations under the regulatory
agreement, assign the housing sponsor's interest in rents that it
receives from the project, provided that until there is a default
under the regulatory agreement, the housing sponsor is entitled to
collect and retain the rents.
(8) The remedies available in the event of a default under the
regulatory agreement that is not cured within a reasonable cure
period, include, but are not limited to, allowing any of the parties
designated to enforce the regulatory agreement to collect all rents
with respect to the project; taking possession of the project and
operating the project in accordance with the regulatory agreement
until the enforcer determines the housing sponsor is in a position to
operate the project in accordance with the regulatory agreement;
applying to any court for specific performance; securing the
appointment of a receiver to operate the project; or any other relief
as may be appropriate.
(j) (1) The committee shall allocate the housing credit on a
regular basis consisting of two or more periods in each calendar year
during which applications may be filed and considered. The committee
shall establish application filing deadlines, the maximum percentage
of federal and state low-income housing tax credit ceiling that may
be allocated by the committee in that period, and the approximate
date on which allocations shall be made. If the enactment of federal
or state law, the adoption of rules or regulations, or other similar
events prevent the use of two allocation periods, the committee may
reduce the number of periods and adjust the filing deadlines, maximum
percentage of credit allocated, and allocation dates.
(2) The committee shall adopt a qualified allocation plan, as
provided in Section 42(m)(1) of the Internal Revenue Code. In
adopting this plan, the committee shall comply with the provisions of
Sections 42(m)(1)(B) and 42(m)(1)(C) of the Internal Revenue Code,
respectively.
(3) Notwithstanding Section 42(m) of the Internal Revenue Code the
California Tax Credit Allocation Committee shall allocate housing
credits in accordance with the qualified allocation plan and
regulations, which shall include the following provisions:
(A) All housing sponsors, as defined by paragraph (3) of
subdivision (a), shall demonstrate at the time the application is
filed with the committee that the project meets the following
threshold requirements:
(i) The housing sponsor shall demonstrate there is a need and
demand for low-income housing in the community or region for which it
is proposed.
(ii) The project's 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 more bedrooms.
(ii) Projects providing single-room occupancy units serving very
low income tenants.
(iii) (I) Existing projects that are "at risk of conversion."
(II) For purposes of this section, the term "at risk of
conversion," with respect to an existing property means a property
that satisfies all of the following criteria:
(ia) The property is a multifamily rental housing development in
which at least 50 percent of the units receive governmental
assistance pursuant to any of the following:
(Ia) New construction, substantial rehabilitation, moderate
rehabilitation, property disposition, and loan management set-aside
programs, or any other program providing project-based assistance
pursuant to Section 8 of the United States Housing Act of 1937,
Section 1437f of Title 42 of the United States Code, as amended.
(Ib) The Below-Market-Interest-Rate Program pursuant to Section
221(d)(3) of the National Housing Act, Sections 1715l(d)(3) and (5)
of Title 12 of the United States Code.
(Ic) Section 236 of the National Housing Act, Section 1715z-1 of
Title 12 of the United States Code.
(Id) Programs for rent supplement assistance pursuant to Section
18 101 of the Housing and Urban Development Act of 1965, Section
1701s of Title 12 of the United States Code, as amended.
(Ie) Programs pursuant to Section 515 of the Housing Act of 1949,
Section 1485 of Title 42 of the United States Code, as amended.
(If) The low-income housing credit program set forth in Section 42
of the Internal Revenue Code.
(ib) The restrictions on rent and income levels will terminate or
the federal insured mortgage on the property is eligible for
prepayment any time within five years before or after the date of
application to the California Tax Credit Allocation Committee.
(ic) The entity acquiring the property enters into a regulatory
agreement that requires the property to be operated in accordance
with the requirements of this section for a period equal to the
greater of 55 years or the life of the property.
(id) The property satisfies the requirements of Section 42(e) of
the Internal Revenue Code, regarding rehabilitation expenditures
except that the provisions of Section 42(e)(3)(A)(ii)(I) shall not
apply.
(iv) Projects for which a public agency provides direct or
indirect long-term financial support for at least 15 percent of the
total project development costs or projects for which the owner's
equity constitutes at least 30 percent of the total project
development costs.
(v) Projects that provide tenant amenities not generally available
to residents of low-income housing projects.
(4) For purposes of allocating credits pursuant to this section,
the committee shall not give preference to any project by virtue of
the date of submission of its application.
(k) Section 42( l ) of the Internal Revenue Code shall
be modified as follows:
The term "secretary" shall be replaced by the term "California
Franchise Tax Board."
( l ) In the case where the credit allowed under this
section exceeds the net tax, the excess may be carried over to reduce
the net tax in the following year, and succeeding taxable years, if
necessary, until the credit has been exhausted.
(m) A project that received an allocation of a 1989 federal
housing credit dollar amount shall be eligible to receive an
allocation of a 1990 state housing credit dollar amount, subject to
all of the following conditions:
(1) The project was not placed in service prior to 1990.
(2) To the extent the amendments made to this section by the
Statutes of 1990 conflict with any provisions existing in this
section prior to those amendments, the prior provisions of law shall
prevail.
(3) Notwithstanding paragraph (2), a project applying for an
allocation under this subdivision shall be subject to the
requirements of paragraph (3) of subdivision (j).
(n) The credit period with respect to an allocation of credit in
1989 by the California Tax Credit Allocation Committee of which any
amount is attributable to unallocated credit from 1987 or 1988 shall
not begin until after December 31, 1989.
(o) The provisions of Section 11407(a) of Public Law 101-508,
relating to the effective date of the extension of the low-income
housing credit, shall apply to calendar years after 1989.
(p) The provisions of Section 11407(c) of Public Law 101-508,
relating to election to accelerate credit, shall not apply.
(q) Any unused credit may continue to be carried forward, as
provided in subdivision ( l ), until the credit has been
exhausted.
(r) This section shall remain in effect on and after December 1,
1990, for as long as Section 42 of the Internal Revenue Code,
relating to low-income housing credit, remains in effect.
(s) The amendments to this section made by Chapter 1222 of the
Statutes of 1993 shall apply only to taxable years beginning on or
after January 1, 1994.
SEC. 3. Section 23610.5 of the Revenue and Taxation Code is
amended to read:
23610.5. (a) (1) There shall be allowed as a credit against the
"tax," as defined by Section 23036, a state low-income housing tax
credit in an amount equal to the amount determined in subdivision
(c), computed in accordance with Section 42 of the Internal Revenue
Code except as otherwise provided in this section.
(2) "Taxpayer," for purposes of this section, means the sole
owner in the case of a "C" corporation, the partners in the case of a
partnership, members in the case of a limited liability company, and
the shareholders in the case of an "S" corporation.
(3) "Housing sponsor," for purposes of this section, means the
sole owner in the case of a "C" corporation, the partnership in the
case of a partnership, the limited liability company in the case of a
limited liability company, and the "S" corporation in the case of an
"S" corporation.
(4) "Extremely low-income" has the same meaning as in Section
50053 of the Health and Safety Code.
(5) "Rural area" means a rural area as defined in Section 50199.21
of the Health and Safety Code.
(6) "Special needs housing" has the meaning as in paragraph (4) of
subdivision (g) of Section 10325 of Title 4 of the California Code
of Regulations.
(7) "SRO" means single room occupancy.
(8) "Very low-income" has the same meaning as in Section 50053 of
the Health and Safety Code."
(b) (1) The amount of the credit allocated to any housing sponsor
shall be authorized by the California Tax Credit Allocation
Committee, or any successor thereof, based on a project's 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 project's housing sponsor has been allocated by the California
Tax Credit Allocation Committee a credit for federal income tax
purposes under Section 42 of the Internal Revenue Code.
(ii) It qualifies for a credit under Section 42(h)(4)(B) of the
Internal Revenue Code.
(B) The California Tax Credit Allocation Committee shall not
require fees for the credit under this section in addition to those
fees required for applications for the tax credit pursuant to Section
42 of the Internal Revenue Code. The committee may require a fee if
the application for the credit under this section is submitted in a
calendar year after the year the application is submitted for the
federal tax credit.
(C) (i) For a project that receives a preliminary reservation of
the state low-income housing tax credit, allowed pursuant to
subdivision (a), on or after January 1, 2009, and before January 1,
2016, the credit shall be allocated to the partners of a partnership
owning the project in accordance with the partnership agreement,
regardless of how the federal low-income housing tax credit with
respect to the project is allocated to the partners, or whether the
allocation of the credit under the terms of the agreement has
substantial economic effect, within the meaning of Section 704(b) of
the Internal Revenue Code.
(ii) To the extent the allocation of the credit to a partner under
this section lacks substantial economic effect, any loss or
deduction otherwise allowable under this part that is attributable to
the sale or other disposition of that partner's partnership interest
made prior to the expiration of the federal credit shall not be
allowed in the taxable year in which the sale or other disposition
occurs, but shall instead be deferred until and treated as if it
occurred in the first taxable year immediately following the taxable
year in which the federal credit period expires for the project
described in clause (i).
(iii) This subparagraph shall not apply to a project that receives
a preliminary reservation of state low-income housing tax credits
under the set-aside described in subdivision (c) of Section 50199.20
of the Health and Safety Code unless the project also receives a
preliminary reservation of federal low-income housing tax credits.
(iv) This subparagraph shall cease to be operative with respect to
any project that receives a preliminary reservation of a credit on
or after January 1, 2016.
(2) (A) The California Tax Credit Allocation Committee shall
certify to the housing sponsor the amount of tax credit under this
section allocated to the housing sponsor for each credit period.
(B) In the case of a partnership, limited liability company, or an
"S" corporation, the housing sponsor shall provide a copy of the
California Tax Credit Allocation Committee certification to the
taxpayer.
(C) The taxpayer shall, upon request, provide a copy of the
certification to the Franchise Tax Board.
(D) All elections made by the taxpayer pursuant to Section 42 of
the Internal Revenue Code shall apply to this section.
(E) (i) The California Tax Credit Allocation Committee may
allocate a credit under this section in exchange for a credit
allocated pursuant to Section 42(d)(5)(B) of the Internal Revenue
Code in amounts up to 30 percent of the eligible basis of a building
if the credits allowed under Section 42 of the Internal Revenue Code
are reduced by an equivalent amount.
(ii) An equivalent amount shall be determined by the California
Tax Credit Allocation Committee based upon the relative amount
required to produce an equivalent state tax credit to the taxpayer.
(c) Section 42(b) of the Internal Revenue Code shall be modified
as follows:
(1) In the case of any qualified low-income building that is a new
building not federally subsidized, the term "applicable percentage"
means the following:
(A) For each of the first three years, the percentage prescribed
by the Secretary of the Treasury for new buildings that are not
federally subsidized for the taxable year, determined in accordance
with the requirements of Section 42(b)(1) of the Internal Revenue
Code 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 (i) is a
new building, (ii) not located in designated difficult development
areas (DDAs) or qualified census tracts (QCTs), as defined in Section
45(d)(5)(B) 42(d)(5)(B) of the
Internal Revenue Code, and (iii) is federally subsidized, the term
"applicable percentage" means for the first three years, 15 percent
of the qualified basis of the building, and for the fourth year, 5
percent of the qualified basis of the building.
(3) In the case of any qualified low-income building that is (i)
an existing building, (ii) not located in designated difficult
development areas (DDAs) or qualified census tracts (QCTs), as
defined in Section 45(d)(5)(B) 42(d)(5)(B)
of the Internal Revenue Code, and (iii) is federally
subsidized, the term applicable percentage means the following:
(A) For each of the first three years, the percentage prescribed
by the Secretary of the Treasury for new buildings that are federally
subsidized for the taxable year.
(B) For the fourth year, the difference between 13 percent and the
sum of the applicable percentages for the first three years.
(4) In the case of any qualified low-income building that is (i) a
new or an existing building, (ii) located in designated difficult
development areas (DDAs) or qualified census tracts (QCTs) as defined
in Section 42(d)(5)(B) of the Internal Revenue Code, and (iii)
federally subsidized, the California Tax Credit Allocation Committee
shall determine the amount of credit to be allocated under
subparagraph (E) of paragraph (2) of subdivision (b) required to
produce an equivalent state tax credit to the taxpayer, as produced
in paragraph (2), taking into account the basis boost provided under
Section 42(d)(5)(B) of the Internal Revenue Code.
(5) In the case of any qualified low-income building that meets
all of the requirements of subparagraphs (A) through (D), inclusive,
the term "applicable percentage" means 30 percent for each of the
first three years and 5 percent for the fourth year.
(A) The qualified low-income building is at least 15 years old.
(B) The qualified low-income building is a SRO, special needs
housing, is in a rural area, or serves households with very
low-income or extremely low-income residents.
(C) The qualified low-income building is serving households of
very low-income or extremely low-income provided that the average
income at time admission is not more than 45 percent of the median
gross income, as determined under Section 42 of the Internal Revenue
Code, adjusted by household size.
(D) The qualified low-income building would have insufficient
credits under paragraphs (1) and (2) to complete substantial
rehabilitation due to a low appraised value.
(d) The term "qualified low-income housing project" as defined in
Section 42(c)(2) of the Internal Revenue Code is modified by adding
the following requirements:
(1) The taxpayer shall be entitled to receive a cash distribution
from the operations of the project, after funding required reserves,
that at the election of the taxpayer, is equal to:
(A) An amount not to exceed 8 percent of the lesser of:
(i) The owner equity, that shall include the amount of the capital
contributions actually paid to the housing sponsor and shall not
include any amounts until they are paid on an investor note.
(ii) Twenty percent of the adjusted basis of the building as of
the close of the first taxable year of the credit period.
(B) The amount of the cashflow from those units in the building
that are not low-income units. For purposes of computing cashflow
under this subparagraph, operating costs shall be allocated to the
low-income units using the "floor space fraction," as defined in
Section 42 of the Internal Revenue Code.
(C) Any amount allowed to be distributed under subparagraph (A)
that is not available for distribution during the first five years of
the compliance period may be accumulated and distributed any time
during the first 15 years of the compliance period but not
thereafter.
(2) The limitation on return shall apply in the aggregate to the
partners if the housing sponsor is a partnership and in the aggregate
to the shareholders if the housing sponsor is an "S" corporation.
(3) The housing sponsor shall apply any cash available for
distribution in excess of the amount eligible to be distributed under
paragraph (1) to reduce the rent on rent-restricted units or to
increase the number of rent-restricted units subject to the tests of
Section 42(g)(1) of the Internal Revenue Code.
(e) The provisions of Section 42(f) of the Internal Revenue Code
shall be modified as follows:
(1) The term "credit period" as defined in Section 42(f)(1) of the
Internal Revenue Code is modified by substituting "four taxable
years" for "10 taxable years."
(2) The special rule for the first taxable year of the credit
period under Section 42(f)(2) of the Internal Revenue Code shall not
apply to the tax credit under this section.
(3) Section 42(f)(3) of the Internal Revenue Code is modified to
read:
If, as of the close of any taxable year in the compliance period,
after the first year of the credit period, the qualified basis of any
building exceeds the qualified basis of that building as of the
close of the first year of the credit period, the housing sponsor, to
the extent of its tax credit allocation, shall be eligible for a
credit on the excess in an amount equal to the applicable percentage
determined pursuant to subdivision (c) for the four-year period
beginning with the later of the taxable years in which the increase
in qualified basis occurs.
(f) The provisions of Section 42(h) of the Internal Revenue Code
shall be modified as follows:
(1) Section 42(h)(2) of the Internal Revenue Code shall not be
applicable and instead the following provisions shall be applicable:
The total amount for the four-year credit period of the housing
credit dollars allocated in a calendar year to any building shall
reduce the aggregate housing credit dollar amount of the California
Tax Credit Allocation Committee for the calendar year in which the
allocation is made.
(2) Paragraphs (3), (4), (5), (6)(E)(i)(II), (6)(F), (6)(G), (6)
(I), (7), and (8) of Section 42(h) of the Internal Revenue Code shall
not be applicable.
(g) The aggregate housing credit dollar amount that may be
allocated annually by the California Tax Credit Allocation Committee
pursuant to this section, Section 12206, and Section 17058 shall be
an amount equal to the sum of all the following:
(1) (A) Seventy million dollars ($70,000,000) for the 2001
calendar year, and, for the 2002 calendar year and each calendar year
thereafter, seventy million dollars ($70,000,000) increased by the
percentage, if any, by which the Consumer Price Index for the
preceding calendar year exceeds the Consumer Price Index for the 2001
calendar year. For the purposes of this paragraph, the term
"Consumer Price Index" means the last Consumer Price Index for All
Urban Consumers published by the federal Department of Labor.
(B) An additional three hundred million dollars ($300,000,000)
for the 2015 calendar year, and, for the 2016 calendar year and each
calendar year thereafter, three hundred million dollars
($300,000,000) increased by the percentage, if any, by which the
Consumer Price Index for the preceding calendar year exceeds the
Consumer Price Index for the 2015 calendar year. For the purposes of
this paragraph, the term "Consumer Price Index" means the last
Consumer Price Index for All Urban Consumers published by the federal
Department of Labor. A housing sponsor receiving an allocation under
paragraph (1) of subdivision (c) shall not be eligible for receipt
of the housing credit allocated from the increased amount under this
subparagraph. A housing sponsor receiving an allocation under
paragraph (1) of subdivision (c) shall remain eligible for receipt of
the housing credit allocated from the credit ceiling amount under
subparagraph (A).
(2) The unused housing credit ceiling, if any, for the preceding
calendar years.
(3) The amount of housing credit ceiling returned in the calendar
year. For purposes of this paragraph, the amount of housing credit
dollar amount returned in the calendar year equals the housing credit
dollar amount previously allocated to any project that does not
become a qualified low-income housing project within the period
required by this section or to any project with respect to which an
allocation is canceled by mutual consent of the California Tax Credit
Allocation Committee and the allocation recipient.
(4) Five hundred thousand dollars ($500,000) per calendar year for
projects to provide farmworker housing, as defined in subdivision
(h) of Section 50199.7 of the Health and Safety Code.
(5) The amount of any unallocated or returned credits under former
Sections 17053.14, 23608.2, and 23608.3, as those sections read
prior to January 1, 2009, until fully exhausted for projects to
provide farmworker housing, as defined in subdivision (h) of Section
50199.7 of the Health and Safety Code.
(h) The term "compliance period" as defined in Section 42(i)(1) of
the Internal Revenue Code is modified to mean, with respect to any
building, the period of 30 consecutive taxable years beginning with
the first taxable year of the credit period with respect thereto.
(i) Section 42(j) of the Internal Revenue Code shall not be
applicable and the following shall be substituted in its place:
The requirements of this section shall be set forth in a
regulatory agreement between the California Tax Credit Allocation
Committee and the housing sponsor, and the regulatory agreement shall
be subordinated, when required, to any lien or encumbrance of any
banks or other institutional lenders to the project. The regulatory
agreement entered into pursuant to subdivision (f) of Section
50199.14 of the Health and Safety Code shall apply, provided that the
agreement includes all of the following provisions:
(1) A term not less than the compliance period.
(2) A requirement that the agreement be recorded in the official
records of the county in which the qualified low-income housing
project is located.
(3) A provision stating which state and local agencies can enforce
the regulatory agreement in the event the housing sponsor fails to
satisfy any of the requirements of this section.
(4) A provision that the regulatory agreement shall be deemed a
contract enforceable by tenants as third-party beneficiaries thereto,
and that allows individuals, whether prospective, present, or former
occupants of the building, who meet the income limitation applicable
to the building, the right to enforce the regulatory agreement in
any state court.
(5) A provision incorporating the requirements of Section 42 of
the Internal Revenue Code as modified by this section.
(6) A requirement that the housing sponsor notify the California
Tax Credit Allocation Committee or its designee if there is a
determination by the Internal Revenue Service that the project is not
in compliance with Section 42(g) of the Internal Revenue Code.
(7) A requirement that the housing sponsor, as security for the
performance of the housing sponsor's obligations under the regulatory
agreement, assign the housing sponsor's interest in rents that it
receives from the project, provided that until there is a default
under the regulatory agreement, the housing sponsor is entitled to
collect and retain the rents.
(8) The remedies available in the event of a default under the
regulatory agreement that is not cured within a reasonable cure
period include, but are not limited to, allowing any of the parties
designated to enforce the regulatory agreement to collect all rents
with respect to the project; taking possession of the project and
operating the project in accordance with the regulatory agreement
until the enforcer determines the housing sponsor is in a position to
operate the project in accordance with the regulatory agreement;
applying to any court for specific performance; securing the
appointment of a receiver to operate the project; or any other relief
as may be appropriate.
(j) (1) The committee shall allocate the housing credit on a
regular basis consisting of two or more periods in each calendar year
during which applications may be filed and considered. The committee
shall establish application filing deadlines, the maximum percentage
of federal and state low-income housing tax credit ceiling that may
be allocated by the committee in that period, and the approximate
date on which allocations shall be made. If the enactment of federal
or state law, the adoption of rules or regulations, or other similar
events prevent the use of two allocation periods, the committee may
reduce the number of periods and adjust the filing deadlines, maximum
percentage of credit allocated, and allocation dates.
(2) The committee shall adopt a qualified allocation plan, as
provided in Section 42(m)(1) of the Internal Revenue Code. In
adopting this plan, the committee shall comply with the provisions of
Sections 42(m)(1)(B) and 42(m)(1)(C) of the Internal Revenue Code,
respectively.
(3) Notwithstanding Section 42(m) of the Internal Revenue Code the
California Tax Credit Allocation Committee shall allocate housing
credits in accordance with the qualified allocation plan and
regulations, which shall include the following provisions:
(A) All housing sponsors, as defined by paragraph (3) of
subdivision (a), shall demonstrate at the time the application is
filed with the committee that the project meets the following
threshold requirements:
(i) The housing sponsor shall demonstrate there is a need for
low-income housing in the community or region for which it is
proposed.
(ii) The project's 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 more bedrooms.
(ii) Projects providing single-room occupancy units serving very
low income tenants.
(iii) (I) Existing projects that are "at risk of conversion."
(II) For purposes of this section, the term "at risk of
conversion," with respect to an existing property means a property
that satisfies all of the following criteria:
(ia) The property is a multifamily rental housing development in
which at least 50 percent of the units receive governmental
assistance pursuant to any of the following:
(Ia) New construction, substantial rehabilitation, moderate
rehabilitation, property disposition, and loan management set-aside
programs, or any other program providing project-based assistance
pursuant to Section 8 of the United States Housing Act of 1937,
Section 1437f of Title 42 of the United States Code, as amended.
(Ib) The Below-Market-Interest-Rate Program pursuant to Section
221(d)(3) of the National Housing Act, Sections 1715l(d)(3) and (5)
of Title 12 of the United States Code.
(Ic) Section 236 of the National Housing Act, Section 1715z-1 of
Title 12 of the United States Code.
(Id) Programs for rent supplement assistance pursuant to Section
18 101 of the Housing and Urban Development Act of 1965, Section
1701s of Title 12 of the United States Code, as amended.
(Ie) Programs pursuant to Section 515 of the Housing Act of 1949,
Section 1485 of Title 42 of the United States Code, as amended.
(If) The low-income housing credit program set forth in Section 42
of the Internal Revenue Code.
(ib) The restrictions on rent and income levels will terminate or
the federal insured mortgage on the property is eligible for
prepayment any time within five years before or after the date of
application to the California Tax Credit Allocation Committee.
(ic) The entity acquiring the property enters into a regulatory
agreement that requires the property to be operated in accordance
with the requirements of this section for a period equal to the
greater of 55 years or the life of the property.
(id) The property satisfies the requirements of Section 42(e) of
the Internal Revenue Code, regarding rehabilitation expenditures
except that the provisions of Section 42(e)(3)(A)(ii)(I) shall not
apply.
(iv) Projects for which a public agency provides direct or
indirect long-term financial support for at least 15 percent of the
total project development costs or projects for which the owner's
equity constitutes at least 30 percent of the total project
development costs.
(v) Projects that provide tenant amenities not generally available
to residents of low-income housing projects.
(4) For purposes of allocating credits pursuant to this section,
the committee shall not give preference to any project by virtue of
the date of submission of its application except to break a tie when
two or more of the projects have an equal rating.
(5) Not less than 20 percent of the low-income housing tax credits
available annually under this section, Section 12206, and Section
17058 shall be set aside for allocation to rural areas as defined in
Section 50199.21 of the Health and Safety Code. Any amount of credit
set aside for rural areas remaining on or after October 31 of any
calendar year shall be available for allocation to any eligible
project. No amount of credit set aside for rural areas shall be
considered available for any eligible project so long as there are
eligible rural applications pending on October 31.
(k) Section 42( l ) of the Internal Revenue Code shall
be modified as follows:
The term "secretary" shall be replaced by the term "California
Franchise Tax Board."
( l ) In the case where the credit allowed under this
section exceeds the "tax," the excess may be carried over to reduce
the "tax" in the following year, and succeeding taxable years if
necessary, until the credit has been exhausted.
(m) A project that received an allocation of a 1989 federal
housing credit dollar amount shall be eligible to receive an
allocation of a 1990 state housing credit dollar amount, subject to
all of the following conditions:
(1) The project was not placed in service prior to 1990.
(2) To the extent the amendments made to this section by the
Statutes of 1990 conflict with any provisions existing in this
section prior to those amendments, the prior provisions of law shall
prevail.
(3) Notwithstanding paragraph (2), a project applying for an
allocation under this subdivision shall be subject to the
requirements of paragraph (3) of subdivision (j).
(n) The credit period with respect to an allocation of credit in
1989 by the California Tax Credit Allocation Committee of which any
amount is attributable to unallocated credit from 1987 or 1988 shall
not begin until after December 31, 1989.
(o) The provisions of Section 11407(a) of Public Law 101-508,
relating to the effective date of the extension of the low-income
housing credit, shall apply to calendar years after 1989.
(p) The provisions of Section 11407(c) of Public Law 101-508,
relating to election to accelerate credit, shall not apply.
(q) (1) A corporation may elect to assign any portion of any
credit allowed under this section to one or more affiliated
corporations for each taxable year in which the credit is allowed.
For purposes of this subdivision, "affiliated corporation" has the
meaning provided in subdivision (b) of Section 25110, as that section
was amended by Chapter 881 of the Statutes of 1993, as of the last
day of the taxable year in which the credit is allowed, except that
"100 percent" is substituted for "more than 50 percent" wherever it
appears in the section, as that section was amended by Chapter 881 of
the Statutes of 1993, and "voting common stock" is substituted for
"voting stock" wherever it appears in the section, as that section
was amended by Chapter 881 of the Statutes of 1993.
(2) The election provided in paragraph (1):
(A) May be based on any method selected by the corporation that
originally receives the credit.
(B) Shall be irrevocable for the taxable year the credit is
allowed, once made.
(C) May be changed for any subsequent taxable year if the election
to make the assignment is expressly shown on each of the returns of
the affiliated corporations that assign and receive the credits.
(r) Any unused credit may continue to be carried forward, as
provided in subdivision ( l ), until the credit has been
exhausted.
(s) This section shall remain in effect on and after December 1,
1990, for as long as Section 42 of the Internal Revenue Code,
relating to low-income housing credit, remains in effect.
(t) The amendments to this section made by Chapter 1222 of the
Statutes of 1993 shall apply only to taxable years beginning on or
after January 1, 1994, except that paragraph (1) of subdivision (q),
as amended, shall apply to taxable years beginning on or after
January 1, 1993.
SEC. 4. This act provides for a tax levy within the meaning of
Article IV of the Constitution and shall go into immediate effect.