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F I S C A L I M P A C T R E P O R T

SPONSOR Smith

DATE TYPED 2-16-2005 HB

SHORT TITLE Affordable Housing Tax Credit Act

SB 602

ANALYST Taylor

REVENUE

Estimated Revenue

Subsequent

Years Impact

Recurring

or Non-Rec

Fund

Affected

FY05

FY06

($2,300.0)

($2,600.0) Recurring

General Fund

($365.0)

($400.0) Recurring Local Government

Funds

$2,655.0

$2,889.0 Recurring

MFA Investment

Vouchers

SOURCES OF INFORMATION

LFC Files

Taxation and Revenue Department (TRD)

SUMMARY

Senate Bill 602 enacts the affordable housing tax credit act. The tax credit can be applied against

modified tax liability (gross receipts, compensating tax, withholding tax), governmental gross

receipts tax liability, personal income tax liability or corporate income tax liability; but it cannot

be applied against a gross receipts tax imposed by a city or county). Credit balances may be car-

ried forward for up to five years. To claim the credit, a taxpayer would have to submit an “in-

vestment voucher” to the Taxation and Revenue Department, and certify project or service

completion.

The bill also authorizes the Mortgage Finance Authority (MFA) to issue investment vouchers for

persons investing in affordable housing projects. The value of the vouchers is 60 percent of the

investment. Vouchers can be sold or transferred. The MFA is required to adopt rules for the ap-

proval, issuance and administration of the vouchers. The value of the vouchers is established for

the first two years as follows: in 2006--$2.665 million; in 2007--$2.889 million. The value of the

vouchers would increase in subsequent years at rate equal to inflation plus population growth.

Senate Bill 602 -- Page 2

FISCAL IMPLICATIONS

The estimated fiscal impacts are equal to the value of the vouchers: $2.665 million in FY06 and

$2.9 million in FY07. These are shown in the table as losses to the general fund and gains to af-

fordable housing vouchers.

Although, MFA is not authorized to issue or approve investment vouchers until January, 1, 2006,

it is assumed that preparations could be developed in advance, and that vouchers for the full

amount could be authorized. In addition, the provision authorizing the sale or transfer of vouch-

ers should make it relatively easy to use the entire value of the voucher in this time period.

The estimated revenue loss is shared between the state and local governments. The relatively

small impact to local governments is in spite of the provision excluding locally authorized gross

receipts taxes, and results from the impact on the part of the state gross receipts tax that is shared

with municipalities and the share of compensating tax that is dedicated to small cities and coun-

ties.

General Fund revenues are offset by money provided for the vouchers.

ADMINISTRATIVE IMPLICATIONS

TRD reported that this bill would have an administrative impact on the department requiring ad-

ditional resources. Specifically, they reported the following:

1/2 to 1 TRD FTE will be needed to manually review, track, and monitor the carry for-

ward of the credit. A new application and claim form will have to be developed. Changes

will also have to be made to existing instructions and publications. An approval process

and audit and compliance procedures will need to be developed.

TECHNICAL ISSUES

TRD’s analysis raised the following technical issues:

Section 3 of the bill contains redundant language concerning how the value of the vouch-

ers is determined.

The bill does not contain a mechanism for dividing up the capped amount of vouchers.

The bill does not contain a definition of “affordable housing.”

The vouchers -- and therefore the credits -- would be available for investments in afford-

able housing projects even if these were otherwise reimbursed.

BT/yr:lg