In the world of affordable housing, most of the attention California has received has focused on the seemingly inevitable dissolution of the state’s Redevelopment Agencies (RDAs). Property developers and advocates are increasingly concerned about the potential consequences if the RDAs do, in fact, cease to exist. Many worry that low-income housing will also lose priority, and that the state’s most vulnerable residents will suffer as a result. However, earlier this year, housing advocates received some positive news.
While the language for California Assembly Bill 643 was being developed and evaluated, state legislators discovered that about $350 million made available under the State Hiring Tax Credit was never used. The credit is awarded to employers who hire and retain new employees for a specified period of time in positions with a predetermined rate of pay or higher. Although employers had incentives to hire, low consumer demand weighed more heavily on their decisions than the possibility of a tax credit. As a result, legislators began looking at possible alternative uses for the tax credits; uses that could actually stimulate the economy.
Lawmakers also found that states like Mississippi and Illinois have used New Market Tax Credits to leverage federal funding for low-income community development. On average, $13 in federal tax credits were made available for every $1 in state credits.
They decided to follow the examples set by nine other states and begin offering New Markets Tax Credits (NMTCs) at the state level. If the legislation becomes law, the NMTC program would take effect in 2013 and expire on December 1, 2020.
The NMTC program began in 2000 and is intended to encourage private investment in low-income communities. The federal program, on which California’s is based, offers a credit equal to 39 percent of the total dollar amount that a person or business invests in a Community Development Entity (CDE). CDEs are financial institutions that provide loans and financial advice in low-income communities. Over the years, CDEs have helped finance the construction and rehabilitation of thousands of affordable residences, both single-family and multi-family. By funding housing development, CDEs also help create short- and long-term jobs in the communities where they are needed most.
The California bill (AB 643) reflects federal regulations, allowing a person to claim a tax credit equal to 39 percent of the total amount that person invested in a qualified development project; financial institutions, retail businesses, schools, and real estate are considered “qualified projects.” Allows for a total allocation of $50 million per year in New Markets Tax Credits. Additionally, any unused tax credits from any year will carry over and become available the next year.
If California becomes the 10th state to successfully implement an NMTC program, other states can quickly develop their own programs.