New Law Expected to Alter Use of Calif. State LIHTCs

Published by Michael Novogradac on Wednesday, October 23, 2013 - 12:00am

As I discuss in yesterday’s Tax Credit Tuesday podcast, a new law, once fully implemented, will allow the California Tax Credit Allocation Committee (CTCAC) to award state low-income housing tax credits (LIHTCs) to properties that serve special needs populations, even if such properties are also receiving additional federal LIHTCs by virtue of being located in qualified census tracts (QCTs) or difficult to develop areas (DDAs).

Calif. Gov. Jerry Brown signed AB 952 by Assemblymember Toni G. Atkins, D-San Diego, on Oct. 12. The bill allows CTCAC to award Calif. LIHTCs to properties that are located in QCTs or DDAs if at least 50 percent of the units in the property are reserved for special needs populations. CTCAC can supplement federal LIHTCs with state LIHTC for as much as 30 percent of a development’s eligible basis. Previously, if CTCAC allocated Calif. LIHTCs to a QCA/DDT property, it had to reduce its federal LIHTC bonus tax credits. Under the new law, if a property meets the above requirements, it can receive the entirety of its federal bonus LIHTC allocation as well as Calif. LIHTCs.

The goal of the law is to allow deeper tax credit subsidies for low-income housing serving special needs populations. The change is expected to enhance the financial feasibility of properties that serve special needs populations (including the developmentally disabled, survivors of physical abuse and others).

In addition to increasing the amount of subsidy available for special needs housing, the law is likely to increase the demand for Calif. LIHTCs, which generally aren’t as desirable to developers as federal LIHTCs because the there is a smaller pool of Calif. LIHTC investors and because the federal deductibility of state taxes reduces the relative value state tax credits.