Relates to conveyances involving real property financed with federal low-income housing tax credits.
BILL NUMBER: S6168A
TITLE OF BILL : An act to amend the tax law, in relation to conveyances involving real property financed with federal low-income housing tax credits
PURPOSE : In order to facilitate the preservation of affordability on not-for-profit sponsored housing projects developed with Low Income Housing Tax Credits. As the housing projects reach an end to their 15 year IRS Compliance period, the City and its community partners are implementing a plan to allow for the exit of the limited partner investors through a sale of the project or partnership interests to a not-for-profit organization.
SUMMARY OF PROVISIONS : Conveyances involving real property financed with federal low income housing tax credits and subject to a housing credit agency's regulatory agreement for a minimum period of 15 years, from the date of conveyance to a not-for-profit corporation. No part of the net earnings of said not-for-profit shall inure to the benefit of any person.
JUSTIFICATION : The Low Income Housing Tax Credit (LIHTC) is a 23 year old federal program that accounts for nearly 90 percent of all affordable rental housing created in the U.S. today. Preservation of this portfolio and continued investment through this program is critical if we are to make a dent in the ever increasing need to house low income people. The first projects that utilized the LIHTC have reached the end of their 15 year compliance period. These initial projects were developed by community based organizations committed to providing housing for the poor and working families in neighborhoods devastated by blight and abandonment. The City and the State were committed partners and provided flexible financing, up to and including interest only mortgages to enable projects to serve the lowest income possible while maximizing resources to rehabilitate and build decent housing.
Many community based developers of these early projects are now exercising their right to acquire these projects and transfer the ownership from Limited Partnerships structured to take advantage of the equity from syndicating credits into the hands of 501 c(3)s structured to benefit from real estate tax exemptions and abatements and ensuring longer term affordability. However, because they were initially created as for profit entities to access the tax benefits, upon transfer from the Limited Partnerships to 501 c(3)s, these projects will be subject to NYS Mortgage Transfer Tax. The application of the NYS Mortgage Transfer Tax threatens the long-term affordability of these homes, as all resources in these projects are devoted to operations and capital needs necessary to sustain the building for the next 15 years. As the ultimate owner of the buildings, nonprofit organizations - many of which are already stressed due to the current economic crisis - do not have the organizational resources to meet this tax. As a result, these properties can not be acquired and recapitalized as resources to the community. At a larger scope, further obstacles to move these properties through the transfer from Limited Partnerships to nonprofit ownership present an unattractive risk to future investors in the LIHTC program. The contraction of the banking sector and other financial institutions has already eroded the traditional investor base for this critical program. The impact of this is particularly evident in upstate New York, where affordable housing projects are stalled because they can not find investors. To attract new and continued investors to affordable housing in New York, current projects need to demonstrate that the investor can exit at the projected transfer time. The City has exempted these transfers from their mortgage recording tax should the new ownership entity be a 501 c(3). This legislation would extend the exemption to the State Mortgage Transfer Tax greatly assisting in maintaining the continued affordability of these projects.
LEGISLATIVE HISTORY : New Bill.
FISCAL IMPLICATIONS : None to the State.
EFFECTIVE DATE : Immediately.
STATE OF NEW YORK ________________________________________________________________________ 6168--A 2009-2010 Regular Sessions IN SENATE September 14, 2009 ___________Introduced by Sen. ESPADA -- read twice and ordered printed, and when printed to be committed to the Committee on Rules -- recommitted to the Committee on Investigations and Government Operations in accord- ance with Senate Rule 6, sec. 8 -- committee discharged and said bill committed to the Committee on Finance -- committee discharged and said bill committed to the Committee on Housing, Construction and Community Development -- committee discharged, bill amended, ordered reprinted as amended and recommitted to said committee AN ACT to amend the tax law, in relation to conveyances involving real property financed with federal low-income housing tax credits THE PEOPLE OF THE STATE OF NEW YORK, REPRESENTED IN SENATE AND ASSEM- BLY, DO ENACT AS FOLLOWS: Section 1. Subdivision (b) of section 1405 of the tax law is amended by adding a new paragraph 11 to read as follows: 11. CONVEYANCES INVOLVING REAL PROPERTY FINANCED WITH FEDERAL LOW-IN- COME HOUSING TAX CREDITS, AND SUBJECT TO A HOUSING CREDIT AGENCY'S REGU- LATORY AGREEMENT FOR A MINIMUM PERIOD OF FIFTEEN YEARS FROM THE DATE OF CONVEYANCE, TO A CORPORATION ORGANIZED PURSUANT TO ARTICLE ELEVEN OF THE PRIVATE HOUSING FINANCE LAW OR TO A NEW YORK NOT-FOR-PROFIT CORPORATION, AND NO PART OF THE NET EARNINGS OF SAID NEW YORK NOT-FOR-PROFIT CORPO- RATION SHALL INURE TO THE BENEFIT OF ANY PERSON, AND NO SUBSTANTIAL PART OF THE ACTIVITIES OF WHICH IS CARRYING ON PROPAGANDA, OR OTHERWISE ATTEMPTING TO INFLUENCE LEGISLATION; PROVIDED, HOWEVER, THAT NOTHING IN THIS PARAGRAPH SHALL INCLUDE AN ORGANIZATION OPERATED FOR THE PRIMARY PURPOSE OF CARRYING ON A TRADE OR BUSINESS FOR PROFIT, WHETHER OR NOT ALL OF ITS PROFITS ARE PAYABLE TO ONE OR MORE ORGANIZATIONS DESCRIBED IN THIS PARAGRAPH. S 2. This act shall take effect immediately and shall be deemed to have been in full force and effect on and after June 1, 2010.EXPLANATION--Matter in ITALICS (underscored) is new; matter in brackets [ ] is old law to be omitted. LBD14180-02-0