CALIFORNIA TAX CREDIT ALLOCATION COMMITTEE 2010 Annual Report
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CALIFORNIA TAX CREDIT ALLOCATION COMMITTEE 2010 Annual Report Bill Lockyer Treasurer State of California CALIFORNIA TAX CREDIT ALLOCATION COMMITTEE 2010 Annual Report Report on the Allocation of Federal and State Low Income Housing Tax Credits in California April 2011 The State Treasurer’s Office and the California Tax Credit Allocation Committee comply with the Americans With Disabilities Act (ADA). If you need additional information or assistance, please contact the California Tax Credit Allocation Committee at (916) 654-6340 or TDD (916) 654-9922. CALIFORNIA TAX CREDIT ALLOCATION COMMITTEE Voting Committee Members: Bill Lockyer, Chair State Treasurer Ana J. Matosantos, Director of Finance John Chiang, State Controller Advisory Committee Members: L. Steven Spears, Executive Director California Housing Finance Agency Cathy E. Creswell, Acting Director Department of Housing and Community Development Christopher Armenta City Representative David Rutledge County Representative Committee Staff: William J. Pavão, Executive Director Lisa Vergolini, Deputy Executive Director Rose Guerrero, Chief Compliance Section Ammer Singh, Compliance Manager Shannon Nardinelli, Compliance Manager Ed Johnson, Development Program Manager (Specialist) Anthony Zeto, Development Program Manager Tiffani Armstrong Quang Le Angel Barragan John Lee Stephen Bellotti Mayra Lozano Phyllis Blanton Kelly Luu Generoso Deguzman David Navarrette Carol Douglas Connie Osorio Gina Ferguson Georgene Palmerin Velia Greenwood Adam Sartain Elizabeth Gutierrez Benjamin Schwartz Frank Harper Kole Tefft Diana Hester Nicole Valenzuela Nicola Hil Jack Waegell Noemy Iniguez Biu Wong Elaine Johnson Carl Yeager TABLE OF CONTENTS EXECUTIVE SUMMARY – 2010 Program Highlights 1 I. RESULTS OF THE 2010 PROGRAM 3 II. KEY EVENTS DURING 2010 12 III. CUMULATIVE PROGRAM RESULTS: 1987 - 2010 20 IV. MONITORING – PROJECT PERFORMANCE AND PROGRAM COMPLIANCE 30 APPENDICES 33 A. 2010 9% PROGRAM ALLOCATION INFORMATION B. 2010 4% PROGRAM ALLOCATION INFORMATION C. 1987 – 2010 COMPLIANCE REPORT D. PROGRAM COSTS, CREDITS AND UNIT PRODUCTION TRENDS E. PROGRAM DESCRIPTION EXECUTIVE SUMMARY – 2010 Program Highlights Tax Credit Units in California Exceed 264,000 In 2010, the California Tax Credit Allocation Committee (“TCAC” or “the Committee”) awarded $79.9 million in competitive nine percent (9%) annual federal Low Income Housing Tax Credits (“LIHTCs”) to 75 proposed housing projects. In addition, TCAC awarded $31.3 million in state tax credits to 14 competitive 9% projects, and $22.9 million in state credit to eight projects receiving four percent (4%) tax credits with tax-exempt bonds. Recipients will develop a total of 4,170 affordable housing units using 2010 nine percent tax credit awards, bringing California’s total since the program’s inception in 1987 to 117,120 units. Including tax-exempt bond financed projects (“4%” projects), TCAC has assisted 264,100 total affordable units with tax credits since the program’s inception. Demand for 9% Tax Credits Applicants submitted a total of 272 applications for competitive 9% tax credits in 2010 (compared to 241 in 2009) with 75 projects, or 27.5%, receiving a tax credit allocation. The demand for 9% tax credits in 2010 was higher than in 2009, when 33% of all applications received credit allocations. The total annual federal 9% tax credit requested in 2010 was $306.6 million,1 while the amount available to allocate was nearly $79.9 million, 26% of the requested amount. Geographic Apportionments Affect Credit Distribution In 1997 the Committee created geographic apportionments, and updated them in 2004 to align the distribution of tax credits with statewide population and housing needs. The 2004 geographic percentages were assigned to 10 areas by a formula incorporating population, housing costs, poverty and urbanization. The target percentages establish the credits available to each area after funding the non-profit, rural, small development, at-risk, special needs/SRO, and supplemental set-asides. 1 Table 1 below shows federal and state tax credit distribution in relation to target geographic apportionments of federal and state credit allocated by formula. This data includes only those projects receiving funding from the geographic apportionments, and does not include projects funded in these geographic regions under the set-asides; for discussion of the program’s set- asides, please refer to page 8. The Target Apportionment of Table 1 does not account for prior years’ results and their effect on available tax credit in 2010. That is, those areas receiving more credits than they were apportioned in 2009 had their 2010 apportionments discounted by the overage amount. The Allocation Percentages shown below, however, do reflect these discounts. Table 1 2010 Federal and State Apportionments versus Allocations Target Allocation Allocation Geographic Area Apportionment Percentage Amount Los Angeles County 33% 36.36% $180,120,870 Central Region 10% 7.12% $35,276,050 North and East Bay Region 10% 9.18% $45,472,670 San Diego County 10% 8.36% $41,385,607 Inland Empire Region 8% 8.59% $42,546,180 Orange County 8% 6.43% $31,830,810 South and West Bay Region 6% 5.72% $28,320,306 Capital and Northern Region 6% 6.35% $31,448,190 Central Coast Region 5% 6.17% $30,583,990 San Francisco County 4% 5.72% $28,349,110 TOTAL 100% 100.00% $495,333,783 Decrease in the Number of Projects Financed with Tax-exempt Bonds In 2010 the Committee received 53 applications for projects financed with tax-exempt bond proceeds (4%) and reserved tax credits for 49 projects, a 26% decrease from the 72 projects reserving tax credits in 2009. This decrease continued a downward trend in 4% applications that began in 2009 (72 in 2009, 161 in 2008, 124 in 2007, and 128 in 2006). The 49 projects received $33,596,704 in annual federal tax credit and will produce 4,481 low-income units. Of the 49 projects awarded 4% federal tax credits in 2010, eight also received allocations of state credits totaling $22,964,367.2 While the awarded federal credit amount decreased by 22.7% 1 This amount includes second round reapplications. 2 Tax-exempt bond applicants requesting both federal and state tax credit for a project must apply for state credit through the credit ceiling competition. The federal tax credit awards for these projects are not made from the federal credit ceiling. 2 from 2009 to 2010, the total proposed low-income units decreased somewhat less (14.4%), reflecting a higher average project size in 2010. In 2010, the average federal award for 4% projects was $685,647 ($679,483 in 2009) and the average project size was 91 affordable units (82 in 2009). Monitoring Activities In 2010, the Committee monitored 763 tax credit projects to fulfill the Internal Revenue Service (IRS) requirement that all completed tax credit developments be inspected at least once every three years. Monitoring activities included site inspection visits to review files and physically inspect the units and common areas. Committee staff inspected at least 20% of the files and units at each development. Of the 763 developments inspected, 702 or 92% had some incident of non- compliance, the large majority of which were promptly remedied. Only 102, or 13% of the developments had at least one incident of non-compliance that was reportable to the IRS. In most cases the non-compliance was due to over-charging rents, inadequately documenting files, or failing to perform timely income re-certifications. Of the 13,014 tenant files inspected, 12,941 or 99.4% were found in compliance with income restriction requirements. In cases where excessive rent was charged, all residents who were able to be located received refunds. RESULTS OF THE 2010 PROGRAM Section 50199.15(a) of the California Health and Safety Code requires the Committee to submit an annual report of the prior year’s activities to the Legislature. The statute specifically requires the Committee to report information as follows: • the total amount of housing credit allocated; • the total number of low-income units that are, or will be, assisted by the credit; • the amount of credit allocated to each project, other financing available to the project, and the number of units that are, or will be, assisted by the credit; and • sufficient information to identify the projects. The report must also describe the status of units reserved for low-income occupancy from projects receiving allocations in previous years. Appendices A, B and C of this report contain data for 2010 and earlier program years. Appendix D contains several charts illustrating recent 3 cost, credit allocation and unit production trends. Appendix E contains a summary description of the tax credit programs. Tables 1 through 4 of Appendices A and B provide summary listings by County, Assembly District, Senate District and Congressional District of all 2010 projects allocated tax credit. The 2010 federal 9% tax credits assisted 75 projects in 27 Counties, 47 Assembly Districts, 35 Senate Districts and 42 Congressional Districts. Of those projects, state tax credits assisted 14 projects in 12 Counties, 13 Assembly Districts, 12 Senate Districts and 12 Congressional Districts. The 9% Program In 2010, the per capita annual federal tax credit ceiling was $77,619,494. Subtracting $4,411,317 in annual credit the Committee pre-committed in 2009 from the 2010 credit ceiling results in $73,208,177 ($732,081,770 of federal credit available to investors over a ten-year period). In addition, $6,678,278 in net annual federal tax credit was returned to the Committee during the year, resulting in a total of $79,886,455 in annual federal credit available for allocation. As there was no “national pool” at the federal level in 2010, no additional credits were obtained from this source. National pool credits are unused tax credits from other states that are divided among states that have allocated all their credit in the preceding year. California’s annual federal tax credit allocated in 2010 was $79,964,641, or $799,646,410 in total federal tax credit available to investors over a ten-year period.