By: Jetton, et al. (Senate Sponsor - Bettencourt) H.B. No. 2071
         (In the Senate - Received from the House April 26, 2023;
  April 27, 2023, read first time and referred to Committee on Local
  Government; May 3, 2023, reported favorably by the following vote:  
  Yeas 7, Nays 1; May 3, 2023, sent to printer.)
Click here to see the committee vote
 
 
A BILL TO BE ENTITLED
 
AN ACT
 
  relating to certain public facilities used to provide affordable
  housing.
         BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
         SECTION 1.  Section 303.021, Local Government Code, is
  amended by adding Subsection (d) to read as follows:
         (d)  A corporation or a sponsor may finance, own, or operate
  a multifamily residential development only if:
               (1)  the corporation or sponsor complies with all
  applicable provisions of this chapter; and
               (2)  the development is located:
                     (A)  inside the area of operation of the sponsor,
  if the sponsor is a housing authority; or
                     (B)  if the sponsor is not a housing authority,
  inside the boundaries of the sponsor, without regard to whether the
  sponsor is authorized to own property or provide services outside
  the boundaries of the sponsor.
         SECTION 2.  Subchapter B, Chapter 303, Local Government
  Code, is amended by adding Section 303.0415 to read as follows:
         Sec. 303.0415.  APPLICABILITY OF LAWS RELATING TO CONFLICT
  OF INTEREST. A member of the board of a corporation or a member of
  the governing body of a sponsor of a corporation is subject to the
  same restrictions as a local public official under Chapter 171.
         SECTION 3.  The heading to Section 303.042, Local Government
  Code, is amended to read as follows:
         Sec. 303.042.  TAXATION; EXEMPTION.
         SECTION 4.  Subchapter B, Chapter 303, Local Government
  Code, is amended by adding Section 303.0421, and a heading is added
  to that section to read as follows:
         Sec. 303.0421.  MULTIFAMILY RESIDENTIAL DEVELOPMENTS OWNED
  BY PUBLIC FACILITY CORPORATIONS.
         SECTION 5.  Section 303.0421, Local Government Code, as
  added by this Act, is amended by adding Subsections (a), (c), (d),
  (f-1), (f-2), (g), and (h) to read as follows:
         (a)  This section applies to a multifamily residential
  development that is owned by a corporation created under this
  chapter, except that this section does not apply to a multifamily
  residential development that:
               (1)  has at least 20 percent of its residential units
  reserved for public housing units;
               (2)  participates in the Rental Assistance
  Demonstration program administered by the United States Department
  of Housing and Urban Development;
               (3)  receives financial assistance administered under
  Chapter 1372, Government Code, or receives financial assistance
  from another type of tax-exempt bond; or
               (4)  receives financial assistance administered under
  Subchapter DD, Chapter 2306, Government Code.
         (c)  A multifamily residential development that is owned by a
  corporation created under this chapter by a housing authority and
  to which Subsection (a) applies must hold a public hearing, at a
  meeting of the authority's governing body, to approve the
  development.
         (d)  Notwithstanding Subsection (b), an occupied multifamily
  residential development that is acquired by a corporation and to
  which Subsection (a) applies is eligible for an exemption under
  Section 303.042(c) for:
               (1)  the one-year period following the date of the
  acquisition, regardless of whether the development complies with
  the requirements of Subsection (b); and
               (2)  a year following the year described by Subdivision
  (1) only if the development comes into compliance with the
  requirements of Subsection (b) not later than the first anniversary
  of the date of the acquisition.
         (f-1)  Subsection (f) does not apply to taxes imposed by a
  conservation and reclamation district created under Section 52,
  Article III, or Section 59, Article XVI, Texas Constitution, that
  provides water, sewer, or drainage services to a public facility
  if:
               (1)  the district has outstanding bond indebtedness;
  and
               (2)  when the facility is combined with other existing
  or proposed public facilities in the district, the application of
  Subsection (f) would result in the aggregate loss of at least 10
  percent of the total assessed value of all property located in the
  district.
         (f-2)  Subsection (f-1) does not apply if the corporation has
  entered into a written agreement with the district to make a payment
  to the district in lieu of taxation, in the amount specified in the
  agreement.
         (g)  An exemption under Section 303.042(c) for a multifamily
  residential development to which Subsection (a) applies expires:
               (1)  for an occupied multifamily residential
  development that is acquired by a corporation, on the 10th
  anniversary of the date of the acquisition by the corporation; and
               (2)  for a multifamily residential development not
  described by Subdivision (1), on the 12th anniversary of the date
  the development receives, from the corporation or the corporation's
  sponsor, the final approval under this chapter that is necessary to
  obtain the exemption.
         (h)  This subsection and Subsection (f) expire December 31,
  2025.
         SECTION 6.  Section 303.042(c), Local Government Code, is
  amended to read as follows:
         (c)  Subject to Section 303.0421(g), a [A] corporation is
  engaged exclusively in performance of charitable functions and is
  exempt from taxation by this state or a municipality or other
  political subdivision of this state.  Bonds issued by a corporation
  under this chapter, a transfer of the bonds, interest on the bonds,
  and a profit from the sale or exchange of the bonds are exempt from
  taxation by this state or a municipality or other political
  subdivision of this state.
         SECTION 7.  Sections 303.042(d), (e), and (f), Local
  Government Code, are transferred to Section 303.0421, Local
  Government Code, as added by this Act, redesignated as Sections
  303.0421(b), (e), and (f), Local Government Code, and amended to
  read as follows:
         (b)  Notwithstanding Section 303.042(c) and subject to
  Subsections (c) and (d) of this section, an [(d) An] exemption under
  Section 303.042(c) [this section] for a multifamily residential
  development to which Subsection (a) applies is available [which is
  owned by a public facility corporation created by a housing
  authority under this chapter and which does not have at least 20
  percent of its units reserved for public housing units, applies]
  only if:
               (1)  the requirements under Section 303.0425 are met
  [housing authority holds a public hearing, at a regular meeting of
  the authority's governing body, to approve the development]; [and]
               (2)  at least:
                     (A)  12 percent of the units in the multifamily
  residential development are reserved for occupancy:
                           (i)  as very low income housing units, as
  defined under Section 303.0425; or
                           (ii)  by participants in the housing choice
  voucher program;
                     (B)  12 percent of the units in the multifamily
  residential development are reserved for occupancy as lower income
  housing units, as defined under Section 303.0425; and
                     (C)  12 [50] percent of the units in the
  multifamily residential development are reserved for occupancy as
  moderate income housing units, as defined under Section 303.0425;
  [by individuals and families earning less than 80 percent of the
  area median family income]
               (3)  the corporation delivers to the presiding officer
  of the governing body of each taxing unit in which the development
  is to be located written notice of the development, at least 30 days
  before the date:
                     (A)  the corporation takes action to approve a new
  multifamily residential development or the acquisition of an
  occupied multifamily residential development; and
                     (B)  of any public hearing required to be held
  under this section;
               (4)  the multifamily residential development is
  approved by the governing body of the municipality, if any, the
  county, and the school district in which the development is
  located;
               (5)  for an occupied multifamily residential
  development that is acquired by a corporation and not otherwise
  subject to a land use restriction agreement under Section 2306.185,
  Government Code:
                     (A)  not less than 15 percent of the total gross
  cost of the existing development, as shown in the settlement
  statement, is expended on rehabilitating, renovating,
  reconstructing, or repairing the development, with initial
  expenditures and construction activities:
                           (i)  beginning not later than the first
  anniversary of the date of the acquisition; and
                           (ii)  finishing not later than the third
  anniversary of the date of the acquisition; or
                     (B)  at least 25 percent of the units are reserved
  for occupancy as lower income housing units, as defined under
  Section 303.0425, and the development is approved by the governing
  body of the municipality in which the development is located or, if
  the development is not located in a municipality, the county in
  which the development is located; and
               (6)  before final approval of the development:
                     (A)  the corporation or corporation's sponsor
  conducts, or obtains from a professional entity that has experience
  underwriting affordable multifamily residential developments and
  does not have financial interests in the applicable development,
  public facility user, or developer, an underwriting assessment of
  the proposed development to determine the appropriate category of
  income-restricted units to require at the development; and
                     (B)  based on the assessment conducted under
  Paragraph (A), the corporation makes a good faith determination
  that the total annual amount of rent reduction on the
  income-restricted units provided at the development will be not
  less than 60 percent of the estimated amount of the annual ad
  valorem taxes that would be imposed on the property without an
  exemption under Section 303.042(c), for:
                           (i)  the first three years after the rent
  stabilization period, for newly constructed developments; and
                           (ii)  the second, third, and fourth years
  after the date of acquisition by the corporation, for developments
  occupied at the time of acquisition.
         (e)  For the purposes of Subsection (a) [(d)], a "public
  housing unit" is a residential [dwelling] unit for which the
  landlord receives a public housing operating subsidy. It does not
  include a unit for which payments are made to the landlord under the
  federal Section 8 Housing Choice Voucher Program.
         (f)  Notwithstanding Sections 303.042(a) and (b) and subject
  to Subsection (f-1) [Subsections (a) and (b)], during the period
  [of time] that a corporation owns a particular public facility that
  is a multifamily residential development:
               (1)  [,] a leasehold or other possessory interest in
  the real property of the public facility granted by the corporation
  shall be treated in the same manner as a leasehold or other
  possessory interest in real property granted by an authority under
  Section 379B.011(b); and
               (2)  the materials used by a person granted a
  possessory interest described by Subdivision (1) to improve the
  real property of the public facility shall be exempt from all sales
  and use taxes because the materials are for the benefit of the
  corporation.
         SECTION 8.  Subchapter B, Chapter 303, Local Government
  Code, is amended by adding Sections 303.0425 and 303.0426 to read as
  follows:
         Sec. 303.0425.  ADDITIONAL REQUIREMENTS FOR BENEFICIAL TAX
  TREATMENT RELATING TO CERTAIN PUBLIC FACILITIES. (a) In this
  section:
               (1)  "Department" means the Texas Department of Housing
  and Community Affairs.
               (2)  "Developer" means a private entity that constructs
  a development, including the rehabilitation, renovation,
  reconstruction, or repair of a development.
               (3)  "Housing choice voucher program" means the housing
  choice voucher program under Section 8, United States Housing Act
  of 1937 (42 U.S.C. Section 1437f).
               (4)  "Lower income housing unit" means a residential
  unit reserved for occupancy by an individual or family earning not
  more than 60 percent of the area median income, adjusted for family
  size, as defined by the United States Department of Housing and
  Urban Development.
               (5)  "Moderate income housing unit" means a residential
  unit reserved for occupancy by an individual or family earning not
  more than 80 percent of the area median income, adjusted for family
  size, as defined by the United States Department of Housing and
  Urban Development.
               (6)  "Public facility user" means a public-private
  partnership entity or a developer or other private entity that has
  an ownership interest or a leasehold or other possessory interest
  in a public facility that is a multifamily residential development.
               (7)  "Very low income housing unit" means a residential
  unit reserved for occupancy by an individual or family earning not
  more than 50 percent of the area median income, adjusted for family
  size, as defined by the United States Department of Housing and
  Urban Development.
         (b)  If a majority of the members of the board of the
  corporation are not elected officials, the development must be
  approved by the governing body of the municipality in which the
  development is located or, if the development is not located in a
  municipality, the county in which the development is located.
         (c)  The percentage of very low, lower, and moderate income
  housing units reserved in each category of units in the
  development, based on the number of bedrooms per unit, must be the
  same as the percentage of each category of housing units reserved in
  the development as a whole.
         (d)  The monthly rent charged per unit may not exceed:
               (1)  for a very low income housing unit, 30 percent of
  50 percent of the area median income, adjusted for family size, as
  defined by the United States Department of Housing and Urban
  Development;
               (2)  for a lower income housing unit, 30 percent of 60
  percent of the area median income, adjusted for family size, as
  defined by the United States Department of Housing and Urban
  Development; or
               (3)  for a moderate income housing unit, 30 percent of
  80 percent of the area median income, adjusted for family size, as
  defined by the United States Department of Housing and Urban
  Development.
         (e)  In calculating the income of an individual or family for
  a very low, lower, or moderate income housing unit, the public
  facility user must use the definition of annual income described in
  24 C.F.R. Section 5.609, as implemented by the United States
  Department of Housing and Urban Development.  If the income of a
  tenant exceeds an applicable limit at the time of the renewal of a
  lease agreement for a residential unit, the provisions of Section
  42(g)(2)(D), Internal Revenue Code of 1986, apply in determining
  whether the unit may still qualify as a very low, lower, or moderate
  income housing unit.
         (f)  The public facility user may not:
               (1)  refuse to rent a residential unit to an individual
  or family because the individual or family participates in the
  housing choice voucher program; or
               (2)  use a financial or minimum income standard that
  requires an individual or family participating in the housing
  choice voucher program to have a monthly income of more than 250
  percent of the individual's or family's share of the total monthly
  rent payable for a unit.
         (f-1)  A public facility user may require an individual or
  family participating in the housing choice voucher program to pay
  the difference between the monthly rent for the applicable unit and
  the amount of the monthly voucher if the amount of the voucher is
  less than the rent.
         (g)  A corporation that owns or leases to a public facility
  user a public facility used as a multifamily residential
  development shall publish on its Internet website information about
  the development's:
               (1)  compliance with the requirements of this section;
  and
               (2)  policies regarding tenant participation in the
  housing choice voucher program.
         (h)  The public facility user shall:
               (1)  affirmatively market available residential units
  directly to individuals and families participating in the housing
  choice voucher program; and
               (2)  notify local housing authorities of the
  multifamily residential development's acceptance of tenants in the
  housing choice voucher program.
         (i)  The department shall conduct an annual audit of each
  public facility user of a multifamily residential development
  claiming an exemption under Section 303.042(c) and to which Section
  303.0421 applies, to:
               (1)  determine whether the public facility user is in
  compliance with this section and Section 303.0421; and
               (2)  identify the difference in the rent charged for
  income-restricted residential units and the estimated maximum
  market rents that could be charged for those units without the rent
  or income restrictions.
         (i-1)  An independent auditor or compliance expert may not
  prepare an audit under Subsection (i) for more than three
  consecutive years for the same public facility user. After the
  third consecutive audit, the independent auditor or compliance
  expert may prepare an audit only after the second anniversary of the
  preparation of the third consecutive audit.
         (j)  The department shall complete and publish a report
  regarding the findings of an audit conducted under Subsection (i).  
  The report must:
               (1)  be made available on the department's Internet
  website;
               (2)  be issued to a public facility user that has an
  interest in a development that is the subject of an audit; and
               (3)  describe in detail the nature of any failure to
  comply with the requirements in this section and Section 303.0421.
         (j-1)  The department shall adopt forms and reporting
  standards for the auditing process.
         (k)  The initial audit report required by Subsection (j) is
  due not later than June 1 of the year following the first
  anniversary of:
               (1)  the date of acquisition for an occupied
  multifamily residential development that is acquired by a
  corporation; or
               (2)  the date a new multifamily residential development
  first becomes occupied by one or more tenants.
         (k-1)  Subsequent audit reports following the issuance of
  the initial audit report under Subsection (k) are due not later than
  June 1 of each year. 
         (l)  Not later than the 60th day after the date of receipt of
  the department's audit report under Subsection (j)(2), a public
  facility user shall provide a copy of the report to the comptroller,
  the appraisal district containing the development that is the
  subject of the report, the corporation, the governing body of the
  corporation's sponsor, and, if the corporation's sponsor is a
  housing authority, the elected officials who appointed the housing
  authority's governing board.
         (l-1)  Not later than June 1 of each year for which an audit
  is required under Subsection (i), a public facility user to which
  Section 303.0421 applies shall pay to the department a fee of $40
  per unit contained in the development, as determined by the audit,
  to reimburse the department for expenses related to the audit.
         (l-2)  An exemption under Section 303.042(c) does not apply
  for a tax year in which a multifamily residential development that
  is owned by a public facility corporation created under this
  chapter is determined by an audit conducted under Subsection (i) to
  not be in compliance with the requirements of this section and
  Section 303.0421.
         (l-3)  An audit conducted under Subsection (i) is subject to
  disclosure under Chapter 552, Government Code, except that
  information containing tenant names, unit numbers, or other tenant
  identifying information may be redacted.
         (m)  Each lease agreement for a residential unit in a
  multifamily residential development subject to this section must
  provide that:
               (1)  the landlord may not retaliate against the tenant
  or the tenant's guests by taking an action because the tenant
  established, attempted to establish, or participated in a tenant
  organization;
               (2)  the landlord may only choose to not renew the lease
  if the tenant:
                     (A)  is in material noncompliance with the lease,
  including nonpayment of rent;
                     (B)  committed one or more substantial violations
  of the lease;
                     (C)  failed to provide required information on the
  income, composition, or eligibility of the tenant's household; or
                     (D)  committed repeated minor violations of the
  lease that:
                           (i)  disrupt the livability of the property;
                           (ii)  adversely affect the health and safety
  of any person or the right to quiet enjoyment of the leased premises
  and related development facilities;
                           (iii)  interfere with the management of the
  development; or
                           (iv)  have an adverse financial effect on
  the development, including the failure of the tenant to pay rent in
  a timely manner; and
               (3)  to not renew the lease, the landlord must serve a
  written notice of proposed nonrenewal on the tenant not later than
  the 30th day before the effective date of nonrenewal.
         (n)  A tenant may not waive the protections provided by
  Subsection (m).
         (o)  If an audit report submitted under Subsection (j)
  indicates noncompliance with this section, a public facility user:
               (1)  must be given:
                     (A)  written notice from the Texas Department of
  Housing and Community Affairs or appropriate appraisal district
  that:
                           (i)  is provided not later than the 45th day
  after the date a report has been submitted under Subsection (j);
                           (ii)  specifies the reasons for
  noncompliance;
                           (iii)  contains at least one option for a
  corrective action to resolve the noncompliance; and
                           (iv)  informs the public facility user that
  failure to resolve the noncompliance will result in the loss of an
  exemption under Section 303.042(c);
                     (B)  60 days after the date notice is received
  under this subdivision, to resolve the matter that is the subject of
  the notice; and
                     (C)  if a matter that is the subject of a notice
  provided under this subdivision is not resolved to the satisfaction
  of the Texas Department of Housing and Community Affairs and the
  appropriate appraisal district during the period provided by
  Paragraph (B), a second notice that informs the public facility
  user of the loss of the exemption under Section 303.042(c) due to
  noncompliance with this section;
               (2)  is considered to be in compliance with this
  section if notice under Subdivision (1)(A) is not provided as
  specified by Subparagraph (i) of that paragraph; and
               (3)  may appeal a determination of noncompliance to a
  district court in the county in which the applicable development is
  located.
         (p)  Requirements under this subchapter relating to the
  reservation of income-restricted residential units or income
  restrictions applicable to tenants of a multifamily residential
  development subject to this subchapter must be documented in a land
  use restriction agreement or a similar restrictive instrument that:
               (1)  ensures that the applicable restrictions are in
  effect for not less than 10 years; and
               (2)  is recorded in the real property records of the
  county in which the development is located.
         (q)  An agreement or instrument recorded under Subsection
  (p) may be terminated if the development that is the subject of the
  agreement or instrument:
               (1)  is the subject of a foreclosure sale; or
               (2)  becomes ineligible for an exemption under Section
  303.042(c) for a reason other than the failure to comply with
  restrictions recorded in the agreement or instrument.
         Sec. 303.0426.  STUDY OF TAX EXEMPTIONS FOR MULTIFAMILY
  RESIDENTIAL DEVELOPMENTS OWNED BY PUBLIC FACILITY CORPORATIONS.
  (a) In this section, "board" means the Legislative Budget Board.
         (b)  The board shall conduct a study that assesses the
  long-term effects on the state's funding and revenue, including
  funding for public education, of ad valorem tax exemptions and
  sales and use tax exemptions for multifamily housing developments
  under Sections 303.042(c) and 303.0421(f).
         (c)  Not later than December 10, 2024, the board shall submit
  to the governor, the lieutenant governor, and the speaker of the
  house of representatives a report on the results of the study. The
  report must include an estimate of:
               (1)  the funding or revenue that the state has lost as a
  result of the exemptions; and
               (2)  the potential increase in funding or revenue that
  would result from the repeal of the exemptions.
         (d)  The board may delegate any authority granted to the
  board under this section that the board determines is necessary to
  conduct the study under this section.
         (e)  This section expires January 1, 2025.
         SECTION 9.  Sections 392.005(c) and (d), Local Government
  Code, are amended to read as follows:
         (c)  An exemption under this section for a multifamily
  residential development which is owned by [(i) a public facility
  corporation created by a housing authority under Chapter 303, (ii)]
  a housing development corporation[,] or [(iii)] a similar entity
  created by a housing authority, other than a public facility
  corporation created by a housing authority under Chapter 303, and
  which does not have at least 20 percent of its residential units
  reserved for public housing units, applies only if:
               (1)  the authority holds a public hearing, at a regular
  meeting of the authority's governing body, to approve the
  development; and
               (2)  at least:
                     (A)  12 percent of the units in the multifamily
  residential development are reserved for occupancy:
                           (i)  as very low income housing units, as
  defined under Section 303.0425; or
                           (ii)  by participants in the housing choice
  voucher program;
                     (B)  12 percent of the units in the multifamily
  residential development are reserved for occupancy as lower income
  housing units, as defined under Section 303.0425; and
                     (C)  12 [50] percent of the units in the
  multifamily residential development are reserved for occupancy as
  moderate income housing units, as defined under Section 303.0425
  [by individuals and families earning less than 80 percent of the
  area median family income].
         (d)  For the purposes of Subsection (c), a "public housing
  unit" is a residential [dwelling] unit for which the owner receives
  a public housing operating subsidy. It does not include a unit for
  which payments are made to the landlord under the federal Section 8
  Housing Choice Voucher Program.
         SECTION 10.  (a)  Subject to Subsections (b), (c), and (d) of
  this section, Sections 303.0421 and 303.0425, Local Government
  Code, as added by this Act, apply only to a tax imposed for a tax
  year beginning on or after the effective date of this Act.
         (b)  Subject to Subsections (c) and (d) of this section,
  Sections 303.0421 and 303.0425, Local Government Code, as added by
  this Act, apply only to a multifamily residential development that
  is approved on or after the effective date of this Act by a public
  facility corporation or the sponsor of a public facility
  corporation, in accordance with Chapter 303, Local Government Code.  
  A multifamily residential development that was approved by a public
  facility corporation or the sponsor of a public facility
  corporation before the effective date of this Act is governed by the
  law in effect on the date the development was approved by the
  corporation or sponsor, and the former law is continued in effect
  for that purpose.
         (c)  Subject to Subsection (d) of this section, Section
  303.0421(d), Local Government Code, as added by this Act, applies
  only to an occupied multifamily residential development that is
  acquired by a public facility corporation on or after the effective
  date of this Act. An occupied multifamily residential development
  that is acquired by a public facility corporation before the
  effective date of this Act is governed by the law in effect on the
  date the development was acquired by the public facility
  corporation, and the former law is continued in effect for that
  purpose.
         (d)  Notwithstanding any other provision of this section:
               (1)  Sections 303.0425(g), (i), (j), (k), (l), (l-1),
  and (l-2), Local Government Code, as added by this Act, apply to all
  multifamily residential developments owned by a public facility
  corporation; and
               (2)  the initial audit report required to be submitted
  under Section 303.0425(j), Local Government Code, as added by this
  Act, for a multifamily residential development that was approved or
  acquired by a public facility corporation before the effective date
  of this Act must be submitted by the later of:
                     (A)  the date established by Section 303.0425(k),
  Local Government Code, as added by this Act; or
                     (B)  June 1, 2024.
         (e)  Section 303.0421(h), Local Government Code, as added by
  this Act, does not affect a tax exemption available to a multifamily
  residential development under Section 303.0421(f), Local
  Government Code, as amended by this Act, immediately before
  December 31, 2025. A tax exemption available to a multifamily
  residential development under Section 303.0421(f), Local
  Government Code, immediately before that date is covered by the law
  in effect when the development qualified for the exemption, and
  that law is continued in effect for that purpose.
         SECTION 11.  Not later than January 1, 2024, the Texas
  Department of Housing and Community Affairs shall adopt rules
  necessary to implement Section 303.0425(i), Local Government Code,
  as added by this Act.
         SECTION 12.  This Act takes effect September 1, 2023.
 
  * * * * *