Budget Change Proposal - Cover Sheet DF-46 (REV 09/19 ...

STATE OF CALIFORNIA

Budget Change Proposal - Cover Sheet DF-46 (REV 09/19)

Budget Change Proposal - Cover Sheet

Fiscal Year: 2020-21 Business Unit: 0968 Department: California Tax Credit Allocation Committee Priority Number: 2 Budget Request Name: 0968-003-BCP-2020-GB Program: 0840-California Tax Credit Allocation Committee Subprogram:

Budget Request Description: Development and Compliance Section Augmentation

Budget Request Summary: The California Tax Credit Allocation Committee (CTCAC) requests two (2) Staff Services Manager I (SSMI) positions and two (2) Associate Governmental Program Analyst (AGPA) positions for the Development Section to carry out core functions and administer federal and state mandates of the Low Income Housing Tax Credit (LIHTC) program. CTCAC also requests two (2) SSMI positions and two (2) AGPA positions for the Compliance Section to perform IRS Code and California State compliance monitoring services.

This request for $1,440,000 in 2020-21 and $1,360,000 in 2021-22 ongoing does not impact the General Fund as the program is funded by special funds. Government Health and Safety Code, Section 50199.9(d), allows CTCAC to establish and collect fees to pay the costs of monitoring projects with allocations of tax credits for compliance with federal and state law.

Requires Legislation: Yes No Code Section(s) to be Added/Amended/Repealed:

Does this BCP contain information technology (IT) components? Yes No If yes, departmental Chief Information Officer must sign.

Department CIO Name: Department CIO Signature: Signed On Date: For IT requests, specify the project number, the most recent project approval document (FSR, SPR, S1BA, S2AA, S3SD, S4PRA), and the approval date. Project Number: Project Approval Document: Approval Date:

If proposal affects another department, does other department concur with proposal? Yes No Attach comments of affected department, signed and dated by the department director or designee. Prepared By: Date: Reviewed By: Date: Department Director: Date: Agency Secretary: Date:

Department of Finance Use Only

Additional Reviews: Capital Outlay: ITCU: Department of Technology:

FSCU:

PPBA: Susan Wekanda

Date submitted to the Legislature: January 10, 2020

OSAE:

BCP Fiscal Detail Sheet

BCP Title: Development and Compliance Staff Augmentation

BR Name: 0968-003-BCP-2020-GB

Budget Request Summary

Personal Services Positions - Permanent

Total Positions

CY

0.0 0.0

BY

8.0 8.0

BY+1

FY20 BY+2

8.0

8.0

8.0

8.0

BY+3

8.0 8.0

BY+4

8.0 8.0

Salaries and Wages Earnings - Permanent

Total Salaries and Wages

0

674

$0

$674

674 $674

674 $674

674 $674

674 $674

Total Staff Benefits Total Personal Services

0

370

$0

$1,044

370 $1,044

370 $1,044

370 $1,044

370 $1,044

Operating Expenses and Equipment 5301 - General Expense 5302 - Printing 5304 - Communications 5306 - Postage 5320 - Travel: In-State 5322 - Training 5324 - Facilities Operation 5326 - Utilities 5340 - Consulting and Professional Services Interdepartmental 5346 - Information Technology 5368 - Non-Capital Asset Purchases Equipment

Total Operating Expenses and Equipment

Total Budget Request

Fund Summary

Fund Source - State Operations 0448 - Occupancy Compliance Monitoring 0457 - Tax Credit Allocation Fee Account

Total State Operations Expenditures

Total All Funds

0

32

0

4

0

24

0

4

0

76

0

8

0

32

0

8

0

120

0

32

0

56

$0

$396

$0

$1,440

0

754

0

686

$0

$1,440

$0

$1,440

32 4

24 4

76 8

32 8

120 8 0

$316 $1,360

714 646 $1,360 $1,360

32 4

24 4

76 8

32 8

120 8 0

$316 $1,360

714 646 $1,360 $1,360

32 4

24 4

76 8

32 8

120 8 0

$316 $1,360

714 646 $1,360 $1,360

32 4

24 4

76 8

32 8

120 8 0

$316 $1,360

714 646 $1,360 $1,360

Program Summary

Program Funding 0840 - California Tax Credit Allocation

Total All Programs

0

1,440

$0

$1,440

1,360 $1,360

1,360 $1,360

1,360 $1,360

1,360 $1,360

BCP Title: Development and Compliance Staff Augmentation

BR Name: 0968-003-BCP-2020-GB

Personal Services Details

Positions

4800 - Staff Svcs Mgr I (Eff. 07-01-2020)

5393

-

Assoc Govtl Program Analyst (Eff. 07-012020)

Salary Information

Min

Mid

Max

CY 0.0

0.0

BY BY+1 BY+2 BY+3 BY+4

4.0

4.0

4.0

4.0

4.0

4.0

4.0

4.0

4.0

4.0

Total Positions

0.0

8.0

8.0

8.0

8.0

8.0

Salaries and Wages

CY

BY

BY+1

BY+2

BY+3

BY+4

4800 - Staff Svcs Mgr I (Eff. 07-01-2020) Assoc Govtl Program Analyst (Eff. 07-01-

5393 - 2020) Total Salaries and Wages

0

365

0

309

$0

$674

365 309 $674

365 309 $674

365 309 $674

365 309 $674

Staff Benefits 5150350 - Health Insurance 5150450 - Medicare Taxation 5150500 - OASDI 5150600 - Retirement - General 5150800 - Workers' Compensation

Total Staff Benefits Total Personal Services

0

104

0

10

0

42

0

210

0

4

$0

$370

$0

$1,044

104 10 42

210 4

$370 $1,044

104 10 42

210 4

$370 $1,044

104 10 42

210 4

$370 $1,044

104 10 42

210 4

$370 $1,044

A. Budget Request Summary

The California Tax Credit Allocation Committee (CTCAC) requests two (2) Staff Services Manager I (SSMI) positions and two (2) Associate Governmental Program Analyst (AGPA) positions for the Development Section to carry out core functions and administer federal and state mandates of the Low Income Housing Tax Credit (LIHTC) program. CTCAC also requests two (2) SSMI positions and two (2) AGPA positions for the Compliance Section to perform IRS Code and California State compliance monitoring services. CTCAC's current staffing levels are insufficient to carry out the core functions, the compliance monitoring, and administer the LIHTC program mandated by the federal Internal Revenue Code (IRC).

This request for $1,440,000 in 2020-21 and $1,360,000 in 2021-22 ongoing does not impact the General Fund as the program is funded by special funds. Government Health and Safety Code, Section 50199.9(d), allows CTCAC to establish and collect fees to pay the costs of monitoring projects with allocations of tax credits for compliance with federal and state law.

B. Background/History

CTCAC administers both a federal and a state low-income housing tax credit program. These programs encourage private investment in rental housing development for low and very low-income families and individuals. From 1987 through 2018, TCAC allocated more than $38 billion federal and state tax credits. The allocations will result in the development of approximately 430,000 total units of rental housing throughout the state.

With the passage of the Tax Reform Act of 1986, Congress created the federal LIHTC Program. The LIHTC provisions comprise the longest single section of the Internal Revenue Code (IRC). This program helps private developers/owners create and preserve affordable housing and raises project equity by providing tax benefits to investors who hold an ownership interest in the property. Congress made the LIHTC Program permanent with the passage of the Omnibus Budget Reconciliation Act of 1993. Over the years, the LIHTC program has become the primary funding source for the development of affordable rental housing throughout the country.

California's state housing tax credit program authorized by Chapter 1138, Statutes of 1987, provide State-level investor tax benefits, as well as supplements the federal tax credit and provides additional investor tax benefits to further increase the supply of affordable housing. The state tax credit is only available to projects receiving an allocation of federal credits.

CTCAC has helped fund the construction of over 430,000 total units since its inception,

including more than 14,000 in 2017, 19,700 in 2018, and nearly 9,600 as of July 2019. In California, construction of affordable housing continues to be in high demand. In most areas of California housing development is not keeping pace with economic and population growth. With over two million California households spending excessive proportions of their income on housing, California must encourage more affordable housing construction. Housing California's low-income workforce population enhances the state's economic strength. An affordable, quality home provides a stable foundation from which families can succeed in the state's economy.

California is the largest user nationwide of the LIHTC Program. Developers rely on federal, state, and local funding sources to build affordable housing as evidenced by the receipt of approximately 300 applications annually. To assure federal compliance and properly maintained properties, CTCAC must perform federally-mandated compliance monitoring functions.

In 1992, Congress amended the IRC to include a provision, at Section 42(m)(1)(B)(iii), specifying that a State's plan for allocating credit will not be deemed qualified unless it contains a procedure that the State will follow in monitoring compliance with the Code's provisions. In June 2000, IRS regulation ?1.42-5 codified federal compliance monitoring regulations, and greatly increased CTCAC's Compliance monitoring workload. These regulations require that the states conduct physical inspections of each property every three years and also imposed a more rigorous physical inspection standard. Property inspections must include a physical inspection of all building exteriors and common spaces.

As the nature of the program continually causes the workload continued to increase, CTCAC contracted with an outside consulting firm in 2007 to produce a workload analysis of all compliance functions and staffing requirements. The study initially documented the need for one additional PY every other year to adequately address the increasing workload. Additional legislation in the intervening years has increased the workload and CTCAC staff has both continued to use and modified as needed the workload analysis tool developed by the contractor to quantify staffing needs.

Resource History

Dollars in thousands

Program Budget Authorized Expenditures Actual Expenditures Revenues Authorized Positions Filled Positions Vacancies

2013-14 6,169 5,952

10,321 40.0 37.6 2.4

2014-15 6,645 5,964

10,759 40.0 38.7 2.3

2015-16 7,518 7,240

13,805 40.0 38.7 2.3

2016-17 8,038 6,899

10,291 47.0 41.7 5.3

2017-18 8,246 7,188

12,630 48.0 45.0 3.0

C. State Level Considerations

The federal tax credits for low-income housing developers are provided to encourage the private sector to acquire, rehabilitate, and construct low-income rental housing. From 1987 through 2018, TCAC allocated more than $38 billion federal and state tax credits. The allocations will result in the development of approximately 430,000 total units of rental housing throughout the state.

A 2002 Little Hoover Commission report states that: "Among the most basic of human needs is a place to call home. And nowhere in the United States is this need harder to satisfy than in California. The lack of affordable housing is so severe that it threatens the health and welfare of thousands of Californians, as well as the state's long-term prosperity". The report goes on to state that: "The impact of the State's housing shortage is felt most profoundly by low-income Californians who struggle to keep a roof over their heads. Among low-income renters, about two-thirds pay more than half of their in-come for housing and 91 percent pay more than the recommended 30 percent." The federal LIHTC Program is essential in meeting low-income renters' housing needs in California.

Housing is a statewide issue and a lack of affordable housing directly contributes to the increased homelessness seen across the state. To address these crises, the Administration has made significant investments and policy changes through a multipronged approach in the Governor's Budget that include incentives to increase housing production and additional resources to provide access to shelter and services to individuals and families with immediate need. Housing California's low-income workforce population enhances the state's economic strength. An affordable, quality home provides a stable foundation from which families can succeed in the state's

economy.

Housing California's low-income workforce and disabled populations enhances the State's economic strength. Assuring the long-term viability of California's approximately 4,492 tax credit properties over their 55-year compliance term benefits the lives of tens of thousands of Californians.

The additional positions do not affect other departments and will allow CTCAC to accomplish its mission and comply with federal mandates.

D. Justification

Development Section

CTCAC is responsible for administering the allocation of federal and state low income housing tax credits (LIHTCs) for the development of low-income housing. Each year the amount of federal LIHTCs allocated by the Internal Revenue Service (IRS) is based on the product of a per capita factor and the state's population. Recent increases in federal and state resources have increased housing production.

Quality of applications also directly impacts the time CTCAC staff spend on application reviews. The quality of projects resyndicating and applying for new tax credits continues to need improvement. CTCAC management plans to conduct additional application workshops and webinars to better educate applicants on the expectations and requirements, but currently lacks the time to do this due to existing workload priorities and constraints. Changes in the types of applications received have resulted in more complex reviews and additional technical assistance provided by staff to program users. CTCAC is required by federal law to conduct three reviews of the applications during the housing development process. Due to the increase in the volume and complexity of applications, workload has increased at each stage of review and staff has been unable to consistently conduct the three reviews within the required timeframe, from initial application to project completion. While staffing is being increased in 2019, CTCAC managers have consistently been unable to review staff work for the second of the three reviews in a timely manner. Often times the second stage's manager review is incomplete 6 months after staff work has been completed, or remains incomplete at the time of the third stage review. With the increase in applications beginning in 2018 and continuing, CTCAC managers will fall further behind in reviewing and approving staff work.

The quality of the third stage application submission, while improving somewhat over the past three years, is still inferior to the requirements. This increases the time each staff must spend on application reviews, including multiple communications with

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