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By: West S.B. No. 999
(In the Senate - Filed March 7, 2003; March 13, 2003, read
first time and referred to Committee on Intergovernmental
Relations; April 30, 2003, reported adversely, with favorable
Committee Substitute by the following vote: Yeas 5, Nays 0;
April 30, 2003, sent to printer.)
COMMITTEE SUBSTITUTE FOR S.B. No. 999 By: Wentworth
A BILL TO BE ENTITLED
AN ACT
relating to the establishment of reserve accounts to fund necessary
repairs for certain multifamily rental housing developments
assisted by the Texas Department of Housing and Community Affairs;
providing an administrative penalty.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
SECTION 1. Subchapter H, Chapter 2306, Government Code, is
amended by adding Section 2306.186 to read as follows:
Sec. 2306.186. MANDATORY DEPOSITS TO FUND NECESSARY
REPAIRS. (a) In this section:
(1) "Cost-of-living adjustment" means the
cost-of-living adjustment determined for the applicable year under
Section 1(f)(3), Internal Revenue Code of 1986, as amended, by
substituting "calendar year 2004" for "calendar year 1992" in
Subsection (f)(3)(B) of that section.
(2) "Bank trustee" means a bank authorized to do
business in this state, with the power to act as trustee.
(3) "Department assistance" means any state or federal
assistance administered by or through the department, including
low-income housing tax credits.
(4) "First lien lender" means a lender whose lien has
first priority.
(5) "Reserve account" means an individual account:
(A) created to fund any necessary repairs for a
multifamily rental housing development; and
(B) maintained by a first lien lender or bank
trustee.
(b) If the department is the first lien lender with respect
to the development, each owner who receives department assistance
for a multifamily rental housing development that contains 25 or
more rental units shall deposit annually into a reserve account:
(1) for the year 2004:
(A) $250 per unit per year for units one to five
years old; and
(B) $300 per unit per year for units six or more
years old; and
(2) for each year following the year 2004, the amounts
per unit per year as described by Subdivision (1), plus a
cost-of-living adjustment.
(c) A land use restriction agreement or restrictive
covenant between the owner and the department must require the
owner to begin making annual deposits to the reserve account on the
date that occupancy of the multifamily rental housing development
stabilizes or the date that permanent financing for the development
is completely in place, whichever occurs later, and shall continue
making deposits until the earliest of the following dates:
(1) the date of any involuntary change in ownership of
the development;
(2) the date on which the owner suffers a total
casualty loss with respect to the development or the date on which
the development becomes functionally obsolete, if the development
cannot be or is not restored;
(3) the date on which the development is demolished;
(4) the date on which the development ceases to be used
as multifamily rental property; or
(5) the end of the affordability period specified by
the land use restriction agreement or restrictive covenant.
(d) With respect to multifamily rental developments, if the
establishment of a reserve fund for repairs has not been required by
the first lien lender, the development owner shall set aside the
repair reserve amount as a reserve for capital improvements. The
reserve must be established for each unit in the development,
regardless of the amount of rent charged for the unit. The reserve
must be continually maintained, with withdrawals permitted only to
pay for the cost of capital improvements needed for the development
to maintain habitability according to federal standards or local
codes, whichever are more restrictive. Evidence of an appropriate
level of funding in the reserve accounts must be established by an
annual audit as described by Subsection (k).
(e) Beginning with the 11th year after the awarding of any
financial assistance for the development by the department,
including low-income housing tax credits, the owner of a
multifamily rental housing development shall inspect the
development at least once during each five-year period to assess
the repair needs of the development. The owner shall submit the
report to the department not later than the 30th day after the date
of the inspection and after submission of the report shall complete
the identified repairs in a timely manner.
(f) The department may complete necessary repairs if the
owner fails to complete the repairs as required by Subsection (e).
Payment for those repairs must be made directly by the owner of the
development or through a reserve account established for the
development under this section.
(g) If notified of the development owner's failure to comply
with a local health, safety, or building code, the department may
complete any repairs necessary to correct a violation of that code,
as identified in the applicable violation report, and may pay for
those repairs through a reserve account established for the
development under this section.
(h) If the amount in the reserve account is considered by
the department to be inadequate to fund the costs of the necessary
repairs, the department shall reassess and, if appropriate, revise
the deposit amount required of the owner and the level of department
assistance provided for the development.
(i) The duties of the owner of a multifamily rental housing
development under this section cease on the date of a voluntary
change in ownership of the development, but the subsequent owner of
the development is subject to the deposit, inspection, and
notification requirements of Subsections (b), (c), (d), and (e).
(j) The first lien lender shall maintain the reserve
account. On the satisfaction of its lien, the first lien lender may
continue to maintain the reserve account. If the first lien lender
does not elect to continue maintaining the reserve account, the
department shall appoint a bank trustee to continue maintenance of
the account.
(k) An audit to establish the appropriate level of funding
in the reserve accounts must conform to auditing standards in
common use and generally accepted by the federal government,
including standards specified by the government auditing standards
issued by the comptroller general of the United States and the
standards specified by the provisions of the Office of Management
and Budget Circular A-133.
(l) The department shall adopt rules that:
(1) establish requirements and standards regarding:
(A) for first lien lenders and bank trustees:
(i) maintenance of reserve accounts and
reasonable costs of that maintenance;
(ii) asset management;
(iii) transfer of money in reserve accounts
to the department to fund necessary repairs; and
(iv) oversight of reserve accounts and the
provision of financial data and other information to the
department; and
(B) for owners, inspections of the multifamily
rental housing developments and identification of necessary
repairs, including requirements and standards regarding
construction, rehabilitation, and occupancy that may enable
quicker identification of those repairs;
(2) identify circumstances in which money in the
reserve accounts may:
(A) be used for expenses other than necessary
repairs, including property taxes or insurance; and
(B) fall below mandatory deposit levels without
resulting in department action;
(3) define the scope of department oversight of
reserve accounts and the repair process;
(4) provide the consequences of any failure to make a
required deposit, including a definition of good cause, if any, for
a failure to make a required deposit;
(5) specify or create processes and standards to be
used by the department to obtain repairs for developments;
(6) define for purposes of Subsection (c) the date on
which occupancy of a development is considered to have stabilized
and the date on which permanent financing is considered to be
completely in place; and
(7) provide for appointment of a bank trustee as
necessary under this section.
(m) The department shall assess an administrative penalty
on development owners who fail to conduct the inspection and make
the identified repairs as required by Subsection (e). The
department may assess the administrative penalty in the same manner
as an administrative penalty assessed under Section 2306.6023. The
penalty is computed by multiplying $200 by the number of dwelling
units in the development and must be paid to the department. The
office of the attorney general shall assist the department in the
collection of the penalty and the enforcement of this subsection.
(n) This section does not apply to a multifamily rental
housing development supported by qualified 501(c)(3) bonds.
SECTION 2. Section 2306.185, Government Code, is amended by
amending Subsection (a) and adding Subsection (h) to read as
follows:
(a) The department shall adopt policies and procedures to
ensure that, for a multifamily rental housing development funded
through loans, grants, or tax credits under this chapter, the owner
of the development:
(1) keeps the rents affordable for low income tenants
for the longest period that is economically feasible; and
(2) provides regular maintenance to keep the
development sanitary, decent, and safe and otherwise complies with
the requirements of Section 2306.186.
(h) The department shall monitor a development owner's
compliance with this section.
SECTION 3. (a) The Texas Department of Housing and
Community Affairs shall adopt the rules required by Section
2306.186, Government Code, as added by this Act, not later than
December 1, 2003.
(b) The change in law made by Section 2306.186, Government
Code, as added by this Act, applies only to multifamily rental
housing developments that receive assistance from the Texas
Department of Housing and Community Affairs on or after January 1,
2004.
SECTION 4. This Act takes effect September 1, 2003.
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