SENATE BILL REPORT

SB 5551

BYSenators Lee and Smitherman

Authorizing tax exemptions for low-income residential rental structures.

Senate Committee on Economic Development & Labor

Senate Hearing Date(s):February 21, 1989

Senate Staff:Patrick Woods (786-7430)

AS OF FEBRUARY 20, 1989

BACKGROUND:

Historically, the federal government has provided a variety of tax incentives to private developers in order to encourage the development of rental housing for low income persons.  These incentives, in effect, lower the cost of housing providing low and moderate income tenants the ability to compete for habitable private market housing.  The Tax Reform Act of 1986 removed or reduced many of the federal tax incentives that are available to private developers.

Local governments are exploring a variety of techniques to address the housing problems within their downtown areas.  The use of incentives is considered an option that can leverage private investments in downtown housing that is affordable to low and moderate income individuals.

SUMMARY:

Cities are granted the authority to exempt property tax payments on buildings located in "designated downtown areas" for a ten-year period on building improvements which are used for multi-unit housing.  The properties are required to set aside 20 percent of their available units for occupancy by low income persons.  The exemption applies to all property taxes with the exception of special assessments based on the difference between the existing value of the property and its increased value to new construction or rehabilitation.  The property tax exemption program is in effect for a ten-year period beginning July 1, 1989 and ending on June 30, 1999.  The amount of tax exemptions that can be granted per year can not exceed a dollar value equal to one and one-half times the population of the city.  The tax exemption runs for a ten-year period after the date of the approval by the county assessor.

Eligible multi-unit housing must meet the following requirements:  it is newly constructed and located within a designated downtown area; it is built in a period between January 1, 1990 and December 31, 1999; it is exclusively for nonowner occupied residential housing; and has been completed within the last 12 months before approval of the tax exemption.  The owner must agree that for a 20-year period after approval of the tax exemption at least 20 percent of the housing units must be occupied by or held vacant for persons of low income at affordable rents.  Rehabilitated residential property must meet the additional following requirements:  it fails to comply with one or more building or housing codes prior to rehabilitation; it is less than 25 years of age at the time of application; and the value of the rehabilitation is in excess of 25 percent of the assessed value of the property prior to reconstruction.

In the event of low income individuals being displaced due to new construction or rehabilitation on eligible properties, the owners are required to provide a payment of $2000 to those displaced less than one year and a payment of not less than $4000 to those displaced more than one year.  In addition, tenants are required to receive a binding commitment that they may occupy a new low income unit upon completion of construction.

A "designated downtown area" means an area within a city which is zoned primarily for commercial use and includes a significant business district.  "Persons of low income" means a person or household whose adjusted income is at or below 50 percent of the median household income for the county or area where the housing project is located.  "Affordable rents" means rents including utilities that do not exceed 30 percent of 40 percent of median income for the county.

The Department of Revenue is responsible for the development of the necessary rules and procedures to administer the tax exemption program.  The cities have the option of adding criteria they deem suitable.  Cities are provided provisions for termination of property tax exemption for noncompliance by owner.

Appropriation:    none

Revenue:    none

Fiscal Note:      requested February 16, 1989