C.S.H.B. 3546 78(R) BILL ANALYSIS
C.S.H.B. 3546
By: Hamric
Local Government Ways and Means
Committee Report (Substituted)
BACKGROUND AND PURPOSE
Acts of the 75th and 77th Legislatures created the Community Housing
Development Provider (CHDO) exemption whereby a non-profit organization
ambiguously organized under an arguably unrelated federal statue could
exempt from ad valorem taxes property offered in furtherance of providing
affordable housing to low-income and moderate-income individuals and
families. With no particular guidelines in place, other than charitable
501(c)(3) standards, significant tax base has been lost to local taxing
units with arguably little or no net gain in affordable housing.
Moreover, an unintended consequence of the exemption has been a
significant non-appropriated appropriation from general revenue due to
elements of the state school funding financing formula which require
public schools to be reimbursed out of general revenue for diminutions in
property tax base. Projected general revenue reimbursements to school
districts for CHDO-related transactions is estimated at approximately $48
million for the 2004-2005 Biennium. Furthermore, conservative estimates
of total tax base lost due CHDO transactions equal at least one-half
billion dollars. Committee Substitute House Bill 3546 aims to eliminate
the current CHDO exemption, and limit and modify future exemptions.
CSHB 3546 eliminates and grandfathers the former CHDO exemption and
institutes much stricter guidelines for future exemptions.
RULEMAKING AUTHORITY
It is the committee's opinion that this bill does not expressly grant any
additional rulemaking authority to a state officer, department, agency, or
institution.
ANALYSIS
SECTION 1. Amends the heading of Section 11.182, Tax Code, as follows:
Sec. 11.182. COMMUNITY HOUSING DEVELOPMENT ORGANIZATIONS IMPROVING
PROPERTY FOR LOW-INCOME AND MODERATE-INCOME HOUSING: PROPERTY PREVIOUSLY
EXEMPT
SECTION 2. Amends Section 11.182, Tax Code, by adding Subsection (j) as
follows:
Section 11.182(j):limits the current CHDO exemption to the current tax
year, 2003.
SECTION 3. Amends Subchapter B, Chapter 11, Tax Code by adding Sections
11.1825 and 11.1826 as follows:
Sec. 11.1825. ORGANIZATIONS CONSTRUCTING OR REHABILITATING LOW-INCOME
HOUSING: PROPERTY NOT PREVIOUSLY EXEMPT
Section 11.1825(a):exempts from taxation real property owned by an
organization and upon which the organization constructs or rehabilitates
improvements.
Section 11.1825(b):requires the organization receiving the exemption:
(1)for the preceding three years:
(A)to have been exempt from federal income taxation under I.R.C.
501(c)(3);
(B)to have been a charitable organization under Tex. Tax Code
11.18(e), 11.18(f);
(C)to have had as its purpose the provision of low-income housing;
(2)to have its board composed of a majority of Texas residents;
(3)to have a formal policy for inclusion of input from low-income
households residing in the county in which the organization has a housing
project.
Sections 11.1825(c), (d), and (e):authorize non-profits to partner with
for-profit business entities organized under the laws of and having their
principal place of business in the State of Texas.
Section 11.1825(f):
(1)qualifies multi-family rental property for the exemption where the
individual or family to whom an apartment is rented earns income not more
than 60 percent of the greater of area median income or statewide area
median income;
(2)qualifies for the exemption single-family houses built for sale
where the individual or family to whom a house is sold earns income not
more than 100 percent of the greater of area median income or statewide
area median income.
Section 11.1825(g):requires at least 50 percent of the total square
footage of the rental property to be reserved for individuals and families
whose income is not more than 60 percent of area or state median income in
order to receive the exemption.
Section 11.1825(h):restricts annual total rents to 30 percent of area
median income.
Section 11.1825(i):authorizes an organization, where a rental unit is
rented to a public school employee, a peace officer, active or retire
member of the military, or person 65 years of age or older, to exempt from
taxation a unit of equal size not otherwise exempt.
Sections 11.1825(j), (k), and (l):requires new construction to be under
active construction in order to receive the exemption.
Section 11.1825(m):requires, in order to receive the exemption, the
following of a rehabilitation purchase of housing:
(1)property must be at least 10 years old;
(2)prior owner must have owned the property for at least 5 years;
(3)organization must spend, in rehabilitation costs, at least the
greater of $5000 per unit or the amount required by the lender;
(4)organization must maintain a reserve fund for repair and
replacement in an amount equal to:
(A)the amount required by the lender; or
(B)$300 per unit per year, regardless of whether the unit is reserved
for 60 percent or below median income occupants;
Section 11.1825(n):requires a cost-of-living-adjustment for repair and
replacement fund.
Section 11.1825(o):requires repair and replacement fund to apply to each
dwelling unit in the project regardless of whether the unit is reserved
for 60 percent or below median income occupants and to be maintained on a
continuing basis with limited withdrawals.
Section 11.1825(p): defines "capital improvement".
Section 11.1825(q):requires property acquired for construction or
rehabilitation of affordable housing to be rented or offered for rent
within 3 years.
Sections 11.1825(r) and (s):require the chief appraiser to use the income
method of appraisal and to post the capitalization rate.
Section 11.1825(t): establishes exemption for new construction or
rehabilitation as follows:
(t)(1):50 percent exemption from school taxes based on the following
formula:
50% of appraised value of propertyxnet square footage of project reserved
for 60% or below median income occupants
total square footage of project
-AND-
(t)(2)(A):75 percent exemption from all other taxing units based on the
following formula if at least 75% percent of total square footage is
reserved for 60% or below median income occupants:
75% of appraised value of propertyxnet square footage of project reserved
for 60% or below median income occupants
total square footage of project
(t)(2)(B):65 percent exemption from all other taxing units based on the
following formula if less than 75% percent of total square footage is
reserved for 60% or below median income occupants:
65% of appraised value of propertyx net square footage of project
reserved for 60% or below median income occupants
total square footage of project
Sections 11.1825(u) and (v):maintain the exemption in the case of a
change of ownership of the property if the successive owner is a
qualifying CHDO
Section 11.1825(w): establishes an "opt-out" for counties with a
population of 1.4 million or more (Dallas, Tarrant, and Harris) whereby
each local taxing unit on a transaction-by-transaction basis may choose
from one of three courses of action:
(1)the taxing unit may choose the statutory 50-75-65 exemption;
(2) the taxing unit may provide a "reasonable" exemption in an amount
of its choosing;
(3) the taxing unit may opt out completely from the exemption based
on the following criteria:
(A)the taxing unit cannot afford the loss in tax revenue; or
(B)the taxing unit determines additional housing for individuals or
families at 60 percent or below median income is not needed.
Sections 11.1825(x) and (y):require an organization seeking an exemption
in an "opt-out" county to submit a written request to each taxing unit
which must be responded to in writing by each taxing unit.
Sec. 11.1826. MONITORING OF COMPLIANCE WITH LOW-INCOME AND
MODERATE-INCOME HOUSING EXEMPTIONS.
Section 11.1826(a):defines "department" as Texas Department of Housing
and Community Affairs (TDHCA).
Section 11.1826(b):requires each organization to conduct a yearly
independent audit of itself demonstrating compliance with the exemption
requirements.
Section 11.1826(c):requires organization to deliver a copy of audit to
TDHCA and the chief appraiser.
Section 11.1826(d):authorizes properties with 36 or less units to deliver
a detailed report and certification rather than an audit.
Section 11.1826(e):requires organizations previously exempted under the
old CHDO statute to conduct the same yearly independent audit in order to
retain the old CHDO exemption.
Section 11.1826(f):establishes information disclosure requirements.
SECTION 4. Amends Sections 11.436(a) and (c), Tax Code, to read as
follows:
(a)Waives the May 1st tax exemption deadline for the new CHDO exemption;
and, institutes the May 1st tax exemption deadline for the old CHDO
exemption.
(c)Makes conforming changes commensurate with Subsection (a); and,
extends the chief appraiser preliminary determination deadline to 45 days.
SECTION 5. Amends Subchapter B, Chapter 23, Tax Code, by adding Section
23.215 as follows:
Sec. 23.215. APPRAISAL OF CERTAIN NONEXEMPT PROPERTY USED FOR LOWINCOME
OR MODERATE-INCOME HOUSING
Section 23.215:establishes appraisal guidelines for property used
low-income or moderate-income housing otherwise non exempt.
SECTION 6. Effective Date: immediate effect upon two-thirds vote of all
members of both the House and Senate; or, September 1, 2003.
EFFECTIVE DATE
This Act takes immediate effect upon two-thirds vote of all members of
both the House and Senate; or, September 1, 2003.
COMPARISON OF ORIGINAL TO SUBSTITUTE
CSHB 3546 makes the following substantive changes to the bill as filed:
_authorizes non-profits to partner with for-profits in order to
facilitate project development;
_requires an organization to merely have had as one of its purposes the
provision of affordable housing, rather its principal purpose;
_qualifies multi-family rental property for the exemption where the
individual or family to whom an apartment is rented earns income not more
than 60 percent of the greater of area median income or statewide area
median income;
_qualifies for the exemption single-family houses built for sale where the
individual or family to whom a house is sold earns income not more than
100 percent of the greater of area median income or statewide area median
income;
_institutes a 30 percent of area median income rent restriction;
_provides a exemption bonus for units rented to certain professional
groups;
_institutes more stringent requirements for rehabilitation projects,
including a minimum $5000.00 per unit rehabilitation investment;
_requires the chief appraiser to use the income method of appraisal;
_institutes a 50-75-65 percent statewide exemption scheme; and,
_authorizes an opt-out scheme for counties with populations greater than
1.4 million.