California Governor Vetoes Bills to Expand, Amend State LIHTC

Published by Michael Novogradac on Monday, October 12, 2015 - 12:00am

California Gov. Jerry Brown on Saturday vetoed two bills to make the state low-income housing tax credit (LIHTC) more effective.

Cap Increase

The first bill, A.B. 35, would have increased the $70 million annual state LIHTC allocation cap by $100 million for calendar years 2016 through 2021.

Housing advocates, such as the California Housing Consortium, Nonprofit Housing Association of Northern California, and Southern California Association of Nonprofit Housing, identified the bill as a top legislative priority. It’s a bill that has enjoyed strong support, not only from stakeholders, but also unanimous support from the state legislature. The final vote from the Assembly was 79 to zero.

The only hurdle was that Gov. Brown’s administration had expressed concerns about the bill’s fiscal impact, and Brown’s statement about the veto suggests it was the deciding factor end. The bill originally proposed raising the LIHTC cap by $300 million beginning in calendar year 2016. That cap was later reduced to a $100 million increase to give it a better chance of being enacted.

The goal was a compromise between increasing funding for affordable housing and keeping the cost at a level that the governor would be more likely to approve. The bill’s authors, Assemblyman David Chiu and Speaker Toni Atkins, also added a five-year sunset date.

Certification and Bifurcation

The second bill, S.B. 377, would have allowed a developer who is awarded state LIHTCs to sell the credits to an investor without admitting the investor to the ownership partnership, a practice that is commonly referred to as “certificating” the credit. Some other states, such as Massachusetts and Connecticut, allow for certification.

S.B. 377 would have increased the number of potential state tax credit investors and provided structuring alternatives that would have boosted the amount of capital raised from the state credit. It would have increased the value of the state credit without any additional cost to the state. The bill also would have eliminated any sunset provision for bifurcation and would extend these provisions indefinitely. Bifurcation allows the federal LIHTC and state LIHTC to be transferred to different investors, which increases their value.

Ultimately, this could have meant more money for affordable housing development. The California Housing Consortium (CHC) estimates the legislation could have translated into an additional $1 billion in federal funds over five years that would have been used for affordable rental housing.