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California LIHTC Receives One-Year, $500 Million Extension as Other Housing Provisions Receive Cuts

Published by Thomas Stagg on Thursday, June 6, 2024 - 12:51PM

A one-time extension of the $500 million state low-income housing tax credit (LIHTC) was added May 10 to the May Revision proposal of the California state budget for 2024-2025

The governor’s proposed budget for 2024-2025 came out in January and the next step is enactment this summer. Before then, changes can be made to the May Revision. 

Background of the State LIHTC

The California state legislature created the state LIHTC incentive in 1987 to augment the federal LIHTC incentive. State LIHTCs are only available to developments that previously received, or are concurrently receiving, an allocation of federal LIHTCs, according to the California Tax Credit Allocation Committee (CTCAC)

There are two buckets of state tax credits, the roughly $100 million of state tax credits that are used for 9% developments and acquisition rehabilitation 4% developments.

Since 2020, the state budget has provided an additional $500 million in state LIHTCs to be combined with federal 4% LIHTCs for new construction multifamily housing developments. 

The additional $500 million has a big impact across California. 

In 2023, CTCAC provided 38 new construction 4% developments with the additional competitive state credits totaling $514.2 million.

A Deeper Look at the May Revision Proposal  

The $500 million in state LIHTCs for 2024-2025 under the May Revision proposal is a big win for the affordable housing community in California. The proposal has no revenue impact in the budget window, but it is projected to decrease General Fund revenues by $400 million in the multiyear, according to the May Revision.

What makes this even more exciting is that this one-year extension was anything but certain as other housing provisions are getting cut under the May Revision proposal. Housing provisions receiving cuts include:

  • Eliminating the remaining $75 million in 2023-2024 for the Multifamily Housing Program, in addition to the $250 million proposed in the governor’s budget; 
  • Reducing the Adaptive Reuse Program by $127.5 million in 2023-24, which will eliminate the program;
  • Reducing the Homeless Housing, Assistance and Prevention Round 5 Grant Program by $260 million one-time in 2025-2026; and
  • Eliminating the remaining $236.5 million under the Foreclosure Intervention Housing Preservation Program in 2023-2024, in addition to the $237.5 million proposed in the governor’s budget, which would result in the elimination of the program.

There is a reason for so many cuts not only in the housing space, but across the entire budget proposal. 

The governor is addressing two years of budget problems in a single budget, tightening the state’s belt to get the budget back to normal after the tumultuous years of the COVID-19 pandemic, according to a press release on the Office of the California Governor’s website. By addressing the shortfall for this budget year–and next year–the governor is eliminating the 2024-2025 deficit and eliminating a projected deficit for the 2025-2026 budget year. 

“Even when revenues were booming, we were preparing for possible downturns by investing in reserves and paying down debts–that’s put us in a position to close budget gaps while protecting core services that Californians depend on,” said Governor Gavin Newsom in the press release. “Without raising taxes on Californians, we’re delivering a balanced budget over two years that continues the progress we’ve fought so hard to achieve, from getting folks off the streets to addressing the climate crisis to keeping our communities safe.” 

Next Steps

Key dates to remember for the state budget are June 15 and July 1.

June 15 is the date when the Legislature must approve the budget bills. However, the approved plan is not the final plan. Legislative leaders will continue to work out specifics in conversations with the governor, according to CalMatters, a nonpartisan and nonprofit news organization.  

The Legislature must approve and the governor must sign a budget before July 1, the start of California’s fiscal year, according to CalMatters. 

Learn More with Novogradac 

To help shape the discussion around housing tax incentives, including state LIHTCs, consider joining Novogradac’s LIHTC Working Group

And, connect with hundreds of professionals, policymakers and stakeholders working with the LIHTC and tax-exempt bonds to create affordable housing across the country at the Novogradac 2024 Housing Tax Credit and Bonds Conference Sept. 26-27 in New Orleans. 

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