88R20425 JAM-F

By: Gates, Howard, Wilson, Paul, H.B. No. 3568

Morales of Harris

Substitute the following for H.B. No. 3568:

By: Lozano C.S.H.B. No. 3568

A BILL TO BE ENTITLED

AN ACT

relating to certain public facilities used to provide affordable housing; authorizing a fee; authorizing a penalty.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:

SECTION 1. Section 303.021, Local Government Code, is amended by adding Subsections (d) and (e) to read as follows:

(d) A corporation or a sponsor may finance, own, or operate a multifamily residential development only if:

(1) a municipality, county, or housing authority is the applicable sponsor;

(2) the corporation or sponsor complies with all applicable provisions of this chapter; and

(3) the development is located:

(A) in 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.

(e) A corporation sponsored by a municipal management district may not finance, own, or operate a residential development.

SECTION 2. Subchapter B, Chapter 303, Local Government Code, is amended by adding Section 303.0415 to read as follows:

Sec. 303.0415. PROHIBITED CONFLICTS OF INTEREST FOR CERTAIN PUBLIC FACILITIES. (a) In this section:

(1) "Immediate family member" means spouse, domestic partner, cohabitant, child, stepchild, grandchild, great-grandchild, parent, stepparent, mother-in-law, father-in-law, son-in-law, daughter-in-law, grandparent, great-grandparent, brother, sister, half-brother, half-sister, stepsibling, brother-in-law, sister-in-law, aunt, uncle, niece, nephew, or first cousin.

(2) "Public facility financial consulting services" means financial consulting or advisory services with a value in excess of $25,000 that are provided to a prospective public facility user in connection with the user's application for approval of the acquisition of an ownership interest or leasehold or other possessory interest in a public facility that is a multifamily residential development. The term does not include legal, accounting, tax, or auditing services.

(b) A person may not own or obtain a direct or indirect ownership interest in a public facility that is a multifamily residential development, and may not provide or derive any material economic benefit from the provision of public facility financial consulting services associated with a public facility that is a multifamily residential development, if the person is:

(1) a member of the governing body of a corporation's sponsor;

(2) an elected member of the governing body of the municipality, county, or school district in which a public facility that is a multifamily residential development is located; or

(3) an immediate family member of a person described by Subdivision (1) or (2).

(c) Subsection (b) does not apply to an elected official or immediate family member of an elected official who owns:

(1) publicly traded equity, debt, or other securities issued by an entity that provides public facility financial consulting services; or

(2) any equity, debt, or other securities issued by any public or private investment fund, mutual fund, real estate investment trust, or other investment vehicle that directly or indirectly owns an interest in any entity that provides public facility financial consulting services.

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 CORPORATIONS.

SECTION 5. Section 303.0421, Local Government Code, as added by this Act, is amended by adding Subsections (a), (a-1), (a-2), (c), (d), and (g) to read as follows:

(a) In this section:

(1) "Capital improvement" means a property improvement that has a depreciable life of at least five years under generally accepted accounting principles, excluding typical expenses that are routine in making a multifamily residential unit ready for lease after a turnover of the unit, including expenses for plasterboard repair, interior painting, and floor coverings.

(2) "Moderate rehabilitation" means the expenditure of capital improvements for a multifamily residential development acquired by a corporation, in an aggregate amount of not less than the product of $25,000 multiplied by the total number of units in the development on the date of acquisition of the development by the corporation, subject to Subsection (a-1).

(3) "Rent reduction" means the projected difference between the rent charged for a unit subject to rent and income restrictions under Section 303.0425 and the maximum market rate rent that could be charged for that same unit without the rent and income restrictions.

(a-1) The comptroller biennially shall adjust to reflect inflation the amount specified by Subsection (a)(2) relating to the expenditure of capital improvements for a multifamily residential development. The board shall use 2021 as the base year for the adjustment and in making the computation shall consider the Consumer Price Index for All Urban Consumers, or its successor in function, published by the United States Bureau of Labor Statistics.

(a-2) 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; or

(3) receives financial assistance administered under Subchapter DD, Chapter 2306, Government Code.

(c) A corporation created under this chapter that proposes to develop or acquire a multifamily residential development to which Subsection (a-2) applies must hold a public hearing, at a meeting of the governing body of the corporation's sponsor, to approve the development.

(d) Notwithstanding Subsection (b), an occupied multifamily residential development that is acquired by a corporation and to which Subsection (a-2) 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 Subsections (b) and (c) and Sections 303.0425(b)-(h); and

(2) a year following the year described by Subdivision (1) only if the development comes into compliance with the requirements of Subsections (b) and (c) and Sections 303.0425(b)-(h) not later than the first anniversary of the date of the acquisition.

(g) A corporation or a sponsor of a corporation may not accept a payment from a public facility user or developer in exchange for the corporation's or sponsor's participation in a multifamily residential development without complying with the requirements of this section.

SECTION 6. 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-2) 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) 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;

(3) for a development proposed by a corporation whose sponsor is a housing authority, the development is approved by or receives a resolution of no objection from the governing body of the municipality in which the development is located, if the development is located in a municipality, or, if the development is not located in a municipality, by the county in which the development is located;

(4) for an occupied multifamily residential development that is acquired by a corporation:

(A) the development is located at the time of acquisition entirely within a census tract:

(i) that has a poverty rate of less than 20 percent; or

(ii) with a median household income in the two highest quartiles among census tracts within the uniform state service region in which the development is located; and

(B) a moderate rehabilitation of the development is completed not later than the third anniversary of the date of acquisition; and

(5) before final approval of the development under Subsection (c):

(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 [at least 50 percent of the units in the multifamily residential development are reserved for occupancy by individuals and families earning less than 80 percent of the area median family income].

(e) For the purposes of Subsection (a-2) [(d)], a "public housing unit" is a residential [dwelling] unit for which the landlord receives a public housing operating subsidy from the federal Public Housing Operating Fund. 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) [Subsections (a) and (b)], during the period [of time] that a corporation owns a particular public facility that is a multifamily residential development, 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).

SECTION 7. Subchapter B, Chapter 303, Local Government Code, is amended by adding Sections 303.0425, 303.0426, and 303.0427 to read as follows:

Sec. 303.0425. ADDITIONAL REQUIREMENTS FOR BENEFICIAL TAX TREATMENT RELATING TO CERTAIN PUBLIC FACILITIES. (a) In this section:

(1) "Developer" means a private entity that works with a corporation to propose or operate a multifamily residential development as a public facility.

(2) "Extremely low income housing unit" means a residential unit restricted for occupancy by an individual or family whose annual median income is not more than the greater of:

(A) 30 percent of the area median income for the household's place of residence, as adjusted for family size and as established by the United States Department of Housing and Urban Development; or

(B) 30 percent of the statewide median income, as adjusted for family size and as established by the United States Department of Housing and Urban 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), including housing choice vouchers provided through the Veteran's Affairs Supportive Housing Program.

(4) "Low income housing unit" means a residential unit restricted for occupancy by an individual or family whose annual median income is not more than the greater of:

(A) 60 percent of the area median income for the household's place of residence, as adjusted for family size and as established by the United States Department of Housing and Urban Development; or

(B) 60 percent of the statewide median income, as adjusted for family size and as established by the United States Department of Housing and Urban Development.

(5) "Moderate income housing unit" means a residential unit restricted for occupancy by an individual or family whose annual median income is not more than the greater of:

(A) 80 percent of the area median income for the household's place of residence, as adjusted for family size and as established by the United States Department of Housing and Urban Development; or

(B) 80 percent of the statewide median income, as adjusted for family size and as established 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 restricted for occupancy by an individual or family whose annual median income is not more than the greater of:

(A) 50 percent of the area median income for the household's place of residence, as adjusted for family size and as established by the United States Department of Housing and Urban Development; or

(B) 50 percent of the statewide median income, as adjusted for family size and as established by the United States Department of Housing and Urban Development.

(b) A multifamily residential development must reserve:

(1) at least:

(A) 12 percent of the units in the development as moderate income housing units;

(B) 12 percent of the units in the development as low income housing units; and

(C) 12 percent of the units in the development:

(i) as very low income housing units; or

(ii) for tenants assigned project-based vouchers under the housing choice voucher program; or

(2) at least:

(A) 30 percent of the units in the development as moderate income housing units; and

(B) 10 percent of the units in the development:

(i) as extremely low income housing units; or

(ii) for tenants assigned project-based vouchers under the housing choice voucher program.

(c) The monthly rent charged for an income-restricted residential unit may not exceed:

(1) 30 percent of the monthly income restriction applicable to the unit under this section; or

(2) for a unit occupied by a recipient of a housing choice voucher, the greater of:

(A) the amount described by Subdivision (1); or

(B) the monthly payment standard used by the housing authority that administers the voucher for the unit.

(d) In calculating the income of an individual or family for an income-restricted residential 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 an extremely low, very low, low, or moderate income housing unit.

(e) A multifamily residential development, other than an occupied development acquired by a corporation, must reserve, for each income category applicable to income-restricted residential units, one third of the units for each income category as three-bedroom units, one-third of the units for each income category as two-bedroom units, and one-third of the units for each income category as one-bedroom units.

(f) For an occupied multifamily residential development acquired by a corporation, the percentage of moderate income housing units, low income housing units, very low income housing units, and extremely low income housing units reserved in each category of residential units in the development, as based on the number of bedrooms per unit, must be the same as the percentage of each category of residential units reserved in the development as a whole.

(g) Income-restricted residential units reserved under Subsection (b) may not be smaller than:

(1) 550 square feet for a one-bedroom unit;

(2) 800 square feet for a two-bedroom unit; and

(3) 1,000 square feet for a three-bedroom unit.

(h) To qualify as a bedroom under this section, the bedroom must meet the qualifications for a bedroom in the state's qualified allocation plan under Subchapter DD, Chapter 2306, Government Code, that is in effect on the date the development is approved by the corporation or sponsor.

(i) 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, if the assistance received by the individual or family through the program is equal to or greater than the amount established as the maximum monthly rent for the applicable unit under Subsection (c); 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.

(j) The public facility user shall:

(1) affirmatively market available residential units directly to individuals and families participating in the housing choice voucher program;

(2) notify local housing authorities of the multifamily residential development's acceptance of tenants in the housing choice voucher program; and

(3) include on the primary Internet website for the development information about:

(A) the user's policy regarding the acceptance of tenants participating in the housing choice voucher program; and

(B) the inclusion of income-restricted units included in the development.

(k) 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 after the required cure period;

(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 repeated 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.

(l) A tenant may not waive the protections provided by Subsection (k).

(m) Requirements under this subchapter that govern the reservation of income-restricted residential units or the income restrictions applicable to tenants of a multifamily residential development must be documented in a land use restriction agreement or a similar restrictive instrument that is recorded in the real property records of the county in which the development is located.

Sec. 303.0426. AUDIT REQUIREMENTS RELATING TO CERTAIN MULTIFAMILY RESIDENTIAL DEVELOPMENTS. (a) In this section:

(1) "Department" means the Texas Department of Housing and Community Affairs.

(2) "Developer" has the meaning assigned by Section 303.0425.

(3) "Public facility user" has the meaning assigned by Section 303.0425.

(b) The department shall conduct an 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 Sections 303.0421 and 303.0425; 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.

(c) The department shall conduct the audit required by Subsection (b):

(1) for an occupied multifamily residential development that is acquired by the corporation:

(A) annually for the first three years following the date of acquisition; and

(B) each third year following the period described by Paragraph (A); and

(2) for a multifamily residential development not described by Subdivision (1):

(A) annually for the first three years following the date of the issuance of the certificate of occupancy; and

(B) each third year following the period described by Paragraph (A).

(d) The department shall complete and publish a report regarding the findings of an audit conducted under this section. 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 Sections 303.0421 and 303.0425.

(e) The department shall adopt forms and reporting standards for the auditing process.

(f) Not later than the 60th day after the date of receipt of the department's audit report under Subsection (d)(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 that appointed the housing authority's governing board.

(g) Not later than April 1 of each year for which an audit is required under Subsection (c), 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.

(h) If an audit conducted under this section establishes that a public facility user is not in compliance with the requirements of Section 303.0425 because the user collected rent in an amount that exceeded the amount of rent authorized under Section 303.0425(c) or rented an income-restricted residential unit to a tenant not qualified for occupancy of that unit, the appraisal district may impose on the public facility user a penalty in the following amounts, as applicable:

(1) 125 percent of the amount by which the amount of rent collected for income-restricted residential units exceeded the amount of rent authorized to be charged for those units under Section 303.0425(c); and

(2) 125 percent of the difference between the amount of rent collected for an income-restricted residential unit occupied by a tenant not qualified for occupancy of that unit and the full market rental rate for the unit.

(i) A penalty collected under Subsection (h):

(1) may not be refunded before a final disposition of any applicable appeal;

(2) is in addition to any other remedy provided by law; and

(3) shall be distributed to each taxing unit with jurisdiction over the development pro rata according to the applicable ad valorem tax rate of the jurisdictions.

(j) 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:

(1) is determined by an audit conducted under this section to not be in compliance with the requirements of Sections 303.0421 and 303.0425; and

(2) fails to cure the noncompliance within the 60-day period immediately following the date of receipt of the audit establishing the noncompliance.

(k) An audit conducted under this section 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.

Sec. 303.0427. REPORTING REQUIREMENTS RELATING TO MULTIFAMILY RESIDENTIAL DEVELOPMENTS. (a) Not later than April 30 of each year, a public facility corporation that owns a multifamily residential development for which an exemption is claimed under Section 303.042(c) shall provide to the comptroller and the Texas Department of Housing and Community Affairs a report that includes:

(1) a list of each multifamily residential development owned by the public facility corporation, including:

(A) the name of the development;

(B) the street address of the development, including the municipality and county in which the development is located;

(C) the number of residential units in the development, reported by number of bedrooms per unit;

(D) a summary of the income and rent restrictions applicable to the development, disaggregated by the category of income restriction and the number of bedrooms per unit of each category of income restriction; and

(E) the name of the public facility user associated with each development; and

(2) a copy of all agreements between the public facility corporation and the public facility user for the development, if those agreements have not previously been submitted to the comptroller and department.

(b) The comptroller shall:

(1) post a copy of the report received under Subsection (a) on the comptroller's Internet website; and

(2) for each report submitted, collect from the corporation submitting the report a reasonable fee not to exceed the amount necessary to offset the comptroller's costs of administering this section.

SECTION 8. 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 50 percent of the units in the multifamily residential development are reserved for occupancy by individuals and families earning less than 80 percent of the area median [family] income, adjusted for family size.

(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 9. (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 June 1, 2023, 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 June 1, 2023, 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. For purposes of this subsection, a multifamily residential development is approved on or after June 1, 2023, if the governing body of a public facility corporation or the sponsor of a public facility corporation takes initial action approving the development.

(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 June 1, 2023. An occupied multifamily residential development that is acquired by a public facility corporation before June 1, 2023, 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. For purposes of this subsection, a multifamily residential development is acquired on or after June 1, 2023, if the governing body of a public facility corporation or the sponsor of a public facility corporation takes initial action approving the acquisition of the development.

(d) Notwithstanding any other provision of this section:

(1) Sections 303.0426 and 303.0427, Local Government Code, as added by this Act, apply to all multifamily residential developments owned by a public facility corporation; and

(2) the initial report required to be submitted under Section 303.0427(a), Local Government Code, as added by this Act, by a public facility user of a multifamily residential development must be submitted by April 1, 2024.

SECTION 10. Not later than January 1, 2024, the Texas Department of Housing and Community Affairs shall adopt rules necessary to implement Sections 303.0426 and 303.0427, Local Government Code, as added by this Act.

SECTION 11. (a) Section 303.0426, Local Government Code, as added by this Act, takes effect January 1, 2025.

(b) Except as otherwise provided by this Act, this Act takes effect immediately if it receives a vote of two-thirds of all the members elected to each house, as provided by Section 39, Article III, Texas Constitution. If this Act does not receive the vote necessary for immediate effect, this Act takes effect September 1, 2023.