0968 Tax Credit Allocation Committee
Program Descriptions

10 - CALIFORNIA TAX CREDIT ALLOCATION COMMITTEE

The Federal Low Income Housing Tax Credit Program:

Congress authorized the federal program in 1986. It replaced traditional housing tax incentives, such as accelerated depreciation, with a tax credit that enables developers of affordable rental housing to raise project equity through the "sale" of tax benefits to investors.

As of 2010, each state has an annual housing credit ceiling of approximately $2.10 per state resident, and may qualify for a share of credits available annually in a national pool comprised of states' unused credits. The annual housing credit ceiling is indexed for inflation. Investors can take the annual credit each year for a ten-year period.

The State Low Income Housing Tax Credit Program:

Recognizing the high cost of developing housing in California, the California Legislature authorized the State Low Income Housing Tax Credit Program to augment the federal tax credit program. Specifically, projects that are not receiving an increase in the federal credit basis may apply for and receive State credits. In addition, $500,000 annually is available as State credit for projects housing farmworker populations.

The annual state credit ceiling is currently $86 million, indexed for inflation (in addition to any unused or returned credits from previous years). Investors take the state credit over a four-year period in contrast to the ten-year federal allocation period. The full four-year state credit allocated to a project is deducted from the annual state credit ceiling, while only the annual federal credit allocated to a project is deducted from the federal ceiling.

Tax-Exempt Bond Financed Program:

Developments financed with tax-exempt bond proceeds may also receive federal tax credit. The sponsors of such projects must apply to the Committee and must conform to applicable federal and state statutory and regulatory requirements, but there is no annual "cap" on the amount of credit that may be awarded by the state to such developments. The annual credit available is based on approximately four percent (instead of the nine percent for projects that are not financed by a federal subsidy) of the "qualified basis" of the development, that is, the costs attributable to the units that will be income and rent restricted for a minimum of 30 years.

Under federal law, credit projects must remain affordable for at least 15 years; however, California's program generally requires maintaining affordability for 55 years. Land use agreements are recorded against each credit project to ensure compliance.

Farmworker Housing Tax Credit Program:

In 1996, the California Tax Credit Allocation Committee (CTCAC) received authorization from the California Legislature to administer an additional tax credit program to assist farmworkers, known as the Farmworker Housing Tax Credit Program. Annually, up to $500,000 of state tax credits is available for the construction of farmworker housing.

Chapter 521, Statutes of 2008 (SB 1267) folded the Farmworker Housing Assistance tax credits into the general State low-income housing tax credit program. While $500,000 annually continues to be authorized for State tax credits in support of farmworker housing, the program now operates under the rules of the general State low-income housing tax credit program.

20 COMMERCIAL REVITALIZATION DEDUCTION PROGRAM

In 2002, CTCAC received authorization to administer the Commercial Revitalization Deduction Program, a federal program designed to stimulate job growth and economic development in designated Renewal Communities nationwide. California currently has five Renewal Communities, which are portions of the Cities of San Francisco, Los Angeles, and San Diego, as well as the rural communities of Orange Cove and Parlier. CTCAC can allocate up to $12 million in federal tax deductions to qualifying businesses in each of the Renewal Communities. These deductions are available to qualified businesses that acquire and renovate property, rehabilitate existing structures, or build property for commercial use.

By federal statute (IRC Title 26, ? 1400I(g)), the program terminated on December 31, 2009. While the program was proposed to be extended by federal legislation in 2010, the tax extenders bill failed to pass out of Congress.

AMERICAN RECOVERY AND REINVESTMENT ACT OF 2009

In 2009/10, CTCAC received approximately $325 million in Tax Credit Assistance Program funds and approximately $478 million in Section 1602 Grants in Lieu of Tax Credit funds as a result of the passage of the American Recovery and Reinvestment Act of 2009. These federal stimulus funds were awarded to 138 low income multi-family housing projects. Projects receiving the federal stimulus funds were either unable to sell their Low-Income Housing Tax Credits and therefore needed the cash in lieu of the tax credits, or were unable to sell the tax credits at a price that would make the project feasible and therefore needed financing to fill a funding gap.